• Turkish investments in the manufacturing sector are driven not only by Bulgaria's membership in the EU, but also by the comparative advantages offered by the stable currency and the low energy prices.
Turkey is Bulgaria's third largest trade partner after Germany and Italy. The neighboring country is not only a big market for the Bulgarian industry, it is also a major investor in the Bulgarian economy. Therefore, Turkey's domestic issues such as the refugee crisis, political instability and ever growing authoritarianism of President Recep Tayyip Erdogan affect Bulgaria directly. Further complications are looming should the European Union heed the call of German Chancellor Angela Merkel to call off accession negotiations with Ankara, most probably in the first half of next year.
Bulgaria's Prime Minister Boyko Borissov addressed these concerns during his official visit to Turkey in June, vowing that Bulgaria will work towards normalizing the EU-Turkey relations when it takes the rotating presidency of the Council of the EU next year.
"This concerns the customs union, the cooperation in the Black Sea region and the huge investments that Turkey has in Bulgaria," Borissov said.
"Two trends are unfolding right now in Turkey," Bulgaria's former deputy foreign minister Lyubomir Kyuchukov noted. "On the one side, this is the feeling of insecurity in the Turkish society, and from the other - the dependence of businesses on those in power.
"The relationship between power and business has always been closer there, so this is more than a natural process. And let's not forget that there are newspapers and other media closed and taken under control. This could happen to every business," Kyuchukov said.
But how much has Bulgaria been affected by the deteriorating political and economic situation in Turkey?
Unaffected on macro-level
To begin with, the Turkish economy has taken a serious blow from the attempted coup d'état in 2016 and the authoritarian backlash that followed. Yet, the Turkish economy still managed to achieve 2.6% growth in 2016, a result many EU member states would only dream about. Forecasts for 2017 are even better. As a result, trade statistics record healthy growth in bilateral trade, with positive balance for Bulgaria.
Tourism has been one of the few sectors of Bulgaria's economy that has suffered from the developments in Turkey. Marian Belyakov, CEO of Pamporovo AD, said that the events in Turkey have led to a considerable drop in the number of Turkish tourists visiting the Bulgarian ski resort of Pamporovo, in the Rhodope mountains.
"Each year we have had more and more tourists from Turkey, except for the last season, Belyakov said.
At the same time, Turkish direct investment in Bulgaria has grown almost 20 times year-on-year in 2016. Yet, because the starting point was very low, the volume of investment is not big.
Is this indicating a capital flight from Turkey? Hardly a flight. Until 2014 the average number of companies with full or partial Turkish ownership registered with the Bulgarian Registry Agency varied between 40 and 60 per month. By the end of 2016 the inflow has almost doubled, with 80 to 100 companies registering each month. However, it seems that most of the newly registered companies with Turkish ownership are inactive. And their number seems negligible in comparison with the exodus from Turkey after the coup attempt. Bloomberg quoted Turkish opposition politicians, who claim that the number of highly educated workers emigrating abroad had quadrupled to around 10,000 a month. The exodus also includes around 6000 millionaires who had left Turkey in 2016 alone, which is a six-fold increase in comparison with the previous year, according to Johannesburg-based market research group New World Wealth.
Stefan Stoykov, former director of Bulgarian state-run company Industrial Zones, recalls a visit of Turkish investors that took place last year. "Their concept was the following: because the situation in Turkey is becoming more and more unstable and Bulgaria is close by, they can directly relocate part of the companies from their industrial zones," Stoykov said.
He made clear, however, that businesses are not fleeing Turkey. "They are not going to relocate everything. They're just testing the conditions here and in other countries in the region, in case something happens that can force them to act quickly. They've probably already willing to relocate to Europe and Bulgaria in particular."
"We have never had a case like this," says Fikret Ince, chairman of the Bulgarian-Turkish Chamber of Commerce and Industry, when asked whether he knows of businesses that have fled Turkey after the attempted coup.
Turkish investments in Bulgaria
Numerous Turkish investors have set foot in Bulgaria: Sarkuysan and Enpay in Shumen, Teklas in Kardzhali and Sa-Ba in Dimitrovgrad.
"Yes, in the past 2-3 years, there has been a considerable upward trend in the interest of Turkish investors towards Bulgaria. I wouldn't call it a boom, but it is a trend nonetheless," says Emrah Saazak, a trade advisor at the Turkish embassy in Sofia. According to Mr. Saazak, the interest is focused on manufacturing and the automotive sector in particular.
"Bulgaria is part of the European Union and a country neighboring Turkey," Serkan Kuruogly, head manager of Sa-Ba, explains the decision of the Turkish car lighting products manufacturer to build a production plant in Bulgaria. "Besides, this is our first foreign investment and our management is in Istanbul. After all, the distance between Istanbul and the Bulgarian border is only 300 kilometers."
Sa-Ba's headlights light up the road ahead of major car brands like Ford, Renault, Volkswagen and Aston Martin and its plant is about to open.
Another reasons is the change for the better in Bulgaria regarding crime rate. "Twelve of thirteen years ago, we sat with friends around a table and we talked about whose car was stolen when in Bulgaria. But now, there aren't such stories anymore. A lot of things have changed," says Fikret Ince.
Besides the traditional advantages attracting Turkish investors to Bulgaria like location, familiar culture and absence of language barrier in some regions of the country with predominantly ethnic Turkish population, Mr. Ince points to competitive energy prices.
"The low prices in Bulgaria are making the country more competitive than Turkey. Including the prices of gas and electricity," says Ince. Another advantage are the 'very good' exchange rates in Bulgaria, he adds. The Turkish lira was the second worst performing currency of an emerging market economy after the Argentinian peso last year.
However, the lab our shortage in Bulgaria is a major impediment.
"We really don't know what are we going to do. Because we tell them - 'Come, invest!', but there will be nobody to work here," says Ventsislav Venkov from the Bulgarian-Turkish Chamber of Commerce and Industry.
According to Sinan Emin, director of the plant for air suspension systems Techno Aktash, near Plovdiv, the problem is even deeper: "It's lack of workforce - not just skilled workers, but people willing to work. The absence of work culture makes a huge impression, not only to us, but also to many investors."
Even so, the trend is here. "If they come to Bulgaria, they will be profitable," opines Stoykov. And indeed, they are coming.
• Turkish investments in the manufacturing sector are driven not only by Bulgaria's membership in the EU, but also by the comparative advantages offered by the stable currency and the low energy prices.
Turkey is Bulgaria's third largest trade partner after Germany and Italy. The neighboring country is not only a big market for the Bulgarian industry, it is also a major investor in the Bulgarian economy. Therefore, Turkey's domestic issues such as the refugee crisis, political instability and ever growing authoritarianism of President Recep Tayyip Erdogan affect Bulgaria directly. Further complications are looming should the European Union heed the call of German Chancellor Angela Merkel to call off accession negotiations with Ankara, most probably in the first half of next year.
