It's all bad. That is what you hear constantly day in, day out from various TV stations, from screaming headlines and from talking heads. There is no gas, Russia killed the Bulgarian economy, and inflation finished it. You would be forgiven for concluding that everything is going down the drain.
I'm here to tell you quite another story. It is not only going well, but in almost all regards the economy has rarely had it so good. I know, I know, it's hard to go against the grain, but from time to time you have to because the world is not Facebook and news-sites (thank God!) and you need to shake that doom & gloom.
Start with the latest figures.
Bulgaria's seasonally-adjusted industrial output rose by 20.2% year-on-year in May, which was the highest growth rate among all 27 EU member states, the European statistical office said. Bulgarian industry, in other words, is on a roll at a time when others are failing. The EU average was 2.7%.
And it's not only that one sector - almost everything is growing in two-digit figures and the only sector that is shrinking is the shoe-making industry.
Since we are a small market, it's understandable that all of that production has to go somewhere. Exports, therefore, are at a record high - year-on-year they grew in the first 5 months of 2022 by 38.8%. That's an 11-year high growth rate and probably an all-time high in real terms.
That's the inflation talking, you might say (although clearly, the growth rate is way over the official inflation rate, let's say there is an unofficial one that is higher).
Well, I got news for you. This was happening way before inflation started picking up. Kapital is preparing its usual middle of the year K100 ranking of the biggest companies in Bulgaria and we're looking into all the data from the economy from last year. 2021 was a record year for almost everyone.
The financial data for Bulgarian companies show that they grew by almost 15% which is the fastest since 2015 when the base was lower. Profits were up by 38% and losses were 8.3% down.
And if you take only the 100 biggest companies, they experienced a whopping 38% growth last year. In short, the streets are paved with gold for Bulgarian industry.
I'm telling you all this, first, because figures don't lie, but politicians (and Facebook posts) do.
And second, because it's important to understand what we have going for us, in order to save it. We are heading into a probable recession and inflation will stay high. Things are going to get uglier next year. Bulgaria is a small and volatile economy, exposed to international currents and they are flowing in the wrong direction. Our main industrial partner Germany is on the edge, Europe is dealing with potential gas shortages and we are in for yet another political crisis.
It is very probable belts are going to get tighter. The real estate boom basically stopped as you will see below. This is why I'd like you to keep in mind 2 important takeaways.
First, the political situation doesn't seem to affect industry very much. The economy kept growing and diversifying, EU money and political stability be damned. It's good and important to have stable governance, but it might prove even more efficient to not let political figures control the cash flows, as has been the case since 2021.
And second, if we don't mess up big time, things are going to get better. Yes, the gas squeeze this winter will be difficult and the recession will hurt, but Bulgaria is better-cushioned than most. The big EU-money package just started arriving and will amount to almost 30 billion euros in the next decade - if invested wisely, they will inject more gasoline in the turbines. Near-shoring has just begun, with countries like Bulgaria best-positioned to take advantage of that.
I met one of the biggest industrial builders in Bulgaria for lunch. He has projects in his pipeline for years to come, and they get bigger. When asked what he thinks politicians should be doing, his answer was simple. "Just don't do stupid shit". I think that's terrific advice.
This newsletter was helped byMartin Dimitrov & Evgeny Ahmadzai
POLITICS THIS WEEK
Government, maybe?Bulgaria is edging closer and closer to an early vote in the first weekend of October as the top two parties in the current Parliament - WCC and GERB - did not form a cabinet with the first two mandates issued by President Rumen Radev.
The only alternative to an autumn election would be for the third mandate to go to a political faction (or a person) who can somehow muster enough support from 121 MPs by the end of the month. While this is highly unlikely, President Radev has to give it a try, so he announced he is launching a comprehensive, new round of consultations with the parliamentary parties on Friday, 15 July. It appears, however, that all major parties are gearing up for elections.
Brussels: You're corrupt!The European Commission published its annual Rule of Law Mechanism (previously known as the Cooperation and Verification Mechanism) report on Bulgaria, where anyone acquainted with the previous dozen or so reports could hardly find much news. There is still no effective mechanism for the accountability and criminal liability of the Prosecutor General although Sofia received a tap on the shoulder for abolishing the specialized magistrature.
Yet, when it comes to real results in the fight against graft, the commission remains nonchalant: "a solid track-record of final convictions in high-level cases of corruption is still lacking."
Also Brussels: but not Borissov!Yet this report made much fewer headlines than another one, allegedly only seen by Czech MEP Tomas Zdechovsky (EPP - GERB's EU family), who told the Budget Control Committee of the European Parliament that the infamous pictures of ex-PM Boyko Borissov sleeping next to a drawer with gold bars, wads of 500-euro bills and a pistol, published in 2020, had been "manipulated"... whatever that means.
You see, the problem with Mr Zdechovsky's claim is that it's based on an assertion made by the State Prosecution of Bulgaria. You know - the same guys who lack "a solid-track record of final convictions in high-level cases of corruption". Makes you wonder.
Petkov promises "peaceful" summer as Covid cases rise
"I want to make it clear that there are not going to be restrictions such as the closure of businesses, there will be no requirement for any kind of certificates, and we do not foresee any restrictions on movement. I want to reassure everyone - we are monitoring the situation closely, but the data shows that Bulgarians can have a peaceful summer." These were the words of outgoing Prime Minister Kiril Petkov on Thursday, when he made a special briefing on the Covid-19 situation in the country. ECONOMY
Real estate boom is slowly coming to a halt
You've all been asking: when is Sofia going to stop growing. Well, here it is. The capital's property market has registered practically 0% growth over 2021, on a quarterly basis for the second quarter of 2022. Overall, the market has visibly stalled - 4.3% growth for the second quarter, compared with 10.8% in the first. The only big city with more deals in the second quarter is Plovdiv.
Figures100 000 levs
Is the new threshold for VAT registration in Bulgaria. This will help many start-ups as well as small businesses. BUSINESS
Carbon captureDevnya Cement
The biggest Bulgarian cement company won 190 million euros from the EU Innovation fund. The money will be used to carbon capture from industrial emissions. This is the first such project in Bulgaria and Devnya cement will invest more on its part to complement the EU funding.
The state railway operator has merged its two separate entities - the one for cargo and another for passenger transport. This is 20 years after the separation between the two and is at the behest of the Transport Minister. This new entity will oversee the delivery of new trains for more than 1 billion levs from the Recovery and Resilience plan. It also will have to deal with the problem that the cargo unit is in a competitive market, while passenger transport is still in a regulated one.
The Bulgarian company acquired officially 55% of TBI info. The deal includes HRM solutions - both companies will be renamed Sirma Insurance Solutions. ENERGY
Winter is coming, gas - not so muchThis week saw another rise in natural gas prices across Europe that ultimately resulted in the highest monthly price set by the energy regulator- 189 lv per mwh. The shocking news is a result of the lack of LNG cargoes in the region, diminished flows in the Russian pipes and high crude oil prices. In Europe, the most liquid gas hub - Dutch TTF, soared to prices over 180 euro per mwh and it is likely to stay at this level for weeks. In the meantime, Europe was hit by heatwaves, bizarre pipeline accidents and obvious Kremlin extortion.
As a result - high electricity pricesElectricity prices across Europe have spiked considerably since July kicked in. Several reasons cited include the volatility of the natural gas' market volatility, French nuclear accidents and, again, record-breaking hot weather in Western Europe.
Just two weeks into July, prices passed the mark of 400 euro per mwh. In Bulgaria, the prices averaged over 300 euro per mwh. The new electricity compensation mechanism is still to be decided (probably it will cover everything above 250 lv per mwh) as prices are expected to stay high and rise even further in the autumn.WATCH OUT FOR:
the e-governance minister made another farewell gift to media and public watchdogs: he made public all payments made by state and municipal institutions over the sum of 5,000 levs to all of their sub-contractors, beneficiaries and clients. Some people are in for surprises.
Out of all the problems afflicting the country's second biggest city (the poor quality of air as well as inadequate transport and pedestrian infrastructure), the mayor has chosen to focus on e-cars. Mayor Dimitrov suggested they pay a parking fee in the center after spending more than 3 hours there. That would suggest the city has a problem with too many e-cars, but alas, they account for fewer than 1% of all vehicles. So why the hassle? Dimitrov seems to have a problem with a specific company - SPARK, which allows citizens to rent e-cars through a smartphone. It has around 100 cars in Plovdiv and if that fee is passed, it will probably leave the city. One less option for travel then.
A billion-dollar US company is building a medical equipment plant in Parvomay. It's an 80 million levs investment for the small city. Read more here.
Words of the week:
The mammals of the Black Sea got a round of applause on social media after a well-known Bulgarian journalist republished a story, saying they took out an icon out of the sea and returned it to land. They seem to have done so in Sochi, not very subtly reminding Facebook users that Russia is the holy land of the Orthodox and is the savior of the world.
Yet it seems this is some kind of a boomerang icon, as a quick search online shows that the same story has circulated on at least three other occasions since 2017. So either someone in Sochi is throwing icons into the sea and dolphins are retrieving it, or someone in the Russian cyber-disinformation division should get a bonus for a job well done. Sea mammals are, after all, easier to work with than tanks.