Economic Indicators for Bulgaria & Bulgaria Stock Exchange Basics

This will be a short, general post on Bulgaria and its stock exchange.


Bulgaria is an Eastern European country of 7.4 million, bordering on Romania (north), the Black Sea (east), Turkey (southeast), Greece (south), Macedonia (southwest), Serbia (west).  It is the link between the East and the West – Asia and Europe – and it has a rich 13+ century history.  Its rich culture, beautiful nature, and moderate climate (4 seasons) are the foundation of Bulgaria’s leading economic sector – tourism.  Thanks to a plenty of arable land, agriculture is another pillar of the economy.  The energy sector is also relatively well developed, relying on a plenty of thermal power stations and one nuclear power plant.  Bulgaria is a member of NATO (since 2004) and the EU (since 2007).

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The population of Bulgaria has been melting at over 7‰ (1/1000) annually in the past 20 years for which data are available.  This is due to a low birth rate – 9‰ on average versus over 14‰ in the USA; high death rate – 14‰ vs 8‰; and significant migration out of the country.  A trend atypical for a developing country.  Unemployment has been persistently high, averaging 13.5% in the past 20 years.

After a bout of hyperinflation and an economic catastrophe in 1997, the country stabilized and set out on a path to join the European Union.  GDP grew at around 5% between 1998 and 2008.  It shrank only 5.5% in 2009 and has been muddling along since.  Inflation has averaged 5.5%, but it has also edged down in recent years.  As a measure to simultaneously attract foreign investors and motivate the gray economy to come into the light, Bulgaria introduced a flat 10% tax rate on personal and corporate income in the beginning of 2008.  This is one of the lowest income tax rates in the EU and in the world.

In 2011, the government collected BGN 15.1 billion in taxes.  Overall, the government took in BGN 25.4 billion and spent BGN 26.9 billion, generating a small 2% deficit.  Bulgaria is one of the least indebted countries in the EU, second only to Estonia.  Government debt is at BGN 12.5 billion or just 16.7% of GDP.

Government debt to GDP ratios in the EU

As you can see, the country is a mixed bag.  Overall, it has been, and still is, terribly hard to fully accept and apply the principles of free market economy – rule of law, private property, and freedom of contract.  Often the rules are there but enforcement is awfully lacking.  Corruption and lack of sentences for headline crimes have long been giving Bulgaria an exceedingly bad image around the world.  But, that’s the norm rather than the exception for developing countries.

The ties with communism were never severed and there has rarely been a truly right government in power in the years since 1989.  Too many people are brainwashed and to this day cherish the communist rule and the close ties with Russia, even when not in the national interest.  This idealized image is perpetuated by the media through action and inaction.  Unsurprisingly, Bulgaria scores pretty low on the media freedom index – around number 80 out of 179.  The US is also far from a perfect score, but still twice as free.  However, things looked very different less than 10 years ago.  In 2003, Bulgaria was in 34th place – just 3 places down from the US.  Obviously, lack of reform and inept politicians have taken their toll.  In addition, the motivation and political will generated by the incentives of joining NATO and the EU are now in the past.  This loss of drive is particularly concerning.

Bulgaria Stock Exchange

The history of the Sofia Stock Exchange goes back to 1914 when it was established by the king.  Real activity started in 1918 with 21 companies trading publicly.  At the time, Bulgaria was a dynamic little country, driven by the passion of its people to rebuild their country after five centuries of Turkish yoke that ended in 1878.  Unfortunately, after a string of national catastrophes culminating with the Second World War, it was back to slavery.  This time under a communist dictatorship, fraternally and  forcefully imposed by Soviet Russia.  The stock exchange was suspended and wasn’t reinstated until 1991, shortly after the fall of communism.

The attempts to revitalize the stock exchange through mass privatization deals and special programs to encourage broad participation of the populace were largely unsuccessful as they were abused by shady economic interests.  The first IPO didn’t happen until 2004.  The company was internet financial data provider (4IN:BU).  Soon after, in early 2005, the offering of 35% of the shares of the national telecom monopoly BTC (5BG:BU) generated a lot of interest on and in BSE.  The majority 65% stake was sold for €230 million to Viva Ventures, a subsidiary of London-based equity fund Advent International.  This was the largest deal and largest public company on the exchange.  From there, the momentum kept going, supported by a housing and credit bubble.

Here is the short history of the BSE in a graph, as captured by the SOFIX – the leading free-float adjusted market capitalization index.

SOFIX 2000-2012

The SOFIX was started on October 20, 2000 with a value of 100.  By late 2007, it peaked at an all-time high of 1,934.45.  In the following crash, it lost more than 85% of its value and never really recovered.  Today, it continues to plop around in the 300-400 range with low volume, awaiting the return of foreign investors.  There lies the biggest problem and biggest opportunity.  A small and illiquid market like the Bulgarian, with a capitalization short of BGN 8 billion (about 10% of GDP), is highly dependent on outside players.  Once they regain confidence and BSE appears again on their radars, the rewards for the patient will be great.  But until then, investors may expect to tread water.

Besides the 85%+ drop, another record of sorts held by BSE-Sofia is for the ugliest, scariest, most decrepit, zombie bull to haunt a stock exchange ever.  International visitors, do send pictures if you know of other stock exchange symbols fitting the bill.

The Bull in Front of the Bulgarian Stock Exchange in SofiaThe Bull in Front of the Bulgarian Stock Exchange in Sofia

Data Sources