Bulgaria, the world's 74th largest country by Gross Domestic Product (GDP) joined the European Union on June 1, 2007. Bulgaria's currency is the Bulgarian Lev (BGN), which was exchanged at 1.3 Lev per U.S. Dollar (USD) in 2008. Since 2004, Bulgaria's economy has averaged more than 6% annual growth, attracting significant amounts of new foreign direct investment investment. Between 2004 and 2008, foreign direct investment grew by 19.6% driven primarily by increased investments in Bulgaria's Real Estate, Energy, and Manufacturing sectors.
Bulgaria's agriculture, industry, and services sectors account for 4.6%, 28.7%, and 66.7% of its GDP, respectively. Bulgaria's primary agricultural crops include wheat, corn, barley, sugar beats, sunflowers and various fruits. The country's dominant industries are Mining and Energy. Bulgaria's abundant natural resources like copper, lead, zinc, and coal are Bulgaria's main exports, accounting for 11.4% of Bulgaria's exports in 2008. Additionally, over 40% of Bulgaria's energy is generated from coal. Bulgaria's energy production industry accounts for 18.2% of the country's overall industrial GDP as its Southeast Europe's primary exporter of electricity. Bulgaria's services sector is mainly comprised of financial services and tourism. In particular, Bulgaria's natural landscapes attract almost 6 million visitors annually which contribute significantly to Bulgaria's economic growth.
However, corruption in Bulgaria's public administration and the presence of organized crime remain challenges to Bulgaria's economic development. Furthermore, Bulgaria's relatively high inflation rate (7.8% in 2008) and dependence on foreign direct investment impedes its economic growth.
Bulgaria's cheap labor and resources, coupled with favorable corporate tax rates render Bulgaria as somewhat of an investment haven. The average Bulgarian monthly salary is $165, compared to the EU average of $2,396. Additionally, Bulgarians spend 14 years on average in school and 98.2% of the country's population is literate. This cheap, well-educated labor helps minimize companies' labor costs without compromising the education and productivity of its employees. Furthermore, Bulgaria's corporate tax rate reaches 0% in some regions, maintaining higher profit margins for firms.
Because of its reliance on foreign investment to foster economic growth, Bulgaria's economy is vulnerable to any downturns in the global economy that would reduce lending. In 2008, foreign investments accounted for 18% of Bulgaria's Gross Domestic Product (GDP), ranking highest in the European Union in amount of foreign investments as share of GDP In January 2009 foreign direct investments dropped 37% from a year earlier because of credit constraints associated with the 2008 Financial Crisis. In particular, foreign investment in Bulgaria's Real Estate industry declined 66% in January 2009. Stoyan Stalev, chief of Bulgaria's association of investments expects that the global financial crisis may reduce foreign direct investment in Bulgaria by up to 50% in 2009. As a result, The Economist believes that Bulgaria's GDP growth will decrease by 3.8% during the year.
Compounding Bulgaria's investment woes is its large Current account deficit- in 2008, Bulgaria's current-account deficit totaled $11.7 billion or 23.4% of GDP, up from 22% of GDP in 2007. A high current-account deficit is bad for Bulgaria because it exacerbates their preexisting financial needs and may decrease foreign investor confidence. However, the 2008 Financial Crisis has reduced imports to Bulgaria and as a result, Bulgaria's current-account deficit has decreased as well- in 2009 the IMF expects that Bulgaria's deficit will shrink to 13.9% of GDP.
Bulgaria's corruption issues throughout its judicial and financial institutions continue to impede its economic growth. Significant amounts of foreign aid and investment is lost or stolen each year due to corruption and fraud. For example, 54% of respondents in a 2009 Transparency International survey indicated their beliefs that Bulgarian businesses pay bribes to secure favorable legislative decisions. Because of these issues, the European Commission froze €800 million or about $1.1 billion in aid in 2009, with options of canceling the aid entirely.