Bulgaria – investment climate and business opportunities

Bulgaria – geographic location Strategic geographic location in South-East Europe Offers direct access to markets like: EU, Russia, Turkey and The Middle East 5 Pan-European transport corridors pass through Bulgaria EU and EFTA Russia and CIS Turkey and Middle East Offers direct access to markets like: EU, Russia, Turkey and The Middle East This is already mentioned in the slide before.

Why invest in Bulgaria? Political and business stability EU member Currency board Low budget deficit and government debt Low cost of doing business 10% corporate tax rate (0% in high unemployment areas) 10% personal income tax Lowest cost of labor within EU Favorable office rents and low cost of utilities Access to markets European Union / EFTA Russia Turkey / Middle East Educated and skilled workforce Government incentives No need to mention NATO

Macroeconomic indicators 2 Real GDP Growth Inflation (HICP) Bulgarian EU-28 Bulgarian EU-28 2% 0.4% 2007 2008 2009 2010 2011 2012 2013 2014* 2007 2008 2009 2010 2011 2012 2013 2014* *December *December Unemployment FDI Inflow Bulgarian EU-28 € mln. 9,052 10.3% 6,728 5.6% 2,437 1,151 1,330 1,141 1,275 1,181 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014* *Preliminary data Source: Bulgarian National Bank, Eurostat, NSI

FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors FDI by host country, 1996-2014 (€ mln.) FDI flows by industry, 1996-2014 (€ mln.) (1) Netherlands 7147.6 Real Estate 7923.5 (2) Austria 5941.9 Finance 7686.3 (3) Greece 3504.5 Manufacturing 7584.7 (4) UK 2549.0 (5) Germany 2497.8 Trade 6875.5 (6) Cyprus 2107.4 Energy 3897.2 (7) Russia 2019.7 Construction 2995.4 (8) Switzerland 1555.2 Telecom 2062.5 (9) USA 1468.2 (10) Italy 1410.3 Other 4396.6 Source: Bulgarian National Bank

Government financial indicators Government financial indicators Average government debt (2008-2013) Greece Italy Belgium Portugal Iceland France Ireland Hungary Germany United Kingdom Malta Austria Cyprus Netherlands Spain Poland Turkey Slovakia Denmark Sweden Latvia Czech Republic Finland Norway Slovenia Romania Croatia Lithuania Bulgaria Luxembourg Estonia -13% -12% -11% -7% -6% -5% -4% -3% -2% -1% 0% 1% 15% Average budget deficit/surplus (2008-2013) Source: Eurostat

Bulgaria’s credit rating 2014 Country credit ratings comparison 2014 Country S&P Rating Moody's rating Fitch Rating TE Rating* Czech Republic AA- Stable A1 A+ 80 Poland A- A2 69 Italy BBB- Baa2 BBB+ 60 Negative Bulgaria BB+ 53 Spain BBB Positive Croatia BB Ba1 48.85 Macedonia BB-   45 Romania Baa3 51 Turkey Hungary Serbia B+ 36 Ukraine CCC- Caa3 CCC 16 *The TE credit rating is driven by a model created at Trading Economics. Source: Trading Economics Rating

The lowest taxes in EU Country comparison Income Tax (%) Social Security (%) VAT (%) Corporate Individual Employer Employee Bulgaria(*) 10 17,9-18,5 12,9 20 Serbia 15 10-20 16,9 Romania 16 28,45 16,5 24 Hungary 10/19 28,5 18,5 27 Czech Rep. 19 22 34 11 21 Poland 18/32 22,14 13,7 23 Turkey 15-35 18 Slovakia 19-25 34,8 13,4 UK 0-45 13.8 12 Italy 27,5 23-43 30 Spain 24,75-52 29,9 6,35 Germany 30-33 (effective) 14-45 19,7 20,6 France 33,33 5,5-41 50 19,60 (*) means anything? Source: Worldwide-tax

Bulgaria has one of the lowest business costs in Europe . Bulgaria has one of the lowest business costs in Europe Gas prices for industrial users in Europe Electricity prices for industrial users in Europe €/Gigajoule, 2014 €/kWh, 2014 Czech Republic Bulgaria Bulgaria Estonia Poland Germany Austria Turkey Italy Romania EU average Hungary Spain EU average France Czech Rep Germany Slovakia Source: Eurostat

Salaries in Bulgaria S Average salary by position, EUR per month Labour cost / Salary % of the Gross Salary Top Management Management R&D Engineers Technicians Skilled labor Unskilled labor In EUR, per month Low High Net Salary Employee 77,1% 924 1925 576 770 539 693 347 462 285 385 216 270 Gross Salary Employee 100% 1200 2500 750 1000 700 900 450 600 370 500 280 350 Total Cost for Company 117,9% 1415 2948 884 1179 825 1061 531 707 436 590 330 413 Average gross salary by region, EUR per month Statistical region North-West North Central North-East South-East South-West South Central September 2014 347 350 383 378 501 356 Source: IBA Analysis, National Statistics Institute

(‘Bachelor’, ‘Master’, ‘Doctor’) Students in Bulgaria by narrow field of education in universities and colleges in 2013/14 academic year Business and administration 67113 Engineering and engineering trades Social and behavioural science Health Teacher training and education science Humanities Law Personal services Computing Architecture and building Agriculture, forestry and aquacultures What is “Personal services”? Manufacturing and processing Physical and chemical sciences Mathematics and statistics A big number of students study in universities in Europe and USA TOTAL: 277 239 (‘Bachelor’, ‘Master’, ‘Doctor’) Source: National Statistics Institute

Number of universities in some of the biggest cities 3 Bulgaria has highly-qualified, well-motivated, flexible and multilingual labour force 53 Universities, colleges and higher schools 494 Vocational gymnasiums and colleges 80000 Bulgarian students in foreign countries 24,6% Population hold university degree 7% Workforce has engineering degrees 45,5% Population speak at least one foreign language 85% Students studied English Number of universities in some of the biggest cities Blagoevgrad Veliko Tarnovo Burgas Varna 1 2 Total number of higher schools* 53 Universities and equivalent higher schools 45 Colleges 29 Independent colleges 8 Colleges, at the universities and equivalent higher schools 21 *Incl. universities and equivalent higher schools and independent colleges Plovdiv 1 2 Sofia 6 3 Technical sciences Business field Other Source: National Statistics Institute

The government supports specific industries under the Investment Promotion Act (IPA) Investments must be related to the following sectors: Manufacturing Research & development Education Healthcare High-tech services Warehousing and logistics Minimum investment amounts must exceed €2.5m €1m in regions with high unemployment and €0.5m for investment projects in high-tech services Benefits for certified investors include: Shortened administrative procedures Preferential acquisition of state or municipal land Financial support for professional training / education Infrastructure subsidies Labor cost subsidies Individual administrative services

Biggest investors are supported through a priority investment scheme Priority projects can be related to all sectors of the economy, which do not contradict regulation 800/2008 of the European Commission Subsidies not allowed in mining, primary agriculture production, and shipbuilding Priority projects should exceed €50m and create at least 200 new working places for a 3-year period €25m + 100 working places for certain manufacturing projects €10m + 50 working places for high-tech services and R&D Priority projects receive all benefits for certified investors, as well as the following: Lowest possible costs for the acquisition of government and municipal land + waived taxes for land status changes Working group for project support is assigned by the Council of Ministers Financial grant scheme for up to 10% of the investment project cost (50% for R&D)

Attractive FDI sectors Services: Transport and Logistics Information technologies Outsourcing of business processes Health and tourism related to healthy lifestyle Industry: Transport equipment and machine building Electronics and Electrical engineering Chemical industry Food and Agriculture Resources: Mineral water Tourism Balneology Alternative energy

Leading global investors have chosen Bulgaria IT development Back office operations Chemical and metal Industry Engineering Food

Invest Bulgaria Agency InvestBulgaria Agency is a Government investment promotion arm, part of the Ministry of Economy and Energy IBA services: Macroeconomic data on Bulgaria Legal advice Data on operational costs Regional information: industrial zones and infrastructure, data on unemployment, skilled labour force and level of education Recommendation of investment project sites Identification of potential suppliers, contract manufacturers and joint-venture partners Personalized administrative servicing Liaison with central and local governments Liaison with branch chambers and NGOs 14

InvestBulgaria Agency Sofia 1000, 31 Aksakov Str. Phone: (+359 2) 985 5500 Fax: (+359 2) 980 1320 E-mail: iba@investbg.government.bg Web: www.investbg.government.bg