Eastern Europe Recruitment problems slow Bulgarian industry

Eleven years after its accession to the EU, Bulgaria faces a political challenge; in the first half of 2018, it holds the EU presidency for the first time. Prime Minister Boiko Borisov wishes to use the presidency to drive the EU integration of the entire region of South-Eastern Europe.

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The representatives of the Bulgarian economy promise to utilise the EU presidency to improve the image of their country, not only as the poorest country in the Union, but also as the most corrupt. Despite its negative image in Western Europe, Bulgaria can look on positive economic development in this millennium. Even in a period of political instability, with four regular and three provisional governments since 2013, the economy has remained robust. Tourism, information and communication, as well as machines, equipment and appliances, contributed to the moderate but stable increase in GDP with strong growth rates. This trend should continue; for both 2017 and 2018, economists expect growth rates of just under 4%. The unemployment rate is at a low level at 6.2% and exports reached a record high of 23.6 billion euros in 2016.

According to information provided by the Bulgarian Chamber of Commerce (BSK), from 2012 to 2016, Bulgaria manufactured machines and apparatuses (excluding electrical engineering and electronics) to a value of just under 2.1 billion US dollars and increased exports by 2%, while the global export of these products fell by 2% during the same period. Ilija Keleschev, Chairman of the Bulgarian Chamber of Mechanical Engineering (BBKM), points to the strong export orientation of the industry's companies. They sell more than half of their products abroad, in particular to EU countries such as Germany, Italy and Romania. “In 2016, all EU member countries experienced growth, which had a positive effect on the sales of Bulgarian engineering companies,” he says. It was difficult, on the other hand, “to find factors conducive to development in domestic production”. The automotive supplier industry has seen rapid expansion over the past few years. This included renowned German companies such as the door-lock manufacturer Witte Automotive, the car-seat manufacturer Grammer and the air-conditioning manufacturer Behr-Hella Thermocontrol.

In 2016, the manufacturing industry had a turnover of around 9 billion Bulgarian leva (approximately 4.6 billion euros), nearly 500,000 leva (256,000 euros) more than in the previous year. The number of employees in the industry increased by 10,000 to 115,000. According to the Bulgarian business paper Kapital, the refrigeration and freezer equipment manufacturer Liebherr Hausgeräte Maritsa had the highest revenue in the industry, with over 397 million leva (almost 203 million euros), followed by Ideal Standard - Vidima sanitary producers - with approximately 387 million leva (just under 198 million euros) and Intertrading Mikroelektronik Bulgaria with 325 million leva (approximately 166 million euros).

Low corporate taxes attract business

The capital city of Sofia is currently making a name for itself as a European metropolis for the IT and outsourcing industry, but nowhere is the current re-industrialisation more evident in the Balkan country than in the second largest city of Plovdiv. Companies such as ABB, Liebherr Hausgeräte and Schneider Electric have production operations in the Thracian lowlands of central Bulgaria. Most recently, in October 2017, the German lighting manufacturer Osram opened a plant there, while in the coming year, the French company Latecoere plans to manufacture aircraft components for the Airbus.

“Initially, large companies, mainly from the automotive, electronics and white goods sectors, came to Bulgaria to benefit from favourable production conditions. Small and medium-sized businesses like us followed them”, says Martin Els, Managing Director of the injection moulding company DB Kunststofftechnik. After working in Poland and the Czech Republic, the mechanical engineer and business economist from Bonn has now lived in Bulgaria for fourteen years. In its 2,200 m² factory, situated in the immediate vicinity of Liebherr and Schneider Electric, his company mainly manufactures parts for automotive suppliers such as Witte Automotive in Ruse and for customers in Germany.

Bulgaria attracts foreign companies with its low tax burden of 10% on corporate profits. However, Els considers the currency stability guaranteed by the pegging of the Bulgarian lev to the euro and, of course, the favourable production costs, to be more important benefits. The average monthly income is just over 1,000 leva (about 500 euros). Els speaks of an almost “exorbitant growth” for his company, the number of employees has gone from four to twenty in the past five years. In the coming year, he will have thirty employees. However, he is confronted by a problem that has plagued many companies with production operations in the country: It is becoming increasingly difficult to find well-qualified employees and to keep them. “If we train, for example, machine fitters and they are offered 50 or 100 euros more elsewhere, they are gone”, complains Els. This lack of skilled workers is slowing the industry down.

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