News that investments in Bulgaria by the European Bank for Reconstruction and Development (EBRD) have recently vaulted past the 1bn euro mark has underscored the burgeoning foreign interest in the country.
At the same time, official figures show that the 1.1bn euros directly invested by the EBRD has served to attract another 4bn euros in additional investments to Bulgaria.
The news came at a meeting last week between Prime Minister Sergey Stanishev and the EBRD's director for southern and eastern Europe and the Caucasus, Olivier Descamps.
This investment growth, which has doubled over the last three years, reflects the scale of interest in the country by local and foreign investors ahead of the 2007 target date for EU accession.
The impact is also being seen everywhere.
"The EU accession funds are already helping with the infrastructure," Rosen Plevneliev, GM of Business Park Sofia, recently told OBG. "We never expected so much foreign investment; it has really opened things up dramatically."
According to the EBRD, the goal of these investments is to fully and proactively support Bulgaria by further supporting the development of the private sector and expanding activities in infrastructure.
Yet despite the high levels of investment, some believe that the government could do more to facilitate development. Maxim Behar, CEO of M3 Communications Group and chairman of the Bulgarian Business Leaders Forum since 2001, recently told OBG that "Pre-accession funds haven't reached their full potential in Bulgaria. Procurement needs to be improved dramatically."
At the same time, the country still faces some crucial challenges in its transition to EU membership. These include completion of the privatisation programme and deregulation of the energy and public sectors. Also pressing is municipal reform - including the judicial system - and a strengthening of the administrative and implementation capacity of the public administration. At the same time, improving living standards and further developing the investment climate to foster macroeconomic stability and attract foreign direct investment (FDI) remain priorities.
To address theses challenges, private sector targets for the EBRD include promoting post-privatisation investment and greenfield private sector projects in industry, financial institutions, tourism, agribusiness and natural resources.
On this score, the bank has already been highly active.
Projects in the financial sector include investments in small- and medium-sized enterprises (SMEs), while the EBRD has also invested in several institutions. These include the Bulgarian American Credit Bank, DSK, Hebros Bank and the United Bulgarian Bank. Outside of financial institutions, investments have been made in food retail operations, paper factories and SMEs in the agricultural sector.
Meanwhile, infrastructure and public investments by the bank have focused on the areas of energy and energy efficiency, telecommunications and municipalities.
In the energy arena, privatisation of both generation and distribution are critical, in addition to new generation capacity. Improved efficiency and the development of renewable energy are also programmes that are receiving attention from the EBRD.
"The number one issue for the government in energy is efficiency," Ivo Prokopiev, chairman and CEO of Bulbrokers, recently told OBG. "The potential for increasing the supply of energy through savings is greater than the potential from increased investments in new sources."
One such project the EBRD is involved in is the 650m-euro refurbishment of the Maritsa East III power plant.
The EBRD committed 112m euros to this project, while nine other banks chipped in to cover the expense of increasing the efficiency of the lignite-fuelled plant while reducing harmful sulphur-dioxide emissions by 95%. Co-operative projects where the EBRD and other investors pool resources for a project are common practice for larger investments.
Other projects include co-operation with the donors of the Kozloduy International Decommissioning Support Fund to finance the decommissioning of unsafe nuclear plants, the acquisition of equity stakes in two Bulgarian electricity distribution companies owned by Austria's EVN and Germany's E.ON, and the rehabilitation of the Maritsa Iztok 1 thermal power plant.
Investments in municipalities are aimed at the decentralisation and commercialisation of municipal operations through increased private sector involvement. These processes are to be implemented alongside institutional and regulatory reforms. In providing financing to local governments and their utilities without a state guarantee, the EBRD hopes to facilitate decentralisation, enhance municipal credit-worthiness, and develop their long-term capacity for financing capital improvements.
Elsewhere, one project in the Sofia municipality involved a loan to provide desperately needed upgrades in its public transportation. The funds are being used to refurbish the tram fleet and buy 100 new buses and trolleys, while the Dutch government has agreed to finance a new, more efficient passenger ticket system.
In the telecommunications sector, investments are intended to encourage the development of regulations that are consistent with EU accession guidelines and are independent of the government.
The sizeable volume of capital poring into Bulgaria by the EBRD and countless other foreign and domestic investors is a significant indicator of the country's perceived potential for economic growth and opportunity.
The task for the country now is to decide how to best apply these resources in a manner that will ensure continued economic stability and development far into the future.