Bulgaria Investment Climate in Selected Industry Sectors Shanghai November 2012

2,257 FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors, but new opportunities exist FDI by host country, 1996-2011 (€ mln.) Economic sectors with high investment potential (1) Netherlands Services: Transport and Logistics Information technologies Outsourcing of business processes Health and tourism related to healthy lifestyle Manufacturing: Transport equipment and machine building Electronics and Electrical engineering Chemical industry Food and Agriculture (2) Austria (3) Greece (4) UK (5) Germany (6) Cyprus (7) Russia (8) USA FDI flows by industry, 1996-2011 (€ mln.) Real Estate 10,901 Finance 7,652 Trade 6,522 Manufacturing 6,479 Energy 2,699 Telecom 2,260 Other 2,664 Page 2

Overview of the Electrical Engineering and Electronics sector 6 Overview of the Electrical Engineering and Electronics sector Wires and cables 1890s Siemens participated in building the telegraph network in Bulgaria Industrial Batteries 25% Electrical apparatus Transformers Integrated circuit 2% 2% Telephone devices 1972 The first Bulgarian made space equipment was launched into space 11% Panels,El.tables 6% PCBs Electric heaters 6% Radio and TV equipment 1985 The peak of the industry – manufacturing of modern computers. Electronics comprise 25% of Bulgarian manufacturing. 130 000 people are engaged in the industry Other Sector snapshot Sector volume production increased almost 3.5 times in 2009, compared to 2000 The sector generates about 14% of total exports and main export partners are Germany, Italy, Spain, France and Turkey More than 75% of the produced electronic equipment in Bulgaria is exported About 30 000 University students are enrolled in related majors About 45 000 people employed in over 2 300 companies in the sector 1988 Bulgaria manufactures more than 40% of the mainframes and personal computers in Eastern Europe 2010 Revenues were over €1.5 bn, the highest since 1990 Page 3

Leading global companies in the sector operate in Bulgaria 4 Since 1997 Festo Bulgaria has been specializing in manufacturing of sensors and sensor applications Operates two manufacturing facilities in Sofia and Smolyan with more than 400 employees Currently expanding the production facilities in order to meet the increased demand Holds 35% market share of the world wire harnesses for the automotive industry Yazaki Bulgaria main customers are the automotive manufacturers in France and Spain Yazaki Bulgaria,which employs more than 3000 people, has not only an assembly department, but also an engineering division Global leader in power and automation technologies and electrical equipment ABB operates in Bulgaria through 3 companies in 5 production locations producing mainly high and medium voltage electrical equipment ABB companies in Bulgaria export their products in Russia, Iraq, Romania, Mexico, Brazil, Sweden, Norway, China, Germany, France. In 1997 Hyundai Heavy Industries took over the Bulgarian state owned Elprom-Trafo Company which has been well-known manufacturer of Power Transformers and Tap Changers. The company employs now more than 670 people and produces power transformers, on load and off circuit tap changers. Page 4

Overview of the Chemical industry in Bulgaria 1901 One of the first foreign investments in the country – a shoe polish factory in Ruse – now Orgachim 1,137 Exports, Mln. € 823 Inorganic Products 1954 The soda ash factory in Devnia was built, now the biggest facility of Solvay Group in Europe Non-Metal Mineral Products 130 Mineral or Chemical Fertilizers 43 273 Rubber and Plastic Products 209 1980 The chemical industry enterprises generated 17.1% of total industrial output and 20.8% of country’s exports. Paper and Paper Products 93 Chemicals and Chemical Products 56 60 65 Organic Chemicals 93 93 2009 2010 Sector snapshot: Many foreign and local companies develop successful business in the country. The total amount of their investments is over €1.5bn. In Bulgaria, €100 of labor cost investments generate €148 of output After 1990, the majority of Bulgarian enterprises were purchased by foreign investors, which led to the modernization of technical and production facilities. Exports of main products have risen by almost 50% in 2010. Main partners are UK, Russia, Italy, Germany and Serbia 1997 Solvay, Belgium bought 60% of the soda factory in Devnia. Today, this is Europe’s biggest soda ash factory in Europe. 1997, 1998, 2004 Holcim, Titan, Italcementi Group modernized cement factories Page 5 14

4 Leading corporations have already chosen Bulgaria as an investment location Agropolychim is one of the leading manufacturers of nitrogen and phosphorus fertilizers in the region About 400 ths tons exported to Europe, America, Middle East and Asia in 2010 Solvay’s biggest European factory for manufacture of soda ash with a capacity of 1.5 million tons per year 85% of company’s output is exported to Eastern and Western Europe, Russia, the Middle East, South America, Asia and Africa. Sisecam (Trakiya Glass) is the largest greenfield manufacturing investment in Bulgaria The plant produces glassware, fl at glass, household glassware, mirrors and car glass factories Clients include IKEA, Coca Cola, Indesit, Bosch, Audi, BMW The plant for production of plaster boards and gypsum fiber board panels was established in 1993 To date, investment totals € 85m, over 190 employees and two factories in Bulgaria Page 6

Overview of the Mechanical Engineering and Machine Building sector 4 1878 Arsenal (military products) was founded in 1878 in the town of Ruse as first factory meant to serve the newly created Bulgarian Army. 1957 Beginning of production of forklift trucks in Sofia. Engines and Parts for engines 13% Refrigerators, freezers Armature items 11% Parts for lifting machines and loaders Ball, roller and needle bearings 10% Liquid pumps 1% Air-conditioning and purifying machines 2% 3% Agriculture machines 4% 5% Automatic machines 1969 In Plovdiv began the assembling of Renault 8 and Renault 10. Calculating devices Printing machines Others Sector snapshot The industry generates revenues of € 1.03 bn FDI growth in the sector is 134 % in 2010 compared to 2007. An average annual FDI volume in the last 5 years is around EUR 65 mln. 11% of the university students are enrolled in related specialties Employs more than 50 000 people working in more than 1500 companies Generates about 15% of total exports and main export partners are Germany, Russia, Italy and France 2008 German company Lufthansa Technik opened maintenance facility for repair and overhaul of aircrafts like Airbus A320 family and the Boeing 737 series. 2012 Start of the production in car manufacturing plant established by Litex Motors Corporation in cooperation with the Chinese Great Wall Motor Co. Page 7

Bulgaria as a production hub has attracted world leaders in the sector 4 Bulgaria as a production hub has attracted world leaders in the sector In 2008, Lufthansa opened an aircraft repair facility at Sofia airport, the only base of the company in Eastern Europe State-of-the-art hangars and equipment. Over 500 workers D-checks, the most extensive scheduled maintenance is carried in Bulgaria Innovative and powerful know-how in the development and production of technical solutions for locking and latching systems. Delivers its products to the most auto producers in Europe In the process of doubling its capacities and staff in Bulgaria Montupet is a leading supplier of automotive aluminum parts Greenfield investment project in Ruse for €80m Bulgarian plant produces engine heads for Audi’s 4- and 6-cylinder engines and for the whole series “Q” of Audi. One of the world’s leading manufacturers of hydraulic and vacuum equipment for vehicles The factory near Plovdiv is the company’s 2nd largest Clients include Mercedes, BMW, Porsche, and Audi Greenfield project, completed in only 11 months Page 8

Overview of the Transport & Logistics sector 1866 The first railway track (224 km) started operation between Ruse and Varna Major trade partners Import 2010, EUR mln Export 2010, EUR mln 2 237 Germany 1 659 1991 - 1995 Major European/global sector companies entered in Bulgaria, such as DHL Willi Betz, In Time 3 127 Russia 441 1 418 Italy 1 511 1 341 Romania 1 417 2006 Sofia Airport, the largest passenger and cargo airport in Bulgaria, opened a Second Terminal constructed by STRABAG. 1 142 Greece 1 237 1 047 Turkey 1 317 630 France 628 804 Ukraine 198 2010 Yana Intermodal Terminal opened near Sofia, at the crossroad of 3 pan-European corridors , serving the European and the Central Asian markets 668 Austria 294 364 Belgium 587 597 Hungary 198 363 Spain 416 Bulgaria has: 6 Motorways, some under development 230 railway stations with capability for loading/unloading cargo 4 international airports 2 major seaports on the Black Sea 4 major river ports on the Danube About 3 000 university students graduate from transport and logistics related majors per year 538 Netherlands 234 202 Serbia 550 493 China 187 403 Poland 268 303 UK 303 257 Macedonia 332 133 USA 212 Page 9

Bulgaria has one of the lowest business costs in Europe 7 Bulgaria has one of the lowest business costs in Europe Lowest corporate income tax rate in Europe Cost of electricity for industrial users is 70% of the EU average Lowest cost of agricultural land in the European Union €/kWh, 2012 Bulgaria 1,595 € / ha, 2008 Bulgaria 10% Estonia 0.065 Romania 2,000 Bulgaria 0.068 Romania 16% Hungary 3,000 Romania 0.083 Hungary 19% Greece 4,000 Turkey 0.083 France 5,000 Slovakia 19% Germany 0.089 Czech Rep. 5,000 EU average* 0.092 Czech Rep 19% Poland 5,000 Hungary 0.100 Germany 10,000 Croatia 20% Czech Rep 0.100 Spain 11,070 Turkey 20% Slovakia 0.127 UK 11,400 * 2011 Source: Eurostat; Savills Page 10

Over 50 universities enroll about 285 000 students Over 50 universities enroll about 285 000 students. 17% of Bulgarian students are in industry-related majors Sofia Plovdiv Pleven Ruse Varna Burgas Blagoevgrad Pernik Silistra Shumen V.Tarnovo Svishtov Stara Zagora Gabrovo Universities: Multiprofiled Technical Medical Economical Pravets Kardzhali Smolian Angel Kunchev University (Ruse) 8,500 students Sofia Technical University 23, 000 students Varna Technical University 8,000 students Sofia University of Chemical Technology and Metallurgy 4,000 students Page 11

Bulgaria offers a variety of potential and existing well connected investment locations Northwest Bulgaria Lowest costs of doing business Proximity to Central and Western Europe New Vidin-Kalafat bridge North Central region Transport links via Romania Industrial background Sofia region Availability of skilled labor Over 20 universities Sofia airport Black Sea region Burgas and Varna ports Tourist locations Availability of skilled workforce South Central region Proximity to Turkish border and Burgas ports Industrial and energy hub Plovdiv region Main industrial location for multinationals Well developed industrial zones Page 12 14

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 €10m €3.5 in regions with high unemployment and €2m for investment projects in high-tech services Benefits for certified investors include: Partial reimbursement of labor costs Shortened administrative procedures Preferential acquisition of state or municipal land Financial support for professional training / education Infrastructure subsidies Individual administrative services Priority projects (exceeding € 50m and creating at least 200 new working places for a 3-year period) receive additional support. Financial grant scheme for up to 10% of the investment project cost for industrial projects. 50% for R&D. Page 13

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