THE NEW ECONOMIC ZONES

February, 2006
Index Property magazine

When an investor considers where to position his business he is led by many conditions, which can be generalized by the concept: economic efficiency.
Depending on the products or services which he delivers, respectively on the expenses having the biggest share, he can locate himself close to the infrastructure which connects him to outside markets of row materials and ready production or to a place where the labor force costs are the most advantageous.
These are basically the reasons to present the new generation industrial parks and business zones in Bulgaria, their location and conditions for establishing of new companies and activities.

THE NEW ECONOMIC ZONES

Bulgarian and foreign Investors have started development and brought to the market the first modern industrial and business zones and parks

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The manufacturing complex which the Turkish concern "Shishedjam" is building in the city of Targovishte. In that complex will be three factories – for flat glass (for buildings), for glass utensils and manufactured glass, which is used for household electric appliance, mirrors and furniture manufacturing. Over 1000 people will work there and several times more jobs will be created for concomitant activities.

One of the decisive moments in establishing a business in a given country is the initial investment and timing. Depending on a type of the production – goods or services, as well as on the particular sector or activity, an investor would need a particular real estate property, which could be bought, built or rented. The availability and the price of such property would be crucial for some sectors where the main reason for outsourcing of the activity is to cut costs. In a less degree, this has influence on manufactures where the closeness and the time for entering into the market are often the most important points. However, even for such an instance, the property’s price must be calculated as a part of the starting investment.

That is why the possibility for quick starting of business is of great importance for the foreign companies coming to Bulgaria - no matter if it is about the industry business or services business.

The possibility for satisfying all these needs through offering of services have been noticed by the Bulgarian and foreign investors, which have started development and offering to the market of the first modern industrial and business zones and parks. Although the leading role is priority of the state and the local administration because of the continuing privatization of assets in a form of state or municipal enterprises, also because of its ownership of large properties, the control of the basic infrastructure elements and the regulating economic functions, which distort the market.

The industrial zones could be grouped in a few groups. The first group are the old production enterprises, which are privatized and renovated and where are attracted investments for renovation of the existing manufactures, which become a magnet for new companies (for example the factories of American Standard in the village of Sevlievo).

The second group is entirely new-created manufactures, which have been built and established on a certain place because of its infrastructure priorities (the villages around the city of Plovdiv). The third group zones and business parks are those where the local authorities or private investors or both have the power and the leading role (the industrial zones in the cities of South Bulgaria or in the city of Rousse).

Considered from another point of view, there are other type of industrial-commercial areas, which are developed entirely under the influence of their location – on the entrance or exit points of the country or on important transport junctions. They are usually having mainly logistic activities and many outside companies offering services in that field and companies, which must be close to the foreign markets, are located in there.

Business parks offering office areas could join much more the services group. Currently in Bulgaria Business Park Sofia is functioning, which is continuing its development and has been defined as poly-functional and high-tech park, and another business park in the city of Varna - which is under construction since last year. It is typical for that kind of projects to be a combination of office and warehouse areas, which are suitable for companies offering services, for outsourcing administrative activities (because of the comparatively low rents) and for high-tech productions.

Typical for all these zones are a few processes stimulated by the fast economic development. The most important is that their creation, which attracts new and new investors because of its already developed infrastructure and the direct contact with different types of entities, which facilitates information, technologies and experience exchange. They also contribute to the further development and demand of all kinds of real estate properties on the market.

In the industrial sector, the best examples are the village of Sevlievo and the Municipality of Maritsa in the region of Plovdiv. The same process has developed in the logistic sector near the Sofia Airport where the prices of the land properties have raised a lot.

When speaking about prices, it is very hard to make a conclusion, because the prices are much dependant and different depending on the specific place and the kind of activity performed.

Most common the maximum levels are about 100 Euro per square meter for the developed land markets as it is around the Sofia Airport. At the same time special offices are quested for some services (for example the development centers of the software companies).

Some of the light productions, the food and textile branch or logistic companies are looking for similar type of areas but others need specific areas as they have specific requirements to the infrastructure. Nevertheless the state is also involved in the market as it offers special conditions to strategic investors for buying property and in some cases the state even undertakes to provide production terrain and infrastructure for free.

Even the developers, owners of industrial zones, talk about the prices conditionally because they are trying to be most flexible as offering different plots for purchase or lease and building by preliminary given requirements from the intended owner or tenant.

Undoubtedly however is the fact that for the entrepreneurs and investors the industrial areas are one of the most perspective real estate property market segments.

The big potential of this still non-existing market hides in the absence of qualitative offering, which could satisfy the needs of the big international companies and trade chains, and also in the economic growth as a whole and the increase of the consumption in the country.

The specialists in the market indicate the areas with combined purpose, which could combine premises for light productions, logistic and distribution and a central office are in the first place. This exactly as well as the additional services are some of the most attractive sides of the modern industrial zones and parks.

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The building of the factory for tobacco processing of the American company "Sokotab" near the city of Plovdiv, the Municipality of Maritsa, has been preceded by the factory for refrigerators Liebherr.

 

They have been advising to specialize in information technologies, outsourcing and machine-building

The three economic branches where Bulgaria could successfully specialize are the information technologies, export of business processes (outsourcing) and machine production and electro-equipment. This was revealed by the Deloitte Bulgaria consulting company research about the Bulgaria’s potential for attracting of foreign investments, which analyses in detail its competitive advantages. The research was made last year to the order of the Ministry of economic.
According to it, Romania and Croatia are the main competitors for Bulgaria in attracting of new investors. As labor expenses, qualification and legislative climate in Bulgaria is ahead of them both and macro-economic environment is better than in Romania whereas the market is bigger than the Croatian one.
The competition analysis shows that regarding the expenses on labor force (work expenses, qualification and normative base) Bulgaria is ahead Croatia and Romania. The country does not have a comparative priority in the mass production, Deloitte says. That is why it has to specialize in production with small capacity for specific market niches manufactured to an order or with often changing specifications. Another sphere of its specialization is in products and services where the distance to the market is very important.
The experts have found some sectors with a potential of attraction of foreign investments and among them are agriculture, food industry and chemical industry, metal-working, tailoring, furniture and machine-building sectors, services in information and communication technologies, services in trade and transport, outsourcing and tourism.

 

The State is stimulating Greenfield investments

The Bulgarian state is trying to help attracting new investors through a system of incentives formulated mainly in the Encouragement of Investment Act and Corporate Income Tax Law. The Encouragement of Investment Act has been created as the most flexible one to the needs of the strategic green field investors in the production field.

At the same time the existing experience shows that the Encouragement of Investment Act has been successfully applied to the real estate investments, as each big project could be classified as an investor project in that normative act. The most important point in it is the special administration services for the big investors. Among the priorities are the opportunities to get land for free or the right to build on state or municipal land and to have developed the entire infrastructure up to the borderlines of their projects. Except this, an important element is the special services, which the investors get for the realization of their projects – rapid and clear terms for the administrative procedures and consultations by the InvestBulgaria Agency about legal or economic matters, such as help for choosing contractor, etc.

To be able to benefit the whole package of privileges the investor must be 1st class. That classification has been made to separate the projects and to give the biggest incentives to those who are involved in the absorption of most resources. Currently investments are grouped in three classes, which are fixed depending on the size of the investment – over 70 million Lev for the 1st class, between 40 and 70 million Lev – for the second class and between 10 and 40 million Lev – for the third class. To get a legal state support the investor must go through the approval of the Commission for protection of competition, which has to ascertain that no inadmissible state assistance is performed.

There is another privilege in the Corporate Income Tax Law. According to it the companies having production activities in municipalities with high level of unemployment will be 100% free of corporate tax, i.e. in municipalities where the unemployment in the previous year has been 50% or higher than the average for the whole country.

 

European money for clusters

Resources for development of economic agglomerations аrе provided in two operative programs by the National 2007-2013 development plan – for regional development and competitive power.
According to the draft project of the working program "Development of the Bulgarian economic competitive power", there are three priorities, which provide similar financing.
In the first one, there have been differentiated the so-called operations for attracting of investors. One of them is included into the institutional support project for the industrial zones management bodies – existing or project ones.
Financial support for business co-operation - free investment and consultant support for clusters and enterprise nets has been provided in connection with the second project. Research organizations and universities are the recipients of the free support by the third priority for development of business incubators, technological centers offering special services for innovational enterprises, enterprises and university centers, etc. 

Picture on p.29 (For more than a year auto-service centers and factories have been effectively working in the new economic zone in the city of Pazardjik)

 

Municipalities and investors behind the first projects

The phenomenon - development of specialized industrial zones is becoming massive in South Bulgaria

Advantages like suitable infrastructure and good transport communications (closeness to an airport, highway and railway transport), provision of options for rapid start a business and production activities and skilled labor force are part of the characteristics of the industrial areas, which could be found in South Bulgaria. This is the most universal description of business parks having the development potential – municipal or private property.

A big part of the new industrial zones are developing outside the urbanized area on agricultural land. In most cases, these are municipal estates where appropriate infrastructure has to be built. The development and management of new industrial zones, the attracting of foreign investments and creating new jobs, are implemented in the economic development plan of the Bulgarian municipalities.
At the same time, the supply of ready to build areas, buildings (production halls, offices) and services makes the development of the companies easier. The activity performed in there will be more effective if the zones are connected to each other in a net, where technologies and experience could be exchanged.

They are often a result of a co-operation and harmonized actions between the state’s authorities, the local authorities and the private sector.

 

Rakovski - the first private industrial zone

Rakovski Industrial Zone is the first of a kind in Bulgaria, and this is why it was supported by the Government and the InvestBulgaria Agency (the successor of the Bulgarian Foreign Investments Agency). The Agency dives opportunities for green field investments, right security of the risk and preparation of a realistic investment plan with fast implementation.

The Industrial Zone is spread out on area of 815 000 m². It is located in a region with tax relieves, where companies with production activities do not pay corporative tax because of the high unemployment rate.

It is located close to the village of Stiama, 8 km. away from Trakia highway and 14 km. from the city of Plovdiv.

The investments in the zone have been calculated on almost 100 million Euro. The project will be finished in 5-6 years. The contractor Sienit Ltd. has the support of Municipality of Rakovski, the InvestBulgaria Agency and the German-Bulgarian Industrial-Trade Chamber.

The land has been bought and it is owned by the ZBE Ltd, Plovdiv, owner of the Factory for concrete elements, working on the territory of the industrial zone. The building company Sienit is the main executor of the production buildings. Rakovski Industrial Zone Ltd. manages the zone and delivers all necessary services for quick starting of business. The purpose is reducing of the administrative procedures and offering of full package of services to any particular investor.
The vacant areas in Rakovski Industrial Zone in the beginning of 2006 are about 25% (approximately 200 000 m²), announced Nikolay Brankov, the Manager of the Zone. "With the flexibility, we develop and manage the project we consider, that we can answer to all specific requirements and needs of the particular investors and ensure spaces, services and individual solution for every one of them", Brankov said.

The vacant plots could be bought or rented. Up to now 15 companies are owners and tenants in the zone. Among them are Kaufland, which have chosen that place for its logistic center Ivan-7 Ltd., International Bul Broker Ltd. and others.

 

Kuklen Industrial and Commercial Zone

The beginning of the development in Kuklen Industrial and Commercial Zone is expected in the early 2006. The detailed Master Plan of the zone – I stage – is ready. Its assets’ ownership belongs to a joint-stock company, which enlist the companies "KCM 2000"SA and "Sienit Holding" SA.

The zone is spread out on 470 000 m², it is 10 km South-East from the city of Plovdiv in the land are of the village of Kuklen (in immediate vicinity of KCM and the Plovdiv-Assenovgrad Road).

In a three years period the investors intend to invest 70 million Lev. Just for the first stage of the several building ones are needed 3 million Lev.
The separate plots have sizes from 10 000 m² to 200 000 m². Every one of them will have connection to electricity network, drinking and industrial water and natural gas supply. The producers and users in the zone will have land with changed status ready for industrial building as well as full professional service and consultations about the method and the opportunities for realization of any particular project.

Issuing of the licenses for the building and development of the industrial buildings, leasing schemes with bank financing contracted by the executive company will be provided. Besides the zone will provide ready to suit industrial buildings for rent or purchase.

For the future occupants of the zone in 2006 will be build a modern concrete production and prefabricates plant and a factory for inert materials.
Support to the Zone is provided by the Invest Bulgaria Agency, the Committee of the Italian investors, the German-Bulgarian Industrial-Trade Chamber, the district’s and the municipal’s administration of the neighboring municipalities – Plovdiv, Assenovgrad, Rodopi, as well as the Municipality of Kuklen. In the Zone, Bulgarian as well as foreign investments in high-technological productions will get priorities.

 

Opticoelectron Panagyurishte

The Municipality of Panagyurishte is a center of the precise instrument-making in the country where production capacities have been built and there are traditions in manufacturing the optical, optical-mechanical and optical-electronic manufacturing and technologies.

A big part of the unemployed people is workers and specialists, dismissed during the reconstruction and conversion period of that enterprise from a military-industrial complex producing precise devices, which is already a private property. Its territory and production capacities, including its available buildings are organized in an industrial park.

The park is attractive also because of its location – about 90 km from the city of Sofia and about 70 km from the city of Plovdiv. It is spread on an area of 262 000 m² with ready and functioning infrastructure. The companies in Opticoelectron Group S.A. are using land about 73 030 m².

Until now 49 250 m² have been sold and 140 220 m² are available for sale. Three plots – respectively with areas of 19 050 m², 19 750 m² and 54 600 m² - are subject of a future deal.

Only the firs one is located outside the business park. The other ones are located in the high-tech industrial park, which is having 24-hour access control.
The building fund has spread out built up area of 108 500 m². 40 900 m² of them are used by the Opticoelektron Group’s companies.

10 500 m² have been sold to other companies. Built up areas of 57 000 m² are available for purchase. The location as well as the kind and the area of the buildings into it determinate the selling price of a plot.

Except the eight companies, part of the holding group, another 15 companies having German and French participation work on the territory of the zone.

 

Economic Zone Pazardjik

The project of the local authorities is targeting at establishing conditions for lasting solution of the problems of the small and middle business, result of the privatization and the exhausted potential of the old industrial zone. The zone is located on the exit of the city of Pazardjik towards the city of Plovdiv. It consists of two parts – in the sites of Sazluka and Iakuba. Despite of the non-realized projects of famous companies, which have acquired land for 1 dollar as strategic investors, the success of the zone is sure – the local authorities consider. That is why the territory of the zone has been extended with new 40 000 m². So its total area now is 310 000 m². In order to finish the infrastructure 2.3 million Lev of a 5 million Lev investment credit in 2005 budget has been allocated.

The next stage of the construction-installation works includes connecting of the infrastructural facilities in the sites Sazluka and Iakuba. This will lead to a more effective functioning of the two parts of the economic zone. Development of engineering infrastructure in the economic zone and realization of the investments of the companies Bonimad Ltd., Ekobriket SA., Izopoli Ltd., Partreid Ltd., Elit Auto Ltd., Gido Ltd. and Start-Panev Ltd. are incorporated in the programme for stable development of the Municipality of Pazardjik for the period till 2007.

 

Kardjali

One of the important projects for the Municipality of Kardjali is "Development of the economic potential in border area Kardjali". The project is being accomplished in a co-operation with the Greek Municipality of Komotini and includes presentation in digital format of cadastres plans of a future industrial zone along with preliminary designs for technical infrastructure. The new economic zone is located on 800 000 m² near the road Kardjali - Momchilgrad. The building of the first factory for about 6 million Euro for production of auto parts for Peugeot, Volkswagen and Renault is in a progress.

 

Rousse Industrial Park

Rousse is among the municipalities that decided on their own to create special conditions in order to attract investments in production and logistics. On 30 September last year the Municipality Council approved the proposal of the than Mayor to establish a municipal enterprise "Rousse - Industrial Park". The property managed by the enterprise presents a terrain with an area of 636 978 m² with a value of 3 669 045 Lev.

The Council of Ministers has made over to the Municipality of Rousse free real estate property in the site of Slatina, where the industrial park is going to be developed. More than two years ago the Turkish concern Shishedjam, which preferred Targovishte, has planned to build on the same terrain a glass-factory.

The Municipal enterprise is going to manage and support "Rousse -Industrial park" including the operative actions for the project’s realization, for its development and administrative servicing of the investors. Representatives of the German concern Siemens and the Danish company for children’s toys Lego are going to visit Rousse to get to know the opportunities for development of their own factories in the new industrial park of the city. South African companies are also interested in the project.

The Municipality of Rousse provides a concurs for sale of property in the new industrial park with a start price of 8 Euro per m², in which the Spanish company Ceros Ceramic has shown interest. At the end of 2005 the company directed its interest to Rousse and intends to invest 12 million Euro for building of a factory for faience tiles. The factory in Rousse is going to be build on an area of 110 000 m². The full capacity of the factory could secure workload for 300 workers and at least 300 more for additional activities. The project envisages the installation of a modern Italian line for manufacturing of faience tiles and granite-grease tiles. The Municipality Council has taken a decision to change the town-planning scheme in the site of Slatina as it will unite several land estates with a common area of 110 000 m². The concurs for selling of the terrain hasn’t a fixed date yet because one condition in it is that the State should grant the building of the outer infrastructure for the project of the French company Montupet for production of automotive parts, which is certified as a first class investor.

 
Sliven and Yambol

Researches for development of a new industrial zone located between the cities Sliven and Yambol start in 2006. The research should answer questions for the best location of the future industrial zone and the proper infrastructural facilities in it. An analysis on the ways for optimizing of the economic and social advantages and the legal frame of the future public-private partnership is coming. For the realization of the feasibility study there is a possibility to apply for a grand scheme under the Phare Programme for Public-Private Partnerships.

The development of industrial zones according to the conditions of the EU could become State policy aiming at facilitating of investors, economical using of the land and saving of the ecological balance of the environment.