A SPECIAL FDI SPOTLIGHT ON SOFIA, BULGARIA FROM INVEST SOFIA AND INNOVATIVE SOFIA.
Sofia accounts for 40% of the nation’s GDP and 1/3 of the country’s export. 16% percent of the city’s exports are produced by the growing ICT sector in the city.
Sofia is one of the oldest cities in Europe. Its history dates back several millennia. In 1879, after a close vote by the Parliament, Sofia became the capital of the newly independent Bulgaria.
Today Sofia is Bulgaria’s capital, its largest city, the centre of the legislative, executive and judiciary power in the country (National Assembly, Presidency, Council of Ministers and all Ministries), the financial, educational, cultural, business and commercial centre and the biggest city-economy in Bulgaria.
Sofia’s population exceeds 1.3 million, 1.6 million with the surrounding region, over an area of 492m2, making it the 15th largest city in the European Union. The city’s economy is growing at a rapid pace. Sofia accounts for 40% of the nation’s GDP and 1/3 of the country’s export. 16% percent of the city’s exports are produced by the growing ICT sector in the city.
Sofia has one of the most vibrant start-up and entrepreneurial ecosystems in Central and Eastern Europe. The capital available to local startups has played an instrumental role in positioning Sofia on the entrepreneurial map of Europe.
Sofia acts as a magnet for talent. Twenty-three of Bulgaria’s 51 universities are located in Sofia, with over 100,000 students.
A developed transport infrastructure, with bus, tram and underground public transport, makes Sofia a well-connected city. Sofia Airport, the largest international airport in the country, is just 20 min. from downtown Sofia.
Sofia is the largest city in Bulgaria in terms of population. It is also one of the few cities in the country experiencing population growth and benefiting from overall favourable demographic trends. The population growth in Sofia is supported by the continuing influx of young people to the city, which provides diversity and easy access to workforce. The labour force in the city increased by 26% in the period from 2003 to 2018, or by a total of 149,600 people, and currently amounts to 716,000 people. Sofia, together with the broader Sofia region (<60 km), has a total workforce of over one million people.
Sofia has the highest labour participation rate in Bulgaria, above the EU average, and the lowest unemployment rate in the country. The data on employment by economic activity shows the ongoing restructuring of Sofia’s economy due to the rapid growth of the ICT and business service industries. The number of employed in these sectors increased by over 60,000 people between 2008 and 2018 and now accounts for more than 20% of the total employment in Sofia.
Much of Bulgaria’s “brain business” is concentrated in Sofia. The city ranks 27th out of 278 European regions, included in the 2020 Brain Business Jobs Index, with 101 brain jobs per 1,000 working-age population and is performing very well in the tech and creative sectors. Design and IT are among Sofia’s specific strengths.
WAGES AND SALARIES
In 2018, the annual gross salary in Sofia was EUR 9,706, showing an increase of 10% on an annual basis. Although the upward trend is expected to continue, Sofia still has one of the lowest labour costs among the EU capitals. IT and the sector of professional services, incl. business process outsourcing (BPO), offer the highest salaries in Sofia. The average salary in the IT sector was almost twice higher than the average for the city, while in the BPO sector it was 26% above the city average.
Citizens of all EU and EEA countries, plus Switzerland have the right to reside and work in Bulgaria indefinitely. All other nationals need a work permit and a long-term visa in order to work or reside in Bulgaria. The issuance of a work permit is an employer-driven process.
EDUCATION IN SOFIA
Sofia is home to 23 of Bulgaria’s 51 universities. The majority of the working-age population in the city, or 51.4%, hold a university degree. This number has grown significantly since 2011, when it was around 40%. The growth trend is expected to continue as Sofia is not only the city with the highest number of university students in the country, but also attracts graduates from other cities in Bulgaria and abroad. Dual education and increased participation in STEM fields are the current priorities of the Government. The Ministry of Labour and Social Policy is offering full scholarships in Engineering, there is joint IT project training between the private sector and universities, also there are plans for the establishment of a new automotive industry vocational academy for both high-school and university students. A significant number of students, graduating from secondary schools in Bulgaria, continue their university education abroad. Germany, the UK, Austria and the Netherlands have traditionally been the preferred destinations. According to some estimates, the number of Bulgarians studying abroad averages around 30,000 every year.
SOFTWARE SCHOOLS ENTREPRENEURIAL SKILLS
Due to the rapid expansion of the ICT sector in Sofia, ICT companies are increasingly turning to the high schools and universities in the city to develop joint courses. Over 30 private software academies offer short to mid-term educational programs (6 to 30 months). Courses range from programming and computer graphics to IT project management and sales. The courses are often developed in collaboration with local IT companies, according to their labour demands. The courses target people with little or no experience in the field, as well as developers with 3-5 years of experience. The number of annual graduates exceeds several thousand.
FOREIGN LANGUAGE PROFICIENCY IN SOFIA
Sofia is characterized by a high level of foreign language fluency. The most commonly spoken languages are English, German and Russian. English is the most preferred foreign language choice in Bulgarian schools. Most of the students in secondary schools with intensive language curriculum in Bulgaria in 2017 also studied English (64,074 students), followed by German (13,283) and French (6,218). Education in Far Eastern languages in Bulgaria is available mostly in Sofia. It is estimated that over 2,000 students in the city take classes in Japanese, Chinese or Korean. Over 1,000 students study Hebrew and additional 200 take Scandinavian languages such as Norwegian, Danish and Swedish, which are rapidly gaining popularity. Close to 1/3 of the population between 19 and 34 years self-report that they speak more than one foreign language at an intermediary level, or higher. The most common language combinations are English and Russian, followed by English and German.
ECONOMY OF SOFIA
Sofia is the biggest city-economy in Bulgaria. It provides 40% of the nation’s GDP. Due to the strong export and final consumption in the last several years, Sofia’s economy has been growing at a rate faster than the EU average. It is export-oriented and accounts for 1/3 of the national export, amounting to BGN 28.4 billion.
FOREIGN DIRECT INVESTMENT (FDI)
At the end of 2018, the cumulative foreign direct investment in Sofia was EUR 12.4 billion (2000-2018), accounting for 51% of the overall cumulative FDI to Bulgaria.
The Bulgarian Lev (BGN) is pegged to the EURO at 1.96 BGN per 1 EUR. Bulgaria has adopted a plan to join the precursor to euro area membership, the ERM-2 exchange rate mechanism, and the Banking Union.
The Bulgarian banking system remains stable with growing assets and capital adequacy, and liquidity indicators that are significantly above the regulatory requirements. Loans to households and non-financial corporations continued to increase in 2019, reflecting the low interest rates and optimistic economic expectations. The total banking system assets in Bulgaria exceeded EUR 55.51 billion and deposits into the banking system reached EUR 46.93 billion. The share of gross non-performing loans and advances of the Bulgarian banking system continued to decrease but remained above the EU average. There are 25 licensed banks and foreign banks’ branches operating in Bulgaria, down by one from the previous year because of the ongoing trend of bank consolidation. The asset shares of the five largest banks account for approx. 60% of the total bank assets in the country. The majority of the banks operating in Bulgaria are members of international, almost entirely European, banking groups.
TRANSPORT AND CONNECTIVITY
Sofia Airport is the biggest international airport in Bulgaria. A new concessionaire of Sofia Airport for the next 35 years was selected in September 2019, under the conditions of substantial infrastructure investments, including the construction of a third terminal by 2030. In 2019, Sofia Airport welcomed the record high 7.1 million passengers, following several years of strong passenger growth. Since 2015, the number of passengers served at Sofia Airport has increased by 74%. In 2019 the Airport handled 23,987 tons of cargo – a growth of 7.8% on 2018. In 2019, for a third year in a row, London was the most popular origin/destination for passengers at Sofia Airport, followed by two German cities - Frankfurt and Munich.
Sofia is part of 3 Pan-European transport corridors. The city is very well connected with the rest of Bulgaria and the Black Sea Coast, the city and the port of Bourgas, as well as with the borders with Turkey, Greece and Serbia through the Northern Speed Tangent road, Sofia Ring Road, Trakia Motorway (A1), Hemus Motorway (A2) and Struma Motorway (A3).
Sofia has one of the highest Internet speeds in Europe with average connection rates of 24 MBPS for downloading and 21 MBPS for uploading. 96% of households in Bulgaria have fixed broadband coverage and 75% of them have ultrafast broadband coverage compared to 97% and 60% in the EU.
INDUSTRIAL AND OFFICE SPACES IN SOFIA
The continuous growth in the office market is driven by tenants from the IT, BPO and SSC sectors. The industrial space market is dominated by owner-occupied and built-to-suit facilities. However, more than half of the spaces currently under construction are speculative. Most tenants are logistics, e-commerce and retail companies.
SOFIA TECH PARK
The first science and technology park in Bulgaria opened in Sofia in 2015 with a focus on information technologies, life sciences and green energy. The Park includes a vast laboratory complex, an incubator for innovative companies, an innovation forum, several exhibition areas, the interactive children’s centre “TechnoMagicLand” and a sports complex. The Park is home to over 30 companies and startups and hosts over 200 events annually. In 2020, the Park is going to introduce a new coworking space called GroWorking as well as a Club House – a meeting space intended for networking clubs in the area of technologies and innovation.
INDUSTRIAL & LOGISTICS ZONES IN AND AROUND SOFIA
Over 15 industrial and logistics parks are located in or around Sofia, including the biggest economic zone in the region – Sofia-Bozhurishte, and the brownfield land of the former steel mill “Kremikovtzi”.
THE START-UP ECOSYSTEM IN SOFIA
Sofia has one of the most vibrant startup and entrepreneurial ecosystems in Central and Eastern Europe, with a startup association, business angel association and angel investment clubs. In 2019, Sofia became a French Tech label city, joining 50 innovation and tech hubs across the globe. With 246 funding rounds, Sofia comes up third among CEE countries by number of VC rounds over the last 6 years, straight after Warsaw and Tallinn, according to Dealroom.co Bulgaria is developing as a diversified tech hub with startups innovating across multiple industries. Approximately 15% of Bulgarian start-ups are in the deep tech sector, including AI, aerospace, robotics and IoT. First-time entrepreneurs can resort to local incubators and pre-accelerator programs to get knowledge and guidance on starting a business. In addition, the VC community in Sofia supports scaling startups and companies in growth stages.
In 2015, Sofia adopted the Innovation Strategy for Smart Specialisation of Sofia, identifying the IT and Creative industries as priority sectors. In 2019, Sofia completed the Digital Transformation Strategy for the city Sofia (DTSS), created under the Digital Cities Challenge Project by the European Commission and with the participation of over 100 local stakeholders and international experts. The mission of the Strategy is to enhance the local tech ecosystem by turning the city into a market for the digital products created in Sofia. In January 2020 the city appointed its first deputy mayor for for Digitalisation, Innovation and Economic Development. A new Big Data and AI Centre of Excellence - GATE, was launched in 2019 as a joint initiative between Sofia University, the Swedish Chalmers University of Technology and Chalmers Industrial Technologies. The center will focus on Future Cities, Intelligent Government, Smart Industry and Digital Health. Stakeholders will have access to a collaborative environment for experimentation, test-bedding, research and innovation. The project will include a City Living Lab, Visualisation Lab, Digital Twin Lab. One of GATE’s first flagship projects will focus on building a city information model (CIM) of a district in Sofia under the concept of a digital twin. One of the 8 new supercomputers of the European Union will start operations in Sofia in 2020 and will be available to the local ecosystem for scientific and industry activities.
INFORMATION TECHNOLOGY (IT)
The number of people employed in the ICT sector in Bulgaria on 2018 approached100,000, or 3% of all people employed in the country. About 90% of the Bulgarian technology companies and 86% of the IT professionals (85,146 people) work in Sofia. The Bulgarian software industry generated €2.8 bln revenue in 2019 and is expected to reach €5 billion in the next 5 years. ICT is one of the fastest growing sectors in Sofia, accounting for 19% of the city’s economy. The sector is predominantly export-oriented and over the last few years has moved up to high value-added projects and, increasingly, the development of own products. ICT has become the primary area for foreign investment, attracting 30% of all investment projects in 2018, with at least 16 valued at USD 240 million.
Bulgaria’s AI startup ecosystem is still at an early stage of its development but has gained significant momentum in the past few years. In 2019, the new Big Data Centre of excellence GATE was launched at the Sofia University Department of Mathematics with funding of EUR 15 million. In 2019, the VC fund Brightcap Ventures launched a program for companies, specializing in AI, IoT, blockchain, advanced analytics, autonomous technologies and quantum computing. The AI Cluster Bulgaria was founded in 2019.
Sofia is one of the fastest growing Fintech destinations in SEE and the CEE region. Over 83% of the Fintech companies in Bulgaria are located in Sofia. The Fintech startups are supported by a number of investment funds, business angels, private investors and local banks. Bulgaria is often used as a test market, while the strategy of the companies is to work globally. There is a growing trend for fintech and traditional financial institutions like banks to develop new solutions jointly. The number of corporate acceleration programs is increasing. In 2019, Sofia outperformed 52 locations worldwide and ranked first in terms of Cost Effectiveness in the “Fintech Locations of the Future 2019/20”.
There are over 13 proptech companies operating in Sofia. One of the local proptech startups completed an investment round of EUR 2.7 million at the end of 2019. Some of the local companies already have 20+ years of experience in implementing technologies such as Building Information Modelling (BIM) in the real estate industry. Other technologies used by local proptech companies include virtual and augmented reality, artificial intelligence, machine learning, big data, blockchain and others.
SHARED AND BUSINESS SERVICES DELIVERY CENTRES
Bulgaria ranks in the Top 3 among global services locations in CEE and preforms best in financial attractiveness and business environment categories. Additionally, Bulgaria has a well-developed telecommunications infrastructure and one of the fastest Internet connection speeds in SEE. Information security and privacy regulations are in accordance with the EU legislation. The sourcing industry, which includes IT, BPO and SSC, contributed to 5.2% of the national GDP with a turnover of EUR 2.4 billion and a growth of 19.5% on an annual basis, employing 73,694 people, (data for 2018). The industry is expected to grow faster than the national economy. By 2022 turnover is expected to reach EUR 4.8 billion or 9.2% of GDP.
Sofia is the centre of cultural and creative industries in Bulgaria and has the potential to become one of the leading creative hubs in Europe. Sofia accounts for close to 80% of the revenue and 62% of the creative labour force in the country. There are over 60,000 artists, designers, game developers, filmmakers, musicians, architects, writers, interactive digital media and software developers, and other representatives of the creative industries employed in over 7,700 creative companies in Sofia. Employment in the sector is growing.
Sofia is second in Europe in growth of international visitors for 2017 and is among the TOP 5 cities in Europe with the highest overall growth of international visitors for 2009 – 2017, with an average increase of 9% per year. In 2018, Sofia was visited by 1,384,963 tourists, 67% of which were foreigners. The number of tourists visiting Sofia has been growing since 2009, but was particularly notable in the last 4 years, when the number of foreign tourists in Sofia increased by 44% - from 640,621 in 2015 to 922,075 in 2018.
MANUFACTURING (Including Automotive, Robotics & Aero)
The manufacturing industry formed 10% of Sofia’s economy in 2018 and brought 17.5% of the export earnings in the city. Over 71,000 people, or 9.7% of all employed in the city, work in the sector. Its value added at factor cost and its share in the local economy increased during the last 10 years, while the number of employees decreased, reflecting an increase in efficiency and decrease in the need for human capital due to modernisation and capital investments, for example in new technologies. The Manufacturing sector has been the second largest investor in tangible fixed assets (after the sector of Trade, Repairs and Transport), as well as the most stable FDI recipient in recent years. By the end of 2018, manufacturing in Sofia had attracted 15% of FDI.
Sofia hosts one of the largest aircraft maintenance, repair and overhaul facilities in Europe with 1,100 employees.
Around 24 companies in Bulgaria develop products or services and software in the field of robotics and automation with over BGN 950 million in revenue and more than 5,000 employees.
The Bulgarian Automotive industry achieved EUR 6 billion in revenue in 2019. There are 250 companies in Bulgaria.
80% of sensors in all European cars are made in Bulgaria.
This presentation was delivered jointly by:
The agency for the Digitalisation, Innovation and Economic Development of Sofia Municipality. www.innovativesofia.bg
Sofia Investment Agency. www.investsofia.com