Bulgaria is experiencing stagnation in investment, with spending on productive capital reaching roughly 18% of GDP by 2024. Compared to neighboring countries such as Croatia and Romania, Bulgaria lags behind by 5 - 6 percentage points. A major factor in this slowdown is the relatively low level of investment in machinery, equipment, and innovation by Bulgarian companies, Assoc. Prof. Plamen Nenov, Secretary of the Council of Economic Analysis, explained on Bloomberg TV Bulgaria.

Prof. Nenov presented key findings from a joint study with Atanas Pekanov and Daniel Vassilev examining the impact of European subsidies on Bulgaria’s economic growth. Citing a pre-pandemic survey, he noted that 80% of Bulgarian enterprises operate with machinery considered outdated by European standards. He identified systemic difficulties in accessing financing - both bank loans and equity limitations for SMEs - as a central obstacle to higher investment in modern equipment and innovation.

Some improvement in lending conditions is anticipated after Bulgaria adopts the euro on January 1, when banks will be subject to lower minimum reserve requirements. However, Prof. Nenov emphasized that growth in productivity and corporate profits is likely to have an even stronger influence on investment decisions.

He highlighted the role of grants under the Operational Program “Innovation and Competitiveness” (OPIC), which effectively act as equity injections into companies. These grants have demonstrated lasting positive effects, boosting investments, sales, profits, labor productivity, and even labor demand, including higher wages. Yet, Prof. Nenov stressed that subsidies are not a universal solution and must be carefully targeted, ideally toward firms with strong long-term investment potential.

The analysis also recommends structural reforms to enhance the functioning of Bulgaria’s financial markets. Prof. Nenov explained that improving judicial administration, structuring stock markets, and making them more attractive to investors and companies could encourage enterprises to raise funds from these sources.

Another suggestion is to employ public funds more flexibly through targeted instruments such as grants, credit guarantees, export guarantees, and equity financing. The analysts further advise refining the targeting of policies to promote companies with high development potential. According to Prof. Nenov, accelerated depreciation in accounting legislation could be an effective tool, allowing firms that invest more to benefit from higher tax deductions and thus incentivizing further investment.