Market Report, "Bulgaria Infrastructure Report Q2 2016", published

Bulgaria's construction industry will contract 1.7% y-o-y in 2015 and will slightly grow 0.5% y-o-y in 2016 , supported by the transport infrastructure sector, particularly projects in the road and railway subsectors. Although Bulgaria will continue to be highly dependent on EU funding for infrastructure development , we have started to note increased international interest in this market.

Latest Updates And Structural Trends

Driven by transport infrastructure projects, we forecast Bulgaria's construction industry will grow by an average of 1.7% over 2016-2025. However, infrastructure projects will continue to face challenges securing financing.

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Bulgaria remains highly dependent on EU funding for infrastructure projects, particularly in the transport sector. As such, slow EU recovery will limit the speed of Bulgaria's transport infrastructure growth.

Improved absorption of EU structural funding will be supported by public investment projects to a certain extent.

Growth in Bulgaria's energy and utilities sector has been subdued due to fiscal constraints and a lack of consistent foreign competition and skills. The sector faces a slow path to recovery, particularly now construction of the South Stream pipeline has been cancelled and the agreement on the termination of the contract between Gazprom and Netherlands-based South Stream Transport has been approved by the Board of Directors of the Russian company.

We do not expect investment in renewable energy infrastructure to increase given the Bulgarian government decided to terminate incentives for new renewable energy capacity in March 2015.

On October 28, 2015, Bulgaria's government decided to issue guarantees worth BGN215mn (EUR109mn) for the IGB project in 2016. On November 9, 2015, the country's Energy Minister Temenuzhka Petkova stated that only a date is to be set for the signing of the final investment decision on the IGB project (Novinite, 2015). This was finally achieved on December 10, 2015. By signing the final investment decision, the shareholders in the ICGB joint venture company undertake to provide the capital needed to complete the construction of the IGB pipeline (SeeNews, 2016).

In November 2015 Russia suspended talks on the Turkish Stream project and in December 2015 Turkey formally abandoned it due to a severe crisis in bilateral relations after the shooting of Russian aircraft.

The outlook for the residential sector is not positive, especially from 2020 onwards. The housing market remains weak following a collapse in prices since 2008 and the high levels of indebtedness will act as a headwind to future investment.

Risk/Reward Index

Bulgaria scores 49.6 in our Infrastructure RRI rising from the score of 49.0 in the previous quarter.

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