Bulgaria Shipping Report Q3 2010

Still mired in recession and fiscal austerity, Bulgaria does not have vast funds to invest in its ports and shipping infrastructure. As such, the governments new policy is to offer more concessions to the private sector to run facilities. The Ministry of Transport and Communications in April stated that many ports suffer from a range of problems including insufficient specialisation, inappropriate loading and unloading equipment, insufficient deep-water access, and poor organisation, logistics and information systems. Transport minister Alexander Tsvetkov said that parts of the Black Sea ports of Varna and Burgas, along with the Danube ports of Ruse, Tutrakan, Nikopol, Vidin and Lom, would be offered to the private sector to run on a concession basis. He acknowledged that only the ports of Varna, Ruse and Vidin have been making a profit.

The new approach comes against the background of a difficult macroeconomic environment. Bulgaria was one of the last emerging European economies to go into recession, and will be one of the last to exit. GDP fell by 5.0% in 2009 and we are predicting another negative year in 2010, with contraction of 2.6%. Growth will not return until 2011, and even then it will level off at around 3% per annum, well below the 6.0% rates achieved in the earlier part of the last decade. In short, this will limit the upside potential for the local ports and shipping sector.

Varna, Bulgarias main port, will experience a virtual standstill in 2010. Total tonnage plunged by 12.9% last year, and we see only a marginal rebound with volumes likely to grow by 1.1% to 6.804mn tonnes in 2010. It will take a few years before a stronger recovery makes itself felt. Box traffic, meanwhile, was harder hit because consumer and manufactured goods tend to be more heavily represented in container trade, and demand for these fell more sharply than more income-inelastic goods such as agricultural commodities. Container throughput dropped by 27.5% in 2009, and we are predicting a very small recovery this year: 1.5% growth to 114,330 20-foot equivalent units (TEUs).

Given low European demand and a rather unfavourable exchange rate dictated by Bulgarias currency board system, the prospects for the countrys foreign trade are not very encouraging in the short term. In nominal terms, we are predicting that imports will fall 9.9% this year to US$24.3bn, while exports will fall by 10.8% to US$20.8bn, leaving the country with a trade deficit of just under US$4bn.

Even though our outlook for the countrys ports and shipping sector is relatively sombre, we believe risks lie on the downside. Two significant risks are worth noting. The current eurozone recovery is weak. Should that recovery falter, or should financial or sovereign debt worries spread further, Bulgaria could end up spending longer in recession territory, with a negative knock-on effect for shipping. A second risk concerns the countrys struggle with corruption. If European Union aid and investment is put on hold because of worries over a lack of transparency, then necessary investments in transport infrastructure will be delayed and investor confidence will be undermined.