How Is the Appreciation of the Euro Affecting Bulgarian Companies?

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How Is the Appreciation of the Euro Affecting Bulgarian Companies?

The euro advanced to a new record-high against the dollar today and was changing hands at 1.5975 dollars. The European currency has appreciated by 8.4% since the beginning of 2008 and by 17.5% in the last 12 months.

The growing value of the euro in the recent months will definitely affect the financial results of the Bulgarian companies.

On one hand the pegging of the local currency to the euro will result in a declining competitiveness of the Bulgarian products as they will become relatively more expensive on the international markets, compared to the products coming from the USA and the Asian countries, whose currencies are pegged to the dollar.

Even on the European markets Bulgarian products are facing stiff competition by products from China, where the currency is appreciating at a considerably slower pace against the US dollar.

Bulgarian-made products, however, are partially protected by the lack of customs tariffs and other measures imposed on Chinese, US and non-EU goods.

The appreciation of the labor costs and the high inflation are another factor, which sends the price of Bulgarian products higher.

The poor production efficiency in Bulgaria may also be put down to the outdated production equipment and the lack of investments in its upgrade.

The competition from the other EU member countries from Central and Eastern Europe is intensifying and the prospects are not very bright.

The negative effect for the Bulgarian companies from the appreciation of the local currency against the dollar could hardly be estimated at this point.

Nevertheless, there is one thing clear. Consumers know what is better for them and more often purchase products of international companies producing in dollars. A typical example are recent TV reports showing that the purchase of a vehicle from the USA is considerably cheaper.

Fortunately or not no vehicles are manufactured in Bulgaria. This is another sad fact stemming from the disbelief of the global companies that Bulgaria is incapable of manufacturing high value-added products.

This holds value not only for vehicles but for many other products manufactured in the country. The real problem is that many Bulgarian-made products are more expensive than products imported from Western Europe, not to mention Central and Eastern Europe.

One of the few advantages of the expensive Bulgarian currency is the fact that it partially offsets the the increase in commodity prices on the global markets. Partially, but not sufficiently, judging from the inflation rate.

To a certain extent the local companies benefit from the fact that they are buying the raw materials mainly in dollars and are selling their products mainly in euro and leva in Bulgaria or in Europe. This, however, is one of the very few advantages of the expensive lev.

We should also take into consideration the fact that the negative effect from the appreciation of the lev, which occurred mainly in the last few months, will transpire after a certain amount of time, which means that time will show how negative this effect will be.

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