Market Overview Following EU accession in January 2007, Bulgaria’s IT market enjoyed growth of around 28% in that year to a value of US$687mn, and continued to expand in 2008. Spending on IT products and services will continue to be boosted by an influx of EU funds, as well as by other effects of EU membership such as increased foreign direct investment (FDI), and more competition in many industry sectors. The current low computer penetration rate, combined with growing affordability of computers, and government initiatives, should see continuing strong performance through to 2013.

The establishment in the pre-accession period of the State Agency for Information Technology and Systems (SAITS), and the approval of a national framework for e-government, has provided a framework for spending on information and communication technology (ICT) initiatives. In March 2008 the EU said that it would grant Bulgaria EUR300mn from structural funds for development of IT. The government had already become the country’s largest purchasers of IT equipment and services, accounting for as much as 50% of all sales in the market.

Stronger than expected growth in the computer hardware market last year led BMI to upwardly revise its IT sector forecasts. Growth should continue, albeit at a slower rate, with a compound annual growth rate (CAGR) of 14% projected for the 2008-2013 period. EU accession will continue to drive spending by enterprises, with most demand still coming from larger and foreign owned companies. However, smalland medium-sized enterprises (SMEs) represent an increasing opportunity.

Industry Developments Bulgaria’s IT governing body, the State Agency for Information Technology and Communications (SAITC) has set a goal for IT to account for 10% of Bulgaria’s GDP by 2011. Key policy areas include programmes to computerise schools and connect them to the internet, raising Bulgaria into the top 40 countries in terms of e-government, and investing in skills training to boost the domestic IT sector.

In addition to local funding, Bulgarian organisations have access to EU funds. In March 2008 the EU said that it would grant Bulgaria EUR300mn from structural funds for development of IT. In July 2007 the EU announced that it would make substantial sums available to Bulgaria under its Competitiveness and Innovations Programme, which will include EUR728mn earmarked for policies in the ICT sector.

One of SAITC’s flagship programmes is the development of a schools network, which has already connected 3,200 schools as of mid-2008. In 2008 the government also confirmed e-government as one of the key components of its drive to modernise administrative procedures. Recent major projects include an online tax declaration system at the National Revenue Agency, and a multi-phase project to provide a new IT system for National Health Insurance.

Company News HP, Fujitsu Siemens, Dell and Acer are among the market leaders for Bulgaria PC sales as global brands capture a steadily increasing share. Meanwhile Toshiba was the market leader for laptops with a market share of more than 20%. In the past one-two years, Toshiba has mounted a strong challenge in the local market, recording high market share growth. There were around 36 IT distributors in Bulgaria with more than EUR234.5mn of combined revenues in 2007.

Most of the major software vendors are present in Bulgaria, either through a subsidiary, or through local distributors and partners. Microsoft and SAP dominate, with Microsoft recently signing an agreement with the State Administration Ministry to purchase software licenses for use within government. Under the agreement, signed with Microsoft in December 2007, the Bulgarian government will purchase licenses for Windows and Office software for 60,000 PCs and 2000 servers. .

The increasing number of large IT projects is leading major vendors to increase investment in local IT services and BPO infrastructure. IBM said that it expected to post double-digit growth in Bulgaria in each of the next five years. Like HP, IBM has based its growth projections on services expansion, and intends to focus on some value added services such as consultancy and financial sector solutions.

Computer Sales Sales of computers, including PCs, notebooks and accessories were expected to top US$494mn in 2009.

The segment is forecast to grow at a CAGR of 13% between 2008-2013. Notebooks were leading the way with an estimated 50-60% growth in 2007, and in 2008 were expected to surpass desktop unit sales for the first time. There was no sign in the first half of 2008 of the computer market being affected by the global financial crisis, unlike some other regional markets such as Slovenia. Increased sales reflected enhanced purchasing power among the population as steady economic growth continues, as well as more creative financing schemes by retailers.

Software BMI predicts a software market value of US$30mn in 2009, up 13% year-on-year (y-o-y), but accounting for only 11% of IT spending. Although the software market is small, many software transactions belong to the shadow economy and are therefore not included in this figure. Growing investments in hardware are cumulatively feeding demand for software and solutions. In the enterprise sector, the enterprise resource planning (ERP) market is still in a fast growth phase with installations running at more than 500 annually. Looking ahead, an environment of privatisation and modernisation is likely to drive growth, particularly in sectors like utilities, telecoms and banking.

Services The IT services sector was worth around US$148mn in 2008. The segment is projected to grow to more than US$292mn by 2013. IT services market CAGR for the period is estimated at 15%. Major EU-funded projects are coming on stream as Bulgaria attempts to improve its position across a range of ICT indicators. Economic reform, such as the recent liberalisation of the telecom sector, consolidation in the retail sector, and the privatisation of BTC, should provide further market support. Outsourcing in particular represents an opportunity for IT vendors looking to diversify their customer bases.