The Bulgarian Market Analysis for JTI Tobacco Company

Japan Tobacco Inc. is one of the largest tobacco companies that operates in a large number of countries in Africa, Asia, Middle East, Europe, as well as Northern America. In Europe, JTI has been an important player for sustaining the economy of the countries, especially Bulgaria. The company sees a great potential in developing and sustaining its business in Bulgaria as well as the provision of employment for the population (JTI Bulgaria, n.d., para. 4). Thus, to understand the benefits and risks the Bulgarian market can offer Japan Tobacco Inc., it is crucial to outline its economic, financial, and political as well as other areas.

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Bulgarian Economy

In the recent years, Bulgaria’s economy has expanded at an astonishing rate. Furthermore, the economy is expected to grow in 2016 due to the decrease in prices on oil that has been a significant contributor to the growth of the external sector. Moreover, the absorption of funds that came from the European Union alongside with public investment has also given a boost to the economy. Despite the fact that the stable economic growth of the country has contributed to the restoration of the trust of foreign investors, the Bulgarian banking sector is created from the Greek bank subsidiaries, which means that the country can be highly influenced by the economic instabilities in Greece (Focus Economics, 2016, para. 1).

It is forecasted in 2016 than the excess signs that caused the bankruptcy of the Bulgaria’s fourth-largest bank will still be present in the economy. Businesses and households will be forced to be cautious due to the continued credit reduction and the tightening of the budget. In addition, the EU will be monitoring the quantity and the quality of awarded contracts. The export of goods like cereal, sunflower seeds, clothing, tobacco, steel, and copper are forecasted to increase in moderation (Coface, 2016, para. 2).

The most significant risk in the sector of economy is the widespread corruption. On the other hand, when it comes to particular industries like the tobacco industry, the economy makes a good profit. Furthermore, the high rates of FDI (Foreign Direct Investment) will be instrumental in encouraging investments and minimizing existing risks.

Financial Sphere of the Republic of Bulgaria

The 2014 banking instability has revealed the weakness in the supervisory and institutional areas. The fact that the supervisory bodies have failed to detect and manage significant issues in the country’s fourth-largest bank, Corporate Commercial Bank, is indicative of the shortcomings within the financial sector along with the appearance of financial risk. Thus, such state of the country’s financial area undermines the credibility of the supervision of the banking system at the same time with increasing doubts about the stability of the financial sector.

The second feature of the Bulgarian financial sector is the increasing pressure on the non-financial corporations that negatively influences the growth of investments. A significant part of corporate liabilities that also constitute a part of the negative international investment position have taken a form of the intra-company loans that come from across the border. However, the pressure from deflation can significantly undermine the debt servicing capacity of the companies. In addition, some areas of Bulgaria’s economy can be faced with credit limitations during the restructuring of the banking sector after the Corporate Commercial Bank’s downfall (Macroeconomic Imbalance Country Report – Bulgaria 2015, 2015, p. 8).

Political Risks

The political instability connected with the demonstrations over the rise of energy prices and the decline of standards of has shaken the country. Thus, the increasing political fragmentation, as well as the deadlock in the parliament will continue to undermine the process of political reforms. Because of the slow progress, the European Union will proceed with the implementation of a supervision program over Bulgaria.

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Moreover, the fact that the country was ruled by three various elected governments, the desperate need for the reforms for reducing corruption, privatizing the state-owned enterprises, and liberalizing the labor market. While the Bulgarian Prime Minister with his administration did not manage to resolve the above-mentioned issues, it is believed that the political risk profile has been improved as a result of the newfound stability in the country (The Economist, 2015, para. 4).

Recent History and Risks

The 2003-2009 deficits left the country with a large burden of debt to be paid to foreign creditors. At the end of 2014, the gross external debt was over forty billion Euro that accounts for almost 95% of the country’s GDP. To go further, the share of the public sector in the debt was 84%.

The imbalance in the banking sector has caused Bulgaria to commit to the fiscal prudence on the long-lasting basis. In 2014 and onward the instability on the banking sector acquired a fiscal cost, for instance, the Bulgarian government has lent two billion Bulgarian Lev to the State Deposit Guarantee Fund. According to Euler Hermes (2015) in the Bulgaria report, the public sector debt will fall below 30% of the Gross Domestic Product in the next decade, an indicator which is still considered very low by the standards of the European Union (p. 3).

General Risk Indicators

Bulgaria offers a stable security environment for those investors that only recognize the limited risks of violent activities. The country has a quite peaceful relationship with the neighboring countries. Bulgaria’a membership in the European Union and NATO ensures stability when it comes to any conflicts. Despite the fact that country plays a role of a transition ground for the Islamist militants, there have not been any issues on the matter. Nevertheless, the most prominent risks that may scare investors off is the widespread existence of organized crime and corruption. The entrance of Bulgaria into the European Union in 2007 has contributed to the Labor Market prospects of the country to adopt the widespread legislation that will benefit the issues of gender equality, free access to education as well as the improvement of labor.

Furthermore, the small size of Bulgarian population will contribute to the unwillingness of foreign investors to do business in the country. The overall score of the Bulgarian Labour Risk is almost 57 our 100, which rank the country in the fourteenth place among thirty countries in Emerging Europe (BMI Research, 2015, para. 5).

Geography, Natural Resources, and Existing Industries

The Republic of Bulgaria is located in the south-eastern part of Europe on the Balkan Peninsula. More than 70% of the Bulgarian population live in the cities while 30% prefer to live in the villages. The political-geographic structure consists of three main units: municipalities, districts, and planning regions (Bulgarian National Reporting to CSD-18, n.d., p.1).

The sustainable development of the country is connected with the maintenance of the balance between the needs of the population and preservation of natural resources. The natural resources in Bulgaria are owned by the state, and its exploitation is only permitted under the provision of the researching and mining rights. The natural resources under the possession of the Republic of Bulgaria are copper, zinc, coal, timber, bauxite that are of the commercial importance.

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However, the sector of the Bulgarian mining will remain relatively small. Thus, this sector has no significance in the Eastern European scale; however, being able to supply the domestic industry. Because of the above-mentioned facts, the BMI research platform forecasts a downfall of the mining industry in the following decade.


BMI Research. (2015). Bulgaria. Web.

Bulgarian National Reporting to CSD-18. (n.d.). Web.

Coface. (n.d.). Risk Assessment. Web. 

Euler Hermes. (2015). Country Report Bulgaria. Web.

Focus Economics. (2016). Bulgaria Economic Outlook. Web.

JTI Bulgaria. (n.d.).  Web.

Macroeconomic Imbalance Country Report – Bulgaria 2015. (2015). Web. 

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The Economist. (2015). Bulgaria Analysis. Web. 

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