Bulgaria has realized the need to attract foreign investment and has one of the most liberal foreign investment laws in the region. The 1997 Foreign Investment Law set up the Foreign Investment Agency (FIA) to administer the regime. In 1999, currency laws were liberalized to conform with IMF Article VIII obligations. Foreign investors can enter into joint ventures, start new (greenfield) ventures, purchase companies in Bulgaria's privatization process, or acquire portfolio shares. The law governing privatizations is the 1992 Law on the Transformation and Privatization of State and Municipal Enterprises. In November 2000, amendments were made to enhance the transparency and efficiency of the privatization process and to bring it under Parliamentary control, but domestic political turmoil and austerity under an IMF stand-by program combined with the external economic slowdown to bring foreign investment in privatization to a low of less than $20 million in 2001. By 2000, about 78% of the state enterprises slated for privatization had been sold off with foreign investors participating mainly through direct cash purchases. The government encourages the use of Brady bonds (debt-for-equity swaps) in payment instruments. Bulgarian bad debt bonds (Zunks) can be purchased on the local market at a 30–35% discount on the face value and are accepted at a 40% premium in privatization sales.
Under legislation from 1987 and since revised, Bulgaria has six free zones where companies with foreign participation can receive equal or preferential treatment. The most profitable free zone is the one at Plovdin. Others are on the Danube (at Ruse and Vidin), near the Turkish border (at Svilengrad), near the Serbia-Montenegro border (Dragomen), and on the Black Sea (at Burgas, which has the most advanced warehousing and transshipment facilities).
In 1992, foreign direct investment (FDI) was $34.4, mostly from Austria and Hungary. In 1993, FDI jumped to $102.4 million, $22 million from privatization and over half ($56 million) from Germany. By 1997, FDI inflow had risen to $636.2 million. Most ($421.4 million) came from privatization sales and the largest source was Belgium ($264 million). In 1998, the effects of the Russian financial crisis helped produce the first post-independence decline to $620 million; $155.8 million was from privatization and Cyprus was the largest source ($109 million), mainly from Stambouli Enterprises. In 1999, FDI inflow recovered to $818 million, with $226.7 million coming from privatization sales and with Germany, Cyprus, and Russia each the source of over $100 million FDI. FDI inflow peaked in 2000 at $1 billion, with $366 million from privatization. The largest sources were Italy ($339.7 million) and Greece ($241million). The global economic slowdown beginning in 2001 reduced FDI inflow to $812.9 million in 2001 and to an estimated $478.7 million in 2002. Contributions from privatization reached a low of $19.2 million, recovering to an estimated $135.6 million in 2002. In 2001, Greece ($240.2 million) and Italy ($146.5 million) were the sources of the largest investments, and in 2002, the only FDI inflow over $100 million was from Austria ($137.7 million). The main source of disinvestments to date has been Korea (Daewoo and Hyundai), with negative flows of -$9.2 million in 2001 and -$41.3 million in 2002.
From 1992 to 2002, total FDI inflow was $5.14 billion, $1.58 billion from privatization sales. Sources include at least 25 countries, with the top five being Greece (12.4%), Germany (12.2%), Italy (10.5%), Belgium (9.4%), and Austria (8.7%). The sectors receiving the most net FDI 1998 to 2002 were banks and other financial activities (23.5%); trade and repair services (14.1%); telecommunications (9.1%); petroleum, chemicals, rubber and plastics (7.2%); and mineral products including cement and glass (6.8%).
Capital markets are small and underdeveloped in Bulgaria. The new Bulgaria Stock Exchange opened in 1998 with 998 companies and a total market valuation of $992 million. In December 2001, there were 399 listed companies with a market capitalization of $505 million.