Bulgaria Tourism Report 2014

2014www.businessmonitor.com

BULGARIATOURISM REPORTINCLUDES 5-YEAR FORECASTS TO 2017

ISSN 1747-8839Published by:Business Monitor International

Bulgaria Tourism Report 2014INCLUDES 5-YEAR FORECASTS TO 2017

Part of BMIs Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: October 2013

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CONTENTS

BMI Industry View ............................................................................................................... 7

SWOT .................................................................................................................................... 9

Political ................................................................................................................................................. 10Economic ............................................................................................................................................... 11Business Environment .............................................................................................................................. 12

Industry Forecast .............................................................................................................. 13Inbound tourism ..................................................................................................................................... 14

Table: Inbound Tourism, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Table: Inbound Tourism, Top 10 Markets by Arrivals, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Outbound Tourism ................................................................................................................................. 15Table: Outbound Tourism, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Table: Outbound Tourism, Top 10 Destinations by Departures, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Travel & Receipts .................................................................................................................................. 17Table: Methods of Travel, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Table: Tourism Receipts, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Hotels .................................................................................................................................................. 19Table: Accommodation Data, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Table: Domestic Hotel Industry Value, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Industry Risk Reward Ratings .......................................................................................... 22Table: CEE Risk Reward Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rewards ............................................................................................................................................... 23Risks .................................................................................................................................................... 23

Table: Europe Regional Security Ratings (scores out of 100, with 100 the best) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Market Overview ............................................................................................................... 25Table: Top 10 Global Hotel Groups Presence in Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Table: Bulgaria Airports Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Company Profile ................................................................................................................ 29Albena ................................................................................................................................................... 29

Global Industry Overview .................................................................................................. 30Table: Global overnight stays and average length of stay, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Table: Hotel Indicators, 2010-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Global Assumptions .......................................................................................................... 35Table: Global Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Table: Global And Regional Real GDP Growth, % chg y-o-y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Developed States .................................................................................................................................... 39Table: Developed States, Real GDP Growth Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Emerging Markets .................................................................................................................................. 40

Bulgaria Tourism Report 2014

Business Monitor International Page 4

Table: Emerging Markets, Real GDP Growth Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Table: BMI Versus Bloomberg Consensus Real GDP Growth Forecasts (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Demographic Forecast ..................................................................................................... 43Demographic Outlook .............................................................................................................................. 43

Table: Bulgaria's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Table: Bulgaria's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Table: Bulgaria's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Table: Bulgaria's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Methodology ...................................................................................................................... 47Industry Forecast Methodology ................................................................................................................ 47Risk/Reward Rating Methodology ............................................................................................................. 48

Table: Tourism Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50



BMI Industry View

BMI View: We believe that the low cost of land and lack of luxury accommodation make for a goodinvestment environment for international hoteliers and this is likely to encourage further enlargement oftheir national footholds in the future. Further, although continuing economic uncertainty might affectBulgaria's tourism industry in the short term, we expect a strong recovery in the future as the regionbenefits from improving consumer spending and a growing middle class.

Moreover expanding in Bulgaria and in the wider CEE region is a key strategy for many of the top global

hotel chains, the majority of which currently have a rather limited presence in the country, where present atall. Equally, we expect Spa tourism to continue to develop, as it is likely to become a key growth area for

the Russian market. Finally, we anticipate that many hotels and chains will target business tourism, and

meetings, incentives, conferences and exhibitions tourism could be another growth area.

Bulgaria is in the enviable position of being able to appeal to both Western and Eastern European source

markets in the years ahead, which should bolster its tourism industry. To raise Bulgaria's profile across

Europe and among the wider travelling public, in September 2012 the Ministry of Economy, Energy and

Tourism launched a month-long promotional campaign at Frankfurt Airport. Three billboards based on the

themes of the sea, culture and ecotourism were promoted at the airport in association with airport operator

Fraport - which also operates Varna and Burgas airports in Bulgaria.

However, BMI believes unrestrained hotel construction activity in some of the country's largest seaside and

mountain resorts, a shortage of skilled workers in the tourism sector and relatively underdeveloped

infrastructure remain key areas the Bulgarian authorities need to address in order to ensure the sustainable

development of the tourism industry.

Recent developments include:

A new passenger terminal has opened at Varna Airport, reports Airport Technology. The BGN75mn (US$51mn) facility will serve as a gateway to the Black Sea region of Bulgaria. It has an area of 20,000square metres and is approximately three times the size of the previous terminal. Varna Airport served atotal of 1.2mn passengers in 2012

A new railway bridge has opened between Bulgaria and Romania, reports Railway Gazette International.The Danube 2 Bridge will run between Vidin in the former country and Calafat in the latter. It is part ofthe Pan-European Corridor IV which spans a vast section of the continent encompassing Dresden inGermany, Istanbul in Turkey and Thessaloniki in Greece. The line will be used to transport both freightand passenger traffic.



The Sturma motorway development project in the Yugozapaden region of Southwest Bulgaria hassecured EUR274mn (US$359.48mn) in financial assistance from the European Commission (EC). Workcomprises the construction of a dual carriageway between Dolna Dikanya and Blagoevgrad, and fromSandanski to the border crossing with Greece at Kulata.

Key BMI Forecasts include:

We expect total arrivals to reach 9.5mn over 2014.

Of this, the majority will come from Europe, which will account for 8.8mn tourists over 2014. The number of hotels will rise to 2,700 (an increase of almost 5% year on year) and the overall value of

the hotel industry will reach US$1.14bn.



SWOT

SWOT Analysis

Strengths Government investment in the industry is relatively high.

Well-developed summer and winter holiday resorts.

Growing Russian source market.

Increasingly well developed international connections via road and rail.

Investment in airport expansions

Weaknesses Regional rivals such as Greece and Turkey are better established as holiday

destinations.

Unrestrained hotel construction activity has damaged the natural environment and put

a strain on the country's electricity supply.

Hotels in Sofia are arguably overly reliant on business trade, with low occupancy rates

reported on weekends.

Limited global hotel group presence due to relatively static market at present.

Opportunities The low cost of land and lack of luxury accommodation make for a good investment

environment for international hoteliers.

Spa tourism could become a key growth area, particularly for the Russian market.

Meetings, incentives, conferences and exhibitions tourism could be another growth

area.

Threats A shortage of skilled workers in the tourism sector.

Underdeveloped infrastructure.



Political

SWOT Analysis

Strengths EU membership has provided a powerful stabilising anchor amid the international

financial and economic crisis. As a member of the bloc, Bulgaria benefits from the

EU's institutional support mechanisms.

Weaknesses Massive political unrest and the resignation of the government will likely presage a

prolonged period of political uncertainty and protest.

Opportunities EU membership will provide opportunities for further reform, both through closer

economic integration with, and substantial financial aid from, the bloc. Eurozone

ambitions will continue to anchor the government's macroeconomic policy.

Threats Despite some progress, extensive action to address corruption, reform the criminal

justice system and create administrative capacity is still required, and Brussels

reserves the right to impose penalties if EU members fail to make progress.



Economic

SWOT Analysis

Strengths Although Bulgaria's current account swung back into deficit in 2012, we maintain our

view that the economy is headed towards a more sustainable long-term external

position.

Having stood firm for over 10 years, Bulgaria's currency board has become a bastion

of price stability.

Weaknesses Rising competition in key eurozone markets for Bulgarian exporters from regional

peers such as Romania and Croatia will weigh on revenue growth.

Opportunities Despite the deep recession in 2009 and overhang of private sector debt, real

convergence gains with Western Europe remain in play.

Threats Bulgaria remains vulnerable to deterioration in the eurozone crisis, not least because

of strong links between Greece and the banking sector.

Monetary policy is restricted by the Currency Board Arrangement leaving the

government with fiscal policy as the only main lever with which to steer the economy.



Business Environment

SWOT Analysis

Strengths Financial sector reform has deepened the domestic capital market, improved the

extent of financial intermediation and reduced systemic risk.

The process of political and economic transformation has been accompanied by a

successful modernisation of the legal framework governing commercial transactions.

Weaknesses A lack of adequate personnel and technical resources in the judicial system

undermines its independence and law enforcement.

Despite a strong political commitment to anti-corruption initiatives, the authorities

have not reduced graft to acceptable EU levels.

The reliability of official retail sales statistics has been questioned and actual retail

sales may be higher than stated. The size of the Bulgarian grey economy, estimated

by the World Bank to be near 40%, hinders research and underestimates real

purchasing.

Opportunities The proposed privatisation of a number of state-owned assets in the energy sector

should present opportunities for foreign capital investment in Bulgaria.

Continuing convergence of the private sector regulatory framework to the EU model

should improve transparency.

Threats Reports of corruption in the tax administration system create an unfavourable

impression of the business environment.

A concern for retailers is the soaring cost of land, particularly in and around major

cities. Real estate companies have said there are almost no vacancies and a premium

has to be paid for modern facilities.



Industry Forecast

BMI View: Overall we believe the Bulgarian tourist industry will continue to see stable growth between

2013 and 2017. Although coastal receipts and occupancy rates were down over the summer months, winter

ski and spa resort figures showed good growth and the number of tourists, particularly from key regionalneighbours, will continue to grow.

Overall, Bulgaria has seen an increase of almost 6%

in tourist arrivals year-to-date (y-t-d) from the samepoint in 2012. This has led the country's revenue

from tourism to increase by over 3% y-o-y from

revenues at the same time last year and the tourism

industry has grown at almost twice the pace of

projected economic development.

There is strong government backing for the

development of the tourist industry and we believe

that this makes the country's tourism sector an

attractive proposition for many potential entrants.

Plus, Bulgaria is attempting to develop more sports-

related tourism to move annual international tourism

revenue towards EUR5bn over the coming years.

However, it is not as successful at attracting the

burgeoning CEE inter-regional tourism as some of

its peers and this has led to less large hotel group investment developments than can be seen in nearby

countries such as Ukraine. We also warn that unrestrained hotel construction activity in some of the

country's largest seaside and mountain resorts, a shortage of skilled workers in the tourism sector and

relatively underdeveloped infrastructure remain key areas the Bulgarian authorities need to address in order

to ensure the sustainable development of the tourism industry. Moreover, hotels in Sofia are arguably overly

reliant on business trade, with low occupancy rates reported on weekends. These issues could result in

downside risks to our forecasts if not properly dealt with.

More In Than Out

Total Arrivals and Outbound Departures ('000)2000-2017

TOTAL ARRIVALS: Total arrivals, '000TOTAL DEPARTURES: Out-bound, total departures~ '000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

5,000

10,000

15,000

Notes: BMI



Inbound tourism

Tourist arrivals have grown over 2013 by 4% according to our forecasts and will continue to see 4% growth

year on year through to 2017. Of this the majority come from Europe, which will see growth of almost 4%over 2013.

However, due to economic uncertainty across many countries in Asia the overall number of Asian tourists

to Bulgaria declined over 2013, and will continue to do so through to 2017, as will those from North

America. Meanwhile we project that the fastest rate of growth will be seen in Middle Eastern tourist arrivalswhich will reach double digits in 2013.

Table: Inbound Tourism, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Total Arrivals, '000 8,374.03 8,712.82 8,866.55 9,221.22 9,590.06 9,973.67 10,372.61 10,787.52

Total Arrivals, '000, %change y-o-y 6.37 4.05 1.76 4.00 4.00 4.00 4.00 4.00

In-bound, arrivals byregion, North America,'000 77.04 80.33 85.38 85.57 80.99 77.54 74.75 73.40

In-bound, arrivals byregion, North America,% change y-o-y 1.41 4.27 6.29 0.22 -5.35 -4.26 -3.60 -1.80

In-bound, arrivals byregion, Asia Pacific,'000 9.97 10.24 11.15 11.47 10.86 10.44 10.12 10.06

In-bound, arrivals byregion, Asia Pacific, %change y-o-y 17.86 2.68 8.91 2.87 -5.29 -3.90 -3.05 -0.54

In-bound, arrivals byregion, Europe, '000 7,736.25 7,984.95 8,118.17 8,439.47 8,779.45 9,136.20 9,506.34 9,891.83

In-bound, arrivals byregion, Europe, %change y-o-y 6.40 3.21 1.67 3.96 4.03 4.06 4.05 4.06

In-bound, arrivals byregion, Middle East,'000 131.14 138.95 95.59 106.19 117.12 123.78 130.66 135.45

In-bound, arrivals byregion, Middle East, %change y-o-y 22.77 5.95 -31.21 11.09 10.29 5.69 5.56 3.66

Source: BMI, ILO, UN



In early October 2013, Deputy Economy and Energy Minister Branimir Botev announced that Russian

inbound tourists had seen the largest increase in arrivals year-on-year, and this is reflected in our forecasted

arrivals increase from just over 600,000 to almost 670,000 over 2013. Botev announced that due to theincrease in Russian tourists, more consulates would open in Russia to process visa applications. In light of

factors such as these, we believe Russian tourist arrivals will grow to almost 900,000 by 2017. This was an

impressive increase given the 2012 bankruptcy of tour operator Bulgarian VIP Tours (BVT), which dealtprimarily with Russian tourists. BVT's financial problems reportedly stemmed from the 2010 collapse of

Russian tour operator Capital Tour, which owed BVT about EUR2mn when it ended

operations. Meanwhile, national statistics have shown that over 2012-2013, most of Bulgaria's winter

tourists were Greeks followed by Romanians. The Turkish tourists came in at the fourth place with 104,375

visitors over the winter months.

Table: Inbound Tourism, Top 10 Markets by Arrivals, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Romania 1,445.34 1,499.42 1,468.18 1,493.38 1,646.05 1,753.48 1,863.51 1,971.68

Greece 1,017.91 1,120.64 1,087.26 1,112.70 1,002.52 917.58 847.75 811.40

Turkey 943.14 860.65 984.21 1,045.89 1,068.30 1,092.70 1,136.60 1,206.89

Germany 853.43 836.85 784.68 812.42 812.25 811.95 812.97 813.28

Russia 389.86 469.77 609.63 667.28 711.14 764.80 822.35 874.70

Macedonia 409.97 439.68 424.18 456.85 556.76 638.39 706.49 765.90

Ukraine 199.08 251.80 325.94 335.85 349.63 387.44 438.52 477.64

Poland 294.13 289.74 286.27 301.72 354.64 411.30 433.41 453.00

United Kingdom 309.48 306.94 282.08 285.16 296.90 308.91 331.40 332.58

Austria 181.58 186.44 185.24 188.52 209.38 224.11 236.05 241.66


Outbound Tourism

Outbound tourism in Bulgaria is set to see a steady increase over the next few years, with 6.6% growth

forecast for 2013 alone. This is in spite of a declining economy according to our projections. Ourdowngrades to our real GDP forecasts last quarter are looking increasingly likely to be realised as an

economic slowdown continues to take hold in Bulgaria. In June, the government announced that even its

modest expectations for 1.0% growth were unlikely to be achieved, with Prime Minister Plamen Oresharski

stating that "the estimates that the previous government made about economic growth were a bit sweetened



up". However our positive outlook for outbound tourism is due to a number of factors such as the fall in

unemployment levels, and stable household spending.

Table: Outbound Tourism, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Total Out-bound, touristdepartures, '000 3,481.43 3,605.85 3,727.31 3,974.63 4,154.81 4,305.08 4,471.57 4,673.64

Out-bound, tourist departures,% change y-o-y 0.80 3.57 3.37 6.64 4.53 3.62 3.87 4.52

Average Tourist Departure per1000 of the population 0.47 0.49 0.51 0.55 0.58 0.61 0.63 0.67

Out-bound, resident departuresby destination, Africa, '000 22.68 21.29 24.34 23.67 24.19 25.07 26.16 27.58

Out-bound, resident departuresby destination, Africa, %change y-o-y 4.27 -6.14 14.35 -2.76 2.17 3.67 4.34 5.42

Out-bound, resident departuresby destination, North America,'000 35.46 38.97 40.42 40.75 42.27 43.71 45.13 46.63

Out-bound, resident departuresby destination, North America,% change y-o-y -1.16 9.92 3.71 0.82 3.72 3.43 3.24 3.32

Out-bound, resident departuresby destination, Latin America,'000 4.47 5.35 5.06 5.03 5.40 5.88 6.02 6.37

Out-bound, resident departuresby destination, Latin America,% change y-o-y 16.13 19.60 -5.39 -0.65 7.38 8.91 2.48 5.81

Out-bound, resident departuresby destination, Asia Pacific,'000 3.05 4.14 5.17 4.94 5.51 6.08 6.65 7.30

Out-bound, resident departuresby destination, Asia Pacific, %change y-o-y -0.94 35.48 25.13 -4.54 11.64 10.26 9.36 9.72

Out-bound, resident departuresby destination, Europe, '000 3,399.66 3,520.86 3,637.97 3,885.10 4,061.58 4,207.72 4,370.24 4,567.60

Out-bound, resident departuresby destination, Europe, %change y-o-y 0.66 3.57 3.33 6.79 4.54 3.60 3.86 4.52

Out-bound, resident departuresby destination, Middle East,'000 16.11 15.25 14.35 15.15 15.88 16.61 17.37 18.16

Out-bound, resident departuresby destination, Middle East, %change y-o-y 33.30 -5.35 -5.92 5.58 4.82 4.66 4.53 4.55




Greek arrivals into Bulgaria are likely to decline somewhat under the continuing economic tribulations,

however we believe that Bulgarian tourists travelling to Greece will increase. This is not only due to

economic considerations but also because travel is becoming easier. Earlier in September 2013, a road

between Bulgaria and Greece, through the Makaza Pass, was opened. Other roads and railways are also

being constructed to facilitate trans-boundary travel between Bulgaria and its regional peers and this will

continue to encourage out bound travel by Bulgarians, particularly to Greece, Turkey, and Romania. Many

also travel to Western Europe in search of jobs.

Table: Outbound Tourism, Top 10 Destinations by Departures, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Turkey 1,433.97 1,491.56 1,492.41 1,569.25 1,607.42 1,621.19 1,645.79 1,708.25

Romania 786.00 797.00 944.00 1,013.67 1,032.44 1,058.80 1,090.15 1,135.70

Greece 664.39 686.21 599.11 685.70 744.91 798.27 848.90 886.49

Hungary 133.91 116.19 125.30 144.15 172.38 195.90 222.75 246.23

Germany 56.00 68.34 72.00 72.13 72.74 73.33 73.90 74.51

Austria 53.92 63.92 68.24 71.81 75.56 79.52 83.68 88.05

Ukraine 27.10 31.66 45.96 38.39 43.57 47.50 50.24 52.60

Russia 38.45 40.43 45.50 46.71 50.83 54.33 59.16 63.45

USA 35.46 38.97 40.42 40.75 42.27 43.71 45.13 46.63

Croatia 30.00 37.00 36.54 34.52 36.47 39.02 41.38 43.83


Travel & Receipts

Air passenger numbers continue to increase in Bulgaria, largely due to the completion of a number of

airport expansions in the country, with a particular emphasis on passenger terminals. According to our key

project database, US$66mn worth of airport projects are either underway or recently completed.

Moreover there are a great deal of road and rail projects which are also facilitating further travel, howeveras more cheap flights and package holiday airlines set up in Bulgaria, there will be a corresponding decrease

in the number of rail passengers as cheap flights become an increasingly viable alternative.



Table: Methods of Travel, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Air transport passengerscarried, mn, out-bound 0.80 0.93 0.95 1.05 1.12 1.18 1.25 1.33

Air transport passengerscarried, mn, out-bound, %change y-o-y 0.46 16.34 1.51 10.44 7.08 5.51 5.79 6.64

Air transport, registered airlinedomestic and non-domestictakeoffs, '000 11.32 11.32 11.32 11.70 11.96 12.18 12.41 12.69

Air transport, registered airlinedomestic and non-domestictakeoffs, '000, % change y-o-y 0.75 0.00 0.00 3.32 2.27 1.81 1.93 2.26

Domestic Railway passengerscarried, mn per km 2,100.00 2,100.00 2,089.50 2,076.96 2,064.50 2,052.11 2,039.80 2,027.56

Domestic Railway passengerscarried, mn per km % changey-o-y -2.05 0.00 -0.50 -0.60 -0.60 -0.60 -0.60 -0.60

Source: BMI, UN, ILO

Meanwhile, although tourist figures are up, the summer season coastal tourist numbers are lower than

expected, and profits are down, disappointing investors. Moreover, a large number of these tourists are at

the lower budget end of the spectrum which further contributes to poor profits. For example, according to

national statistics, the number of tourists who have visited Bulgaria's Black Sea coast during the summer of

2013 increased by only 5% comparing it to last year.

Contrastingly, the revenue from the Bulgarian winter tourism season 2012/2013 almost reached EUR 417

million, data from the National Statistics Institute shows. This is a 4.9% year-on-year increase compared to

the season in 2011/2012 and during this period through till March 2013, 1,063,852 tourists visited the

Bulgarian winter resorts. This shows that spa tourism and skiing continue to show profits and room for

growth, in contrast to Bulgaria's summer tourism.

Table: Tourism Receipts, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

International tourism, totalreceipts, US$bn 4.04 4.55 4.65 4.96 5.41 5.92 6.51 7.15

International tourism, totalreceipts, US$bn, % change y-o-y -5.57 12.86 2.07 6.73 9.02 9.51 9.90 9.83



Tourism Receipts, 2010-2017 - Continued

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

International tourism, receiptsfor transport services, US$bn 0.46 0.53 0.54 0.57 0.62 0.67 0.73 0.80

International tourism, receiptsfor transport services, US$bn,% change y-o-y -6.64 14.87 1.79 5.86 7.91 8.43 8.86 8.88

International tourism, receiptsfor transport services, BGNbn 0.69 0.75 0.83 0.85 0.96 1.07 1.19 1.30

International tourism, receiptsfor transport services, BGNbn,% change y-o-y -1.98 9.40 10.11 2.53 13.00 11.95 11.58 8.88

International tourism, receiptsfor transport services, EURbn 0.35 0.38 0.43 0.43 0.49 0.55 0.61 0.66

International tourism, receiptsfor transport services, EURbn,% change y-o-y -1.46 9.62 11.41 1.08 13.00 11.95 11.58 8.88

International tourism, receiptsfor travel items, US$bn 3.57 4.02 4.11 4.39 4.79 5.25 5.78 6.35

International tourism, receiptsfor travel items, US$bn, %change y-o-y -5.43 12.60 2.10 6.85 9.16 9.65 10.03 9.95

International tourism, receiptsfor travel items, BGNbn 5.27 5.66 6.25 6.46 7.39 8.37 9.44 10.38

International tourism, receiptsfor travel items, BGNbn, %change y-o-y -0.71 7.24 10.45 3.50 14.32 13.22 12.78 9.95

International tourism, receiptsfor travel items, EURbn 2.69 2.89 3.23 3.30 3.77 4.27 4.81 5.29

International tourism, receiptsfor travel items, EURbn, %change y-o-y -0.19 7.45 11.75 2.03 14.32 13.22 12.78 9.95

Source: BMI, UN. ILO

Hotels

According to the Chairman of the Bulgaria Hotel and Restaurant Association, occupancy rate in Bulgarian

hotels is still down at only 20%. Earlier in 2013, he appealed to the government to implement anti-crisis

measures to boost the country's faltering hotel sector. In the announcement, he called for the introduction of

multiple-entry visas for Russian-speaking and Turkish tourists and for the allocation of 1% of the revenues

in the sector to external advertising. He argued that if these measures were implemented, 'the number of

holidaymakers from these countries is expected to grow by 10% on an annual basis over the next 5 years'.

He went on to say that such methods could boost occupancy rates to 30% though he and his association

were aiming for 40% over the longer term which he believed would allow Bulgaria to 'double tourism

revenues, turnover rates and visitor numbers in 5 years'



Table: Accommodation Data, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Number of Hotels andestablishments '000 2.42 3.78 2.76 2.57 2.70 2.87 2.86 2.88

Number of Hotels andestablishments '000 %change y-o-y -31.42 55.84 -26.96 -6.67 4.97 6.03 -0.03 0.63

Total overnight stays'000 9,383.75 12,461.28 13,451.44 14,709.11 16,017.08 17,377.38 18,792.08 20,263.37

Total overnight stays'000, % change y-o-y -0.94 32.80 7.95 9.35 8.89 8.49 8.14 7.83

Average length of stay,nights 5.07 5.14 5.11 5.04 5.07 5.06 5.06 5.06

Average length of stay,nights, % change y-o-y 4.24 1.48 -0.65 -1.39 0.60 -0.26 0.11 -0.05


Moreover, although overall domestic hotel industry value has seen a moderate increase over 2013, rising

from US$1,65bn to US$1,7bn, in September 2013 the prices of accommodation in hotels in Bulgaria fell,compared both to the previous month and to September 2012. This is mainly due to a fall in the prices at

seaside hotels and lower than expected coast-bound tourists. However this decline was countered by an

overall increase in hotel prices in other key destinations including Plovdiv and Sofia. The highest prices

continue to be in Albena

Table: Domestic Hotel Industry Value, 2010-2017

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Domestic Hotels andRestaurants Industry ValueBGNbn 1.53 1.59 1.65 1.70 1.76 1.84 1.92 2.01

Domestic Hotels andRestaurants Industry ValueBGNbn, % change y-o-y 19.03 3.52 3.67 3.40 3.29 4.41 4.80 4.49

Domestic Hotels andRestaurants Industry Value, US$bn 1.04 1.13 1.08 1.15 1.14 1.15 1.18 1.23

Domestic Hotels andRestaurants Industry Value, US$bn, % change y-o-y 13.37 8.69 -4.16 6.75 -1.37 1.12 2.24 4.49

Domestic Hotels andRestaurants Industry Value,EURbn 0.78 0.81 0.85 0.87 0.90 0.94 0.98 1.03



Domestic Hotel Industry Value, 2010-2017 - Continued

2010 2011 2012e 2013f 2014f 2015f 2016f 2017f

Domestic Hotels andRestaurants Industry Value,EURbn, % change y-o-y 19.65 3.72 4.89 1.94 3.29 4.41 4.80 4.49

Domestic Hotels andRestaurants Industry Value, %of GDP 2.18 2.11 2.12 2.11 2.09 2.07 2.05 2.02

Domestic Hotels andRestaurants Industry Value, US$ per capita 140.57 153.95 148.66 159.91 158.92 161.95 166.90 175.79

Domestic Hotels andRestaurants Industry Value, US$ per capita, % change y-o-y 14.24 9.52 -3.44 7.56 -0.62 1.91 3.05 5.33

Domestic Hotels andRestaurants Industry Value peremployee, US$ 6,503.82 6,875.72 6,401.50 6,652.69 6,393.24 6,244.65 6,148.64 6,201.88

Domestic Hotels andRestaurants Industry Value peremployee, US$, % change y-o-y 19.76 5.72 -6.90 3.92 -3.90 -2.32 -1.54 0.87




Industry Risk Reward Ratings

Bulgaria is in 20th place in the region with a score of 48.41. This puts it near the bottom of the pack,

between Serbia and Bosnia.

Table: CEE Risk Reward Ratings

Limits ofpotential

returnsTourismMarket

CountryStructure

Risks torealisation of

potentialreturns

Marketrisks

CountryRisk

TourismRating Rank

Hungary 54.41 40.83 74.78 70.70 59.50 79.87 59.30 1

Slovenia 55.30 40.83 76.99 67.71 57.86 75.77 59.02 2

Belarus 60.99 55.00 69.98 48.74 59.79 39.70 57.31 3

Estonia 47.50 38.33 61.24 73.62 65.30 80.43 55.33 4

Russia 50.73 48.33 54.31 64.87 65.10 64.68 54.97 5

Lithuania 49.00 43.33 57.50 68.10 60.05 74.69 54.73 6

Armenia 52.21 39.17 71.78 59.03 62.50 56.19 54.25 7

CzechRepublic 46.64 31.67 69.10 71.16 69.08 72.85 54.00 8

Moldova 52.97 53.33 52.43 54.96 53.73 55.96 53.57 9

Cyprus 48.22 45.00 53.04 66.02 56.85 73.53 53.56 10

Kazakhstan 50.19 41.67 62.98 59.71 69.69 51.55 53.05 11

Albania 50.51 45.00 58.78 56.17 61.04 52.19 52.21 12

Poland 48.45 35.83 67.38 60.64 50.46 68.97 52.11 13

Montenegro 47.88 32.50 70.95 58.81 66.35 52.64 51.16 14

Latvia 44.15 30.00 65.38 66.46 59.64 72.03 50.84 15

Macedonia 44.13 30.83 64.06 62.63 62.08 63.07 49.68 16

Kosovo 48.88 34.17 70.95 50.77 54.17 48.00 49.45 17

Croatia 42.72 33.33 56.80 62.65 63.35 62.09 48.70 18

Bosnia-Herzegovina 48.11 36.67 65.26 49.43 50.83 48.28 48.50 19

Bulgaria 43.58 35.83 55.20 58.78 52.34 64.05 48.14 20

Serbia 42.41 31.67 58.51 61.06 58.85 62.87 48.00 21

Ukraine 44.13 31.67 62.83 50.16 54.38 46.70 45.94 22

Slovakia 35.41 16.67 63.53 67.23 64.14 69.76 44.96 23

Turkey 42.40 41.67 43.49 42.76 25.88 56.58 42.51 24



CEE Risk Reward Ratings - Continued

Limits ofpotential

returnsTourismMarket

CountryStructure

Risks torealisation of

potentialreturns

Marketrisks

CountryRisk

TourismRating Rank

Romania 31.73 16.67 54.31 66.14 62.28 69.30 42.05 25

Source: BMI

Bulgaria's score is limited by a number of factors, ranging from relatively low consumer spending, and a

limited volume of outbound departures, to a smaller number of inbound arrivals than its regional peers and a

correspondingly reduced international receipt and hotel industry values.

Rewards

This is an evaluation of the sector's size and growth potential in each state, along with broader industry/

state characteristics that may inhibit its development. The reward ratings for tourism take into account the

numbers and % growth of tourist arrivals over the past year and our forecasts for future growth over 2014.

Bulgaria is only going to see limited growth over the next 12 months, regaining ground lost over the past

year, so this has substantially reduced its overall market rewards score, which is currently 35.83. The

Country Rewards score takes into account labour costs and infrastructure. Bulgaria scores poorly for this, in

comparison to a number of its neighbours, and is in 22nd place for infrastructure development, despite

ongoing expansions and a fairly healthy transport project pipeline as other CEE countries are investing farmore heavily in their infrastructure.

Risks

This offers an evaluation of industry-specific dangers and those emanating from the state's political and

economic profile that call into question the likelihood of anticipated returns being realised over the assessed

time period. The market risks score takes into account short term political stability and regional stability.

However, it also considers Bulgaria's vulnerability to external factors - in this case a further decline in the

European currency block, or a country (such as Greece) withdrawing all together, sending shock ripplesthrough the whole regional economy with a detrimental impact on Bulgaria and on investor confidence.

Finally, BMI's proprietary country risk scores cover corruption, legal framework, bureaucracy, market

openness and security risks. This is Bulgaria's highest score and it comes in at 11th in the region with a score

of 64.05.



Table: Europe Regional Security Ratings (scores out of 100, with 100 the best)

Interstate

riskTerrorism

risk Criminal risk

Compositedomestic

riskRegional

rank

Compositesecurity

rating Ranking

Slovenia 99 99 92 96 1 97 1

Poland 98 93 79 86 2 90 2

Czech Rep. 97 94 78 86 3 90 3

Germany 100 82 84 83 4 89 4

Slovakia 97 95 79 87 5 90 5

UK 95 75 95 85 6 88 6

France 96 77 89 83 7 87 7

Hungary 93 90 71 81 8 85 8

Romania 95 94 63 78 9 84 9

Italy 98 78 71 75 10 82 10

Spain 97 65 85 75 11 82 11

Croatia 96 92 63 78 12 84 12

Bulgaria 97 89 49 69 13 78 13

Belarus 71 96 69 82 14 78 14

Kazakhstan 88 79 58 69 15 75 15

Turkmenistan 82 79 53 66 16 71 16

Greece 73 71 65 68 17 70 17

Turkey 74 62 65 64 18 67 18

Russia 80 63 39 51 19 61 19

Ukraine 53 90 45 68 20 63 20

Uzbekistan 74 57 52 55 21 61 21

Kyrgyzstan 73 60 41 50 22 58 22

Bosnia &Herzegovina 49 74 51 63 23 58 23

Serbia 52 73 52 63 24 59 24

Tajikistan 67 48 35 41 25 50 25

Scores out of 100, with 100 the best; The 'Composite security risk rating' is the principal rating. It comprises 'Inter-state' -the risk of becoming a primary party to an inter-state conflict that threatens significant damage to homeland; 'Terrorism' -the risk of terrorist groups (domestic or international) being able to launch a major attack/sustained campaign; and'Criminal' - the risk of (politically motivated) violence against expatriate workers. Each of the three risks is given equalweighting. The 'Composite domestic security risk rating' comprises 'Terrorism' and 'Criminal', each of which is givenequal weighting. Each rating (State, Terrorism, Criminal) is assessed subjectively by our analysts within a clearly definedmethodology, incorporating a minimum of six conceptually distinct elements. Source: BMI



Market Overview

BMI View: As Bulgaria develops its tourism industry, BMI expects more high-end properties to be added

to the national accommodation supply, in order to attract higher net-worth tourists. Against this backdrop,

and provided the economic recovery can strengthen from 2013 into 2014, BMI believes a slow and steadygrowth trend in Bulgaria's hotel industry should take place over the forecast period to 2017.This will besupported by the strong rise in inbound tourist arrivals, facilitated by the recently completed airportpassenger terminals.

The Bulgarian Hotel and Restaurant Association (BRHA), established in 1993, is the representative body ofthe hotel industry. As well as actively promoting its members' business interests, the BRHA also works with

other state and public tourism bodies to develop the country's hotel industry.

The leading domestic player in the hotel industry is Albena. Foreign hotel chains operating in Bulgaria

include Accor, Best Western, Hilton, Iberostar Hotels and Resorts, Kempinski, Minotel, Park Inn,

Radisson, and Starwood Hotels & Resorts. Budget hotel chain easyHotel also operates one property in

Sofia.

We believe that the hotels sector will only see

limited growth over the next few years as incoming

tourism remains relatively steady and there is little in

the way of industry value growth to tempt hotel

chains to expand their presence or invest heavily in

the country. However, that is not to say that there are

no profits to be had, as the value of the industry has

continued to rise, albeit erratically, over the past few

years. Though it will suffer a slight decline over the

next year or so, and then rise in early 2015 to reach a

plateau of around US$1.2bn.

However despite this, there is room for optimism

and there are a number of attractive factors to

address when considering investing in the Bulgarian

accommodation sector. For example, in April 2012,

Limited Growth in Future

Hotel numbers ('000) and Hotel industry Value(US$bn) 2010-2017

Number of hotels and establishments, '000 (LHS)Hotels and restaurants industry value, US$bn (RHS)

2010

2011

2012

2013

2014

2015

2016

2017

2

3

4

1

1.2

BMI



Bulgarian hotel operators were cheered by a ruling

from the constitutional court that a 5% tourism tax to be levied on all hotel owners - introduced by the

government in 2011 - was unconstitutional. The court said the law mixed two types of direct taxation, one

based on revenue (overnight stays) and one based on property (hotel size), which the Bulgarian constitutiondoes not allow. The new tax assumed that all Bulgarian hotels have minimum occupancy of 30% across the

year, which many hotels fail to meet for the majority of the year given that many of them are only open forthe peak summer season (or only in winter for ski resorts). The government introduced the tax to replace anold system of locally levied tourist

Table: Top 10 Global Hotel Groups Presence in Bulgaria

Hotel Presence Brands

Accor 2 hotels in Plodiv and Sofia Mercure, Novotel

Best WesternInternational 8 hotels in Rousse, Sofia, and Varna

Best Western, Best Western PLus, BestWestern Premier

Carlson RezidorHotel Group 2 hotels in Sofia Park Inn, Radisson Blu

Choice HotelsInternational no presence

HiltonTwo hotels, one under the hilton brand in Sofia, and aDoubletree at Golden Sands Hilton, Doubletree

Hyatt no presence

IntencontinentalHotels Group 1 hotel in Sofia - A Holiday Inn Holiday Inn

Marriott

No presence as of yet, however there are plans to enterthe market with 3 of their brands - Marriott Hotels,Renaissance Hotels and Courtyard.

Starwood One Sheraton in Sofia Sheraton

Wyndham One Ramada hotel in Plovdiv Ramada

Source: BMI

In September 2012, the Sofia News Agency reported on new government plans that will require all hotels

and restaurants to be subject to reclassification every five years, with classification certificates no longervalid indefinitely. BMI believes these proposals should strengthen the quality of Bulgaria's tourism

offering, with all companies having to ensure standards are maintained in order to keep their star ratings.

We believe that the low cost of land and lack of luxury accommodation make for a good investment

environment for international hoteliers and are likely to encourage further enlargement of their national



footholds in the future. Moreover expanding in Bulgaria and in the wider CEE region is a key strategy for

many of the top global hotel chains. Equally, we also highlight that we expect Spa tourism to continue to

develop, as it is likely to become a key growth area for the Russian market. Finally, we anticipate that many

hotels and chains will target business tourism, and meetings, incentives, conferences and exhibitions

tourism could be another growth area.

Table: Bulgaria Airports Projects

Project NameValue (US

$mn)Capacity/

Length Companies Timeframe Status

Varna Airport, NewPassenger Terminal 51

1.2 mnpassengers/yr Fraport AG 2009-2013

Completed (Opened inAugust 2013)

Bourgas InternationalAirport expansion 15

1.7 mnpassengers/yr

Fraport Twin StarAirport

Management 2010-2011 Under construction

Source: BMI Key Projects Database

We believe that the number of tourist arrivals will continue to rise, and this will be facilitated by a number

of factors including the ongoing investment in airports, particularly passenger terminal expansion. However

there are also a number of projects in the pipeline or recently completed which will extend Bulgaria'soverland connections to its regional peers, in particular road and rail connections to Greece, Romania, and

Turkey, amongst others.

A new railway bridge has opened between Bulgaria and Romania. The Danube 2 Bridge will run between

Vidin in the former country and Calafat in the latter. It is part of the Pan-European Corridor IV which spans

a vast section of the continent encompassing Dresden in Germany, Istanbul in Turkey and Thessaloniki in

Greece. The line will be used to transport both freight and passenger traffic.



The Sturma motorway development project in theYugozapaden region of Southwest Bulgaria has

secured EUR274mn (US$359.48mn) in financialassistance from the European Commission (EC).Work comprises the construction of a dual

carriageway between Dolna Dikanya and

Blagoevgrad, and from Sandanski to the border

crossing with Greece at Kulata. The three sections -

lots 1, 2 and 4 - cover 68.5km and are scheduled to

be completed by end-2015. Work is also due to

include preparation for the construction of the

Blagoevgrad-Sandanski section (lot 3), entailingtunnels bypassing the Kresna gorge

Bulgaria's two other main airports, at Burgas and

Varna, are owned and operated by German company

Fraport. Both airports are building new terminal

buildings to cope with the greater demand expected

in the years ahead. The BGN70mn terminal at Burgas will have 31 check-in desks and capacity for 2.7mn

passengers. It is planned to be open by the end of 2013. The new terminal at Varga will be able to handle

1.8mn passengers. The BGN75mn (US$51mn) facility opened in august 2013 and will serve as a gateway tothe Black Sea region of Bulgaria. It has an area of 20,000 square metres and is approximately three times

the size of the previous terminal. Varna Airport served a total of 1.2mn passengers in 2012. In total, Fraport

is investing more than BGN170mn in improving facilities at both airports. BMI believes the investment in

improving airport infrastructure across Bulgaria will be very positive for the country's tourism industry.

Continuing Airport InvestmentBoosts Tourist Arrivals

Total Arrivals (000), Airport InfrastructureIndustry Value (US$bn) 2012-2017

Airports infrastructure industry value, US$bn (RHS)TOTAL ARRIVALS: Total arrivals, '000 (LHS)

2012 2013 2014 2015 2016 20178,000

9,000

10,000

11,000

0

0.005

0.01

0.015

Notes: BMI, National Statistics



Company ProfileAlbena

Company Overview Albena is a major player in Bulgaria's hotel and hospitality industry, possessing over 34

hotels (catering to a broad range of tourists, and ranging from 1* to 5*) and just over

12,500 beds. The firm also has over 100 catering establishments and other leisure

facilities, a casino, a car rental company, two travel agencies, a medical centre and a

spa centre. Despite its divergent business interests, the former state-owned company

was privatised as a single entity. The group is a subsidiary of Albena Invest Holding AD

Balchik, One of the largest Bulgarian holding companies with a sizeable real estate

branch amongst other subsidiaries. Key to its operations is the Albena Holiday resort,

which is located in the north of the Bulgarian Black Sea coast, surrounded by a large

beach, a nature reserve and hills.

Strategy We believe that the hotel group is likely to continue to target German and Russian

tourists, which form the majority of its source market, and represent the strongest

growth potential. However, recent newspaper announcements concerning Albena as

one of the most expensive resort destinations with some of the most expensive steeply

rising hotel prices in the country could deter some visitors in the future.

Financial Data Financial Highlights

Albena Invest Holding AD reported consolidated earnings results for the half ended

June 2013. For the period, consolidated profit fell 52.7% to BGL 791,000 compared to

the same period a year ago. Consolidated sales revenue totalled BGL 2.6 million, down

from BGL 3.7 million a year earlier. Earnings per share fell to BGL 0.14 through June

from BGL 0.30 a year ago.

Company Details Albena

33 St Ivan Rilski Street,Sofia

Sofia 100

Bulgaria

+ 359 2 953 2599

+ 359 2 953 2926



Global Industry Overview

BMI View:With global tourist arrivals projected to reach 1.29bn in 2017, we believe that this will havebeneficial effects on the hospitality sector. We predict that global occupancy rates, overnight stays and thenumber of new hotels will rise over the next five years. In 2017, occupancy rates is set to reach 57%,overnight stays advances to 2.82bn and the number of hotels grows to 2.54mn internationally.

Our outlook for the next five years through to 2017 is of advancing international tourist levels, growing by

an average 4.9% per year. This will bring the number of tourists at the end of 2017 to 1.29bn. This is

224,000 higher than current levels, and all of these travellers will need accommodation. In addition, changes

in consumer preferences have resulted in tourists staying abroad for longer, and ever more are travelling to

Asia and Latin America, rather than Europe and North America.

In terms of specifics, the global hospitality sector will directly prosper from rising occupancy rates and

growing numbers of new hotels. We believe that emerging markets will outperform developed regions in

this regard. In the past five years, emerging markets have seen inbound and domestic tourists rise faster than

elsewhere. Also, key emerging market regions such as Asia, Latin America and Middle East have witnessed

ongoing investment into real estate for new hotel development. These factors will continue to contribute

going forward to 2017 and ensure emerging market outperformance. Below we outline some of our key

views based upon our set of global accommodation indicators.



Rising Demand For Accommodation

Regional: GDP per capita US$ &

Asia-Pacific: GDP per capita US$ (LHS)Middle East: GDP per capita US$ (LHS)Latin America: GDP per capita US$ (LHS)Asia-Pacific: Total overnight stays '000 (RHS)Middle East: Total overnight stays '000 (RHS)Latin America: Total overnight stays '000 (RHS)

2010

2011

2012

2013

2014

2015

2016

2017

0

10,000

0

500,000

Source: National Sources/BMI Calculation/BMI Forecast

Total Overnight Stays and Average Length of Stay

Overnight stays have grown strongly over the last decade, with the number of nights has more than doubled.

This highlights a growing consumer pattern, where holidaymakers are now staying longer than before.

Similarly this is reflected in average length of stay (nights) which have grown from 4.23 in 2000 to over5.44 in 2013. We expect this trend to continue, and looking towards 2014, overnight stays is forecasted to

increase by 3.66% to over 2.54bn nights, globally.



Table: Global overnight stays and average length of stay, 2010-2017

2010 2011 2012 2013e 2014f 2015f 2016f 2017f

Total overnight stays, mn 2,054.6 2,352.5 2,397.1 2,452.9 2,542.7 2,637.1 2,736.2 2,828.2

Total overnight stays, mn, % chg y-o-y 7.36 14.50 1.90 2.33 3.66 3.71 3.76 3.36

Average length of stay, nights 5.44 5.42 5.43 5.44 5.45 5.46 5.46 5.47

Average length of stay, nights, % chg y-o-y -1.31 -0.45 0.28 0.10 0.28 0.06 0.10 0.09

Source: National Sources/BMI

Regionally, Middle East, Asia and Latin America will perform the best, where overnight stays will grow see

average year-on-year growth rates of 6.7%, 3.6% and 2.2% respectively between 2013 and 2017. The

success of these regions is attributed to their growing intercontinental and domestic demand for tourism.

Rising incomes within each of these regions has given consumers greater disposable income for travelling.

Occupancy Rates

Over the past decade and before, global occupancy

rates have not seen much volatility, remaining within

a range of 53-57%. We believe that over the next

five years to 2017, occupancy rates will trend

towards the higher limit of this range. Higher global

occupancy rates will increase due to a higher number

of tourist inflows forecasted over the same period.

This is likely to directly translate into more room

occupations with higher rates seen in the most

popular city destinations within a country. Globally,

western city destinations such as London, New

York, and Paris, occupations will remain to post

occupation rates between 60-70%. Elsewhere eastern

destinations such as Hong Kong, Singapore and

Tokyo are forecasted to keep growing occupancy

rates over 60% going through to 2017.

Regionally, Europe has suffered with weak macroeconomic fundamentals has seen local demand for hotel

rooms fall. However, increases in foreign tourists from neighbouring countries, and ever growing increases

Steady Room Occupations

Occupancy rates, 2000-2017

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

20

40

60




in the inflow of Asian tourists, has meant occupancy rates have not faltered drastically as would be

originally expected. In 2013, occupancy rates fell by only 0.2 percentage points to 48%. Our projection isthat European occupancy rates will remain subdued and will see near to flat growth through to

2017. Another key reason is that the introduction of new hotels to be rolled out over the next few years will

counteract any inbound flow of arrivals to leave occupancy rates balanced.

Within Middle East and Asia, occupancy rates have thrived, with rates in some parts of the region

continuing to rise over 60%. In 2014, we forecast this to continue, with occupancy rates predicted to be 65%

for Asia and 53% for Middle East in 2017. Be that as it may, higher occupancy rates don't necessarily mean

higher RevPar (revenue per available room). As recently as mid-2013, local industry sources within theMiddle East, reported that RevPar had fallen by 8.6% to $72.37. We also expect background politicaluncertainty in parts of this region to cause occupancy rates over the coming year to volatile, and this

remains a crucial risk to our outlook. Any increase in political instability will directly affect hotel

occupancy rates.

Globally, forecasted occupancy rate rises in Middle East, Asia and Latin America will offset weaker growth

in Europe and the rest of the world. Overall global occupancy rates are projected to rise steadily through to2017.

Hotel Establishments and Hotel Rooms

Internationally, the number of hotels rose by 4% in 2013, the largest growth seen in the last three years.

With our bullish view on rising number tourists predicted over the next five years, we forecast that number

of hotels will increase to 2.54mn in 2017. This represents an increase of over 400,000 new hotels to be built

over the next five years. In correlation, the number of hotel rooms will also expand to over 38mn in 2017.

Table: Hotel Indicators, 2010-2017

2010 2011 2012 2013e 2014f 2015f 2016f 2017f

Number of hotels andestablishments, mn 1.89 1.94 2.02 2.10 2.19 2.30 2.42 2.54

Number of hotels andestablishments, mn, % chg y-o-y 7.41 2.96 3.78 4.03 4.65 4.95 4.89 5.17

Hotel rooms, '000 30,760 32,223 32,660 33,810 35,135 36,419 37,711 38,993

Hotel rooms, '000, % chg y-o-y 3.50 4.76 1.36 3.52 3.92 3.65 3.55 3.40




Although hotel numbers are forecasted to rise in all regions, significant new additions will appear in Asia,

Latina America and Middle East. Recently, Marriott International Inc. confirmed plans to invest US$2bnin opening hotels across all international regions. Special plans are focussed at opening mid to high-tier

priced hotels in Asia, in such countries as China, India, Vietnam and Indonesia, aims to capture the growing

domestic demand for tourism. Competitor chains such as Hyatt Hotels and Wyndham Worldwide are also

following suit with plans to open similar mid-tier priced hotels in the same regions.



Global Assumptions

Despite significant headline risk in September and October 2013, including the Federal Reserve's decision

not to taper its quantitative easing policy, the US federal government shutdown and debt limit crisis, and the

German federal election, our macroeconomic outlook has not changed. We continue to forecast a stronger

global economy in 2014 than in 2013, with our global real GDP growth estimate rising to 3.1% from 2.6%,

respectively.

While there remain significant headline risks in 2014, ranging from renewed rancour in Washington to a

collapse in Chinese growth, we continue to see signs that global growth is picking up. Global indicators of

economic activity are pointing up after several poor quarters, and importantly, the euro area is showing

signs of tentative recovery. We have revised up our forecast Chinese growth modestly for 2013 to 7.6%

from 7.5% previously, owing to a surge in credit growth having modestly positive effects, but we maintain

our downbeat forecast for 2014 of 6.7% as we continue to believe that elements of the economy are

exhibiting signs of a bubble.



Table: Global Assumptions

2012 2013f 2014f 2015f 2016f 2017f 2018f

Real GDP Growth (%)

USA 2.8 1.8 2.8 2.6 2.4 2.4 2.4

Eurozone -0.6 -0.5 1.0 1.3 1.3 1.5 1.5

Japan 1.9 1.8 1.3 1.1 0.9 1.0 1.0

China 7.7 7.6 6.7 6.0 5.8 5.8 5.8

World 2.9 2.6 3.1 3.3 3.3 3.4 3.5

Consumer Inflation (avg)

USA 2.1 1.7 2.1 2.1 2.1 2.1 2.1

Eurozone 2.5 1.8 1.7 1.7 1.8 1.9 1.8

Japan 0.0 0.3 0.9 1.3 1.8 2.3 2.7

China 2.7 2.8 2.9 2.8 2.7 2.7 2.7

World 3.4 3.3 3.2 3.2 3.2 3.1 3.2

Interest Rates (Eop)

Fed Funds Rate 0.00 0.00 0.00 0.75 2.00 3.00 3.50

ECB Refinancing Rate 0.75 0.50 0.50 0.75 1.00 1.50 2.00

Japan Overnight Call Rate 0.10 0.10 0.10 0.10 0.25 0.50 0.75

Exchange Rates (avg)

US$/EUR 1.27 1.33 1.27 1.23 1.20 1.20 1.20

JPY/US$ 79.85 98.00 97.60 98.00 98.50 100.50 102.00

CNY/US$ 6.31 6.22 6.16 6.23 6.25 6.25 6.25

Oil Prices (avg)

OPEC Basket (US$/bbl) 109.50 105.03 101.75 100.00 99.00 97.00 96.00

Brent Crude (US$/bbl) 111.70 107.63 103.00 102.00 101.00 99.00 99.00

Source: BMI



We are holding off on altering our real GDP forecasts for the US until there is greater clarity on the damage

done to the economy from the federal government shutdown in October (though we believe the impact willbe fairly minor). That said, the delay in implementing a long-term increase in the US federal debt limit toearly 2014 increases the possibility that the US Federal Reserve will delay tapering its current asset

purchasing programme (QE3) until well into 2014. While we believe the direct impact of the US$85bnmonthly purchases is quite small, the psychological impact is significant, and the Fed may delay making

any changes to current policy until there is greater certainty on the fiscal front.

With the risk of outside of military intervention in the Middle East on the wane, oil prices have gradually

eased in recent weeks. We expect prices to continue trading below previous highs in line with a reduction in

geopolitical tensions and we now forecast Brent to average US$105 per barrel (/bbl) for Q413 and averageat US$107.6/bbl for the year. This is a downward revision from our previous forecast of US$111/bbl, andreflects cautious optimism regarding international efforts over Syria and Iran, as well as a relatively robust

supply picture and lacklustre demand story despite a number of unplanned outages seen over recent months.

We are currently pricing in a continuation of these trends, namely a reduced risk premium from the Middle

East in the context of rising global supplies, which we expect will act as resistance to higher prices and

hence we forecast average Brent prices will fall to US$102.8/bbl in 2014.



Table: Global And Regional Real GDP Growth, % chg y-o-y

2012e 2013f 2014f 2015f

World 2.9 2.6 3.1 3.3

Developed States 1.5 1.2 2.0 2.1

Emerging Markets 5.1 4.7 4.8 4.8

Asia Ex-Japan 6.9 6.8 6.3 5.9

Latin America 2.8 2.7 3.1 3.5

Emerging Europe 2.7 2.2 2.8 3.3

Sub - Saharan Africa 4.3 5.3 5.5 5.7

Middle East & North Africa 5.8 3.4 4.0 4.4

Table: Developed Market Exchange Rates

2012e 2013f 2014f 2015f

Eurozone US$/EUR, ave 1.27 1.33 1.27 1.23

Japan JPY/US$, ave 79.85 98.00 97.60 98.00

Switzerland CHF/US$, ave 0.94 1.03 1.07 1.06

United Kingdom US$/GBP, ave 1.59 1.55 1.59 1.61

Table: Emerging Market Exchange Rates

2012e 2013f 2014f 2015f

China CNY/US$, ave 6.31 6.22 6.16 6.23

South Korea KRW/US$, ave 1,126.39 1,115.00 1,100.00 1,050.00

India INR/US$, ave 53.42 56.00 54.00 55.14

Brazil BRL/US$, ave 1.95 2.16 2.30 2.38

Mexico MXN/US$, ave 13.15 12.85 12.65 12.50

Russia RUB/US$, ave 31.06 31.51 33.00 32.50

Turkey TRY/US$, ave 1.80 1.93 2.12 2.16

South Africa ZAR/US$, ave 8.21 9.39 10.15 9.26

Source: BMI



Developed States

Our developed states real GDP growth estimate for 2013 is up by 0.1pp to 1.2%, but our forecasts remain at

2.0% in 2014 and 2.1% in 2015.

Having effectively flatlined over the course of Q411-Q412, the UK economy has suddenly burst into life inrecent months, fuelling speculation that the long awaited recovery could finally be taking root. We have

revised up our full-year forecast for this year (to 1.5% from 1.1%) and in 2014 (to 1.8% from 1.4%), whilestill cautioning that the recovery remains vulnerable.

Although our eurozone real GDP growth forecasts remain steady at -0.5% for 2013 and 1.0% for 2014, we

have made some adjustments to projections for member states. We have revised up our Finland growthestimates for 2013, and now expect real GDP to contract by 0.2%, from 0.8% previously, and forecast

growth to accelerate to 1.6% in 2014, from a previous forecast of 1.2%.In light of the weak data from the

first half of the year, we have nudged down our full-year 2013 forecast for Belgium to a modest 0.3%

expansion, from 0.4% previously. Our view that growth will accelerate in 2014 underpins our more bullish

1.3% growth forecast for that year, which we have scaled back from 1.6% previously. In Ireland,

disappointing Q213 growth has prompted us to revise down our forecasts for real GDP growth to 0.6% in2013, from 0.8% previously - but we maintain our above-consensus projection of 2.1% in 2014.

Table: Developed States, Real GDP Growth Forecasts

2012e 2013f 2014f 2015f

Developed States AggregateGrowth 1.5 1.2 2.0 2.1

G7 1.7 1.3 2.1 2.0

Eurozone -0.6 -0.5 1.0 1.3

EU-27 -0.4 0.0 1.2 1.6

Selected Developed States

Australia 3.7 2.3 1.8 2.5

Austria 0.8 0.7 1.5 1.9

Belgium -0.3 0.3 1.2 1.9

Canada 1.7 1.7 2.3 2.5

Czech Republic -1.3 0.0 1.3 2.3



Developed States, Real GDP Growth Forecasts - Continued

2012e 2013f 2014f 2015f

Denmark -0.4 0.4 1.4 1.6

Finland -0.8 -0.2 1.7 2.0

France 0.1 0.0 0.5 0.9

Germany 0.7 0.5 1.9 1.6

Hong Kong 1.4 2.4 3.0 3.7

Ireland 0.2 0.6 2.1 2.3

Italy -2.4 -1.5 0.3 0.7

Japan 1.9 1.8 1.3 1.1

Netherlands -1.1 -0.6 1.1 1.5

Norway 3.1 1.5 2.2 2.4

Portugal -4.7 -3.0 -0.5 0.9

Singapore 1.3 2.2 3.2 3.2

South Korea 2.1 2.1 3.0 4.1

Spain -1.3 -1.7 0.2 0.9

Sweden 0.7 1.1 2.7 2.9

Switzerland 1.0 1.9 2.0 1.7

Taiwan 1.3 2.1 3.0 4.1

United Kingdom 0.0 1.5 1.8 2.2

United States of America 2.8 1.8 2.8 2.6

Source: BMI

Emerging Markets

Our emerging markets aggregate forecasts are unchanged, with projected growth of 4.7% in 2013 and 4.8%in both 2014 and 2015 signalling a modest improvement in activity in the emerging world.

We have made few changes to our growth forecasts in emerging countries since our last update. In

emerging Europe, for which we are forecasting growth of 2.2% and 2.8% in 2013 and 2014,

respectively, we have revised up our forecast for Hungarian real GDP growth in 2013, 2014 and 2015 to

0.3%, 1.7% and 2.1% respectively from -0.1%, 1.1% and 1.9% previously.

In Latin America, we raised our Argentine 2013 real GDP growth forecast to 2.9% from 1.8% following

stronger-than-expected data in H113, but have slightly downgraded our 2014 projection to 2.5% from 2.6%.Our regional growth forecasts are 2.7% in 2013 and 3.1% in 2014.



Emerging Asia is forecast to grow by 6.8% in 2013, slowing to 6.3% in 2014. We project growth in theMiddle East and North Africa of 3.4% in 2013, improving to 4.0% in 2014. And Sub-Saharan Africa will

maintain its status as the fastest-growing region outside of Asia, with growth of 5.3% in 2013 rising to 5.5%

in 2014.

Table: Emerging Markets, Real GDP Growth Forecasts

2012e 2013f 2014f 2015f

Emerging Markets AggregateGrowth 5.1 4.7 4.8 4.8

Latin America 2.8 2.7 3.1 3.5

Argentina 1.9 2.9 2.5 3.1

Brazil 0.9 2.0 2.5 3.1

Mexico 3.8 2.3 3.5 3.7

Middle East 3.5 3.4 4.1 4.6

Africa 4.3 5.3 5.5 5.7

South Africa 2.5 2.1 2.5 3.0

Nigeria 6.6 6.4 7.2 7.3

Saudi Arabia 5.1 3.6 4.3 3.3

UAE 6.2 4.1 3.4 3.6

Egypt 2.2 1.9 2.5 4.2

Emerging Asia 6.9 6.8 6.3 5.9

China 7.7 7.6 6.7 6.0

India* 5.0 5.0 5.6 6.2

Indonesia 6.2 5.8 5.4 6.5

Malaysia 5.6 4.6 4.4 4.2

Philippines 6.8 6.9 6.0 5.4

Thailand 6.4 4.0 4.5 4.4

Emerging Europe 2.7 2.2 2.8 3.3



Emerging Markets, Real GDP Growth Forecasts - Continued

2012e 2013f 2014f 2015f

Russia 3.4 2.0 2.5 3.2

Turkey 2.2 2.8 3.1 3.4

Hungary -1.7 0.3 1.7 1.9

Romania 0.7 2.4 2.8 3.6

Poland 2.0 1.2 2.3 2.8

*Fiscal years ending March 31 (2013=2012/13) Source: BMI

BMI is at or below consensus on growth for Russia, Japan, Brazil, and the eurozone (compared with theBloomberg survey of analysts) in 2013. Looking forward to 2014, we highlight that we are well belowconsensus for Chinese growth (at 6.7% versus 7.4%).

Table: BMI Versus Bloomberg Consensus Real GDP Growth Forecasts (%)

US Eurozone Japan Brazil China Russia India

2013 Bloomberg Consensus 1.6 -0.1 1.9 2.3 7.5 2.6 5.7

BMI 1.8 -0.5 1.8 2.0 7.6 2.4 5.8

2014 Bloomberg Consensus 2.7 1.0 1.5 2.8 7.5 3.3 5.4

BMI 2.8 1.0 1.3 2.5 6.7 2.8 5.4

Source: BMI, Bloomberg



Demographic Forecast

Demographic Outlook

Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is

the total population of a country a key variable in consumer demand, but an understanding of the

demographic profile is key to understanding issues ranging from future population trends to productivity

growth and government spending requirements.

The accompanying charts detail Bulgaria's population pyramid for 2013, the change in the structure of the

population between 2013 and 2050 and the total population between 1990 and 2050, as well as life

expectancy. The tables show key datapoints from all of these charts, in addition to important metrics

including the dependency ratio and the urban/rural split.

Population Pyramid

2013 (LHS) And 2013 Versus 2050 (RHS)

Source: World Bank, UN, BMI



Population Indicators

Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050

Source: World Bank, UN, BMI

Table: Bulgaria's Population By Age Group, 1990-2020 ('000)

1990 1995 2000 2005 2010 2013e 2015f 2020f

Total 8,821 8,358 8,001 7,683 7,389 7,223 7,113 6,827

0-4 years 557 419 330 318 340 343 340 320

5-9 years 585 521 407 331 319 331 339 338

10-14 years 650 556 517 401 325 314 318 337

15-19 years 641 614 544 502 386 337 319 312

20-24 years 588 595 589 536 493 424 375 308

25-29 years 583 553 572 554 501 496 482 365

30-34 years 609 549 538 550 532 506 492 473

35-39 years 630 573 536 535 547 537 524 484

40-44 years 646 593 558 516 515 531 538 515

45-49 years 535 611 573 536 495 496 504 527

50-54 years 523 503 586 558 523 493 479 488

55-59 years 573 485 476 555 530 511 498 456

60-64 years 541 523 447 454 528 513 493 464

65-69 years 484 474 463 408 416 457 476 446

70-74 years 245 395 391 391 349 345 355 409



Bulgaria's Population By Age Group, 1990-2020 ('000) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f

75-79 years 236 178 288 292 299 281 269 277

80-84 years 133 142 107 179 187 192 192 176

85-89 years 49 59 60 48 85 91 91 96

90-94 years 12 14 15 17 15 22 28 31

95-99 years 2 2 2 2 3 3 3 5

100+ years 0 0 0 0 0 0 0 0

e/f = BMI estimate/forecast. Source: World Bank, UN, BMI

Table: Bulgaria's Population By Age Group, 1990-2020 (% of total)

1990 1995 2000 2005 2010 2013e 2015f 2020f

0-4 years 6.31 5.01 4.12 4.14 4.61 4.75 4.78 4.68

5-9 years 6.64 6.23 5.09 4.30 4.32 4.58 4.76 4.95

10-14 years 7.37 6.65 6.46 5.22 4.39 4.35 4.46 4.94

15-19 years 7.26 7.34 6.81 6.53 5.22 4.67 4.48 4.56

20-24 years 6.66 7.12 7.36 6.97 6.68 5.87 5.27 4.51

25-29 years 6.61 6.62 7.15 7.21 6.78 6.87 6.78 5.34

30-34 years 6.91 6.57 6.73 7.16 7.20 7.00 6.92 6.93

35-39 years 7.14 6.85 6.70 6.96 7.40 7.43 7.36 7.09

40-44 years 7.32 7.10 6.97 6.72 6.97 7.36 7.56 7.55

45-49 years 6.07 7.31 7.16 6.97 6.70 6.86 7.08 7.71

50-54 years 5.92 6.02 7.32 7.27 7.08 6.82 6.73 7.14

55-59 years 6.50 5.81 5.95 7.23 7.17 7.08 7.00 6.68

60-64 years 6.14 6.26 5.59 5.91 7.15 7.11 6.93 6.80

65-69 years 5.49 5.67 5.78 5.31 5.63 6.33 6.69 6.53

70-74 years 2.77 4.73 4.88 5.09 4.73 4.77 5.00 6.00

75-79 years 2.68 2.13 3.60 3.80 4.05 3.89 3.78 4.05

80-84 years 1.51 1.70 1.34 2.33 2.54 2.66 2.70 2.58

85-89 years 0.55 0.70 0.75 0.63 1.15 1.26 1.28 1.41

90-94 years 0.13 0.17 0.19 0.22 0.20 0.31 0.39 0.45

95-99 years 0.02 0.02 0.02 0.03 0.04 0.04 0.04 0.08



Bulgaria's Population By Age Group, 1990-2020 (% of total) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f

100+ years 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


Table: Bulgaria's Key Population Ratios, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f

Dependent ratio, % of total working age 50.3 49.3 47.6 45.1 46.3 49.1 51.3 55.5

Dependent population, total, '000 2,953 2,759 2,581 2,388 2,339 2,379 2,410 2,435

Active population, % of total 66.5 67.0 67.7 68.9 68.3 67.1 66.1 64.3

Active population, total, '000 5,868 5,600 5,420 5,295 5,050 4,844 4,702 4,392

Youth population, % of total working age 30.5 26.7 23.1 19.8 19.5 20.4 21.2 22.7

Youth population, total, '000 1,792 1,495 1,254 1,050 984 988 996 995

Pensionable population, % of totalworking age 19.8 22.6 24.5 25.3 26.8 28.7 30.1 32.8

Pensionable population, total, '000 1,161 1,263 1,327 1,338 1,355 1,391 1,414 1,440


Table: Bulgaria's Rural And Urban Population, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f

Urban population, % of total 66.4 67.8 68.9 70.2 72.5 74.2 75.3 77.6

Rural population, % of total 33.6 32.2 31.1 29.8 27.5 25.8 24.7 22.4

Urban population, total, '000 5,855 5,665 5,512 5,392 5,359 5,359 5,357 5,300

Rural population, total, '000 2,966 2,693 2,488 2,291 2,030 1,864 1,756 1,528




Methodology

Industry Forecast Methodology

BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and

causal/econometric modelling. The precise model we use varies from industry to industry. In each case this

is determined, as per standard practice, by the prevailing features of the industry being examined.

Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions

allow us to forecast a variable using more than the variable's own history as explanatory information. For

example, when forecasting oil prices, we can include information about oil consumption, supply and

capacity.

When forecasting some of our industry sub-component variables, however, using a variable's own history is

often the most desirable method of analysis. Such single-variable analysis is called univariate modelling.

We use the most common and versatile form of univariate models: the autoregressive moving average

model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality

is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for

analysis and forecasting.

BMI mainly uses OLS estimators. In order to avoid relying on subjective views and encourage the use ofobjective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock',

such as poor weather conditions impeding agricultural output, dummy variables are used to determine the

level of impact.

Effective forecasting depends on appropriately selected regression models. BMI selects the best model

according to various different criteria and tests, including but not exclusive to:

R2 tests explanatory power; adjusted R2 takes degree of freedom into account Testing the directional movement and magnitude of coefficients

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) All results are assessed to alleviate issues related to auto-correlation and multi-collinearity



BMI uses the selected best model to perform forecasting.

It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry

forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot

structural breaks, anomalous data, turning points and seasonal features, while a purely mechanical

forecasting process would not.

Sector-Specific Methodology

A number of principal criteria drive our forecasts for each tourism sector variable.

Figures for the tourism sector data are based, where possible, on industry associations/operators,

government/ministry sources and official data. Where these are unavailable, tourism forecasts are based on

a range of variables:

Government policy, industry trends and expenditure levels stated in international and national press.

Industry trends and expenditure levels stated in tourism companies' official financial reports or releases.

Likely expenditure and growth patterns owing to international developments and demographic patterns.

Likely alterations in expenditure patterns owing to economic/political activity.

Risk/Reward Rating Methodology

BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease ofdoing business, and the industry-specific opportunities and limitations for potential investors in a given

market.

The RRR system divides into two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state

characteristics that may inhibit its development. This is further broken down into two sub categories:

Market Rewards (this is an industry-specific category that takes into account current industry size andgrowth forecasts, and the openness of a market to new entrants and foreign investors, to provide anoverall score for potential returns for investors)

Country Rewards (this is a country-specific category, and the score factors in favourable political andeconomic conditions for the industry)



Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic

profile that call into question the likelihood of anticipated returns being realised over the assessed time

period. This is further broken down into two sub categories:

Market Risks (this is an industry-specific category whose score covers potential operational risks toinvestors, regulatory issues inhibiting the industry, and the relative maturity of a market)

Country Risks (this is a country-specific category in which political and economic instability,unfavourable legislation and a poor overall business environment are evaluated to provide an overallscore).

We take a weighted average, combining market and country risks, or market and country rewards. These

two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking

system for the risks and rewards of involvement in a specific industry in a particular country.

For each category and subcategory, a country is scored out of 100 (100 being the best), with the overallRisk/Reward Rating a weighted average of the total score. Importantly, as most of the countries and

territories evaluated are considered by BMI to be 'emerging markets', our ratings

Bulgaria Tourism Report 2014

Documents

Transcript of Bulgaria Tourism Report 2014