site.btaDeal with Rheinmetall Represents Major Breakthrough in Attracting Investment in Bulgaria - Fiscal Council Analysis

An analysis prepared by Fiscal Council member Atanas Atanasov reads that Bulgaria's deal with German defense contractor Rheinmetall to build two plants in Bulgaria - the first for NATO-standard artillery shells and the second a joint venture for the production of gunpowder - is a major breakthrough in terms of attracting investment and investors to the country. The billion-euro investment falls precisely on the military industrial sector, which is unjustifiably underestimated as a source of sustainable growth, the document states. 

Atanasov highlighted ten points of potential economic benefits for Bulgaria from the deal to build the two plants and the ambition to build a third plant for autonomous systems for the production of motor vehicles in the more distant future:

1. Creation of at least a thousand new jobs, revitalization of the regions, qualified and technically literate people who will participate in training and the work process.

2. The production facilities will have secure markets and sales, guaranteed profitability, and, accordingly, tax revenues for the state treasury.

3. The investment will not burden the budget due to the extremely favorable terms of the low-interest loan under the SAFE instrument (15-year grace period and repayment up to 40 years) and will have a quick return (even within the grace period).

4. The deal will also make it possible to attract other investors - suppliers, contractors, subcontractors - and thus multiply the effect.

5. Improvement of the adjacent and nearby infrastructure (within 50-100 km) - roads, communication links, logistics, etc.

6. Replenishment of stocks for Bulgarian defense needs.

7. The deal opens up potential horizons for even more new production, including those with higher technological and added value - for autonomous systems and the production of automotive technologies and other areas.

8. Bulgaria has the prospect of becoming a technological and manufacturing hub for high-tech weapons that meet NATO standards and have high added value.

9. The deal is an incentive for a number of other companies in the Bulgarian defense industry, especially in the high-tech sector, to seek investment opportunities by combining financial, human, and scientific potential for accelerated development and integration into the European defense sector.

10. Insofar as Bulgaria's participation in the construction of the plants constitutes a State investment, part of the costs for the related infrastructure is essentially an initial step, corresponding to the commitment to increase military spending to 5% by 2035, in particular with regard to the 1.5% of that amount earmarked for military infrastructure and logistics.

These are all benefits that Bulgaria derives from its long-standing membership in NATO, the EU, Schengen, and our upcoming accession to the eurozone, Atanasov pointed out.

In cooperation with the VMZ ordnance plant in Sopot, Rheinmetall plans to build two plants in Bulgaria - the first plant for artillery shells according to NATO standards and the second - a joint venture for the production of gunpowder. The ammunition factory is planned to have a capacity of 100-120,000 units per year. According to expectations, the material and technical base should be built within about three years and the factories should start operating. However, the ambitions are even greater - to build a third factory for autonomous systems for the production of motor vehicles in the distant future, which the country urgently needs in connection with the replacement of the Bulgarian Armed Forces' outdated vehicle fleet, Atanasov wrote.

According to him, although Bulgaria has a solid tradition and capacity in the arms industry, it should be noted that most production is licensed by the former Eastern Bloc. The need to introduce new standards - those of NATO - is of key importance. This is precisely the opportunity that is emerging with the planned investment in the ammunition factory.

The total investment for the two plants amounts to EUR 1 billion. The German and Bulgarian partners are participating in the deal on a 51:49 basis. Financing for Bulgaria will be provided through a loan under the European SAFE mechanism, for which the Government is applying for a total of between EUR 2.7 and EUR 3 billion over the next few years. These are extremely favorable, low-interest loans that will not burden the budget. 

The SAFE (Security Action for Europe) instrument is financed by the European Union through its borrowing capacity, in particular through the issuance of EU bonds. Loans of up to EUR 150 billion are available to help EU Member States achieve a rapid and significant increase in defense investment. The areas funded by SAFE include: ammunition, missiles and artillery systems, land combat capabilities, air and missile defense systems, maritime surface and submarine capabilities, strategic assets and critical infrastructure protection, drones and counter-drone systems, military mobility, cyber capabilities, artificial intelligence, and electronic warfare. Interest in the instrument is significant - the EUR 150 billion it has at its disposal has already been claimed by 19 EU Member States, according to the analysis.