Bulgaria has a good chance of maintaining strong economic growth and drawing in further foreign investment.

This emerges from a report prepared by the UniCredit Group in Bulgaria, and statements by Kristofor Pavlov, chief economist at UniCredit-owned Bulbank.

According to the report, unveiled on January 23 by UniCredit head of research for New Europe Deborah Revoltella, the Bulgarian economy remained competitive in traditional sectors between 1995 and 2005, including the textile, timber and leather and fur industry, and gained new positions in the furniture industry, the production of coke and refined products.

But in the same timeframe, Bulgaria lost ground in the chemical industry.

The report found that there had been an increase in the market share of Central and Eastern Europe (CEE) in the trade with the countries of the EU15.

It said that CEE countries were doing very well in foreign trade: specialising in the medium- and high-tech sector, mostly on foreign direct investment (FDI), and increasing two-fold their market share in recent years.

The report said that Bulgaria had “considerable success” in attracting FDI.

There had been a significant inflow of FDI, both to the manufacturing industry and to the services sector.

Revoltella said that labour costs and the quality of labour were drawcards for investment in Bulgaria and in the whole region.

Pavlov said that convergence of wages and intensified competition from China and India would force Bulgaria to follow the pattern of central European countries, diversifying the structure of its industry, away from labour-intensive productions and traditional sectors toward high-tech and medium-tech sectors and higher added value products.

Wire agency SeeNews quoted Pavlov as saying that Bulgaria needed to press ahead with real sector reforms, which would improve the business climate and create a risk free environment for increasing incomes in the country.

He said that implementation of real sector reforms was important not only to preserve the competitiveness of the economy, but also for the adoption of the common European currency, the euro.

Lack of completion of restructuring of the health care and education sectors could pose risks to fiscal performance and, therefore, to macroeconomic stability, Pavlov said.

“We think that favorable external conditions and solid growth of domestic demand will keep economic growth strong also in 2007,” Pavlov said.

He said that EU membership would allow Bulgaria’s advantages as a low cost provider to become more transparent, creating a stimulus for more foreign investors to enter the country.  EU grants should be aimed at affecting the economy in the long run and raising its competitiveness, Pavlov said.