The outsourcing services sector in Bulgaria continues to report double-digit growth for another year despite the pandemic that affected the entire economy. In 2020, operating revenues marked an increase of 11.2%, which, due to the uncertainty due to the unprecedented conditions, is less compared to 22.5% in 2019. At the same time, last year the size of the sector amounted to 3.3 billion euros and formed 6.6% of the country's annual gross domestic product (GDP) compared to 5.5% in 2019.
That's according to the Association for Innovation, Business Excellence and Technology's (AIBEST) annual industry development report. The analysis was prepared by SeeNews and includes data on 677 Bulgarian companies operating in the business services and technology sector in 2020. In the ratio between the two divisions of outsourcing services, ITO companies (IT outsourcing) have the majority - 358, while the number of companies in the business process outsourcing sector is 319.
The industry is consolidating its position as an employer of choice. Although the number of employees in the sector is just over 77 thousand in 2020, i.e. almost unchanged from the very successful 2019, the costs for employees and for taxes paid by companies to the state treasury are increasing.
Payroll costs in the challenging year 2020 increased by an average of 16% per employee. For the first time, companies in the sector accounted for 10.4% of all payroll spending in the country, up from 9.4% the previous year. In terms of contributed social insurance, companies in the sector contributed a total of 8.2% of all contributions to the economy compared to 7.4% in 2019. The amount is almost equal to the projected total capital expenditures in the 2021 Capital Budget. Both industry payroll and insurance costs have doubled in the five years since 2016.
The UK remains among the top foreign investors in Bulgaria's outsourcing industry, with almost one in ten organisations having a British parent company. The US, Germany and the Netherlands are the other countries with a traditional interest in investing in the Bulgarian knowledge-based sector.
Forecasts
According to the post-pandemic report, Bulgaria is well positioned to become a preferred destination for European and North American technology companies looking to invest in Central and Eastern Europe.
Preliminary data for 2021 shows that this year's growth will also remain in double digits and even higher. The forecast for 2024 shows that the industry will continue to grow and be a major pillar in the Bulgarian economy, with its relative share in the country's GDP reaching 11.2%.
At the same time, companies in the sector acknowledge that one of the main challenges they face is scaling up on a large scale due to a shortage of human resources. However, they see a way out of the situation in the imposition of the new remote working model, as it allows them to hire the necessary specialists regardless of their location. In this respect, the increase in employees will slow down in the coming years, but the sector will still grow by another 35 thousand people by 2024.
The increasing number of employees working from different locations in turn makes it unnecessary to open new office spaces. However, forecasts suggest that regional hubs will continue to be created in locations with sufficient concentrations of staff. In 2020, Plovdiv will continue to be the most promising and dynamic location, although the capital will again see the most new hires. Other large cities with universities (Varna, Burgas, Ruse and Veliko Tarnovo) are also attracting more new companies.