“Another good year, but not for everyone”: What was 2024 like for the Bulgarian ICT sector?

Stormy, volatile, and marked by the boom of artificial intelligence. This is how the passing year can be briefly described through the technology sector's prism. The pulse of global trends did not spare Bulgaria, but some well-known local challenges marked its rhythm here.

How have Bulgarian companies in the field of information and communication technologies (ICT) coped with increasing competition, changing market conditions and innovation?

In 2024, the technology business in Bulgaria as a whole will celebrate another good year. With one caveat – ​​this was not the case for everyone,” say analysts from CBN Pannoff, Stoytcheff & Co., who have been monitoring the local ICT sector for 33 years.

In a blog post, CBN outlines the contours of the past year with a brief summary of the four main business sectors of the ICT industry in Bulgaria.  

The IT distribution business

CBN analysts describe 2024 as “very complex” for the 25 IT hardware and software distributors in Bulgaria. The challenges are once again related “to the identity of the business model in a market where smartphone sales already account for half of the revenue.”

After declines in Q1 and Q2, Q3 straightened out the sales graph and overall, the year will likely come out in the black, albeit with the smallest share of technology hardware relative to the country's GDP.”

The CBN points to the impact of the European Network and Information Systems Directive (NIS2), which came into effect last year and aims to increase the level of cybersecurity. In view of the increasing requirements for companies,

This segment, bolstered by several little-expected breakthroughs in big business, is expected to explode in 2025 and the plans here are for serious growth," state the analysts.

Among the main obstacles for the IT distribution sector remain the strong dependence on difficult-to-predict volumes and profits from public procurement tenders, as well as long-standing weak marketing support from vendors.

The software business...

...this year demonstrates strong positions again. As the BASCOM Barometer, prepared by CBN for the Bulgarian Software Association, shows, double-digit revenue growth is expected in 2024 (around 12%), after in 2023 it turned out to be even higher than the forecast, reaching 16.5%.  

Even more interesting has been the labor market.

Employment in the sector continued to increase despite fears of mass layoffs.

The research by the analytics company shows that the number of jobs in the software business was growing again by August 2024, but understandably at a very slow pace. As a result, weaker wage growth in the sector is expected.

"Problems in this sector are beginning to emerge with the continued rapid development of artificial intelligence, with which potential business clients will try to replace classic BI, ERP, CRM and dependence on vendors and their system integrators. The latter do not have sufficient experience in a long-term and consistent appropriate information policy, and in addition, the surviving competent editors in the ICT field can be counted on the fingers of one hand," CBN experts explain.

From there, they also draw attention to the problems facing software startups, namely the sharp decline in access to capital, in addition to the increasing pressure from funds for “inadequate profits.” The situation described in Bulgaria reflects the one in Europe as a whole.

Regarding the risks facing the software industry, analysts see two main types:

The lack of sufficient competitive products on international markets and the outright digging into the pockets of tech businesses every year by raising the taxable income ceiling (on the part of the government) under the pretext of social equality.

In 2024, the draft public budget came with an unpleasant surprise for the high-tech sector – because of the planned increase in the taxable income ceiling. The proposed increase, by 10% to 4130 leva (2065 euros), will affect sectors with high added value. In response, the IT sector reminded the authorities that such moves make the business environment in Bulgaria uncertain, repel international investors and are in practice a blow to one of the few fully transparent industries - unlike many others that operate "in the grey".

In a collective position published in December, the IT industry also drew attention to a growing trend in countries like Poland and Romania - more and more people are terminating their employment contracts and switching to contracts as contractors and paying the minimum requirement for social security.

This trend will develop in Bulgaria if the annual raising of the taxable income ceiling continues, and this, in turn, will lead to a decrease in people insured at the higher rates," stated the industry organizations BRAITH, AIBEST, BASCOM, BESCO, ICT Cluster and PARAi in an open letter.

The telecom sector

Looking at the rest of the ICT sector in Bulgaria, the telecom business – the second largest in the industry – maintains the rapid upward trend of recent years.

While the telecom business in Europe is growing between 2-3% for the first three quarters of 2024, in Bulgaria there was double-digit growth in turnover in each Q and it will probably end the year with double-digit growth," CBN commented.

E-commerce

After three-quarters of symbolic growth, Bulgarian e-retailers will likely end 2024 with far weaker results than expected.

The data from the analytics company shows that it is no different in Europe. Competition from overseas e-tailers, including the Chinese e-retailers that have strongly invaded over the years armed with marketing experience, is taking an increasingly larger market share from the already relatively small Bulgarian e-commerce companies.

Translated by Tzvetozar Vincent Iolov