Taking a strategic step towards the East

Date: 27/03/1997

By Mark Turner

WITH Bulgaria's economy in a complete shambles, its political scene in turmoil and a population struggling for everyday survival, international companies might think it crazy to set up business there.

But Solvay's managing director Olivier Monfort takes precisely the opposite view. Assuming nothing goes wrong at the last minute, Solvay will buy 60&percent; of the country's giant soda ash plant 'Sodi' for 140 million ecu this year.

With a large production capacity and a highly strategic position on the Black Sea, Sodi is an excellent opportunity for his company, says Monfort, whatever the economic and political climate in Bulgaria.

“It is a good plant, it can be improved, and it has a strategic value,” he explains.

To a degree, Solvay is not investing in Bulgaria at all. Sodi is really an “offshore plant”, says Monfort, originally designed almost purely to service the Communist trading system.

It has its own port (Varna), quarry, communications infrastructure and receives five-star treatment from Bulgaria's government. In terms of maritime access, “you have no other plant in the world which is as well organised”, says Monfort.

While Comecon has disappeared along with the Soviet Union, Solvay intends to continue Sodi's tradition by exporting the lion's share of its produce.

Therefore, the firm's exposure to domestic economic fluctuations is minimal, especially as trade is conducted in dollars.

Soda ash, which is used mainly as an ingredient for glass (especially bottles) and detergents, is sold in high volume for low prices and has a global market of 33 million tonnes.

Solvay is the world's top producer, with over 7 million tonnes of capacity in Europe and the United States. By adding Sodi's 1.2-million-tonne capacity to a similar level of expansion in the US, the company intends to keep it that way.

The soda ash market is expanding at a rate of around 2.5 to 3&percent; a year, but the growth is no longer to be found in the world's major economies. And although central Europe does show signs of expansion, “there is a long way to go before you get back to the old numbers”, says Monfort.

The product's biggest openings now lie in Asia, Latin America and (potentially) the Middle East. And it is that middle eastern potential - alongside Balkan and Turkish markets - which Solvay hopes to tap by moving into Bulgaria.

Monfort also sees long-term prospects in central Asia. “Once they have sorted out their problems and freed up their oil, there will be money. Where there is money, soda ash will be consumed,” he predicts.

As well as its excellent location, Sodi has a well educated management and skilled workforce - albeit Russian and

Bulgarian speaking. “The technical people are fine. Where they are weaker is in marketing, management and computers”, says Monfort, although he stresses that they are both willing and able to improve.

After years of negotiation, Solvay signed an agreement in principle to buy the plant last December. The tender process was “really clean”, and Solvay was “quite surprised by the efficiency of people involved”.

Although the company's main dealings were with Bulgaria's privatisation agency, government ministries also showed “an impressive commitment” to the deal.

“The top level of people is certainly of great quality,” says Monfort, adding that they are on a learning curve towards market capitalism. “The atmosphere is nearer to Latin countries than Germanic.”

Nevertheless, there is some way to go before Bulgaria becomes accustomed to foreign investment. “There have been many second thoughts. People strongly believed we were buying the plant to shut it down,” he explains.

Monfort feels the way to win hearts is through investment and partnership, giving the workforce hope for a sustainable future. Solvay intends to spend almost 60 million ecu on the plant to enable it to compete on global markets.

“We have to improve product quality, reduce energy consumption, improve environmental performance and introduce further automation,” he explains.

Interestingly, Monfort does not see Bulgaria's prospects of EU membership as a very important factor in his company's investment there.

“I do not think we need the country to be part of Europe to do business. Besides, whatever happens politically, central European countries are already being integrated economically into Europe.”

Nor, says Monfort, is enlargement all that important a catalyst for economic reform. “The driving factor today is not entry into Europe. It is too early. The driving factor is that the state is bankrupt.”

Where the EU can help most, he says, is by granting easier access to eastern goods. “We cannot dream of selling things if we cannot buy.”