Weapons, growth, economic miracle: Bulgaria means business – National plan implements NATO's five percent target by 2035

Multi-billion-euro munitions plans: Why German security companies are now investing in Bulgaria

For a long time, Bulgaria received little attention in European security policy – ​​in the public perception, the Black Sea nation was mostly associated with poverty, emigration, or political instability. However, Russia's war of aggression against Ukraine has triggered a geopolitical and economic turning point in Sofia. Today, the country is undergoing an unprecedented transformation: with a planned increase in defense spending to up to five percent of its gross domestic product, robust economic growth, and enormous public investment, Bulgaria is evolving from a hesitant NATO laggard into one of Europe's most important military players.

For the German arms industry in particular, the Balkan state is proving to be a strategic stroke of luck. Corporations like Rheinmetall are building new mega-factories there to replenish Europe's dwindling ammunition stockpiles with unprecedented investments. However, this rapid rise to become a new defense powerhouse on NATO's eastern flank is not without its obstacles. The following text examines the background of Bulgaria's rearmament, highlights the lucrative opportunities for German security companies, and unflinchingly analyzes the structural risks that could still jeopardize this ambitious course.

Bulgaria's geopolitical turning point: Why the 2035 plan heralds a new era for NATO

For decades, Bulgaria was a country on the periphery of European perception, a member state usually discussed in terms of poverty, corruption, and emigration. This narrative is now too simplistic. The Black Sea nation has been a NATO member since 2004 and part of the European Union since 2007, but only in recent years has it developed into a security policy actor of significant importance. Russia's war of aggression against Ukraine has fundamentally altered the geopolitical landscape of the Black Sea and placed Bulgaria, which lies directly on this sea and maintains historically close ties with Russia, in a new strategic dilemma. Since then, the government in Sofia has been attempting to balance its traditional affinity with Moscow with growing pressure from Brussels and Washington to take its alliance obligations more seriously than in the past. It is precisely within this tension that the current dynamics of Bulgarian defense spending are unfolding, going far beyond mere cosmetic adjustments.

A doubling of defense spending in response to the new threat landscape

The figures speak for themselves. Bulgaria has nearly doubled its defense spending from 1.31 percent of GDP in 2014 to 2.14 percent in 2025. Defense Minister Atanas Sapryanov even cited a figure of 2.09 percent for 2025, including compensation payments, with a target increase to 2.5 percent in subsequent years. Specifically, €2.7 billion is earmarked for the defense budget in 2026, an unprecedented amount in recent Bulgarian history. But this is far from the end of the arms buildup. In June 2026, the Bulgarian Council of Ministers adopted a national plan to gradually increase defense spending to five percent of GDP by 2035, with at least 3.5 percent allocated to core defense and up to 1.5 percent to security-related investments. This commitment follows the agreement reached at the NATO summit in The Hague in 2025 and places Bulgaria among a growing group of European states seeking to significantly expand their military capabilities. The government plans to invest approximately €19 billion in defense by 2035, with a minimum target of between 2.15 and 2.65 percent of GDP for defense spending between 2026 and 2028. Chief of the General Staff, Admiral Emil Eftimov, made it clear that even 2.5 percent of GDP would not be sufficient to build armed forces commensurate with the current security situation, demonstrating how seriously the Bulgarian military now assesses the threat.

Germany as a preferred partner in the modernization of the armed forces

The first German-Bulgarian Defence Day, held on June 3, 2025, at the Central Military Club in Sofia, marked a significant turning point in bilateral security relations. Organized by the German-Bulgarian Chamber of Industry and Commerce in conjunction with the German Embassy in Sofia, the event attracted more than 200 decision-makers from business, politics, and administration. At the opening ceremony, then-Bulgarian President Rumen Radev emphasized that Germany was Bulgaria's most important strategic ally within NATO and the European Union – a statement that carries considerable political weight given Sofia's traditionally close ties with Moscow. German security and defense companies presented their products and technologies at the forum, aiming to establish business contacts and deepen existing trade relations. The organizers have already announced their intention to continue the event annually, indicating a structural, rather than merely ad-hoc, deepening of cooperation. After the United States, Germany is now considered the most important supplier for the Bulgarian defense industry and is even number one in terms of capital investment. Among the largest procurements to date by the Bulgarian armed forces from Germany are the IRIS-T SLM air defense system from Diehl Defence and an order placed with the NVL Lürssen shipyard in 2020 for two patrol vessels.

Rheinmetall is building a munitions factory of European importance in Bulgaria

The most visible expression of this deepened cooperation to date is Rheinmetall's decision to establish a joint venture with the Bulgarian state-owned defense company VMZ-Sopot for the production of gunpowder and artillery ammunition. The contract, signed at the end of October 2025 in Sofia by Rheinmetall CEO Armin Papperger and VMZ-Sopot's Executive Director Ivan Getsov, envisages a total investment volume of approximately one billion euros. Rheinmetall holds 51 percent of the shares in the joint venture, with the remaining 49 percent remaining with the Bulgarian side – a shareholding structure that secures entrepreneurial control for the German corporation while simultaneously ensuring substantial Bulgarian participation in the industrial value chain. The new production facility is being built on VMZ-Sopot's existing factory site in the central Bulgarian city of Sopot, covering an area of ​​approximately 100 hectares, and according to Rheinmetall, it should be operational within 14 months. The planned production is for approximately 100,000 artillery shells annually in the NATO caliber of 155 millimeters, as well as propellant charges for up to 150,000 shells, which would make the plant one of the largest munitions production sites in Southeast Europe. This is also significant for the region in terms of labor market policy, as around 1,000 new jobs are expected to be created in a region historically dominated by the arms industry. At the contract signing, Papperger emphasized that the munitions produced are intended for both Bulgarian domestic use and export, thus placing the plant within the overall European strategy to close the munitions gap that has become apparent since the beginning of the war in Ukraine. Bulgaria's Minister of Economy, Petar Dilov, aptly described the project as combining Germany's technological expertise with Bulgaria's industrial potential, a phrase that succinctly summarizes the core of current German-Bulgarian defense cooperation.

An arms industry with socialist roots and new geopolitical relevance

To understand today's dynamics, it's worth looking at the historical foundations of the Bulgarian arms industry. It originated during the communist era as an integral part of the Warsaw Pact arms system and was initially neglected after the political changes of 1989, but then gradually expanded. Unlike many other post-socialist states, Bulgaria maintained a functioning munitions and weapons production sector, partly because Bulgarian manufacturers continuously produced Soviet and Eastern European military equipment in compatible calibers for third-party markets over the past decades. This industrial continuity is proving to be a strategic advantage today, as it means existing expertise, well-established supply chains, and existing production facilities that Western arms companies can utilize when expanding their capacity, instead of having to build entirely new sites from scratch. The economic report by the German foreign trade agency GTAI confirms that Bulgaria is systematically modernizing its armed forces and arms industry to meet future NATO requirements and, in particular, to satisfy the sharply increased demand for ammunition. In addition to the major Rheinmetall project, Bulgaria has also invested considerable resources in wheeled combat vehicles in recent years, including 198 combat and support vehicles, 183 of which are of American manufacture based on the Stryker system, underlining the country's overall diversified, transatlantic procurement strategy.

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Macroeconomic tailwinds as the foundation for rearmament capability

Bulgaria's military modernization is not taking place in an economic vacuum, but is supported by remarkably solid overall economic development. Bulgaria is now among the fastest-growing economies in the European Union, recording GDP growth of 3.1 percent in the first quarter of 2026 compared to the same period of the previous year. This placed it among the four member states with the highest annual growth, behind Ireland, Cyprus, and Poland. The Bulgarian economy had already grown by 3.4 percent in 2024, significantly above the eurozone average of just 0.9 percent. The European Commission forecasts growth of 2.7 percent for 2026 and a moderate slowdown to 2.1 percent for 2027, while institutions such as the European Bank for Reconstruction and Development predict similar figures. Bulgaria's accession to the eurozone as its 21st member state on January 1, 2026, further reinforces this positive trend, as it offers investors greater planning certainty and eliminates exchange rate risks. Also noteworthy is Bulgaria's low national debt of only around 23.8 percent of gross domestic product, a figure surpassed among all eurozone members only by Estonia, providing the country with fiscal leeway for further investments, including defense spending. The unemployment rate in October 2025 stood at just 3.6 percent, well below the eurozone average of 6.4 percent, indicating a tight but fundamentally functioning labor market. For 2026, in addition to the defense budget, major investments of around €4.9 billion are planned for defense and infrastructure, supported by substantial EU funding from the Recovery and Resilience Mechanism.

Why German companies should push into the Bulgarian market right now

From the perspective of German defense and security companies, this situation presents an extremely favorable window of opportunity. A country with stable public finances, low debt, robust growth, and a politically enshrined, long-term, and binding rearmament plan extending to 2035 represents a demand horizon that is lacking in many other European markets in terms of reliability. Furthermore, Bulgaria's geographical location on the Black Sea assigns the country a key role in NATO's eastern flank defense and structurally increases its military presence and equipment requirements. For German suppliers of ammunition, air defense, naval equipment, and armored vehicles, this offers not only the opportunity to deliver directly to the Bulgarian armed forces, but also to establish local production capacities through joint ventures such as the Rheinmetall model, combining lower labor costs with existing industrial expertise. This combination of more favorable production conditions and proximity to one of Europe's most security-sensitive regions makes Bulgaria an attractive nearshoring location for the defense industry – a pattern already established in other sectors of the German economy, such as software development and mechanical engineering. In this context, the annual German-Bulgarian Defence Day is likely to develop into a firmly established institutional platform for initiating further collaborative projects.

Structural risks that could jeopardize the arms buildup

Despite the overall positive momentum, it would be wrong to celebrate Bulgaria's development uncritically. Despite impressive growth rates, measured by GDP per capita, the country remains the poorest member of the European Union, reflecting structural weaknesses in its education system, administration, and public infrastructure. Political instability is a recurring theme in Bulgarian domestic politics, with frequent changes of government and repeated snap parliamentary elections, which undermines long-term planning security for international investors. According to assessments by international organizations such as the OECD and the International Monetary Fund, corruption and governance deficits remain key obstacles to the rule of law and competitiveness – issues that are particularly critical in the sensitive area of ​​arms procurement with its traditionally opaque tendering processes. The budget deficit also gives cause for caution, as the KBC Group estimates it could rise from around 3.0 percent of gross domestic product in 2025 to as much as 4.2 percent in 2026. Given the massive defense spending planned at the same time, this could lead to a fiscal conflict of objectives. Added to this is a pronounced shortage of skilled workers, exacerbated by the ongoing emigration of young, well-educated Bulgarians to Western countries, which also poses challenges for the defense industry in recruiting qualified personnel for new factories. These structural weaknesses do not mean that the rearmament plans will fail, but they do show that the success of the cooperation between German and Bulgarian companies depends crucially on whether Sofia pursues institutional reforms alongside its military modernization.

Bulgaria as a test case for European defense industrialization

The case of Bulgaria can ultimately be seen as a test case for a larger European pattern, according to which the consequences of Russia's war of aggression are triggering a redistribution of industrial value creation in the defense sector within Europe. While Western European corporations like Rheinmetall possess capital, technology, and international sales networks, Central and Eastern European countries like Bulgaria offer historically developed production capacities, lower cost structures, and direct geographical proximity to the relevant threat scenarios on NATO's eastern flank. This complementary constellation explains why Rheinmetall's investment in Sopot can be interpreted not as an exception, but as a model for further German-Eastern European defense cooperation. For the German security and defense industry, this means that market monitoring and business development in countries like Bulgaria are likely to become an integral part of strategic location and cooperation planning in the future—not as a short-term reaction to the war in Ukraine, but as a long-term industrial policy realignment within the European defense architecture. German companies that establish reliable relationships with Bulgarian partners, authorities and industry associations such as the BDIA early on are likely to benefit in the coming years from a market that is developing from a peripheral area in terms of security policy into a substantial building block of European defense capabilities.

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