By Tsvetelia Tsolova
RAKOVSKI, Bulgaria (Reuters) - Iosif Komninakidis smokes nervously behind his desk in the sleepy Bulgarian town of Rakovski and contemplates plunging sales of his Greek company's trendy jeans.
Business in Komninakidis's main market Greece was already in freefall when an election left Bulgaria's neighbor rudderless and further threatened its solvency and euro membership.
"Sales to Greece went down 30-35 percent. After the vote, they completely stopped. People just stand and wait," said the energetic 57-year-old manager of Staff Jeans & Co's sewing factory.
But his business can't wait. Staff Jeans & Co already has 800 people in Rakovski - some 180 km (110 miles) north of the border with Greece. It now plans to move more operations to Bulgaria to cut costs and ease shipping to markets in Germany and Italy.
Several of Greece's top companies spotted the Balkans' growth potential back in the 1990s, when names like Coca-Cola Hellenic
Now hundreds of small firms are following as Greek entrepreneurs abandon their shrinking home market with its uncertainty and high costs for lower taxes and cheaper labor in neighbors like Bulgaria, Romania and Albania.
In a reversal of recent history, these countries - communist until just over 20 years ago - now offer stability compared to Greece.
"Here you have security - you have a fixed tax rate of 10 percent, so that you know how much you can earn and how much you will have to pay - something that is not happening in Greece," said Komninakidis, who moved to Rakovski in 1999.
Cyprus, which offers European Union membership, strong cultural ties and is richer than Greece's Balkan neighbors, may also be benefiting most from the trend thanks to its low taxes, though labor costs are higher. Local press reported 1,500 companies moved headquarters there in the 20 months leading up to August 2011.
More than a quarter of the 2,800 Greek-owned companies now operating in Bulgaria were registered last year, according to the national revenue agency.
At the same time, the number of Greek-owned companies in Romania has risen 12 percent since 2009 to more than 5,200 and nearly 200 Greek-owned businesses registered in Albania in 2010-2011, a jump of nearly a third from the previous two years.
"The interest of Greek businessmen from different sectors - from IT companies to plastics, glass and food, as well as timber, has doubled in the past two years," said Dimitrios Tourikis, managing partner at Callamus, a consultancy offering services to foreign companies in Sofia and Athens.
The fall of communism opened up a wealth of opportunities for Greeks in the Balkans, shown in the firms which have a major presence in Bulgaria's economy: from telecoms companies OTE
Greek-owned banks, led by National Bank of Greece's
These big companies and others tapped the region's rapid growth, investing 3 billion euros in Bulgaria since 1996, creating over 80,000 jobs and preparing the ground for the current influx of smaller businesses.
These will create more income and jobs in Bulgaria and the region but economists say the impact will be gradual and is unlikely to give a major short-term boost to economies which have boomed and bust and are only slowly recovering.
The wider concern is that the Greek investment that has underpinned these emerging economies now makes them highly vulnerable to any Greek default or exit from the euro zone, which has knocked their stock markets and currencies in the last month.
Some observers see potential in that scenario as well because it will make Greek companies even more likely to find countries like Bulgaria attractive.
"The coin has two sides, however, as I see several positives of the possible Greek exit from the euro zone," said Yassen Ivanov, a fund manager at the Sofia-based DSK Asset Management.
"The most straightforward one being ... (More) Greek enterprises moving to Bulgaria, thus bringing employment for the people and tax revenues for the country."
In Bulgaria and Greece, consultancies and law firms offering registration, legal and accountancy services to foreigners have mushroomed.
Flexi Hellas started only five months ago and already has 30 clients. One is looking for a way to bottle its high-quality olive oil in Bulgaria and ship from there to clients in western Europe to cut costs and avoid potentially delayed payments in Greece. Another wants to move his GPS system business after sales at home dropped 60 percent.
"Some of them cannot meet their basic needs already, while the state is breathing down their necks. The insecurity makes them look for other solutions. They choose Cyprus or Bulgaria," said Flexi Hellas executive director Stefi Della.
Bulgaria, along with Cyprus, boasts the lowest corporate tax rate in the EU at 10 percent and starting a new business is easy and cheap. Romania has a flat tax of 16 percent.
Corporate tax in Greece ranges between 20 to 25 percent and the minimum monthly wage is 586 euros, significantly higher than even the average of 350 euros in Bulgaria and Romania.
Of course, setting up shop in southeast Europe is not perfect. Bureaucracy can be mind-numbing, infrastructure creaky, professional skills in short supply and graft is perceived as widespread throughout the region - perhaps even more so than in Greece itself, ranked the second most corrupt EU member after Bulgaria. Transparency International puts Albania, which is not an EU member, as even worse for corruption.
"It is remarkable that even Greek businessmen who had never before thought of doing business in Albania express a certain interest these days," said Spiros Economou of the Greek Embassy in Albania's capital Tirana.
As and when Greece shows signs of recovery, a return to what is still a richer country - even after five years of recession - may prove attractive.
"Then probably some of the capital and companies will go back," said Georgi Ganev, an economist with the Sofia-based Centre for Liberal Strategies. "But some of them will stay."
For Greeks used to a relaxed Mediterranean lifestyle, spending time with friends and family and enjoying the climate, the Balkans offer one attraction that trumps other countries.
"Why did I choose Bulgaria instead of the Netherlands or England?" asked Meletios Melentis, 30, who set up IQ Electronics - selling automation systems for garage doors and remote controls and satellite locator units - in Sofia this year.
"Simple. It's easier to do business in England, people there just go for the better deal. But I did not like to live there," he said. "The lifestyle here is very close to the Greek one. People go out, they have fun and when you make friends."
(Additional reporting by Ioana Patran in Bucharest and Benet Koleka in Tirana; Writing by Sam Cage; Editing by Sophie Walker)