Economic outlook of Hungary today – and what are the prospects for the country?

The Hungarian economy is in a good shape, which manifests itself in increasing foreign investment and the constantly raising standard of living. This is also visible in the statistics.

According to revised data published in September 2017, Hungary’s economic performance was even better than previously assumed. In 2014, the Hungarian economy achieved a 4.2% economic growth which was one of the highest figures among the member states of the European Union. Thus the Hungarian gross domestic product reached the same level where it stood prior to the crisis. The GDP grew by 3.4% in 2015. In 2016 the GDP growth reached 2.2%. In 2017, a GDP growth of 4.0% was registered. Despite the strong economic growth, the price level practically stagnated in the period between 2014 and 2016. Last year the inflation rate amounted to 2.4%. The price stability was accompanied by a massive surplus in the foreign trade balance. Since 2010, the current account balance has been positive and the country’s gross external debt has been decreasing, bringing improved financing conditions for the whole country.

The improving economic performance was achieved with the stability of public finances; since 2012 the budget deficit has been lower than 3% of the GDP, in 2017 it amounted to 2.0%. The public debt has been falling for years and at the end of 2017 it stood at 71.7%[1] as a proportion of GDP. According to expectations of the Government, following a gradual decline, the national debt may be around 62% of GDP by 2021.

Macroeconomic stability, less than 3% GDP-proportionate budget deficit and continuous reduction of the public debt are the most important objectives of the Hungarian Government’s economic policy strategy. The Government intends to achieve a sustainable fiscal balance with structural reforms, including complex reforms in the pension system, public transport, higher education, public administration and the health care sector.

A further objective is to make Hungary Europe’s production centre in order to accelerate and stabilise economic growth, which is why the Government aims to create the most competitive investment environment of the continent. Another key objective is to build a competitive, work-based economy instead of a Western-type welfare state, where each citizen intending to work can find a job.

Which kinds of business opportunities are there for Finnish companies in Hungary?

Finnish companies are always welcome in Hungary. The Hungarian business environment has improved steadily over the last couple of years. The Hungarian government has developed an effective network of institutions helping foreign capital to expand their business in the country.

The Hungarian Investment Projects (HIP) program of the Hungarian Investment Promotion Agency (HIPA) aims to link the potential financial and strategic investors with Hungarian projects opened to foreign investment.

The HIP database currently contains 46 projects, from the following 5 sectors: agriculture and food industry, manufacturing, green industry, innovation and real estate. The database contains approved, ready-to-invest private investment projects that are in need of investment for implementation, capacity expansion and market entry purposes, etc. The funding requirements of the projects range from EUR 1.5 million to EUR 150 million.  In case of interest in a certain project HIPA can provide further information on the project such as business plans and tailor-made information on the Hungarian business environment which support reasonable decision making. In addition HIPA can assist the investors in establishing contact with the project owners and start the cooperation.

Please, also explain us which kinds of investment opportunities there are for Finnish companies in Hungary?

Foreign direct investment (FDI) from Finland has been very significant in Hungary, but it has had its ups and downs. However, the recent developments show us that there is a possibility to grow again, but we should work on it steadily. Finnish companies will find many opportunities and helpful partners when investing in Hungary.

Foreign direct investments play an important role in the Hungarian economy, foreign-owned companies generate over 50% of the total value added in the private sector. As a consequence of this, one of the main objectives of Hungary’s economic policy is to attract foreign direct investments into the country, which is why the Government aims to create the most competitive investment environment of the continent.

Over the last years, Hungary has been very successful in attracting foreign capital into the country. In 2017, the Hungarian Investment Promotion Agency (HIPA) participated in 96 investment projects closed with a positive decision, with a total value of over EUR 3.5 billion. As a result of these projects, over 17,000 new jobs are expected to be created. The automotive sector and the SSC sector are the most important investment destinations, besides the food industry and the electronics sector are also experiencing growing interest from foreign investors. Finnish investors are mostly active in the IT sector and the machine industry.

If a Finnish company decides to invest in Hungary, what are the most important issues this enterprise has to take into its consideration to succeed in the market?

 In a constantly changing world, the company, which decides to come to us, will experience political and economic stability in Hungary.

Over the last years, Hungary has taken several measures to offer a continuously improving business climate for investors. The flat corporate income tax rate of 9% introduced in 2017 is the lowest among the EU member states. Companies can join the dual education system in order to ensure the high quality of their workforce. Furthermore, investors can count on a continually decreasing tax burden related to employment based on the six-year wage agreement signed in 2016. Hungary aims to move the country from the era of "Made in Hungary" to the age of "Invented in Hungary", that is, its objective is to increase the number of jobs producing high value added.

Which kind of assistance and which kinds of benefits there are in Hungary for Finnish companies which would like to invest in  Hungary?

Hungary is a reliable partner in the international business environment, the network of institutions provides many benefits and incentives. The portfolio of the Ministry of Foreign Affairs and Trade changed significantly in 2014: one of the major changes was the establishment of the Hungarian Investment Promotion Agency (HIPA), i.e., a professional investment promotion agency. Hungarian National Trading House (Magyar Nemzeti Kereskedőház Zrt.), which assists the export activities of Hungarian companies outside the European Union and Magyar Export-Import Bank Zrt. and Magyar Exporthitel Biztosító Zrt. (jointly referred to as EXIM), which support the Hungarian exporters, have key roles in the new structure.

Hungarian Investment Promotion Agency (HIPA) contributes to the economic development of the country by promoting Hungary as an ideal location for investments and by providing management consultancy services to investors and prospective investors. In the framework of its policy advisory activities it mediate between business and government and collect company feedback in order to prepare policy proposals to further improve the business environment. It is also responsible for the government incentives for investments and work as the managing body of the VIP cash subsidy system based on individual government decisions.

Services

It provides management consultancy services in the fields of location selection, supplier development and mergers and acquisitions in a one-stop-shop service model on a free of charge basis.

Location selection / Business expansion

Concerning location selection and business expansion projects, it supports investors in their location search and evaluation activities, it organizes site visits and reference visits, is provides tailor made incentive offers and information packages as well as administrative support in dealing with public authorities.

Supplier development

The Agency also aims to boost cooperation between Hungarian small and medium-sized enterprises and international companies by operating on online database of qualified suppliers, by organizing supplier trainings dedicated to integrators’ needs and by providing professional consultancy and intermediation.

M&A advisory

In addition to promoting foreign direct investment, it aims to link to potential financial and strategic investors with Hungarian projects and businesses, handling a continuously growing online database on certified projects awaiting capital injection.

One of Hungary’s competitive advantages over other countries in the region is the Government’s strong commitment to streamlining business processes and increasing the competitiveness of SMEs and large firms in Hungary. To help achieve this, we offer wide-ranging incentives – both refundable and non-refundable – to facilitate foreign direct investments and reinvestments by local enterprises. The main types of incentives are cash subsidies (either from the Hungarian Government or from EU Funds), tax incentives, low-interest loans, and free or reduced price lands.

In order to promote R&D investments, a new incentive measure was introduced this year to support the R&D activities (industrial research and experimental development) of large enterprises throughout Hungary, including Budapest. The aim of the new R&D cash subsidy is to promote the establishment of new R&D centres besides the support of companies already performing R&D activities in Hungary.

Besides, a new incentive measure was introduced to support the technology-intensive investments of large enterprises which employ more than 250 people in Hungary. The aim of the new CAPEX based subsidy is to promote those capacity expansion and technology-intensive investment projects which do not result in the increase of the headcount.

We know Hungary as a great holiday destination for Finns. Please, tell us more about the tourist attractions and holiday resorts in your country.

In Hungary, tourism is considered as a strategic priority area, which contributes to the GDP by 10% and employs around 350 thousand people. The new National Tourism Development Strategy 2030 aims to increase the contribution of tourism to the GDP from the current 10% to 16% by focussing on high quality tourism. The Government provides resources of over 2.5 billion euros (HUF 800 billion) until 2030 to fund the Strategy’s development projects. So much funding has never been available to Hungarian tourism before.

Strategic priority areas of tourism development are defined, based on the main tourism products and attractions of Hungary, such as Balaton, the freshwater lake, a main holiday destination for families, Budapest, the capital and Grand Budapest – small picturesque towns and villages around the capital, Héviz, the main thermal water lake with outstanding healing effects and the biggest wine regions, like Tokaj, the home of Tokaj dessert wines, Sopron, the historic city in the western part of the country and Hortobágy, with live traditions of  horse riding and folk arts. Focussing on these areas big development projects have started in order to provide all-year –round experiences for all generations at high standard.

For tourists Hungary, especially Budapest usually feels like prevailing romantic and royal atmosphere, thanks to its architectural and cultural heritage.  Café culture, music festivals, ruin pubs and rich gastronomy also add to the treasures.

Hungary’s economy is at a critical point of development. In order to shift from Made in Hungary to Invented in Hungary, the government has fully committed itself to creating an attractive environment for innovation and investment. Péter Szijjártó, Hungary’s Minister of Foreign Affairs and Trade, sat down with Jacopo Dettoni, Deputy Editor of fDi Magazine, to discuss international investment and the future of the Hungarian economy. https://www.youtube.com/watch?v=51i9YylcBdc

About the activities of HIPA, there are more videos available on their website: https://hipa.hu/main

[1] 73.6%, if the debt of the Eximbank is taken into account

Questions: Anne Hatanpää, Liaison Manager, Finland Chamber of Commerce
Answers:  H.E. Vince Szalay-Bobrovniczky, Ambassador of Hungary in Helsinki