FREE GEOPOLITICAL NEWSLETTER

 

hungary

For current reports go to EASY FINDER

HUNGARY


 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 65,843 51,900 46,600 45
         
GNI per capita
 US $ 5,280 4,830 4,710 69
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km)
93,200

Population 
10,106,017

Capital 
Budapest

Currency 
Forint 

President 
Ferenc Madl

Private sector 
% of GDP
 
60%

  

Background:
Hungary was part of the polyglot Austro-Hungarian Empire, which collapsed during World War I. The country fell under communist rule following World War II. In 1956, a revolt and announced withdrawal from the Warsaw Pact were met with a massive military intervention by Moscow. In the more open GORBACHEV years, Hungary led the movement to dissolve the Warsaw Pact and steadily shifted toward multiparty democracy and a market-oriented economy. Following the collapse of the USSR in 1991, Hungary developed close political and economic ties to Western Europe. It joined NATO in 1999 and is a frontrunner in a future expansion of the EU. 

Update No: 079 - (01/12/03)


The Hungarians have long been renowned for their intellectuals and scientists, most of them Jewish. The physicist, Leo Slizard, the mathematician and physicist, von Neumann, the economists, Nicholas Kaldor and Thomas Balogh, the philosopher and literary critic George Lukacs and many more made their names in European and American intellectual circles in the great exodus of Jews from Central Europe in the mid-twentieth century. Lukacs was the only one to remain behind, a life-long communist who died before 1989, which would have called for the utmost philosophical serenity from the sage, who stated his view that the worst form of socialism was preferable to live in than the best form of capitalism. He deserved to hold this opinion, preferring Stalin's Russia as a place of temporary exile in the 1930s to the US or the UK, where the others all went.
Lukacs' star has somewhat waned of late, but the remainder are still held in high esteem. Intellectuals are still valued for their reflections on society and political developments. It is not so surprising, therefore, that an article by the present-day philosopher and journalist, Miklos Gaspar Tamas, has caused a stir, with its savage comments on public life.
Tamas aired his views in the well-known publication, Magyar Hirlap, in early November.
He claims that a considerable part of Hungary's judges are against Roma (Hungary's gypsies), hate women, are homophobic, xenophobic, anti-semitic, and deeply despise the down-trodden poor. They tend to come from the upper-middle class. Lukacs would certainly have agreed with this excoriation, despite coming from a rich banking family himself. Tamas makes a more politically correct vehicle for the same viewpoint today.
The article has started a controversy. Supreme Court President Zoltan Lomnici has, nevertheless, asked members of the judiciary not to launch lawsuits against Tamas for the publication of his defamatory remarks. He might have added that the general public would tend to agree with the main gist of them, so that to resort to litigation would only backfire, giving the philosopher welcome publicity.
There was a recent acquittal by the judiciary of a Calvinist pastor, Lorant Hegedus, who had published an anti-semitic article in 2001, which caused wide offence. The Calvinist Bishop Gusztav Bolcskei said on November 13th that his church synod disassociated itself entirely from Hegedus's article and found it to be irreconcilable with the Bible and the Calvinist religion. The Supreme Court President has meanwhile asked the Budapest Appeals Court to publish on the Internet the decision, and the justification for the verdict of acquittal, in the case. There is a general questioning of authority in Hungary which makes of these controversies more than just a storm in a teacup.

The Magyar-Gaelic axis
The government, composed of the ex-communists, led by Premier, Peter Medgyessy, is unpopular, as would probably be any government at the moment in Hungary. The economy is not faring too well, with a massive budget deficit and a host of other problems. The florint went into free fall on the exchanges during the summer and foreign investment was frightened off. But despite lagging badly in the polls behind the opposition party, Fidesz, led by former prime minister, Viktor Orban, the government is not despairing. Medyessy has a plan.
He is convinced the devaluation of the florint is a blessing in disguise. Previously growth had been led by domestic consumption, not by exports. Now it can be the other way round. 
Hungary is to enter the EU next year in June, which should give it an added attraction to foreign investors on top of the more competitive exchange-rate. The Hungarians can see what EU membership can do for a country when they look at Ireland, which is about to assume the EU presidency, taking over from Italy in January. The Irish joined with the UK in 1973. Unlike the British, they have made a great success of membership, becoming 'The Celtic Tiger' in the process.
From being the poor relation back then, they now have a higher standard of living than the English. The multinationals came in droves to Ireland, English-speaking, with low wages at the time and a huge Diaspora in the US, the small and compact island was seen as an excellent base of operations for doing business throughout Europe. Two-thirds of its exports are made by the multinationals, while the Irish farmers have done well out of Brussels subsidies.
The Hungarians are well-placed, Medgyessy is convinced, to do the same. He was mulling over this prospect with Irish premier, Bertie Ahern, in mid-November. Trade has risen five-fold between Ireland and Hungary since the late1990s, claims Medgyessy, while Irish investment is already coming into Hungary, having reached 160 million Euros ($187 million). 
In fact investment from abroad has reached over $20bn in Hungary, mostly in and around Budapest, which is a dynamic centre for the whole region of Central Europe, along with Prague. With a highly educated work-force, the one undoubted boon of its communist past, Lukacs' oeuvre not withstanding, still cheap wages by EU standards, a central location and a long tradition of inventiveness and entrepreneurialism, it should become a Mecca for investors in the near future. The prospect of becoming The Magyar Tiger beckons down the road.

« Top

BANKING

MKB only bidder for Knozumbank

Only one interested party submitted a bid recently for Konzumbank Rt, the third state bank scheduled for sale this year, the Budapest Business Journal reported. 
The share package, forming some 99.6% of Knozumbank's total share capital, is composed of a 90.6% stake in the bank currently owned by the Hungarian Development Bank Rt (MFB), and 9.0% owned by Toketars Consulting and Services Kft. Also forming part of the package on sale is the bank's District 5 headquarters, currently under the ownership of Tukory Centre Kft.
The sole offer for Konzumbank, made by the Hungarian Foreign Trade Bank Rt (MKB), was unanimously accepted by the board of directors of the MFB and is awaiting approval by the State Privatisation and Holding Rt (APV).
Konzumbank specialises in financing small and medium-sized enterprises, and has a market share of around one per cent. At the end of August 2003, it had total assets of Ft 102.6bn (400.4m Euros) and net capital of approximately Ft 9bn. The headquarters on Tukory utca has been independently valued at Ft 1.1bn.
Kornel Sarkadi Szabo, chief analyst at Raiffeisen Securities Rt, cited another reason for the lack of interest apart form the bank's relatively small size.
"At first glance, the main reason is the unfavourable timing of the privatisation. It was too close to Postabank's tender," said Sarkadi Szabo.
He also mentioned that Konzumbank focuses on corporate business, and large market players see outstanding growth potential mainly in the retail segment.
"We can see why the privatisation of Postabank was so relevant to Erste Bank's expansion," he said. "In addition, a lack of resources is forcing banks to focus on retail business in order to gather deposits."
This is the first time any serious interest has been seen in Konzumbank, following four previous unsuccessful privatisation efforts. Analysts note that the APV is under no pressure to sell the bank, since its Ft 100bn revenue target for the year was exceeded when it sold Postabank Rt earlier this year.

« Top

ENVIRONMENT

Firms in talks on tough EU waste rules

Company executives and officials of the Environment and Water Ministry will commence a crucial round of negotiations in the near future, the Budapest Business Journal reported.
The aim: to determine how much it will cost manufacturing firms to implement two far-reaching EU environmental directives.
"The cost of complying with these directives could be very high, but the exact sum is difficult to determine at this stage," Alasdair Denton-Miller, director of European sales at Flextronics UK, said. "These directives affect most areas of the manufacturing industry, and this is a very hot issue in the EU these days."
"Establishing the technical background for these obligations will mean vast investments by market players," said Jozsef Kelemen, an official responsible for the preparation process at the ministry.
The directives, dubbed Waste Electrical and Electronic Equipment (WEEE) and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (Rohs), entered into force in February. Member states must bring into force the laws, regulations and administrative provisions necessary to comply with these directives by Aug 13th 2004.
The aim of the directives is to prevent the accumulation of waste from electrical and electronic equipment. The original manufacturers and distributors will be forced to foot the cost of reusing, recycling and recovering such waste.
Another goal is to reduce the use of substances like lead, mercury, cadmium, hexavalent-chromium and brominated flame retardants (BFR's) in equipment.
The directives stipulate that by December 31st, 2006, member states should ensure that at least four kilograms of WEEE household waste items are collected separately, per inhabitant, per year.
Producers will need to establish a system enabling final holders and distributors to return WEEE items from households free of charge.

« Top

FINANCIAL NEWS

EBRD introduces new strategy for stronger economy

The European Bank for Reconstruction and Development (EBRD) has adopted a new strategy to support the strengthening of Hungary's economy and institutions as the country approaches accession to the European Union, EBRD said in a recent statement, Interfax News Agency reported.
The bank noted that Hungary's economy has withstood the global slowdown remarkably well, with growth rates of 3.7% in 2001 and 3.3% in 2002.
However, recent macroeconomic developments, such as a large fiscal expansion, will limit Hungary's room for manoeuvre while it tackles the challenges for EU accession. This shows that transition, though considerably advanced, is not yet over in Hungary," the EBRD said in its statement.
The bank added that it can continue to make an important contribution to transition and will focus in particular on five key priorities in the future:
One, the completion of the privatisation process, with a particular focus on transactions leading to the restructuring of enterprises or to capital market deepening. The EBRD will support the further liberalisation and opening of the electricity, gas and telecommunications markets.
Two, deepening and broadening of the funds and instruments available for small- and medium-sized enterprises (SMEs) through the financial sector and co-investment with specialised equity funds. The EBRD will support the preparation of medium and larger local companies for the challenges of the post-accession period through equity and quasi-equity investments.
Three, supporting renewed inflows of foreign direct investment, targeting medium-sized investors and projects located in lesser-developed regions.
Four, supporting the consolidation and development of the financial sector in a balanced way." The EBRD will seek to increase the availability of financing to SME's, in particular with the expansion of the EU/EBRD SMR Finance Facility. Furthermore, it will introduce new instruments that may include higher risk and structured products. The bank will also support the nascent mortgage market by providing long-term financing to residential mortgage finance providers.
Five, supporting the upgrade of transport, environmental and municipal infrastructure, where investments in excess of 20bn Euro are required over the next 12 years to meet EU requirements. The EBRD will concentrate on schemes that do not rely on a sovereign guarantee, increase the supply of long-term capital and actively support public-private partnership in infrastructure.
The EBRD is one of the most prominent investors in Hungary, having invested 1.3bn Euro in 60 projects, and mobilised a further 4bn Euro from business partners. This year the bank expects new signings in Hungary worth approximately 300m Euro.

Hungary launches new loan schemes to small, medium-sized businesses

The National Development Bank [MFB] is to launch new loan schemes linked to the National Development Plan in December. There are also plans for capital grants with preferential interest rates to small and medium-sized businesses. 
Attila Boeti reported for Kossuth Radio:
The Hungarian Development Bank is planning to inject one billion euros, that is almost 25bn forints, into the Hungarian economy by the end of 2004. They would like to grant one-fifth of the sum as capital grants, and four-fifth of it as loans, for example through the Europe Programme launched this spring, Zoltan Lech MFB deputy director-general has said. He added that, although the latter started a bit slowly but, after the government decision in August to undertake exchange rate guarantees for loans taken our by small businesses, interest has increased in acquiring Europe loans, which are being used by an increasing number of businesses. 
Lech said: "So far the bank has received 316 applications to the value of about 33bn forints (one dollar is about 220 forints). We have approved 250 applications worth about 17bn forints. The rest of them are currently being judged." 
The bank's deputy head also said that there was also a huge interest in a new opportunity offered by the bank, the so-called capital financing. The essence of this is that the MFB acquires a stake of a maximum of 49 per cent in the company which applies for capital, which will make the company credit-worthy. In return for the capital grant, the bank's expectation of return is about 11-12 per cent, which is 6 per cent over the rate of inflation. As Zoltan Lech stressed, this was considered to be very favourable on the market, since the same expectation of return in the case of venture capital companies could reach as much as 25 per cent. 
So far 45 applications submitted by small and medium-sized companies have been examined. The MFB is expected to conclude the first contracts in the second half of November.

« Top

TELECOMMUNICATIONS

Deutsche tipped to buy more telcos

Postabank Rt's selling of a 20% stake in US listed fixed-line telecom HTCC Rt to a consortium led by Deutsche Bank AG could lead to that consortium making further moves on the Hungarian telecom market, including a bid for telecom panTel Rt, a source familiar with the issue said recently, Budapest Business Journal reported.
"Postabank owns not only stock in HTCC, but warrants and US$25m in debt as well. The Deutsche, Bank group has evidently bought it all, amounting to about a 30% stake in HTCC," said the source.
The Deutsche Bank group could eventually make a bid for a controlling share of HTCC, which may lead to yet more consolidation, with the consortium turning its attention to other available telecom acquisition targets, said the source.
"HTCC has already stated it is interested in PanTel. The infusion of this consortium's capital makes the PanTel purchase by HTCC more likely," said the source.
The owners of fixed-line telecom Invitel Rt - financial investors AIG Emerging Europe infrastructure Fund LP (EEIF) and GMT Communications Partners - have stated that they are not involved in the HTCC deal. 
The source said it is also conceivable that the Deutsche Bank consortium might in due course buy Invitel from AIG and GMT and consolidate it with HTCC.
HTCC itself has been mentioned as a potential future target of AIG and GMT, as has PanTel, which has been on sale for over two years.
A joint press release from Postabank and HTCC, dated October 1st, said Postabank had entered into agreements to sell its 20% stake, amounting to 2,428,572 shares of common stock, to a number of institutional investors with long-term investment in developing European markets.
Other than Deutsche Bank, no other investors were named. 

« Top

TOURISM

Consortium picks up Accor hotels for 80m Euro

A group led by the Erste Bank Group recently won a tender to purchase five Accor hotels in Budapest for approximately 80m Euro, David Sylberg, CFO of Accor-Pannonia Hotels Rt, was quoted as saying by the Budapest Business Journal.
The deal closed in the middle of October. Accor-Pannonia Hotels will charter back the buildings and carry on the operation of the hotel, according to an earlier statement by the hotel operator.
Sylberg stated earlier that the funds that the hotel group saves by financing the property under a sale and leaseback structure would go towards the purchase or building of new hotels in Central Europe, most likely in Hungary.
The Acco-Pannonia group, last year sold the Sofitel Atrium Budapest (which was at the time called Hyatt Regency Budapest) to HV Leasing Hungary Rt, which is a subsidiary of Bank Austria Creditranstadlt Leasing GmbH and runs the hotel under a 22 year lease agreement. The French hotel group called for a tender to sell and lease back five Budapest hotels earlier in March: Hotel Emke, Hotel Korona, Hotel Mercure Buda, Hotel Metropol and Hotel Ibis on Raday utca.
Accor transferred ownership of the five buildings into another firm, according to court of registry files. The ownership was bought by AT Kft.
Sylberg stated that the real owner is the tender-winning Erste Bank Group, but AT Kft was established as an exceptional vehicle for the contract.
Immorent Kft, financed the deal, which is Erste's Hungarian leasing company stated Immorent Managing Director, Sandor Kovacs. Previously Kovacs would not disclose the name of the other participants of the group.
Amongst parties taking part in the tender, press reports listed leasing firms, funds of real estate and Hungarian banks.

« Top

CUSTOMISED REPORTS

 

INVESTMENT BACKGROUND REPORTS 

Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of clients or by access to one of our existing specialised reports. 
 
For further information email:
reports@newnations.com

Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly newnation reports and the complete worldaudit democracy check for the low price of US$12. The print-out would be a good companion to take with you. Having read it, you might even decide not to go!
 
To order please click here:
Investment background report

« Top

« Back

 


 
Published by 
International Industrial Information Ltd.
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774
enquiries@newnations.com