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hungary

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HUNGARY


 

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: 074 - (19/06/03)

The Hungarians are cooperating with the US extensively over Iraq. They allowed 3,000 Iraqi exiles to be trained for deployment in their homeland during the war from an airbase in Southern Hungary. Now they are themselves to participate in reconstruction of Iraq.

Fidesz and government cooperate to help the US
The whole exercise requires full-scale cooperation between the two main parties, the former communists in government and Fidesz, the leading opposition party, which only narrowly lost being re-elected last year. For a two thirds majority is needed in parliament for security initiatives of this sort making a bipartisan approach essential.
The Hungarian Foreign Minister, Laszlo Kovacs, is the key figure coordinating the initiative, which requires bringing in key business figures as well as civil servants. Over 100 companies have expressed interest in being involved in the USAID effort of reconstruction. Transport will be a major contribution.
Iraq was Hungary's second largest trading partner among rising markets before the war.
Companies are keen to become involved in sub-contracting, as from US giant Bechtel, which received a US$680m contract for Iraq's reconstruction. The Hungarian International Trade Development Agency (ITDH), is managing the organisation of the country's involvement in the Iraqi rebuilding process and the Hungarian enterprises are applying through it. Bechtel has received documentations from ten Hungarian companies through ITDH. The water and electricity supply is where the American group is looking for partners. Polish, Czech, Lithuanian and British enterprises are competing strongly with Hungarian companies.

Government reshuffle
Premier Peter Medgyessey has just conducted a government reshuffle, albeit in lesser posts within the government. This should strengthen his hand as Hungary braces itself for EU entry on May 1st 2004.
"There is a need for the presence of a younger generation and a new vision in the government," the premier was quoted as telling reporters. "The new ministers are young, dynamic and have been successful in their careers so far. The values they represent fit the government programme well." Two new positions were established following the replacement of three ministers.
On May 19th, Education Minister state secretary, Istvan Hiller, replaced Cultural Heritage Minister, Gabor Gorgey. Businessman and advisor to the premier, Ferenc Gyurcsany, replaced Children Minister, Gyorgy Jansoi, and Budapest Zoo Director, Miklos Persanyi, an expert on the environment, replaced Environment and Water Minister, Maria Korodi.
New posts have been filled by Katalin Levai, former commissioner for equal opportunities at the Ministry of Employment and Labour, and Endre Juhasz, chief negotiator for Hungary in the European Union accession negotiations. Levai holds the post of minister without portfolio for equal opportunities and Juhasz heads the EU ministry. 
Former Communists though they are, the government is actually more bullish about FDI and privatisations, and indeed about the EU than Fidesz. Victor Orban, the latter's leader must fancy his chances of a comeback at the next elections. With only 10 seats separating the main parties, Fidesz has only to make a small advance to seize power once again. But elections are still several years away.

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BANKING

APV targets Ft 196bn from sell-offs


The State Privatisation and Holding Rt (APV) intends to complete the privatisation process of state-owned banks Postabank Rt, Land Credit and Mortgage Bank Rt (FHB) and Konzumbank Rt this year, Hungary's privatisation agency announced at a press conference recently, the Budapest Business Journal reported.
According to APV Chairman, Tamas Meszaros, the agency approved the tender conditions for selling Postabank, and these were published on May 20th. He added that the first round of the Postabank tender will end during the summer, with the bank's privatisation to be completed in November.
Postabank chairwoman, Julia Kiraly, said that the bank, Hungary's seventh largest by assets, has a stable client base and that its retail and SME activity is expected to continue growing in the future. At the same time, the bank plans to leave the market of serving big companies.
Kiraly said Postabank's strategy includes creating stable and sustainable growth for 2004, focusing on quality in 2005, and looking forward to 2006 as "the year of a satisfied owner."
According to APV Deputy CEO, Marton Vagi, the amount of guarantees the state should undertake for lawsuits against Postabank has not yet been determined. He said the APV would make a proposal to the government during the first round of the privatisation tender, together with the amount of the minimum asking price. Vagi noted that because of the strong interest in Postabank, defining a minimum price might not be necessary.
Preparations for selling FHB should be completed in June, Vagi said, after which it would take a few weeks to get all the necessary permits for the sale. Following an ad campaign and a road show in September, the sale could be started in October and completed in November or December, he added.
"An ongoing tender seeking advisors for the privatisation of Konzumbank will be completed in June," Vagi said, and following some preparations, the sale can be started in September, with plans to sign a contract with the new owner in November.
"Konzumbank is a state-owned bank competing with other commercial banks," Konzumbank CEO, Tibor Ferenczi, said.
According to Ferenczi, the bank, which serves SMEs, focuses on the most difficult segment of the market, but has many advantages, such as flexibility. He emphasised the importance of providing agriculture loans in close cooperation with the Hungarian Development Bank Rt (MFB). He said the value of agriculture loans provided by Konzumbank amounts to Ft 70bn (€285.4), and added that the interest yield of the bank was 5.43% last year while the banking sector average was 3.96%.
Besides the sale of the three banks, the APV plans to privatise other companies this year, including agriculture firm Babolna Rt, steelmaker Dunaferr Rt, shipping company Mahart Rt and National Textbook Publishing Rt, APV Chairman, Meszaros, said. The APV is also ready to sell the state's 23.6% stake in oil and gas company MOL Rt, pending government approval.
Meszaros said the APV expects Ft 196bn in total revenue from privatisation this year.

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ENERGY

AES launches new power project

AES-Tisza Power Plant Kft has launched a €98m development at its 860 MW Tisza II power plant in Tiszaujvaros, northeast Hungary, the company announced recently, the Budapest Business Journal reported.
The four-phase project, scheduled for completion by 2004, aims to extend the lifespan of the plant until 2016 by redesigning and reconstructing its existing generating blocks in a general retrofit, development, said Laszlo Balla, AES-Tisza's communications director.
"This project will make the plant compatible with EU environmental norms, a very important aspect in view of Hungary's upcoming EU accession," Balla said.
Owned by US utilities firm AES Corp, AES-Tisza signed a financing agreement with Credit Lyonnais Bank at the end of last year. Other banks involved in the financing are HVB Bank Hungary Rt, CIB Bank Rt, Raiffeisen Bank Rt, Budapest Bank Rt, Postabank Rt and KDB Bank Rt.
In the first phase of the project, the company will reduce the plant's nitrogen oxide emissions and will introduce a new system for the treatment of water used to clean parts of the facility. The monitoring and prevention of oil pollution on the river Tisza also belong to this phase.
With registered capital of Ft 18bn (€73.3m) and generating annual revenues of Ft 25bn, AES-Tisza is one of Hungary's best-performing power generation firms, according to a report published last October by the Hungarian Energy Office. AES privatisation cost, it has invested US$156m into the plant so far.
The other AES unit, AES Borsod Energetics Kft, will soon convert its 175 MW power station to use biomass fuel. The US$10m conversion project will allow the power station to use renewable energy sources by 2003. This will be Hungary's first biomass-fuelled power station.

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FINANCIAL NEWS

Economic growth to accelerate after July: Ecostat report

Growth in the Hungarian economy is expected to pick up slightly in the second half of this year, according to the latest monthly forecast of research institute Ecostat, Interfax News Agency reported. Ecostat maintained its GDP growth projection of 3.7% for the year. Hungary's industry is still reliant on export sales, said Ecostat, predicting that industrial output growth will pick up from last year's 2.6% to 4% in 2003 and 5% in 2004.
External balances deteriorated in the first months of this year, with current account suffering from lower tourism revenues. The current account deficit is projected at €3.2bn this year.
Ecostat believe there is little room for budgetary consolidation this year, and the research institute revised its 2003 budget deficit forecast from 5% to 5.2% of GDP. At the same time, the 2004 budget could mark the beginning of comprehensive structural reforms, Ecostat noted.
Inflation will decline to 4.8% on average this year, with the disinflation process driven by a decline in energy and raw material prices as well as a weak dollar, according to Ecostat. While inflation fell to as low as 3.9% in April, a seasonal increase in the CPI is expected in the second half of the year.

Financial institutions to lead arrange state loan

Hungary's Government Debt Management Agency (AKK) has awarded a contract to BNP Paribas, KBC NV, Sumitomo Mitsui Banking Corp and WestLB AG to lead arrange a €500m five-year syndicated credit for the state, Interfax News Agency reported.
The money will be earmarked for the general financing purposes of Hungary. The loan will pay a 17.5 basis point spread over the key Euribor benchmark, the agency said. Standard & Poor's and Fitch have rated Hungary's debt A-, while Moody's has rated the country's debt in 2003, AKK Deputy CEO, Laszlo Andras Borbely, said in a statement last December. According to him, almost €2bn in debt will be needed to refinance debt maturing for this year and for early next year. Earlier in January, the AKK announced a €1bn, 10-year Eurobond issue.

Magyar Nemzeti Bank cuts central inflation forecast to 3.9%

Magyar Nemzeti Bank (MNB) announced in it "Quarterly Report on Inflation" publication that it dropped its central inflation estimate for December 2004 to 3.9%, Interfax News Agency reported. The central bank said the figure is closer to the inflation target of 3.5% for next year; key for monetary policy decisions, the central bank's Monetary Council said in a statement.
The quarterly report noted that the new central inflation estimate for December 2003 is 4.6%, topping the initial target of 4.5%.
The central bank's council was quoted as saying earlier measures to restrict monetary policy encouraged producers to adjust their pricing behaviour to the lower inflation environment, as reflected in a sharp decline in core inflation seen in recent months.
"We have reached a long-awaited turning point where the disinflationary strategy based on real appreciation reaches its goal and disinflation is no longer fostered primarily by the direct effect of real appreciation, but increasingly by indirect effects such as general inflationary expectations and the pricing behaviour of companies," MNB Vice President, Henrik Auth, was quoted as saying.
The central bank said the economy will continue to adjust until the end of 2004. "Significant upside risks to inflation remain, particularly still rapidly rising wages and the slow contraction of fiscal policy," MNB said.
Since the start of the year disinflation has been maintained, the report said. "Factors exogenous to monetary policy - especially falling oil prices, a weakening dollar and changes in regulated prices - are expected to continue to put downward pressure on inflation during the rest of the year," the report added.

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INFORMATION TECHNOLOGY

Vodafone Hungary buys Amdocs billing software 

Billing software company, Amdocs has announced that Vodafone Hungary had selected Amdocs Enabler and other Amdocs products to support its rapid growth in recent months, Globes online has reported. 
Vodafone Hungary is an affiliate of the Vodafone Group, the largest mobile telecommunications network company in the world. The value of the deal was not disclosed. Amdocs said the Enabler product, which includes provisioning, resource management, accounts receivable and collection applications, would support Vodafone Hungary's full end-to-end billing process. 
Vodafone Hungary also selected Amdocs's Bill Formatter product, to drive higher customer satisfaction through user-friendly billing documents, Amdocs stated. 
Vodafone Hungary CEO Attila Vitai said, "We are confident that this project will enable the innovation that our customers expect of the Vodafone brand, helping us to further distinguish the Vodafone offering in the Hungarian marketplace." 
"Amdocs is constantly aligning its product development with operator needs for competitive differentiation in a rapidly evolving market," said Michael Matthews, chief marketing officer at Amdocs. "The extensibility and resulting strategic value of the Amdocs Enabler product ensures that leading operators will maximize their return on investment with long-term cost of ownership advantages." 

Enterprise software developer says local touch is key

A family-owned outfit believes it can hold its own on the local market for Enterprise Resource Planning software (ERP) by being in tune with the needs of local customers, the Budapest Business Journal reported recently.
"We've had 13 years dealing with ERP in Hungary. Potential clients thought the big companies were going to solve their problems, but now there are just the same problems as ten years ago," said Gyorgy Kiss, managing director and founder of Ecobit Kft.
Multinational software developers are not flexible enough, and are not meeting the needs of smaller Hungarian firms, Kiss claimed. "There is so much software on the market, but a lot of customers can't get it customised at an optimised price," he said. Many multinationals, he said, do not appreciate the small size of the companies they are trying to sell to. "A medium-sized company in Hungary could start from 20 employees with revenue of Ft 300m, even though the official definition is 50 or over," Kiss said.
Ecobit has spent Ft 100m (€407,000) on developing its own software and is now launching a new integrated ERP system labelled Talentum. This is based on Microsoft Corp's three-tier application development model, Windows DNA.
Kiss claims his firm's experience enables it to spot the less obvious respects in which software products need to cater to a local client base.
"We've realised that while most software is localised, the problem is not necessarily is localised, the problem is not necessarily with language but with the structure," said Kiss.
Despite its focus on the needs of Hungarian business people, Ecobit's clients do include a joint venture, which reports by both Hungarian and American accounting rules, named First Hungarian-American Energy Service.
Other Ecobit customers with foreign connections include electronic goods company Panasonic Hungary Kft, vehicle manufacturer Magyar Suzuki Rt and Triumph International Kft.
One customer, Dunaferr Energy Services Kft, praises Talentum's flexibility. "The system covers the needs of our company, without unnecessary elements. It wasn't us who had to bend," said the company's finance director, Attila Szepesi. "Within three months, we gained a system that works safely, is up-to-date and offers a good price/performance ratio."
Nevertheless, there is a limit to how much Ecobit is able to adapt itself to clients' needs, according to Kiss. "If a company needs more than 20% adaptation, Ecobit will not do it. We work on the basis that at least 80% of the system is already complete," he said.
Ecobit does not deal exclusively with ERP systems. It is also a distributor of computer game software, an activity that brings in more revenue but substantially less profit than ERP. Overall, it had profits of Ft 35m on revenues of FT 700m in 2002. "It's easy to make a big turnover from hardware sales, but not many companies make a big turnover from software," Kiss said.
Ecobit is due to transform into an Rt in the near future, one year before Hungary enters the EU, in a bid to ready itself for new challenges. "There'll be a new strategy. We are trying to build a company that can be beneficial in the EU also," Kiss explained.
The strategy includes trying to carve out a niche providing ERP solutions to firms run by ethnic Hungarians in neighbouring countries such as Slovakia and Romania. Another plan is to localise game software for the areas of those countries where Hungarian is widely spoken. "Language can protect us against competition. "We want to gain the biggest dominance in this segment," he said.
Ecobit also plans to develop customer relationship management (CRM) software, Kiss revealed.

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TELECOMMUNICATIONS

3G to increase number of mobile providers, competition to rise

The Hungarian government will likely decide on the timing and conditions of issuing a 3G mobile technology tender before the end of the year, IT and Telecom Minister, Kalman Kovacs, said, Interfax News Agency reported. The minister expressed hope that 3G services will thus be available in Hungary in 2005. Leading up to the government decision, professional debate should focus on when a tender announcement would be favourable, how many service providers it should call for, and the extent of concession fees, Kovacs added. According to communications authority Hif, the 3G system should be implemented in a way that increases the number of mobile providers, with concession fees to be paid not in one lump sum, but gradually and proportional to traffic. The new market player will likely kick off with an "aggressive" drive to lower prices, which could revitalise competition on the market, said Kovacs. Andras Sugar, CEO of mobile provider Westel, said that building out UMTS infrastructure is expected to cost four or five times more than building out a GSM system. Earlier, Sugar said that UMTS will only take off in earnest in terms of revenue generation after 2008. However, UMTS coverage will never by nationwide, instead focusing on large towns with substantial demand.

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TRANSPORT

Agreement paves way for fourth metro

After a more than four-year tug of war, Budapest City Council and the central government reached an agreement recently on financing the construction of the capital's fourth metro line, the Budapest Business Journal reported.
"I have been waiting for this government decision for years, and I take it as a victory of common sense, good will and a European way of country development," Budapest Mayor, Gabor Demszky, said recently.
"The government is paying a state debt by financing the metro project," said government spokesman, Zoltan J. Gal.
According to the agreement, the government will finance 70%, while the city contributes 30% to the costs of building a new metro line. The Ft 195bn (€795.3m) project, which will be the largest infrastructure project launched in Hungary for several years, will create a 7.3 kilometre metro track, running from District 11's Kelenfold to Keleti railway station in District 7.
The launch of the project still depends on Parliament passing a draft bill, dubbed the Metro Bill, this summer. According to Gabor Gado, undersecretary at the Justice Ministry, the government endorsed the draft bill recently.
"By modifying the Civil Code and the Final Accounts Law, the Metro Bill is expected to create the legal background for the state to take on financial obligations beyond the one-year budget price," Gado explained.
Provided the Metro Bill is passed by Parliament this summer, DBR Metro Project Directorate will call several related tenders this autumn, worth billions of forints, according to Laszlo Gulyas, director of DBR Metro.
"Despite past uncertainties about the metro financing, we have been actively preparing the project and - as soon as we get the various environmental and railway authority permits - we will be able to call the first set of tenders," Gulyas said.
One of the delaying factors concerning the metro project has been the lack of legal guarantees concerning the government's long-term financial obligations. This problem first surfaced four years ago, when the then Fidesz-led government nullified a decision made by its Socialist-led predecessor to finance a certain part of the metro project, Gulyas said.
According to Gado of the Justice Minsitry, if the Metro Bill is passed by Parliament, the finance minister will be authorised to sign an agreement with Budapest City Council.
"The new law, together with the modifications to the Civil Code and the Final Accounts Law, will ensure that once the government signs a contract as a private legal entity, it will not be able to withdraw from it by pointing to its limitations as a public entity, such as a lack of resources in the annual budget," Gado explained.
The law will also state that in the event the government wants to sign similar contracts in the future for a value above Ft 50bn, it will have to seek approval from parliament, he added.
"The Metro Bill also paves the way for other projects requiring the government's long-term commitment, like public-private partnership projects," Gado said.

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