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)

Books on Hungary

REPUBLICAN REFERENCE

Area (sq.km)
93,030

Population 
10,045,407

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: 083 - (19/03/04)

Why NATO; why the EU?
The Hungarians are joining NATO in April and the EU in May. One might ask why. NATO is easy to understand as a safety precaution; but the EU is another matter. Their economy has been doing well outside it for years, since before the idea was mooted. It was always taken for granted that it would join, it is true. But there is no reason why it could not just have formed a free trade pact, benefiting from the advantages of free trade, without going the whole hog.
It became inevitable it would of course because the momentum of expectation that it would, could brook no denial. The received wisdom enforced it as an indispensable way of declaring itself to have a new modern identity. 
Its twentieth century history had been misfortune after misfortune since 1918, lurching from one extreme to another. After the postwar republic was declared, led by one of its great magnates, Count Karoyli (who, however, had radical opinions) it had a brief uprising of communism in 1919, led by Bela Kun, which was doomed by the fact that most of its leaders, including Kun himself, were Jewish, and by the opposition of the Entente powers. Romania finished it off with their compliance, thereby securing Trannsylvania in perpetuity, with its Hungarian population, for itself.
An authoritarian survival from the Austro-Hungarian Empire, Admiral Horthy, took over with the avowed aim of retrieving the lost province. He was actually designated Regent for the defunct King of Hungary. Only the Germans would countenance a revision of the Treaty of Trianon (sister Treaty of the Treaty of Versailles) on the scale of the return of Transylvania. Accordingly Horthy's policy was Germanophile, and eventually pro-Nazi. When this looked as if it might waver in 1944, an outright fascist party seized power with German help, the Arrow Cross. 
As Nazi-held Europe went down to defeat the lot of Hungary fell to the Soviet Union. The failure of the West to support the uprising of 1956, distracted by the Suez Canal crisis, left Hungary under communist rule until 1989.
This chequered history tells its own story of externally-induced lurches to extreme politics or internal ones in their wake. The result is that the Hungarians fear above all instability, whether from outside intervention or themselves. Aware that another world war is highly unlikely, but still deeply fearful of themselves, they have opted for NATO and the EU. 

The Way of the West
The external enemies were from the south or east right up to 1989. A definitive integration into the West seems to hold the key. But does it?
The answer is yes, but at a price. The Hungarian army is in poor shape, so needs more funds. Accession to the EU requires adhesion to l'acquisition communitaire, the body of requirements, with which non-compliance can be penalised. The legal decrees and edicts of Brussels will scarcely improve Hungary's growth prospects. They merely add one more round of red tape onto businesses, already beset by them.
The great thing is that it is Western red tape and thereby politically correct. The Hungarians have found their new role and identity- to be the last Western outpost until the Carpathians and the Ukraine. 
Due to the pick-up in world demand expected in the second half of 2004, economic growth in Hungary will rise from 3.1% to 3.2% this year, according to ECOSTAT.

« Top

AVIATION

Budget airlines poised to proliferate

Several budget airlines have expressed an interest in flying to Hungary after the country joins the EU in May, according to industry sources.
"We're having talks with several companies. All the budget airlines in Europe that really count will be there," Gyorgy Peto, communications director at Budapest Airport Rt, said, the Budapest Business Journal reported recently. 
The company operates Budapest's Ferihegy International airport. Peto said easyJet has announced daily flights from Budapest to Berlin and London. Other companies having talks with the airport include Ryannair, he added.
Ryannair also aims to fly to Balaton West Airport, near Sarmellek, said Istvan Zoka, the airport's director.
In additional, Volareweb.com of Italy is in talks with the airport and the first flights will start in June, with one flight a week to an Italian destination, Zoka said. Volareweb is the lowest brand name of Volare Airlines. Launched last year, it flies to 26 European cities, and has hubs in Milan, Venice and Rome.

« Top

ENERGY

Popularity of MOL shares attributed to possible gas arm sale

The Budapest Business Journal reported recently that strong interest in shares of oil and gas firm MOL Rt can be attributed to the company's ongoing regional acquisition drive and reports that its politically sensitive gas division will soon be sold, analysts said.
Recently, a sale of 11,316,000 state-owned shares in the firm for Ft 6,500 per share to international and Hungarian institutional investors was oversubscribed by almost 50%. This came as MOL intimated that it will listen to bidders for a stake in its gas business, something which reportedly attracted the interest of several heavy-weight gas companies, notably Russia's Gazprom, Gaz de France SA and Germany's Ruhrgas AG. 
"I imagine MOL will sell up to 49% in the gas storage division, 27% of the gas delivery and probably 100% of the gas trading and distribution," said Tamas Pletser, an equity analyst covering the company for Erste Bank Investment Rt.
"By law, MOL is obliged to retain a minimum 25% stake in the gas delivery business, and I think it will wish to keep a majority stake in the gas production segment, which it does not want to sell. [Storage] has a higher return on assets than the other gas divisions," he added.
There is sure to be strong interest in the stakes, as several large regional gas companies are expanding in the region and Hungary would make an ideal hub from which to supply the rapidly growing Balkan market, according to Pletser. He said MOL could not exploit such opportunities as efficiently as, for example, Gaz de France.
Gazprom's apparent interest was reported on the Dow Jones newswire recently. Pletser said it makes perfect sense that the Russian giant would consider a bid.
"Gazprom is very interested, and already has strong ties to MOL, which is one of Gazprom's most important foreign gas buyers," he said. I would guess that Gazprom's idea behind bidding would be very similar to that of Ruhrgas and Gaz de France - using MOL's storage capacity to supply Romania and Serbia."
Miklos Bonis, head of research at Inter-Europa Bank Rt, concurred, saying that although at present this is only a market rumour, it is a realistic one.
"Amongst other things, MOL has a big gas storage capacity, and is the gateway to western and southern Europe that Gazprom needs and wants," he said. "MOL already has a good business relationship with Gazprom through the jointly owned Panrusgaz Rt import company, through which MOL imports 80% of its gas."
Pletser said the Russian, French and German companies have a more or less equal chance of being the buyer. He noted that the French and German companies have sound financial positions and holdings in Hungarian regional gas distributors.
He said that Gazprom's clear advantage, derived from its existing relationship with MOL, is slightly mitigated by its being a fully state-owned company, which sometimes has difficulty getting permits from the Russian central bank to invest abroad.

« Top

FOREIGN INVESTMENT

EBRD, insurer plan €300m property fund


Italian insurance group Assicurazioni Generali SpA and the European Bank for Reconstruction and Development (EBRD) will launch a €300m real estate fund, investing in the Central and East European region, Budapest Business Journal reported recently.
The equity of the 'Accession Fund' could eventually be leveraged into €1bn worth of property acquisitions.
At the beginning, Generali, based in Trieste, northern Italy, will contribute €90m, while the EBRD's initial contribution will be €75m, or 25% of the planned total. The fund will also be available for private investors, an EBRD press release announced.
The fund will take advantage of the medium-term capital appreciation - also known as convergence - of commercial property in the countries gearing up for accession to the European Union this May.
"We are targeting a 15% annual return," said Gerd Kremer, chairman of the Accession Fund and managing partner of GLL Real Estate Partners GmbH, a global joint venture between Generali and Lend Lease Real Estate Investments of Atlanta, Georgia.
The joint venture, which will manage the Accession Fund, was formed to build a European property investment and management company for European investors.
Eventually, about €300m-€400m of the total invested in the new fund would be allocated to Hungary.
"We are most interested in prime shopping centres, and class A office buildings in Budapest," said Barry McGowan, who is CEO of the Accession Fund and managing director of GLL Real Estate Partners.

« Top

INDUSTRY

Local Electrolux sees sales rise


Home appliances maker Electrolux Lehel Kft recently announced 2003 sales that outstripped original plans, while revealing details of future production at its new factory to open in Nyiregyhaza in 2005, Budapest Business Journal reported recently.
In addition, parent company Electrolux AB announced that rising costs and unfavourable exchange rate movements had led it to consider moving all its vacuum cleaner production to Hungary.
Speaking to the press on the announcement of the Hungarian subsidiary's 2003 results, local CEO, Janos Takacs, stated that over the course of the year Electrolux Lehel produced four million refrigerators and vacuum cleaners at its factory in Jaszbereny, and sold 550,000 appliances in Hungary. Refrigerator production at the Jaszbereny plant totalled 2.2 million, the first time the firm has surpassed two million units in Hungary.
The company beat its own target by recording record sales of Ft 113.4bn (€434.5m) over last year, up from Ft 97.2bn in 2002.
Electrolux will open a new plant in Nyiregyhaza, in northeast Hungary, in 2005. The foundation stone was laid a month ago, and when completed the new factory will boost refrigerator production by 560,000 units per year. Takacs added that this will mean that once the plant is fully operational, nearly 10% of all Electrolux refrigerators worldwide will be built in Hungary.
The new factory will cost around €64m, and the company stated that most of the funding will come from its own profit reserves.

« Top

Stronger demand pushes up industrial production

Triggered by strong domestic demand for manufactured goods and a weaker currency that boosted exports, Hungary's industrial production rose 6.4% in 2003, the government said. The increase was more than twice the 2.8% increase reported for 2002, the Deutsche Presse-Agentur (dpa) reported.
The figures showed industrial growth remained strong on the back of firm domestic consumption and a weaker forint which bolstered foreign demand for Hungarian manufactured goods.
Economists pointed out that domestic consumption was the main driver of Hungary's economy last year as wages in the industry increased by an average of 9.3% over the January-November period, well outpacing the output growth of 5.7%. In December alone, industrial production climbed 11.8% from December 2002, but adjusted by the number of working days, the output rose just 7.5%. Compared to the previous month, industrial production eased a provisional 0.9%. The data implies that growth momentum was easing as the December month-to-month decline came on the heels of a 1.7% rise in November.

« Top

INFORMATION TECHNOLOGY

Euroweb takes over ISP Elender


Euroweb International Corp said it recently signed a purchase contract to acquire a 100% stake in Elender Business Communication, New Europe reported recently. Elender, which has been Hungary's leading Internet Service Provider (ISP), posted a turnover amounting to US$22.5m in 2003. The ISP provides Internet access for 2,300 schools in Hungary. Euroweb International plans to buy another 51% in Euroweb Hungary from Pantel, with a view to own 100% in the company and become the country's largest independent ISP. The acquisition is expected to result in a considerable increase in the parent company's operating profit this year. The statement, which was published on the Web site of NASDAQ, did not disclose the purchase price.

« Top

IT distributor targets growing Hungarian market

ComputerLinks AG, an international distributor of IT products, plans to break into the Hungarian market, executives said recently, the Budapest Business Journal reported.
It starts that plan by extending its global partnership with Citrix Systems Inc, a global provider of access infrastructure for business management systems.
"For US vendors, Europe is very fragmented. We are the biggest distributor for most of the vendors we deal with, and we can do 95% of the support ourselves," said ComputerLinks CEO, Stefan Link.
ComputerLinks carries out pre-selling consultancy, deployment and post-deployment support and training for many US-based IT vendors that offer hardware and software products requiring extensive consultancy.
Link said the company already has subsidiaries in Austria, the UK, Ireland, France, Switzerland and Italy. Other target markets include Poland, the Czech Republic, Spain and Portugal, he added.
"Our strategic aim is to expand our European leading market position by setting up further locations in interesting markets, to synchronise contracts with leading producers at a European level, and to continue the practical diversification of the existing product portfolio," said Link.
"The Hungarian market is growing faster than West European countries," he added.
ComputerLinks is today the largest distributor of value-added products in Europe for leading international manufacturers such as Check Point Software, Citrix, Nokia, RSA Security, Symantec and Trend Micro, according to Link. It specialises in dealing with e-business and IT security solutions.
There is cross-selling potential between different technologies in Hungary, said Link, referring to the opportunity to sell several different technologies in tandem to the same client.
Prior to the establishment of the local ComputerLinks, Citrix was present in Hungary in the form of a few small-scale deployment and up to 400 end users, said Janos Marton, CEO of ComputerLinks Hungary Kft, which was established in October 2003. There is much potential for that to grow, he added.
"There's no value-added distributor of Citrix here yet. Citrix is not very well known here. It provides 95% of access solutions [globally], and is one of the ten biggest vendors in the world," Marton explained.
Citrix had global revenue of US$527.4m in 2002 and claims 50m users of its network accessing technology, which allows employees to connect to their company's IT system remotely, and extract the information they need to do their work.
Marton said that the local ComputerLinks company currently has ten local companies as distributors and wants to build that number to systems integrators. The local company currently employs four, which Marton expects to increase to eight within a year.
Link forecast €2m in revenue for ComputerLinks Hungary for 2004, mostly from Citrix support, and 50% revenue growth per year from 2005.
Marton added that ComputerLinks Hungary has so far sold around 600 licences for Citrix.
"It's very important to have the right partner. It's not just about bringing the product to market. You have to have people [representing you in front of] potential clients," said Karl-Heinz Warum, area vice president for Central Europe at Citrix Systems.
He added that ComputerLinks has won Citrix's best distributor for Europe award repeatedly.
After establishing Citrix locally, ComputerLinks will seek to bring more products to the Hungarian market, said Marton.
ComputerLinks has a training centre in Germany for Citrix users, at which 2,000 people were trained last year, Link said. In April this year a training centre will open in Budapest, said Marton, himself a certified Citrix trainer.
Citrix itself has offices in Vienna, Prague and Warsaw, and is contemplating opening one in Budapest, Warum added.

« Top

TELECOMMUNICATIONS

Synergon reports worse than expected results


Hungarian IT group Synergon recorded a net loss of HUF 1.396bn in 2003, and an unexpectedly large HUF 908m in the fourth quarter alone, according to the company's earnings report, Interfax News Agency reported.
The results follow a Synergon profit warning on January 29th, which said that losses were expected to exceed HUF 1bn for the year, or HUF 500m in the fourth quarter. The company's loss is significantly higher than forecasts of a HUF 637m loss in the fourth quarter - although this forecast was based on only two brokerages still covering the stock. The majority of the loss was the result of the settlement of non-recurring extraordinary items, consisting mainly of the settlement of amortisation of goodwill related to foreign subsidiaries, brought forward to 2003, totalling HUF 1bn for the year. Integration expenses of the Atos Origin acquisition were also high, while there was an extraordinary loss of HUF 510m through provisions made for expected liabilities of a pending tax administration procedure. The company's sales for the year remained at the 2002 level in Hungarian forint terms, while sales declined by 4% in Euro terms. Annual sales totalled HUF 19.8bn, with fourth quarter revenues picking up compared to previous quarters, at HUF 7.5bn, and rising 26% year on year. The higher fourth quarter revenues came with higher costs as well. Direct costs of sales grew 35% in the fourth quarter, while other operating costs also rose 34%.

« Top

Pannon GSM wins HR award

Hungary's number two mobile operator, Pannon GSM Rt, is the first company in Central and Eastern Europe to have taken what it calls industry's most prestigious international accolade, reported Budapest Business Journal recently.
'Investors in People' is a British quality standard which sets a level of good practice for improving an organisation's performance through its people.
"It will be to the benefit of every actor on the market, every customer, and every consumer, if there are companies in abundance which are proven to be profitable, progressive, developing, and solidly-founded," said Klaus H Rasmussen, CEO of Pannon GSM, on receiving the award at the British Embassy in Budapest last week.
The standards were drawn up in the UK in 1990, with the involvement of such prominent industrial and employee organisations as the Confederation of British Industry (CBI), the Trades Union Congress (TUC) and the Institute of Personnel and Development (IPD).
Research has shown that 80% of companies making the grade have achieved greater customer satisfaction, and 70% have successfully increased their operational efficiency, according to a press release from Pannon.
Investors in People currently has a presence in over 30 countries.

« Top

Invitel targets 15-20% profit growth this year

Hungarian telecom operator Invitel Rt plans to increase profits by 15-20% in 2004, with revenues rising 10-12%, Chairman and CEO, Ian McKenzie, said recently. However, McKenzie declined to reveal any specific data on last year's operations, Interfax News Agency reported.
Invitel, formerly Vivendi, had revenues of HUF 49bn and profit of HUF 4bn in 2002. The increase in profitability is planned to be achieved through a higher gross margin, as interconnect fee costs are expected to decline, and cost saving measures implemented last year start showing their effects. Venture capital firms AIG and GMT acquired the company last May, following which they reduced headcount by about 170 to slightly below 900, and decided on longer term cost controls, such as reigning in maintenance costs and network operation expenses.
"When we took over the firm, operating expenses were being spent according to budget, while revenues were far below plans. Through cost controls and restructuring the firm was able to meet its modified plans for the end of 2003," McKenzie elaborated.
The company plans a significant increase in capital expenditures this year, rising 70% to HUF 7bn, McKenzie said. Sales and marketing expenses will also be increased by 50%, to several hundred million HUF, he added. Regarding an exit scenario of the investors from Invitel, McKenzie said that both the funds set by AIG and GMT for their investments are 10-year funds which are currently in their fourth year, and that sales are usually made in the seventh or eighth year of such funds.
"Thus, we are looking at four plus years ahead of us before we start thinking about selling," he added. At the end of last year Invitel had some 400,000 household customers, and 35,000 business clients. Invitel quintupled the number of its ADSL subscribers last year to around 15,000 and plans to further double the number of broadband users this year, as well as boost its market share from the current 12%.
Currently, around 60% of households in Invitel's LTO area have access to ADSL, which the company plans to raise to 90% this year, the CEO said. Last year Invitel managed to slow down the churn rate in fixed lines, to around 5%, and a further decline is planned this year, while average revenues per user are planned to rise.
"This is to be achieved through providing new, innovative tariffs, as well as continued tariff rebalancing," McKenzie noted. At the same time, the CEO gave voice to his concerns regarding the implementation of Hungary's new Electronic Telecommunications Act. He said that while EU directives were basically just transposed to Hungary, the Hungarian market is completely different from that of the European Union.
It is unjustified to apply EU benchmarks in pricing on the Hungarian telecom markets as Hungary has a different level of economic development, urbanisation and fixed-line penetration, while mobile penetration is almost level with the EU average, he pointed out.
In addition, McKenzie argued that fixed-line service providers, just as mobile operators, should be able to shape their prices in a flexible way so that they can shift towards balancing monthly fees and turnover-based fees.
According to him, fixed-line service providers should be able to enter the market of mobile services as retailers (virtual service providers) and that the government should provide significant support to broadband developments.

« Top

CUSTOMISED 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

« Back

 


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