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HUNGARY


 

 

In-depth Business Intelligence

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: 087 - (27/07/04)

Hungarians Want Troops Out Of Iraq
Governments in Rumsfeld's 'New Europe' favoured the war to topple Saddam for their own reasons, not unrelated to massive pressure from their US Ambassadors. But the people by and large did not. Last year, the government of prime minister Peter Medgyessy of the Socialist Party (MSZP) committed 300 soldiers to the coalition effort in Iraq.
Many citizens of Hungary want their soldiers out of Iraq, according to a poll by Gallup. 62.9 per cent of respondents disapprove of their country's involvement in the Iraqi conflict. On Jun. 17, Hungarian soldier Richard Nagy was killed by a hidden road bomb. Nagy is the first casualty for the country's contingent since the military operation began in March 2003.

Hungary stays the course in Iraq 
On Jun. 22, nevertheless, Medgyessy stated that his cabinet has no immediate plans to re-call the troops until their current tour of duty ends in December. Key allies of the US in Iraq - Poland, Italy, the Netherlands and Hungary - have extended their deployment of troops until the end of the year.
Hungary will keep its troops in Iraq, Hungarian Prime Minister Peter Medgyessy said. Speaking to reporters after a meeting in the Oval Office with President Bush, Mr Medgyessy told reporters: "I could confirm to the President that Hungary's commitment to the presence in Iraq is unchanged. And we want to promote stabilisation." 
"Our troops will not be removed before the term," Mr Medgyessy added.

Government survives EU ordeal
The Social Democratic Party-led coalition government did reasonably well out of the June13th elections to the European Parliament. This was strikingly unlike governments elsewhere in Central Europe, notably in Poland and the Czech Republic, which might fall as a result. 
The key campaign slogan of its rivals, the opposition FIDESZ party, was, unwisely as it turned out: "Those who stay away from the ballot on June 13th tacitly support the current governing coalition."
This was giving a hostage to fortune in no small way, much like Tony Blair with his WMDs in Iraq. The turn-out was always likely to be poor. Actually at 38.47% it was one of the highest in the EU, let alone among the entrant countries. 
It enabled Premier Peter Medgyessy to riposte to FIDESZ that the majority of the people, more than 60%, are by and large satisfied with the government's performance after more than two years. The Social Democrats ousted FIDESZ two years ago, but only by a slim margin of 188 to 178 seats won. They can expect a keen contest in 2006, when the next elections take place.

The EU results 
FIDESZ actually did remarkably well in the circumstances. They secured 12 out of the 24 Europarliamentary seats allocated for Hungary in the 732-seat assembly.
The Social Democrats (MSZP) obtained nine, while their junior coalition partners, the Free Democrats, won two. The one remaining seat went to the junior opposition group, Hungarian Democratic Forum (MDF).
The extremists in the far-right Hungarian Justice and Life Party and the far-left Workers' Party failed to reach the 5% threshold necessary for representation in the parliament.

The meaning of the results
The government is, therefore, outvoted by 13 to 11 in terms of its EU representation. But this is a much better performance than any other ruling government has managed, mid-European and mid-term.
FIDESZ remains a formidable force, the likeliest winner of the next domestic elections. One piquant event was the election of a candidate from its ally, Lungo Drom Romany, who is a 29 year-old woman and mother.

The government unfolds its goals 
The parliamentary elections in Hungary in 2006 will be keenly contested FIDESZ leader, Victor Orban, is a sort of Tony Blair of Magyar politics, good on the stump and blessed with luck. Moreover he is in the right party, unlike Blair, who only tolerate him because of his knack for producing landslides.
The economic fundamentals are going well for Medgyessy, however. GDP growth is billed to be 3.8-4.2% this year. The inflation rate is still too high at 6.7%. But unemployment is down to 5.8% of the work force and falling.
Wages are rising, putatively by 2.4% this year. There is no doubt that Hungarians are clawing back the big gap that still divides them from the EU. The government aims to raise GDP per head from 54% to 60% of the EU average by the end of its term of office It also aims to raise the labour force participation rate from 57% to 59.5%, its present low level being the Achilles' Heel of the economy. For that it will need growth. 
Here luck comes in. The next election will be held when the EU economy should be seeing growth again. If Hungary can manage around 4% growth when the rest of continental Europe is in the doldrums, it should really thrive when they pick up.
Victory for the government at the polls?

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BANKING

Erste, Postabank aim for profit

Erste Bank Hungary Rt and Postabank Rt, currently in the process of merging, expect to end 2004 with combined after-tax profits of at least Ft 5bn (€19.6m), calculated according to international financial reporting standards, Erste CEO, Peter Kisbenedek, said, New Europe reported.
The two banks scheduled an EGM recently, at which the board was to submit a proposal to base conversion rates of shares in the banks on market value, instead of using shareholders' equity from the banks' balance sheets from the end of 2003.
Postabank's market value is thus Ft 101.33bn, and Erste Bank's Ft 41.15bn.
Under the proposal, Erste Bank shareholders will receive 2,932 new Erste Bank shares with a nominal value of one forint apiece in exchange for each of their ordinary shares with a face value of Ft 3,918. Meanwhile, Postabank shareholders will get seven new Erste Bank shares with a face value of one forint apiece for each of their shares with a face value of five forints.
In addition, the proposal says that Postabank shareholders who own shares with a face value of Ft 10,000 will get 14,000 new Erste Bank shares with a face value of one forint per share.
Erste Bank Hungary will have registered capital of Ft 39.41bn after the merger.
Both banks are 99% held by Erste Bank AG of Austria. Small shareholders, for whom the proposed conversion rates are thought to be favourable, own 2,600 shares in Postabank, or 0.03% of the total, and 110 shares in Erste Bank Hungary, or 0.04% of the total.
By the end of 2004, the banks' combined total assets are expected to rise to Ft 1,100bn, with loans totalling Ft 710bn, and deposits of Ft 600bn.
Household deposits are expected to reach Ft 500bn, and corporate deposits Ft 100bn. Retail loans are expected to total Ft 260bn, and corporate loans Ft 450bn.
Erste Bank Hungary and Postabank will have combined risk provisions of Ft 10bn this year, covering, in equal part, the rise in lending. Kisbenedek said this is roughly in line with Erste Bank's estimate during due diligence, but warned that the actual amount will not be known until Postabank's lending portfolio has been more thoroughly examined and audited.
The merger of the two banks will be formally completed by September 30th at the latest. The actual integration of the banking systems, scheduled to cost Ft 6.5bn, will take longer, and is set to be completed by April 2005.
The merged bank aims to acquire 20%-25% of the household market, and 10%-15% of the SME market in Hungary.

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CONSTRUCTION

Construction output swells

Hungary's construction output rose 10.3% year-on-year in April 2004 according to both adjusted and unadjusted data, Interfax News Agency reported recently, using figures published by the Central Statistical Office (KSH). 
Growth in January-April was 16.4%, down from 19.5% recorded in first quarter. Construction output was 1.1% higher in April compared to the previous month, according to seasonally and working day adjusted figures. The total value of construction output in April was HUF 122.1bn. This compares to HUF 104.3bn in March and HUF 106.0bn in April 2003.

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CREDIT RATINGS 

Fitch assigns Samurai bond A-rating to Hungary

Fitch Ratings, the international rating agency, assigned the Republic of Hungary's upcoming five-year 50bn yen Samurai bond an A- (A minus) rating. The rating is in line with Hungary's long-term foreign currency rating, for which the outlook is negative. Hungary plans to price the bonds at a spread of between zero and 0.30 percentage points over the London Interbank Offered Rate (LIBOR), documents filed at Japan's Ministry of Finance showed at the end of May, MTI-Econews reported.
Fitch placed Hungary's long-term ratings on negative outlook in July 2003 owing to concerns over the consistency of economic policies and macroeconomic imbalances, including a delay in the adoption of the Euro.
These risks were heightened by the fiscal deficit in 2003, estimated at 5.9% of GDP compared with an original budget target of 4.5%. After the overshoot in 2003, the new Finance Minister, Tibor Draskovics, announced expenditure cuts and a revision of the government's 2004 budget target to 4.6% of GDP (5.8% in cash terms) from 3.8%.
Although outturns in the year to date have been slightly better than the government's monthly targets, most of the tightening was projected for the second half of this year, leaving the annual target challenging, the agency maintains. The government's success in meeting its budget target this year, and the credibility of its 2005 budget targets and medium-term fiscal consolidation programme will play an important part in the rating assessment, Fitch stressed.
Hungary's sovereign ratings remain supported by strong economic and credit fundamentals, including the benefits of European Union accession, good growth potential and an unblemished payment record, the statement reads.
Export growth is now outstripping import growth, although the agency expects the narrowing in the current account deficit from 8.9% of GDP last year (including re-invested earnings of foreign companies in Hungary) to be only gradual.

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FOREIGN RELATIONS

China boosts trade ties

Chinese President, Hu Jintao, recently completed his three-day visit to Budapest - the first by a Chinese president since establishing diplomatic ties in 1949, New Europe reported. 
During the working session of the Shino delegation, a number of deals were signed with their Hungarian counterparts, including an agreement between China's fourth biggest airline Hainan Airlines Company Ltd and Hungarian national carrier MALEV. Another agreement signed was a US$10m deal with Opel Magyarorszag Autoipari Kft for 1,250 gearboxes. The boxes are produced at the General Motors (GM) Allison division in Szentgotthard, western Hungary. Budapest could become the regional Chinese commercial and logistics hub for Central and Eastern Europe; local analysts have repeatedly valued the current trade relations between the two countries. An estimated annual 40,000 containers arrive in Budapest from China with each container having an average value of US$75,000. Hungary is already China's biggest trade partner in the region. Bi-lateral trade last year totalled US$3.46bn while in the past five years trade between the two countries increased nearly six-fold from US$450m in 1998.

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INFORMATION TECHNOLOGY

Internet and mobile penetration grow in Q1

The number of Internet subscriptions reached 709,348 at the end of the first quarter 2004, up 5.3% from the previous quarter, according to figures released recently by the Central Statistical Office (KSH), New Europe reported recently. 
This is 41% more than in the same period of 2003. The number of fixed-line telephones declined by 0.2% to 3.610m, mobile subscriptions rose by 1.3% over the last quarter of 2003 levels to 8.050m.
Both Internet and mobile growth was slower than in the last quarter of the previous year. The number of Internet subscriptions per the total population yields a penetration of about 7.01%, up from 6.6% at the end of the fourth quarter, according to Interfax calculations.
The KSH said that fixed-line penetration was 35.7%, slightly down from 35.9% recorded in the same period of 2003, but roughly in line with the previous quarter. Mobile penetration rose to approximately 10% points to 79.6% from the first quarter of 2003. The number of fixed lines dropped 36,000 on the year. The number of ISDN lines dropped by 1,000 in the first quarter to a total of 599,000.
There were 6% fewer fixed-line calls initiated compared to the first quarter of 2003. The average duration of calls also shrank by 3.5%. The number of mobile calls initiated dropped by 6.7% from the fourth quarter of 2003, but grew 6.5% compared to the same period last year.
The total duration of outgoing calls dropped 1.3% to 1.67bn in the first quarter, but it is 25% more than the last year's figure.
The number of Internet subscribers grew by 40.8% on the year to 709,348. At the end of the first quarter, 50% of Internet subscribers used a dial-up connection, down from 53% at the end of the fourth quarter.
The most dynamic growth was registered in DSL connections - 20% of the users connected to the Internet through DSL, up from 17% in the fourth quarter. About 12% were connected through cable TV and 10% used wireless connections.
The share of leased line connections was 1% at the end of the first quarter. Growth was only recorded in DSL and cable Internet. The number of DSL and wireless connections tripled in the first quarter compared to the same period of 2003, while cable TV Internet subscriptions doubled year-on-year.
Net sales revenues from Internet service provision jumped 40% to HUF 9.909bn in the first quarter, up from HUF 7.058bn in the first quarter of 2003 and HUF 8.658bn in the fourth quarter of 2003.

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MINERALS & METALS

DAM Steel sale attracts four bids

Three companies have submitted a total of four bids by the June 30th deadline in the latest tender to sell the assets of the Diosgyor-based DAM Steel Rt, Janos Kovacs, CEO of DAM's liquidator Matraholding Rt said recently, according to MTI, New Europe reported recently. 
The tender, the fourth attempt to sell DAM Steel, attracted three domestic companies, all of which are active in the metallurgy industry and two of which did not bid in the previous tenders, Kovacs said.
In the latest offering, DAM's assets were advertised for a total of HUF5.3bn - however, unlike in previous tenders, interested companies were able to submit separate bids for individual assets. Kovacs said all four offers "appear valid and significantly more favourable" than those received in the last, unsuccessful round.

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TELECOMMUNICATIONS

Antenna seen selling stake in Vodafone

Antenna Hungaria Rt, a predominantly state-owned broadcaster and telecom, is likely to sell its stake in mobile operator Vodafone Hungary Rt, analysts said recently, Budapest Business Journal reported.
They spoke after Geza Laszlo, CEO of Antenna, resigned from the board of directors of Vodafone Hungary, effective June 22nd.
"The resignation of Geza Laszlo is probably the first step in the process of Antenna selling its stake," said Monika Tabanyi, an analyst at ConCorde Securities Rt.
"Laszlo wishes to focus on ownership issues between Antenna Hungaria and Vodafone Hungary," said a statement from Antenna.
Peter Dobozi, CEO of Antenna Telecom, the telecom subsidiary of Antenna, remains a member of the board of directors of Vodafone Hungary. Sandor Hegedus and Erzsebet Badonfai, on behalf of Antenna Hungaria, will continue to assist the operational control of Vodafone Hungary as members of its supervisory board, according to the statement from Antenna.
Antenna is believed to have been in talks with Vodafone Group Plc, over the future of its 12.1% stake in Vodafone Hungary since October 2003.
That came after Antenna's stake dropped from 30% to 12.1%, as a result of it failing to pay its share of earlier capital raises in Hungary's third-placed mobile operator.
Tabanyi said that Vodafone Hungary's parent company is the likely buyer of Antenna's stake, and the main issue will be the selling price.
"Antenna invested Ft 17.6bn (€69,2m) in buying the 12.1% stake, but the book value is only Ft 8bn, and the remainder is recorded as goodwill. At best, Antenna can expect Ft 17.6bn for the stake," she said.
She added that nearly two years ago, when German energy giant RWE Telliance sold its 19.9% stake in Vodafone Hungary to the Vodafone Group, no price was disclosed. The same could happen again, she said.
Market rumours at the time claimed that RWE got just half the book value of its stake.
Online business news portal Portfolio.hu said it believes Laszlo stepped down because Vodafone wanted to incorporate new items in the almost concluded deal, not because the parties were to announce the sale any time soon.
"Laszlo can now negotiate [the sale of the stake] completely independently of Vodafone [Hungary]," said Portfolio.hu.
It said that the new item in question is the 3G tender that is to be invited in August.
"Vodafone is thought to be willing to pay Ft 20bn for the Antenna package, but most likely it would fine-tune its position in the 3G tender, exploiting Antenna's attachment to the state," said Portfolio.hu.
According to Tabanyi, the government aims to complete the further privatisation of Antenna this year, though the advisor has not been selected yet.
At present, the State Privatisation and Holding Rt (APV) holds 73.7% of Antenna's registered capital. The complete stake is expected to be sold, Dorottya Buky, managing director of the APV's communications and international affairs department, said. The rest is listed on the Budapest Stock Exchange Rt (BET).

Matav likely to be renamed T-Com, given go-ahead to make acquisitions

Hungary's leading fixed-line telecom, Matav Rt, is to be renamed T-Com, after the name of the fixed-line subsidiary of its parent, Deutsche Telekom AG, according to comments, made recently by Deutsche Telekom's CEO, Budapest Business Journal reported.
Kai-Uwe Ricke was quoted as making the statement in German business magazine Wirtschafts Woche.
Wirtschafts Woche also reported that Matav has been given clearance by Deutsche to pursue foreign acquisitions across the Balkans.
Ricke was reported as saying that Deutsche plans to rename all of its fixed-line subsidiaries in Central and Eastern Europe under the T-Com brand.
Deutsche Telekom holds a 51% stake in the Croatian telecommunications provider Hrvatske telekomunicacije (HT) and 51% of Slovak Telecom (ST).
Matav's mobile subsidiary, hitherto Westel Rt, was recently renamed T-Mobile Hungary Rt, echoing the name of Deutsche Telekom's own mobile subsidiary. It thus followed the practice of several other Deutsche mobile subsidiaries.
Monika Tabanyi, an analyst at ConCorde Securities Rt, predicted that the renaming of Matav will not happen very soon.
"Matav will want to wait and see the results of Westel's rebranding before going ahead," Tabanyi said.
"There has been no board decision at Matav and I expect it to happen next year at the earliest," she added.
While Matav declined to comment for this article, Wirtschafts Woche reported that Matav CEO Elek Straub is thought to be interested in Serbian Telecom.
Matav, which is faced with a lack of growth potential on the Hungarian market due especially to market liberalisation, needs to expand outside Hungary to grow its revenues, according to the broad consensus of analysts.

Matav in joint holding with IKO

Matav, Hungary's dominant telecom firm, recently announced that it has signed an agreement with IKO Media Group (IKO) to form a joint holding, New Europe reported. 
The aim of the venture is to facilitate a common offering of interactive solutions and value added content services and to unite the stakes that both companies currently own in Hungarian RTL Television Company (M-RTL), Matav said in its press statement. The joint media holding will be named IKO-Matav Media Holding Co, with Matav and IKO each having a 50% stake in the new company. The owners will apportion their M-RTL shares to the holding, while IKO will also apportion its shares held in other companies. The transaction will not have any impact on Matav's financials, the statement stresses, as according to an agreement between both parties the consolidation process of M-RTL will remain unchanged for the time being. The transaction is expected to be finalised after the necessary approvals are made.

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TOURISM

Waterside promenade leisure complex planned in southern Buda

Known until recently as a bohemian waterside bar area, District 11's Kopaszi-gat is now being transformed into a multi-billion-forint leisure and entertainment complex.
The first phase of the project, featuring the development of 18 hectares of land around the Lagymanyosi-obol inlet, will create a large green promenade with cafes, restaurants and pubs alongside, Laszlo Zala, managing director of developer Obol XI Kft, revealed recently. There will also be an "aquapark" (water fun park), hotel, tropicarium, and possibly a theatre with a floating stage, he said.
"We want to develop a complex that will impress even the most experienced world travellers," said Zala.
The company, which was created specifically for the development project, is owned jointly by the District 11 municipality, Arago Investment Holding Rt and Eravis Rt. Investment tycoon Tamas Leisztinger has ownership in the latter two companies, which jointly hold a 56% stake in the project company.
The Ft 15bn (€59.4m) leisure and entertainment complex will be opened for the public by the end of 2005, Zala said.
"We recently invited 14 architecture firms to make plans for the site," Zala said. "Based on the winning design, we expect to call the first construction tenders at the beginning of next year."
The district's area development plan for Lagymanyosi-obol was approved by the municipality recently.
The plan safeguards the green character of the area by requiring the creation of large parks on the site, Imre Lakos, deputy mayor of the municipality, Budapest Business Journal reported recently. 
He was reacting to concerns repeatedly expressed by the local community that the place would be turned into a crowded complex of shopping facilities.
Zala also denied that the developers intend to spoil the open-space character of the area.
"We will not build any shopping plazas. Kopaszi-gat will be freely accessible to the public," he said. "The district's development plan restricts any kind of construction, including roads, to 200 square metres per every hectare of Kopaszi-gat."

French Accor to invest in hotel developments

The French hotel chain operator Accor plans to invest over €50m in Hungary in the next 2-3 years, Patrick Bourguignon, soon to-become CEO at Accor-Pannonia Hotels, told reporters recently, Interfax News Agency reported.
Accor is planning to invest around €30m in developing its network of three-star Ibis hotels in Hungary, CFO David Sylberg told Interfax. This will include expanding the Budapest capacity of Ibis by "a couple of hundred" rooms, as well as the opening of one or two new hotels by 2006. These will either be redevelopments of existing real estate or the construction of new hotels, he added. Accor currently operates four Ibis hotels in Hungary, all of them in Budapest.
Another point of expansion will be introducing the Ibis line to the Hungarian countryside, opening new hotels in "secondary cities." Currently, Debrecen and Gyor are targets for development, where hotels are planned to be built in greenfield investments in the next 2-3 years. The cost of one hotel is estimated to be around HUF 1.3-1.4bn.
In the capital Budapest, Accor plans to spend €10m on developing both the Budapest Congress Centre, with work to start in 2005, and the Sofitel hotel on the Danube riverside. The latter will be an extensive project lasting 2-3 years, and will completely upgrade the facility both from the inside as well as its facade, Sylberg said

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