Books on Hungary
% of GDP
Update No: 091 - (26/11/04)
Hungary to remove its 300 soldiers form Iraq
Hungary announced recently that it would withdraw its 300 troops from Iraq,
becoming the latest country in the 32-member US-led coalition to bow to public
pressure and prepare to bring its soldiers home.
Speaking at a ceremony marking the end of military conscription, the newly
appointed prime minister, Ferenc Gyurcsany, a former communist youth leader
turned millionaire businessman, said Hungary was obliged to leave its soldiers
there until the Iraq elections, scheduled for January. "To stay longer is
an impossibility," he said.
Iraq's interim government had asked Hungary to leave its troops in the country
for another year. But Peter Matyuc, a defence Ministry spokesman, said in a
statement that the government would ask Parliament to extend the troops' mandate
by only three months.
"By March 31st, 2005, we will bring our troops back from Iraq,"
Gyurcsany said. "From then on, the existence of a stable democratic and
safe Iraq has to be created by different means, above all political means. If
Iraq is not safe, Hungary is not safe."
In the "letter of eight" signed in January 2003, Hungary joined ranks
with Poland, the Czech Republic, Spain, Italy, Portugal, Denmark and Britain in
supporting the Bush administration's war plans, a move that further deepened
European divisions over Iraq.
It also led Defence Secretary, Donald Rumsfeld, to play off European countries
against each other, describing the governments that opposed the war as "Old
Europe" and those who supposed Washington as "New Europe."
Gyurcsany's announcement reflects growing public opposition toward keeping
troops in Iraq. More than 60 per cent of Hungarians say they want the soldiers
It also shows how the Bush administration is finding it increasingly difficult
to keep the coalition together as the insurgents' attacks in Iraq increase and
coalition allies question how Washington has conducted the war.
Socialists get poll boost
For adopting this populist position on Iraq and other reasons, the ruling
socialists have seen their popularity rise since Gyurcsany came to power, an
opinion poll suggested in late October
The poll by the Szonda Ipsos agency put support for the Socialist Party at 41
per cent in October, up from 35 per cent the month before. The rightist
opposition Fidesz party saw its support drop to 48 per cent from 53 per cent in
The poll was conducted among a representative sample of 1,500 adults between
October 5 and October 15.
The upswing in support from the socialists comes in the wake of Gyurcsany's
ascent to the premiership in September, when the charismatic millionaire
businessman replaced former premier Peter Medgyessy.
Gyurcsany's populist style may have impressed the voters but it has unsettled
financial markets fearful the new premier will not have the political commitment
to see through economic reforms aimed at reining in Hungary's huge public sector
and current account deficits.
The economic dilemma
Gyurcsany took office vowing to raise living standards, while curbing spending
in the new European Union member state, which he has termed a "free but
unjust" society. But market analysts say that Gyurcsany is unlikely to
succeed on both counts and the country could miss its aim of joining the euro in
2010 unless fiscal policy is tightened.
The 43 year-old premier has pledged to raise income, which averages a mere
94,000 forint (384 euros, US$470) per month, while staying on track to adopt the
euro by decade's end. That would require Hungary to reduce the public deficit to
under 3.0 per cent of gross domestic product (GDP) by 2008, which analysts say
the country is unlikely to do.
Complicating Gyurcsany's task is the fact that he came to power mid-way through
the four-year election cycle after his predecessor quit.
Some observers say this pressure to endear himself to the electorate is likely
to lead to a return to free-spending ways. "Hungary has a very long
tradition of overspending, especially when elections are near," said
Orsolya Nyeste of Erste Bank in Budapest, recalling the 2002 election year when
the deficit soared to 9.3 per cent of GDP.
"At this point the market in general is not banking with Hungary joining
the eurozone in 2010, which says a lot about the likelihood of the government
meeting its deficit targets," she said.
Hungary has failed for three years in a row to meet its deficit goals.
Last month, the government revised upwards its deficit target for year-end 2004
from 4.6 per cent to between 5.0 to 5.3 per cent of GDP. Some analysts say,
however, the deficit could top 5.5 per cent.
In 2003, the deficit was 6.1 per cent compared to the original forecast of 4.8
per cent of GDP, which led to the sacking of then-finance minister Csaba Laszlo
in January this year.
Gyurcsany's Finance Minister Tibor Draskovics has emphasised that the
Socialist-Liberal government can reduce the deficit and address the pressing
needs of the electorate through income redistribution and scaling back the state
"Creating jobs, helping large families and young people, developing
infrastructure and saving state funds" are priorities in 2005, Draskovics
said Thursday after submitting to parliament the draft budget for next year.
"At the same time (the budget) brings us one step closer to the adoption of
the euro in 2010," he hastened to add.
Along Gyurcsany's ideology of having the rich share more of the financial
burden, the draft budget would tax the interest rate margin of financial
institutions, introduce a capital gains tax of 25 per cent and raise dividend
taxes from 20 to 25 per cent.
The budget also foresees a five per cent across the board cut in the spending of
On the other hand, Gyurcsany would streamline taxes which should favour the
lower middle-classes and also offer state aid for young couples looking to buy
While analysts say the government's forecast of economic growth of four per cent
and inflation of 4.5 per cent next year is realistic, few think the country will
respect its deficit goal of between 4.5 and 4.7 per cent of GDP for year-end
"It would be a miracle," said Raiffeisen Bank analyst Zoltan Torok.
"Politicians have proved time and again that what happens within an
election cycle is more important to them than adhering to long-term economic
August agricultural prices up 2.6%
Agricultural producer prices continued to grow in August, although at a lower
rate than in July, according to figures released by the Central Statistical
Office (KSH), Interfax News Agency reported.
Farmers received 2.6% more for their products on average than a year earlier -
this compares to a year-on-year growth rate of 7.7% in July, and 13.5% the month
before. Agricultural prices were up 5.9% in the first eight months of the year.
At the same time, costs in the farm sector were also up a significant 12.3% in
the period. Thus, the income position on agricultural products actually dropped
5.7% compared to a year earlier, the KSH said.
Swedish auto parts firm sets up
Swedish auto parts maker Haldex AB opened a plant in Szentlorinckata, eastern
Hungary, in October, where it will assemble truck parts, the Budapest Business
The firm will assemble 20,000 brake valves and 20,000 brake chambers for the
brake systems of trucks in the first year, Bela Csonka, plant manager at Haldex
Hungary Kft, said. Haldex Hungary is fully owned by Haldex AB.
However, he said that the number of brake chambers produced could increase
"Around 200,000 brake chambers and 20,000 brake valves will be assembled by
2007 annually, worth around 50m," he added.
Currently, 30 people are employed at Haldex Hungary. That will be increased to
140 by 2007, said Csonka.
Haldex AB closed its assembly plant in the UK in summer 2004 to move assembly
lines to Hungary, Csonka said. Haldex Hungary currently only has suppliers from
the UK and Germany, but plans to employ Hungarian ones too.
The biggest buyer of Haldex Hungary's products is a plant of German truckmaker
DaimlerChrysler AG located in Kassel, in Germany's Ruhr region, Csonka said.
Haldex Hungary is also a supplier of trailer makers. Its biggest buyer in this
category is German trailer maker Schmitz Cargobull AG.
Haldex AB operates a retail network in Hungary, but does not currently supply
its components directly to Hungarian truckmakers.
The Hungarian plant was inaugurated on October 12th. The 5,750 square-metre
plant is situated on a 20,400 square-metre plot of land, according to a Haldex
The release says Hungarian managers will run the plant, which complies with
international quality assurance standards. It adds that the Haldex group will
step down its production in the UK and Germany, while increasing output in
Central and East European countries, in order to reduce its operational costs.
According to the website of Stockholm-based Haldex AB, the group employs 4,400
worldwide. It posted revenue of 6.036bn Swedish krona (665m) in 2003. Its
shares trade on the Stockholm Stock Exchange.
Ex-CEO believed to be behind sole bid for Malev
A company backed by Ferenc Kovacs, former CEO of Malev Hungarian Airlines Rt,
submitted the only bid in the airline's privatisation tender recently, according
to press reports that remained unconfirmed by the State Privatisation and
Holding Rt (APV) as of going to press.
The company that is believed to have submitted the bid, Aviation Solution
International Kft (ASI), is owned by Hungarian private individuals and is
managed by Kovacs, the Budapest Business Journal reported.
ASI was one of the four companies that bought the tender prospectus - a
prerequisite for submitting an actual bid.
Another firm showing interest was Euroinvest Rt, held by real estate tycoon
Euroinvest supervisory board chairman Sandor Nyul told news radio station
InfoRadio that Euroinvest previously struck a strategic partnership deal with
Chinese Hainan Airlines Co Ltd, and hypothesised that if the current
privatisation attempt falls through, and APV publishes the tender with better
conditions, the two would still submit a bid for Malev.
Apart from Euroinvest, the prospectus was bought by Icelandair and a group that
has current Malev CEO Laszlo Sandor among its members, according to newspaper
Neither ASI's owners nor Kovacs were available by press time to confirm their
Kovacs worked for Malev for 24 years, and then worked for aircraft manufacturer
group Boeing as sales manager for Hungary between 2000 and 2003.
According to the APV, the bidder's plans regarding a capital increase in the
company will be decisive in the evaluation of the offer. The bid must also
contain warranties for the company's outstanding liabilities of Ft 36.2bn
"Since, in this tender, the option of preferential employee ownership is
excluded, majority ownership in Malev can only be obtained by an investor that
undertakes contractual obligations regarding the employment and the improvement
of working conditions of the airline's workforce," the APV stated.
Hungary to receive more budget flights
British no-frills airline Jet2 will launch daily flights between Budapest and
Manchester, the company confirmed recently.
According to a press release by Jet2, which is a trading name of Channel Express
(Air Services) Ltd, the first Budapest flight will take off on December 1st, as
the inaugural flight to the company's new hub at Manchester. Tickets to Budapest
- along with 8 other new destinations, including Faro (Portugal), Valencia
(Spain) and Venice - went on sale September 29th.
Market rumours arose about Irish low-cost carrier Ryanair following Jet2, as
Irish-owned Cape Clear Aviation Kft recently announced it was about to rent
Balaton West Airport. The airline's communications department declined to
comment on the announcement, which was made by the local mayor.
"Our route development scheme is in progress. Ryanair is in negotiations
with several airports in several countries," a communications executive of
the company said.
Cape Clear will rent the airport in question - located in Sarmellek, near Lake
Balaton, and plans to upgrade it into a fully functional airport by next summer,
owners of the airport announced recently.
"Cape Clear originally signed a contract with the local authorities of
Sarmellek and Zalavar [owners of the airport] in April," Sarmellek Mayor
Vendel Szabo told the Budapest Business Journal. "Now it is only waiting
for the permission of the Civil Aviation Authority (PLH)."
Cape Clear is owned by Irish and Hungarian individuals. Gabor Horvath, one of
the owners, said the company is in talks with various airlines which might fly
"Cape Clear is holding talks with airlines, among them some key market
players," Horvath confirmed, while declining to comment on rumours about
Cape Clear having ownership ties to Ryanair.
In order to boost the Sarmellek airport's traffic, Cape Clear will invest around
Ft 1bn (4.06m) in its infrastructure.
"We will invest in a landing light system, as well as an Instrument Landing
System allowing planes to use the airstrip 24/7, irrespective of weather
conditions," Horvath said.
According to Szabo, the airport in its present form can only be used in clear
weather and good visibility conditions.
Szabo also mentioned that a Ft 670m non-repayable state subsidy will help
improve and upgrade the airport's infrastructure, albeit in 2005 at the
Balaton West Airport recorded 21,200 passengers, 120 large aircraft and 1,240
small aircraft in the first nine months of this year. In the whole of last year,
the number of passengers totalled 22,000.
In related news, US-based NetJets Inc has been reported as planning to expand
its activities - private and corporate aircraft rental services - to Hungary in
the near future.
BorsodChem eyeing Zachem
Hungarian chemicals company BorsodChem (BC) will definitely take a good look at
bidding for Polish chemical firm Zachem when the company is offered for
privatisation, BC CEO, Laszlo F Kovacs said, Interfax News Agency reported.
Kovacs said Zachem's TDI manufacturing capacity of 60 kilometres per year would
fit well into BC's portfolio. "When the Polish government decides on the
firm's privatisation, we will thoroughly examine the possibility of
bidding," he said.
The CEO noted that there are several opportunities for carrying out acquisitions
in Poland, with the state planning to sell its chemical industry assets in the
near future. In addition, the growth potential of the firm could make it an
attractive investment target for Polish investment funds. BC is currently
carrying out a HUF 70 billion investment programme, which is scheduled to be
completed by early 2006. BC is the only producer of MDI, a key component of
isocyanates, in the region, and is also the region's largest manufacturer of TDI,
another isocyanate compound. Currently, MDI and TDI sales account for 63 per
cent of the firm's revenues, which will rise to 75 per cent after the completion
of the investment programme. BC is looking for acquisition targets that could be
integrated into either its upstream or downstream operations, and would improve
the company's pricing position on the CEE market.
BC has been present in Poland since 1996, and has a 13 per cent share of the PVC
market and 42-43 per cent of the MDI and TDI markets there, according to Kovacs.
Kovacs also said that he has high hopes for the stock's trading in Warsaw, and
trusts that that it will be included in the WSE's benchmark WIG-20 index upon
the next revision. Turnover in BC shares in Warsaw should be at or near Budapest
levels, he added.
The CEO revealed that according to an agreement with Japan's Mitsui, which is
providing the technology for the current investment programme, a possible next
investment could be carried out outside of Europe. Regarding the firm's dividend
policy, Kovacs said management will propose a dividend of no less than 0.12 Euro
per share (the average of dividends paid in recent years) at next year's AGM
(annual general meeting), and plans to pay rising dividends each year.
On the company's medium term outlook, Kovacs said BC is looking forward to a
"good period" for the chemical sector, with a positive business cycle
expected in 2005 and 2006 despite high oil prices.
He said that a US$52 per barrel oil price has already been priced into ethylene
and toluolbenzol prices, and MDI margins are now back at "a healthy 30 per
cent" after a smaller decline when oil prices started to rise.
Hungarian oil company sells gas trading, storage unit to German buyer
The gas trading branch of the Hungarian oil company Mol was sold recently. Mol
sold three-quarters of its gas trading and storage branch and half its
Russian-Hungarian company responsible for imports, Hungarian television M2
satellite service reported.
The buyer is the German company EON-Ruhrgas, which has been active in Hungary
for a long time and which also wants to purchase further parts of the Hungarian
Experts earlier estimated the value of Mol's gas branch, which was loss-making
for a long time, at 2bn euro. After lengthy tendering process, the German
company gave the winning bid. Mol now can expect a revenue of about 800m euro,
part of which will go to the Hungarian state, which has 12 per cent share in the
company. The oil company wants to use the free resources for further expansion.
According to the chairman of the German company, people should not worry about
the safety of gas supply because besides Russia, the company is able to purchase
gas also from The Netherlands and Norway.
Indian firm to establish IT centre
Satyam Computer Services Ltd, a globally active Indian consulting and IT
services company, is setting up a new "near-shore" development centre
in Budapest that will initially employ 55, a source close to the investment said
recently, the Budapest Business Journal has reported.
In time, the source said, the facility could employ a "couple of hundred
"The centre will serve existing Satyam customers in all of Europe, and also
help the company to bring in new customers in the region," said the source,
who requested anonymity. "Investment in such a business is never just a
one-off investment. The investment will grow as the business grows."
The source added that while the initial set-up cost of the centre is US$100,000,
this will be followed by an ongoing investment of US$20,000-US$25,000 in each
extra person employed
The establishment of a Hungarian subsidiary is part of Satyam's global delivery
model, aiming to create closer contact with its European customers, and also
reflects a global trend towards near-shore outsourcing, explained the source.
"Near-shore outsourcing gives the client the benefit of process maturity
and cost advantages, while ensuring proximity to the work carried out. Customers
can oversee software development, and the outsourcing partner can make sure that
the clients benefit from global best practices," said the source.
"Best practice does not always translate across great distances, especially
when the development work is carried out at discreet locations," the source
Investors in most IT companies and advisors are suggesting that IT companies
follow this model, according to the source.
"Being one of the truly global IT's services companies, Satyam is offering
near-shore outsourcing in Canada, China and the UK, among other places,"
said the source.
The centre will be located in the Info Park, District 11, home to a number of IT
companies. It will open at the beginning of November.
"We are aggressively pursuing our expansion strategy to explore new markets
and to partner with our global customer base across different geographies,"
Chairman Ramalinga Raju stated in a Satyam press release dated October 20th.
"Within the next few weeks, our European operations are being strengthened
with the addition of a development centre in Hungary. This will help us address
opportunities for near-shore services and provide access to East European
business market," Raju added.
Satyam will carry out end-to-end IT services, dealing with three levels of IT
business: IT consulting, application development and application maintenance.
This mirrors Satyam's profile in other countries.
The source emphasised that while setting up a centre in Hungary does not provide
cost savings comparable to those involved in investing in India, it gives more
cost benefits to European clients than the UK for example.
"The centre will employ local IT experts, as well as experts from around
Central and Eastern Europe, while access to Satyam's global pool of IT experts
is assured wherever Satyam operates," said the source.
Satyam employs over 16,800 IT professionals, who work in development centres in
India, the US, the UK, the UAE, Canada, Singapore, Malaysia, China, Japan and
Australia. It serves over 350 global companies, including 109 Fortune 500
For the year ended March 31st, 2004, Satyam posted revenue of US$571.27m, with
after-tax profits of US$121.03m.
It has alliances with over 50 business and technology leaders and a presence in
45 countries across 6 continents.
Satyam practices its own global delivery concept, which it calls "RightSourcing."
This, according to the company, means being as flexible as possible when it
comes to how, where and when it works, with no compromise on quality.
"RightSourcing allows Satyam to give the customer the combined advantage of
global skills at a competitive cost," according to Satyam's official
MINERALS & METALS
Danish entrant hopes to benefit from rising steel demand in CEE
Bidding to benefit from increasing demand for steel products in Central and
Eastern Europe, Denmark's Ib Andresen Industri A/S will next year launch a steel
processing plant in Gonyu, on the outskirts of Gyor in northwest Hungary, the
Budapest Business Journal reported recently.
Tom Andresen, the company's co-owner and corporate sales and marketing director,
said recently that the local factory will primarily serve automotive and white
goods manufacturing companies in the region.
"We expect demand for steel in Hungary and Slovakia will increase by up to
60% in the next 5 years," Andresen said. "I also expect the number of
West European manufacturers will grow in Hungary, thus boosting demand for our
He noted that steel is a much sought-after product all over Europe.
"There is great demand for steel in the EU, and its price has doubled over
the past year," he said. "Mass car producers will stick to using
According to Andresen, the company's local plant will be located in Gonyu, the
river port on the edge of Gyor that offers easy access to European waterways -
the cheapest way of transporting steel.
The steel service centre will be constructed at a 10,000 square-metre site, as a
greenfield investment. The Gonyu plant will create 25 jobs at the initial stage
of the project, which Andresen later expects to increase to 60.
The plant, which will have two slitting lines and one blanking line, will
process between 100,000 and 150,000 tons of steel annually, for clients in the
According to Andresen, the company's major clients in the region operate in
Slovakia and Slovenia, while the company has also been conducting talks with
potential clients in Hungary. He declined to name these latter companies.
Andresen said the company's Hungarian market entry will mark its first expansion
project outside Denmark.
The greenfield investment will cost between 15m and 20m, according to
Andresen. He said this amount will be covered by a combination of a bank loan
and own resources.
The company has also applied for partial EU funding, which - if approved - will
back up to 6% of the total investment.
Describing the portfolio of 1b Andresen Industri, Andresen said the company
focuses only on steel processing, and neither owns a steel mill nor produces raw
Andresen explained that his company buys raw material from all over Western
Europe, but is also eyeing East European steel mills with supply contracts in
mind. He named Hungarian iron and steel manufacturer Dunaferr Rt among such
Following the scheduled launch of the plant next spring, Andresen will become
managing director. His father, also a co-owner of the company, will run the
business at the firm's Danish sites.
The family-owned business was founded in 1967, Andresen said. According to
information from its official website, it currently employs 572 people at its
three plants in Denmark, and processes a total of 500,000 tons of steel
The company posted net revenues of 604.6m Danish crowns (81.3m) in the
business year that closed on June 30th, 2004.
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