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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: 085 - (01/06/04)

The Hungarians are very concerned to make a success of their entry into the EU. They deem this the biggest break that they could have. 
They have always been overshadowed or occupied by bigger neighbours, Austria and Russia above all. Yet they fear themselves as well. Membership of the EU is pre-eminently re-assuring.

Terror plot is foiled
The Holocaust Memorial Museum opened on April 15th in Budapest. A terrorist attempt to blow it up was foiled by the Hungarian police on the 14th, just before Israeli President Moshe Katab paid a visit. 
A bizarre form of latter day horror has come to light in the small village of Nagyrev, where women, 40 or more, have been poisoning their husbands and fathers-in- law with arsenic. The point of mentioning this peculiar story is that it shows what a two-nation phenomenon Hungary remains. The visitor to Budapest sees only one side of the story. The backward rural world of Nagyrev represents the other, sunk in peasant superstition and medieval traditions, that of witchcraft in its case.

Budapest the dominant centre
Budapest, the capital, dominates the country's life. It has attracted by far the bulk of the more than US$20bn foreign investment.
The city has a welter of museums and fine Baroque churches, boutiques and coffee houses, Turkish baths and Roman ruins. On the Danube, it has excellent transport links with adjoining states. Hungary is of course in the heart of Europe.

New airline
A new airline, Wizz Air, which is based in Hungay, is starting up services between Luton in the UK and Katowice in Poland. It is one of the first to offer services from the EU accession countries in what is expected to be a boom market.
Hungary is likely to become a major tourist attraction, not just Budapest, but Lake Balaton too, which offers excellent sailing, swimming and sun-bathing opportunities. It is destined to become much better known. 

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AUTOMOBILES

Suzuki upgrade to make way for manufacture of prototype


Magyar Suzuki Rt will begin making the prototype of a new car as a result of a Ft 60bn (€238m) investment by the parent company, Suzuki Motor Corp, Japan's biggest minicar maker, executives announced at the company's factory in Esztergom recently, Budapest Business Journal has reported.
The new car has the working name "New Concept Car." The car will go into mass production in 2005.
As a result of the project, the capacity of the factory in Esztergom, 50kms north of Budapest, will rise from the current yearly 90,000 to 150,000 vehicles, CEO Kazuhisa Toda told the press. It will hire 400 workers to start manufacturing the new model.
As a part of the project, Magyar Suzuki will build 55,000 square metres of new assembly space and a new logistics system, and will further strengthen its supplier base. The company's productivity will improve by 35% and export volume will double as a result of the investment.
Recently, Suzuki set up a painting facility at a cost of Ft 100m, began mass production of Ignis and launched the export of cars fitted with diesel engines, Toda said. The Ignis small sport-utility vehicle replaced the Wagon R+ micro van.
Daily production is planned to rise to 600 cars from the current 350, due to the operation of 256 modern welding robots, Toda said.
Magyar Suzuki had a few dozen suppliers at the time the factory was set up in 1992. Currently the company has some 320 suppliers, of which 60 are Hungarian-owned. The others are all from Europe, apart from 6 companies.
The factory currently employs about 2,000 people, including 586 ethnic Hungarians from Slovakia and 80 from Romania.
Magyar Suzuki spokesman Tamas Tihanyi said the factory had net sales of Ft 183bn in 2003, of which Ft 79bn came from domestic sales and the rest from exports.
A year earlier Magyar Suzuki had net sales of Ft 150bn, with Ft 65bn from domestic sales and Ft 85bn from exports.
In 2004, Magyar Suzuki plans net sales of Ft 205bn. Of the 93,000 cars to be made in the factory, 31,000 are to be sold on the domestic market.
Suzuki based in Shizuoka, Japan, built the Esztergom plant in 1990 to take advantage of a skilled labour force and an expanding market.
The company sold the most cars in Hungary in the first quarter. Its sales fell 36% to 8,439 units in the period, or 18.5% of all cars sold in Hungary.

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AVIATION

Newly entering budget airlines to link Budapest with Venice, Berlin

Two more names have joined the ranks of low-budget airlines serving, or planning to serve, the Hungarian market, Budapest Business Journal reported recently.
AlpiEagles of Italy has been offering low-cost flights between Venice and Budapest as of April 8th. One-way tariffs of the company start from €19, excluding taxes and charges. The company offers daily flights, with the exception of Saturday, on a route previously served only by Malev Hungarian Airlines Rt.
The company is based in Venice. Its destination network includes Milan, Naples, Palermo, Rome, Venice, Verona, Barcelona, Athens and other popular Greek destinations.
As of May 1st, Air Berlin of Germany entered the market, with daily flights to Budapest from Berlin, Munich and Dusseldorf. Flights between Hamburg and Budapest will be available on Tuesdays, Thursdays and Saturdays, according to the company's press release.
Prices start from €29 one way, including all taxes and charges.
Recently, easyJet announced daily flights from Budapest to Berlin and London.
Another company having talks with Budapest Airport is Ryanair, which aims to fly to Balaton West Airport, near Sarmellek.
Volareweb.com of Italy is also planning to launch flights to Hungary.
Norwegian Air Shuttle AS will start low-cost flights from Oslo to Budapest this spring or summer, according to the company's website.
Zurich-based budget airline Helvetic is considering flying to Budapest after fall 2004.
Czech airline Travel Service, which operates charter flights, recently announced that it had started a budget airline, named Smart Wings, in May, and will start low-cost flights from Budapest in 2005.
Meanwhile, Wizz Air Ltd, registered in London with subsidiaries in Hungary and Poland, plans to fly to ten popular European destinations from Budapest.
Low-cost airlines already serving the Hungarian market include Snowflake of Sweden, SkyEurope of Slovakia and Germanwings of Germany. 

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BANKING

Korean bank to use Hungary as EU springboard

The Korea Development Bank, owned by the South Korean state, will make its Hungarian subsidiary a strategic base for expansion into the EU, Budapest Business Journal reported recently.
This is to be backed up by a capital injection of $20m.
The decision was announced recently in a press release by KDB Bank (Hungary) Rt following its annual shareholders' meeting on April 15th.
The release also said the cash boost will help further strengthen the local bank's financial status and its credit exposure capacity.
Addressing the meeting in Budapest, Lee Yun Woo, deputy governor of the parent bank, said 2003 was a year of steady growth regarding both corporate and consumer financing.
Total assets increased by 26.2% to Ft 57bn (€230m) over 2002, and pre-tax profit was up 54.5%, to Ft 1.086bn, he said.
Also at the meeting, the local bank approved its financial report for 2003, and decided to reclassify profit after tax as retained earnings instead of paying a dividend.

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CREDIT RATINGS

BorsodChem clinches BB long-term corporate credit

Standard & Poor's Ratings Services recently said it has assigned its BB long-term corporate credit rating to Hungary-based chemicals group BorsodChem Rt, reflecting the group's position in various segments of the Central and Easter European (CEE) chemicals market. The outlook is stable.
"The rating is constrained by BorsodChem's limited scale in each of its competing markets, its exposure to the cyclical construction industry, and to the very cyclical PVC and caustic soda markets," said Standard & Poor's credit analyst, Christine Hoarau. These negative rating factors are partially offset by the group's leading positions in the polyvinyl chloride (PVC), toluene di-isocyanate (TDI) and methylene di-para-phenylene isocyanate (MDI) markets in the CEE markets, its good profitability and presence in the growing TDI and MDI markets, and its solid financial profile. With sales of about €530m in 2003, BorsodChem is the largest producer of PVC, the sole producer of MDI and the leading producer of TDI in CEE, New Europe reported.

Fitch removes K&H rating from negative rating watch

Fitch Ratings, the international rating agency, has removed K&H Bank's individual rating from Rating Watch Negative and affirmed it at D, Fitch announced. New Europe reported recently that at the same time, the agency has affirmed the bank's other ratings at long-term A-, short-term F2 and support 1.
The long-term and short-term ratings remain constrained by the sovereign ceiling for Hungary.
The long-term rating outlook remains negative, reflecting the negative outlook on the long-term rating of the Republic of Hungary. The rating action follows the publication of the bank's financial statements for 2003 and reflects Fitch's view that K&H's capital adequacy now appears adequate following a capital injection of HUF 22.7bn by its parent in December 2003.
Fitch placed K&H's individual rating on Rating Watch Negative in July 2003 following the discovery of a fraud involving the misappropriation of client funds at one of the bank's subsidiaries, K&H Equities.

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ENERGY

Wastewater company to generate energy from sediment

Aiming to supply its premises with renewable energy, Budapest Wastewater Works Rt (FCsM) is building a plant that will convert biogas created by composting wastewater sediment into electric power, Budapest Business Journal reported recently.
The Ft 850m (€3.38m) project, which is in line with current EU strategies to make better use of renewable energy, will enable FCsM to fully supply the wastewater plant in southern Pest with homemade energy.
"We are killing two birds with one stone. We will reduce the amount of wastewater sediment to be deposited to one-fifth of the current amount, and we will not have to buy power from outside," explained Mihaly Szila-gyi, head of the flood prevention department at FCsM.
FCsM manages all the wastewater of the capital. It is majority owned by the Budapest Municipality, while French-owned utility operator Veolia Water Hungary Rt controls a 25% stake in the company.
The new facility is being constructed by a consortium of Alterra Rt and France's OTV, a subsidiary of Veolia Water Systems. It will be operational by this fall, and will be able to generate 1,400 KW per hour.
According to Szilagyi, 25 tons of water-water sediment is created every day at FCsM's southern Pest plant. The amount piling up at the northern Pest facility is even more, he added.
"If the project in southern Pest proves successful, the company plans to build a similar one in northern Pest as well," Szilagyi said.
He added that the investment is expected to be returned within 5 years, thanks to reduced electricity bills and a shrinking amount of wastewater sediment being deposited at the end of the process.

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ENVIRONMENT

Comprehensive waste rules to apply, bringing challenges for firms

As part of the EU legal harmonisation process, Hungarian authorities are expected to adopt several far-reaching waste regulations this year, Budapest Business Journal reported recently.
The regulations will focus on the selective collection and recycling of pharmaceutical and construction waste, as well as unused electric and electronic devices and car wrecks.
"These directives affect most areas of the manufacturing industry," said Csaba Marko, deputy head of the waste management and technology department at the Environment and Water Ministry.
"Establishing the technical background for these obligations will mean vast investments by market players," he added.
In Hungary, about 10,00 tons of waste is collected on a selective basis, most of which is old refrigerators, Marko noted. Some 70m tonnes of waste is created each year in Hungary, and some Ft 10bn (€39.7m) in potential revenues are lost annually through ineffective recycling, statistics show.
Environment and Water Minister Miklos Persanyi said in a statement at the end of last year that while most agricultural waste, and 25%-30% of industrial waste, is recycled, 90% of household garbage is delivered to dumps. He claimed that 75% of communal waste and 65%-70% of industrial refuse could be recycled economically.
According to Jozsef Hamvas, head of the pharmaceutical department at the Ministry of Health, Social and Family Affairs, the ministry decree on collecting and eliminating household pharmaceutical waste, currently under final codification, is due to be applied from this fall. 
"The draft was negotiated with professional organisations, and no one was against the decree. Talks had a very positive outcome," Hamvas said.
According to the draft, expired or unneeded medicines would be collected in special containers at pharmacies and transported to waste treatment sites. Pharmaceutical manufacturers would cover the costs of the process, Hamvas said, adding that the decree provides for the possibility of setting up an organisation for the collection, transportation and elimination of the waste.

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FOOD & DRINK

Zwack Unicum ready to show strong performance in 2004

Beverage maker Zwack Unicum Rt plans to achieve a net income of HUF 2.19bn in 2004, based on IFRS standards, a rise of 2% from last year, according to the company's business plan accepted by its shareholders. Gross revenues are planned to rise by 4.6% to HUF 28.43bn, while net sales are seen staying level at HUF 18.85bn. Gross margin is planned at HUF 10bn.
The general meeting approved the payment of a HUF 1,500 per share dividend, the same as in previous years, amounting to 70% of last year's profits. This year, the company expects the market to be more competitive as a result of EU accession, CEO, Frank Odzuck, said. With customs fees eliminated, the price of imported drinks will become cheaper, but at the same time demand for premium and quality products will increase.
"To address these challenges, we will focus more on strengthening our own brands and export markets, and concentrate on making operations more cost-efficient," Odzuck said. Focus will be further strengthened on Zwack's bitters and brandies segments, including flagship products Unicum and Vilmos, as well as the most popular distributed brands, Jonnie Walker and Bailey's.
To increase competitiveness, the company will offer Unicum and Vilmos at a price 10% below that of similar imported products. Regarding export markets, in addition to the traditionally important Italian and German markets, Zwack will intensify its presence in the Hungarian-inhabited neighbouring countries, especially Slovakia, which joined the EU along with Hungary on May 1st. The firm also plans to make Unicum an internationally-known brand.
Reorganisation tasks will continue at the firm, with the sales, marketing and retail segments becoming more efficient. The wine segment will also be integrated into operations, and the goal is to become the market leader in this segment. In the first quarter, the margin on wine sales tripled compared to the base period, Odzuck noted.
Zwack has commissioned a real estate firm to sell one of its distilleries located in Budapest, CFO, Tibor Dornyei, said. Zwack also plans to sell another distillery in Budafok before the end of the year, and will begin construction on a new site in a Greenfield investment, likely in Dunaharaszti, with the project to be financed from the sale of the other two sites, Interfax News Agency reported.
Earlier the company estimated revenues from the sale at above HUF 2bn. The investment will cut down on the firm's transport costs and increase efficiency, with new technology to be installed at the Dunaharaszti plant.
Completion of the project is planned by the end of 2005, Dornyei said. The plant will produce all of Zwack's products except for Unicum, which will continue to be made at the Budapest headquarters, and palinka drinks, made in Kecskemet.

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INDUSTRY

Bakony expands to serve Electrolux, automotive firms

As part of a long-term development programme, majority Hungarian-owned manufacturing supplier, Bakony Works Rt, will pour Ft 2.2bn (€8.9m) this year into building a new plant in Hajdunanas, eastern Hungary, company executives announced recently, Budapest Business Journal reported recently.
The plant, to be completed by the end of this year, will supply components for the Nyiregyhaza plant of white goods manufacturer, Electrolux Lehel Kft, as of next January, Bakony Works Chief Executive, Gabor Zentai said.
"The contract we signed with Electrolux recently means that we managed to break into the supply market of white goods manufacturers," Zentai said.
Bakony Works traditionally supplies car parts. Its new plant will supply components for 300,000 refrigerators a year and will employ 150 workers in its first year of operation, Zentai said. He added that by 2007, the plant will manufacture parts for one million refrigerators and will employ 350.
According to Zentai, Bakony Works, which had revenues of Ft 6.96bn last year, intends to channel approximately Ft 8bn into various development projects in the coming years. Besides the Hajdunanas project, these will include the modernisation of the company's factory in Veszprem, western Hungary.
"In the medium term, Bakony Works aims to become a firm with annual sales of around Ft 30bn on the back of new orders," Zentai said.
The company has registered capital of Ft 2.8bn.

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MINERALS & METALS

DAM Steel attracts investors

A group of strategic investors aided by Istvan Horvath, the former chairman of Hungary's largest steel firm Dunaferr, are interested in buying the assets of bankrupt Diosgyor-based steel producer DAM Steel Rt, New Europe reported recently. 
The investor group, consisting mostly of industry experts formerly associated with DAM, plans to buy DAM's assets and continue production at the company, Horvath said, according to recent press reports. The group submitted a bid for DAM's assets in an earlier tender but its financing background was deemed inadequate at the time by DAM's liquidator. Several banks have now indicated they would be willing to finance DAM's operations, Horvath said.

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TELECOMMUNICATIONS

Pan-European Tele2 starts fixed-line operations in Hungary

With a small team and low overheads, new market entrant Tele2 Kft claims its prices are up to 40% lower than those of incumbent fixed-line telecom, Matav Rt, for long-distance and international calls, as well as for calls to mobile networks, Budapest Business Journal reported recently.
The local outpost of a Sweden-based, pan-European alternative telecom started offering residential telephony recently.
"Fixed-line telephony is a commodity. If consumers are faced with another product of the same quality, they'll always go for the cheapest. It's like electricity," said Henric Andersson, marketing manager for Tele2 Kft.
In the various countries in which it is present, Tele2 AB typically minimises its investment in infrastructure and utilises existing networks as they open up to liberalisation.
"We first invest in customers and then later in infrastructure. We can offer low prices because we're cost-efficient, and, being pan-European, we have economies of scale," said Anders Olsson, executive vice president of Tele2 AB, which is listed on the Nasdaq and the Stockholm Stock Exchange. The company posted sales of €4bn in 2003.
"We can continue our growth strategy as our profit rate of 15% allows us to reinvest," Olsson added.
The company employs 12 in Hungary, with plans to increase to an upper limit of 20. The local subsidiary is head-quartered on Victor Hugo utca in Budapest's District 13.
"We aim to later go into internet, including broadband and also mobile, when the regulatory environment allows," said Olsson.
With these services, he said, Tele2's approach is the same as with fixed-line - to offer the lowest rates on the market.
He declined to disclose sales targets and the targeted client base.
"We don't want to say how many customers we expect to gain, but in every market we're present on, we aim to be profitable within three years," he said.
For now, Tele2's offer is on long-distance calls within Hungary and international calls, but not for local calls. Tele2 claims customers will make an average saving of 20% on their average yearly telephone bills in Hungary, which it estimates to mean a Ft 13,000 (€52) saving for each customer on average.
Users need to dial 1502 as an extra prefix before making each call.
The offer is currently only available to users who have Matav lines, all of whom can use the service. It will later be spread to subscribers to other concession operators. Matav controls around two-thirds of Hungary's 54 telecom concession areas.

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