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Books on Hungary
REPUBLICAN REFERENCE
Area (sq.km)
93,030
Population
10,032,375
Capital
Budapest
Currency
Forint
President
Ferenc Madl
Private sector
% of GDP
60%
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Update No: 103 - (28/11/05)
Biding time before the election
The country's last election in 2002 saw the Socialist Party, then led by former
Prime Minister Peter Medgyessy, defeat the Fidesz government by 42.1% of the
votes to 41.1%. But Medgyessy, 63, was swept out of power in turn in August 2004
by an internal coup after support for the Socialists fell to a three-year-low as
Hungarians became disillusioned with European Union membership.
Ferenc Gyurcsany-also a member of the Hungarian Socialist Party (MSZP)-then
became the European country's head of government in September 2004, following
the resignation of Medgyessy.
Gyurcsany is a highly successful businessman. He is Hungary's 72nd richest man
with an estimated personal wealth of 4 billion forint (US$19 million), according
to a list compiled by daily Nepszabadsag and published Oct. 12.
But business acumen does not always spell political nous. Actually being in
charge in any Central European state turned democratic is a poisoned chalice.
The only things to do are bound to be unpopular, cutting down the post-communist
welfare state. It will take another generation before pro-market policies will
prevail.
Gyurcsany has been unable to increase his support in Hungary, according to a
poll by Gallup. Only 37 per cent of respondents have a positive opinion of the
prime minister's performance, unchanged since August.
The next parliamentary ballot is tentatively scheduled for April or May 2006.
The opposition leader, Viktor Orban, the head of Fidesz, a centre-right force,
is personally popular, but his party is now trailing, but only slightly, in the
polls.
Gyurcsany battles 'fossilized' party image
Gyurcsany is convinced that there is all to play for. He is using advertisements
in glossy magazines, tabloids and pop music for the first time to help him win
an unprecedented second term.
The Socialists, whose marketing had been focused on depositing leaflets in mail
boxes, took ads in publications such as Penthouse and gave away CDs with
Cosmopolitan. The party, which emerged from the communist regime, held an event
Oct. 16 where Gyurcsany, 44, strode into Budapest's largest sports hall and
greeted supporters to the tune of U2's ''Beautiful Day.''
''Those who haven't been paying much attention still think we're a fossilized
bunch of old comrades,'' party spokesman Istvan Nyako said in an interview in
Budapest. ''It was inevitable to start an image campaign.''
Gyurcsany, the youngest Socialist prime minister in the 16 years since communism
collapsed, is rejuvenating his party's image and has overtaken the opposition
Fidesz party in the polls. The Socialists hired US public relations firm Dresner,
Wickers & Associates LLC, a company that has counted California Governor
Arnold Schwarzenegger and former Russian President Boris Yeltsin among its
clients.
The Socialists pulled ahead of Fidesz by 1 percentage point among people who
said they would vote, their first lead since May 2003, according to an Oct. 8-13
poll by Gallup. The poll of 1,010 Hungarians had a margin of error of 3.2
percentage points.
Polo Raffle
Fidesz leader Orban, 42, who is trying to return to the premiership, is also
staging rallies and raffled a Volkswagen Polo car to generate interest in the
party. Fidesz won the 1998 election. ''This year brought a clear turnaround in
political communication,'' said Eva Katona, editor-in-chief for local
advertising monthly Kreativ in Budapest. ''A lot in the next elections will
depend on communication strategy.''
Neither party would say how much it's spending in the run-up to next April or
May's vote. Orban told Hungarian television on Oct. 21 that Fidesz will meet
soon to start preparing the party's main election campaign, though it won't
spend as much as the Socialists.
Both the Socialists and Fidesz advocate cutting taxes and raising social
spending, while Fidesz is urging a halt to selling state assets and a stricter
budget. The European Commission in a recent report reprimanded Hungary for
failing to narrow a widening spending shortfall, adding to doubts about the
country's goal of adopting the euro in 2010.
Communities work as one
An important rapprochement is taking place between Hungary and its neighbour,
Romania. At the end of the First World War Hungary was dismembered, with its
neighbours acquiring vast territories. In Romania's case, it was Transylvania, a
beautiful mountainous territory, with a 1.4 million Hungarian population, mainly
Protestant in religion.
Naturally, there are Hungarians who want it back, but that is not serious
politics any more. The days of carving up states were in the first half of the
last century; and everybody knows what they involved.
A first two-day joint Hungarian-Romanian government session was held in the
Transylvania hall of the Romanian government's Victoria palace on October
20th-21st in Bucharest and yielded several achievements for Romania's ethnic
Hungarian community. Two heads of government, 17 Hungarian and 25 Romanian
ministers participated in the session, saying they worked "next to each
other" rather than "in front of each other".
"I feel like I am among friends who work together to make a project
successful," said the Romanian president Calin Popescu Tariceanu, who added
that the session not only marked an important day in the history of the two
countries and the region, but also that of the European Union as well.
According to Romanian deputy prime minister Béla Markó, the leader of the
Hungarian Democratic Union of Romania, the agreements on opening a Hungarian
consulate general in Miercurea Ciuc and on setting up a branch of Bucharest's
Hungarian Institute in Sfantu Gheorghe were the most important results of the
joint meeting. The two countries also agreed to cooperate in areas such as
transportation, healthcare, information technology, culture and social welfare
systems.
Markó also noted that it was equally important that the Romanian government had
made a commitment to support Transylvania's Sapienta University, an institution
created and, thus far, financed by the Hungarian government.
Premier Gyurcsány summed up the results of the session as "more successful
than the previous five to seven years put together." "What we have
achieved today completes the efforts of many years," he said.
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AUTOMOBILES
Auto Vision to open gear plant in Gyor
In Gyor, Auto Vision, a subsidiary of Volkswagen, is opening a gear
manufacturing plant of worth 5 million Euro, the daily Nepszabadsag reported.
The manufacturing of the new Audi type will be commencing in early 2006. This
newly established company will be supplying gears for the construction of the
new series of TT Sport Cars for Volkswagen Group affiliate Audi Hungarian Motor
Kft. Audi is considering further investments in the country, Martin Winternkorn,
the concern's chairman said. In Germany the Company is starting the
manufacturing of the new Q5 model, but it is launching new series of limousines
crossovers and sport cars, the production of which Gyor is going to take a major
role in. Audi has scheduled to sell an estimated 800,000 cars in 2005. The
figures are expected to increase up to 1 million by 2008 and to 1.5 million by
2015.
Investment from Korean tyre maker to surpass expectation
Hungary's Economy Minister recently claimed to have gained a larger investment
than previously expected from South Korean tyre manufacturer Hankook, who are to
build a major new manufacturing plant in the European Union newcomer. "Hankook
will invest US$632 million (526 million Euro) in Hungary, US$33 million more
than earlier believed," Janos Koka said, New Europe reported.
Hankook had announced on October 31 that it had chosen Hungary as the site for a
new tyre manufacturing plant, which it said it was building in order to get
closer to European customers. Koka flew to South Korea to finalize the deal with
Hankook, and claimed that he negotiated the higher investment in the last phase
of the meeting. "We judged Hungary to be the most competitive among other
central European countries in terms of logistics, manufacturing costs, human
resources and proximity to Western Europe," Hankook said in a statement.
The plant will be built in Dunaujvaros, south of Budapest, and is expected to
create around 1,500 new jobs. The plant should begin first production from 2007,
and the company hopes to begin producing 10 million tyres per year from 2010.
The tyre-manufacturing plant was initially planned for Slovakia, but Hankook
withdrew after the Slovakian government decided not to offer almost US$120
million in incentives, saying it would be too much of a burden on the state
budget.
Koka had earlier said the Hungarian government was not relying upon incentives
to attract the firm, but details emerged in the Hungarian press that money was
in fact offered. The minister, however, defended his stance. "The state
financial support is very small compared to the whole investment package,"
he said. Several major car manufacturers including Audi and Kia have set up in
Central and Eastern Europe, and a burgeoning tyre manufacturing industry is
developing in Hungary to support these firms.
France's Michelin has already established a plant in Hungary, and Japanese
Bridgestone will start producing tyres in 2006. Hankook currently makes 58
million tyres annually and is hoping to bite into its competitors' markets and
move up from its current position as the eight largest tyre manufacturer in the
world.
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AVIATION
APV to call new tender for Budapest Airport
The State Privatisation and Holding Company (APV) said recently that it would
shortly call a new tender for Ferihegy Airport operator Budapest Airport Rt, BBJ
reported.
The announcement follows a decision by the Budapest Municipal Court invalidating
an earlier tender for Budapest Airport because APV failed to consult with the
company's workers before the sale, as required.
APV said it would consider investor interest as well as the ensured continued
operation of Budapest Airport in the sale. As part of the preparations for the
new tender, APV is consulting with Budapest Airport's Workers' Council, which
represents the interest of all of the company's employees. In related news,
according to The Sunday Times, British Airport Authority plans to submit a bid
of Euro two billion for the stake of Budapest Airport, which is considerably
higher than the first round's highest bid, 1.6 billion Euros offered by German
Hochtief.
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ECONOMY
Hungary economy keeps on growing
Industrial output, investments and construction will expand much more this year
as compared to the previous year. Hungary's economic researcher GKI and Erste
Bank published their latest macroeconomic forecast recently, reports New Europe.
GDP growth projection was unchanged at 3.9 per cent for this year but industrial
output has grown by seven per cent year on year from 6.5 per cent as compared to
the earlier year. Unemployment was up from 7.0 per cent to 7.2 per cent, in the
previous forecast. Hungary's economy kept growing in the summer, the GKI said,
adding that GDP grew by 2.5 percentage points more in the first half than in the
EU, but within Central Europe this growth was enough only to surpass Poland.
Inflation will be around 3.7 per cent throughout the remainder of the year, the
researcher said. Hungary's public sector deficit should come in at around 6.0
per cent of GDP, according to ESA-95, the GKI added. The gap was 5.4 per cent of
GDP in 2004. "The size of the cash-flow based deficit greatly depends on
the timing of the sale of Budapest Airport," the GKI said.
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INFORMATION TECHNOLOGY
Synergon 9-month profit decreases
The quick report of the IT Company announced that in the first nine months of
the year 2005 profits of Synergon Rt decreased to HUF 138 million, New Europe
reported.
In the first half of the year results included HUF 300 million profits, but the
autumn is usually a weak season for the IT sector. On a company level, the
turnover declined by eight percent as compared to the same period of the last
year. The lack of state orders and one of the subsidiaries, Infinity Kft are to
be blamed for the weak performance. With greater efforts results are planned to
be achieved whole year from HUF 410 million to HUF 470 million.
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PHARMACEUTICALS
Richter posts strong Q3 profits
Richter Gedeon Rt, Central Europe's largest producer of pharmaceuticals,
posted a large rise in third-quarter profit recently, benefiting from increased
sales in Eastern Europe, Russia, and the newly independent states (NIS) of the
former Soviet Union, the Budapest Business Journal reported.
Richter revealed to the Budapest Stock Exchange Rt (BET) that increased spending
on marketing, allied with rising government subsidies on medicines in Russia -
the company's biggest export market - were the main drivers of growth.
Richter's net income rose to Ft 10.9bn (43.6m Euro), or Ft 589 a share, up from
Ft 8.7bn, or Ft 467 a share, in the corresponding period of last year. Richter
expects annual sales to be 10%-15% higher than last year, CEO, Erik Bogsch, told
the assembled press in Budapest, adding that investors should be cautious about
fourth-quarter estimates because of uncertainly on the Russian market.
According to the report, Richter's sales rose 48.5% to US$166.6m in NIS
countries and Russia in the first nine months, including a 55% surge in Russian
sales to US$126.1m. The company sold more than US$30m worth of government-subsidised
medicines.
Bogsch added, however, that next year's subsidies are "highly
uncertain" since the Russian government is drafting a new list of
subsidised drugs, which was expected by the end of November.
In Eastern Europe, nine-month sales rose 23.5% to US$90.3m, as the company hired
more staff to recommend its products to doctors in the region. Polish sales rose
37.5% to US$32.4m, while revenue in the Czech Republic increased 21.5% to
US$15.2m.
Sales in Hungary, meanwhile, rose 11.7% to Ft 29.1bn in the first nine months,
driven by oral contraceptive sales and Richter's new prostate medicine, Calumid,
the company said.
Sales in the US dropped 18.1% to US$50.8m because of a decline in demand for the
company's steroid ingredients. Nevertheless, Richter still expects annual US
turnover of about US$65m, Bogsch said.
Commenting on the report, Peter Tordai, head of research at K&H Equities Rt,
said the results beat forecasts primarily due to stronger than expected
financials and retained R&D spending.
"Richter's domestic performance in the third quarter was unexpectedly
strong," he stated. "However, the entire Hungarian drug market was
also strong in the quarter, thus Richter's market share remained unchanged at
7.6% from the second quarter."
"The real surprise of the report came on the R&D expenditures line,
with Richter spending Ft 2.47bn on R&D in the third quarter, versus Ft 4bn
in Q2," Tordai continued. "Financials also came ahead of our forecast,
adding Ft 1.8bn to the bottom line. Overall, we expect to see positive market
reaction to the report, but we would also warn that the stock has rallied some
6% on pre-release of the report, and that investors should be cautious as
R&D might boost costs in the final quarter."
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TELECOMMUNICATIONS
Magyar Telekom, T-Mobile Hungary merger approved
Iagyar Telekom's Extraordinary general meeting has approved the intended merger
of T-Mobile Hungary Ltd. and Magyar Telekom Ltd. as submitted by the board. The
merger is expected to save tens of billions of forints for the company, New
Europe reported.
The general meeting heard Chairman-CEO, Elek Straub's, report on the details of
the planned merger and Supervisory Board Chairman, Laszlo Pap, presented the
supervisory board's view on the merger. Shareholders of Hungarian telecom group
Magyar Telekom voted to merge the company's fully owned mobile unit, T-Mobile
Hungary, into the company, Magyar Telekom said in a statement. After the merger
Magyar Telekom Ltd.'s form of operation will remain unchanged.
According to the general meeting decision the board will prepare Magyar Telekom
Ltd.'s draft valuation balance sheet and draft valuation inventory as of
September 30 and draft opening valuation balance sheet and draft opening
valuation inventory reflecting the status after the merger.
The Board will submit these documents to another General Meeting, which will
then, have to be approved by another shareholder's meeting.
Additionally the Board will submit to the general meeting the draft merger
agreement and a draft of amendments that may be necessary in the articles of
association of the successor company, and according to the statutory
requirements, a draft of settlement with the persons who do not wish to be
shareholders of the successor Magyar Telekom Ltd.
Magyar Telekom, the leading Hungarian telecommunications service provider, also
reported its consolidated financial results for the first nine months of 2005 in
accordance with International Financial Reporting Standards (IFRS.) From the
second quarter of 2005, the consolidated income statement includes the results
of Telekom Montenegro Group (TCG), while the company's balance sheet has been
consolidated in Magyar Telekom's accounts as of March 31, 2005.
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