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HUNGARY


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 82,805 65,843 51,900 41
         
GNI per capita
 US $ 6,330 5,280 4,830 67
Ranking is given out of 208 nations - (data from the World Bank)

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%



  

Update No: 093 - (28/01/05)

The Magyar morass
Twelve months are due before the next parliamentary elections in Hungary in April 2006. The ruling Social Democrats are trailing the centre-right opposition, Fidesz, by some 12-15 points in the polls, and know that they are likely to be out of office in just over a year.
The leader of Fidesz is Victor Orban, former premier and with a striking resemblance to his namesake, Viktor Yushchenko, in Ukraine. Fidesz only lost by a narrow margin in 2002 and are sure favourites to resume the purple.
There was a change of premier by the Social Democrats in October, 2004. But it is not likely to avail them in the forthcoming contest. The newly-elected Prime Minister Ferenc Gyurcsany, a politically young man at 43, says his government will represent "true Social Democratic" values. 
This is precisely the problem for many voters. The Social Democrats are the heirs to the Communists. That means pure stodge, and impure sludge, to most Hungarians. Tedious politicking and corrupt outcomes have been their diet for too long.

Too much of the same
Gyurcsany has named seven new ministers and kept 10 of those who served during the two years in office of Gyurcsany's predecessor, Peter Medgyessy. Among those staying are Finance Minister Tibor Draskovics, Defence Minister Ferenc Juhasz and Culture Minister Istvan Hiller.
Kovacs, who has become the European Union's commissioner for energy affairs, was replaced as foreign minister in October by Ferenc Somogyi, a deputy ambassador to the United Nations in the 1980s and recently a phone company executive.
The man symbolically credited with causing Medgyessy's demise will not be part of the new Cabinet. Istvan Csillag, whose attempted dismissal by Medgyessy backfired, resigned in September to "spare the new government of unnecessary conflicts."
Janos Koka - founder of a local telecommunications firm and, like Gyurcsany, one of Hungary's richest businessmen - will step in for Csillag as minister of economics and transportation. Others new to their posts are Justice Minister Jozsef Petretei - a legal scholar from southern Hungary - and two ministers without portfolio: Etele Barath, co-ordinating EU affairs, and Istvan Kolber, overseeing regional development.

The true or false saviour?
The new premier is a bold and vibrant leader. He is determined to make an impression and give Orban a run for his money.
The Socialist-led coalition, which also includes the Alliance of Free Democrats, ousted Medgyessy in late August, frustrated by his lack of leadership and direction for government policies.
A property and manufacturing tycoon who was a communist youth leader in the 1980s, Gyurcsany vowed his Cabinet would be much more decisive and establish a markedly left-wing tone. "I envision a left wing which has the courage to be outraged by social injustices and has the strength to do something about them," Gyurcsany said in an interview in the daily newspaper Nepszabadsag. "Our government stands by the principle there should be more responsibility taken above and more opportunities below."
Among the first policies he announced were the introduction of capital gains tax, higher taxes for banks and lower income taxes benefiting most those earning near the average monthly wage of 142,300 forints (€550).
Thirteen members of Gyurcsany's Cabinet are Socialists - including the only two women - while four were designated by the Free Democrats.
Peter Kiss, whom Gyurcsany defeated to gain the Socialists' nomination, will continue to direct the Prime Minister's Office. The only significant structural change is the elimination of the Youth and Sports Ministry, which Gyurcsany led before taking over as head of government.
Attila Abraham, who won Olympic gold, silver and bronze medals in kayak, will handle sport matters as a state secretary at the Prime Minister's Office.
The thrice-married Gyurcsany, who left politics during Hungary's transition to democracy in 1990 and returned in 2002 as a key adviser to Medgyessy, has four children.

Improving relations with Romania 
Bilateral relations between Hungary and its southern neighbour, Romania, have long been strained. This is not least due to the fact that Hungary lost land to Romania after the First World War at the treaty of Trianon, namely the largely mountainous territory of Transylvannia (of Dracula notoriety), which has a Hungarian minority of approximately two million. 
Gyurcsány has announced a historic departure that his government will hold joint cabinet meetings annually with Romania in order to help its neighbour join the European Union and "ease the historic burden" of the two countries' relations. On January 17th, the premier met with his Romanian counterpart Calin Tariceanu in Budapest where they held a joint press conference. The two said the first joint cabinet meeting will take place in autumn of this year. 
"It is not only an opportunity, but also a duty of Hungary in the upcoming years to support Romania's European Union entry," Gyurcsány said. "All debates must be kept within that framework." On January 17th, speaking to Hungary's international press, Tariceanu said, "My meeting with Hungarian officials is symbolic of the special partnership between Hungary and Romania, two countries now reaching a new period - the end of transition from communism. This period is now characterized not by the problems of the past, but by our future common projects, such as bilateral political and economic issues." 
Tariceanu formed his coalition cabinet just only a month ago and chose Hungary as his first foreign visit since taking office - itself seen as a symbolic gesture. "I have to underline that we highly appreciate the input Hungary has given in the recent past to help Romania join the EU and engage in the negotiation process," he added. Romania is hoping to join the EU in 2007. Gyurcsány said the Hungarian government would not blackmail Romania by holding out the prospect of vetoing its EU entry, as suggested by the opposition. "I would not like to toy with the idea of vetoing - as the opposition does - Romania's EU entry, sending a message to the Romanian Government that Hungary is one of the 25 EU members in a position to say no," Gyurcsány said. 
Following the failed dual citizenship referendum in Hungary on December 5, the topic of citizenship for ethnic Hungarians abroad and Gyurcsány's provisional plans for a national visa for ethnic Hungarians were also discussed by the two prime ministers. Tariceanu told press that since this issue of visa plans was raised the Romania Government has asked for more information and an official answer has now been given. It is now up to officials from the Romanian ministry of foreign affairs to examine this and better understand what Hungary is proposing, he said, indicating that any plans are only in their infancy. 
Tariceanu also touched on the subject of autonomy, and said he favoured greater autonomy but not on the basis of ethnicity. "We need a new mentality. Hungarians or Romanians are citizens of equal rights and responsibilities. For me, there are not two categories of Romanian citizens." 

Gold mine or gold dust?
Another topic the Romanian premier was keen to respond to was Hungarian concerns over the planned gold mine at Rosia Montana. The mine, if built, will extract over 300 tons of gold and 1,600 tons of silver. 
The Hungarian public and environmentalists are anxious not to see another spill such as the one in 2000, when a Romanian gold mine in Baia Mare spilled cyanide into rivers and destroyed 30-40% of the flora and fauna in the river Tisza. The accident created toxic pollution 200 times the maximum safe limit. Romania has pledged to involve Hungary in the official licensing process of the mining project. "The project is in an initial stage and a study of the possible impact of the project has been ordered and we await these results. The ministry of environmental protection will analyse this project from the perspective of EU legislation." 
The prime minister acknowledged that the mining project has also been questioned in Romania, where the media raised questions concerning environmental impact, archaeological heritage and the "origin of the money invested." Tariceanu said that these issues were more than enough to warrant an attentive analysis of the project. When questioned about houses being levelled on the mine site and the suggestion that the project was in fact already underway, Tariceanu said, "The project has not in fact started, but the land has been purchased. 
"At present it is more like a real estate project than a mining one." The project, he said, cannot continue past this initial land purchase stage until it receives the "necessary clearance" following results of the commissioned study.

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AVIATION

Fresh Malev tender ahead by year-end


State-owned Malev Hungarian airlines Rt will not receive an earlier expected Ft 3bn (12.1m Euro) government subsidy, in line with a decision of the State Privatisation and Holding Rt (APV), holder of 99.95% of the airline, which said the financial situation of Malev can be remedied from the company's own assets, Budapest Business Journal reported recently.
At the same time, the APV announced that it plans to publish another privatisation tender for the company before the end of 2004.
"At present, Malev doesn't need direct financial assistance from the state," said Peter Oravecz, communications director of the APV. "After the previous tender (was declared unsuccessful in November), we overhauled the company and found that some of its assets were seriously undervalued. By introducing these assets at their proper value to the books of Malev, the company's capital structure can be restored."
The Ft 3bn in question was to be part of a Ft 10bn financial package from the government, Ft 7bn of which has already been issued to the loss-making airline.
The APV justified its decision by saying that the airline has been unable to establish the conditions for stable, profitable operation.
Adrien Krebsz, spokeswoman for Malev, said the airline acknowledged the APV's decision, but declined to comment further.
On November 19th, the APV declared the latest tender for the privatisation of Malev - the fourth since 1989 - unsuccessful, as the sole bidder, Aviation Solution International (ASI), failed to conform to the tender regulations.
Oravecz stated that the next tender, to be published after Christmas, will contain less stringent conditions than its predecessor.
"As opposed to the previous tender, the bidders will not be obliged to bid for the entire 99.95% package of shares in state ownership, and will not have to take on Malev's entire debt stock of Ft 36.2bn," he explained.
At the same time, at the press briefing held following the cabinet meeting on December 1st, government spokeswoman Boglar Laszlo stressed that the bidders will have to undertake an obligation to purchase the entire share package at a later date.
Oravecz added that while previous tenders had required that bids contain the bidders' plans for Malev in respect of the "national character" of the airline, no such obligation will be contained in the new tender.
"It remains an important factor how much of the capital raise the bidders intend to carry out," he stressed.
Ferenc Turi, an airline industry expert and managing partner of Capitol Consulting Group Kft, described the APV's move as "an escape forward."
"Malev needs a capital raise either way. It is logical that the APV wants the airline's new owner to carry it out," he said.
The airline is in dire straits, with outstanding debts above Ft 30bn. The long-term operation of the company is only viable with the involvement of a strategic professional investor, Turi said, for whom it might not be too attractive, given that it is too small to realise economies of scale.
Regarding the new tender, Turi opined that the relaxation of conditions demonstrates just how urgently the APV wishes to sell the airline.
"Which is no wonder," he added, "as economically, it's the only rational option."

Regional airports get cash help

Istvan Kolber, the Hungarian minister without portfolio for regional development, was quoted by The Budapest Sun as saying recently that in 2005 the state will subsidise the development of rural airports with as much as HUF 500,000m via the regional councils, placing special attention on Debrecen and Sarmellek.
"This fall the state has allocated a total HUF 1.1bn towards developing regional airports," said Kolber. "In 2005 it plans to allocate at least a further HUF 500,000," he added. More money could come via funds totalling HUF 57bn, earmarked for regional development. Kolber said that he was more than happy to see new investors.
He said that the government's regional airport development plants happened to coincide with the latest announcements by Cape Clear Aviation for Balaton Airport.
Kolber said that the government will have to coordinate with investors on the development projects. "We have to fine-tune our goals, implying decision on what the state should develop and what should be left to the investors," he said. Operations of the Balaton West Airport were recently handed over to the majority Irish-owned Cape Clear Aviation Repuloter Uzemelteto es Fejleszto Kft (CCA) for 99 years. The company has pledged to operate and develop the 2.5km long and 60m wide concrete runway, located on land shared by the villages of Sarmellek and Zalavar (190km west of Budapest). The two villages will continue to own 76% of the property, while 24% is held by Hungary's biggest hotel chain Danubius Szalloda es Gyogyudulo Rt.

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ENERGY

E.ON Edasz shares to be de-listed

The last power utility owned by German energy group E.ON, Edasz Rt will be de-listed from the Budapest Stock Exchange following the exit of E.ON Titasz and E.ON Dedasz early last year, the company told Interfax recently. At a court hearing shareholders who attacked financial watchdog PSZAF's earlier ruling on allowing a public offer made by E.ON Hungaria Rt for all outstanding shares in Edasz rescinded their request. The court approved the request, as a result of which all Edasz shares not owned by E.ON Hungaria as of September 30th will be invalidated, and new shares issued will be in the ownership of E.ON Hungaria. E.ON boosted its stake in Edasz, Dedasz and Titasz to nearly 100% through the public offers.

Orlen to finish takeover of Unipetrol in 2005

Hungarian oil and gas concern MOL debuted on the Warsaw Stock Exchange (WSE) on December 22nd at 223 zlotys per share, up 2.8% from 217 zlotys, a comparative price based on the recent company's closing price on the Budapest Stock Exchange. According to Interfax, trade of MOL shares in Warsaw amounted to 62m zlotys. MOL's market capitalisation of 5.7bn Euro makes it one of the largest companies listed on the Warsaw bourse.
The Budapest Stock Exchange remains the primary market for MOL's shares. MOL's general depository receipts are also listed on the Luxembourg Stock Exchange and traded on the London Stock Exchange's market system, the International Order Book. "We are interested in every transaction which increases the value of shares for MOL's Financial Director Joszef Molnar told a press conference on December 22nd. Poland's government was scheduled to discuss its energy-sector strategy on the same day. MOL said it is interested in opportunities in Poland due to the size and growth potential of the country's energy market. One area of cooperation could include Poland's top fuel firm, PKN Orlen, which was in talks earlier in 2004 on merging with MOL.
MOL and Polish top fuel company PKN Orlen have signed a memorandum of understanding to seek out areas for strategic cooperation and mull a merger, which could create oil, petrochemicals and gas group stretching from the Baltic to the Adriatic seas. However, the memorandum expired in April without an agreement. "MOL is open and looking at the Polish energy market with interest but we need a clear decision from the Polish government concerning the further stage of privatisation of PKN Orlen.
In 2005 the Hungarian government intends to sell a 12% stake of MOL, which would be a good opportunity to tighten cooperation with PKN Orlen," MOL's regional PR manager Denis Mohorowic said. Nafta Polska, the government agency that oversees fuel-asset sales and restructuring said that it would probably start a process in 2005 to sell a stake in PKN Orlen. The government currently owns a 27.5% stake in PKN Orlen. Orlen is also expected to finish its takeover of top Czech oil company Unipetrol in 2005. However, opportunities for a merger of the Hungarian and Polish counterparts could be dwindling. Recently, PKN Orlen CEO Igor Chalupec told Polish media that a merger between the two is doubtful.

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FOREIGN ECONOMIC COOPERATION

EU and Turkey start talks

Despite all the risks involved in Turkey's upcoming EU accession, the move is economically rational, executives and analysts said recently, Budapest Business Journal reported recently.
They were reacting to a decision by EU heads of states made on December 17th to start accession talks with Turkey in 2005, on condition that the country recognises the Republic of Cyprus. Turkey expressed its disapproval of this condition, but analysts say a compromise on this issue is just a matter of time.
"Given current economic indicators, the integration of Turkey into the EU is a sound decision. The economic growth Turkey has seen over the past few years would fuel growth in the EU and improve the bloc's competitiveness," said Attila Juhasz, an analyst at political and economic think tank Political Capital. Hungary is an export-orientated country, so it is in our interest to integrate the vast Turkish market into the EU."
However, analysts also pointed at some risks, such as an intensifying race for foreign direct investment (FDI) and EU subsidies.
"If Turkey joins the bloc, competition will occur between the two countries for FDI. Hungary may lose investments to Turkey," speculated Juhasz.
According to Richard Cluse, director of research for EMEA at London-based investment bank UBS Ltd, the accession talks will accelerate Turkey's economic integration into the EU.
"Turkey has great growth potential, and the growth in its GDP will trigger an increase in its imports. This will help all of the current member states," opined Cluse.
Economic relations between Hungary and Turkey have improved over the past few years. Bilateral trade tripled over the past 4 years, with the overall trade volume exceeding the 2003 level by October 2004.
Before Hungary's EU accession, the country had a bilateral free trade agreement with Turkey, said Andras Hajdu, commercial attache heading the Istanbul office of state trade development agency ITDH.
According to ITDH figures, Hungary's exports to Turkey totalled $670m in 2003, while last year's figure is expected to reach $800m. Multinational companies accounted for the bulk of Hungarian exports. ITDH's statistics say that 170 firms have reported trade volume of more than $1m in relation to Turkey.
Hungary's export-oriented blue chips, including BorsodChem Rt and TVK Rt, will also benefit from Turkey's accession, said Kornel Sarkadi Szabo, a capital markets analyst at Raiffeisen Bank Rt.
Juhasz also pointed out that Hungary's agricultural exports will also grow after Turkey's accession.
"Although on paper, the two countries have mutually favourable import quotas for agricultural goods, in practice Turkey limits these quotas unilaterally by banning the import of certain Hungarian agricultural goods," explained Juhasz. "With Turkey also in the EU, these barriers would have to be removed, which would boost Hungarian agricultural exports."
Multinationals also take the lead in imports from turkey. Cars are among the main import goods coming from the country, with brands like Renault Thalia, Toyota, Mercedes and Mann each exceeding the $10m volume. Colour TVs, textiles and gold products are also among major import products, according to ITDH statistics.
Hajdu says Turkish companies have shown an increasing interest in Hungary over the past few years. So far approximately 250 companies entered the Hungarian market, making direct capital investments to the tune of $50m.
The prospect of Turkey's EU accession may also strengthen Hungary's role as a European regional hub among companies exporting to Turkey, analysts said.
One of them is Axial Ladder Manufacturing Kft, a French-Hungarian joint venture that recently set foot on the Turkish market.
"The French company has decided to expand to Turkey through its Hungarian partner, because it would not be financially viable to transport the goods all the way from France," said a person closely connected with the company who was speaking on condition of anonymity.

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TELECOMMUNICATIONS

Matav submits binding bid for Telekom Montenegro

Following an in-depth due diligence process of Montenegrin telecom company Telekom Crne Gore (Telekom CG), Hungary's dominant telecom firm Matav submitted on December 22nd a binding offer in a public tender process for the sale of a 51% stake in the company, Matav announced, cited by Interfax. While Matav did not reveal the content of its offer, analysts estimated that the majority stake's "realistic" value is likely in the range of 100-120m Euro. The official deadline for bids was on December 22nd, while Montenegro's government will select the winner of the tender in January. "Matav's intention to acquire the shares of Telekom CG is in line with the strategic priority of seeking growth opportunities through value creating acquisitions. Telekom CG meets the selection criteria defined as part of the company's acquisition strategy," the firm said. Although Matav was the first company signalling its interest in Telekom CG's privatisation last summer, another 5 firms have since entered the competition, according to press reports. Besides Matav, bidders reportedly include Telekom Austria, Greece's OTE, Telekom Serbia, US' Western Wireless and Ceske Radiokommunikace. The Telekom CG Group consists of Telekom CG and its three subsidiaries, Monet GSM, Internet CG and Montenegro Card. According to information published by the company, Telekom CG, Montenegro's incumbent fixed-line operator, provides fixed-line services to around 191,000 customers. The company generated standalone revenues of 72.1m Euro with an EBITDA of 22.8m Euro in 2003.

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