Books on Hungary
% of GDP
Update No: 097 - (26/05/05)
EU success story
EU accession in May 2004 has by and large been successful so far, as the
following figures attest.
GDP growth, which in 2003 grew by 2.9%, in 2004 was up by 3.9%. It is forecast
to grow by 3.7% in 2005. According to an official Hungarian analysis in 2004,
the increase in that year was due to export growth and was not the result of a
rise in domestic consumer spending as had been the case in 2003.
On inflation the news is even better: 2004: 6.8% 2003: 4.7%. Forecast 2005:
3.4%, being the lowest level since 1981 in February 2005: 3.2%.
The budget deficit, however, is still over 5% of GDP. The trade deficit is
coming down: 2004: 3.7% of GDP in 2004 after being 4.2% in 2003. Exports are up
17%; imports are up 14%. According to the Hungarian Office of Statistics (KSH),
three quarters of all imports went for investment purposes. Investments grew by
7.8% in 2004, imports for investment purposes by 9.0%. Exports consisted of
electrical equipment (43%), with foodstuffs, textiles, paper and building
materials accounting for 10.9%. The forecast for 2005 is that exports will be up
by12.1% and imports by 9.7%.
Nostalgia for the old days
Despite the improving trends, when protesters gather in Hungary these days,
there are usually plenty of anti-capitalist slogans to be seen. One year after
the country's entry to the European Union, politics has become too much
"business" for many Hungarians, Deutsche Presse-Agentur (dpa) said in
a special report recently.
"This country is not a company!" numerous placards said in a recent
farmers' demonstration this spring. According to Viktor Orban, the leader of the
conservative opposition party Fidesz, Socialist Prime Minister Ferenc Gyurcsany
talks about politics "as if he was discussing a business plan."
The mood has triggered an upsurge of nostalgia for "the marvellous Kadar
years," the comparatively prosperous communist era under former Premier
Janos Kadar (1912-1989), according to historian Karoly Szerencses, who published
a book of the same title.
Szerencses warns against viewing the era through rose-tinted spectacles, arguing
Hungarians should not confuse politics with "biological nostalgia" for
the period of their past when they were young and optimistic.
Nonetheless, since Hungary's admission to the European Union in 2004 much of the
political rhetoric has revolved around the Kadar era. This goes down well with
the farmers since they have born the brunt of EU-membership in Hungary. Due to
Budapest's sluggish bureaucracy many of them are still waiting for the EU
subsidies they are entitled to while payments are in time in other countries.
When Hungarians wax lyrical about the Kadar days they are not harking back to
the communist era as a whole - a period which will always remain synonymous with
Russia's bloody suppression of the 1956 Uprising.
What many long for, however, is a return to what has been dubbed the "Ghoulash-Communism"
of the 1970s, during which Hungarians enjoyed comparative economic prosperity
and little political pressure as some niche free-market activity was tolerated.
The following economic decline in the 1980s galvanised the Hungarian Socialists
into action. They deposed Kadar in 1988 and launched unpopular reforms - a move
which helped the conservatives to win power and condemn many of the socialist
achievements 10 years later. Now in opposition, Fidesz Chairman Orban himself
often uses communist arguments when he rails against privatisation and "big
Last year Orban even joined forces with the non-parliamentary communist workers'
party in starting a referendum against hospital privatisation. He also founded a
"National Consultation Council," which includes former Communist
Politburo member Imre Pozsgay. Orban even evokes nostalgia for the Kadar years
when he criticises Hungary's current education system. Under Kadar, children
from underprivileged backgrounds were better off, he said recently: "Had I
gone to school these days I would have ended up as a tractor driver."
The Fidesz leader is a trained lawyer but Orban has so far only worked as a
politician. "He talks like someone who has never seen a business-plan in
his life," said Prime Minister Gyurcsany.
In contrast to Orban, the premier - one of Hungary's wealthiest businessmen -
has only been in the political arena for 3 years and dreams of turning his
country into a paradise for investors in the fields of computers, carmaking,
logistics and leisure pursuits.
Both men are in their early 40s - when Kadar was in power they were still at
school. Yet Hungarians seem to be tiring of their upside-down political
The referendum on hospitals failed after not enough citizens cast their votes.
According to surveys, 40% of Hungarians are unsure who of the two they would
vote if an election were held.
Orban declares that he stands for "economics in the national interest"
and says instead of party-political bickering "we must learn to talk about
our national issues."
Meanwhile, Gyurcsany recently urged Hungarians to stop thinking the state could
solve all their problems - a belief characteristic of the Kadar era. Instead,
Hungary must learn to be competitive, he urged.
The blurring of ideological edges in Hungary can be traced back many years but
since the May 2004 accession to the EU the country has been faced with a new set
In contrast to the 1990s, Hungary can no longer survive as the "extended
workbench" of Western investors - this role is increasingly being assumed
by former communist states from further East.
Polls on how Hungarians see Europe reveal that 64% of the people here regard
themselves first and foremost as nationals and then as citizens of the EU. This
may be because the EU is perceived not so much as a political entity but rather
as an economic issue, says Hungary's Minister for European Affairs, Ethele
Last year tens of thousands of Hungarian entrepreneurs submitted applications
for EU financial support. Only a few of them, around 10%, were successful. The
rest were simply rejected - stirring further nostalgia that maybe the Kadar era
was a better place to be.
100 steps to re-election
Hungary's prime minister, Ferenc Gyurcsany, has given several party
favourites ministerial posts as he prepares for reform and general elections.
Gyurcsany is openly cleaning house ahead of the elections, due in mid-2006. It
looks to be on a knife edge. According to an opinion poll published on April
25th, Gyurcsany's alliance of the Socialists and the Liberals have the support
of 47 percent of Hungarian voters, and the main opposition Fidesz, 48 percent.
Hungary's finance ministers tend to have a short job-life expectancy. On 18th
April, Tibor Draskovics was dismissed after just over a year in office. His
successor, Janos Veres, will likely also have one year. In that period, he is
being asked to do a job perhaps best-suited for a magician: to cut taxes and
increase state revenues at the same time.
The press had for some time suggested that Draskovics' days were numbered. Prime
Minister Gyurcsany duly emerged to deny the rumours and offer Draskovics his
public support, but, true to political cliche, that proved the kiss of death. On
18th April, Gyurcsany declared he needed a finance minister who enjoyed greater
political and professional support than Draskovics had.
Since Draskovics was well-respected as an expert, the prime minister's emphasis
is presumably on "political" support: Draskovics, a confidant of
former prime minister Peter Medgyessy, is replaced by a founder of the Socialist
Party (MSZP) and a man very popular with his fellow Socialists. When Gyurcsany
announced Draskovics' dismissal and Veres' appointment to the party
parliamentary faction, the parliamentarians cheered.
Tough, but not 'brave enough'
Draskovics' sacking is the first step in a new "100-step policy"
that Gyurcsany introduced on 15th April at an MSZP party congress. The prime
minister declared that there can be no more delay in implementing structural
reforms affecting several sectors of the economy and the civil service. Although
he did not specify what he had in mind, he told the press when he announced
Veres' appointment that the state cannot spend more, only differently.
Draskovics introduced some unpopular measures in order to keep the budget
deficit within limits acceptable to the European Union and to keep Hungary on
track to introduce the euro in 2010. His most controversial step, though, was
his decision in October 2004 to stop refunding VAT to export companies, saying
that since EU accession, export-related tax frauds have become easier and so
stricter supervision is needed. Business leaders and analysts alike instead saw
the move as a trick to massage budget-deficit statistics. Investigations
launched into alleged tax frauds meant that hundreds of export companies
received their VAT refund only in 2005; the refunds therefore
"disappeared" from the budget figures for 2004.
The last straw for the prime minister may have been Draskovics' failure to come
up with "brave enough" proposals to cut taxes, a failure for which
Gyurcsany publicly criticized Draskovics in early April. Tax reform was part of
the coalition agreement that MSZP signed with the liberal Alliance of Free
Democrats (SZDSZ). However, since the budget deficit is not allowed to grow
larger than it already is, Draskovics had little, if any space to steer a
radical tax cut into law.
While Draskovics won respect for his expertise, his personality will not be
missed in his ministry. He had a reputation of being a tough boss with a
confrontational style; according to the weekly Magyar Narancs, his colleagues
dubbed "an impossible task between two scoldings" a "Draskovics
sandwich"; and the weekly HVG reports that some ministry personnel referred
to weekly staff meetings as "knockout rounds," an allusion to
television reality shows in which contestants are voted out.
After his own knockout, Draskovics will go on to serve on the board of Hungarian
Power Companies, a state-owned energy group.
Hungary's agriculture minister sacked
On April 25th Gyurcsany announced that he had sacked his agriculture
minister, one week after firing the country's finance minister. "I have
asked Imre Nemeth to resign and at the same time asked Jozsef Graf to take up
the post of agriculture minister," the prime minister told a press
Gyurcsany indicated that Nemeth's departure was the result of a debacle over
European Union funds in February that saw farmers stage two weeks of protests in
Budapest. The farmers accused the minister of failing to ensure that the funds
Gyurcsany said he had asked Graf, a Socialist lawmaker, to ensure a proper
handling of "European and national funds" and "a clearer and
better cooperation with producers."
The prime minister added that with a view to Hungary's next general elections in
April 2006, "the new agriculture minister should change the leadership, the
organisation and the aims of the ministry. Over the next year we will need a
minister who operates more like a manager more than a politician," he said.
Graf, 58, is one of the founding members of the Socialists, who came to power in
2002, and said that he enjoyed "excellent relations with different sectors
of the agriculture community."
On April 25th Gyurcsany hinted that further cabinet changes were not excluded in
order to implement his vision of "a hundred steps" that need to be
taken to govern Hungary more efficiently. "In order to implement our policy
of 'hundred steps', some people need to be replaced," he told journalists.
The right-wing Fidesz commented that Nemeth's dismissal was "an admission
by the government that its agriculture policy had failed."
Agro production gets cheaper
The latest report from the Central Statistics Office (KSH) said that the
production prices of agricultural products in Hungary were 13.8% lower in
January-February this year than in the same period of last year, New Europe
The production price of plant products was 30.3% less, while animal products got
9.5% more expensive than in the same period of last year. The price of services
and products used for agricultural production was 2.9% less than a year before.
Due to the price changes, producers' revenues declined by 11.2% on average
compared to data received for the year 2004.
Szeged to develop regional airport
An international regional airport will be developed with an investment of HUF
1.5bn (6.07m Euro) in Szeged (southeastern Hungary) within the next 12 months,
the city mayor announced after signing a HUF 158m contract with the Hungarian
Regional Development Office, MTI news agency reported recently.
Laszlo Botka said the Szeged city council plans to request additional financing
of HUF 600m from the southeastern Hungary Regional Development Council and the
Csongrad county council plans to contribute a total of HUF 100m to the project
in 2005 and 2006. He added that the council plans to pay for less than one third
of the total costs of development because it expects to receive additional
government funding. Building a modern fuelling station and a new runway 1,200
metres in length is part of the development project.
MOL-INA target Energopetrol
The consortium of MOL, the Hungarian oil and gas concern, and its 25% Croatian
affiliate INA are up against two rivals in the tender for a 67% stake in
Bosnia's Energopetrol, Interfax New Agency reported recently, citing Bosnian
Energy and Industry Minister as telling the state news agency MTI.
In its binding bid submitted earlier in April, the MOL-INA pair offered the
equivalent of 5.1m Euro for the state-held packet, in addition to investment
pledges totalling 76.7m Euro for the next 3 years, the assumption of
Energopetrol's entire outstanding debt, and committing to keep all of
Energopetrol's 1,059 employees on board, Zigic revealed. Of MOL's rivals,
Austria's OMV is pledging 16.8m Euro for investments and would assume 13.2m Euro
of Energopetrol's debt; however, the offered purchase price for the state-held
share packet was not disclosed. The third bidder is Bosnian firm Euroinzenjering,
which reportedly offered 32.3m Euro on debt relief, 14.3m Euro in future
investments and 12.7m Euro for the actual stake, while pledging to retain 760 of
Hungary backs EU entry for Ukraine, Croatia, Turkey
Hungarian Prime Minister Ferency Gyurcsany said recently that he was in favour
of EU membership for Ukraine, Croatia and Turkey, New Europe reported.
Speaking to journalists, he said Hungary had an "historic and strategic
obligation" to help those countries gain access to Europe. Membership for
Turkey could not be broached while simultaneously backing away from Ukraine's
access to the bloc despite welcoming the recent political change of power in
Kiev, said Gyurcsany. In the case of Croatia, it was unjust to hold an entire
nation responsible for war crimes, he said. The European Union has accused
Croatia of insufficient cooperation in bringing war criminals to justice for
crimes committed during the Balkan conflict in the 1990s. Asked why he had not
fulfilled British requests to tell governments in Croatia and the Ukraine that
they had hardly any chances of joining the EU, Gyurcsany said: "I am not a
postman. I am representing my country's interests." Parity and not the
opinions of individual countries have to dominate the bloc, he added.
Hungarian, Romanian ministers sign regional development cooperation pact
The Hungarian and Romanian ministers responsible for regional development,
Istvan Kolber and Laszlo Borbely [respectively], have signed a cooperation
agreement. Hungarian Duna TV reported that the plans included joint application
for EU funds.
Laszlo Borbely, the Bucharest [Romanian] government's minister, told Kossuth
Radio that the construction of the northern Transylvanian motorway would
continue, and he hoped that, as planned, it would go from Brasow to Budapest in
Chinese IT firm enters Hungary
Chinese IT company Huawei Technologies plans to set up its regional commercial
headquarters in Budapest, Forbes said recently.
The Vilaggazdasag newspaper reported that Huawei, the largest Chinese
telecommunication equipment maker plans to launch production in Hungary by June
2005. Huawei employs 24,000 people worldwide. IT Minister Kalman Kovacs noted
that several other Chinese companies specialising in information technology
equipment manufacturing have also expressed interest in investing in Hungary.
Kovacs said that ZTE Corp Telecom equipment producer reported annual sales of
US$4bn last year and is expected to announce the location of its manufacturing
base in Hungary. Even the world's third largest personal computer maker Lenovo,
which recently purchased IBM's PC division, is planning to start its PC
production in the central Hungarian city of Szekesfehervar using IBM's previous
Tesco homes in on Hungarian market
British supermarket chain Tesco is planning to expand significantly in central
Europe, with the main focus on Hungary, as part of its strategy of seeking
growth outside its home market, The Financial Times reported recently.
Figures obtained by the FT show that Tesco - which has about 194 stores across
Poland, the Czech Republic, Slovakia and Hungary - intends to increase that
number to at least 234 stores. Hungary, Tesco's first foray abroad in 1994, is
set to be the biggest beneficiary of the European expansion, with 16 new stores
planned in 2005-6, taking the total number of stores in the country to 58. Last
September Tesco opened its second Hungarian distribution centre on the edge of
Budapest. The fresh food depot, which handles 750,000 cases of product a week,
is working at 75% capacity, giving the retailer scope to serve up to 20 more
stores. Andrew Higginson, finance director, said in January that competition in
Poland and Hungary from hard discounters, such as Aldi and Lidl, had forced
Tesco to cut prices, which hindered sales growth. Some of the new stores are
likely to be hypermarkets, which will have floor space of 70,000-125,000 sq ft,
compared with the 5,000-40,000 sq ft of a typical supermarket, according to FT.
Tele2 offers services in Emitel
Alternative landline provider, Tele2 Hungary Kft announced it now has providers
in Matav Rt's and Monortel Rt's areas, New Europe reported.
In a statement, the company said Tele2 Hungary Kft has extended its services to
the areas where Emitel Telecommunications Rt is the dominant provider. The
current phase of the expansion affects three areas with the area codes 77, 78
and 79. As a result, all subscribers in Bacs-Kiskun country have access to Tele2
services, which are thus available to 84% of fixed-line users in Hungary. The
company is planning to enter the areas where Invitel Rt is the dominant player.
Tele2, which owes its popularity to the inexpensive service it offers, is the
European market leader with 28m subscribers in 24 countries. Tele2 strives to
always offer the market's best rates.
M Telekom debuts new 'T' brands
Hungary's leading telecom followed up on an earlier announcement plans to change
its name from Matav Rt to Magyar Telekom Rt, while also introducing the range
'T' brands utilised by its parent company, deutsche Telekom (DT), the Budapest
Business Journal reported.
The move comes one year after the former Matav's market-leading-mobile wing,
then called Westel Mobile Rt, changed its name to T-Mobile Hungary Rt.
"Magyar Telekom is, and still remains, a key strategic part of Deutsche
Telekom," said Karl-Gerhard Eick, DT's management board member responsible
for finance and CEE subsidiaries.
What Magyar Telekom dubs Hungary's biggest re-branding operation ever will be
implemented within a few days, announced the company recently.
The re-branded company's business lines will adopt DT's international 'T'
brands: namely, T-Com (formerly Matav Wireline Services), T-Online (formerly
Hungary's leading ISP, Axelero Rt), T-Systems (formerly Matav Business
Services), and T-Kabel (formerly MatavkabelTV).
"We want to be market leaders in all areas," asserted Matav CEO and
President Elek Straub at a press conference recently. "I expect the
re-branding to give fresh impetus to every member of the group, and we can take
further steps in becoming the regional leader. This is part of a general renewal
and an opportunity to change."
DT will bear the direct operational expenses of the name change. The cost of the
name and brand change, and the reimbursement received from the DT group, will be
accounted on a net basis, and thus will not impact the EBITDA of the Magyar
Telekom group, said a press release from the latter.
"In the financial statements of the Magyar Telekom group, there is no brand
name capitalised on which the re-branding would impact, so no brand value loss
will be recognised through the name change," it said.
Commenting to the BBJ in February on the planned re-branding, industry executive
and analysts said the move by Hungary's' leading telecom is in line with an
international trend of telecom re-branding.
"For international companies, it has almost become routine to globalise and
take advantage of unified brands," said Gabor Hegyi, managing director of
PR agency Capital Communications Kft, at that time.
Ferenc Turi, managing partner of Capitol consulting Group Kft, speculated in
February that DT's long-term strategy might include further globalisation of its
"Having a global brand name will help the company's expansion plans, should
it decide to enter regional markets," he said.
Deutsche Telekom also majority owns Croatia's leading telecom, Hrvatski Telekom.
In the other recent example of re-branding on the local telecom market,
Hungary's number two fixed-line telecom, now called Invitel Rt, earlier
underwent re-branding, after its previous ownership spent heavily on launching
products and sub-brands reflecting the then name of the company, Vivendi Telecom
Hungary welcomes more tourists
The number of foreign guests staying in commercial accommodation services
increased significantly in January-February 2005, Budapest Business Journal
reported recently, citing figures released by the Central Statistics Office (KSH).
Commercial accommodation services received 331,000 Hungarian guests in
January-February 2005, the number of guest nights spent by them was almost
746,000. But the number of Hungarians staying at hotels didn't grow at the
expected growth rate. Most of the people visit Hungary for business. Foreign
trade has grown and people are keen to invest in Hungary as well as to do
business here. The prospects for the export have also improved.