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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: 104 - (01/01/06)

Budapest under pressure from Brussels about budget deficit; election looming
In August 2004, Socialist prime minister Peter Medgyessy tendered his resignation after a cabinet dispute. The Socialists chose businessman and sports minister, Ferenc Gyurcsany, as the new head of government. The next parliamentary ballot is tentatively scheduled for April 2006, only months away.
The government is digging in its heels over its spending plans, which are being sharply criticized by Brussels. Hungary's deficit was projected to top 6.1 per cent of its GDP in 2005. The European Union (EU) economic and monetary affairs commissioner, Joaquín Almunia, said that concern for the situation would lead to "very strict" recommendations to the country. Almunia indicated that the withholding of EU development assistance to Hungary is a distinct possibility.
Responding to the remarks, Gyurcsany told the Financial Times that, with the election looming, he does not intend to cut spending on infrastructure or on social welfare payments. Gyurcsany added, "Hungarians' living standards are much lower than the European average. What the hell would Europe like to have from us?"
The Hungarian Prime Minister has asked the president of the European Commission for understanding over the country's large budget deficit and hinted that the large spending cuts required to address the issue could lead to social unrest. 
"We know meeting the Maastricht criteria is important, but lots of changes necessary for the development of our country are burdening the budget," Prime Minster, Ferenc Gyurcsany, told the press after meeting commission president, Jose Manuel Barroso, in Budapest. "The whole country doesn't agree with changes forced through by the political elite ... we don't want riots like in Paris and we don't want to hold back the country's development," he continued. "This is why we ask for understanding." 
Hungary joined the European Union in May 2004, and must reduce its deficit to three per cent by 2008 in order to meet the Maastricht criteria for Euro adoption in 2010. 
The deficit has grown dramatically, as Hungary was forced to factor in various hidden costs, and the government has come under pressure from the European Commission to take action to reduce its deficit. The European Commission announced it expects the deficit, after being 6.1 per cent in 2005, to stand at 6.7 per cent in 2006 and 6.9 per cent in 2007. The targets in Hungary's convergence programme were 3.6 per cent for 2005 and 2.9 per cent for 2006. 
Gyurcsany had already said that public spending would have to be cut by US$1.45 billion (1.2 billion Euro) per year to get the deficit down to Maastricht levels, cuts he described as "too harsh." Barroso also met Viktor Orban, the leader of the main opposition party Fidesz. Orban said he had asked Barroso not to authorise sanctions against Hungary. 
"I asked him not to punish the Hungarian people just because the government hasn't told the truth about the budget over the last three years," Orban said. 
Barroso refused to comment on the deficit issue, simply saying that he was sure that Hungary understood the importance of a stable fiscal environment.

Orban's Fidesz still ahead 
The opposition Citizens Party (Fidesz), which only narrowly lost last time, has extended its lead, according to a poll by Szonda Ipsos. 31.4 per cent of respondents would support Fidesz - led by former prime minister Orban - in the next general election, according to Angus Reid Global Scan. 
The ruling Hungarian Socialist Party (MSZP) is second with 25.8 per cent, followed by the Alliance of Free Democrats (SZDSZ) with 2.6 per cent, the Hungarian Democratic Forum (MDF) with 1.7 per cent, the Hungarian Justice and Life Party (MIEP) with 1.4 per cent, and the Centre Party (CP) with 0.7 per cent.
Support for Fidesz increased by 2.5 points in a month, while backing for the MSZP dropped by 0.8 points. 
The election is increasingly looking like a shoe-in for Orban, who has the aura of authority and of experience, despite still being young in political terms, barely 40.

Government must reduce deficit for Euro entry, says MNB
It is not only Brussels that is urging fiscal restraint on the government. So are local economists and bankers. Their advice is not likely to be heeded at such a time. It will be for the incoming government in a few months to grasp the nasty nettle of reform and retrenchment'
Hungary's National Bank (MNB) recently urged the government to take further measures to meet the 2010 Euro adoption goal in its November convergence programme report. "Euro adoption provides a unique opportunity for Hungary… to exploit the benefits of a stable, predictable macroeconomic environment more rapidly and catch up to European Union economies more quickly," the bank said. "It is in the best interests of the Hungarian economy to fulfil the criteria as early as possible," it continued.
The bank, however, warned that drastic measures were required, or Hungary's public sector deficit could rise as high as 9-10.6 per cent of Gross Domestic Product (GDP) in 2008. Although Hungary must reduce its deficit to three per cent of GDP by 2008 in order to meet the Maastricht criteria for Euro adoption in 2010, it is expected to register a budget deficit of 6.1 per cent of GDP in 2005 and 5.2 per cent of GDP in 2006. These figures are much higher than the country's target deficit figures of 3.6 per cent of GDP for 2005 and 2.9 per cent for 2006.
The slip came after the government was forced to include a private-public partnership deal on motorway construction in the 2005 budget and expenses on military aircraft in the 2006 budget. However, in an interview published in the Budapest Times recently, the bank's chief economist, Istvan Hamecz, warned that the 2006 deficit could balloon even higher. "Hidden debts could easily see the 2006 deficit rise to 12 per cent," he said.
EU finance ministers recently warned Hungary to rein in its deficit, and said that the new EU member was one of ten countries to join the EU in May 2004, and the MNB said that Hungary was "the farthest from euro adoption amongst new member states, since it is the only country which has not met any of the numerical criteria."
"The current situation and analysis of the potential solutions indicate that budget is confronted with serious structural problems and that there is no easy way out," the report said. The bank said that reducing the government's operational expenditure alone would not be enough to reduce the deficit to the required levels. "The balance of taxes and transfers must be improved in order to meet the Maastricht deficit criterion," the bank said.
The next premier and finance minister will have plenty of problems on their plate.

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AGRICULTURE

A consortium of German and Hungarian companies'
 

A consortium of German and Hungarian companies' plans to build a 250 million Euro bio-ethanol plant in Hajdusamson (NE Hungary), Ferenc Obreczan, who heads the Association of Hungarian Farmers' Cooperatives (MAGOSz), announced recently, New Europe reported. 
Farmers representatives discussed the plan with German companies, GEA Viegand and MDE Dezentrale Energiessysteme GmbH, and Bio-Tech-Energie, a Hungarian company being set up for the project. The plant will have capacity to produce an annual 340,000 tonnes of bio-ethanol, he said. It would process 1 million tonnes of grain grown on 120,000 hectares, and create 200 jobs. The plant will have its own 50MW power plant, and will sign ten-year contracts with farmers, guaranteeing purchases.

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AVIATION

Budapest Airport attempts to attract Korean Air
 

Budapest Airport is holding talks with Korean Air about starting flights to Budapest, Gyorgy Kepecs, Vice Chairman of Budapest Airport's Board of Directors, said on November 29. Kepecs said that Budapest Airport, the company that runs Ferihegy International Airport - would like Korean Air to operate three Budapest flights a week instead of expanding its Prague operations. He added that talks would focus on persuading Korean Air to make Ferihegy its European cargo base. Around 43,000 South Korean tourists visited Hungary last year and more than 20 South Korean companies are present in Hungary, undersecretary at the Ministry of Economic Affairs and Transport, Gyorgy Gilyan, said, MTI News Agency reported. 
South Korean companies will have invested US$ one billion (850 million Euro) in Hungary after tyre maker Hankook completes its new factory, he added.

British and German firms bid for Budapest Airport 

Hungary's State Privatisation Agency (APV) announced that the three companies expected to bid in the privatisation of Budapest Airport have lodged bids. Britain's BAA and the German companies Fraport and Hochtief Airport all submitted their bids for the 75 per cent minus one vote stake in Budapest Airport, the company that runs Budapest's international airport before the deadline, APV said in a press release.
No details were given about the size of the bids. APV called a single-round, closed tender at the end of October, the initial privatisation protest was ruled illegal due to a lack of consultation with employees. Out of the original five short listed firms, Australia's Macquarie Airports and Denmark's Copenhagen Airports pulled out. Macquarie launched a takeover bid for Copenhagen Airports, and cited this as their reason for abandoning its efforts to gain control of the airport, which many see as a potential Central European hub. However, analysts have said that Macquarie was nervous about the problems surrounding the sell-off.
The problems include the threat of union action, a potential US$600 million (511 million Euro) lawsuit by a previous operator and the possibility of the opposition Fidesz re-nationalising the airport if it wins next spring's general election.
APV received a maximum bid of US$1.95 billion in the first round of the cancelled process, and the privatisation had been expected to reach a much higher figure before being beset by problems. 

Low-cost airline business grows amid over capacity woes 

SkyEurope on November 21st became the latest low-cost airline to announce huge growth in traffic to Budapest, but concerns remain over Budapest Airport's capacity to handle future expansion. 
"Passenger numbers on our Budapest flights have doubled to 538,000 and the number of flights has risen by 44 percent year-on-year to 5,600," SkyEurope CEO, Christian Mandl, announced, New Europe reported.
This news is part of a trend of growing low-cost travel to Budapest, with all of the budget airlines posting a large increase in numbers. Hungarian low-cost airline Wizz Air announced in October that it had carried two million passengers in its first 17 months and expected to transport the same amount again over the next nine months. Both firms are planning to buy new aircraft to meet the increased demand. 
Low cost airlines - including Wizz Air, SkyEurope and easy Jet - have carried around 15 per cent of all passengers flying to Hungary since the country joined the European Union (EU) in May 2004. 
A survey earlier this year by the Travel, Leisure and Tourism Group of KPMG in Central and Eastern Europe said this market share is projected to reach 35 per cent in Hungary by 2010 with 4 million passengers. Terminal 1 at Budapest's Ferihegy airport was re-opened in September for the exclusive use of budget airlines. The growth has not been problem-free, however, and many of the airlines have complained that Terminal 1 is already working at full capacity and will not meet future needs. 
"Even with the building renovation, Terminal 1 is already operating at full capacity," Gyorgy Peto, easy Jet director for Hungary and Poland said after the terminal opened. 
"We see no opportunity to develop," said Gyorgy Borsos, the Hungarian director of SkyEurope. 
"Most cheap airlines have already taken into account flying schedule expansions for the coming year and Terminal 1 can barely cope with these." Budapest Airport, the company that runs services in the airport, refuted this claim. "We are only working at half capacity at the moment, so there is enough room for expansion," said Ferenc Marton, the project manager at the terminal. 
Further expansion of the tiny terminal, which is often crammed with travellers, will be difficult as the communist-era building is on the protected list. Budapest Airport is currently being privatized, and three large operators - Britain's BAA and the German companies Fraport and Hochtief Airport - have lodged multi-billion Euro bids to capitalize on the ever-growing traffic. 

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ENERGY

Pannonpower plans HUF 30bn power block
 

Pannonpower Holding Rt located near the city of Pecs, about 200km southwest of Budapest in Hungary, is planning to spend HUF 30 billion to set up another two blocks by 2009, New Europe reported.
Pannonpower chairman and CEO, Laszlo Somosi, told reporters that with the new bio-plant the company is looking towards the future and hopes to construct another bio-plant. He says the company is looking to establish mini bio plants in the region, based on models already operating in Austria and Germany. The company is encouraged by the success of its first biomass-fuelled power block installed two years ago. The Pecs-based energy company said the final decision on the investment was expected in mid-December and construction is due to start in 2007. Talks are also underway with several neighbouring countries, primarily Romania and Slovakia, to build new plants and sell its biomass technology abroad, the company said without going into details. This comes only a week after RPG Industries, a Prague-based international investment group, bought 85 per cent stake in the company from private equity firm Crossroads Capital.

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PHARMACEUTICALS

Richter opens new biotech lab
 

Richter Gedeon Rt pharmaceutical manufacturer opened a new biotechnological lab on the company's premises. Richter has spent HUF 4 billion (16 million Euro) on biotechnological investments over the last five years; the recently completed project cost Ft 500 million. Richter Gedeon will produce recombinant proteins, and will also operate an HTS lab for molecular biological and gene technological research. In the long run, the company has a 10 - 15 year development program, in which it plans to spend a total of HUF 12 billion on biotechnological investments, New Europe reported.
Richter CEO, Erik Bogsch, said, "Richter Gedeon spends the highest amount on research and development. Last year, we spent HUF 10.3 billion on R&D activities." The amount spent on R&D by Richter had risen to over HUF 10 billion in 2004 as compared to HUF 1 billion in 1993. Central Europe's largest producer of pharmaceuticals, Richter posted a large rise in third-quarter profit in 2005.

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TELECOMMUNICATIONS

Magyar Telekom buys Bulgarian telecommunications
 

Hungary's Magyar Telekom on November 29th sealed a deal to buy Bulgaria's Orbitel as part of its strategy to become the most significant alternative telecommunications operator in Southeast Europe. The company bought 100 per cent of Orbitel - Bulgaria's largest alternative telecommunications and Internet service provider for US$9.4 million (8 million Euro), and is planning to invest US$8.24 million (seven million Euro) in the near future, CEO, Elek Straub said, New Europe reported. 
The purchase is a significant step in the company's plans to become a major player in the regional market, Straub said. "In the coming years Magyar Telekom wants to become the major alternative wire line service provider in several countries of the Southeast European region," he said. "We already have a presence in Romania, Bulgaria and Ukraine, which provide a good basis for us to continuously strengthen our footprint in the telecommunications markets of these countries," he continued. Magyar Telekom already has investments in Novatel in Bulgaria and Ukraine, but wants to take advantage of the rapid growth in these countries. "We decided we needed more investment because the economy and markets are going from strength to strength," Straub said. 
The Hungarian company is also keen to expand in the Romanian market, and will build on an interconnection agreement between its portfolio company in Romania, Combridge, and Romtelecom. "The next step in the first quarter of 2006 will be entry to the Romanian retail market," Straub said. "By the end of 2006, Magyar Telekom intends to be present in every segment of the Romanian telecommunications market." 
Orbitel last year brought in revenues of US$10.94 million (9.3 million Euro) and US$1.3 million (1.1 million Euro) of earnings before taxes, interest and depreciation with 133 employees, Straub said. The firm now employs 150 people and has 300 clients, 90 per cent of them in the business sphere. Orbitel offers countrywide voice and data services based on the IP technology. 
The Bulgarian telecommunications market currently is worth around US$1.4 billion (1.2 million Euro) annually. Many Hungarian companies are now looking to the region for investment opportunities and the telecommunications and banking sector in particular are attractive. 
Hungary's OTP Bank, for example, has been buying up companies and has announced its intention to continue with this strategy. 

Hungary mobile segment widens in October 

Mobile phone subscriptions in Hungary rose by 0.32 per cent or 29,000 month on month to 9.103 million in October, the National Communications Authority (NCA) reported. 
In terms of mobile subscriptions the market share of Vodafone rose by 21.19 per cent in October from 20.92 per cent in September. The market share of Pannon GSM, however, decreased to 33.73 per cent from 33.95 per cent and that of T-Mobile Hungary fell to 45.08 percent from 45.13 per cent. In terms of subscriptions actually generating traffic T-Mobile's market share was 45.42 per cent at the end of the October, slightly down from 45.48 per cent a month earlier. The market share of Pannon GSM slipped to 33.79 per cent from 33.86 per cent, while that of Vodafone went up to 20.79 per cent from 20.66 per cent. 
The NCA also published number portability figures for the mobile segment. There were 4,663 numbers carried in October and 45,339 numbers carried in the first ten months of the year. Since this service was made available in May 2004, a total of 89,235 numbers were carried in the mobile segment.

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TRANSPORT

Consortium wins tender for railway reconstruction
 

The reconstruction of the railway line between Nyiregyhaza, in northeast Hungary and Zahony at the Ukrainian boarder has been announced. A consortium of Mavti KHUF, Unitef '83 Rt, MSC KHUF and Ring Mernoki Iroda KHUF, has won a tender with a bid of Euro 2.28 million, according to the latest issue of the Public Procurement Gazette. 
One third of the project's cost is being financed by the EU's Trans-European Transportation Network (Ten-T) fund, which disbursed 50 million Euro alone last year to new member states. Hungary received a fifth of the funding, which it will use for five projects. In addition to planning the reconstruction, the consortium must carry out an environmental impact study, plan for a new stretch of rail line between the cities of Tuzser and Zahony, and obtain all of the permits necessary for the reconstruction.

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