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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: 095 - (31/03/05)

A bit of history helps
Hungary played a very important part in the events of 1989. It was its refusal to meet the demand of the East German government to prevent East Germans from leaving Hungary for the West that lead straight to the downfall of the Berlin Wall.
By 1990, a multiparty political system with free elections had been established; legislation was passed granting new political and economic reforms such as a free press, freedom of assembly, and the right to own a private business. The new premier, József Antall, a member of the conservative Hungarian Democratic Forum who was elected in 1990, vowed to continue the drive toward a free-market economy. The Soviet military presence in Hungary ended in the summer of 1991 with the departure of the final Soviet troops. Meanwhile, the government embarked on the privatisation of Hungary's state enterprises.
Antall died in 1993 and was succeeded as prime minister by Péter Boross. Parliamentary elections in 1994 returned the Socialists (former Communists) to power. They formed a coalition government with the liberal Free Democrats, and Socialist leader Gyula Horn became prime minister. Árpád Göncz was elected president of Hungary in 1990 and re-elected in 1995.
In 1998, Viktor Orbán of the conservative Hungarian Civic party became prime minister as head of a coalition government. Hungary became a member of the North Atlantic Treaty Organization in 1999. Ference Mádl succeeded Göncz as president in Aug., 2000. A 2001 law giving ethnic Hungarians in neighbouring countries (but not worldwide) social and economic rights in Hungary was criticized by Romania and Slovakia as an unacceptable extraterritorial exercise of power. The following year, negotiations with Romania extended the rights to all Romanian citizens, and in 2003 the benefits under the law were reduced. The 2002 elections brought the Socialists and the allies, the Free Democrats, back into power; former finance minister Péter Medgyessy became prime minister.
In August, 2004, Medgyssey fired several cabinet members, angering the Free Democrats and leading the Socialists to replace him. The following month Ferenc Gyurcsány, the sports minister, became prime minister. Hungary became a member of the European Union earlier in the year. A December, 2004, referendum on granting citizenship to ethnic Hungarians in other countries passed, but it was not legally binding because less than 25% of the Hungarian electorate voted for it.

Who is a Magyar?
Some people have no problem with their identity, for instance the Icelanders. They occupy an island; and few, if any, want to go and live there in Iceland save them, other than the odd chess genius in trouble, like Bobby Fischer, granted Icelandic citizenship in late March. They can have their island to themselves.
The Hungarians are not so fortunate. Gypsies and Turks, amongst others, are always trying to enter their territory, whose borders are porous and difficult to guard. Many can more or less legitimately claim Magyar descent, that is from the turbulent nomadic race who descended on this part of Central Europe in the ninth century. 
The persistence of the minorities problem in this area of Eastern Europe is illustrated by the referendum that was held in Hungary on December 5th on whether to grant dual citizenship to ethnic Hungarians living outside their homeland. Of all the successor states to the Austro-Hungarian Empire, Hungary suffered the most in the redrawing of boundaries, losing two-thirds of its territory and 60 percent of its population to Romania, Czechoslovakia and Yugoslavia in the 1920 Treaty of Trianon. Today, 2.5 million ethnic Hungarians live in neighbouring states, 1.4 million of them in Romania, 560,000 in Slovakia, 300,000 in Serbia and 150,000 in Ukraine. Especially in Romania, Serbia and Ukraine, which are not EU members as Slovakia and Hungary are, ethnic Hungarians suffer prejudice and disadvantages, and are less prosperous than their kin in Hungary.
Ever since the World War I settlement, that confirmed the dismemberment of the Austro-Hungarian Empire at the Treaty of Trianon, Hungarian nationalism inside and outside the homeland has had as its foundation the recovery of the full Hungarian nation, either through the territorial restoration of "Greater Hungary," by force if necessary, or by securing political and cultural autonomy for ethnic Hungarians in neighbouring states. Given the constraints imposed by the E.U., the option of achieving a Greater Hungary is off the table. The project of a "nation above borders" remains alive and actuated the referendum.

The diaspora disdained
There was hope among ethnic Hungarians living outside Hungary, the modern diaspora, that the referendum on December 5th would enable them to have Hungarian citizenship once again. But their dreams were shattered when election officials said the referendum was invalid because most voters stayed away from the polls.
Results showed that the "yes" votes slightly edged out those against. But the result is not binding on the Socialist-led government because less than the required 25-percent of Hungary's eight million eligible voters supported it. Hungarian Prime Minister Ferenc Gyurcsany, who voted against granting citizenship and discouraged people from participating in the referendum, said he was pleased with the outcome. In his words Hungary had shown it "does not confuse nationalism with responsible patriotism." Mr. Gyurcsany's government had expressed concern that at least hundreds of thousands of beneficiaries of citizenship would come to Hungary to receive social benefits, costing the country up to three billion dollars annually. Prime Minister Gyurcsany also said it could destabilize the region.
The leader of the country's conservative opposition, former Prime Minister Viktor Orbán insisted that the vote was valid. Orbán's camp was campaigning for the approval of both motions. "The 'yes' votes won, the 'no' votes lost. The referendum was valid," he said. He blamed the prevailing existential problems for the low turnout and called on the government to support dual citizenship despite the vote.
Leaders of the estimated three million ethnic Hungarians in neighbouring countries criticized Hungary's government for not supporting the referendum and a "yes" vote. Joining the chorus of critics is Andras Agoston, the chairman of the Democratic Party of Vojvodina, a Serbian province with an estimated 300,000 ethnic Hungarians. Mr Agoston suggests the Budapest government has betrayed his Hungarian community.

Hungary to join the euro soon
Being a full-fledged member of the EU probably means living with the more sedate growth of the Union's mature economies. For all the doubts about the euro, that is a trade-off new members are still willing to make because the currency will give them an anchor they have not had since the Communist era. 
In 2003, Hungary got a reminder of the risks of going it alone, when the central bank modestly devalued the forint, and traders promptly dumped the currency. The forint has traded up and down widely since then, which has unnerved Hungarian exporters and government officials. ."Hungary can no longer afford to have its own funny money," said Peter Akos Bod, a former central bank president. "Hungary is already the last of the lot to join the euro. If we wait any longer, we'll have a problem." 

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AGRICULTURE

Hungary focuses on farmers' interests in EU

Hungary's Ministry of Agriculture and Rural Development (FVM) has signed a cooperation agreement with the four leading agricultural associations in Hungary concerning the joint representation of Hungarian farmers' interests in the European Union, Budapest Sun Online reported recently.
The agreement was signed in the FVM building by political State Secretary, Andras Pasztohy; Miklos Csikai, chairman of the Hungarian Chamber of Agriculture (Agrarkamara); Tamas Nagy, chairman of the national Association of Agricultural Cooperatives and Producers (MOSZ); Istvan Jakab, chairman of the Association of Smallholders' Circles and Farmers (Magosz); and Bela Szeremley, chairman of the Association of Hungarian Producers, Distributors and Services (Hangya).
Pasztohy said that he had met the representatives in order to promote their joint interests. "We can only be successful in achieving anything in Brussels if we represent a joint national agricultural policy," he said. In an earlier interview, Pasztohy said that the delay in making subsidy payments to farmers this year was partly because some of the farmers had "oversubscribed" their subsidy quota, requesting production on territory bigger than their actual farmland.
"FVM is already over loaded with work and now we are compelled to also adjust these requests," Pasztohy was quoted as saying.
He reminded farmers that as much as 40 per cent of subsidies eligible for animal husbandry and farmland size-based subsidy requests had been paid out before Hungary's EU accession, explaining that of the 208,000 applicants, 120,000 had already received money.
He explained that payouts were continuously ongoing and claimed that all farmers would receive their money before April.
"So far farmers have received as much as HUF 230bn (US$1.23bn)," he said. Pasztohy said that the FVM had made full access of the HUF 64bn Special Accession programme for Agriculture and Rural Development (SAPARD), of which the government has already handed out HUF 16bn. Pasztohy added that this year the FVM has a budget of HUF 330bn of which HUF 170bn is from EU contributions.

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AUTOMOBILES

Swift production in Hungary

The new Suzuki Swift unveiled at the end of the 2004 Paris Motor Show is the group's new vision for the compact - car genre, Budapest Sun Online reported.
Like Audi's TT and Roadster, Hungary will be the only country to produce it. The company said that they have developed a car for what they call "a clean European focus." The model is a development of the earlier Concept-S, unveiled at the 2002 Paris Motor Show, and the Concept-S2, unveiled at the 2003 Frankfurt Motor Show. Eiji Mochizuki, Vehicle Line Executive at Suzuki's Super Minicar Engineering Division, said that it was high time the company rolled out a new compact car based on a fresh approach to deliver the driver and passenger an experience that puts the car in a class of its own.

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BONDS

Hungary issues new bonds

Hungary launched and priced its new US$1.5bn bond transaction on January 26th, the Government Debt Management Agency announced recently, New Europe reported.
The proceeds will be used to re-finance public debt maturing in 2005. The size of the originally planned US$500m bond was increased to US$1.5bn due to large investor interest. The 10-year bond, priced at 57 basis points about November 2014 US Treasury, pays a fix coupon of 4.75 per cent per annum. The bonds mature on February 3rd, 2015, while the spread is equivalent to 19bps about ISD mid-swap rates. The deal was lead managed by Deutsche Bank and Morgan Stanley. The new transaction is an "important step to widen Hungary's investor base in the US and Asia," the AKK said. Due to the significant oversubscribed book, the bond was priced at the tighter end of the price guidance. Hungary mandated the same banks for a US$100m two-year floating rate issue, which took place in late December 2004.

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ENERGY

MOL makes financial provisions

Oil and gas company MOL Rt announced recently that it set aside total provisions of Ft 35bn (4143m) on its 2004 earnings, Budapest Business Journal reported recently. 
The provisions are to cover the impact of a change to the company's severance pay system and possible lost revenues from a joint venture with Russian fuel giant OAO Yukos.
Though analysts said the move could impact MOL's bottom line, they forecast another stellar performance for the fourth quarter of 2004. 
The bulk of the provisions relate to MOL altering its severance policy, offering some staff early payouts to lower overall costs.
"The collective bargaining agreements of MOL companies provide for higher severance payments than customary," MOL said in its official statement to the BET.
Peter Tordai, head of research at K&H Equities Rt, said that one positive aspect of the move is that it will create a more motivated and streamlined workforce. On the downside is the one-off cost, he added.
"MOL expects 80%-90% of its employees to accept the (severance) offer this year, which would be an approximate Ft 25bn one-off expense," he said.
Tordai added that if MOL's intention is to upgrade the quality of the workforce by laying off uncooperative employees and replacing them with better quality staff, then it should be implemented as soon as possible.
"This move will allow the company more scope to manage the quality of its workforce at a reasonable cost," he concluded.
The other Ft 10bn in provisions MOL has set aside stems from the 50/50 joint venture that MOL operated with the bankrupt Yukos. The venture was a Siberian oil field that sold its crude through the Russian company.
Tordai said the overdue receivables are not expected to exceed the stated Ft 10bn. He predicted that MOL would do everything it can to collect - if not in cash, then possibly in the form of crude oil.
"In the worst case, MOL would suffer a Ft10bn loss, which would be accounted for in 2004 and have no impact on 2005 results," he said. "However, we believe it is much more likely MOL will be able to recover the vast majority of this claim in 2005. If so, this would be written back in the 2005 accounts."
Objectively, he added, the provisioning can be seen as a profit-smoothing mechanism, and should not have any impact on fair share price value.
Tamas Pletser, who covers MOL for Erste Bank Investments Rt, agreed there is a chance some of the liabilities can still be recovered.
"We have a feeling MOL is trying to hide some profit, as 2004 was an extraordinary year after strong refining margins. The company is under attack by Slovak officials due to high profit and high fuel prices," he noted.
Commenting on the upcoming fourth-quarter flash report, Tordai forecast earnings will be strong, and that he maintains a "buy" recommendation on MOL.
"Consensus estimates are around Ft 35bn-Ft 50bn in net profit for the final quarter, and it's likely to be at the top end of that bracket," he said.

E.OM to power up MAV railways

E.ON Energiakereskedo, the trading arm of German-owned power utility E.ON Hungaria, won a tender to supply certain regional operations of Hungarian state railways MAV with 380 GWh of electricity in 2005, according to business news portal portfolio.hu recently.
Following the signing of the contract, MAV will be one of the biggest customers enlisted by E.ON since the Hungarian electricity market was partially liberalised for business users in early 2003. The agreement comes after E.ON lost oil and gas concern MOL as its major customer at the end of 2004; MOL went on to contract MVM Partner as its supplier on the liberalised market. Reports suggest MAV may save up to HUF 800m (US$4.2m) annually through buying energy on the open market.

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INFORMATION TECHNOLOGY

Synergon meets Q4 with positive surprise

Hungarian IT company Synergon reported better-then-expected figures for the fourth quarter of 2004, providing a positive surprise for the first time in a long time, after regular disappointments, Interfax News Agency reported.
While fourth quarter revenues, at HUF6.9bn, came in under the HUF8.1bn consensus forecast of online publication Portfolio, the fourth quarter net income of HUF242m is high above the consensus expectation of HUF44m.
Operating profit totalled HUF223m in the fourth quarter, also more than the average of expectations (HUF183m). The strong fourth quarter alone was able to put the company's full year back in the black, bringing 2004 net income to HUF156m, well above the firm's target of HUF80-120m.
"Fourth quarter was better than expected due to more projects realised, a higher service content, and managing to keep costs under control," Chairman, Ferenc Czako, said. "In addition we met all of our targets for 2004," he noted. The targets of boosting revenues, increasing the service content, while cutting sales and other operating costs, were all met. "We also managed to make a 9 per cent increase in the gross margin and come through on the most important goal - returning to profitability," Czako declared.
The good figures for the past year were the result of strict cost control, as the company's revenues hardly rose in 2004, while they actually dropped by more than 7 per cent in the last quarter alone. However, operating costs were down by 10 per cent in HUF terms in 2004, and they dropped by almost 26 per cent in the fourth quarter alone. Cost-cutting also included a reduction in headcount, with the firm's employee roll declining by 4 per cent in 2004.
Czako said that in 2005, a slight headcount increase is planned in order to keep up with the planned rise in revenues, but this will not compromise efficiency and optimisation measures. Of the company's subsidiaries the Hungarian units performed above average, while foreign subsidiaries provided disappointing results.
Synergon Rt, the parent company, saw positive changes in 2004. Although its revenues only rose by 8 per cent, it posted a HUF178m operating profit after the operating losses of HUF625m recorded in 2003. The parent company generates 68 per cent of sales revenues, it said.
Value added division, Fibex, closed a strong year, boosting its revenues by 55 per cent and operating profits by 218 per cent in 2004. Synergon reorganised Fibex's operations which improved its efficiency and lowered operating costs. The division accounted for 7 per cent of the group's revenues.
Meanwhile, the Czech subsidiary Infinity was rather disappointing in 2004, with sales down by 10 per cent, and operating profit plummeting 90 per cent to HUF17m. Infinity's share within group revenues also dropped to 23 per cent form 26 per cent a year earlier. 

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MINERALS & METALS

Dunaferr deals with Azovimpex

Hungary's largest steel manufacturer Dunaferr announced it signed a €7m contract with Ukrainian Azovimpex to carry out final renovation works on a coke production facility at the plant, Interfax News Agency reported recently. 
The project, due to be completed by the end of the third quarter of 2005, will more than double Dunaferr's coke production capacity, to 800,000 tonnes per year. Of this, almost 300,000 tonnes of excess production will find its way onto the market, meaning Dunaferr will become a net seller rather than a purchaser of coke. Work on half of the facility was finished in 2003. The total cost of renovation works, including the present agreement, is estimated at around €18m. The Dunaujvaros-based Dunaferr was taken over by Ukrainian-Swiss consortium Donbass and Duferco in the second half of 2004. Azovimpex is a member of the Donbass group.

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TELECOMMUNICATIONS

Euroweb launches new service

Telecom provider Euroweb recently announced it launched a new voice over IP phone service in Hungary, Interfax News Agency reported. 
"NeoPhone X" allows customers to initiate and receive calls via broadband internet connections. Per minute fees are "significantly lower than the market average," as international calls to the US or Canada cost just HUF 5.2 per minute, while domestic fixed-line or mobile numbers may be called for a per minute tariff of HUF 6.6-8.0. Calling Hungary from abroad costs HUF 4.4-8.0 per minute depending on the time of the call, Euroweb said. Potential clients could register and download the required software free of charge starting February 4th. Each customer receives a 6-digit "IP phone number" after registration. Users need a headset or a telephone attached to the computer to use the service, and may pay for the service online or with their Neophone cards. Euroweb plans to launch the service in Slovakia and Romania as well after the Hungarian start, according to the statement.


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