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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: 099 - (26/07/05)

Hungary in the doldrums
Politics in Hungary is as if in a state of suspension. New parliamentary elections are due in April 2006. The election is far too close to call, opinion polls putting the rival parties on a knife edge. 
According to a recent opinion poll, Premier Gyurcsany's alliance of the Socialists and the Liberals has the support of 47 per cent of Hungarian voters, and the main opposition Fidesz, 48 per cent. The opposition, led by an energetic Thatcherite, Viktor Orban, the former premier, already has the advantage.
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.

At this juncture a bit of history helps
This, if ever, is the time to take the long view. 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 (Fidesz) became prime minister as head of a coalition government. Hungary became a member of NATO in 1999. Ference Mádl succeeded Göncz as president in August 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 lonely island to themselves.
The Hungarians are not so fortunate. Gypsies and Turks, amongst others, have always been 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 E.U. members such 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 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. There can be little doubt that the neighbouring governments' would have regarded this measure as de-stabilising their citizens.
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." 

Hungary improves to 37th in IMD competitiveness rankings
There is good news already on the way for all that. Hungary's economy ranks the 37th most competitive among 60 countries surveyed, based on over 300 criteria of the World Competitiveness Yearbook of Swiss research institute IMD World, Interfax News Agency reported. Hungary moved up five places on the list since last year.
Hungary currently ranks 11 places behind Estonia and one place behind the Czech Republic among central and eastern European countries, and is followed closely by Slovakia in 40th place. Hungary now outranks EU15 members Spain, Portugal, Greece and Italy, following steep drops in the rankings by the former two.
The survey's four major categories are infrastructure (the availability of technological, scientific and human resources for business), macroeconomic performance, government efficiency (the extent to which government policies are conducive to competitiveness) and business efficiency (the extent to which businesses are performing in an innovative, profitable and responsible manner).
The first three positions in the overall survey were held by the US, Hong Kong and Singapore - the US retained its position while Hong Kong improved from sixth place last year.
Hungary is among the world's most globally integrated economies, according to the annual Globalisation Index report of AT Kearney and the Foreign Policy magazine. Hungary ranks sixth among 62 nations in the category of "economic integration," mostly on account of the large volume of foreign trade as a proportion of the size of the economy. Hungary was ranked 23rd overall, up three places compared to last year. Among CEE peers, Hungary was outranked by the Czech Republic, Croatia and Slovenia, all of which scored significantly better in the "personal integration" category - this measures international travel and tourism, international telephone traffic, and remittances and personal money transfers. 

Hungary trims rates, more cuts expected 
Hungary's central bank announced recently that it was trimming interest rates by 25 basis points with analysts expecting further monetary easings as inflation declines. The widely expected decision, brought the benchmark rate for the new European Union (EU) member state down to seven percent with the bank having cut rates by a combined 250 basis points since the start of the year. 
A recent meeting of the bank's monetary council set the stage for the regular round of monthly meetings by central banks in the key new EU member nations - Poland, Czech Republic and Slovakia. 
While consumer prices in Hungary came in at disappointing 3.6 per cent in May (compared to 3.9 per cent in April), the nation's core inflation dipped to its lowest level in a decade of 2.2 per cent. Inflation also has fallen to 3.6 per cent from about 10 per cent in 2001 when the central bank launched an inflation target with a relatively stable currency helping to underpin the decline in the inflation rate. 
"We achieved (the drop in inflation) without a significant downturn," said Gyorgy Barcza, economist with ING Bank in Budapest. He believes that rates could fall to 6.5 per cent by the end of the year. 
Strong currencies, slowing economic growth and modest inflation has helped to lay the groundwork for central banks in the EU's new member states to cut the cost of the money as part of the preparation for joining the Euro. In recent months, Hungary's national bank has delivered a series of rapid-fire rate reductions, trimming borrowing costs at every rate-setting meeting since the start of the year with a weaker-than-expected 2.9 per cent first-quarter growth also helping to give the bank room to lower rates. 
Announcing the rate cut, the central bank's monetary council described the inflation outlook as favourable, saying that "a low inflationary environment is expected to persist and inflation targets are expected to be achieved." The central bank has set an inflation target of 3.6 per cent by the end of 2006. Hungary hopes to sign up for Europe's common currency by the end of the decade. But a blow-out in the nation's current account and budget deficits has cast a shadow over the country's economic outlook and led to economists pushing back their forecasts for Hungary joining the Euro until the early part of the next decade. 
With the budget deficit having hit 6.3 per cent of GDP last year, Budapest has launched a campaign to boost revenue, including an additional tax on the gaming industry and measures to crack down on the grey economy so as to bring the deficit down to the three percent required for Euro membership. But having missed its budget deficit target for three consecutive years, most economists are not expecting Budapest to reach this year's target of 4.6 per cent.

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AUTOMOBILES

Car prices exceed EU average


The sale of diesel cars has increased by over 40% in the last 12 months, while sales figures in other categories and prices in general, stagnated, the Budapest Business Journal reported, citing a recent market survey by PricewaterhouseCoopers. 
Car prices in Hungary are currently 3% above the European average. The overall price level has hardly changed since a significant price increase 1.5 years ago, but there have been differences between various market segments. While the price of small cars fell, premium category cars became slightly more expensive. A 1.8% decline in the price of diesel cars narrowed the price gap between cars running on diesel and gas.

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AVIATION

More passengers fly Malev 

While overall passenger numbers have remained stable compared to the same period last year, Malev Hungarian Airlines registered growth in passenger traffic to several destinations since 2004; among others the number of passengers rose by 33.8 per cent in Larnaca, 20 per cent in Warsaw, 19.6 per cent in Istanbul, 12.7 per cent in Tel Aviv, and 11.5 per cent in Kiev, Interfax News Agency reported recently. 
Malev was able to strengthen its market position by launching flights to new destinations in 2005, such as Malaga, Gothenburg, Oslo, Cork, Burgas, Constanta, as well as starting arranging flights between Dublin-Athens, Helsinki-Athens, and Stuttgart-Fly Balaton (Sarmellek, west Hungary) later this summer, spokesperson Adrien Krebsz told reporters.

Hungary invites bids for Budapest Airport sell-off

Bidders must submit their declarations of intent to take part in the privatisation of a 75% minus one vote stake in Budapest Airport Rt (BA), the operator of the Ferihegy international airport, according to the tender invitation published by Hungarian privatisation agency APV recently, Interfax News Agency reported.
The invitation also reveals that, if the necessary legal amendments are passed, APV could sell its entire 100% stake in BA.
Currently, the privatisation act stipulates that a 25% plus one vote packet must remain in permanent state ownership. APV's 100% stake is worth HUF 8.02bn (US$39m) at face value, but observers estimate the eventual sales price could be as high as US$750m to US$1bn, making it this year's biggest privatisation deal. APV was advised by Credit Suisse First Boston on the transaction.
Intent to take part in the transaction closed on June 28th. After the pre-qualification round, indicative price bids will have to be submitted by August 9th, while final binding bids in the second round will be due on November 2nd. Bidders will also have to transfer HUF 500m in earnest money to PV's accounts. APV said it intends to close the transaction before the end of this year. The purchase price must be paid in one lump sum in cash.
APV also noted that besides the purchase price, the winning bidder could also be called upon to bear the burden of various transactions of BA with the government. These include payments by BA to the State Asset Management Directorate (KVI) pursuant to changes in the long-term asset management contract in line with privatisation goals, as well as the purchase of personal estate from KVI, pending the relevant legislative changes.
UK airport operator British Airport Authority has officially announced plans to take part in the privatisation, while other potential applicants reportedly include Copenhagen Airport CPH International A/S, Germany's Fraport AG, and Spain's Ferrovial.
Bidding companies must meet three requirements: they must operate at least one international airport with annual traffic of minimum 10 million passengers, have at least a "BBB-" (Standard & Poor's) or "Baa3" (Moody's) credit rating, and share capital of EUR 2bn. Commitments of bidders include the mapping out of a "Master Plan" - a long-term development plan for the airport, as well as for cargo and real estate services. Bidders will also have to provide assurances regarding supply and infrastructure project management, flight safety, security and environmental risk management, flight safety, security and environmental risk management. Aims of the tender include the improvement of the company's competitive position and its standard of service, as well as maximising revenues and minimising risks and liabilities to the government. 

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BANKING

Commerzbank opens in Hungary

The Germany-based Commerzbank opened its first branch in Hungary recently, Budapest Business Journal reported.
It is the first out of the 10 branches that Commerzbank plans to open in Hungary. The bank will spend HUF 800m on building, incidental expenses and marketing by the end of this year. Commerzbank will follow the new so-called innobanking programme - the strategy initiated and implemented by the Hungarian management and the subsidiary. The target market of innobanking will be small and medium enterprises (SMEs) that have revenues between HUF 150m and HUF 1.5bn.

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CREDIT RATINGS

Moody's upgrades ratings for OTP and unit

International ratings agency Moody's Investors Service recently announced that after a thorough review of both OTP Bank Rt and its subsidiary OTP Nortgage Bank Rt, it raised its ratings for both institutions to A1, New Europe reported.
OTP Mortgage Bank's covered mortgage bonds in local currency remain on review for a possible upgrade (pending new ratings methodology), while it's covered bonds in foreign currency remain A1. Moody's said the upgrade reflects the OTP Group's excellent profitability and achievement in transforming the retail domestic bank into a regional group present in most financial segments, while maintaining a moderate risk profile. Moody's identified OTP as one of the most profitable banking and financial services groups in Europe. Commenting on product lines, Moody's stated that despite some income diversification growth of the lending portfolio has remained strong. "Another important factor contributing to OTP's overall profitability is its relatively low level of loan-loss provisions compared to operating income," Moody's said. On a cautionary note, Moody's noted that further internal reorganisation and streamlining of OTP's IT systems and processes is still needed. In addition, it said the relative lack of investment in operating systems may hamper both the consolidation of the bank's position in Hungary and the integration of its foreign subsidiaries.

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ENERGY

MOL to construct thermo-energy plant in Zala 

Hungarian gas and oil concern MOL Rt will build an eco-friendly geothermic power plant near Iklodbordoce in Zala county, the Budapest Business Journal reported. 
It will be the first one in Central Europe to generate electricity from underground hot water, said Managing Director, Zoltan Aldott. Following electricity generation the hot water will still be hot enough to provide district heating supply, similar to other geothermal plants like in Husaviki, Iceland. The multi-billion HUF investment will be completed in 2007 with locating a suitable site taking up one year and construction itself another. The company hopes to get the environmental permit they applied for in January from the West Transdanubian green authority to come soon. The company expects a HUF 150 million income per megawatt per year, which would mean with the planned 2-5 megawatt capacity the plant will become profitable within 10 years. 

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FOOD & DRINK

Mineral water sales up 

The retail sales volume of mineral water in Hungary reached 640m litres, and its value HUF 30bn (US$160m) in the 12 months to May 2005, Interfax News Agency reported recently, citing data published by market research firm ACNielsen. 
The firm noted that while sales have increased dramatically in recent years, this has come hand in hand with a decline in prices. In the past two years, the average per litre price of carbonated water has dropped 16 per cent to HUF 46, while the price of still water has fallen by 20 per cent to HUF 61. Carbonated water remains dominant in Hungarian sales, accounting for 70 per cent of the total, but still water is becoming more and more popular, now comprising 25 per cent of all sales. In terms of retail outlets, 34 per cent of mineral water sales are conducted at hypermarkets, and a further 29 per cent at discount stores, ACNielsen said.

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INFORMATION TECHNOLOGY

Freesoft wins HUF 92.8m deal 

Freesoft Rt, a Hungarian software developer, said on June 20 that it won an order worth HUF 92.8m from the city of Batonyterenye, Hungary, the business daily Napi Gazdasag reported. 
The Budapest-based Freesoft will develop an e-government programme for the city of Batonyterenye, 60 kilometres (37 miles) northwest of Budapest, the company said in a stock-exchange statement. Freesoft will account revenue from the contract in this year's books. The deal is Freesoft's third government order this year, after signing an agreement on January 26 to upgrade Hungary's criminal records database, as part of a group led by France's Bull SA, and a May 30 contract to develop regional public administration software for the town of Marcali in southwest Hungary.

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MINERALS & METALS

Dunaferr in the black 

Hungarian steel group Dunaferr was profitable in the first four months of the year, and expects to close 2005 in the black as well, the company announced, citing recent comments made by CEO, Sushil Trikha, at a workers' meeting, Interfax News Agency reported.
Trikha noted that "the steel market boom is a thing of the past, and the situation is now critical," with demand declining as a result of last year's stockpiling by customers.

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PHARMACEUTICALS

Richter fears Russian decree

Hungarian drugmaker, Gedeon Richter Rt, said on June 6th that a Russian government decree removing imports from a list of subsidised drugs will reduce the Hungarian company's second half sales by US$20m, the Budapest Business Journal reported.
"We will feel the impact of the decree on our sales in the second half of the year when we will miss revenue of US$20m, according to our preliminary calculations," the Budapest-based Richter said in a statement. Richter said earlier that about 25% of the drugs it sold in Russia in the first quarter, worth US$10m, were included on the list. While imports will remain on the list of subsidised drugs until December 1st, those delivered in Russia after July 1st will no longer be subsidised, Richter said.

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TRANSPORT

MAV awards major contract to Stadler Rail AG

The Hungarian state railways system (MAV) recently awarded another major contract to Swiss company Stadler Rail AG despite the appeal of the only competing bidder Bombardier, the Hungarian News Agency MTI reported.
In upholding a March 18th decision to award a contract valued at HUF 130bn (US$629m) for the production of 30 high speed trains the state railway declared Canadian-German concern Bombardier AG's bid invalid. According to information from the Budapest online service index, Bombadier was disqualified because it had offered certain maintenance activities free of charge. Such a prohibition however does not exist according to Hungary's laws on tender offers. It was not clear whether Bombardier would appeal against June 1st decision. Bombardier appealed the March decision to the Hungarian Court of Arbitration for Public procurement, which on May 2nd overturned the original award decision stating that MAV had altered the award criteria for the benefit of Stadler.

Budapest invites carriages tender 

The City of Budapest has called a tender to supply 37 carriages for its underground lines, the office of the mayor said on June 17, the Budapest Business Journal reported.
The winner of the tender will supply 15 driverless multiple units - rolling stock without a cab, with a motor mounted under the floor of the passenger compartment - for the capital's fourth underground line, still in the planning stages, and 22 standard carriages for the number two line. The winner will also have an option to supply a further 7 multiple units for line four. Line four project manager Laszlo Gulyas said on June 17 that the order was worth tens of billions of HUF, declining to offer a more specific figure.

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