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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: 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 business."
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 rhetoric.
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 of problems.
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 Barath.
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 conference. 
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 reached them. 
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." 

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AGRICULTURE

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 reported. 
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.

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AVIATION

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.

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ENERGY

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 Energopetrol's workforce.

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EU ENTRY

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.

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FOREIGN COOPERATION

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 2013.

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INFORMATION TECHNOLOGY

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 production facility.

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RETAIL

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.

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TELECOMMUNICATIONS

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 brand.
"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.

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TOURISM

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.


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