BBJ_2001

BBJ HUF 1250 | €10 | $15 | £7.5

VOL. 20, NUMBER 1

Budapest Business Journal

I JAN 13, 2011 – JAN 27, 2012

94,000 borrowers repaid FX mortgages in first 3 months of scheme 〉PAGE 8

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

Who is the winner?

ECONOMY

Can a government regulate the market?

Can the market regulate a government? 〉PAGES 9-11

TRENDS

Worry, but don’t panic! Wider selection at the Hungarian real estate investment funds are cautious but still confident. Downgrading Hungarian sovereign debt might even have dramatic effects on the domestic real estate investment market. Questions and answers about Hungarian investment funds. 〉PAGE 6

Budapest Stock Exchange

22%

Foreign stock trade balanced the slide in domestic turnover. 2011 was action-packed, to say the least, on the stock exchange, reflecting the unusual news coming from the eurozone and from within the country alike. 〉PAGE 4 decrease in the BUX index over 2011

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2 NEWS

Budapest Business Journal | Jan 13 – Jan 27

QUOTE OF THE WEEK

bi-weekly

Now a period of consolidation is to come, when Hungary’s new, competitive social and economic structure, that is already protected by the Constitution, would be reinforced so that everybody finds their place and can realize their objectives.

NEWS FOR THESE PAGES IS FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, HUNGARY A.M.

DRAFT IMF REPORT SAYS HUNGARY NEEDS BIGGER RESERVES, STABILITY PACKAGE

Hungarian delegation, led by Fellegi, and representatives of the IMF and EC started in Budapest in December but were broken off by the EC, due to concerns over Hungary’s new Central Bank Act and Financial Stability Act.

MATOLCSY OUTLINES BANK LAW AMENDMENTS MADE ON ECB RECOMMENDATIONS

Photo: REUTERS/Bernadett Szabó

A precautionary program from the International Monetary Fund, prepared in the framework of a strict fiscal policy, could help ease existing tensions in Hungary by increasing reserves and introducing a package of stability measures, according to a report prepared for a meeting of

FITCH DOWNGRADES HUNGARY TO JUNK Fitch Ratings on January 6 said it downgraded long-term foreign and local currency Issuer Default Ratings (IDR) by one notch to ‘BB+’ and ‘BBB-’, from ‘BBB-’ and ‘BBB’, with a negative outlook. Fitch also said it downgraded Hungary’s Short-term IDR to ‘B’ from ‘F3’, and its Country Ceiling by two notches, to ‘BBB’ from ‘A-’. “The downgrade of Hungary’s ratings reflects further deterioration in the country’s fiscal and external financing environment and growth out-

Prime Minister Viktor Orbán opened an exhibition about Hungary’s 1,000-year statehood in the National Gallery on January 1. Entitled “Heroes, kings, saints – pictures and relics of Hungary”, the exhibition marks the new Hungarian constitution, which came into force on January 1. In his speech, Orbán noted the Hungarian nation had been governed by two fundamental principles during its 1,000-year history: Christianity and the ideal of state sovereignty. the IMF board on January 18 obtained by business weekly Figyelő. The report cites a “precautionary” program without actually naming it, Figyelő said, adding that it learnt the IMF board was of the view that Hungary could get a Stand-By Agreement – which carries more conditions than a precautionary agreement – at an informal meeting in December. The IMF would require Hungary to take steps to re-establish the independence of the National Bank of Hungary, strengthen the Fiscal Council, exercise stricter fiscal policy, reduce and then withdraw crisis taxes, end ad hoc economic policy measures, implement planned reforms to the full extent, restructure the system of social payments, restructure public transport companies, and introduce personal bankruptcy, Figyelő said.

look, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal,” said Matteo Napolitano, Director in Fitch’s Sovereign Group. Fitch has now joined rating agencies Moody’s and S&P, which had already downgraded Hungary to junk in 2011.

FELLEGI TO TRAVEL TO WASHINGTON FOR IMF MEETINGS ON JAN 11 Minister without portfolio Tamás Fellegi traveled to Washington to continue informal talks with the International Monetary Fund (IMF) on January 11. Hungary is seeking financial assistance from the IMF and the European Commission as a precautionary measure, allowing it to continue to finance itself from markets.

Informal talks between the

National Economy Minister György Matolcsy outlined amendments to Hungary’s new Central Bank Act in a letter to European Central Bank president Mario Draghi dated January 5. Matolcsy pointed out in the letter that lawmakers had taken steps on the ECB’s recommendation such as removing an obligation for the National Bank of Hungary executive board to submit its agenda to the government and inserting an explicit prohibition on any government instruction to the central bank or its decision makers. Commenting on a decision by lawmakers to keep part of the act that allows an increase in the number of the MNB’s rate-setters and deputy-governors, in spite of concerns voiced by the ECB, Matolcsy said the possibility “provides greater flexibility, should the extension of the [MNB’s] tasks warrant for this”.

MINISTRY DISMISSES REPORTS GOVT TO USE CENTRAL BANK FX RESERVES TO SPUR GROWTH Hungary’s National Economy Ministry has dismissed reports that the government would use part of the National Bank of Hungary’s foreign currency reserves to spur economic growth. Internet portal Index.hu said on January 3 that the government would use some of the reserves to pay off HUF 180 billion in debts taken over from county councils as well as for a capital injection to boost economic growth.

National Economy Minister György Matolcsy said earlier that using the forex reserves of the central bank was “strictly forbidden”.

JOBLESS RATE EDGES DOWN TO 10.6% IN SEPT-NOV The average unemployment rate in Hungary was 10.6% in the 15-74 age group in September-November 2011,

down from 10.8% in AugustOctober and down also from 10.7% one year earlier, the Central Statistics Office (KSH) said. In the 15-64 age group, the jobless rate was 10.7% in September-November, also smaller than the 10.9% in the August-October period. The rate was 10.8% a year earlier.

The jobless rate rose for the first time in the August-October period since JanuaryMarch when it reached 11.6% in the 15-74 age group and 11.7% in the 15-64 age group.

plan for a default on Hungary’s state debt, Lázár said Hungary had been a member of the International Monetary Fund for three decades and had always repaid what it owed and would continue to do so. Asked about speculation that the resignation of either the prime minister or National Economy Minister György Matolcsy would be necessary to win back the confidence of financial markets, Lázár said the markets “want money, not names”.

FORINT RECOVERS AFTER SINKING TO HISTORIC LOW AGAINST EURO

S&P LOWERS BUDAPEST’S CREDIT RATING TO ‘BB+/B’, OUTLOOK NEGATIVE

Photo: sxc.hu

ECONOMY

PRIME MINISTER VIKTOR ORBÁN IN AN INTERVIEW WITH NEWS WIRE MTI

The forint regained some ground after reaching a historic low of 324.27 to the euro on concerns about the chance of an agreement for financial assistance from the IMF and EU. The forint traded at 319.71 to the euro on Thursday January 5, firming from its rate of 320.73 late Wednesday.

The forint traded at 362.50 to the Swiss franc on January 5, strengthening from 263.36 on Wednesday. The forint weakened to 249.85 from 247.95 against the dollar. On the secondary market for government securities, benchmark yields for terms up to three years jumped 27-75bp. Yields for the longer benchmarks were up 9-14bp.

TOP FIDESZ MP SAYS HUNGARY WILL NOT DEFAULT “Hungary will not default,” János Lázár, parliamentary group leader of the governing Fidesz party said in an interview with fn.hir24.hu on Wednesday, January 4. Asked if there was a possible backup

Standard and Poor’s announced that it had lowered the credit rating for the city of Budapest to ‘BB+/B’, outlook negative, from ‘BBB-/A-3’.

S&P said it lowered Budapest’s credit rating after lowering that of Hungary to ‘BB+/B’ from ‘BBB-/A-3’ earlier this month, noting that the agency caps the city’s rating at the sovereign level. S&P added that it had removed the city’s rating from CreditWatch negative.

S&P said that it is also lowering Budapest’s indicative credit level (ICL) to ‘bbb’ from ‘bbb+’ based on lower medium-term economic growth prospects in line with the agency’s revised economic forecast for the sovereign and considering that Budapest generates 38% of Hungary’s GDP.

GOVT PLANS TO BROADEN WAGE COMPENSATION The government plans to broaden the range of the subsidy it offers employers who raise wages to compensate lower earners for tax changes, MTI Hírcentrum reported.

According to cabinet communication, the government aims to prevent net wages from falling because of tax changes. To achieve this, workers who earn less than gross HUF 218,000 a month must be compensated because of the elimination of tax preferences. At present, employers cover up to a 5% wage increase as compensation and the government pays for any rise over that. Now the government wants to ensure sate support for employers who are unable to raise the pay of workers due compensation by even 5%.

BUSINESS S&P AFFIRMS MOL CORPORATE CREDIT RATING Standard and Poor’s Ratings Services on December 30 said it affirmed its ‘BB+’ long-term corporate credit rating on Hungarian oil and gas company MOL with a stable outlook. “While we lowered the rating on Hungary to ‘BB+’ and assigned a negative outlook, we believe MOL could be rated ‘BB+’ even if we downgraded Hungary to ‘BB’,” S&P said. “The stable outlook reflects our assumption that the company will exhibit prudent financial policies, operating cash flows that fully fund capital expenditure, and adequate liquidity,” it added.

Rating pressure would increase if Hungary’s sovereign rating were to be lowered by more than one notch, if the rating of Croatia – where MOL’s unit INA is based – is lowered, if access to banks or capital markets were reduced, or if the company makes acquisitions or starts paying big dividends, S&P said.

MORE THAN 94,000 BORROWERS REPAY FX MORTGAGES IN FIRST THREE MONTHS OF SCHEME Fresh data published by financial market regulator PSzÁF shows that 94,337 borrowers used an early forex mortgage repayment scheme at discounted exchange rates between September 29, when the scheme was launched, and the end of December, the deadline for declaring intent to participate. The repayments came to HUF 468.0 billion at the scheme’s discounted exchange rate and HUF 642.1 billion at current exchange rates. Banks must cover the difference between the two rates. The average repayment was HUF 5 million. Most of the loans were repaid at commercial banks. About 97% of the repayments were for Swiss-franc denominated mortgages. The rest were for mortgages base in euro or yen.

NUMBER OF HOMES SOLD IN HUNGARY CONTINUES TO DECLINE IN 2011 About 70,000 homes were sold in Hungary in 2011, down from 90,000 in 2010

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NEWS 3

Budapest Business Journal | Jan 13 – Jan 27

NEW CAR SALES

NEW CAR SALES SET TO RISE 15% IN 2012 The Hungarian Vehicle Importers’ Association (MGE) expects the number of new cars registered in Hungary to climb 15% to 52,000 this year, managing chairman Péter Erdélyi said at a press confer-

PAKS POWER PLANT PASSES STRESS TESTS The Paks Nuclear Power Plant, Hungary’s sole source

According to ACEA the citizens of the 27 EU member states bought 1,031,414 new vehicles in 2011, 3.5 % less than a year earlier. Germany was the sole state where the number of sales has risen.

Germany France Great Britain Italy Spain

269,144 179,038 134,027 132,579 60,395

STADLER RAIL SUBMITS OFFER IN GYSEV RAILWAY VEHICLE TENDER

One single offer – by Stadler Rail AG – was submitted by the January 3 deadline in the tender called by regional railway company GYSEV, owned by the states of Hungary and Austria, to purchase railway multiple units, the railway company said. The tender was called for the purchase – cofunded with European Union funds – of four regional electric multiple units, including putting into operation, servicing and supply of spare parts for 20 years. The estimated value of the purchase is HUF 6 billion. GYSEV said the offer will be evaluated in the next two weeks. If the application meets the tender conditions, the company will have 30 days to submit a quote. The result is scheduled to be announced and the contract to be signed in early April, GYSEV said. Stadler has been present on the Hungarian market since 2005 through three subsidiaries, and currently employs 300 workers in the country.

ence on January 5. MGE sees sales of new light commercial vehicles increasing 5% to 12,000 and the number of new motorcycle sales rising 32% to 2,500. The association expects sales of new heavy commercial vehicles to fall 12% to 3,800.

MALÉV GROUND HANDLING UNION FORMS STRIKE COMMITTEE Talks between the management and union of Malév Ground Handling, a unit of national carrier Malév, on a collective contract have been broken off and the Air Transport Association Union (LESz) has formed a strike committee, LESz chairman Attila Csorba said on January 3. The contract ended on December 31, 2011, but the union wants to extend it, with some changes, for another three years, Csorba said. He said the union’s demands would not raise payroll costs. Malév Ground Handling said the only question in dispute concerning the collective contract was the length of time for which it should be extended. LESz is demanding a 10% pay increase and a 5% rise in headcount, the airline said.

SUPERMARKETS DELAY VAT RISE TO ATTRACT BUSINESS Several store chains have decided to attract customers by delaying the enforcement of a higher value-added tax – 27% from January 1 – in their prices, the national daily Népszabadság reported. According to the paper, Tesco offers some 600 foodstuffs at last year’s prices for another month, while CBA has decided to apply the preferential 18% VAT bracket reserved for some basic foods to other products that are not strictly defined as such, including meat, vegetables, fruit, mineral water and juices. Keeping prices low is “a matter of life or death” for shops, the paper said, adding that the expected strategy is to sell basic foods at lower prices

POLITICS ANTIGOVERNMENT PROTEST JOINS OPPOSITION FORCES FOR THE FIRST TIME

+2.6% – 7.7% – 4.2% – 9.2% – 6.4% Sales in November 2011, y/y change in %

Mehrli said, based on the number of building permits issued. The number is down from less than 20,000 in 2011, he added. On the office space market, just one building, with a combined area of 15,000sqm, is expected to be completed in 2012. A total of 94,000sqm of top-category office space was added to the market in 2011.

further, but there is no need for immediate intervention, he added. The stress tests were carried out on all European nuclear power plants on the directive of the European Council. The EU’s assessment of the report is expected in April.

and provide leverage through raising the price of other products, Népszabadság said.

of commercial atomic energy, has passed its stress tests, National Atomic Energy Agency (OAH) deputy director Gyula Fichtinger said at a press conference on January 6. The OAH established in its National Report on the stress tests submitted to the European Commission that the plant is safe and no immediate measures are required, Fichtinger said. Safety levels can always be raised

Source: ACEA

and well under the 150,000200,000 in the year before the crisis, head of the Hungarian Real Estate Association Péter Mehrli told MTI. The number of new homes built in 2012 is likely to remain below 10,000 in 2012,

As the governing Fidesz celebrated Hungary’s brand new Constitution inside the Opera House on January 2, thousands of people protested outside the building for Hungarian democracy, online news portal Index. hu reported. The new Constitution took in effect on January 1 and is criticized for undermining democracy and consolidating Fidesz’s majority. Several opposition organizations including 4K! (Fourth Republic), the Hungarian Solidarity Movement, and opposition parliamentary parties MSzP and LMP joined forces at the protest but agreed not to have any politicians speaking at the demonstration, Index said.

DON’T QUESTION HUNGARY’S COMMITMENT TO DEMOCRACY, SAYS FOREIGN MINISTER The Hungarian government is prepared to hold talks on any issue but does not accept anyone questioning its commitment to democracy, Hungarian Foreign Minister János Martonyi said in Esztergom (north Hungary) on January 5. Hungarians see themselves differently than they are seen abroad, he said, adding that, “The world will never understand our pains and spiritual wounds. We ask the world ... to try to understand us,” Martonyi said. The minister said that Hungary’s disputes with its neighbors focused on human rights, which applied to both individuals and communities. “We ask all our neighbors to get used to the idea that there is no individual identity without communal identity. If they understand this, they will better understand the European identity, too,” he said.

OPPOSITION MP QUITS SEAT FOR “PEACEFUL RESISTANCE” AGAINST GOVT A lawmaker of the opposition green party LMP said she would return her parliamentary mandate to focus on organizing other forms of “resistance” in civil communities.

talk of the town PUBLIC TV EMPLOYEES ON HUNGER STRIKE DISMISSED The Media Service Support and Asset Management Fund (MTVA) on December 27 dismissed Balázs Nagy Navarro and Aranka Szávuly, two employees who had been on hunger strike since December 10 in protest against alleged political meddling with journalists’ work in public media. The scandal broke after the face of former Chief Judge Zoltán Lomniczi was blurred in the news program of public television channels MTV and Duna TV on December 3. The protesters called on MTVA to hold to account those really responsible for the incident.

MTVA said that Nagy Navarro and Szávuly were fired because their fast is illegal and a “provocation” of their employer.

Nagy Navarro and Szávuly, ac-

companied by several supporters, remained on hunger strike even after their dismissals.

On December 29, security guards tried to disperse the hunger strikers from outside the headquarters of public television MTV, online portal hvg.hu reported, referring to a statement from television trade union TFSz. The guards also tried to “restrict the free movement” of the protesters and “limit their personal freedom”, the statement, said referring to an attempt to surround the protesters with barriers.

The protesters called the police.

The officers appeared at the spot twice in the morning but, after checking the identity of all people there, left without any further action, alluding to the fact that the territory is private.

Explaining her decision, Virág Kaufer said that “in the Orbán era that started in 2012” everyone should review their approach to those in power.

Now she sees a need to seek and develop new ways that are “based on the constructive force of communities and on solidarity rather than temper”.

The green party announced it would launch a “new resistance” to what it called the government’s anti-democratic policies and the approval of “scandalous laws” in December. LMP deputies and activists, including Kaufer, chained themselves to the entrance of Parliament’s car park to prevent lawmakers from entering the site on December 23 when the House passed key laws.

HUNGARY GOVT FAILS TO ADDRESS US CONCERNS, AMBASSADOR SAYS US Ambassador to Hungary Eleni Tsakopoulos Kounalakis says Hungary’s government has failed to address Washington’s misgivings after US diplomats actively consulted with the government for months on key reforms, sharing their concerns regarding democratic checks and balances. This does not, however, mean that they will not ask the government again to reconsider the decisions, the ambassador added, speaking on a public radio program on January 6. The ambassador referred to the letter sent by US Secretary of State Hillary Clinton to Hungarian Prime Minister Viktor Orbán before Christmas, “in order to urge the government publicly to take seriously the importance of democratic institutions”. The ambassador emphasized at the same time that Hungarians determine Hungarian laws, and the democratically elected government must be respected

CULTURE DRAFT DECREE WOULD CUT NUMBER OF STUDENTS ON FULL SCHOLARSHIP A draft decree to be discussed at cabinet would reduce the number of students who receive full scholarship to attend institutions of higher education in the fall semester to 30,000, but offer half scholarships to 15,000 students, daily Magyar Nemzet said. Hungarian institutions of higher education accepted 53,450 students on scholarship last autumn. The draft would cut the number of students on full scholarship by almost 60% in the area of economics, by 40% in the technical sciences and by 30% in the area of medical studies.said. In a month-on-month comparison, industrial output dropped 0.9% in October after climbing 3.9% in September. ÁV

4 NEWS

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Budapest Business Journal | Jan 13 – Jan 27

digest

It occurred to me that nothing is more interesting than opinion when opinion is interesting.

HERBERT BAYARD SWOPE, THE NEW YORK EVENING WORLD, 1921

share news. Political cyberspace has been openly conquered by anti-government sentiments and actions without fear.

WIENER ZEITUNG JANUARY 10, 2012

JUNK STATUS Following rating agencies, the global press has also down-

graded Hungary’s political culture, legal security and level of freedom Countries with small populations hardly ever make it to the covers of international media in peaceful times. During the recent lean years, with global leaders, multinational organizations and alliances fighting for their stability, the news value of the financial and political affairs of minor states has become leveraged on the content bourse. A couple of months ago, German and French leaders raised hell about the shenanigans of the Greek government. During the last few weeks, Hungarian decision makers have garnered far more attention than Prime Minister Papandreu.

CAFÉ BABEL JANUARY 10, 2012

Coup d’état and the time of Nazis – The Belgian

Café Babel takes a strongly critical position when it concentrates rather on the political trends, including the endorsement of a new Hungarian constitution and the operation of a new omnipotent media authority. Valeria Nicoletti, in her January 9 post complains that while “Prague mourned at the funeral of Vaclav Havel the hero of the Velvet Revolution, Croatia seems to finally join the European Union and Russia turned out against the usual election manipulations of Putin, the wind in Hungary is blowing in the opposite direction.” The post compares the current Prime Minister Viktor Orbán to the Stalinist dictator Mátyás Rákosi, who reigned during the 1950s.

Café Babel has a slight confusion of technical terms translated from Hungarian to French when Nicoletti uses the expression “salami tactics” to describe the method of the government for dismantling the democratic institutional system.

The term in its original political (not legal) context models how an emerging dictatorship would chop democratic parties and devour them into one centralized political formation.

Nicoletti guides her readers through all the major fields where worrying political

...TALKING ABOUT A DICTATORSHIP IN HUNGARY IS CERTAINLY ABUSIVE...

Alain Juppé, Foreign Minister, France actions have taken place: “standardizing theater activities, public schools and universities, it seems to have also intended to bury the country’s economy”, and names Klub Rádió, an adamantly liberal radio station, as “the first victim of the law on the media”.

The language becomes extremely critical when Nicoletti criticizes the Central Bank Act, a controversial legal measure by the Orbán administration and its Fidesz majority in Parliament, which has been deemed unacceptable by the IMF and the EU. According to Nicoletti, the act is a coup d’état against the independence of the national fi nancial institution, while another act, guaranteeing Hungarian citizenship for ethnic Hungarians

in Slovakia, Romania and Serbia “is referring probably to the Greater Hungary of the time of Nazis.”

Where is this information coming from? – “But fear also runs on the web: it seems that the reign of terror intended by Orbán would also have contaminated the internet, where more citizens are afraid to be involved or intercepted through an email list or their own profi les on social networks.” Take a good look at the posts, forums, personal and organization profi les, and nothing reflects the above statement.

True enough, they do reflect anger and worry about the trends in the country, and social media has become the powerhouse of organizers of demonstrations and an alternative media channel to

No compromise – WZ correspondent Karin Roglaska believes that the “front between the IMF and Budapest hardens”, even though the “government signaled over the weekend again, possibly wanting to give in over the Federal Reserve Act (i.e.

Central Bank act)”. Roglaska quotes IMF Director Christine Lagarde, who declared on January 9 that the Fund would not compromise and all of its requirements must be met by the Hungarian government if Orbán wishes to ask for a credit line. “The Federal Reserve Act must comply with European law, that is true in every case, the independence of the central bank.

The IMF will examine the law as stringently as Brussels.”

THE WASHINGTON POST JANUARY 10, 2012

of the administration and its agenda on the political palette, avoiding unsupportable extreme criticism but standing by democratic values without compromise. The editorial defi nes the trend as a road to autocracy and boldly proposes that the EU leadership, “which is due to consider Hungary’s case this week, should not limit itself to the fi nancial sphere”.

LE PARISIEN JANUARY 10, 2012

Diplomatic tone – The largest circulation centerright-affi liated daily is rather forgiving, although it leaves room for some criticism. It quotes Alain Juppé, the French Minister of Foreign Affairs, who met with the mayor of Bordeaux recently to “attempt to clarify all those issues” which could not correspond with EU legislation.

The minister also added that, “talking about a dictatorship in Hungary is certainly abusive, but there are certain subjects that preoccupy [EU leaders] and need clarification.”

DIE PRESSE “Hungary’s rush towards autocracy” – Many articles of the Post have dealt with the dismantling of the democratic establishment by new laws, regulative authorities and replacements. The newspaper and its regional blog, Emerging Europe, even touched upon the idea that premiere Orbán might/should be removed from his position

by Western governments.

“Some 270 judges are being forced to retire, and sole authority to name their replacements has been given to a close associate of Mr. Orbán,” the paper says explaining one of the many controversial decisions in its January 10 article, which reflects in-depth research with precise details. The Post is both critical and careful in its positioning

JANUARY 10, 2012

How long will Austria stand? – Besides the permanent fracas around the Central Bank, Die Presse reminds its readers that the Hungarian economy affects Austrian and German fi nances intensely. The liberal daily says it has a deep interest in the secure operation of the free markets and is worried about the downward lurch of the fi nancials in the region.

Die Presse warns that Erste Bank “stands at €11 billion” (€8 billion in loans and €2 billion in government bonds or sovereign exposure), while Raiffeisen Bank International has some €8 billion exposed. AR

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BUSINESS 5

Budapest Business Journal | Jan 13 – Jan 27

Rare diseases, abundant resources Big Pharma and angel NEW TRENDS investors turn to small Fortunately, orphan drugs patient groups. have their supporters. For BBJ ANDRÁS ZSÁMBOKI

In December last year, Portfolion, leading Hungarian bank OTP’s venture capital arm, completed a million-euro deal in which it purchased a definitive stake in KPS Labor, a Hungarian diagnostic service provider. At the same time, acquisition talks between a multinational pharmaceutical company and Avidin Pharmaceutical and Histopat, two Hungarian companies active in health care development, have entered into their final phase, the Budapest Business Journal has learned.

Since the company profiles in question vary from molecular biology to pharmaceutical device manufacturing, the most important common feature may well remain hidden to superficial observers: in one way or another, all these companies are connected to the treatment of rare diseases.

A rare disease is legally defined as an ailment from which less than seven in 10,000 people suffer. Too bad, as far as capital increase chances are considered, market-minded outsiders would say. Testing such pharmaceutical agents is likely to be more complicated than usual; the recovery of investments is also less predictable, as the per unit price of the future drug is surely going to be much higher than that of average drugs, their argument would go.

Staunch defenders of the state drug subsidy fund are likely to react with hostility as well. “Success for these companies means that increasingly smaller groups of patients cut out an increasingly bigger stake of drug funds,” they would say. As a result of such reasoning, it used to be difficult to find a manufacturer, let alone a developer, for medication designed to cure rare diseases. That is why these have been named “orphan drugs”. And this is why the drug administrations of both the US and the EU encourage pharmaceutical companies to develop orphan drugs by reducing testing requirements and giving developers a 10-year marketing exclusivity.

example, pharmaceutical experts who consider them as the first samples of chemical agents tailored to the needs of specific patient groups.

“Orphan drug developers are doing a pioneer job on the way towards personalized medication,” György Németh, medical director of Chinoin and president of the Hungarian Association of Personalized Medication says.

In pharmaceutical development, Németh argued at the recent Euroterv Rare Disease Conference, a huge paradigm shift is under way.

Blockbuster drugs, the most profitable products of Big Pharma, have always been the ones meant for a very broad range of patients with a very broad range of indications – like antibiotics, anticholesterol, blood pressure regulators, and anti-inflammatory agents.

The problem is that this era is coming to an end. Most blockbuster patent protection is going to expire in the next few years. New molecules that are still in the pipeline are expected to replace present blockbusters and, at the same time, must surpass the efficiency of the latter. “As a matter of fact, the upcoming generation of drugs is more effective than the previous one was, since even the genetic background of possible users is taken into account,” explains Németh.

This, however, makes development much more expensive and restricts the scope of application; the ranges of both the indications and possible users become narrower. “Nevertheless, the trend cannot be reversed,” Németh says.

Existing patient categories are breaking up into many new subcategories constituting patients of the same genotype. On the other hand, old blockbusters are being gradually replaced by a group of “niche-busters”.

If so, then orphan drugs had been niche-busters long before the term was coined,

Gábor Pogány, president of National Union of Rare Diseases, remarked to the BBJ. “And not because orphan drugs have only a narrow

THE PROTAGONIST: DIAGNOSTICS The leading role in the new trend is played by diagnostics: it provides the refined

that two of the above mentioned Hungarian firms have diagnostics as a main profile. “As a producer, we can see every day how competitive and progressive this field is. We are forced to come up with something new every six months or else we risk losing old clients consisting mostly of domestic hospitals,” says György Szekeres, managing director of Histopat.

In such a competitive market, it is well worth developing diagnostics for rare diseases.

Their reagents are entitled to the same ten-year market exclusivity as orphan medications themselves, which guarantees considerable safety for their developers. “We have a diagnostic procedure for a rare sort of cancer,” Szekeres says. However, it would require €1-1.5 million in capital to develop it into a technology applicable on a large scale. In order to raise capital, Histopat’s management has already established a project company for cancer diagnostics, a minority stake of which is up for sale.

As for KPS Diagnostics’ services, the firm is in a much-advanced position both in a professional and financial sense. “We’ve got a top-notch molecular diagnostic laboratory infrastructure that meets the very pinnacle of the industry standards worldwide; we have an in-house developed technology to analyze small and damaged tissue samples and cytology smears, and have just agreed with Portfolion on selling a minority stake in the firm in order to increase capital for expanding services in the Central European region,” István Peták, cofounder and scientific director of KPS Diagnostics says of the firm’s achievements.

The details of the deal are confidential, but he says that the deal value exceeds €1 million. “It requires state-of-the-art technology, since formaldehyde fixation and paraffin embedding makes nucleotide chains fragmented, which creates huge problems for the routine molecular diagnostic labs,” Peták explains.

IN SUCH A COMPETITIVE MARKET, IT IS WELL WORTH DEVELOPING DIAGNOSTICS FOR RARE DISEASES. range of users, but because development has been based on users’ genetic background,” he adds.

tools by which it is possible to determine the genetic backgrounds of possible users. So it is probably not an accident

A HUNGER FOR NEW MOLECULES “Thanks to molecular diagnostics, nonsmall-cell lung cancer as a disease category will be reclassified based on its driver oncogenes, which can be targeted with the new class biologic therapies. Although the original disease is one of the most prevalent human diseases, naturally it did not qualify as an orphan disease at all, the molecular subspecies that are the basis of new therapies do,” Peták continues. According to its medium-term plans, KPS Labor will launch a precise cancer diagnostic system.

Oncompass will be able to diagnose a whole range of tumor subtypes strictly on a molecular basis, Peták says. “There is huge demand for such complex diagnostics, and not only in our region.”

Expiring blockbusters are not the only problem Big Pharma struggles with nowadays. “It is a statistical fact that the number of pharmaceutical agents tested throughout the patent process is decreasing.

Year by year, there are fewer and fewer promising molecules in the pipeline,” says Tamás Vas, managing director of biotech pharmaceutical Genzyme’s Hungarian branch. The old recipe of original drug producers for developing new agents from scratch is too time-consuming and also too risky.

“The producers should commission a ‘big name’ in the scientific field to commence a targeted inquiry.

Until the launch of the marketed drug, this process might take as much as 20 years as well as $1.2 billion, and up until the last stage there is a risk whether the experiment will result in a product at all,” Vas tells the BBJ. Purchasing molecules that have already passed preclinical trials is a much more reasonable way of drug development – but precaution is especially called for in the case of orphan drug and biotech agents. “Technically, this means acquiring project companies. There are, however more buyers from classical pharma industry than from financial VCs.” Genzyme itself was bought up by SanofiAventis last April, he notes. ■

6 LETTER

WWW.BBJ.HU

Budapest Business Journal | Jan 13 – Jan 27

Respond to criticism BETa market: fast, simple and convenient.

Share of equities registered on the BETa Market in HUF turnover 15 November - 30 December 2011 COMMERZBANK

54.5%

When a new alternative platform to facilitate the trade of foreign equities in the local currency was launched by the Budapest Stock Exchange (BSE), the Budapest Business Journal presented a summary of the fresh attempts to breathe life into the Hungarian bourse in its December 2 issue. Hungarian brokerages asked by the BBJ did not foresee a considerable impact on the market by the new platform saying that it er alternative was “just another channel”.

TOTAL

13.6%

tors in a safe, easy and cost effective way. The largest and most liquid equities of mainly European companies are registered on the BETa Market’s ever increasing product palette.

SIMPLICITY AND CONVENIENCE The final structure and characteristics of the BETa Market were shaped via a close coordination with market participants. Trading is conducted in Hungarian forints, which means that investors can invest in shares denominated in foreign currencies, mainly in euro, without havingg to deal with currency con conversion or pay cconversion fees. The BETa

DEUTSCHE BANK

11.6% BMW

11.5% THYSSENKRUPP

4.1% NOKIA

2.9% SIEMENS

0.9% E.ON

0.4% BASF

0.3% BANCO SANTANDER

0.3% CONVERTIBLE COMMERCIAL PREMISE for sale and for lease in the neighborhood of the historic and elegant Vígszínház, in the heart of Budapest. 100 sqm utilities, storage and kitchen area are included. Extra storage is available on request in the detached house.

Mail: kata.hegyesi@gmail.com Skype: hegyesikatabudapest

+36-70-535-1767

Responding to the skepticism, BSE deputy CEO Attila Tóth points out that since the first trading day on 15 November 2011, the BETa Market has gained a great deal of interest both from investors and brokerage firms.

“The year of 2011 has been an eventful one in the life of the Budapest Stock Exchange. Among these events, the launch of the new BETa Market in November was a major cornerstone, in line with the BSE’s aim to widen product range. The BETa Market is a retail MTF (Multilateral Trading Facility), established with the primary goal of making foreign equities accessible to Hungarian retail inves-

Market uses the BSE’s existing trading system; moreover, trading hours and periods, as well as order types and their expiry are identical to those applied in BSE’s equities section. Thanks to these features, joining and trading on this new market is fast, easy, cost effective and convenient for investors and brokers alike. Market makers, who keep a steady supply of bid and ask quotes in the order book, enhance the liquidity of the foreign equities registered on the BETa Market. Their activity results in a narrow spread, and ensures the possibility of continuous trading and fair pricing. In other words, investors can buy and sell equities at roughly the same price at any given moment.

IN THE SERVICE OF HUNGARIAN RETAIL INVESTORS Indeed, Hungarian private investors have had the possibility to invest and trade in foreign equities via a number of brokerage companies for several years, as these service providers have offered access to stock exchanges outside Hungary. Nevertheless, the BSE is convinced that the BETa Market does provide additional advantages to these investors as the whole market was tailored to their needs.

Besides being an easily accessible and convenient trading alternative, the BETa Market also offers the cheapest way to invest in foreign equities for many domestic investors. The fact that investors already having a securities account at a domestic investment service provider do not need to open a new account for foreign equities, and that they can trade in Hungarian forints, are not only elements of convenience but also mean effective cost savings. The BSE is informed that brokers mostly apply the same transaction fees after BETa Market trades as after transactions concluded on BSE’s equity section in Hungarian equities. These fee elements, especially as regards minimum fees, are lower than the ones investors are likely to find on most foreign markets. Furthermore, investors do not have to face additional data access fees as all subscribers to real-time trading data on BSE’s equity market receive real-time BETa Market data automatically.

The BSE is focusing on Hungarian retail investors’ needs when shaping the selection of products accessible on the BETa Market as well. Due to the simplified security registry process, the product range can be increased flexibly, in response to market needs. As opposed to introducing domestic retail investors to a vast range of little known products of a major European stock exchange, the BETa Market offers a selected list of the most liquid and most recognized stocks representing a wide variety of economic sectors, and all of them boasting robust and exciting stories. The BSE believes that this is a great appeal and motivation to the investors of a

country where economic selfreliance is still in its infancy and whose people have little financial knowledge.

Long-term saving and financial planning of Hungarian private investors is encouraged by the fact that as of January 2012, equities purchased on the BETa Market can be added to the long-term investment account (TBSz), and thus become entitled to tax benefits if kept for several years.

The safety of savings invested on the BETa Market is further enhanced as these transactions are cleared, guaranteed, supervised and protected in the same way as investments in domestic equities.

DYNAMIC PRESENT AND PROMISING FUTURE Despite the short time that has lapsed since the first trading day on 15 November 2011, the BETa Market has gained a great deal of interest both from investors and brokerage firms. At the launch, ten of the most liquid and popular European equities were accessible for trading; this number is expected to triple in the course of January 2012, and grow even further in the future. Sixty-four percent of BSE’s domestic equity trading members joined in at the launch of the new market, and their number is still increasing.

Currently Erste Investment Limited undertakes marketmaking activities, but the BSE is expecting new market makers to enter the arena shortly.

So far the daily average turnover on the BETa Market has been just above HUF 38 million, with Commerzbank taking the lead, generating a daily turnover of HUF 22 million on average (see also chart).

Naturally it takes time for any new market to unravel in its full potentiality. Nevertheless, owing to the expected dynamic increase in the number of tradable products and the events planned to promote this new investment opportunity, the BSE expects the BETa Market to repeat the success story of certificates where by 2011 annual turnover in HUF more than tripled compared to the 2008 value.”

WWW.BBJ.HU

ECONOMY 7

Budapest Business Journal | Jan 13 – Jan 27

Good to know!

2012 brought a number of changes in the tax system so it is wise to invest in trustable counseling.

The BBJ asked for the expert opinion of Ernst & Young to guide us through the complex changes and call attention to a few crucial ones.

PERSONAL INCOME TAX Tax base adjustments (supergrossing) The 27% tax base adjustment relating to such income that is subject to consolidated taxation is cancelled under the annual amount of HUF 2,424,000 (202,000 per month), but it is still applicable to the portion of income exceeding this amount.

CERTAIN SPECIFIED BENEFITS The group of certain specified benefits that are pro-

vided in such a way that the employer pays the related tax is extended. In terms of the specified benefits where the related tax is paid by the employers, the tax base remains 1.19 times the value of the benefit; in addition, 16% personal income tax and 27% health tax also remains payable in relation to these benefits.

NON-WAGE BENEFITS From 2012, the annual limit of non-wage benefits that employers can provide to employees (or to relatives of the employees within the cafeteria framework) and that are subject to preferential tax burden will be HUF 500,000. Any benefits above this level qualifies as certain specified benefits.

HOT AND COLD MEAL VOUCHERS As of 2012, the following items provided to employees (based on the employee’s choice and provided that the benefits are provided by the employer) will qualify as non-wage benefits:

Please note, that the below excerpt does not deliver all the changes and their details. For better understanding of the updated regulations you will need professional advice suiting your individual needs!

Hot meal at the workplace up to HUF 12,500 per month and/or Erzsébet voucher up to HUF 5,000 per month.

Home internet access is not a tax preferential fringe benefit from 2012.

CORPORATE INCOME TAX The corporate income tax rate remains at 10% up to the first HUF 500 million of the tax base and 19% for the part of the tax base that exceeds this amount.

Losses carried forward from previous years can only be used to decrease the pre-tax profit on up to 50% of the tax base.

Rules relating to the carry forward of tax losses upon a company transformation (e.g. a merger) or acquisition become stricter.

under cost sharing agreements may also qualify for the double deduction by virtue of direct R&D costs.

On the other hand, the tax holiday relating to R&D labor costs or software developers’ labor costs are cancelled as of 2012. However, until 2014 the transitional provision allows taxpayers to utilize the tax holiday on labor costs accounted for by 31 December 2011.

INNOVATION CONTRIBUTION

R&D ALLOWANCES

In the future, the amount of the innovation contribution payable cannot be decreased either by the direct costs of the company’s own R&D activities or by the costs of R&D activities purchased from non-profit research institutes relating to the company’s own business activities.

The double deduction for direct R&D costs remain in 2012; however, the Act on Corporate Income Tax provides a separate definition for own R&D activities. Going forward, payments made

Small and medium sized companies are not subject to the innovation contribution. However, under the new rules, in order to determine whether a com-

pany qualifies as a small or medium sized enterprise for innovation contribution purposes, the revenue / balance sheet total and the headcount figures of the company’s related parties should also be taken into account.

VAT RATE The general VAT rate is increased from 25% to 27% as of 1 January 2012. The amendment also contains provisions on which VAT rate should be applied in the case of assessment periods relating to continuous supplies that are initiated previously to the date when the VAT rate modification comes into effect.

SNACK TAX In accordance with the amended Act CIII of 2011 on the snack tax, which was introduced recently, flavored beer, long drinks and jams will also become subject to it.

The definition of the products that are subject to the snack tax also change.

GREEN TAX New green tax regime entered into force on 1 January 2012.

Companies selling or purchasing, manufacturing or using packaging materials and packaged goods; lubricants and other petroleum products; marketing materials; accumulators; tires; electronic and electric devices should review their green tax liabilities relating to each separate product flow of the supply chain (upstream and downstream).

SUMMARY The increase in tax penalties and the introduction of the legal institution “reported uncertain tax position” intensify the significance of tax due diligence reviews before tax audits. These reviews can also serve as a good tool for identifying tax planning opportunities. ■

Ernst & Young Advisory Ltd. Botond Rencz Partner Head of Tax Services botond.rencz@hu.ey.com

8 TRENDS

WWW.BBJ.HU

Budapest Business Journal | Jan 13 – Jan 27

BOND MARKET

CREDIT

STOCK EXCHANGE

HOUSEHOLD DEBT

Whose fault?

Not performing well

Wider selection

Early repayment

Foreign stock trade balanced the slide in domestic turnover.

94,000 borrowers repaid FX mortgages in first 3 months of scheme.

Austria fears financial contamination of its bond market.

3.88%

Non-performing loans get a higher share.

634.3

22%

HUF

468 bln

maximum yield of 10year bonds in 2011

bln forints gross volume of mortgage loans in 2011

decrease in the BUX index over 2011

early repayments of FX loans at discounted rates

“We expect the Dutch auction to go pretty well, in contrast with Austria,” Bloomberg quoted Lyn Graham-Taylor, a strategist at Rabobank International in London, as saying on January 6 when asked to comment on the risks to Austria due to Hungary’s political and economic state. The factual report gives a brief summary and compares the bond markets of Austria and the Netherlands in numbers. “Given what could play out with the political unknowns in regards to the Hungary situation, the risk of a poor outcome is not insignificant,” said Graham-Taylor.

In 2008, the last time Europe had serious worries about a financial epidemic spreading from the CEE subsidiaries of Western banks, The Financial Times published an interactive information graphic online explaining the vast amount of loans in the ex-Soviet bloc. The snapshot of the post-Lehman weeks showed Hungarian, Polish, Czech, and Slovakian debts, with Austrian, German, Belgian, French, Italian, British and Dutch banks dangerously exposed in the region.

Analysts pointed out that during the last year, yields and CDS spreads for the Netherlands and Austria reflected that the latter, once again, is heavily exposed to Hungary and fears that a Hungarian default will infect its bond market as well.

The Netherlands auctioned €3.11 billion of securities at 0.853% (source: Bloomberg) while Austria was planning to issue €1.32 billion maturing in September 2016 and April 2022. Eventually, the auction ran as usual without any major surprises. That may well be due to the fact that Austria’s troublesome neighbor (Hungary) used a more friendly tone on the weekend before Tamás Fellegi, the chief negotiator dispatched by Prime Minister Viktor Orbán, arrived in the US to meet with IMF leaders. AR

The ratio of non-performing mortgage loans (NPLs), those more than 90 days in arrears, held by the Hungarian banking sector continued to rise in 2011 for the third consecutive year.

In September 2011, the gross volume of mortgage loans 90 days overdue in the banking system was HUF 634.3 billion as opposed to HUF 97.8 three years earlier. The proportion of NPLs amounted to 2.3% of the gross credit portfolio in 2008, according to data from the National Bank of Hungary (MNB) and the Hungarian Financial Services Authority (PSzÁF). That share had grown to 8.1% by the end of 2010, and was projected to be well above 10% in 2011: a fivefold increase in four years.

In a regional comparison, the most marked rise in the rate of non-performing loans was seen in southern Europe, statistics from KPMG show. Bulgarian non-performing loans, currently accounting for 14.45% of the gross credit portfolio, are predicted to peak at the end of 2012 or early in 2013, when they will rise to 17 or 18%.

Much of the debt is in foreign-currency based loans. Compared to rest of the region, the ratio of FX-loans is significantly higher in Hungary and Poland.

In 2010, FX-loans constituted 90% of NPLs in Hungary. Their holders might have found some relief in the government’s ruling which forces banks to swallow losses on mortgage loans by allowing borrowers to repay at discounted exchange rates as long as they redeem them in full by February.

But the combination of rising non-performing loans and unpredictable government policy will probably keep bank lending and repayment problematic in 2012 as well. ZsV

2011 was action-packed, to say the least, on the stock exchange, reflecting the unusual news coming from the eurozone and from within the country alike. In the first half of the year, the BUX outperformed European markets, but by the end, had not been left out of the crisis mood: its performance decreased by 22% over the year as a whole.

The stock exchange cash market’s €15.103 billion turnover was 28.4% below the previous year, driven by a 30.4% drop in equities turnover. Even this trade concentrated on the five blue chips, comprising 97.5% of the total, with OTP Bank still in the lead at 62.8%.

In the shadows of the big issuers, the second-liners continued to be active. Last year saw six new listings with a total value amounting to €28.6 million, and two new corporate bond issuances, valued at €62 million. Then again, certificates won the popularity contest with 116 newly listed items and a 37.7% increase in turnover.

The performance of the derivatives market was characterized by a fall of 31.4% in turnover, totaling €9.79 million and caused by the fall in the turnover of futures products. Currency-based products gained a bigger share of the composition, accounting for 56.4% of total turnover. The cash and derivatives markets kept their weights within total turnover, with the latter amounting to almost 40%.

In terms of liquidity, blue-chip shares, quoted certificates and BUX futures contracts remained the leaders, with no sign of a decline in the bid-ask spread or the values of the Budapest Liquidity Measure (BLM) compared to 2010.

The extension of the product range showed itself in an innovative way in the BETa market, the BSE’s new retail Multilateral Trading Facility. In the few weeks from November 15 to year-end, the ten foreign shares cleared €4.2 million in turnover, feeding the BSE’s optimism about further increases in trading volumes. AJM

The changes in household loans and deposits in October and November 2011 reflect the effects of the government’s early repayment scheme, launched on September 29. In both months, households were net re-payers in foreign currency, according to seasonally unadjusted data from the National Bank of Hungary (MNB).

In November and October, the stock of outstanding household debt fell by a respective HUF 191.4 billion and HUF 177.6 billion due to transactions. Within this, the stock of foreign currency loans declined by a respective HUF 189.6 billion and HUF 214.7 billion.

The large transaction volumes of foreign currency loans are attributable to early repayments, the MNB said. At current exchange rates, households prepaid nearly HUF 170 billion of their foreign currency loans in October and nearly HUF 195.1 billion in November. Within this, the amount actually prepaid by households was some HUF 130 billion and HUF 140 billion, calculated at the early repayment exchange rate defined by law.

Forint lending by banks to households for early repayment purposes accounted for nearly HUF 21.8 billion of the increase in outstanding forint borrowing. The stock of forint loans dropped in the previous month.

Cumulated data published by financial market watchdog PSzÁF shows that 94,337 borrowers paid back their mortgages under the scheme durin Q3, the deadline for declaring intent to participate. The repayments came to HUF 468 billion at the scheme’s discounted exchange rate and HUF 642.1 billion at current exchange rates. Banks must cover the difference between the two rates.

Banks signed 16,865 forint loan contracts for a combined HUF 88.5 billion with clients who used the credit to repay their forex loans during the period.

Borrowers have to repay their loans in full within 60 days after submitting the application. GL

MORTGAGE MARKET

PACK LEADERS

CURRENCY RACE

FOREIGN DEBT

OTP MOL Magyar Telekom Richter Egis Other 97.8

317.5

62,80% 20,80% 6,40% 6,40% 1,10% 2,50%

CHF: 91,404 Euro: 1,171 Japan Yen: 1,762

541,6

Loan volume, gross (HUF billion) FX loans paid back until December 31, 2011 (total: 94,337) Sourceű: PSzÁF

Mortgage loans 90 days overdue in the banking system: HFSA, MNB.

Concentration of equity turnover in 2011 Source: BSE

Number of FX loans paid back until December 31, 2011 (total: 94,337) Source: PSzÁF

WWW.BBJ.HU

FOCUS 9

Budapest Business Journal | Jan 13 – Jan 27

Who is the winner?

Can a government regulate the market? Can the market regulate a government?

On the day of the Budapest Business Journal’s editorial deadline, our original cover illustration plans had to be flushed down the drain. News arrived that heralded a fundamental change in the attitude of the Orbán administration.

Markets have confirmed that they welcome the more friendly rhetoric of the government and the forint-euro exchange rate strengthened to 310.58 from last week’s historic high of 324.27.

The exchange rate, like many other market numbers, reflect the expectations and responded fast to the good news that former Minister of Development Tamás Fellegi has the authorization to actually negotiate with the IMF about a precautionary standby agreement, instead of the earlier much talked of “no-stringsattached” deal. Budapest had set its stall out for the latter and communicated the notion in a self-confident tone even in the midst of the diplomatic turmoil of recent weeks, when EU leaders and Western and Central European media alike all sounded warning bells about a coming disaster.

The government’s “economic freedom fight” started as soon as the center-right Fidesz and its Christian Democratic People’s Party allies won the 2010 elections. Orbán promised a strong state and economic sovereignty during the campaign, both desired by much of the voting population. Minister of Economy György Matolcsy, whose name has become the moniker for his muchcriticized unorthodox policy – matolcsism – published his program-setting book “Jövőkép” (Vision) in 2007, which praised a political-economic system where the market would operate under the framework of strict regulations.

This was not out of the blue; Fidesz had taken this position in opposition before

the idea became a popular campaign tool in the West.

When the 2008 crisis hit the world, politicians queued up to get into regulating committees in every corner of the capitalist world, trying to prove to voters their unimpeachable devotion to the purification of the market.

Regulative ambitions often allied with protectionism.

Fidesz leaders claimed earlier that the neoliberal ideal of the almighty and self-regulating market had reached its end and the very visible hand of the strong state must slap the “invisible hands” of Adam Smith.

Since the inauguration of the Orbán administration, tension between the markets and the government has become increasingly tense, until they were at daggers drawn by the end of 2011.

So the markets decided to downgrade the value of debts and threaten Hungary; while the state will have to repay approximately €4.5 billion to its lenders in 2012, its further financing from the market would be much more expensive, if not impossible.

The verdict was complex, including open diplomatic debates and backchannel negotiations, spot market valuations and demands from the IMF and the EU, street protests and the exchange of scalding letters among envoys. Finally, from January 5, the rhetoric of the government buckled under the extreme pressure. Fellegi announced the government was “ready to negotiate without preconditions” and almost simultaneously, Matolcsy sent a letter to Mario Draghi, head of the ECB, about his firm belief that the much criticized Central Bank Act was in harmony with EU regulations. This message had been sent many times before, but this time Matolcsy added that if “any further questions arise, we will be at the ECB’s disposal to discuss and address them”.

So, if agreement comes, who will be the winner? The government, the state, the market or the nation? Some of the above, one, all or none?

CONTINUED ON NEXT PAGE

10 FOCUS

WWW.BBJ.HU

Budapest Business Journal | Jan 13 – Jan 27

2008

GOVERNMENT DEBT IN THE EU (% OF GDP, NATIONAL CURRENCIES)

WHAT HAPPENED? Government debt: from 52% of GDP in 2001 to more than 70% of GDP in 2008 thanks to; low employment rate lavish and non-transparent social support system ■ unsustainable pension system ■ bottomless financing of public transport losses of public transport company BKV, railway company MÁV, and bus company Volán ■ financing an unsuitable higher education system ■ drug subsidy system: financing too high spending on medicines ■ tax evasion, ineffective tax collection ■ high level of red tape ■ local governments’ spending on developments and bureaucracy ■ frequent changes of the VAT rate ■ unwarranted high level of interest rates ■

Source: Széll Kálmán Plan, analysts, BBJ

■

AN ESTIMATED

HUF 1,900 BILLION EXCESS SPENDING

BY THREE PREVIOUS GOVERNMENTS

1.

2.

3.

Belgium

Czech Republic

MONTHLY BREAKDOWN OF CENTRAL GOVERNMENT GROSS DEBT 30,000

22,500

15,000

HUF 570 BILLION

EXCESS SPENDING

First government of Viktor Orbán, Fidesz-MPP (1998-2002): the introduction of a new housing subsidy scheme, which allocated substantial funds for subsidizing interest rates on long-term mortgage loans.

The total housing subsidy is estimated to have reached about 1.5-2% of GDP. In the light of a high budget deficit and worsening macroeconomic conditions, the government later decided to tighten the conditions of the mortgage program in several steps.

7,500

0

HUF 817 BILLION

EXCESS SPENDING

Péter Medgyessy, Hungarian Socialist Party MSZP (2002-2004): two 100-day action programs - an average 50% increase in the salaries of hundreds of thousands of poorly paid public sector workers, increase in family benefits and the payment of a one-time, HUF 19,000 supplement to pensioners.

HUF 512 BILLION

Hungary receives an IMF arranged financial assistance program worth $ 20 billion including a 17-month $15.7 billion IMF Stand-By Arrangement to which the European Union has committed €6.5 billion ($8.4 billion) and the World Bank $1.3 billion.

Fidesz MPP wins elections with a promise of a strong state and a market economy with social solidarity

EXCESS SPENDING

First government of Ferenc Gyurcsány, MSZP (2004-2006): 100-step program, a reform package covering welfare support for families with children, financial support for refurbishing poorquality blocks-of flats built in the socialist era, the unemployment benefit system to facilitate return to work, combating undocumented work, the vocational training system, measures in the health care system, reform of the tax system, the pension system and issues concerning budget transfer to local governments.

Source: Former prime minister Ferenc Gyurcsány to the state debt investigation sub-parliamentary committee

NOVEMBER 24, 2011

FOREIGN CURRENCY DEBT RATING

DECEMBER 21, 2011

FOREIGN CURRENCY DEBT RATING

JANUARY 6, 2012

FOREIGN CURRENCY DEBT RATING

BBB- Ô BB+ BBB- Ô BB+ Baa3 Ô Ba1 DOMESTIC CURRENCY DEBT RATING

DOMESTIC CURRENCY DEBT RATING

DOMESTIC CURRENCY DEBT RATING

BBB- Ô BB+ BBB Ô BBB-

Baa3 Ô Ba1

WITH A NEGATIVE OUTLOOK

WITH A NEGATIVE OUTLOOK

WITH A NEGATIVE OUTLOOK

The launch of the government’s second economic action plan, which includes crisis taxes on telecom, energy and trade companies for a period of three years in order to keep the deficit target and at the same time help kickstart growth.

Jonathan Todd, spokesman for European Digital Agenda Commissioner Neelie Kroes: “Under EU regulations, extraordinary taxes may only be levied on the telecommunications sector if the revenue from the taxes is used to cover the cost of regulating the industry.”

WWW.BBJ.HU

FOCUS 11

Budapest Business Journal | Jan 13 – Jan 27

2012

WHAT IF...

1.

...Hungary reaches an agreement with the IMF and the EU.

Restored market confidence enables the Government Debt Management Center (ÁKK) to ensure stable market financing. Regarding the date of the agreement experts have a variety of expectations from March to July.

The 2012 financing plan of the Government Debt Management Center (ÁKK)

Estonia

Greece

Hungary

(minimum value)

(maximum value)

(strongly affected by Hungarian economy)

Austria

■ ÁKK’s main objective is to maintain stable market-based financing ■ forint issuance to decrease, FX debt issuance to remain unchanged ■ foreign currency redemptions to be renewed by FX funding (EUR 4.8 billion) net forint bond issuance, the dominant element within total net issuance, practically the same as in 2011(HUF 570 billion).

■ direct sales to households to be increased.

■ gradual sales of the transferred pension fund assets to continue ■ safety reserves to be increased

Finland

600

PLANNED VOLUME AND STRUCTURE OF GROSS ISSUANCE (LOWER HUF ISSUANCE AND UNCHANGED FOREIGN CURRENCY ISSUANCE IN FX TERMS)

VOLUME AND STRUCTURE OF GROSS REDEMPTION (HUF BILLION)

450

(Source: ÁKK)

300

2.

150 Hungary’s CDS spread Total Forint denominated debt Foreign currency debt

The Orbán government’s antidemocratic measures, such as undermining the independence of the fiscal council and now that of the central bank, as well as its unorthodox economic policies have provoked sharp international criticism. The Economist urges European leaders to go even further by condemning Orbán’s behavior “loudly and clearly” in order to avoid the so-called Berlusconi mistake. The weekly claimed that, “Too few ever complained about the Italian prime minister’s grip on Italy’s broadcast media.”

0 DEC. 30, 2011

Dietmar Hornung, senior credit analyst at Moody’s: “The changes to Hungary’s system were unambiguously credit-negative and represented a key factor behind Moody’s decision to downgrade Hungary’s government bond ratings to Baa3 on 6 December.”

Hungary seeks IMF cooperation

Italian prime minister Berlusconi resigned when yields on Italy’s 10-year, fixed-rate bonds, known as BTPs, exceeded 7%, a level widely seen as unsustainable in the longer term.

Parliament approves Central Bank Act

SZÉLL KÁLMÁN PLAN, HUNGARY’S STRUCTURAL REFORM PROGRAM

Economy Minister György Matolcsy: “We have decided to introduce structural reforms in seven areas to achieve an end to wastefulness and the further accumulation of debts.”

IMF mission chief of Hungary, Cristoph Rosenberg: “Steadfast implementation of the Szell Kálmán plan will be critical in order to secure planned fiscal savings, boost confidence and maintain market access.”

3.

Hungary’s parliament approves an early repayment scheme of foreign currency mortgages at fixed rates.

...Hungary defaults

Analysts do not see a default as a probable scenario, however, recent market developments, such as the record low forint rates, record high CDS spreads and more than 11% yields on 5- and 10-year government bonds, are alarming. According to analysts, Hungary has enough reserves to meet its payment obligations for approximately six months.

Governor of the National Bank of Austria, Ewald Nowotny: “Austria’s government should utilize all possible legal means to block the plan, as it threatens Austrian banks.”

Viktor Orbán:

EXPECTED FORINT-DENOMINATED MATURING DEBT IN 2012:

“The government has a plan B and even a plan C if international courts prohibit the scheme.”

HUF 900 BILLION EXPECTED FX MATURING DEBT IN 2010:

EUR 4.5 BILLION

(source ÁKK)

2010 December 13: Parliament approved legislation that eliminates the mandatory private pension funds of Hungary’s three-pillar pension system.

Parliament passes the new Constitution

GR+RA

The Hungarian government buys a 21.2% stake in oil company MOL

...international organizations press Hungary to replace Orbán’s government with a technocrat cabinet as the only option to avert a default.

WWW.BBJ.HU

12 OPINION

Budapest Business Journal | Jan 13 – Jan 27

The thousands (ranging from 3,000 to 25,000 depending on who you ask) who gathered near the Opera building on January 2 protesting Hungary’s new constitution and the spectacle the cabinet organized to celebrate it turned out to be an unlikely grouping.

Dissatisfaction with Viktor Orbán’s second government isn’t exactly a novelty, but while only a few months ago civilians rejected even the idea of holding an antigovernmental event hand in hand with political parties, the demonstration at the Opera showed that the lay of the land has changed.

The event prominently featured opposition MPs from the green-liberal LMP, the socialist MSzP and Demokratikus Koalíció, the breakaway political group founded by former Prime Minister Ferenc Gyurcsány.

Police detained many of the MPs in attendance earlier in the day for an anti-government demonstration outside of Parliament.

cated messages also makes the future of any opposition cooperation foggy. “It is clear that the parties that took part in the demonstration have very different visions of the future. It limits the opposition’s range of movement since it gives voters the impression that they can only protest but have no answers of their own,” Fodor said.

Gábor Filippov, political analyst at the Hungarian Progressive Institute agreed that the organizers of the demonstration – including 32 civil organizations and 13 political parties – have to accept that the variety of ideologies on display is their biggest threat. “Long-term cooperation is challenged by internal conflicts of interest,” he pointed out when asked by the BBJ. “The most important boundaries lay between the civil organizations and the politicians while also between MSzP and any other opposition forces,” he said.

NEW FORCES TO BRING LIGHT? However, all this may

Those increasingly dissatisfied with the direction in which the government is taking Hungary have shown that their numbers are growing and that they are even ready to put their political differences aside every once in a while. Now, they just have to figure out where they’re going.

THE VARIETY OF IDEOLOGIES ON DISPLAY IS THEIR BIGGEST THREAT independence of public media as democratic minimums but, more importantly, Milla still awaits further suggestions from civic society in order to build up a coherent concept.

Despite being a brand new organization at that time, the crowd attending Milla’s demonstration on March 15, 2011 was estimated by several sources to be around 30,000 people, while the number at Milla’s next event on October 23 was reported to have risen to 50,000-60,000.

“While the opposition parties when aiming to mobilize people can rely on traditional tools such as their organizational infrastructure, own financial resources and also some media attention that is

local and international organizations. First, the Parliamentary opposition raised its voice against the method of approval of the new basic law in spring 2011. The socialist MSzP and the green LMP walked away from the drafting panel as they were dissatisfied with the amount of time given before the planned ratification of the documents later that year and also because the government refused to hold a referendum on ratification. The radical Jobbik also declared that it would not submit proposals of its own.

Non-political organizations also expressed their concerns very quickly.

Amnesty International, for

Come out and play WHERE TO NOW? But the vast diversity of ideas and interests that are unified by dislike of the government’s activities is still far from becoming a tightlyknit opposition base with a clear agenda that goes beyond achieving the unlikely goal of forcing the government to step down.

“The demonstration against the new constitution was an ad hoc event and not a real union,” Csaba Fodor, political analyst at think-tank Nézőpont Institute told the Budapest Business Journal.

And the lack of coherent aims and clearly communi-

change with time. For example, One Million for the Freedom of Press in Hungary (Milla), a movement that was formed to protest against the new media law introduced on January 1, 2011 (legislation strictly criticized by the European Union for eroding the independence of the press,) gained fame by organizing huge anti-government protests in 2011, and has most recently published its ideas about the framework of a new cooperation between the opposition groups. The draft of their New Contract defines actions such as restructuring party financing or ensuring the financial and political

due to their force in the political field, non-party protesters are in a more difficult situation,” says Filippov.

Mobilizing through Facebook and other Web 2.0 methods has developed a special taste after last year’s Arab Spring and it has also reared its head in Hungary.

These tools, while naturally focusing on young voters who are the easiest to mobilize, do not require either a long media contact list or serious finances.

RIGHT TO ASSEMBLY Hungary’s new constitution took effect on January 1, 2012 after being approved by the governing Fidesz-Christian Democratic People’s Party alliance with its two-thirds majority in Parliament. Since its first draft became public a year ago, the basic law has been strongly criticized not only by the Parliamentary opposition but also by

example, had problems with the constitution introducing the idea of the protection of life from conception, defining marriage as a union between a man and a woman only, allowing life imprisonment without the possibility of parole and the exclusion of sexual orientation from the protected grounds of discrimination.

Most recently, European Justice Commissioner Viviane Reding expressed her concerns about lowering the age limit of judges to the normal retirement age. Reding also emphasized the obligation to have an independent data protection authority.

José Manuel Barroso, the President of the European Commission wrote to Orbán to express his concerns that the new Central Bank Act threatened the independence of the rate-setting Monetary Council. The act was approved in December, to be in accordance with the new constitution. ÁV

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OPINION 13

Budapest Business Journal | Jan 13 – Jan 27

STADIUMS Where football fanaticism and politics meet

I have been to a football game twice in my life: one was a Hungarian league game and the other was an international match (Hungary vs.

Finland). But the atmosphere in the stands was the same both times: crowds, smoke, fire, shouts, people chanting hymns, and so on.

At the league game, I had the privilege of getting a seat in K sector, which is infamous as the section where the most aggressive fans of Fradi (Training Club of Ferencváros) sit. I was caught in the middle of ecstasy: green and white all around, everyone standing and raising fists, jumping to their feet when their favorite slogans called them to act and shouting in

Más a Politika (Politics Can Be Different), the green-liberal party and youngest parliamentary faction (15,000 likes, and 2,900 mentions on Facebook), or “Solidarity”, the social democratic trade union formation (9,350 likes and more than 4,000 mentions). The latter, representing both white and blue-collar workers, deliberately chose the historic Polish name for reference and is less eager to choose sophisticated tools compared to their intellectual liberal allies.

Numbers send the message, too. One of the most popular pages on Facebook is “Egymillióan a magyar sajtószabadságért” (One dom of the million for freedom ry), or Milla press in Hungary), for short, one off the earliest civil mass formations tions formed after the 2010 elections. ctions. Milla first gathered when hen the goved a new ernment initiated media law and established stablished an authority monitoring ring the pres as more than This page now has 94,500 likes, and about 9,000 ng about it people are talking llion in the online. The million

the name of the prime minister and the word dictator.

Comments like “Parliament TV is coming” are sarcastic references to the liberal Klub Radio that lost its frequency, and an expectation that the like-minded Hungarian TV channel, ATV will be terminated too. Hungarian President Pál Schmitt signing of 319 bills into law during his one and a half years, without once exercising a political or constitutional veto, triggered the ire of opponents: “You are a puppet,” many posts say. University students, struggling with administrative burdens such as trying to find their professors to validate their marks with a signature, write that “Next time, I will get him [President Schmitt] to sign my half-term marks instead of running after professors.”

Humor is found among football peers as well. For example, Fradi fans tease their opposing Újpest fans (between street fights) with the following quip: “Why is it necessary to open the Nemzeti Sport [National

Humor is the rhetorical rebellion of the Everyman. He smacks the powerful leader hard. He laughs at the decision maker, he humiliates the government, and even more: he neither fears The Man nor seeks his appreciation with humility.

Telling a joke is a moment of self-liberation.

Of course, a humorless cynical will surely ask: why would The Man, at the top of the Establishment, give a damn about sarcasm from the bottom of society if the monopoly of violence (i.e. police) works for him? Sure, humor does not seem to be as dangerous as batons.

Nevertheless, humor complements violence, actually it is a form of violence.

A successful joke spreading on social networks is violence on a mass scale. A metaphor, a witty portmanteau, a nasty sexual reference occasionally conquers the web and it is hard to chase it around with riot

meeting with the Saudi government and the leadership of China, both acquaintances triggering vitriolic remarks on behalf of selfappointed democrats. Not long ago, an adaptation of a North Korean evening newsreel started to circulate with Hungarian subtitles. The key is the bold metaphor that works as the framework of all minor jokes – including cheap and vulgar ones about the size of the penis of Koreans and Hungarian statesmen.

Another even tougher one: PM Orbán imprisoned in the body of Adolf Hitler. The anonymous author of the subtitled viral video chose a scene s from the film titled “Der Untergang” (The Do Downfall) to tell the unheard story of the panicking Orbán administration trapped inside the fancy SState Opera House while ttens of thousands are protesting prot on the street against the new constitution ini initiated by the government. ernment The metaphor m goes way

JUST KIDDING Jokes and Molotov cocktails early human beings could not make too much use of humor while they were chasing each other around the vast savannahs. Professor Miller goes boldly further than explaining the reasons for the lack of stand-up comedians in 50,000 BC and comes to the conclusion that humor required intelligence and intelligence turned into the tool of coordinated survival efforts in the hostile world surrounding the early humans. In short, if you can strap a dead bat around your waist to cover your

Loyalty to an ethos and its physical demonstration – just like politics on the street? complete unity. Nobody likes them, but they don’t care.

Loyalty to an ethos and its physical demonstration – just like politics on the street? I am not an activist myself, so I have to draw conclusions from the actions in my virtual proximity.

First of all, both football fans and the liberal-socialists on the streets are passionate about their cause. The presence of self-appointed antigovernment activists is enormous. I found some among my own friends on Facebook: K, an average adult citizen, posted and commented on various government issues 13 times in the last 24 hours, which is roughly one post every two hours. Her profile picture does suggest that she is devoted to the “Hungarian Cause”, namely fighting for the resignation of the Prime Minister, Viktor Orbán.

There are many other people that share the same view and continue to comment on posts in groups like Lehet

name refers to alll sympathizers turning up one day at a mass demonstration ion – though this has not happened ened yet.

The official page age of Fradi has more than 30,000 likes ons. But let’s and 6,000 mentions. make somethingg very clear: this is a nation off 10 million, with 1.7 million living in the capital. Openlyy admitting olitical affiland displaying political nerally done, iations is not generally as the 19th and 20th centued such sinries both punished cerity. The historical ical memory cherishes a particularly cularly huge ng martyrs number of young ves either on who lost their lives the streets or in prisons.

However, looking king at the ers express way commenters veals more themselves reveals verity. Day about their severity. es are creafter day, jokes ated, humorous and sarcasnd re-makes tic comments and m pubare made from lic speeches of rightwing politicians,, such as tor”, a portthe term “Viktator”, lended from manteau term blended

Sport daily] carefully? ... So that Ujpest won’t fall out [of the league].” Is it good for the country when people treat politics as a football game? HG

police. For further references, see the Arab Spring.

Let’s take a case study.

After the death of Kim Jong-il, the index of the North Korean metaphor has shown a bullish trend on the protest bourse. Critics say that Prime Minister Orbán has an Asian political affiliation, after

too far when w the worst kinds of men in human history bear the names of the present Fide Fidesz leaders. Orbán is yellin yelling in German with shaking hands that they have to leave through the back do door of the Opera.

(This is actually true: the protest sswelled to an unexpected scale and security decided to change the official rou route.) The video is rather upsetting, aggressive, lon long, cheap, and unfair – and tthat is exactly the point. A political joke without extre extremism is as efficient as a doctor do who faints at the sight of blood. In other words, a rebel can either throw Molotov M cocktails or tell a joke. jok There are plenty of Th expla explanations for the mech mechanism and true nature of humor. Professor Geo Geoffrey F. Miller, a psycholo psychology professor at the Universi University of New Mexico, cam came to a stunningly surprisin surprising conclusion that

nakedness, then you can tell a joke too. The followers of the scholar of prehistoric laughter say that humor is also the tool for spotting mistakes – another important ability for survival.

These anthropo-sociological theories have less bold versions. Spenser and Freud believed that humor and laughter operate as a safety valve releasing the overheated pressure accumulated within individuals and societies.

No matter how many theories we gather, none of them can ignore aggression and all of them deliver an explanation that humor is a problem-solving intellectual tool. It is about rebelling, so those who do not wish to throw Molotov cocktails on the streets can tell jokes. Just as we do not set buildings on fire to express our gratitude towards the administration, its members find it truly hard to tell government-friendly jokes. AR

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14 SPECIAL REPORT

Budapest Business Journal | Jan 13 – Jan 27

Training for life The new higher education bill is introducing changes in the system that will help the country meet labor market demnads.

BBJ ZSÓFIA VÉGH

On Facebook, the digital notice board of Generation Y, a new announcement is making college-age kids’ hair stand on end. It is a document from Kormányportál, the government’s information site, revealing the number of available spots in higher education in 2012. In general, such information barely makes it to the front pages of newspapers, let alone Facebook. But the drastic cutback in the number of state-subsidized places has

earned the notice a great deal of attention.

It is one month until the deadline of university admissions: high schools students are already busy preparing. However, due to changes in the education law, much fewer will study for free. From 2012, the state will finance only 34,000 undergraduates, down from 54,000 a year.

Of this number, 15,500 students will receive partial support (50% of tuition fees). The greatest shock, however, is not this, but the number of state-supported spots in the fields of economy and law, the two perennial favorites. In the former, a mere 250 students will be able to study free of charge in the entire country: only 5% of the total places available in 2011.

Tough times are coming for would-be lawyers as well:

MOME The Moholy-Nagy University of Art and Design in Budapest is a textbook example of what success a university can achieve if it adjusts to labor market needs. Many of its students perform excellently in competitions and tenders and are acclaimed at both national and international levels.

For many years, the university trained highly skilled metal, glass, ceramics artists and vehicle engineers who all had jobs at the country’s famous factories in Zsolna, Ajka or Budapest.

The decline started in the 1980s, with factory shutdowns and Hungary’s light industry going bust, leaving these artists nowhere to go. The institution, then called Iparművészeti, weathered this transition and managed to take a lead. In the past ten years, it has restructured its entire education system. Departments are no longer, as used to be the case, separated by the type of material they work with, as used to be the case: with computer-aided design methods, this has lost its significance. Industrial design students are measured in real contests: their plans often end up as prototypes at the factories of firms like Daimler-Benz, Electrolux or Wamsler S.E., a maker of high-end stoves, cookers and fireplaces.

A so-called EcoLab and R&D center have been set up to forge ties with industry players.

Here students deal with current problems like designing affordable but stylish accommodation for homeless people. Though they cooperate with numerous companies, including the biggest ones, the leaders of MOME constantly seek to expand these relations. An incubator center to train undergraduates to acquire skills to market themselves and their goods is also in the offing.

they will have to compete for 300 free spots. Painful? Definitely. Needed?

Instantly.

The Hungarian education system is far from meeting the actual demands set by the economy and the labor market, says the government’s structural reform plan.

Markets do not disagree.

The country trains thousands of economists or media professionals, only to widen the gap.

Few students apply to science or technology faculties, resulting in a constant shortage in these fields, believes Renáta BudaiSzabó, head of division of Engineering Resources at Kelly Services.

The cutbacks are the first step in a higher education policy that aims to train the professionals that the market needs. The government wants to see fewer managers and more engineers – in line with market demands.

FOILED CAREER PLANS It is not only schools that are to blame for this disconnect. Students choose professions without much consideration. Once they set their minds on becoming, say, a PR officer, no guidance counselor, or their automated online equivalent, can talk kids out of it. (The results of such online career programs should be taken with a pinch of salt, as they run with a fairly large margin of error. If their recommendations were always taken

From 2012, there will be fewer free places at universities seriously, this reporter would now be working as a heavy machinery engineer.)

As Mónika Andrási, director of the Corvinus Career Development Office puts it: “If kids want to be lawyers, they so want to be lawyers. If they want to be economists, they so want to be economists.” Besides, she adds, universities are not meant to follow the swift changes of the labor

market 100%, which is far from being the case anyway.

Instead, they should provide a solid basis that can be supplemented with special skills courses and practical knowledge. Andrási doesn’t deny that even Corvinus, one of the most coveted institutions of the country, could do better.

When it comes to the syllabus, institutions are often criticized for hand-

5 most wanted jobs in the US in 2012 A report sponsored by MetLife Foundation and Civic Ventures, a think tank on baby boomers, work and social purpose, predicts that in eight years’ time there could be at least 5 million job vacancies in the US. Nearly half of these (2.4 million) will be in the social sector. Some of their findings seem a bit strange, but who knows? May be there really will be much need for preachers in next decade…

JOB TYPE

Affair operations specialists Child-care workers Clergy General аnd operations managers Home health aides

JOB OPENINGS

1.6 million 532,000 217,700 502,200 552,700

CURRENT US SALARY

$44,522 $24,354 $51,746 $94,706 $27,345

ing down outdated information, Andrási finds this exaggerated. “No professor could remain in the pulpit had they not followed or introduced novelties in class.” Not only peer assessment, but attendance and lecturing at conferences put pressure on teachers, as well as students. Today students are rather critical: they don’t mind confronting their lecturers if they find the material is no longer applicable. PowerPoint presentations have long given way to YouTube videos and online news channels.

Unfortunately, this is often not enough. Companies demand specialized professionals. “Training is supposed to be in tune with requirements. Universities should either train more mechatronics and embedded engineers or retrain general engineers in two years,” Budai-Szabó claims.

Her co-worker, Judit Martonosi-Nagy, head of division of Kelly Financial Resources, is of the same

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SPECIAL REPORT 15

Budapest Business Journal | Jan 13 – Jan 27

Memo: we’ll need more nurses in 2030 The world’s labor force will increase by more than a fifth by 2030, or by more than a million people, a study by Oxford Economics and Hays says. All of that growth will occur in developing countries. The workforce in most developed countries will plateau, decline and age.

For growth and industrialization to continue, emerging economies will invest heavily in infrastructure. This translates into a significant demand for skilled labor in the construction and engineering sectors.

The developed half of the world will need to maintain its working ability, thus will increasingly need healthcare workers.

Another trend that will definitely shape the labor market in the future is climate change. The number of green or climate-related jobs will likely surge.

The fourth major segment that will see a demand for work force is the financial sector. Since growing output is one obvious solution to recession, the work of such professionals will be greatly needed, the research says.

Source: The Hays/Oxford Economics Global Report 2011-2030

REMODELING

opinion. “Economists are a dime a dozen but the ones the market really needs – accounting, financial or tax experts – are rare.” BudaiSzabó admits that finding workable answers is not easy, as market changes take place too fast for the three-five year training period to keep pace.

PRACTICAL SKILLS So what if HR departments are after special skills whose teaching would be impossible in this fast-changing environment? No problem. Companies unsatisfied with the knowledge of fresh graduates have a number of

The construction sector has stalled and there is little hope it will resume growth anytime soon.

Orders are scarce and studios are shutting down, making the prospects of architecture students bad. Or not. The Technical University of Budapest seem to have grasped what is needed: it has shifted its focus from building to restoration and reconstruction. “We have been trained from the very beginning to adjust to the new needs,” Luca Tordai and Tran Van Giand, graduates of the Architecture Faculty told the BBJ.

NEW EDUCATION BILL: BEFORE AND AFTER FIELD

NUMBER OF STATE-FUNDED SPOTS IN 2011

Agriculture Humanities Economics Informatics Public administration, military and law enforcement Justice and labor Technology Medicine and health sciences Eductaion Sports medicine Social sciences Sciences Arts Arts and communication

NUMBER OF STATE-FUNDED SPOTS IN 2012 (PARTIALLY FUNDED)

1,850 4,100 4,900 6,400

1,300 (100) 2,700 250 3,600 (4,600)

9,850 3,100 2,000 500 2,100 5,200 570 390

1,017 200 8,000 (7,600) 2,800 (100) 1,600 450 1,000 4,000, (3,150) 740 350

options to get involved. The most popular are traineeships and on-board training. These usually hone existing skills such as the use of a program or teach new ones like changes in social security.

Dénes Simonyi, a master’s student at Corvinus University of Budapest, and a project manager of the Pillangó Project at the NG department of Magyar Telekom, landed his current post through a mix of both. He started as a trainee at Budapest Bank, doing typical trainee tasks: completing reports, collecting and copying data.

Though Back Office Support, his job title then, was not the stuff of his dreams, he picked up some good data sheet knowledge.

“We did learn Excel in school but not in the depth required,” he noted. At his second position at Magyar Telekom, a job with far more responsibility, he continues to broaden his skill set. “At university, we are taught a mindset. The practical skills, we would pick up on the job.”

Often firms don’t wait until traineeships start.

They delegate their representatives to schools to pass on the most up-todate knowledge. Bankers lecture on the particulars of the Basel III framework, while law associates discuss tax reforms. Such experts are always welcome to supplement academic content.

Corporations wishing to have a bigger say in the content of a syllabus go further. German carmaker Audi set up its own internal-combustion engine department within the Széchényi István University in Győr years ago. When it comes to talent supply, the carmaker plays it safe: adding two more departments – the materials science and

technology department, and the vehicle production department –, it will establish the Audi Hungaria vehicle engineering department group. This strategic partnership between city, university and industry is a win-win for all the parties involved. Students – who are also required to learn to speak German fluently – get to use state-of-the-art engineering practices. The university gets support, while Audi gets its provision of tailor-made talent, fresh off the assembly line.

The luxury of having a big-time industry partner such as Audi is only given to a few higher education institutions. The rest need to work hard to stay afloat.

Forging a relationship with the private sector is essential now that the state is withdrawing funds from higher education.

MULTIFUNCTIONAL CAREERS But things are about to change. If everything goes according to the government’s plans, soon market players will be involved in the preparatory/planning phase as well. A panel of investors, corporate representatives, sociologists, experts and politicians will decide how many architects, teachers or physicians can start college next year.

Numbers will be calculated considering national trends and labor market changes beyond Hungary.

László Dux, Deputy State Secretary for Higher Education at the Ministry of National Resources cites medical tourism as an example. “Medical wellness is on the rise. An increasing number of foreigners are coming to Hungary for treatment.

So when counting the number of dentists, we will leave a margin for the sake of nonHungarian patients.”

Back to Facebook: students fume over the new numbers, mainly the economy-oriented, but others as well. Fans of sciences got lucky this time: in 2012, 12,000 state-funded students can embark on science and technology studies. But their future is bleak too. What if, in two years’ time, the market will need nurses more? Or financial specialists? Or teachers?

Combining skills and degrees is probably the safest bet; being prepared to change jobs after five years, becoming multifunctional.

In what field, it doesn’t really matter: a good professional will perform well on all fronts. ■

TŐZSDEISKOLA Practice-oriented training is not always about filling the gaps in unemployment.

Tőzsdeiskola (stock handling training center) teaches people to handle their money, so they have an income, not so that they become traders. Yet the overall aim of the school is to teach people they are supposed to handle their own life just like their finances. The training itself is not enough, continuous practice is essential to become successful. University students covet these skills too but the course has not been integrated into any university syllabus.

It is not accredited either. Why? “This market is changing rapidly. By the time the accreditation process ends, much of the material would become outdated,” András Horváth, stock exchange expert, and director of Tőzsdeiskola, explained. The center is often invited to hold an introductory course on the stock exchange by numerous higher education institutions. The lectures are usually fully booked.

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16 SPECIAL REPORT

Budapest Business Journal | Jan 13 – Jan 27

Happy anniversary, Dear Euro!

Unlike a typical birthday celebration, the ten-year anniversary of the euro is marked by questions regarding its survival, rather than hopes for a long life.

BBJ ZSÓFIA VÉGH

Ten years into its use, the euro’s popularity has never been as low as it is today. Many of its users have fond memories of the times when they did not have it. Some, for example Germany, have even considered dropping it. Countries outside the eurozone such as Latvia and Lithuania – earlier so keen to join – seem to have lost their enthusiasm. The future of the single European currency is so dubious that it is uncertain if it will even make it to adulthood.

It wasn’t always like this.

The euro was set to have a much more promising future.

Its main draws included ease of cross-border trading, lower transaction costs and lower inflation. For consumers, it boiled down to hassle-free holidays where a lack of foreign currency or passports no longer posed a problem. Such attractions made the eurozone really appealing. The countries that missed the first round struggled to meet the euro convergence criteria to reap the announced economic benefits – even if it meant some lean times for them.

Fast and smooth trading was just one aim of euro adoption.

“The euro was created with two major objectives in mind. One was supposed to bring economic benefits to its users, the other was going to help people better identify with the European Union,” Robert Fishman, Professor of Sociology and Kellogg Institute Fellow at the University of Notre Dame told the Budapest Business Journal.

Indeed, the creators of the

single currency were just as preoccupied with the social and cultural benefits of the euro as they were with economic outcomes. Several studies were conducted, before and after the euro’s introduction, to find out how people felt about the change. People didn’t welcome the fact that the value of their money (wages, pensions, savings) decreased, neither did they like the ensuing inflation.

In general, the switch to the euro was thought to be a positive, favorable and useful event.

The forging of stronger bonds within a unified Europe, however, never happened. In contrast, as the negative effects of the euro were unleashed, it was, if anything, the identity of the individual nation states that was strengthened.

Five years after its launch, initial enthusiasm about the euro was fading. What most people (93%) agreed on was that the adoption increased prices.

People did not feel any more European either. Most citizens (78%) in the eurozone did not consider the euro to have had any effect – either positive or negative – on their sense of being European. The original idea of creating a more unified impression on the world map had failed.

Sad as it may be, identity is the last thing Europe is concerned about right now. The European elite struggle to find a solution to a recession that, in part, the single market was designed to avoid.

Yet instead of becoming more resilient to sudden economic changes, the members of the eurozone have found themselves suffering from being bound together. Greece, for example, cannot devalue the drachma to export its way out of its crisis: it has the euro.

Lower borrowing costs, an item initially on the plus side of adoption, were a chief reason behind the property and construction bubble in Spain.

Today, 332 million people in 17 Member States use the euro. In mid-2011 there were 14.2 billion banknotes and 95.6 billion coins in circulation, with a total value of €847 billion and €22.8 billion, respectively. The €50 banknote had the largest share in volume terms (39.5%), while the €500 banknote had the largest share in terms of value (34.3%), closely followed by the €50 banknote (33%).

Wealthier nations like Germany and Finland don’t fancy the euro either. They have had enough of financing big bailouts for Greece and Ireland to keep those troubled economies afloat. In Germany, fond memories of the Deutschmark are flooding back. It is not necessary to be a eurozone member to feel its defects. Latvia pegged its currency to the euro

and kept with it only to create a budget deficit and end up applying for an IMF loan.

“The euro is causing an enormous headache now,” noted Fishman (co-author of the book “The Year of the Euro”, one of the most comprehensive studies on the effects of the single currency). “It turns out the euro caused more problems than it solved

Yet it would be wrong to blame all of Europe’s ills on its single currency. It was not the euro that cooked the books in Greece or offered loans irresponsibly to borrowers with no collateral in Ireland. Similarly, it would be foolish to expect the euro itself to bring stability. It was not the European currency that lifted Estonia out of the hole created by a lending and

property bubble. Fiscal prudence had more to do with that.

The solution probably lies in the single market, not the currency. Members, whether inside or outside the eurozone, should first adopt some team spirit and put their own interests aside for a while.

If that is too much to ask, the chances of celebrating a 20-year anniversary seem slim. ■

EURO COINS AND BANKNOTES When it comes to motifs, graphic designers did not show a great deal of originality. Mythical heroes, historical buildings and yes, flowers, are the most popular features of euro coins. How come no one has ever wanted to put Tony Blair on the euro?

BANKNOTES

Germany

Spain

The €1 and €2 coins feature the federal eagle, the imposing symbol of German sovereignty.

Sweet memories: An oak twig, reminiscent of the design on the old German pfennig coins, is depicted on the 1-, 2- and 5-cent coins.

Miguel de Cervantes, the author of Don Quixote, the likeable idealist, is shown on the 10-, 20- and 50-cent coins.

Italy

Austria

What else could be featured on the Italian coins than Leonardo da Vinci’s drawing illustrating the ideal proportions of the human body (€1) and Botticelli’s “The Birth of Venus” (10-, 20- and 50-cent coins).

2- and 5-cent coins show an edelweiss and an Alpine primrose respectively. The €1 coin? Mozart, obviously.

Finland

Ireland

Elements of Finnish flora and fauna appear on its euro coins. Cloudberries and cloudberry flowers on the €2 coin, two flying swans on the €1 coin. The national sides of smaller change display a heraldic lion.

The Irish did not toil much about the graphics of their coins: all show a Celtic harp, a traditional symbol of Ireland.

There are seven types of euro notes. In different colors and sizes, they are denominated in €500, €200, €100, €50, €20, €10 and €5. The designs are symbolic of Europe’s architectural heritage. They do not represent any existing monuments.

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SPECIAL REPORT 17

Budapest Business Journal | Jan 13 – Jan 27

Illustration: Ida Sofia Foss (A little faun)

Worry, but don’t panic!

Hungarian real estate investment funds cautious but still confident.

Downgrading Hungarian sovereign debt might even have dramatic effects

for the domestic real estate investment market. If the corporate policy of a mul-

tinational real estate trust declares that the fund can only include real estate units located in countries above a certain investment grade, then the fund manager has no choice but liquidate all its real estate assets in the downgraded country.

In Hungary’s case, what if investors were to flood the real estate market with the possessions they were trying to get rid of? Luckily, this has not yet happened.

CHANGES OF HUNGARIAN REAL ESTATE FUNDS’ AGGREGATED NET ASSET VALUES (BILLION HUF)

source: BAMOSz

406

November 2011

411

September 2011

432

June 2011

429

March 2011

425

December 210

September 2010

382

June 2010

March 2010

366

409

“Moreover, this is not even “Mo likely to happen,” Ákos Balla, head o of valuation at Colliers Intern International, tells the Budapest B Business Journal. The purpo of such policies is to purpose protec the performance of protect the funds fun from the uncertainties of rents coming from risky economies. “Hungary’s risk, econo however, is of political nature,” howev says B Balla. Not to mention the fact th that trying to sell anything on the currently frozen Hunga Hungarian real estate market would only yield enormous llosses, lo sses, he adds.

His statements are reinforced by the assessment of the director of Austria’s largest real e estate fund, IMMOFINA NANZ Group. “It is true that media m reports on Hungary are critical, especially those relating to political issues However the country issues. m is in much better condition than generally g believed, above all fro from an economic standpoint,” says Eduard Zehetner, CEO of o the investment group.

“IMMOFINANZ has reg“IM istered major successes in Hungary and our position there remains solid. We assume the political tensions will soon ease and, in this way, provide a certain degree of relief for the business sector,” Zehetner adds.

KEYWORD: LIQUIDITY This, however, does not mean that downgrading Hungary has left the property market unaffected. Hungarianowned real estate investment funds do suffer from shaken confidence. All we can say about the recent situation is that autumn 2008 was in fact much worse, fund managers agree. At that time, real estate funds lost more than a half of their net asset value; compared to that, in 2011 they suffered only a one-tenth loss in value.

According to BAMOSz, the association of investment fund management companies, aggregated net asset value of real estate funds decreased from HUF 590 billion to HUF 260 billion between the summers of Contimues on next page

Questions and answers about Hungarian investment funds Was it a good year or a bad one?

2011 was rather difficult year for all sorts of investment funds in Hungary, as the market suffered from a huge withdrawal of equity – HUF 100 billion has left investment funds since last January. There are many reason behind this phenomenon. Monthly installments of CHF-denominated loans are rapidly increasing; bank deposits are growing more attractive, etc.

Could the downgrading to noninvestment category cause a panic?

Surely not. Degrading Hungarian sovereign debt in itself does not involve significant divestments. Fund managers buying and selling Hungarian state bonds are usually specialized in emerging markets, so their corporate policies allow them to have state bonds of noninvestment category in their portfolio. Of course, downgrading creditworthiness reflects worsening perspectives, inducing fund managers to oversee their investment strategy concerning Hungary.

When do asset managers take a bond for junk?

It depends on the fund in question. Aberdeen Asset Management, for example, always takes the best grade of the credit rating agencies (Moddy’s, Fitch, S&P), while Aegon always takes the worst. Most asset managers consider a bond to be junk if two of the big three have downgraded it. So Hungary fell out of the investment category last December.

Are bond funds more sensitive to downgrading than stock funds?

Theoretically, yes, since grading is about how credit worthy a country is. Practically, however, other factors might outperform this. According to investment experts, the more turbulent a political situation is, the more liquidity investors prefer. This is a bad news for real estate funds, but bond funds might actually be happy about it, as they could increase their net asset value.

Of course, short-term state bonds are more popular at this time.

WWW.BBJ.HU

18 SPECIAL REPORT

Company Website

1

QUAESTOR Securities Trade and Investment Nyrt

Average no. of full-time employees in 2010

2008-2009. Compared to the HUF 432 billion peak registered in January 2011, aggregated net asset value is still more than HUF 400 billion.

“During the crisis of 2008, investors cashed in their vouchers en masse, which profoundly challenged the liquidity of the whole investment fund market,” András Balogh, managing director of Raiffeisen Fund Manager tells the BBJ. The problem stems from the discrepancy between equity accumulation and the functioning of the real estate market.

“Investors expect their invested capital to be convertible immediately and without constraints,” Balogh explains. “The selling of a piece of investment real estate, however, can take six months to one year. As far as we were concerned, we remedied this discrepancy by turning our open-ended real estate fund into a close-ended one,” he says. This means it will be possible to cash in the fund’s vouchers in April 2013. “So the current turmoil does not affect us directly,” he concludes.

Erste, the biggest real estate fund in Hungary, still operates in an open-ended form.

“According to the Investment Funds Act, the ratio of our liquid assets has to be above 15%. As a matter of fact, in Erste Real Estate Fund the ratio of liquid assets is well above 40%,” says Balázs Pázmány, CEO of Erste Fund Manager. What is more, the act in question makes it possible that the liquid ratio be increased by loans, though its measure should not exceed 60% of the value of real estate assets. Erste Real Estate Fund has hardly any long-term liabilities at all, so the ratio of liquid assets may be increased by a further 35%. “This probably makes it clear why we do not plan to sell any piece of our real estate assets,” explains Pázmány.

Ranked by total net revenue

Ownership (%) Hungarian Non-Hungarian

Top local executive Finance director Marketing director

Address Phone Fax Email

25

QUAESTOR Financial Consulting Private Company Limited by Shares (42.10), QUAESTOR Tourist and Trading Company (28.40) –

Csaba Tarsoly – –

1132 Budapest, Váci út 30.

(1) 299-9999 (1) 299-9990 info@quaestor.hu

1995

214

Buda-Cash Vagyonkezelő Zrt (50 fölött) –

János Gyarmati, Péter Tölgyesi – –

1118 Budapest, Ménesi út 22.

(1) 235-1500 (1) 235-1599 info@budacash.hu

Investment banking services

1993

112

Hungarian company (40.50), Individuals (19.90) Foreign company (39.60)

Árpád Pál – András Szabadi

1123 Budapest, Alkotás utca 50.

(1) 489-2200, (30) 344-2700 (1) 489-2201 info@con.hu

4,234

Financial service provider

1990

131

Erste Bank Hungary Ltd (100) –

Róbert Cselovszki – –

1138 Budapest, Népfürdő utca 24–26.

(1) 235-5100 (1) 235-5190 erstebroker@erstebroker.hu

1,589

131

Investment banking services

1991

66

– –

András Gereben, Bálint Szécsényi – –

1037 Budapest, Montevideo utca 2/C (1) 430-3980 (1) 430-3981 equilor@equilor.hu

1,164

613

Hungarian and international securities trade, share analysis, corporate finance consultancy, deposit management

2005

»

– KBC Securities N.V. (100)

Eddy D’Hertoge – –

1051 Budapest, Széchenyi István tér 7–8.

(1) 483-4000 (1) 483-4001 kbcsecurities@kbcsecurities.hu

467

47

Investment banking services

1998

52

István Seres (50), Lászlóné Kecskés (50) –

István Seres, Lászlóné Kecskés – –

2700 Cegléd, Rákóczi út 30.

(53) 311-664, (1) 311-665 (53) 316-400 info@hbe.hu

392

5

Investment banking services

2000

28

SPB Management Consulting Kft (100) –

Tamás Parádi Mónika Varga –

1051 Budapest, Vörösmarty tér 7–8.

(1) 483-2610 (1) 483-2615 julianna.szeplaki@spbinvest.hu

337

10

Investment banking services

2006

23

Zsolt Gábor Szabó (100) –

Örkény Szűcs Gyula Siklér Tamás Heitner

1062 Budapest, Váci út 1–3/C (1) 880-8777 (1) 880-8787 solar@solarcapital.hu

267

-8

Investment banking services

1992

36

CODEX Security Printing House Ltd (55.75) –

Péter Galambos – –

1117 Budapest, Infopark sétány 3/B (1) 815-6500 (1) 320-0340 info@ertektar.hu

246

-42

Investment banking services

2008

14

Ildikó Szántóné Vukics (40.40), István Hanyecz (31.10), Péter Csaba Móri (19), Nándor Tóth (9.50) –

Nándor Tóth Ildikó Szántóné Vukics –

1052 Budapest, Vármegye utca 3–5.

(1) 501-3300 (1) 700-2900 info@randomcapital.hu

215

-10

Investment banking services

1999

34

– iFOREX Holdings Ltd

– – –

1054 Budapest, Szabadság tér 14.

(1) 880-8400 (1) 880-8440 info@iforex.com

5

Szergej Keresztesi (67.62), László Szászkő (9.52) –

Szergej Keresztesi – –

1025 Budapest, Nagybányai út 76/A (1) 412-0145, (1) 412-0146 (1) 412-0149 hungarograin.rt@ hungarograin.t-online.hu

Piroska Marsi Kruchió – Tamás Bakács

1053 Budapest, Kossuth Lajos utca 4.

(1) 266-9095 (1) 483-3069 ertekpapir@realszisztema.hu

Consolidated profit in 2010 (HUF mln)[1]

Activities and services

3,805

100

Financial service provider

1996

3,610

343

Investment banking services

3,565

1,273

3,084

Total net revenue (HUF mln) 2010

www.quaestor.hu

2

3

4

BUDA-CASH Brokerage Plc. www.budacash.hu

Concorde Securities Ltd. www.concordert.hu

Erste Investment Management Co. www.erstebroker.hu

5

EQUILOR Investment Company Ltd. www.equilor.hu

6

7

8

9

KBC Securities Hungarian Branch Office[2] www.kbcequitas.hu www.kbcsecurities.hu

HUNGÁRIA Equities Inc. www.hungariaertekpapir.hu

SPB Investment Plc. www.spbinvest.hu

Solar Capital Markets Securities Trading Zrt www.solarcapital.hu

10

11

12

13

CODEX Stockbroker Zrt www.ertektar.hu

Random Capital Broker Zrt www.randomcapital.hu

iFOREX Brokerage Ltd. www.iforex.hu

HUNGAROGRAIN Broker Services Zrt

20

Investment banking services

148

0

Investment banking services

1997

27

Reálszisztéma Trade and Equity Management Kft (99), Piroska Marsi Kruchió (1) –

132

12

investment banking services

2009

5

Condora Financial Consulting Kft (100) –

Péter Heim – –

1013 Budapest, Pauler utca 6.

(1) 789-0085 (1) 789-0080 gabri.zsuzsa@ atticusinvestments.hu

118

40

Investment banking services

1998

9

Helikon Travel Agency Kft (79), Péter Koltai (21) –

Tibor Horváth – –

8360 Keszthely, Erzsébet királyné útja 21.

(83) 314-300 (83) 510-580 –

117

23

Investment banking services

2007

14

József Prantner (48.80), STRATEGO Kft (26), Viktor Farkas (9.60), Elek Nagy (9.60), Nikolett Kiss (6) –

József Prantner – –

1036 Budapest, Lajos utca 11–120.

(1) 387-5741 (1) 387-5744 info@strategon.hu

33

Investment banking services

6

AEGON Hungary Investment Fund Management Closed Company Limited

by Shares (100) –

Andrea Palyik – –

1085 Budapest, Kálvin tér 12–13.

(1) 476-2043 (1) 476-2030 forgalmazo@aegon.hu

152

www.hungarograin.hu

14

15

16

17

18

Reálszisztéma Securities Trading and Investment Co. www.realszisztema.hu, www. rbroker.hu

ATTICUS INVESTMENTS Zrt www.atticusinvestments.hu

PLÁNINVEST Bróker Zrt www.planinvest-broker.hu

STRATEGON Securities Co. www.strategon.hu

AEGON Hungary Tracker Certificate Seller Zrt www.aegonforgalmazo.hu

Year established

IMMOFINANZ GROUP IS NOT CURRENTLY PURSUING AN OFFENSIVE EXPANSION AND ACQUISITION STRATEGY IN HUNGARY. OUR FOCUS IS ON THE PROPERTIES WE CURRENTLY OWN

INVESTMENT COMPANIES

Rank

The BBJ’s Book of Lists contains 100+ sector-specific listings of leading companies. The Book of Lists comes free with a BBJ subscription, or can be ordered separately by e-mailing circulation@bbj.hu

Budapest Business Journal | Jan 13 – Jan 27

96

2002

2008

NOTES: (1) From the database of Hungarian Financial Supervisory Authority. (2) Data from KBC Equitas Broker Zrt which merged with KBC Securities N.V. on July 1, 2011.

WWW.BBJ.HU

SPECIAL REPORT 19

Budapest Business Journal | Jan 13 – Jan 27

Company information

Database management

Consulting

Year established No. of full-time employees on Jan 1, 2012

Ownership (%) Hungarian NonHungarian

Other

Ranked by total net revenue

Debt monitoring

980 –

9

9

9

9

–

» » » »

1996 30

– Euler Hermes S.A. (100)

850 –

9

9

9

9

Factoring, collecting worldwide

» » » »

2002 –

9

» » 9

Real estate auctions

9

9

1999 82

9

9

» » » »

1990

Euler Hermes Debt Management Hungary Ltd. www.eulerhermes.hu

Service sector

1

Banking

Company Website

Total net revenue (HUF mln) 2010 H1, 2011

Target sector

Insurance

Services

Telecom

OTP’s real estate fund is also operating in an open-end form. Thus it pays much attention to optimizing its real estate exposure.

Keeping liquid assets in Hungarian state bonds would be a possibility, although it has its risks, CEO Balázs Tóth points out. “In case the yields of state bonds increase (as has happened in Hungary), state bonds in the fund’s stock have to be downgraded, which can have a negative impact on the performance the fund itself,” he says. “As far as OTP Real Estate Fund is concerned, there are no state bonds in its portfolio.”

DEBT MANAGEMENT COMPANIES

Rank

The BBJ’s Book of Lists contains 100+ sector-specific listings of leading companies. The Book of Lists comes free with a BBJ subscription, or can be ordered separately by e-mailing circulation@bbj.hu

Top local executive Finance director Marketing director

Address Phone Fax Email

Gábor Varga Roland Nagy Tünde Kirschner

1037 Budapest, Kiscelli utca 104.

(1) 453-9000 (1) 453-9009 info@eulerhermes.com

DETERIORATING FUNDAMENTS Foreign exchange rates do not directly affect the yield of any fund, as rents are commonly denominated in euros. The falling forint, however, is a sensitive issue for tenants whose revenue comes in the Hungarian currency, while their expanses (like rental costs) have to be paid in euros. “Some of our tenants would like to modify their contract by inserting an additional ‘forint ceiling’ clause which would maximize the forint/euro exchange rate applied during the renting period,” a fund manager who asked not to be named tells the BBJ. Bad news from Hungary is discouraging new tenants, as well as negatively influencing the strategic decisions of old tenants. “Many of our clients are operating shared service centers in Budapest,” Ákos Balla from Colliers International told the BBJ. “Exaggerated as it is, the possibility of Hungary’s insolvency makes them deeply worried about the safe operation of their service centers,” he says in reference to the echoes of Hungary’s bad recent international press.

Foreign funds have become increasingly cautious about new investments in the region.

“IMMOFINANZ Group is not currently pursuing an offensive expansion and acquisition strategy in Hungary. Our focus is on the properties we currently own, and we are working to progressively reduce vacancies and increase occupancy,” Zehetner says.

There are, however, some funds in the region that are acquiring new investment buildings even now. Chicago-based Heitman LLC announced plans to expand its Budapest real estate portfolio with six Class A office properties totaling approximately 100,000 square meters. The Hungarian-owned multinational TriGranit developed four, while two other premium category office buildings were sold by London-based Aviva Investors.

Rob Reiskin, Heitman’s Managing Director and Co-Head of Europe comments, “Heitman is an experienced investor in Budapest and while the city’s property market faces challenges, we are confident that the combination of attractive entry pricing, transaction structure, the strength of our local partner and the support provided by our lenders will help to provide our clients with a strong risk adjusted return.”

The BBJ would have liked to learn more about Heitman’s strategic plans in Hungary: Reiskin, however, declined to comment on the deal.

Falling prices might attract “opportunity buyers”, but Heitman is too big to purchase anything just for its cheapness. According to market rumors, the yield of the four TriGranit office buildings was well beneath 8%.

“It is not an opportunity price at all,” one source tells us. AZs

2

Intrum Justitia Debt Management Plc. www.intrum.com/hu

3

4

5

6

7

8

Creditexpress Hungary Kft www.creditexpress.hu

Coface Hungary Credit Management Services Kft

635

www.coface.hu

»

EOS KSI Hungary Kft

473

9

9

–

www.eos-ksi.hu

»

9

9

9

9

–

Sigma Debt Management Zrt

301 189

9

» »

9

Worldwide collecting, factoring

www.sigma.hu

Creditreform Ltd.

278 –

www.creditreform.hu

Bross Holding Executive Consulting Zrt

262

»

www.brossholding.hu

9

772 396

Credit Controll Debt Management and Information Provider Kft

219

»

9

9

9

9

Marketing

– Intrum Justitia BV Péter Felfalusi (99), Intrum Justitia Tamás Szabó Debt Finance – AG (1)

– Arvato Infoscore GmbH (100)

Károly Deszpot Péter Szabó –

1146 Budapest, Hungária körút 179–187.

(1) 666-2301 (1) 666-2346 info@creditexpress.hu

– Coface Central Europe Holding AG (100)

Gábor Kárpáti Adél Korsós András Bagyura

1094 Budapest, Tűzoltó utca 57.

(1) 299-2070 (1) 216-7311 office@coface.hu

»

– EOS International BV GmbH (100)

Péter Thummerer Katalin Pernyész –

1132 Budapest, Váci út 30.

(1) 885-0100 (1) 412-3600 info@eos-ksi.hu

» » » »

1923 –

Individuals (100) –

László Pongrác Lászlóné Takács László Pongrác

1025 Budapest, Kapy utca 15.

(1) 200-7227 (1) 200-4552 info@sigma.hu

» 9

9

1990 28

– AM Holding (100)

Dávid Nagy, Wolfgang Metz – –

1084 Budapest, József utca 13.

(1) 333-3000 (1) 333-3111 creditreform@ creditreform.hu

András Bánky (100) –

András Bánky – Roland Kinyó

1083 Budapest, Baross utca 119/A (1) 459-6500 (1) 210-1735 iroda@brossholding.hu

Gyula Antolik – –

1133 Budapest, Váci út 110.

(1) 456-0854 (1) 215-6305 info@creditcontroll.hu

9

9

9

9

9

9

9

»

1997

9

9

9

9

–

» » » »

1997 47

9

9

9

9

Sector analysis

» » » »

2002

»

Individuals (100) –

» » 9

2009 20

Individuals (100) –

Gábor Senkáriuk – –

1147 Budapest, Fűrész utca 106.

(1) 999-1070 (1) 999-1071 posta@creditforte.hu

» » » »

2005 5

CRS Közép-Európai Hitelbiztosítási Alkusz Kft. » ( ), Schmidt Ákos » ( ) –

Ákos ScmidtPéter Szemtirmay – –

1112 Budapest, Eper utca 33.

(1) 248-0067 (1) 248-0068 info@creditmanagement.hu

www.creditcontroll.hu

10

11

www.creditforte.hu

174 –

9

9

9

9

Telemarketing, vehicle and asset recovery and repossession

Credit Management System Kft

69 –

9

9

9

9

Education, credit insurance, analysis

Creditforte Kft

http://www.creditmanagement.hu

»= would not disclose, NR = not ranked, NA = not applicable

1139 Budapest, Pap Károly utca 4–6.

(1) 459-9400 (1) 459-9560 info@intrum.hu

9

This list was compiled from responses to questionnaires received by Jan 10, 2012 and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press time. While every effort is made to ensure accuracy and thoroughness, omissions and typographical errors may occur. Additions or corrections to the list should be sent on letterhead to the research department, Budapest Business Journal, 1075 Budapest, Madách Imre út 13–14., or faxed to (1) 398-0345. The research department can be contacted at research@bbj.hu

WWW.BBJ.HU

20 SPECIAL REPORT

Budapest Business Journal | Jan 13 – Jan 27

Will putting out the smoke put out the fire?

Non-smoking Hungarians can breathe easier again, as Hun-

at their lowest level since the 1930s, ascribing a 7% fall in sales during 2007 to the smoke-free regulations. gary has adopted the strictest smoking ban in the EU, which In Ireland, after the implementation of the smoking ban, it was speculated by opponents that the smoke-free workplaces prohibits smoking in all closed public areas, including restaulaw would increase the amount of drinking and smoking in the home, but recent studies have shown this was not the case. Howrants, bars, and cafés. But some worry about the negative ever, it has been claimed that the smoke-free law was a significant contributing factor to the closure of hundreds of small rural pubs, economic impacts of the measure, and say that Hungary, with almost 440 fewer licenses renewed in 2006 than in 2005.

However, foreign examples show that businesses in most counonce again, has thrown out the baby with the bath water. tries were able to make up for the losses within a few years. But the situation in Hungary is different, argues Tamás Háber, hosGroups of people standing on the street smoking cigarettes in pitality expert and honorary president of the Industry Corporafront of bars, cafés and pubs, with beer or coffee mugs in hand – tion of Hungarian Caterers (MVI). this is a common scene in several European cities, and has been “In the majority of those countries, the stricter rules were intropart of the street view in Hungary too since January 1, when a duced before the recession. In the midst of the worsening crisis, it new smoking ban came into force. might take a lot longer for the Hungarian hospitality sector to get back on its feet again,” Háber told the Budapest Business Journal. In Hungary has gone from liberal to mercilessly strict. The legislation in effect as of January 1 is the toughest in Europe, his opinion, Hungarian catering businesses will take in four to five years to recover their losses. while the previous regulation was rather lax, prohibiting The expert said he expects a 10-15% decline in industry turnover as smoking only in certain areas, such as in educational institutions, bus stops and underpasses, but making it possible to a result of the tougher laws. “But due to the slowing economy, it is create designated smoking areas in workplaces, health care hard to say whether this will mainly come from weak consumpinstitutions and closed public areas. tion or will be the result of banning smoking customers from resAs of January 1, workplaces, closed public areas, restaurants, taurants, bars and cafés,” Háber said. bars, cafés, health care and educational institutions have fallen under a total ban, as well as playgrounds, bus stops and their DEADLY SERIOUS five-meter proximity. Europe’s only other similarly tough law was introduced in Spain in 2011.

Supporters of the law say, however, say health statistics give Amongst other European countries, Ireland became the first country solid ground to enact tough legislation. The figures are worin the world to institute an outright ban on smoking in workplaces in risome. In terms of the number of smokers and the num2004. Before the total ban, smoking had already been outlawed in 1988 ber of cigarettes smoked, Hungary is in the top league in public buildings, hospitals, public pharmacies, schools, banking halls, amongst European countries. With 428 deaths out of every 100,000 linked to smoking in 2009, Hungary took cinemas, restaurant kitchens, parts of all restaurants, on public transport third place in the EU. aircraft and buses, and some trains. Now Ireland, together with Greece (a According to estimates by the National Health Developcountry with a higher than 40% smoking rate, the highest in Europe) and ment Institution (OEFI), the combined direct and indithe UK, has the third toughest smoking ban in force. rect cost of smoking (including, among other things, BAD TIMING medical treatment, days absent from work, the cost of disability pensions and the cost of medicine) was In countries where anti-smoking laws were introduced, the hospitality secbetween HUF 379–397 billion in 2004.

But there is another side to the argument: the “benefit” of tor suffered significant losses in the first few years after implementation.

In the UK, smoke-free regulations came into effect in Scotland in 2006, smoking, in the form of tax forints falling into state coffers. The central budget collects significant revenues from and in Wales, Northern Ireland and England in 2007. Six months after implementation, the Licensed Victuallers Association Wales, which repthe excise tax and the value added tax (VAT) on tobacco resents pub operators in the principality, claimed pubs had lost up to 20% products. In 2004, excise tax revenue on tobacco products of their trade. The British Beer and Pub Association (BBPA), which repcame to HUF 183.9 billion, and VAT generated another HUF 73.9 billion; HUF 257.8 billion altogether. resents pubs and breweries across the UK, claimed that beer sales were

BREAKING THE HABIT Market players have mixed reactions to the introduction of the new law. Although it ensures a three-month grace period for catering business owners (which means that officials from the national public health service, ÁNTSz, can only impose fines from April), the majority declared their restaurants or cafés a non-smoking unit as of January 1.

“This way, by the time sanctions will be taken in the spring, our guests will be accustomed to the fact that we are a nonsmoking facility,” said András Krajnyik, co-owner of the Hivatal Café in downtown Budapest.

Others, such as the Manga Cowboy restaurant on Ráday utca, have employed a pro-active approach, already introducing a total ban last spring.

“We became a non-smoking facility in April, and it was when we opened our terrace,” said Iván Sándor, the eatery’s owner. “This way, the transition was smoother than it would have been in the winter season.” The restaurant has a designated smoking area outside, with tables and a roof, and, according to Sándor, even smoking guests appreciate that they can eat in a smoke-free environment.

“There was no drop in our turnover, what’s more, we have gained new, non-smoking customers,” he added.

EARLY DAYS But it is still the early days of the total smoking ban: only ten days after its implementation, it is hard to tell what the real effects of the new law on catering businesses will be.

“In my opinion, it will take at least three to four months until we will start to see the consequences,” Háber from MVI said.

“In Hungary, about 28-30% of the population eats at restaurants regularly, as opposed to some other European countries where this may reach up to 70-80%. I’m concerned that Hungary’s low rate will drop further in the near future.”

While he completely agrees with the protection of nonsmoking guests, Háber, a non-smoker himself, believes that the ideal time for introducing a total ban would be in a few years’ time, when “the economy will hopefully be better, so the negative economic effects of the ban would be easier to offset”. Until then, he said, the previous regulation should have been left in place. ■

SMOKING BY NUMBERS Hungary is among the

garia (42% and

worst

respectively). Data from

when

it

comes

European

39%,

to the share of smok-

the

Commis-

ers in the population.

sion shows that 38% of

In the EU, the propor- Hungarian adults (above tion of smokers is higher

age 15) regularly smoke;

only in Greece and Bul-

the share is 50% in the

25-39 tried smoking, and 23% and falls to 20% among light up regularly. The those above the age share of those exposed to of 55. Among 15-24 smoking at workplaces year olds, 39% smoke. or at home is also high: Of 13-15 year olds, 45% and 38%, respeca shocking 60% have tively. Within the EU, the age group of

average share of smokers is

29%.

Following the

in the middle (share of smokers ranging between

top three nations, Latvia,

26%

Spain and Austria have the

land and Sweden boast

largest numbers of smok-

the

and

fewest

30%).

Fin-

percentage

ers, with Romania, the UK, of smokers, a respective Denmark, and Italy being

21% and 16%.

LIFE WHO'S NEWS

Name Gerhard Sturm Current company/position Sony Ericsson/vice president CEE Previous company/position -/-

Name Zoltán Petykó Current company/position Mavir/chairman of the supervisory board Previous company/position -/-

Sturm has been appointed vice president responsible for the CEE region at Sony Ericsson. He joined the company in 2006 and worked as managing director, responsible for Portuguese and Spanish operations. Sturm will now oversee the company’s operations in 19 countries, including Hungary.

Previously, he gained experience in the FMCG sector, having worked at L’Oreal in Austria and Spain. He has an MBA from IESE Business School in Spain and completed further studies in the UK and China.

Hungarian system integrator Mavir appointed Zoltán Petykó chairman of the supervisory board on January 4. Previously, he was a member of the board of directors. An economist by profession, he has been honorary chair of the Budapest Chamber of Commerce and Industry since 2008.

He was vice chair of the Hungarian Chamber of Commerce and Industry and chair of the BCCI between 20042008. Earlier, he was CEO of Ravill Rt, and held various top management positions at Phylaxia Pharma, Bábolna Rt and Hungexpo Rt.

Do you know someone on the move?

Send information to research@bbj.hu

Name Gábor Kardos Current company/position Ringier/director of digital division Previous company/position Index.hu/managing director

Name Alexandra Kulcsár Current company/position Ernst & Young/manager of IT consulting services Previous company/position Optimum4 Kft/ managing director

Kardos took over as head of the digital division of publishing house Ringier at the beginning of January 2012. He arrived at Ringier from online news portal Index.hu. He started work at Index.hu in 2000 as project manager, and was named publishing director at the end of 2001. Between 2007 and 2011 he was managing director of Index. hu. He also worked as business development director of CEMP, the owner of Index.hu.

Kulcsár joined Ernst & Young last November as manager at the company’s IT consulting services.

She had worked as managing director of consultancy Optimum4 Kft in the past 11 years. She started her career in the logistics industry in 1996 and worked as pre-sales consultant and sales manager at various software companies.

SPONSORED BY

Name Pál Pauer Current company/position Cellum Global Zrt/deputy CEO responsible for sales Previous company/position GTS-Datanet/ managing director

Name Gergely Kocsis Current company/position Ernst & Young/manager of financial services Previous company/position AAM Zrt

Pauer held various management positions at the GTS group in Hungary and Poland during the last 15 years. He started his career as sales manager at GTS Datanet and was later named sales director of GTS Polska. He returned to GTS-Datanet in 2001 and worked as marketing and sales director. When the company was acquired in 2008 by a US-based financial investment company, he was named managing director of GTS-Datanet.

Kocsis has ten years of experience in the financial sector: he had held top management positions at OTP Bank and CIB Bank in the area of sales, product development and financing. He launched his own financial consultancy in 2009. Later he joined Ness Hungary Kft as senior consultant.

He graduated from the College of Finance and Accounting and also holds a diploma from the University of Miskolc.

E X PA T A D V IC E F O R N E WC O M E R S

BETZALEL KENIGSZTEIN CEO, UPC Hungary

Born in Argentina to a family of Polish origin in 1961, Kenigsztein has more than 20 years of experience in the telecom industry. He was appointed CEO of UPC Hungary in June 2009.

Before that, he was chief technology officer at UPC Netherlands, the largest UPC operation.

Between 1989 and 2003 he held a range of senior management positions in Tevel and Tevel Telecom, a leading cable television operator in Israel, at the time 50% owned by UPC’s parent company. Having led the establishment of Tevel’s cable network infrastructure, he was later responsible for the introduction of advanced services and technologies over the CATV network, including fast internet, digital video, and interactive applications. He was also in charge of business development, including potential telecommunications projects abroad, mainly in Central Europe. In 2002, he was appointed general manager of Tevel Telecom, which was established to deploy and operate data and telephony services for the three merged cable operators in Israel.

He holds an MBA from Bar Ilan University in Israel majoring in marketing, and is a Bachelor of Science in Electrical Engineering Cum Laude from Technion, a leading technology institute in Israel.

He speaks fluent English, Spanish and Hebrew, and is married with three children.

WHEN DID YOU ARRIVE IN HUNGARY AND WHAT BROUGHT YOU HERE? A challenging job proposal brought me to Hungary in mid-2009. After more than 20 years spent in the cable industry, in senior management positions in Israel and the Netherlands, it is very exciting to drive this company through essential changes in a highly competitive environment.

WHAT HAD YOU HEARD OF HUNGARY BEFORE YOUR ARRIVAL? I had the notion that Hungary would be a beautiful country populated with smart and hard working people.

WHAT DO YOU THINK OF HUNGARY NOW? Now I know that Hungary is indeed an especially beautiful country, with smart and hard working people. And with certainly the most difficult language in the world.

WHY IS HUNGARY IMPORTANT TO YOUR COMPANY? This is one of the key markets of UPC’s 11 country operations in Europe, as Hungary has been one of the oldest and biggest operations within the family and especially in Central Europe. On many occasions Hungary

has been among the first countries to roll out new technologies and it is also one of the best performers in accomplishing the company’s so called Triple Play strategy.

IF YOU HAD A CHANCE, WHAT WOULD YOU IMPORT TO HUNGARY (IDEA, PRODUCT, MENTALITY, ETC.)?

If I could, I would bring financial stability to the average Hungarian, which would hopefully change their view of life into something more optimistic.

WHAT WOULD YOU TAKE WITH YOU FROM HUNGARY TO YOUR HOMELAND (IDEA, PRODUCT, MENTALITY, ETC.)?

The sharp minds and the splendid Budapest landscape.

BESIDES BUSINESS, DO YOU HAVE OTHER TIES TO HUNGARY? Not yet, but I could potentially have some in the future.

WHAT WOULD BE THE ADVICE YOU’D GIVE TO AN EXPAT WHO IS JUST ABOUT TO ARRIVE IN THE COUNTRY? Discover the excellent food and the beautiful places, enjoy your time hiking the Buda hills and taking in the breathtaking view! PF

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22 PEOPLE

Budapest Business Journal | Jan 13 – Jan 27

The business wish list

UPCOMING

events

The year 2012 promises to be anything but easy. Hungary is struggling to avoid the threat of possible state bankruptcy, the future of the eurozone is still in doubt, and even traditionally strong economies might face recession. Under such difficult circumstances, the support and strength foreign chambers of commerce offer their members are more important than ever. The Budapest Business Journal asked the leaders of several chambers operating in Hungary how the government could help the operations of their member companies. PF

IF THE GOVERNMENT COULD GRANT YOU ONE PIECE OF PRO-BUSINESS LEGISLATION FOR 2012, WHAT WOULD IT BE?

JAN. 17 The New Labor Code “A Practical and Essential Guide for Employers” LOCATION Szecskay Attorneys at Law, 1055 Budapest, Kossuth tér 16-17, 3rd floor TIME 9 a.m. – 11 a.m.

FEE members: HUF 3,000+VAT/person; non- Members: HUF 5,000 HUF+VAT/ person ORGANIZER Netherlands-Hungarian Chamber of Commerce; Szecskay Attorneys at Law CONTACT www.dutcham.hu

STEVEN SEFER

ISTVÁN HAVAS

GERGELY MIKOLA

PRESIDENT GERMAN-HUNGARIAN CHAMBER OF INDUSTRY AND COMMERCE

PRESIDENT AMERICAN CHAMBER OF COMMERCE IN HUNGARY

CHAIRMAN BRITISH CHAMBER OF COMMERCE IN HUNGARY

First of all companies expect a calculable and reliable legal framework, which does not alter or even inhibit business conditions radically within unreasonably short periods of time, and which respects existing, lawfully acquired rights of companies and individuals.

The most important probusiness measure would be if the government actually started to take seriously the needs of the business in its policy making. Significantly increased employment – which is a major goal – will only ensue from a flourishing business sector. The corporate and banking sectors suffer now from unpredictable political decision-making, anti-multinational sentiment, one-sided communication between business players and government and mutual lack of trust. If I could suggest or request one single measure I would probably vote for lifting the excessive pressure on the commercial banks, followed closely by eliminating the unorthodox sectorspecific taxes.

ERIC LAVOST PRESIDENT FRENCH-HUNGARIAN CHAMBER OF COMMERCE AND INDUSTRY Fight against tax evasion, especially VAT fraud, to make sure that competition is fair between local companies and multinationals.

JAN. 16 AmCham Communications School with Ákos Róbert, Deputy General Director, RTL Klub LOCATION AmCham Conference Room, 1051 Budapest, Szent István tér 11.

TIME 6:30 p.m. – 8 p.m.

FEE members: HUF 30,000+VAT/person for the entire series; non-members: HUF 45,000+VAT/person for the entire series ORGANIZER American Chamber of Commerce in Hungary CONTACT www.amcham.hu

Tricky question. Not going around it, but my firm position is that it’s not how probusiness a legislation looks or indeed is; it is how predictable and sustainable your environment is. In business, we tend to like simple things, like excel sheets. It is not by far only about the multipliers you have in your excel. At least as important, or even more, is how often you have to change your excel sheet.

JAN. 17 AmCham Career School Series, Spring 2012 with István “Kokó” Kovács LOCATION AmCham Conference Room, 1051 Budapest, Szent István tér 11 TIME 6:30 p.m. – 8 p.m.

FEE AmCham members: HUF 30 000+VAT/person for the entire series; Non-members: HUF 45 000+VAT/person for the entire series ORGANIZER American Chamber of Commerce in Hungary CONTACT www.amcham.hu JAN. 19 Business Lunch with the French-Hungarian Chamber of Commerce and Industry LOCATION Intercontinental Hotel, 1052 Budapest, Apáczai Csere J. u. 12-14.

TIME 12:30 a.m. – 2 p.m.

FEE Members: HUF 5,000+VAT; non-members: HUF 7,500+VAT ORGANIZER Netherlands-Hungarian Chamber of Commerce; French-Hungarian Chamber of Commerce and Industry CONTACT www.dutcham.hu The Budapest Business Journal is happy to publish news on business, social or charity events in its calendar section. Please submit your request at least two weeks in advance of publication date to news@bbj.hu

BBJ-PARTNERS Netherlands - Hungarian Chamber of Commerce

Media representation: Absolut Media Zrt Address: Madách Trade Center 1075 Budapest, Madách Imre út 13-14., Building A, 8th floor Telephone +36 (1) 398-0344, Fax +36 (1) 398-0345, www.bbj.hu Editor-in-chief: ANDRÁS RÁC a.rac@bbj.hu • Copyeditor: TAMÁS DEME • Proofreading: ROBIN MARSHALL Editorial staff: PATRICIA FISCHER, ANIKÓ JÓRI-MOLNÁR, GABRIELLA LOVAS, ZSÓFIA VÉGH • Lists: BBJ RESEARCH (research@bbj.hu) News and press releases: news@bbj.hu Design: ABSOLUT DESIGN STÚDIÓ (production@bbj.hu) • Art director: Tamás Tárczy • CEO: TAMÁS BOTKA (publisher@bbj.hu) Operations director: BALÁZS ROMÁN • Advertising: ABSOLUT MEDIA KFT (hirdetes@amedia.hu) • Sales: Viola Farkas (viola.farkas@bbj.hu) Circulation and subscriptions: Vanda Taletovics-Vedres (circulation@bbj.hu) • Printing: Absolut Print Kft

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LIFE 23

Budapest Business Journal | Jan 13 – Jan 27

Hungary’s art market after 2008: Playing safe Art has always been, and always will be, a form of investment that preserves its value. Although the generally worse economic conditions have left their marks on the art market in Hungary, collectors and investors still show undiminished interest in auctions.

However, auction houses have needed to adjust what they put under the hammer accordingly. Where, before the crisis, they could count on impulse buyers, now collections are put together more carefully, avoiding ‘risky’ artworks.

as the Swiss franc most recently), it can be looked at as a safe-haven currency.

“Art still has this role today, although there is not enough cash in people’s hands these days,” Einspach says.

There are two types of people turning up at auctions: collectors and investors.

The border between them, however, is blurred, according to Einspach. In his opinion, even those buying artworks as an investment are likely to develop artistic interests.

“I believe that everyone involved in this segment gets ‘infected’ sooner or later,” he claims.

The circle of those attending auctions has changed in the past few years. “Massive amounts of people have stopped visiting auctions because of financial difficulties. But we have seen new a new circle of buyers appearing on the market, and our winter auctions were rather successful,” Törő says.

While artworks have a

certain market price, they are more than just a simple investment.

“Even those buying for investment purposes don’t buy them solely for making money. Artworks carry additional values, they are more personal than any other investment forms,” he notes.

Although the market has weathered the crisis of 2008, if another recession is coming, galleries and auctions houses will face a difficult period.

“But if things start to get better in the economy, the art scene will see a further upswing,” Törő claims.

WHAT SELLS THESE DAYS? Art, being more liquid these days than, say, properties, is still a good form of investment. It keeps its value in the long run, in spite of the fact that the art market has also been exposed to the generally depressed economic environment.

“In the last 20 years, art-

WHEN PUTTING TOGETHER A CERTAIN COLLECTION FOR AN AUCTION, THERE ARE TWO MAIN FACTORS WE NEED TO CONSIDER: ONE IS QUALITY, AND THE OTHER IS MARKETABILITY OF THE PIECES. Gábor Einspach, Kieselbach Gallery and Auction House work prices have kept increasing. The crisis in 2008 somewhat slowed this process, but hasn’t reverse it,” Einspach notes.

But others say that liquidity is not common across all segments of the art market.

“As I see it, only top category artworks have certain liquidity these days,” says Péter Pintér, co-owner of Pintér Auction House. “They definitely keep their prices, but on the other hand, collectors who own such pieces are reluctant to sell them under today’s market conditions. Only a few of these

THEMED UP

top artworks make it to the market, usually from collectors who are struggling with financial difficulties.”

Einspach agrees, explaining that, “People are more willing to get rid of their badly performing shares or sell their properties than part with their artworks.”

Given generally negative market sentiment, the art market naturally performs less successfully, but experts are optimistic: if the economy gets on the path to recovery, it will boost this particular segment as well.

“When we started organizing auctions, we didn’t have a clear concept. But as time went by and the auctions market was oversupplied, we soon realized that we need a strategy,” Pintér recalls. “That’s when we started to organize thematic auctions, and we found that this model worked despite the crisis.”

Although traditional auctions in May and December are still held, the future lies in these thematic auctions, he claims. Hungarians mainly visit traditional auctions, whereas themed auctions attract a great number of foreign collectors and investors.

“Our Zsolnay auctions, for example, usually see an international crowd with mainly Russians and Austrians buying,” Pintér says.

“At another auction, where social realistic artworks went under the hammer, a large number of American buyers showed up.”

BBJ PATRICIA FISCHER

PASSION OR MONEYMAKING? Art has always been worth keeping in storage; like some currencies (such

CONTEMPORARY CONCERNS

Artwork: Károly Patkó, Italian town, 1930 (Photo provided by Judit Virág Gallery

“When putting together a certain collection for an auction, there are two main factors we need to consider: one is quality, and the other is marketability of the pieces,” Gábor Einspach from the Kieselbach Gallery and Auctions House tells the Budapest Business Journal. “Lately, the latter factor has come to the focus of attention as houses want to attract potential buyers and run fewer risks.”

The arts market is adjusting according to the economic climate. In order to be successful, auction houses need to adjust their offerings to future needs, agrees István Törő, managing director of the Virág Judit Gallery.

Törő says the art market in general hasn’t been affected by the crisis to the extent that some other areas have.

“After all, this is a segment with high-value products, and with a still relatively strong purchasing power,” he says. “I think gallery owners and auction organizers can do a lot to help recovery, with, for example, correct and transparent pricing.”

As for the various sub-segments of the art market, older paintings have weathered the crisis well, while contemporary art is the biggest loser of the crisis, experts say.

“People buy antique paintings because these artworks are still looked at as safe investments. In many cases, buyers will go for a mediumquality antique painting rather than a high-quality contemporary artwork,” Pintér explains.

The contemporary art scene saw better days before 2008, but such positive tendencies have been nipped in the bud with the crisis hitting Hungary.

“Many collectors just don’t want to risk it now,” he says.

In his opinion, such topcategory contemporary artworks are now good value.

“If I can give one piece of advice to collectors and investors, it would be this: now is the time to buy contemporary art.” PF