Budapest Business Journal 21/02

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VOL. 21. NUMBER 02 JJAN 25, 2013 – FEB 07, 2013

Budapest Business Journal

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

Unused youth A shrinking economy does not help the young find jobs, meaning governments need to step in until growth returns.

PAGES 10-11

SPECIAL REPORT

NEWS

SOCIALITE

Taxation trends in Hungary

A living legend – Kornai at 85

Warning: Snow falls in winter!

The Budapest Business Journal asks tax experts what they think will be the impact of the latest changes, what new taxes might be levied in 2013 and what Hungary’s goverment has sacrificed in its quest to meet the deficit target.

PAGE 12

Innovation, healthcare and pensions, and education were the three main focus points of a one-day symposium held to commemorate renowned Hungarian economist János Kornai’s 85th birthday.

PAGE 07

This winter might provide everyone with a highly unpredictable business environment, but one thing seems sure: a major snowfall over Budapest will result in traffic chaos.

The BBJ looks into what caused the disastrous traffic conditions in the capital on January 15.

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Central bank balancing act Investors concerned about the National Bank of Hungary (MNB) being led by current Economy Minister György Matolcsy may well feel some reassurance after plans regarding his future deputy were leaked to the press.

According to the latest reports, Matolcsy and former chairman of the Hungarian Banking Association Mihály Patai would succeed the two outgoing members of the Monetary Policy Council, governor András Simor and his deputy Ferenc Karvalits who both have mandates ending in March. Another report said that the post of deputy governor Júlia Király may be assumed by the bank association’s sectary general Levente Kovács later in July when Király’s term also expires.

Patai, a well-recognized and accomplished banker, may be just what the government needs as an immediate calming agent to the jitters caused by Matolcsy’s likely appointment to the central banker’s role, and his perceived plans for a weaker forint to boost exports and a more unorthodox approach to management.

The government saw earlier this year that investor confidence towards Hungary is anything but rock solid and that Matolcsy, with his track record of unconventional policymaking, isn’t exactly a market sweetheart. Dangling the prospect of someone like Patai becoming a rate-setter may well be the carrot to the stick of a Matolcsy-led MNB. And a confidence boost is much appreciated at a time when economic uncertainties are in abundance, especially seeing that the state debt management agency ÁKK has apparently begun preparations for the issuance of foreign currency bonds.

Heightened confidence equals lower yields, which is essential given Hungary’s debt situation. Not to mention the fact that the ÁKK efforts to pave the way for issuance show that any miniscule intent to conclude an agreement with international lending organizations and submit to their strict economic demands are now all but completely gone.

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JOSÉ MANUEL BARROSO AND VIKTOR ORBÁN AT THE COHESION FRIENDS CONFERENCE IN 2012

Prime Minister Viktor Orbán is off to Brussels at the end of January, when his schedule most notably includes meeting president of the European Commission José Manuel Barroso.

The premier will likely campaign heavily to convince the European Union’s top brass that Hungary’s economic affairs are in order and he will be lobbying to achieve the lifting of the ongoing excessive deficit procedure against Hungary.

In theory, the country has met the basic requirement and kept its budget deficit below the 3% of gross domestic product tolerance threshold, which should result in ending the budgetary scrutiny that has been in effect since the country joined the bloc in 2004. However, the European Commission’s latest projections published late last year show that Brussels has doubts about the sustainability of the Orbán’s cabinet’s measures and sees the gap widening to 3.5% of GDP in 2014. The government has repeatedly dismissed the Commission’s long-term outlooks

saying that 2014 is still far away. Furthermore, they argued that in a volatile economic environment where everything can turn upside down in a matter of days, any forecast is little more than crystal gazing.

Orbán was quick to point out that he is determined to keep the budget gap in check and tried to reassure his partners in Brussels that he is ready to take further steps if the Commission still has concerns even as sizeable cracks are already showing in this year’s budget. His visit will show how convincingly he argues his case: if he succeeds, the Commission may motion lifting the EDP, which EU finance ministers may decide to do in the spring.

The prime minister is all the more motivated seeing that the Commission’s outlooks of a heightened budget deficit involve an election year. The last thing any government in office wants is to be pushed into a situation when it has to introduce austerity measures shortly before the polls open.

Photo: European Commission

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A living legend - Kornai at 85 Trafik trouble

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macroscope

Risks abounding to 2013 budget goals had yielded moderate results to say the least.

HUF 67 bln had returned to Hungary by the end of last November and consequently generated HUF 6.7 bln in central revenues.

In contrast, various estimates have placed the total of Hungarian wealth resting in foreign bank accounts at between HUF 1 - 2 trillion. As a repercussion for failing to act on the amnesty offer, Lázár has said the government will now levy a tax of 35% on average on wealth stored in such havens, which could translate to around HUF 550 bln in income for the state coffers.

But given the obvious reluctance of Switzerland to provide information on Hungarian holdings in the Alpine country, the outlook for collecting this money is highly doubtful.

Only a few weeks into 2013, cracks are already starting to show in the government’s economic plans for the year with doubts and worries continuing to mount.

E-ROAD TOLLS

The budget was set to receive HUF 75 billion in revenues from the introduction of a new electronic road toll system this year. However, state motorway management agency ÁAK Zrt and Getronics Magyarország Kft, the winner of the public procurement tender for establishing the system, couldn’t finalize terms and the agreement on the project has not been signed.

Apart from the fact that the delay will in itself likely postpone the launch of the new system, the circumstances surrounding it are likely to spark legal challenges. Runner-up TSystems has said it is evaluating its options, especially after the announcement that Getronics has now received an additional month to sign the contract without a clear specification of the reasons.

Prime Minister Viktor Orbán pledged to end the “cabaret” that was the tender process and said the state will go ahead and launch the e-toll system on its own.

UNSTABLE FORINT

CASH REGISTER MATRIX

When Economy Minister György Matolcsy announced last October that the government would follow Bulgaria’s example and link all cash registers in operation to the servers of the tax authority NAV, doubts were raised. Matolcsy said that the changes to the system would greatly reduce tax evasion in the retail sector and generate at least HUF 95 bln in revenues for the budget this year.

However, it is still unclear how the new framework would be rolled out, or who would have to pay for the new equipment capable of digitally transmitting data, or how NAV’s own systems will be updated to cope with the task.

Even Matolcsy conceded, when queried by an opposition MP, that his originally planned April launch was too ambitious.

GAMBLING TAX

The overnight decision to outlaw slot machines last year was backed by the announcement that the government would introduce new taxes on online gambling. State secretary János Lázár projected HUF 10 bln in revenues this year and Prime Minister Viktor Orbán

pointed to the gambling industry as a potential source of additional income to meet the European Union’s budgetary requirements.

Gambling is a state monopoly in Hungary and the availability of various online sports betting and gaming sites has irked the government for years. However, it has so far been unable to come up with laws that would allow it to regulate and/or tax major online betting sites that are accessible to Hungarian users under EU requirements of free commerce within the bloc.

At the same time, the state has been unable to take on the online sites in the competitive market, since the planned digital platform of state-owned lotto firm Szerencsejáték Zrt is nowhere to be seen, even though it was meant to be up and running by the Euro 2012 soccer championship last year.

CRUSADE AGAINST OFFSHORE KNIGHTS

Despite its declared animosity towards “offshore knights” – as Prime Minister Orbán famously labeled central bank governor András

Simor for having wealth parked in tax havens – it doesn’t seem that the authorities will become privy to foreign account details anytime soon.

Lázár announced that the tax amnesty scheme in effect until the end of 2012 – allowing wealth in foreign accounts to be transferred home at a preferential 10% tax rate –

The budget’s footing is also being shaken by the prospect of the currency further weakening in coming months, with changes in the management of the National Bank of Hungary the most obvious factor. The 2013 budget was calculated with a 287 euro-forint exchange rate. The Economy Ministry bases its exchange rate projections on past data and statistical averages rather than any rate forecast of its own; still, the forint remains vulnerable to even slight changes in investor sentiment, and the early days of 2013 are showing that even small developments can lead to considerable weakening.

Matolcsy said the forint’s latest slide, drifting close to 300 against the euro, was the result of a deliberate speculative attack against the currency, while analysts have attributed the weakening to the minister himself, who is seen as strong candidate to take over Simor’s position as central bank governor in March.

If the analysts are right, then Matolcsy’s appointment alone would surely lead to a further weakening of the forint, and anything above 300 is set to lead to budget reshuffles considering the original rate that it was calculated upon. GR

PwC Hungary presents the introductory video message of CEO Nick Kós, who talks about teamwork, the operation of the company and things that employees are proud of.

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QUOTE OF THE WEEK

The action plan to create 1,000,000 new workplaces in ten years needs to be made reality even if gipsy children fall from the sky, or if there is a crisis in Brussels PM VIKTOR ORBÁN AT A PRESS CONFERENCE AFTER A GOVERNMENT MEETING IN VÁSÁROSNAMÉNY, NORTH EAST HUNGARY.

Budapest – Bamako rally to start on Jan 25.

A Trabant participating in the annual BudapestBamako rally photographed three days before the official launch of the competition. Organized by former radio presenter Villám Géza, BudapestBamako is as much a charity excursion as an actual race, the goal of which is to bring donations to Western Africa, most notably to its destination, Bamako, the capital of Mali, and have some fun along the way. Participants usually travel in classic vintage cars or common, everyday vehicles.

ECONOMY HUNGARY CONTINUES TO SEEK IMF CREDIT AS ‘INSURANCE’ Hungary continues to seek credit from the International Monetary Fund as “insurance” against upheaval on external markets, minister without portfolio Mihály Varga said on commercial television Hír TV. An IMF delegation is visiting Hungary for a routine review on January 16-28. Although the financial backstop Hungary requested from the Fund more than a year ago is not on the official agenda, Varga said the topics discussed with the delegates could affect whether or not there will be a credit agreement. “We are not seeking credit because we need the money. We are asking for insurance for what happens outside [of the country]. If, for example, markets break down in Europe, or if such turbulence develops that puts the situation in Europe on its head, such an agreement could be necessary,” Varga, who is in charge of talks on the credit, said on Hír TV’s Rájátszás program.

Photo: MTI Fotó: Beliczay László

MNB EASING CYCLE COULD CONTINUE ON IMPROVED MARKET SENTIMENT The National Bank of Hungary’s Monetary Council said members could consider a further reduction in rates, according to the condensed minutes of a rate-setting meeting on December 18. “In terms of the Council’s future interest rate decisions, members agreed that the Council should consider a further reduction in interest rates if the improvement in financial market sentiment continued and the medium-term outlook for inflation was consistent with the 3% target,” the minutes said. They also confirmed the market’s assumption that the Council’s four external members outvoted the three internal members to cut the central bank’s key rate by another 25bp – to 5.75% – for the fifth monthly meeting in a row.

HUNGARY CEREALS HARVEST DOWN 25% IN 2012 Hungary’s cereals harvest reached 10.28 million tonnes in 2011, down 24.9% from the previous year and 22.2% less than the average annual harvest in 2007-2011, the Central Statistics Office said, citing preliminary data. Most other crops also saw a poor harvest after the bumper crop in 2011. The drop was primarily due to unfavorable weather, KSH said. Except for a 3.3% reduction in the case of maize and a 28.5% cut for rape seed, harvested areas were up from a year earlier.

The wheat harvest was down 3.3% from the previous year at 3.97 million tonnes, in line with a first reading in September, and the maize harvest dropped 40.7% to 4.74 million tonnes. Average yield per hectare fell 11% for wheat and 38.8% for maize.

FITCH UNLIKELY TO RAISE HUNGARY’S CREDIT RATING BEFORE RETURN TO GROWTH Ratings agency Fitch is unlikely to raise Hungary’s long-term credit rating to investment grade until the country’s economy begins to show more potential for growth, Fitch Ratings Sovereign and International Financial Public Finance Director Matteo Napolitano said. On December 20, Fitch reconfirmed Hungary’s sovereign credit rating at noninvestment grade BB+, but raised the country’s outlook to stable from negative, citing Hungary’s progress in cutting its budget deficit and stabilizing government debt.

“It’s really difficult to change the country’s rating to investment grade until (there are) real improvements in potential growth,” Napolitano told journalists in Warsaw, Poland.

HUNGARIAN PAPERS DO THE GUESSWORK OVER NEW MNB-CHIEF Hungary’s government is seeking not one but two persons to lead the central bank (MNB), business website Portfolio reported. Local weekly hvg.hu learned that

Economy Minister György Matolcsy is the most likely candidate to take over the governorship from András Simor and that Mihály Patai, former President of the Hungarian Banking Association, may be appointed Deputy Governor. Meanwhile, local daily Magyar Hírlap reported that the second deputy to Matolcsy could be Levente Kovács, chief secretary of the Hungarian Banking Association. According to local business daily Napi Gazdaság, an alternative to Matolcsy is István Töröcskei, CEO of the Government Debt Management Agency (ÁKK).

CTRL BUDGET SEES HUF 251 BLN REVENUE FROM EXTRA TAXES IN 2012 Hungary’s 2012 central budget had combined revenue of HUF 250.5 billion or about 0.9% of GDP from the extraordinary bank levy and the sectoral or so-called crisis taxes, levied on the telecom, retail and energy sectors, economy ministry figures revealed. Combined revenue from the measures fell HUF 98 bln from 2011 and was HUF 92 bln below plans as a write-off available to banks more than halved revenue from the bank levy.

Revenue from the sectoral taxes fell by 3.7% from 2011, but exceeded the respective target by nearly 7%. 2012 revenue from the extraordinary bank levy totalled HUF 84.9 bln, less than half of the HUF 186.5 bln in 2011 and of the HUF 187 bln target.

CPI TO SURPASS WAGE GROWTH IN 2013, SURVEY SUGGESTS Hungarian companies plan to raise wages 3.2% on average this year, under the projected annual average inflation of 3.5%, a survey by consulting company Hay Group Magyarország shows. Last year, companies raised wages about 3.3%, well under the 5.7% rate of inflation. One-fifth of companies have no plans to raise wages this year. In JanuaryNovember 2012, average gross wages at companies with at least five employees rose 7.2% year-on-year.

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GETRONICS WITHDRAWS FROM E-TOLL TENDER BECAUSE OF COMPETITOR’S COERCION The Hungarian unit of Dutch information and communications technology company Getronics said on January 19 that it had withdrawn from a tender to build an electronic toll system because a competitor pressured its sub-contractors. “In the recent period, one of our competitors looked up all of our sub-contractors participating in the project and pressured them to withdraw from the partnership in order to make impossible implementing the electronic toll system by the planned deadline,” Getronics Magyarország said. The company called the scale and form of the coercion “unprecedented” and said it could not sign a contract on the project until the legal situation is clarified.

Getronics Magyarország said it was reviewing legal steps to take and would announce details later. Getronics Magyarország was announced the winner of the tender on December 15, with a bid of HUF 34.9 billion. T-Systems Magyarország is reported to have bid HUF 53 bln in the tender, more than the HUF 42 bln allocated for the project by the government.

DEVELOPMENT MINISTRY BELIEVES PLANNED E-TOLL REVENUE OF HUF 75 BLN SECURE The National Development Ministry believes that the expected revenue of HUF 75 billion for this year from Hungary’s planned electronic-toll system is not in jeopardy in spite of the recent withdrawal of Dutch information- and communications-technology company Getronics from a tender to build the system, National Economy Ministry Deputy State Secretary Péter

MVM SPENDS MORE THAN HUF 1 BLN ON NEW SAP SYSTEM The state-owned Hungarian Electricity Works (MVM) has installed a unified SAP 6.0 enterprise management software system at the parent company and all of its units at a cost of more than HUF 1 billion. The new system was installed to optimize spending, MVM said.

VALUE OF PROPERTY DEVELOPMENTS IN HUNGARY PLUNGES The 15 members of Hungary’s Property Developers’ Roundtable Association (IFK) undertook €118 million of investments last year, down from €280 mln in 2011 and HUF 1.3 billion in the boom year of 2008, IFK told MTI. IFK members constructed seven buildings last year, down from 24 in 2008.

Based on developments announced until now, developers are likely to inaugurate 42,000sqm of building space this year constructed at a cost of €108 mln.

TESCO TO LAUNCH HUNGARIAN WEBSHOP IN 2013 Retail giant Tesco will launch its Hungarian webshop in 2013, business daily Napi Gazdaság reported. According to the paper the launch of the webstore is part of Tesco’s strategy in increasing significantly in the field of online commerce this year. The pre-registration to the service will require a name, an email address and a zip code. Tesco has previously opened webstores in Czech Republic, Poland, and Slovakia, Napi Gazdaság wrote.

DOMESTIC HUNGARY IS ON THE ‘WRONG TRACK’, BUT STILL SUPPORTING GOVERNING FIDESZ Three quarters of Hungarians believe their country is on the wrong track, an Ipsos opinion poll said, highlighting widespread pessimism about how the government is coping with debt and the shrinking economy, Reuters reported. According to the news wire, the poll also said student rallies in Budapest against planned cuts in state funding to universities last month and a 10% cut in electricity and gas prices for households had no impact on public support for the mainstream parties. Prime Minister Viktor Orbán’s ruling Fidesz party scored 19% among all voters, keeping a 3 point lead ahead of the Socialists, who had 16% support, both unchanged from the previous two months, Reuters said.

Photo: MTI Fotó: Kallos Bea

BUSINESS

Benő Banai said. Government Spokesman András Giro-Szász said previously that “[Getronic’s withdrawal] will not have a significant influence on the introduction of the electronic toll in Hungary in 2013.”

SQUATTERS ARRESTED Homeless activists are arrested by the police after occupying an abandoned building at Csányi utca in Budapest’s district 7. The building, owned by the local government of the district, was occupied by the activists of civil group “A Város Mindenkié” (The City Belongs to Everyone), along with homeless people.

Liechtenstein and Cyprus regarding disclosure of assets expatriated from Hungary to those countries.

GOV’T WOULD LIKE ASSET-DISCLOSURE AGREEMENT WITH SWITZERLAND TO TAKE EFFECT BY 2015

CONSUMERS OWE HUF 76.5 BLN TO PUBLIC UTILITIES

State Secretary János Lázár, who heads the Prime Minister’s Office, said that the government hopes to have an agreement with Switzerland regarding the disclosure of assets expatriated from Hungary to Swiss banks come into effect by January 1, 2015.

Lázár announced on January 16 that the PM’s Office, the National Economy Ministry and the Foreign Affairs Ministry would set up a working group to start talks with the Swiss government regarding the conclusion of such an agreement. The government’s two-year amnesty making it possible to repatriate illegally expatriated assets at a preferential tax rate of 10% ended on December 31, 2012. Lázár said the government would also undertake talks with

Consumers in Hungary owed HUF 76.5 billion in bills overdue for more than 60 days to public utilities by the end of November last year, according to latest figures by the Hungarian Energy Office (MEH). Data has been gathered only from last year, so no comparison was possible with earlier years, MEH told MTI. At the end of November, 292,000 consumers owed HUF 25.3 bln to electricity providers, 329,000 consumers owed HUF 36 bln to gas distributors, and 95,000 consumers were late over 60 days with the payment of HUF 15.2 bln to district heating services. There were no figures calculated for the total number of overdue debtors, because a propor-

tion of them were probably in arrears to several service companies, MEH said.

HUNGARY VEHICLE FUEL SALES FALL MORE THAN 4% IN 2012 Vehicle fuel sales in Hungary fell 4.2% to 2.725 billion liters in 2012 from a year earlier, data from the Hungarian Petroleum Association shows.

Sales of petrol dropped 5.8% to 1.198 billion liters and sales of diesel were down 3% at 1.527 billion liters.

CANADA WARNS ROMA REFUGEES ON BILLBOARDS New billboards in Hungary tell residents not to bother coming to Canada to fi le an unfounded refugee claim because the rules have changed and they’ll quickly be deported, Canadian news site Sun News reported. “People with unfounded claims will be deported faster,” warn the billboards, bearing the Government of Canada logo and directing people to the Citi-

zenship and Immigration website. Late last week, the billboards were placed in Miskolc, a city in northeast Hungary that is home to many Roma. Roma refugee claims had made Hungary the largest, single-source of refugee claimants in Canada, but their claims also had the lowest success rate and backed up the processing of other applications.

DEMJÁN AWARDED POLISH PRIZE Sándor Demján, chairman of Hungarian property developer TriGránit, has been awarded the Platinum Laurel Prize by the Katowice Chamber of Commerce for his contribution in bringing foreign capital to Poland and fostering ties with Hungary, Demján’s communications office told MTI. Demján was presented the prize at a ceremony in Katowice. TriGránit has invested more than €1 billion in Poland, developing a combined area of some 500,000sqm. ■

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CONSTRUCTION OF SOUTH STREAM HUNGARY SECTION COULD START IN SECOND HALF OF 2014 Construction of the Hungarian section of the South Stream gas pipeline could start in the second half of 2014 and be completed in 2015, Gazprom deputy chairman Alexander Medvedev said in an interview published in a January 8 issue of business daily Napi Gazdaság. The South Stream pipeline will deliver Russian gas to Europe via the Black Sea. The Hungarian stretch of the pipeline is being built by a joint venture owned

by Gazprom and the Hungarian Electricity Works (MVM). Deliveries through the pipeline are set to start in 2016.

SHAH DENIZ PARTNERS AGREE OPTION FOR 50% IN NABUCCO The consortium backing the Nabucco West natural gas pipeline said it reached an in-principle agreement on

regional EBRD SLASHES EMERGING EUROPE GROWTH OUTLOOK The European Bank for Reconstruction and Development has expressed optimism that the worst of the euro zone debt crisis is over, but trimmed the 2013 growth forecast for its investment region in the exSoviet bloc. The Central and Southeastern European countries would record stronger growth in 2013, but at a slower rate than estimated earlier, the EBRD said. The London-based bank cut the growth forecast for the countries where it operates to 3.1% this year, compared to the previous estimate in October of 3.2%. “Downside risks to the outlook have continued to recede as the likelihood of further deterioration of the euro zone crisis diminishes,” the EBRD said in the report.

Among the major economies in emerging Europe, Poland is set to log 1.5% growth this year, below the 2.2% estimated earlier. Hungary, which entered a renewed recession with an overall contraction of about 1.5% last year, will log a smaller contraction of 0.1% in 2013.

Romania is seen expanding by 1.4% this year after recording only negligible growth in 2012.

project funding with potential investors. In a statement on January 10, the Nabucco Consortium said the Shah Deniz partners would take a 50% stake if it were selected as the export pipeline for Shah Deniz gas. It follows a similar option deal from August last year agreed by the Shah Deniz partners – Azerbaijan’s state-owned SOCAR, BP, Norway’s Statoil and France’s Total – for an option to take 50% in the rival Trans Adriatic Pipeline (TAP) project. Nabucco West and TAP are competing to bring Shah Deniz gas from the border with Turkey to Europe, with a decision by the field partners on which route to use expected by June this year.

At present, the six equal shareholders in Nabucco West are Austria’s OMV, Hungary’s MOL, Romania’s Transgaz, Bulgarian Energy Holding, Turkey’s Botas and Germany’s RWE. The Nabucco West pipeline plans to transport 10-23 billion cubic meters of gas per year

1,300 kilometers from the Bulgarian-Turkish border to link up with a European pipeline network in Austria.

SHELL, UKRAINE TO SIGN SHALE GAS PRODUCTION SHARING ACT Ukraine is expected to sign a landmark shale gas deal with energy major Royal Dutch Shell in the coming days, though a second deal in the west of the country faces local opposition, Prime Minister Mykola Azarov said on January 18.

Ukraine, which hopes its big shale gas reserves will help end reliance on costly imports of Russian natural gas, chose Shell last May as a partner to develop the Yuzivska field in the east of the country. Local authorities in the two regions concerned – Donetsk and Kharkiv – approved the Yuzivska deal with Shell, removing the final hurdle to an agreement.

Shell will hand over between 31-60% of the extracted gas to the Ukrainian state.

Ukraine says if exploration

is successful at the Yuzivska site, gas extraction could begin within five to six years with production running at 8-10 billion cubic meters per year in 10 years time.

GAZPROM PLANS EXPANSION IN CROATIA WITH PIPE, POWER PLANT Gazprom, Russia’s naturalgas export monopoly, intends to build a pipeline to Croatia and a power plant in the country to maintain its market for the fuel, Gazprom deputy CEO Alexander Medvedev told journalists on January 17 in Zagreb.

Gazprom and Croatian Plinacro d.o.o. signed an agreement on the construction of a 100 km leg of the South Stream gas pipeline, a project worth €60 million, Mladen Antunovic, head of Plinacro, said in the same press conference. The project aims to deliver natural gas to Croatia by 2016. The facility’s annual capacity will stand at 2.7 billion cubic meters of gas. Gazprom’s

plan to build a power station in Croatia may focus on Osijek, in the east of the country, Medvedev also said. The company would construct a 500-megawatt plant in cooperation with local utility Hrvatska Elektropriveda DD, he added.

CZECHS OPEN NEW PIPELINE IMPORTING RUSSIAN GAS Czech Republic has opened a pipeline that provides an alternate route for Russian gas imports and will help supply other parts of the EU, local media reported.

Prime Minister Petr Necas opened the CZK 10 billion ($519 million) Gazelle project on January 14. The 166 km pipeline, which was built within two years by the pipeline operator Net4GaS, is connected to Nord Stream, a pipeline that crosses the Baltic Sea and brings natural gas from Russia. Through Czech Republic, the gas will f low on to southern Germany and France

E.ON, GDF UNLOAD SLOVAKIA’S SPP TO REGIONAL PLAYER EPH Czech energy company EPH will buy a 49% stake in Slovak gas utility SPP from Germany’s E.ON and France’s GDF Suez for a total of €2.6 billion ($3.5 bln). The deal, whose price tag was announced

by E.ON and GDF on January 15, should be fi nalized in the coming weeks. For E.ON, the sale of its 24.5% SPP stake means it has realized about €17 bln in asset sales, beating its target.

E.ON aimed to divest €15 bln worth of assets by the end of 2013. EPH, whose biggest shareholder is billionaire Czech businessman Petr Kellner, is a leading bidder for RWE’s Czech gas transmission system operator Net4Gas. EPH is 44.44% owned by Kellner’s PPF investment group.

Czech-Slovak investment J&T holds a 37.04% share in EPH, while EPH Chairman Daniel Kretinsky owns the remaining stake. ■

NEWS FOR THIS SECTION IS TAKEN FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, REGIONAL TODAY NEWSLETTER AT WWW.BBJ.HU/STORE/NEWSLETTER-PACKAGE

CZECH REPUBLIC ATTRACTED GREATEST NUMBER OF INVESTORS SINCE 2008 The Czech Republic was able to attract 48 companies to the country in 2012, which is the highest number since the financial crisis began in 2008, the business daily Hospodárské noviny (HN) reported. The CzechInvest agency registered projects are worth around CZK 20 billion (€781.5 million), which should create almost 5,500 new jobs, it said.

According to HN, the increase in the number and size of the investments is most likely due to improvements in the tax code that came into effect midyear, which allows for more tax benefits for companies.

CZECH GOV’T SURVIVES VOTE OF NO CONFIDENCE The Czech government, led

by Prime Minister Petr Necas, survived a vote of no confidence on January 17, local media reported. The opposition initiated the vote in reaction to the recent presidential amnesty which had been counter-signed by the premier, which saw the release of more than 7,000 prisoners and halted, or threatens to halt, a

number of major corruption and economic crime cases.

The opposition gained the support of 92 MPs – far short of the 101 needed to bring down the government. On January 16, President Václav Klaus accused the opposition of whipping up hysteria over the amnesty for political reasons. The attempt was the fifth by the opposition to topple the centre-right Cabinet.

GERMAN LABOR MARKET STILL LIMITED FOR CROATS FOR NEXT TWO YEARS Access for Croats to the German labor market will be blocked for at least two years after the country joins the European Union on July 1, Croatian media reported. “In accordance with the legislation of the European Union on the issue of work permits, access to the German labor market during the transitional period of two years continues to remain restricted for workers from Croatia,” the Croatian Times quoted German government spokesman Steffen Seibert as saying. Certain groups, such as scientists, will still be given access, according to the report.

EU PRESIDENT HERMAN VAN ROMPUY

EU READY TO LOOK AT SERBIA ACCESSION TALKS Serbia has made enough progress in normalizing relations with Kosovo for the EU to look at the possibility of opening accession talks with Belgrade, AFP quoted EU president Herman Van Rompuy as saying on January 18. The EU will “uphold its commitment to Serbia (and)... review progress in the spring with a view to a possible decision to open accession negotiations,” Van Rompuy said after meeting Serbian Prime Minister Ivica Dacic in Brussels. Serbia is an EU candidate for membership and Kosovo hopes to formalize ties, but the EU says both must pursue dialogue and produce concrete results first. Serbia and Kosovo agreed to share control over collecting custom duties and related taxes by forming a special fund that will be overseen by the European Union, Dacic said. Serbia and its former province agreed to use the fund for the development of municipalities in northern Kosovo, the home of the 100,000-strong Serb community in the mostly ethnic Albanian-populated Kosovo, Dacic said.

BANKERS WARN BAD DEBT THWARTS CREDIT RECOVERY Bad debt in Eastern Europe will stay at high levels and cast a pall over hopes of restoring credit growth, said the region’s leading bankers at a Euromoney conference in Vienna.

Ukraine has the highest rates of loan delinquency at 33%, according to data presented

by UniCredit SpA, the biggest lender in the region by assets.

In Hungary, 20% of banks’ loan books are non-performing, while in Romania the figure is 26%. In Poland, they have started to rise, UniCredit said. The bank and its Austrian peer Raiffeisen Bank International AG both warned that bad debt wouldn’t drop materially any time soon. Regula-

tors and international lenders, which have propped up countries in the region with emergency loans since 2008, are calling on banks and national watchdogs to resolve the bad debt issue by encouraging banks to write them off and move on. They cite past banking crises as evidence this is needed to kick-start lending and economic growth. ■

1 News 07

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Budapest Business Journal | Jan 25 – Feb 07

Innovation showing signs of global anxiety Although business leaders still regard innovation as a clear priority, “innovation uncertainty” is present on the market.

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“Innovators need to be flexible, or else there is a good chance that they will be overtaken by competitors,” said Beth Comstock, senior vice presi-

new product innovation. Discovering new business models or fine-tuning processes are both lower risk and less costly than traditional innovation (e.g. developing new products), and it can still reveal valid, new ways towards business success and a competitive advantage. Some 52% of respondents said that thinking up new business models could be the most important fuels of growth in the future, which is a spectacular 6% growth compared to the last study’s results.

DISCOVERING NEW BUSINESS MODELS IS BOTH LOWER RISK AND A LESS COSTLY ACTIVITY, THAN DEVELOPING NEW PRODUCTS, AND IT CAN STILL LEAD TO COMPETITIVE ADVANTAGE dent and marketing director of GE, adding that “Change has, by now, become a constant, and most company leaders react by raising their stakes for unusual innovation methods in order to generate growth. At GE, for example, we are constantly searching for new markets, new partner structures and new business models to unveil schemes that would provide a better service to our clients and help us tackle the biggest challenges ahead of us.”

GE’s recently published Global Innovation Barometer found that due to the harsh business environment, most managers have a preference for failsafe, protectionist policies. Some 71% of respondents said that state subsidies should be directed at local innovations and not at importing innovation from abroad. Quite paradoxically, another 71%, with a 53% overlap, also said that the markets should be more open to encourage the import and export of innovation. According to industry professionals, this contradiction signals that there exists a concern towards the volatility of open markets, particularly since the financial collapse of 2008, and even the most experienced and innovative of managers are attracted by the apparent safety of a protectionist state.

Another key finding of GE’s report disclosed that process innovation is taking precedence over costly and time consuming

A living legend – Kornai at 85

COOPERATION AS A COMPETITIVE ADVANTAGE The importance of cross-company cooperation is on the rise, especially on emerging markets, although there are various obstacles to overcome, such as a lack of trust, insufficient and unsatisfactory protection of intellectual property or the practice of “fishing” talents from each other companies. The markets with the best experiences of cooperative innovation include Germany, China, Brazil and Sweden.

Unsurprisingly, the political climate is also a key factor when it comes to innovation, the study found. Most countries surveyed observed a decline in stability and innovation-friendliness in the political environment, and this was especially so in Sweden, Israel, Canada and Saudi Arabia. One of the most spectacular counter-examples was India, with a 9% increase in this area.

Finally, the question of talents and skilled workforce is also one of the most important high-risk parameters of innovation.

Some 81% of respondents said that education systems need to be better harmonized with business requirements, which marks a tangible decline in schools and universities providing solid education for the innovative leaders of tomorrow (55%, down from 61%), the study concludes. ■

Known for his critical analysis of the communist economy in the ’60s and ’70s, professor János Kornai’s work is just as useful and timely today as it was decades ago, participants of a conference organized to honor his 85th birthday agreed.

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The one-day event was hosted by Budapest Corvinus University, and featured presentations by professors of some of the most prestigious universities of the world, including Berkeley, Stanford and Hong Kong. The three focus points of the conference were grouped around the most important areas of Kornai’s work: the differences between socialist and capitalist political structures, and their relationships with major structures that determine today’s standard of living: education, innovation, healthcare and the pension system.

“The most important cultural cleavage is between collectivism and individualism,” argued Gerard Roland, professor of economics and political science at Berkeley University, claiming that the differences between socialist and capitalist political structures can mainly derived from the above distinction. “We argue and show empirically that countries with more individualist cultures have better performance in innovation and long run growth than countries with collectivist cultures,” Roland said, and while the core concept of the relationship between communist regimes and the lack of innovation is one of Kornai’s revolutionary observations, today’s researches confirm that the phenomenon is not a bit less relevant to today’s communist countries (most importantly China), that it was true to the states of the Eastern Block back in the ’70s.

The conclusion that the results of Kornai’s research (originally referring to East European socialist countries and to the Soviet Union) are still relevant to non-capitalist countries like China, Cuba and North Korea were an important guideline among the presentations given

at the conference. Karen Eggleston, Faculty Director at the Stanford University, for one, explored the importance of Kornai’s research for understanding China’s development and the economics of healthcare systems. Focusing on the economic shortages (one of Kornai’s most renowned works is his book Economics Of Shortage, dating back to 1980), and healthcare systems as “islands of shortages within a surplus economy” in particular. She revealed that while health and longevity are regarded as the single most important values of an individualist (capitalist) society, healthcare and pension systems are continuously forced to tighten their budgets and struggle with low resource availability and financial shortages.

“During the past two decades, innovation has gone through dramatic changes,” said Balázs Hámori of Budapest Corvinus University in his speech titled Reinventing Innovation.

In line with Kornai’s work on the subject, the professor claimed that the role of innovation is continuously re-evaluated and becoming more important in today’s highly competitive and rapidly changing business environment. The presentation focused on two of the drastically new concepts of innovation: crowdsourcing and reverse innovation. “In the case of both, information and communications technologies play a decisive role. Crowdsourcing represents the act of a company or institution taking a creative function once performed by the employees and outsourcing it to an undefined network of people in the form of an open call.

Reverse innovation, on the other hand is that companies realize that innovations in emerging or developing countries are of the highest importance even if these will only spread to the centers of the global economy later. The microfinance system was born in Bangladesh, the poorest country of the world, while M-Money based on mobile phones was invented in Kenya,” professor Hámori said.

The lectures at the one-day conference clearly showed that with his work from 1958 onward, Kornai is still a critically important figure for today’s economic sciences, and although most of his research is more than 30 years old, the problems and issues he revealed still persist in a very similar, if not identical, way. ■

08 1 News BBJ

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Budapest Business Journal | Jan 25 – Feb 07

Trafik trouble July 1 will doubtless be seen as a grim day both for smokers and those who sell tobacco products in Hungary: according to the so-called “kiosk law” tobacco will be available only from outlets that have received a concession from the government. In other words, the sale of tobacco will become a state monopoly.

BBJ GERGELY HERPAI

According to the “kiosk law”, which was passed by Parliament on September 11, 2012, after July 1 you will only be able to buy tobacco products from special kiosks that have been granted a concession by the government: furthermore, the owner can only sell tobacco and gambling related products (such as LOTTÓ, the national lottery) in one designated location.

The state-owned Nemzeti Dohánykereskedelmi Nonprofit Zrt (National Non-Profit Commercial Tobacco Co.) will handle the actual trade in tobacco. It will also deal with applications for opening new trafik kiosks.

All aspects of the future tobacco trade law are explained on the company’s website, including limitations regarding the number of the tobacco shops (known in Hungarian as a trafik) according to population density. After July 1 there will be only one tobacco shop in settlements that have a population of fewer than 2,000 people. Bigger settlements will be allowed one kiosk per every 2,000 inhabitants.

According to an article in business journal HVG, there are currently about 40,000 places where tobacco products are sold; after July 1 there will be only about 6,000. In Budapest there will be approximately 900 tobacco shops.

GAMBLING WITH YOUR HEALTH? For the tobacco kiosks to exist, people willing to operate them are obviously also needed. But many small convenience stores currently selling tobacco are unlikely to be interested, since the new law allows the sale of tobacco and gambling related products only in the kiosks.

“If at least we could sell alcohol, it would interest us a bit, but besides alcohol and tobacco we also sell every day food products, and we are doing good business with those, so we are not willing to part from it,” Rita Halasi, the owner of a small shop in Pesterzsébet, told the Budapest Business Journal. “Not being able to sell cigarettes will certainly affect us in a bad way; however, if we must choose between selling cigarettes or selling food and alcohol, we would rather take the latter and wave good bye to the tobacco,” she added.

SECURITY OF SUPPLY One obvious concern for smokers is finding an outlet near them that is open and selling cigarettes at the precise time they want to buy a packet. The BBJ asked Zsolt Gyulay, formerly a famous Hungarian kayaking champion, and now the CEO of Nemzeti Dohánykereskedelmi Nonprofit Zrt, about the future coverage

BLACK MARKET IS EXPECTED TO GROW, AGAIN

of the tobacco shops. “The national tobacco tender, which was published on December 15 of last year, has been compiled so that it ensures that regional coverage and security of the supply will be applied. It’s also impor-

THE COST OF SMOKING ON THE EXPENDITURES SIDE: ■ Hungarian smokers caused - directly and indirectly – more than HUF 441 billion in expenditures in 2010 ■ Direct cost came to HUF 354 billion in 2010 – of this, HUF 300 billion burdened the state ■ Indirect cost in 2010 was more than HUF 87 billion

ON THE REVENUES SIDE: Income to the central budget from value added tax and excise tax and from other related contributions exceeded HUF 360 billion in 2010

■

Appr. three-quarters of this amount came from the excise tax and one-quarter from the value added tax incomes

■

Source: National Institute for Health Development

tant to know that Nemzeti Dohánykereskedelmi Nonprofit Zrt is a law-abiding company, and not a legislative body. Every manager of a tobacco kiosk must abide by the provisions of the Labor Code and other laws concerning the opening hours of their kiosk. The tobacco tender doesn’t preclude the possibility of 24-hour opening hours. It’s for the applicants to decide which kind of opening hours they will operate,” Gyulay said.

force on December 1, 2012, is unusually high if we take our EU commitment into account, which demands a much lower and gradual tax increase. If the excise tax on tobacco products drastically increases, not only the legal traffic will be paralyzed, thus diminishing the tax revenues, but it also increases the black market effects,” János Sánta, chairman Continental Tobacco Corporation told the BBJ.

HEALTH PROTECTION “As the name implies, our company is a nonprofit. The company’s revenues will only cover maintenance costs and also the resources needed for the campaigns against the harmful effects of smoking and the health protection of young people,” Gyulay emphasized.

Take into account the substantial rise of governmental taxes on the selling of the tobacco, with the minimum tax rise of HUF 3.5 per cigarette and the itemized tax rise of HUF 1.8 per cigarette, and some have suggested the price of a packet of cigarettes will rise above the symbolic HUF 1,000 a packet threshold. That has obviously raised concerns for cigarette manufacturers, whether foreign-owned or local, such as Continental Tobacco Corporation, based in Sátoraljaújhely in northern Hungary. “The tax increase, which came into

BLACK MARKET GROWTH? According to research by the Hungarian Market Research Institute GFK, the black market share stood at 5.8% in 2010, dropped to 4.2% in 2011, but climbed back to 5.8% in 2012. GFK forecasts that the 2013 share will be somewhere between 7-10%. The cost of a pack of cigarette on the black market is between HUF 300-400, already much cheaper than legally bought tobacco. The government may never see the taxes it hopes to collect; according to an article on piacesprofit.hu, specialists foretell that the budget will be hit with a loss of hundreds of billions in excise duty and VAT. Other side effects will likely be measured in the health of the smoking population, since smuggled tobacco often comes from dubious sources, with low quality or forged cigarettes commonplace. ■

1 NewsTrends 09

BBJ

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Budapest Business Journal | Jan 25 – Feb 07

Christmas still sells

Indebted nation

From the web

Holiday spending is unchanged from 2011 despite economic recession

Overwhelming majority of Hungarians have needed loans at one point

Hungarian costumers turn East ever more when online shopping

3%

61%

AVERAGE YEAR-ONYEAR INCREASE IN SHOPPING CENTER FOOTFALL IN DECEMBER

Although the country’s economy is in a slump and the outlook isn’t good, this didn’t discouraged Hungarian shoppers from reaching deep into their pockets during the holiday season. A survey published by the Hungarian Council of Shopping Centers (MBSz) shows that sales volumes remained unchanged in the 2012 shopping season when compared to the pre-Christmas rush in 2011.

In fact, shopping centers received on average 3% more visitors than across the year. On some days, some 30,000 to 40,000 people visited large retail facilities, showing that general consumer confidence is shifting towards centers over smaller units, said MBSz secretary general Judit Balatoni.

Customers generally went bargain hunting for IT products and electronics and spent a maximum of HUF 10,000 on individual gifts, MBSz said. The composition of shoppers was largely unchanged, with malls that are easily accessible via public transport being the go-to place for younger people with families, but the older group of those above 55 also increased its share.

Besides the usual gadgets, customers also snapped up huge volumes of various coupons and gift vouchers. In some cases, sales rose by 20% on the year, with around 50% of voucher sales in general being concentrated in the Christmas period. MBSz noted that coupons are traditionally popular since they allow shoppers to take advantage of the various discounts when the holiday frenzy subsides.

Head of MBSz Gyula Gyalay-Korpos is moderately optimistic regarding the near future, stressing that the market has bottomed out and participants are becoming more active. BBJ

Four out of five Hungarians have taken out bank loans at some point in the past, and three out of five are currently paying theirs off, according to research published by the Hungarian branch of loan brokerage firm Cofidis.

Hungarians tend to go into debt for a range of reasons, mainly to purchase goods or to buy real estate, Cofidis said. In 2012, most applications were from the 30-39 age group, where 29% of respondents said they signed a policy. Cofidis notes that cash loans were mainly taken out to balance household budgets, with respondents complaining that they would otherwise have been unable to pay their bills or afford staple products.

Despite the population’s apparent widespread reliance on lending, they remain distrustful and uncertain regarding loans. Some 71% of the study’s respondents said they are concerned about various “hidden costs” to a loan, while two thirds of the sample found that loan policies are complicated and difficult to understand for someone without professional training. The low opinion of loan contracts in general is also reflected in two-thirds of respondents agreeing with the statement that those having to go to a bank for a loan are vulnerable and are in a difficult position.

In its general questions concerning the Hungarian financial market Cofidis found that the situation isn’t seen as good and Hungarians aren’t eagerly looking forward. Some 83% of the sample said the country’s financial situation deteriorated last year and 71% expect matters to get even worse in 2013. Some 68% also felt their respective households are worse off after 2012 than a year before, with 56% saying their spending has been limited to essentials solely. BBJ

Retail turnover in the holiday season

Free of debt

(HUF trln)

(Percentage of Hungarians who never took out loans)

Source: Central Statistics Office (KSH)

55%

OF HUNGARIANS ARE CURRENTLY REPAYING LOANS

Source: Cofidis, NRC

OF HUNGARIANS DECIDE EXCLUSIVELY ON BASIS OF LOWEST PRICE SHOPPING ONLINE

More than half of Hungarian costumers (55%) decide exclusively on the basis of the lowest price when shopping online. This ratio is approximately equal to data acquired in other countries in the region. The second most common reason for online shopping is the unavailability of products on the domestic market (27%). Other reasons include special releases and certain versions of products (11%) or that the latest version has not yet been released at home (6%).

Based on the results of the research most Hungarian consumers order electronic devices (26%), software (15%), clothes (12%), jewelry (9%), and perfumes and cosmetics (5%).

Regarding clothes, Hungarian costumers usually order products from the EU (24%), the United States (9%) and Asia (5%). The most popular brands include Adidas, Calvin Klein, Armani and Prada. Recently, the popularity of brands that are not represented in domestic shops, such as Gap, Under Armour, Bench, Abercrombie, DKNY and Moschino has been growing amongst Hungarian customers. Hungarian and Romanian customers buy more often from foreign markets than Slovakians, Czechs or Poles, who are mostly served by their domestic markets.

“The two main conclusions of the research is the growing importance of low-value transactions (HUF 5-20,000) and the expansion of online shopping from Asia,” Damien Perillat, Paypal’s regional executive said. “Previously, lowvalue transaction were characteristics of the domestic markets. The expansion of these international purchases clearly indicates the growing consumer confidence towards online shopping, as they presumes that online purchases become part of our everyday life,” he added. BBJ

What Hungarians order online from abroad?

Source: PayPal

2 Business

BBJ

InSight

Unused youth “We should have started yesterday. But we didn’t so we have to start it from where we are,” said Guy Ryder, director general of the International Labor Organization (ILO) referring to newly introduced measures to curb youth unemployment. Numerous solutions have been tried out: the Nordic countries are

elementary school vocational school grammar school, technical secondary school higher education

FEMALE

elementary school vocational school grammar school, technical secondary school higher education

UNEMPLOYMENT RATE BY AGE IN THE EU AND THE US IN 2011 UNDER 25

EU 27 EURO AREA CZECH REPUBLIC GERMANY IRELAND GREECE SPAIN HUNGARY AUSTRIA POLAND ROMANIA SWEDEN UK US

21.4% 20.8% 18.0% 8.6% 29.4% 44.4% 46.4% 26.1% 8.3% 25.8% 23.7% 22.9% 21.1% 17.3%

25-74

8.3% 9.0% 5.9% 5.6% 12.8% 15.8% 19.4% 9.8% 3.5% 8.0% 5.8% 5.2% 5.8% 7.6%

Source: Public Employment Service (NSZF)

probably the best to draw from, but Austria, Germany and the Netherlands also have ideas worth looking at.

TAKE IT FOR GRANTED IN SWEDEN, PLAN LONG-TERM IN ITALY Sweden has not been as shaken by the recession as most European countries, nor has its job market suffered as much.

One of the reasons for that are the youth guarantee programs that have run for nearly 30 years. Young Swedes between 16 and 24 and jobless for at least 90 days in four months are eligible for a 15-month career coaching-training-star-up subsidy program. Denmark, Germany and Switzerland offer dual system apprentice-

IN 2013, NEARLY 75 MILLION YOUNG PEOPLE WORLDWIDE ARE UNEMPLOYED Youth is overly represented in NEET, informal employment, temporary jobs, working in poverty and low pay - In Europe, 14 million people aged 15-29 are NEET - In Africa, 9 out of 10 young workers are in the informal economy - In Europe, 4 out of 10 young workers are in temporary jobs - Worldwide, youths account for 23.5% of the total working poor - In the U.S. and Europe, more than 50% of low-wage earners are youths

Source: ILO

Dominik Tóth is not a NEET – a term used for young people who are not in employment, education or training – but he is not much better off in his current job. Tóth, 25, works at a logistics center as a forklift truck driver in the outskirts of Budapest. He does afternoon and evening shifts, usually between 2 pm and 10 pm, and makes about HUF 80,000 a month.

To qualify for the position, he had to take a driving license for forklifts, a one-and-a-halfmonth course he paid for himself. It is not his dream job, and not even the prospects of eventually becoming a warehouse director make the position more appealing.

That he ended up here is, by his own admission, largely Tóth’s fault. After taking the final exams in one of the leading catering high schools of the country, he decided not to spend an extra year on specialization. Lacking higher education, he worked mostly as a trained worker in the past five years. He started a statefinanced further education program to become a tourist guide a few years ago, but quit as his finances began to dry out. He tried his luck abroad too: as a warehouse worker in the Netherlands where he worked for a total of one year in the past three.

It doesn’t just take unfinished studies to become jobless these days. Highly qualified young people are equally unable to find a job. The crisis, though, is only partly to blame. “Employment is dependent of economic growth, yet youth unemployment was high even before the crisis started,” said László Andor, EU commissioner for employment, social affairs and inclusion, at a seminar on youth unemployment held in Budapest on January 11. The Hungarian National Economy Ministry’s employment rate comparison of the young (aged 15-24) and the elderly (aged 50-64) proves his point: in 2006, 47.9% of the young were out of work compared to 21.7% of the elderly.

Employment within the 15-24-age group was also poor: the 34.1% peak of 2000 had shrunk to 21% by 2007. Europe figures are even more disappointing. There are 5.5 million youths out of work in the Continent – a 22% unemployment rate that is double that of the whole society.

MALE

Source: Public Employment Service (NSZF)

Growth and employment go hand-in-hand, but what if the economy is stalling? Countries across Europe have been forced to come up with a bunch of solutions to help the young find work.

REGISTERED CAREER STARTERS BY AGE GROUP AND GENDER IN 2012

11 JOBS MOST IN DEMAND IN 2013 IN HUNGARY (MARKET DEMAND)

1. Shop assistant 2. Factory hand (product assembly) 3. Technical engineer 4. Meat packer 5. Locksmith

6. Cutter 7. Cashier 8. Electrical engineer 9. Electrical technician 10. Farm machinery mechanic Source: ILO

awarded to people who commute at least six hours per day to and from work. The HUF 2 bln fund earmarked for it will accommodate up to 1,800 people, said Sándor Czomba, state secretary for employment.

Youth guarantee programs are a good way to straighten problems of failed/poor education, but are not a panacea. They tend focus on the under-25 age group and exclude the young who are not fresh starters, but have been employed already. Nor do they solve the problem of longterm unemployment or do much for people like Tóth, who has been in and out of jobs in the past five years. Funding for young entrepreneurs may

be a tool economists welcome more warmly.

Self-employment has been a (forced) trend anyway, not only in Hungary but also worldwide.

The government is set to give a non-refundable grant of HUF 3 mln from a HUF 7 bln EU fund to 1,500 young entrepreneurs to launch their businesses. The eligible age group here is more loosely defined: people up to 35 can apply for the grant and people up to 40 can receive financial support if they work as head of an agricultural holding for the very first time.

How long until the effects kick in? That depends on the economy mostly but one probably has to look in terms of decades. ZsV

ARE WE EDUCATING PEOPLE FOR THE NEEDS OF THE LABOR MARKET?

Guy Ryder, director general of the International Labor Organization, talked to the BBJ about the steps countries have to take to stop surging youth unemployment.

ship to help school-to-work transition.

Placements at firms are offered according to what the market dictates. As a result, nearly two-thirds of participants secured a job at their apprenticeship employers, who bear 77% of the program costs.

Although not all the young are out of a job, many work in uncertainty and for a low pay. In Europe, four out of ten youths work in temporary jobs, ILO data shows.

To push employers to take on the young long-term, Italy now incentivizes permanent job contracts and has increased the tax on short-term work. It has also reduced the costs for employers to lay off workers who had been in highly protected upper tier jobs.

FAR-OFF OPPORTUNITIES Hungary too has started a number of programs to drive down its 26.1% rate. Aside from the job protection action plan, which reduces the employers’ contribution by 14% up to HUF 100,000 for employees under 25, it put into motion a First Job Guarantee Program. Some 7,000 career starters – people not entitled to welfare – unskilled workers and long-term job seekers have benefited from the program.

The state paid their wages and social contribution taxes and travel expenses from September until December 2012. The HUF 3.6 billion project was financed from the national employment fund. For young people who can’t find a job locally, a housing allowance of up to HUF 1.2 million has been offered. The allowance is

Q: Generation Y ought to be better equipped to meet the demands of the job market due to its skills and education. Still, it is the generation that has the hardest time finding a job.

A: Levels of education have gone up over the years but there are groups that remain excluded from this educational advance.

It is simply not true to believe that if you have a high level of education you are creating a market for jobs. One has to look not only at the level of qualification but the precise content. Are we educating people for the needs of the labor market? That’s not always the case.

Even highly educated people will have difficulty finding a place in a job market that is shrinking. The best example you can probably find of that, with the consequences that we know, is the Arab world.

The Arab spring was precipitated by these highly educated young graduates who could find no jobs equivalent to their skills and have little prospect of doing so.

a strong feeling of partnership between governments, employers and workers.

The Nordic countries in particular have very strong cooperation, but it is also true in Austria. The economics of youth guarantee schemes – the other point these experiences show – are not impossible.

Sometimes the initial reaction is that this sounds wonderful but it is too expensive.

The startup cost of these programs can be relatively modest and the payoff from them, in purely economic terms, is actually positive, not negative.

Q: Youth Guarantee programs, tax breaks offered for employers that take on fresh graduates – why do they have such different success rates in various regions?

A: However successful they have been in their own country, it would be not justified to believe that best practices could be exported and applied immediately to Hungary. The appropriate course to follow is to look at them and learn from them. These programs have tended to work well across countries where there are strong labor market institutions and

Q: Young people rarely cross borders to find jobs: mobility in Europe has remained very low.

A: There are so many factors in play here: some of them are economic, others are cultural, some people are more ready to move country, and there are linguistic problems as well. But the long-term trend will be for greater cross-border market mobility. That’s probably a long way off but I think the dynamics of the labor market lead in that direction. There will be fluctuations but the trend is for greater mobility. ZsV

Q: Government spending on such programs is still very low (0.5% of GDP in the eurozone). Would an increase bring about spectacular changes?

A: When you consider that in Spain and Greece, the examples most people quote, young people are more likely not to have a job than to have one, due to the gravity of the situation if by nothing else – youth schemes programs will be implemented.

2 Business

BBJ

Large taxpayers unleashed?

KATA and KIVA: making taxing easier for small businesses

14 12

SpecialReport

Taxation trends in Hungary What has Hungary’s government sacrificed in its quest for reaching the deficit target?

Experts believe that the latest changes to Hungary’s tax law will help the government reach the deficit target of fewer than 3% of GDP, but at the expense of economic growth, domestic spending and investors’ confidence. The main drawback of the system, the practice of introducing extra new tax payment obligations through abrupt changes, should be stopped once and for all, they say. Predictability and consultation prior to any changes should be restored as

soon as possible. The total tax burden as a percentage of GDP actually increased last year and is expected to grow further in 2013, RSM DTM CEO Zsolt Kalocsai told the Budapest Business Journal. This indicates that the latest tax changes represent a restructuring of tax revenues rather tax reduction.

“The government has sacrificed predictability as well as consultation with the representatives of the heavily taxed sectors on the altar of the deficit target,” says PwC tax partner Tamás

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Whether a large- or a small-sized company, the second largest expense in a company’s life – right after the employee costs – are the costs related to office rent. In the past few years there has been an increasing emphasis on cost-effectiveness, and with a well-established strategic decision regarding real estate, office related costs could be maintained at the most efficient level. It is not only the rental costs but also a number of other factors that determine office selection: location, public transportation, services in the area and also the building’s technical fit-out. If we are aware of all of these, we can better adjust to the current status of the office market.

Jones Lang LaSalle’s new online search portal, the officefinder.hu (in English) or irodatkeres.hu (in Hungarian), is the solution for your problem when it comes to corporate office searches.

Consultancy companies such as law firms, finance and accountancy companies may have special office requirements triggered by the nature of their business. They might need more space for client meeting rooms than office space.

In many cases, these companies at first rent offices in residential buildings and apartments but, as their business grows, they tend to move to a professional office building. What is the first step in their office search? Investigating opportunities on the market.

Officefinder.hu (or irodatkeres.hu) is the first independent online office search portal in Hungary, with the selection of buildings monitored and uploaded by a professional real estate company.

Registered users are able to search free of charge for office buildings and select from them no matter if they are in Budapest or in the sub-

urban area. Users can easily find available office space on the basis of total size and location. In addition to basic information (size, rent, service charge and parking costs), other information is provided in the data sheets, which is a great help in finding the most suitable office. Among other similar portals officefinder.hu has a unique function; one can simply download detailed information sheets about the chosen office buildings and easily compare the different offers of the buildings in a similar format.

Experience a new way of making an office search:

Lőcsei. But he argues that maintaining the 3% target is very important for the EU’s strongest economy. “Germany now sees that Hungary is not Greece and never will be,” he stressed. “We might need to introduce another tax on public utility lines, but we will not let go of the 3%.”

Lőcsei supports the government’s intentions to set up a “workfare state” instead of a welfare state and the building of a strong middle class, and believes that the current tax system with the support of the SMEs is an important step in the right direction. He also welcomed the government’s efforts to limit cash payments, through, for instance, the higher 0.3% transaction duty on cash withdrawals despite strong political pressure. He doubts that the transaction duty would drive payments away from the banking system, due to tough regulations.

Talking about the government’s “flagship tax change”, the introduction of the 16% flat personal income tax rate, he stressed that there is a high pressure on the government to return to a progressive tax structure. Instead, the government abolished the ceiling on social security contributions, which, from the employees’ perspective, is similar to a progressive rate. As a result, those earning more than gross HUF 1 million per month have to bear a relatively higher tax burden.

CRISIS TAXES While taxing consumption rather than income is in line with global trends, Hungary’s sectoral taxes are unique, says Kalocsai. While ensuring predictable budget revenues, they have seriously hampered investments in the targeted sectors.

With the expiration of a 2010 act on crisis taxes, the temporary extraordinary taxes on retailers and telecom service providers were abolished as of January 1, 2013. The bad news is that they have been replaced with permanent ones. Besides the obvious examples (see box), the modification of the local business tax base is basically a new special tax on the retail sector, especially for companies applying a low margin, notes Kalocsai.

“READ MY LIPS: NO NEW TAXES” The phrase the then presidential candidate George W. Bush uttered at the 1988 Republican Convention comes to mind when Hungarian government representatives promise that no more new taxes or significant increases in existing levies will take place in 2013. Can we believe them?

Tax experts agree that the government would not hesitate to introduce new taxes if it thought the deficit target was in danger, but opinions are mixed about pre-election voter-friendly spending. Lőcsei believes that the political system is now mature enough not to get involved in exces-

sive government spending backed by new taxes before the elections.The problem is that there are no more reserves to tap, neither in the economy, nor in society. As the government strongly accommodates the interests of manufacturing businesses, such as carmakers and high R&D spenders, it seems unlikely it would not touch this sector, points out Lőcsei.

What kind of new taxes could be introduced or increased in 2013, then? A possible new direction is taxing assets expatriated to avoid tax payments, says Kalocsai. State secretary of the Prime Minister’s Office János Lázár announced on January 16 that a 35% tax would be levied on repatriated assets. The estimated value of these assets is at least HUF 1 trillion, but it could reach as much as HUF 2 tln. An amnesty on repatriating illegally expatriated assets expired at the end of 2012, and resulted in the return of only HUF 67 billion, according to tax authority (NAV).

The Prime Minister’s Office, the National Economy Ministry and the Foreign Affairs Ministry will set up a working group to start talks with Switzerland regarding disclosure of Hungarian assets held in Swiss banks. The government may want to talk to Austria and Cyprus, too.

As Hungary’s standard VAT rate is already the highest in Europe, Lőcsei does not see a further increase from the current 27% as an option.

Launching a property tax would be a more viable alternative, but would meet with stiff resistance, he adds.

As a matter of fact, once he became president, Bush did raise taxes to reduce the budget deficit. GL

NEW, PERMANENT SECTOR-SPECIFIC CRISIS TAXES 1.TELECOMMUNICATION TAX AS OF JULY 1, 2012 The tax rate is HUF 2 per minute both for calls made and per message sent. However, from 2013, the monthly ceiling of HUF 400 per call for private clients and HUF 1,400 per call for non-private customers will be increased to HUF 700 and HUF 2,500 respectively.

2. FINANCIAL TRANSACTION TAX AS OF JANUARY 1, 2013 The tax, which applies on payment services, is to be paid by the payer’s bank. The tax rate is 0.2% of the transaction amount with a HUF 6,000 cap per transaction.

3. ROBIN HOOD TAX INCREASE AS OF JANUARY 1, 2013 The energy suppliers’ income tax has been increased from 8% to 31% and the taxpayers’ base has been widened to include public utility service providers including water utilities and communal waste management providers. Add in corporate income tax and the total tax rate of these companies could reach 50% 4. MODIFICATION OF THE LOCAL BUSINESS TAX BASE There are new limitations to the deductibility of the costs of goods sold and intermediated services from net sales.

2 BusinessSpecialReport 13

BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

Insurance sector foresees market concentration A new general insurance tax has replaced the former extraordinary levy, a tax on accidents and the fire prevention contribution.

BBJ GABRIELLA LOVAS

As of 2013, a new general insurance tax has replaced the former extraordinary levy introduced in 2010, a tax on accidents and the fire prevention contribution. The new tax does not affect life and health insurances, which accounted for roughly half of the total HUF 593 billion premium revenues in the first nine months of 2012.

Under legislation approved in July 2012, the insurance tax rate of 30% is unchanged

MÉNÉTRIER: THIS REGULATION IS NEITHER TRANSPARENT, NOR FAIR

for mandatory vehicle insurance, but a new tax rate of 15% for comprehensive vehicle insurance (Casco) and 10% for policies covering accidents and assets is payable by insurers on their premium revenues.

According to an amendment, approved by Parliament on November 19, 2012, insurers with less than HUF 8 bln annual premium revenues will pay only 25% of the tax on the first HUF 1 bln of their revenues, and 50% on revenues from HUF 1-8 bln. Insurers with premium revenues in excess of HUF 8 bln must pay the tax in full. According to a December 22 amendment, the thresholds were modified to HUF 100 million and to HUF 100-700 mln, respectively.

“The amendments came as a surprise, as we have never talked about them during our dialogue between MABISz and the government’s representatives,” Groupama Garan-

cia CEO Yann Ménétrier told the Budapest Business Journal. “The introduction of different tax rates based on gross premium revenue thresholds is questionable, because, for me, it looks like an infringement of EU rules on free competition, as it gives a competitive advantage to smaller non-life insurers.” He believes that thanks to this special treatment, some small insurers, which would probably disappear otherwise, can survive. Ménétrier stressed that this regulation is neither transparent, nor fair. Groupama with its significant share of non-life premium revenues within the total will be one of the biggest losers of the changes together with Allianz, Aegon, Generali-Providencia and Uniqa.

As the tax is applied on gross premium revenues, it puts a huge pressure on the profitability of insurance companies, Ménétrier pointed out. He admitted that insurers would, of course, try to pass on a large part of the tax to their customers, but this will be limited by households’ weak spending power. As a result, the sector will have to put in place new strong cost cutting and efficiency measures. “For the moment, we have to live with this, but if the government does not change its mind in the mid-term, the sector will see some exits, which is bad news for the market and the customers,” he added.

Ménétrier noted that the extraordinary tax had a huge impact on the profitability of the insurance sector. While the net profit of the sector was roughly HUF 15 bln in 2011, the tax burden reached about HUF 38 bln meaning that the tax was about two and a half times higher than net profits.

CLOSING ANOTHER LOOPHOLE The new legislation abolishes tax-avoiding opportunities via unit-linked insurances (see box). Previously, no personal income tax and social security charges were due on payments to such insurance structures on behalf of the individual. “In the past few years, if a company wanted to give a generous bonus to one of its executives, the obvious choice was giving a unit-linked insurance bond, which was a tax-free way of paying money to people under certain circumstances,” explained KPMG tax partner Gábor Beer at an AmCham seminar on 2013 changes to the tax law. A huge amount has been paid to current and former employees this way.

The original idea was to abolish the taxfree structure. However, Beer pointed out, the government realized that accepting the original proposal would mean the end of certain Hungarian insurance companies and brokers. According to the amendments, certain insurance products remain tax-free and others will be taxable. The main message is that these companies will stay alive, they cannot go bankrupt. ■

TAX CHANGES RELATED TO LIFE INSURANCE PRODUCTS - Payments to personal insurance on behalf of the individual are charged with payer’s tax - Regular premium payments of risk insurance are tax free up to 30% of minimum wage/month - Regular premium payments of whole-life insurance, covering only death risk with redemption, value remains tax free – only reporting liabilities are established on the payers - Pay outs (if not tax exempted) exceeding the cumulated premium payments are treated as interest income - Pay outs from/repurchase price of whole-life insurance, covering only death risk with redemption value, qualify as other income Transitional rules apply for insurance contracts concluded until 31 December 2012.

Source: KPMG

14 2 BusinessSpecialReport BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

Large taxpayers unleashed?

REV.: HUF 1736 BLN NET INCOME: HUF 236 BLN

Győr REV.: HUF 793 BLN NET INCOME: HUF 33,5 BLN

Komárom REV.: HUF 702 BLN NET INCOME: HUF 18,5 BLN

Jászfényszaru

Budaörs Budaö REV.: HUF 5,343 BLN NET INCOME: HUF 185 BLN REV.: HUF 612 BLN NET INCOME: HUF 4,5 BLN REV.: HUF 674 BLN NET INCOME: N.A. REV.: HUF 1180 BLN NET INCOME: HUF 286 BLN

REV.: HUF 597 BLN NET INCOME: HUF 3,2 BLN

REV.: HUF 646 BLN NET INCOME: HUF 46 BLN REV.: HUF 646 BLN NET INCOME: HUF 46 BLN

Source: BBJ

As of this year, the national jurisdiction of Large Taxpayers Directorate is no more. From January the administration of large taxpayers with provincial headquarters, like Audi, Magyar Suzuki, and Nokia, has been passed to the relevant local tax authority.

BBJ KRISZTIÁN KUMMER

According to the latest changes designed to increase the efficiency of tax collection, the National Tax and Customs Administration (NAV) terminated the national scope of the Large Taxpayers Directorate (KAIG) on January 1, 2013. From the beginning of this year, KAIG’s point of focus has been narrowed to those large corporations based in Budapest and Pest County; local county tax directorates will now handle all other large taxpayers.

According to NAV, the idea behind the new measures is to optimize resources at an organizational level and to increase tax collecting efficiency and income. However, tax experts in the Hungarian media have expressed their fear that ill-prepared

provincial directorates will not be able to follow the complex tax evasion techniques of large taxpayers, resulting in billions of lost revenue for the already squeezed central budget.

The thorough audit of a large company requires a very different approach to that of a small enterprise. A large company isn’t likely to give a false receipt or fiddle the petty cash. It uses more sophisticated methods – such as different prices between various branches – to minimize the amount of tax to be paid. To control these companies, tax authorities needs to learn how to filter out such practices; however, since 2007 the provincial directorates have rarely dealt with such complex cases.

Audi, the second largest taxpayer in Hungary after oil and gas company MOL, doesn’t expect any significant changes. “Tax audits will be conducted by representatives of the local NAV directorate. We hope that our cooperation will be satisfying,” the company’s spokesperson Mónika Czechmeister said. Asked if the company expected any change in the relationship between the tax authority and large taxpayers her response was simple and succinct: “No.” BIG CHUNK Large taxpayers contribute a substantial proportion of the national tax take: in 2012, they paid almost 40% of all tax revenues,

NAV said. And their share will be further raised this year, as a lowering of the threshold will more than double the number of large taxpayers. (Having said that, the Hungarian government has followed previous practice in refusing to publicly say what its revenue expectations for 2013 are from large taxpayers.)

The Large Taxpayers Directorate, established in 1996, became effective nationwide on January 1, 2007. While the administrative change offers a return to the status quo anti in 2006, the lower limit for becoming a large taxpayer takes us back to the level of 2003, Zoltán Titusz Fekete, a tax advisor at RSM-DTM said.

Provincial companies might well miss the administration practices of KAIG, where each corporation had just one designated contact person to deal with, whatever the matter concerned. Provincial directorates have no such designated contact people; although each does have a department specialized in key taxpayers, Fekete said.

Of course, the Budapest-based KAIG and the tax directorate of Győr-Moson-Sopron County are likely to view Audi, for example, differently. To the former Audi is just one of Hungary’s many large taxpayers, to the latter it’s one of the largest businesses in the county. Therefore, it might be possible that in the future large companies will be able to arrange some issues, such as the settlement

of tax arrears, easier, although the lawfulness of taxation won’t be compromised, insisted Fekete, who worked at KAIG before joining RSM-DTM. “These companies are the largest taxpayers in the country and won’t risk cheating on their taxes. On the contrary, most of them conduct strict, law-abiding behavior. The task of tax controllers here is usually not to reveal anomalies but to assist the company to follow lawful practices voluntary,” he added. ■

WHAT’S LARGE? Law defines the special status of large taxpayers. Until 2012, the economic ministry defined companies that paid at least HUF 3.25 billion in taxes and contributions a year as large taxpayers. The limit was lowered to almost half that from this year, with HUF 1.8 bln the new threshold. This change in regulation significantly expands the number of corporations involved: based on information from NAV, the number of large taxpayers jumped from 646 in 2012 to 1,343 this year. Of those, 656 – based in Budapest and Pest County – will remain with the KAIG. They are complemented with 103 other taxpayers – like banks and insurance companies – according the jurisdictional rules. All in all, some 697 large taxpayers will be moved to the jurisdiction of provincial directorates.

2 BusinessSpecialReport 15

BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

KATA and KIVA: making taxes easier for small businesses Approximately 60,000 companies have registered for KIVA and KATA by the January 15 KIVA application deadline.

BBJ GABRIELLA LOVAS

In introducing the two new taxes, known by their Hungarian acronyms of KATA and KIVA, the government offers a simpler way for sole entrepreneurs and smaller businesses to calculate their taxes in the hope of increasing budget revenues and reducing the grey and black economies. Thus, these companies will be able to work out their income tax on a cash basis rather than having to follow rules designed for larger businesses. The new regime is voluntary and any business using the new schemes will be free to go back to the general rules.

According to the Economy Ministry, some 60,000 companies had registered for KIVA and KATA by the January 15 Kiva application deadline. Break that down further, and 51,000 had registered for KATA and only about 10,000 for KIVA. NAV tax authority figures from January 2 show that 47,361 companies registered for KATA and 5,101 for KIVA. The government expects that the number of companies that opt to pay new small business taxes could reach 500,000 by 2014. While taxpayers can switch to KATA any time during the year, the switchover to KIVA may take place just once a year. The ministry hopes that the number of taxpayers

switching to KIVA and KATA will increase, as accounting professionals familiarize themselves with the new taxes.

The main advantage of both taxes is that the tax burden can be reduced in most cases, WTS Klient partner Zoltán Lambert told the Budapest Business Journal, adding that there are no rules of thumb, each company has to make the necessary calculations before choosing the option that works best for them. He argues that KATA can be a better option for a wide range of the payers of the simplified business tax (EVA). “As to KIVA, there are not many clients that would not benefit from switching from the corporate income tax to the new option, if the company meets the relevant requirements,” he noted. He expects that switching to new taxes will be gradual throughout 2013.

The main concern of EVA taxpayers is that the tax rate, currently at 37%, has been raised many times, pointed out Lambert. The EVA tax burden relative to sales revenues can be quite high compared to KATA’s HUF 50,000 monthly flat rate for many companies. Of course, there are businesses, typically micro entrepreneurs with revenues of a few hundred thousand forints, for whom both options result in the same tax burden. He believes that those under the personal income tax, roughly one million taxpayers, have been slower to switch to KATA than former EVA payers.

Lambert has not ruled out minor amendments to the rules on the new taxes in order to correct potential mistakes revealed by practice a few months after their introduction. However, he does not foresee fundamental changes. ■

KATA KATA is designed for sole entrepreneurs and micro-businesses with annual revenues of up to HUF 6 million Above HUF 6 million income, the tax rate is 40% The exceptions are insurance agencies, brokerage activities, activities auxiliary to insurance and pension funding as well as letting and management of own and hired real estate A flat rate of HUF 50,000 per month will be payable on full time entrepreneurs and HUF 25,000 per month for part time entrepreneurs No other tax or social security contribution is payable Kata is not applicable to employees. If annual revenues of more than HUF 1 million come from a single business partner, the taxpayer must prove that the parties are not concealing an employment contract

KIVA KIVAis designed for companies with annual revenues and total assets of up to HUF 500 million, with an average annual manpower of a maximum of 25 in the year of registration and 50 in the following years.

Tax payable is 16% on the difference in liquid assets (balance of liquid assets in the business year minus balance of liquid assets in the previous year), plus employees’ costs Source: NAV, KPMG

16 2 BusinessPartnerWatch BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

Tax consultants MAIN CLIENTS IN 2012

4,186

14,712 13,477

»

525

1,081 1,120

»

463

454 478

»

397

1,450 1,452

246

208 246

221

1,650 1,931

122

372 386

»

84

461 502

Amgen, AmCham, BCCH, Deutsche Bank, GLS, JP Morgan Energy

29

215 145

RGIS Hungária Kft, Bilfinger Babcock, Ruform Hungary Betonacél Kft, SCM Shopping Center Management Kft, Hoffmann Hungary, Big Bang Media Kft, Axpo Hungary Kft

10

144 134

»

NO. OF FULL-TIME EMPLOYEES ON JAN. 1, 2013

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ADDRESS PHONE FAX EMAIL

1989

554

– PwC CEE (100)

Nick Kós Tamás Pál Viktor Bálint

1077 Budapest, Wesselényi utca 16.

(1) 461-9100 (1) 461-9101 info@hu.pwc.com

2001

64

Individuals (100) –

Zsolt Kalocsai Klára Vaitz Edina Váradi

1138 Budapest, Faludi utca 3.

(1) 886-3700 (1) 886-3729 info@rsmdtm.hu

2006

21

– Leitner+Leitner International GmbH (100)

Márta Siklós, Judit Jancsa-Pék – –

1027 Budapest, Kapás utca 6–12.

(1) 279-2930 (1) 209-4874 office@leitnerleitner.hu

»

1991

19

Individuals (3) Mazars S.A (97)

Philippe Bruno Michalak – –

1074 Budapest, Rákóczi út 70–72.

(1) 429-3010 (1) 235-0481 mazars@mazars.hu

»

2011

19

Individuals (100) –

Lambert Zoltán Réka Kertész Viktória Szendrei

1143 Budapest, Stefánia út 101–103.

(1) 887-3700 (1) 887-3799 klient@klient.hu

8

» »

Zoltán Gerendy – –

1103 Budapest, Kőér utca 2/A (1) 235-3010 (1) 266-6438 office@bdo.hu

1993

28

József Láng (49) ABT Treuhandgesellschaft AG (51)

József Láng József Láng Éva Frauhammer

1037 Budapest, Montevideo utca 3/A (1) 430-3400 (1) 430-3402 abt@abt.hu

1989

48

Individuals (100) –

István Rajkai Józsefné Kulifai –

1142 Budapest, Erzsébet királyné útja 125.

(1) 460-7412 (1) 460-7490 mlx@memolux.hu

2001

10

Gyöngyi Ferencz (»), Andrea Kuntner (»), Erik Thurn (») CVBA VEGEDE BELGIUM (»)

Gyöngyi Ferencz, Andrea Kuntner, Erik Thurn – –

1023 Budapest, Lajos utca 32.

(1) 225-7575 (1) 225-7574 vgd.budapest@vgd.hu

1992

16

Individuals (100) –

Andrea Butkovics – –

1138 Budapest, Váci út 141.

(1) 452-6900 (1) 452-6910 office@colling.hu

Gábor Gion Gerard Lucey Kinga Tihanyi

1068 Budapest, Dózsa György út 84/C (1) 428-6800 (1) 428-6801 deloitteinhungary@ deloittece.com

PWC MAGYARORSZÁG[1] www.pwc.hu 1

2

RSM DTM HUNGARY ZRT www.rsmdtm.hu

LEITNER + LEITNER TAX KFT www.leitnerleitner.com 3

4

MAZARS KFT www.mazars.hu

WTS KLIENT ADÓTANÁCSADÓ KFT (FORMER: HLB KLIENT ADÓTANÁCSADÓ KFT) www.klient.hu 5

6

7

8

9

BDO MAGYARORSZÁG www.bdo.hu

ABT HUNGÁRIA TANÁCSADÓ KFT www.abt.hu

MEMOLUX KFT www.memolux.hu

VGD FERENCZ & PARTNER KFT www.vgd.eu

»

1989

COLLING ACCOUNTING & CONSULTING LTD www.colling.hu 10

NR

NR

DELOITTE MAGYARORSZÁG

[2]

www.deloitte.hu

ERNST & YOUNG TANÁCSADÓ KFT.[1] www.ey.com/hu

KPMG HUNGÁRIA KFT[3] NR www.kpmg.hu

»

»

»

»

»

1990

392

– Deloitte Pannonadria Holdings Limited (90.57), DCE Limited (9.43)

10,468 10,800

»

1989

517

» »

István Havas – Ágnes Pellion

1132 Budapest, Váci út 20.

(1) 451-8100 (1) 451-8199 mailbox.ey@hu.ey.com

»

Ferenc Eperjesi (2.50), István Henye (2.50) KPMG Hungary Holdings Ltd (95)

Robert Stöllinger, Mike Glover William Curley Miklós Scheibelhoffer

1139 Budapest, Váci út 99.

(1) 887-7100 (1) 887-7101 info@kpmg.hu

10,079

13,872

»

»

1989

NOTES: (1) Data of business year Jul.1, 2011 - Jun. 30, 2012. (2) Among the Hungarian subsidiaries, only Deloitte Zrt offers tax consulting. (3) Data of business year Oct. 1, 2010 – Sept. 30, 2011

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

This list was compiled from responses to questionnaires received by January 22, 2013 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

Data for total net revenue in 2012 is based on companies' own statement, as such data hasn't been officially disclosed yet. In many cases, data does not include December revenue and is not audited. The BBJ does not take responsibility for the accuracy and credibility of such data.

TOTAL NET REVENUE IN 2011 (HUF MLN) 2012

YEAR ESTABLISHED

COMPANY WEBSITE

NET REVENUE FROM TAX CONSULTING (HUF MLN) IN 2012

RANK

Ranked by net revenue from tax consulting

2 BusinessSpecialReport 17

BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

No recovery in sight The government will immediately launch further changes to the tax system if the deficit target is in danger, Mazars tax partner Sándor Szmicsek told the Budapest Business Journal. The upcoming 2014 elections could also bring new taxes, or an increase to existing ones.

Q: How has the fee pressure in the financial service providers market affected Mazars?

A: We face price competition both from the top and the medium segments. On the one hand, with decreasing Big Four prices, the gap between them and Mazars is shrinking, so we are becoming competitors with one another, in pricing too. On the other hand, we see new, smaller advisories with little experience offering large price discounts, which may be attractive for some clients.

The drop in fees is not necessarily bad in itself, as in my opinion the earlier top hourly rates of €400 were way too high. The current hourly rates are lower, but still range in a relatively wide band of €80 and €180.

However, fee pressure has had negative consequences, too. The border between the premium and the lower segments are blurring, which inevitably affects the quality of premium services. Premium service providers now design cheaper constructions at lower costs, thus, they cannot provide the same quality as before.

Pricing is especially problematic in audit, as the international auditing standards tend to be stricter every year. This trend is expected to continue bringing more and more demanding requirements, while quality control from the authorities is also becoming tougher. Thus, regardless of the size of the audited company, the number of hours allocated to one client cannot be beneath a certain limit in order to meet these requirements. It is often hard to explain this to clients, especially if they represent a smaller company.

Still, as clients will always need financial and tax advisory services, I do not foresee any major exits from the market, although there might be mergers in the medium-level category.

Q: How do Mazars’ revenues reflect the fee pressure?

A: Our revenues have not increased since the crisis, and we have to work much more for the same amount. It means that our effective hourly rates are decreasing.

Our assignments are still related to crisis management and downsizing. The size of businesses has been shrinking, as companies tend to wind up loss making business lines or merge their affiliates. So, for instance, when we audit only three affiliates instead of the previous five, we cannot charge the same fee as before.

We are usually the first to spot the early signs of recovery because when foreign investors are interested in making an acquisition or

BACKGROUND As soon as reaching the deficit target becomes uncertain or social tensions arise, the government will not hesitate to introduce further changes to the tax system, Mazars tax partner Sándor Szmicsek told the Budapest Business Journal.

The upcoming 2014 elections could also affect the tax system if the government feels it needs to win over certain groups of voters, such as pensioners. In his opinion, this government does not plan to launch an economic growth program before the elections.

Having entered the Hungarian market in 1991, Mazars is currently ranked fifth on the list of Hungary’s largest financial service providers, following the Big 4 advisory firms. The company provides audit, accountancy, tax, payroll and legal services as well as transaction support.

Seeing the new permanent taxes replacing the former extraordinary levies, some companies rightly believe that the state aims to take over their businesses. In the energy sector, the extension of the so-called Robin Hood tax and the mandatory decrease in gas and electricity prices, which, by the way, has the same effect as a crisis tax, clearly reflect the state’s intention to play a bigger role. The problem is that in Hungary we have had vast experiences about the state’s poor performance in the management of businesses.

Indirect state control can be advantageous in certain cases. The banking sector of countries with stronger government control, Canada for instance, weathered the crisis better than those with weaker supervision.

CURRICULUM VITAE Economist Sándor Szmicsek has been the partner responsible for tax and legal services at Mazars since 2002. As of 2003, his tax team of 15 has specialized in local and international transfer pricing. Previously, he worked as a tax director at Köves Clifford Chance Tax Advisory.

Szmicsek started his carrier at the Ministry of Finance in 1983. In 1991, he became a tax advisor at the predecessor of PwC, Coopers & Lybrand, and later was made one of the directors of PwC’s tax practice, responsible for tax issues in telecom, hightech industry and e-business. a greenfield investment, they contact financial advisories first. So, when we see an increasing demand for our services in the trough of a crisis, we know the worst will soon be over for the economy, too. Unfortunately, this is not the case now. There is no recovery in sight, at least not in the next six to 12 months.

Q: How do your clients explain the lack of interest in investing?

A: They attribute it partly to the global downturn and partly to Hungary’s economic outlook. They find that risks related to Hungary’s so called unorthodox economic policy are too high and they are not willing to invest until these risks start to

diminish. They have not had good experiences during the last two years in Hungary, as the regulatory environment is unstable, corruption is still high and the black economy is strong. The local currency is considered to be a major risk factor, too.

Businesses that have not been directly affected by economic policy are reluctant to invest, but will not leave the country for now. However, some of those that have been directly hit by these measures are contemplating an exit depending on the results of the upcoming elections. In case the current government’s policy remains in place, we foresee a wave of exits after the elections in certain sectors.

Q: Deputy state secretary for tax affairs Ádám Balog promised that no new types of taxes or drastic increases of existing ones would be introduced. Do you foresee any changes to the tax system in 2013?

A: Nobody takes these promises seriously any more. If we look at the two new taxes, known by their acronyms KATA and KIVA, introduced for smaller businesses in 2013, we saw a very small number of businesses that opted for them in January. This indicates that although smaller businesses have not been adversely affected by the recent tax changes, they do not trust the government enough to switch to the new taxes.

The government’s main strategy has been to reach the same amount of tax revenues by causing the least possible social tensions by introducing relatively light tax burdens for a wide range of taxpayers, such as the financial transaction tax, or imposing very high levies in certain sectors, such as the banking tax.

In lack of economic growth, as soon as the deficit target is threatened or social tensions arise, the government will not hesitate to introduce further changes to the tax system. The upcoming elections could also affect the tax system in case the government aims ensure the funds needed to win over certain group of voters, such as pensioners. GL

18 2 BusinessSpecialReport BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

New measures and taxes don’t really help With the coming of the New Year, business owners and accountants have found themselves faced with new taxes and several modifications to the old system. While in a few fields the expansion of electronic recording methods offers some simplification of processes, the overall accounting burden of companies hasn’t decreased significantly, service providers say.

BBJ KRISZTIÁN KUMMER

More detailed reporting requirements and more information on invoices – that’s what Hungarian enterprises have to face during VAT declaration periods. As of January 1, 2013 the summary report of domestic transactions and the cash flow based accounting have been introduced to the VAT system. Companies have to provide further data on domestic transactions that reach or exceed HUF 2 million VAT amount. A further reporting requirement is that invoices from certain partners where the sum of the VAT amounts exceeds the HUF 2 million threshold should be listed too.

“Our most important task was to upgrade the accounting software that generates the

VAT analytics and further sub-ledgers,” said Andrea Bodnár, head of compliance of UCMS Group Hungary. “We also had to have it updated for the new VAT rules on ‘cash accounting’ due to the fundamentally different approach of performance date according to accounting and tax regulations. In case of cash accounting the payable VAT occurs at the date of the financial settlement. Consequently, the party eligible for deduction will be able to claim back the VAT after this invoice settlement,” Bodnár explained.

Also from the beginning of this year, two new tax types have been introduced with the stated aim of making taxation easier and reducing the administrative burdens on SMEs: the Fixed-Rate Tax of Low Tax-Bracket Enterprises (KATA) and the Small Business Tax (KIVA). However, these new tax types will have no real effect on big accounting firms, as most of their clients are too big to qualify, said András Szalai, partner at Process Solutions. “The measures aiming to reduce the administrative burdens are not targeting our clientele, so we will not experience less work,” he told the Budapest Business Journal. “On the contrary, some changes, like the partial deductibility of VAT on services related to passenger cars and its adequate documentation will even increase burdens,” added Szalai.

However, even if smaller accountants’ clients choose this method of paying, their adminis-

trative burdens wouldn’t necessarily be lessened. “Probably there wouldn’t be less workload in the first year because accountants have to learn the new methodology and a different authority approach,” Bodnár pointed out.

SIMPLE BOOKKEEPING NOT ENOUGH Of the more positive side of things Szalai said, “We expect that the simplification of electronic invoicing will facilitate the billing process, not to mention that the new practice allows enterprises to follow a more environmentally conscious behavior. And while the expansion of the scope of electronically transacted matters actually doesn’t take much of a burden off of our shoulders, avoiding queues in postal or customer service offices should save a lot of time.” At this stage, however, with no actual experience of the new rules, it is not possible to be more specific. “Typically, the effect of changes is almost immediately quantifiable for customers, but the administrative burdens associated with changes are not,” he added.

Bodnár, for one, does not expect to be faced with a notably lower workload overall. “Answering the question of whether the new taxation regulations reduce an enterprise’s administrative burdens – and thus for accountants – we have to mention the new summary report of domestic transactions, which remarkably increases the administrative work and will expectedly lengthen the time spent on the preparation of VAT returns,” he said.

Indeed, Szalai emphasized that increased costs for certain taxpayers will be a likely effect of the new measures. “If we take all the new taxes and modifications into account, we see that our tax system has become more complicated. However, these changes didn’t generate supplementary administrative burdens, ‘just’ growth in costs,” he said.

As the Hungarian economy struggles to find its way out of the recession, difficulties force companies into continuous transition.

Balázs Z. Nagy, business development manager at UCMS Group Hungary said “We recognize that clients are not simply looking for an accounting service, but also a complex support system, which provides on-going information and supports their decisions.

Properly performed basic bookkeeping is not enough, a successful provider, who intends to grow, has to be innovative in several different areas, such as the software environment, communication and process development. Accounting firms who recognize the necessity of continuous development in time and determinate their own way of development have a good chance to keep up their positions,” Nagy said.

It is a view with which Szalai agrees. “If a service provider is able to respond to the challenges with a flexible portfolio of innovative solutions, it may be able to find lucrative opportunities in difficult economic situations as well,” he pointed out. ■

2 BusinessPartnerWatch 19

BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

Accounting firms

–

–

–

–

WizzAir, British Telecom, General Motors, Valad Group, Sumitomo, Ibiden

886

1,250 1,429

–

–

–

–

–

Hays, Maersk, Research In Motion, Sanyo

93 1995

– UCMS Group EMEA Ltd (100)

Jan Palmkvist Katalin Búzás Balázs Z. Nagy

1146 Budapest, Hermina út 17.

(20) 775-5888 (20) 775-5888 info.hu@ucmsgroup.com

800

1,509 1,183

–

–

–

–

Management and domiciliation services

»

66 1995

– TMF Group (100)

Júlia Varga, Zsuzsanna Táborszki Cselovszkiné – –

1077 Budapest, Wesselényi utca 16. 3. em.

(1) 461-3100 (1) 461-3150 hungary@tmf-group.com

661

1,650 1,931

» » » » »

»

»

59 1989

» »

Péter Hajnal – –

1103 Budapest, Kőér utca 2/A (1) 235-3010 (1) 266-6438 office@bdo.hu

5

www.klient.hu

620

592 620

–

–

–

–

–

–

–

»

49 1998

Individuals (100) –

György Kőrösi, Eszter Balogh Réka Kertész Viktória Szendrei

1143 Budapest, Stefánia út 101–103.

(1) 887-3700 (1) 887-3799 klient@klient.hu

6

RSM DTM HUNGARY ZRT

555

1,081 1,120

–

–

–

–

IFRS, US GAAP

»

64 2001

Individuals (100) –

Zsolt Kalocsai Klára Vaitz Edina Váradi

1138 Budapest, Faludi utca 3.

(1) 886-3700 (1) 886-3729 info@rsmdtm.hu

374

1,450 1,452

–

»

22 1991

Individuals (3) Mazars S.A (97)

Philippe Bruno Michalak – –

1074 Budapest, Rákóczi út 70–72.

(1) 429-3010 (1) 235-0481 mazars@mazars.hu

371

461 502

–

Amgen, AmCham, BCCH, GLS, JP Morgan Energy

48 1989

Individuals (100) –

István Rajkai Józsefné Kulifai –

1142 Budapest, Erzsébet királyné útja 125.

(1) 460-7412 (1) 460-7490 mlx@memolux.hu

265

542 541

–

Interdean Kft, Karcher Hungária Kft, KIKA Magyarország Kft, Praktiker Barkácsáruházak Kft, Shell Magyarország Zrt

52 1991

Józsefné Cserni (100) –

Józsefné Cserni, Kristóf Papp, Balázs Szentirmai Balázs Szentirmai Balázs Szentirmai

1117 Budapest, Szerémi utca 7/A, 1/103 (1) 464-4340 (1) 464-4349 szentirmai.balazs@ econoserve.hu

171

372 386

»

28 1993

József Láng (49) ABT Treuhandgesellschaft AG (51)

József Láng József Láng Éva Frauhammer

1037 Budapest, Montevideo utca 3/A (1) 430-3400 (1) 430-3402 abt@abt.hu

166

163 242

»

21 1996

István Nemecz (30) Accace Group (70)

István Nemecz István Nemecz Attila Hajdú

1132 Budapest, Váci út 22–24.

(1) 412-3530 (1) 412-3530 istvan.nemecz@ accace.com

– Leitner + Leitner Österreich Wirtschaftsprüfungs GmbH (55), Leitner + Leitner International GmbH (45)

Márta Siklós – –

1027 Budapest, Kapás utca 6–12.

(1) 279-2930 (1) 209-4874 office@leitnerleitner.hu

www.ps-bpo.com

OTHER

DUE DILLIGENCE

M&A

AUDITING

MANAGEMENT CONSULTING

TAX CONSULTING

FINANCIAL CONSULTING

PAYROLL ACCOUNTING

ACCOUNTING

1

PROCESS SOLUTIONS KFT

MAIN CLIENTS IN 2012

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ADDRESS PHONE FAX EMAIL

210 1999

János Babos (50), Process Solutions International Kft (50) –

János Babos, Andrew Majlath, András Szalai – –

1134 Budapest, Váci út 33.

(1) 451-7100 (1) 451-7196 info-hu@ps-bpo.com

UCMS GROUP HUNGARY KFT www.ucmsgroup.hu 2

TMF HUNGARY www.tmf-group.com 3

4

BDO MAGYARORSZÁG www.bdo.hu

WTS KLIENT KFT (FORMER: HLB KLIENT KFT)

7

8

9

www.rsmdtm.hu

MAZARS KFT www.mazars.hu

MEMOLUX KFT www.memolux.hu

ECONOSERVE ACCOUNT’ROLL KFT www.econoserve.eu

ABT HUNGÁRIA TANÁCSADÓ KFT 10 www.abt.hu

ACCACE INTERBOOK KFT 11 www.accace.com

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

LEITNER+LEITNER AUDIT KFT www.leitnerleitner.com 12

123

396 362

–

–

–

–

»

26 1994

89

180 235

–

»

18 1995

– Alessandro Farina (100)

Alessandro Farina – –

1056 Budapest, Váci utca 81.

(1) 269-5679 (1) 269-5625 info@itlgroup.hu

65

65 74

»

9 2003

Eszter Danku-Szigecsán (45), Tamás Danku (45) GRND Ltd (10)

Tamás Danku – –

1011 Budapest, Szilágyi Dezső tér 1.

(20) 583-8380 (1) 700-4545 info@grandconsulting.hu

57

144 134

»

16 1992

Individuals (100) –

Andrea Butkovics – –

1138 Budapest, Váci út 141.

(1) 452-6900 (1) 452-6910 office@colling.hu

ITL GROUP KFT www.itlgroup.hu 13

GRAND CONSULTING KFT www.grandconsulting.hu 14

–

–

–

–

Transfer price documentation

COLLING ACCOUNTING & CONSULTING LTD www.colling.hu 15

–

–

–

–

Data for total net revenue in 2012 is based on companies' own statement, as such data hasn't been officially disclosed yet. In many cases, data does not include December revenue and is not audited. The BBJ does not take responsibility for the accuracy and credibility of such data.

1,960

2,057 2,360

COMPANY WEBSITE

SERVICES

NO. OF FULL-TIME EMPLOYEES ON JAN. 1, 2013 YEAR ESTABLISHED

TOTAL NET REVENUE IN 2011 (HUF MLN) IN 2012

RANK

NET REVENUE FROM ACCOUNTING (HUF MLN) IN 2012

Ranked by net revenue from accounting

3 Socialite

BBJ

Warning: Snow falls in winter!

The winter of 2013 might provide everyone with a highly unpredictable business environment, but one thing seems sure: a major snowfall over Budapest will result in traffic chaos. The Budapest Business Journal looks into what caused the disastrous traffic conditions in the capital on January 15.

There is a song in the movie The Adventures Of Priscilla, Queen Of The Desert called Save The Best For Last, made famous

by Vanessa Williams, the lyrics of which say “Sometimes the snow comes down in June, sometimes the Sun goes round the Moon.”

Budapest public area maintenance company, FKF Zrt, clearly, wouldn’t wish for such miracles. It can be a harsh winter night in the middle of January when the snow starts falling over Budapest, and the one thing that seems certain is that it will inevitably take FKF by surprise.

While Budapesters like to joke about it, as with just about every other embarrassing or annoying aspect of their city it is always a joke that is at least half-serious.

In light of the above, the explanation from FKF chief Lajos Klug following the traffic turmoil caused by the heavy snow that fell in the early hours of January 15 sounds anything but surprising. At a press conference following a chaotic Monday morning all across Budapest he claimed that the “inconvenience” was caused by a faulty forecast from the National Weather Service (OMSz).

“The actual amount of snow was multiple times the amount forecast by OMSz,” Klug was quoted as saying by news portal Index.

Which is, it turns out, not quite true, at least according to a weatherman at OMSz, who preferred to remain anonymous. He said that the 6cm forecast by the weather service “was not all that different” from the actual 10cm that fell, and the phrase “multiple times” is definitely an exaggeration. Especially as this 10cm, measured at OMSz’s Pestszentlőrinc station, was the highest amount, although other stations reported very similar quan-

tities. It is also worth pointing out that other, free weather services including online weather sites Koponyeg.hu and Idokep.hu forecast around 20cm of snow for that specific night. OMSz also updated its forecast continuously (FKK pays a yearly amount of HUF 8.6 million to OMSz to receive four daily updates), and while the forecast of Sunday afternoon said the amount of snow would be 6cm, it had been raised to 10cm by late Sunday afternoon and to 10-15cm by that evening. Klug, on the other hand, was rather pleased with his company’s performance: he

WWW.BBJ.HU

21

Budapest Business Journal | Jan 25 – Feb 07

said that despite the inaccurate forecast, 50 snowplows have started to clear Budapest’s roads at night, and by 4 am, 90 of the company’s 117 snowplows were operating (the snowfall started to become stronger around 6am, and the chaos peaked along with the usual Monday rush hour of 7-9am). Other officials, however, suggest that FKF’s tally was somewhat erroneous. Talking to business daily Napi Gazdaság, László Szaniszló, the chairman of Budapest Municipality’s Committee of Urban Developments and Environmental Protection said that by 6 am only 65 snowplows were on the roads. Panni Szűcs,

spokeswoman of BKV Holding City Maintenance Center, later confirmed this number adding that by later that morning the entire staff of FKF was working full capacity to clear Budapest’s roads. “Snow related works rank sixth on FKF’s priority list, so around HUF 1-2 billion originally accrued in this area was rearranged in FKF’s budget in favor of other, more important tasks,” Szaniszló explained.

WINTER PROGRAM Despite FKF’s best efforts, the breakdown of Budapest’s traffic system was both inevitable and spectacular. News sites started to report

traffic difficulties at around 6 am, claiming that normal journey times were doubled or even tripled within the city, Facebook and other social media outlets were soon flooded with user-submitted pictures of Budapest’s biggest roads and motorways, evidently untouched by FKF’s vehicles. And although FKF’s website swiftly followed the breakdown of the traffic system, remaining unavailable for the rest of the morning, the company managed to keep its audience updated via email and frequent reports in the public radio’s morning news program.

Budapest mayor István Tarlós announced

that the city’s public transportation service would be free for the day, in order to encourage people to leave their cars at home, but the decision was of little help for those who live on the Buda side without direct access to its only subway line (M1), as many of the bus and tramway lines also got stuck either in the snow itself or in the traffic jam that followed.

“A day like January 15 costs FKF Zrt some HUF 80-100 million,” Szűcs told the Budapest Business Journal, adding that there is a rigorous script FKF has to follow in such cases. The document, titled The Winter Program Of FKF Zrt, prescribes the company’s conduct between November 15 and March 15 and it sets four categories of snowfall based on the severity of the situation (January 15 was a category III event, while category IV would mean 30 plus centimeters of snow). Category III is in effect when the operation of snowplows are necessary, and this is also the point at which FKF starts hiring temporary snow workers. On January 15, FKF hired 527 of them.

The highest priority of category III procedure is to clear Budapest’s 1,200 km main road system, with a particular focus on bridges, overpasses, the roads leading to the Liszt Ferenc International Airport (including Terminal II, which actually lies outside the city’s municipal borders), motorways M1, M3, M5, M6, M7 and highways 10 and 11, which serve as the main entry points to the city from the direction of the north Buda agglomeration.

These priorities are followed by the tracks of hillside autobus lines in Buda, roads leading to hospitals and other healthcare institutions, and to elementary logistic bases.

Lower priority roads, of which Budapest has another 2,100 km, are only cleared when all the above work is complete. Snowplows in operation are continuously tracked via GPS devices from the FKF headquarters to ensure that optimal routes are taken.

While this whole scenario sounds very professional and well prepared, other, unexpected obstacles can also hinder the work of FKF. The Budapest Municipal Directorate General for Disaster Management said in a statement that throughout the morning it received 10 weather-related alarmcalls. Snowplows also got stuck in traffic jams, and many of the obstacles were not the immediate results of the snow, but rather traffic jams caused by stuck vehicles many of whom didn’t have the necessary equipment (winter tires or tire chains) appropriate for the dire weather conditions. ZsB

22 3 Socialite BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

WHO'S NEWS

Name Dr Sándor Békési Current company/position Partos & Noblet Hogan Lovells/partner

Békési was promoted to partner at Partos & Noblet Hogan Lovells effective from January 1. Previously, he was a senior associate with the firm. He has extensive experience in advising MNCs and investors on M&A projects and other corporate matters, while his main areas of expertise also cover cross-border and local banking and finance, real estate matters and public projects.

Do you know someone on the move?

Send information to research@bbj.hu

Name Tamás Seregdy

Seregdy has joined Ernst & Young as director of advisory services. He has more than 20 years of experience in the field of business consultancy and IT project management.

Seregdy obtained his degrees at the Technical University of Budapest and the UK’s Brunel University.

Current company/position Ernst & Young/director of advisory services

Name Imre Sztanó Current company/position ING Biztosító/sales director

Sztanó is the new sales director of insurance company ING Biztosító.

Before joining ING, he held several management positions in retail banking.

He has been in finance for 15 years, and spent the majority of these years at Erste Bank. From 2005 until 2007, he was strategic director at Erste, and was then named deputy CEO responsible for the bank’s retail division.

JAN 29

JAN 31

FEB 4

FEB 5

Business Forum with Gordon Bajnai, Former Prime Minister LOCATION Budapest Marriott Hotel, 1051 Budapest, Apáczai Csere János u. 4.

REGISTRATION noon-12:30 pm TIME 12:30-14:15 pm ORGANIZER American Chamber of Commerce in Hungary FEE AmCham members in good standing: HUF 12,700/person, non-members: HUF 31,750/person.

Price includes VAT and cost of lunch.

CONTACT www.amcham.hu

Business Lunch with Guest Speaker György Barcza, Senior Analyst of Századvég Economic Research Ltd. LOCATION Palace Restaurant, Novotel Budapest Centrum, 1088, Budapest, Rákóczi út 43-45.

REGISTRATION 11:30 Am-noon TIME Noon-2 pm ORGANIZER British Chamber of Commerce in Hungary FEE BCCH members: HUF 8,900 + VAT, HABA members: 10,500 + VAT, non-members: HUF 12,000 + VAT CONTACT www.bcch.com

AmCham Communications School with William Benkő, President of AmCham LOCATION AmCham Conference Room, 1051 Budapest, Szent István tér 11. 6th floor REGISTRATION 6-6:30pm TIME 6:30-8 pm ORGANIZER American Chamber of Commerce in Hungary FEE AmCham members in good standing: HUF 38,100, non-members: HUF 57,150 CONTACT www.amcham.hu

AmCham Career School with Iryna Ivaschenko, Resident Representative in Hungary, IMF LOCATION AmCham Conference Room, 1051 Budapest, Szent István tér 11. 6th floor REGISTRATION 6-6:30 pm TIME 6:30-8 pm ORGANIZER American Chamber of Commerce in Hungary FEE AmCham members in good standing: HUF 38,100, non-members: HUF 57,150

FEB 5

FEB 6

FEB 7

FEB 7

Speed business meeting LOCATION Ballroom, Sofitel Budapest Chain Bridge, 1051 Budapest, Széchenyi tér 2 REGISTRATION 5:30-6 pm TIME 6-9 pm ORGANIZER British Chamber of Commerce in Hungary FEE BCCH members: HUF 5,000 + VAT, non-members: HUF 5,000 + VAT CONTACT www.bcch.com

Service Quality Workshop: The Path To Competitive Advantage LOCATION PwC Offices, Conference Room, 1077 Budapest, Wesselényi u. 16.

REGISTRATION 3:30-4 pm TIME 4-6 pm ORGANIZER American Chamber of Commerce in Hungary FEE AmCham members: free, non-members: HUF 5,000 CONTACT www.amcham.hu

Business Lunch with Guest Speaker Ádám Farkas, Executive Director, European Banking Authority LOCATION Erzsébet Ballroom, Gundel Restaurant, 1146 Budapest, Gundel Károly út 2.

REGISTRATION 11:30 am-noon TIME Noon-2 pm ORGANIZER French-Hungarian Chamber of Commerce and Industry FEE Members: HUF 14,000 + VAT, non-members: HUF 18,000 + VAT CONTACT www.ccifh.hu

Jour Fixe LOCATION Erzsébet Ballroom, Gundel Restaurant, 1146 Budapest, Gundel Károly út 2.

REGISTRATION 5:45-6 pm TIME 6-10 pm ORGANIZER German-Hungarian Chamber of Commerce and Industry FEE Members: HUF 9,800 + VAT, non-members: HUF 19,600 + VAT CONTACT http://www.ahkungarn.hu

3 Socialite 23

BBJ

WWW.BBJ.HU

Budapest Business Journal | Jan 25 – Feb 07

The Cubicle Manifesto

by Mainak Dhar The cubicle is the desk space you occupy for hours on end. You feel guilty for leaving, but reluctant to arrive.

You plan, strategize and eat lunch there.

You phone home from there to say you’ll be working late. Is this the place you really want to be? Is there a better way to work?

In the introduction to this book, Mainak Dhar suggests that ‘cubicle’ should be recognized as a verb in the same way that ‘Google’ is. He explains that ‘to cubicle’ is to sit “in a confined workspace for extended hours, stifling interpersonal communication, creativity and any other expression of individuality,

which makes the individual forget life beyond the immediate demands of the job”.

Fortunately, The Cubicle Manifesto is not another dry self-help book for the office worker that encourages readers to simply ‘think outside the box’. And it does not apply only to those who work in cubicles. It applies to anyone who is tied to a desk for the majority of the day, and to anyone who mentally remains tied there even after they’ve gone home.

Following in the footsteps of the incredibly successful Who Moved My Cheese and The One-Minute Manager, The Cubicle Manifesto is a business parable. Its main character is Mayukh, a stressed office worker who can’t believe his misfortune when his computer is infected by a virus.

But the virus seems to have its own agenda, and it soon starts a revolution that will permanently change the way

Mayukh works. This book deals with a familiar topic.

We all know that a culture of ‘overwork’ is present in many office environments. Surveys show overwhelming statistics about the number of people who continue to work on their phones or other devices after leaving the office, who contact their workplaces while on holiday, and who suffer job-related ill health. But Dhar addresses these issues in a fresh way, with a humorous story we can all relate to.

What’s more, Dhar does not have a PhD in organizational behavior. But he does have one very important qualification: he is a cubicle-dweller himself. “Don’t worry,” he writes, “I will not ask you to leave your job. This will be a revolution where, far from risking facing a firing squad, you may well enjoy yourself.” He does not encourage readers to tear down their workspaces and confront their bosses.

NEWSLETTERS

Business and economic intelligence We all of us make better decisions if we understand our environment in depth. Although it is crucial to receive essential information promptly, we can rarely afford the luxury of wasting precious time on browsing the web, gathering and filtering news for ourselves.

The editorial staff of the Budapest Business Journal saves you time and money. We send you daily the most important news and offer in depth analysis. Our one-stop-knowledge center is your must-have support for better decisions!

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Gather expert knowledge about the status of the Hungarian economy, business trends and politics on a daily basis. Read between the lines and fi nd the most important information that will help you make safe decisions.

Does Hungary, and Central Europe in general, hold a strategic position in the Continent’s energy supply? Does the stability of Europe depend on the energy politics and economy of the region?

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Instead, he reveals the steps we can take to rid ourselves of the pressure and stress that many of us deal with, in isolation, in our own tiny work areas.

THE CUBICLE MANIFESTO

BY MAINAK DHAR Ebury Press ISBN 9780091947972 Available to order through www.hungaropress.hu