Budapest Business Journal 2801

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

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BUSINESS JOURNAL BUDAPEST

VOL. 28. NUMBER 1

JANUARY 17 – JANUARY 30, 2020

Photo by Zsolt Szigetváry/MTI

SPECIAL REPORT

The Year Ahead

SPECIAL REPORT

2020: The Analysts’ Crystal Ball Just like a year earlier, analysts’ predicted growth forecast for 2019 fell short of the actual rate. What will 2020 bring?  16 SPECIAL REPORT

Investment Volumes Expected to Follow 2019’s Pattern A wider pool of international investors have made acquisitions in Hungary, although domestic funds represent around 50% of all activity.

While market fundamentals are positive, low availability of investment grade product is acting as an impediment to growth.  20

Charting his way Ahead Into 2020

SOCIALITE

A Winter Break at Lake Balaton In five years of living in and visiting Hungary, David Holzer had not managed to see Hungary’s fabled “inland sea” of Lake Balaton.

This winter, on an out-of-season wellness weekend to Siófok, he was determined not to miss the chance. 22

NEWS

Industry Loses Momentum at Year-end Last November was the fifth month this year when the Central Statistical Office registered a decline in industrial production. Despite that, the data still shows a pretty good picture for the entire year.  3

N EW

S

Prime Minister Viktor Orbán used a near three-hour press conference to extoll Hungary’s economy, touched on energy independence (among many other subjects) and laid out priorities for the year ahead, including improving healthcare, fighting poverty, and tackling climate change.4 BUSINESS

Microsoft: Helping Unis Harness the Cloud and AI AI could be a great business opportunity for Hungary, but it needs to be part of the general education for the country to really benefit. Microsoft, a member of the the AI Coalition, has teamed up Hungarian universities to improve access.  9

News

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THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL STAFF: Balázs Barabás, Zsófia Czifra,

Kester Eddy, Bence Gaál, Gergely Herpai, David Holzer, Christian Keszthelyi, Gary J. Morrell, Robert Smyth, Zsófia Végh.

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The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress.

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BBJ-PARTNERS

ECONOMIC OUTLOOK: MORE OF THE SAME, OR A WINTER CHILL I read a report the other day that said the winter, thus far,

Taken in totality, you begin to wonder if there is a sense

has been unusually mild, which could lead to reduced utility

among the analysts that Hungary dodged a bullet in 2019. And

bills and even, possibly, lower prices. That is obviously good

whether it could repeat that neat trick in 2020. The underlying

news, though I might have been tempted to believe it more

fundamentals have not changed greatly from last year to this,

if I had not been shivering at the time.

although the fact that there will be less EU money to draw on

My day starts at 6:30 each morning, editing our daily

(Hungary having, again, been extremely efficient in accessing

Hungary A.M. newsletter, followed by breakfast, followed

what was available) feels like it might well be a key point of

by a half-hour walk with the dogs in the woods. It doesn’t

difference. The important question is whether the November

feel mild then, I can tell you. For the last week or so (at least

industrial data, which disappointed somewhat, was an outlier,

where I live), we have been locked into a period of thick fog

or a way marker. Again, the fact that industrial output has now

and freezing temperatures. The weather app on my phone

fallen for two months in a row might, might, be significant.

has barely changed for days now: “-3˚C; feels like -7˚C.”

Time will tell, and I am far from a fully paid up member of

The key question, as we move properly into the new

the analysts’ association. As Citi’s Central European CEO and

business year is not whether I am feeling the chill of winter,

Hungary country head Kevin A. Murray said recently, in an

but rather if the Hungarian economy will do so.

interview for another of our forthcoming publications, “I’m not

We all know that Hungary impressively outperformed not just the European Union average in terms of economic growth, but just about everybody’s expectations. I have

overly concerned with the economy. The biggest challenge there is that people will talk themselves into a recession.”

That sounds like a very good cue for me to stop. Whatever

enjoyed reading the comments of many of the leading

your business, I hope it proves robust and prosperous in

analysts in this issue (see both our Macroscope report

2020. Happy New Year!

opposite, and our Special Report on The Year Ahead).

The one that really struck was almost plaintive: “No one

Robin Marshall

expected that rate of growth.” (My italics.)

Editor-in-chief

Photo: MTI/Márton Mónus

Photo: fortepan.hu/Lajos Horváth

VISIT US ONLINE: WWW.BBJ.HU

THEN & NOW

What appears to be an extended family, with friends, and at least a couple of soldiers in uniform, prepare to welcome the coming year of 1916 during World War I, somewhere in Hungary in the black and white picture from the Fortepan public archive. New Yearʼs Eve celebrations look slightly different a bit more than a century later, as this mixed-age group welcome in 2020 at Vörösmarty tér.

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News///macroscope

Industry Loses Momentum at Year-end, Uncertainties Remain

Last November was the fifth month this year when the Central Statistical Office (KSH) registered a decline in industrial production. Despite that, the data still shows a pretty good picture for the entire year. As for 2020, analysts predict that the Hungarian economy will slow down, but the growth rate will likely to be above that of the eurozone.

ZSÓFIA CZIFRA

Year-end data shows that Hungary’s industry had somewhat slowed down by the last months of the year: in November 2019, the volume of industrial output grew by 3.6% year-on-year. Based on workingday adjusted data, production rose by 5.7%.

In the previous month, the unadjusted figure was 6.1%, while on a working-day adjusted basis, the output grew 6.4% from the same period of 2018.

The volume of industrial export grew by 1.9% year-on-year in November 2019.

Industrial domestic sales increased by 1.7%, within it domestic sales in manufacturing were 2.6% higher compared to the same month of the previous year.

Within industry, production grew by 4.2% in the decisive weight (96%) representing manufacturing, at the same time it decreased by 4% in the small weight representing mining and quarrying and by 0.8% in the energy industry (electricity, gas, steam and air-conditioning supply). In January–November 2019, compared to the same period of the previous year, industrial production increased by 6%.

Inflation in Hungary, 1991-2019 Change compared to same period last year (%)

Source:

Downward Risks Still Exist

Analysts, being slightly disappointed by the latest industrial figures, have tried to figure out to what extent the worsening external environment held back production and whether this can be counterbalanced by domestic demand.

The November growth of the industry was partially held back by the workingday-effect. However, the Hungarian industry outpaced the weak European and especially German growth rate, mainly due to new capacities and the lively domestic demand.

Further growth in manufacturing capacities might further enliven the Hungarian industry, while the European economic sentiment and the slowing growth rate of the global, mainly the Chinese economy carries downward risks, said Takarékbank analyst Gergely Suppan, adding that last year’s industrial growth could have

accelerated to

6%

last year from 3.5% in 2018. As for this year, he expects an industrial expansion of – seasonally and working-day adjusted – 4%.

ING Bank analyst Péter Virovácz noted that on a monthly basis, industrial output has now fallen for two months in a row, raising the question of whether the setback was temporary or whether adverse international trends have finally caught up with the Hungarian economy. In 2019, industrial output is likely to have grown by 6%, he said, adding that this could slow to around 4% this year.

The November data was slightly disappointing, admitted Erste Bank analyst Orsolya Nyeste, adding that changes in output could remain volatile in the coming months. In the short-term, the outlook is positive for the sector, but in the mid-term, uncertainties abound, she said, adding that output growth may slow from 6% in 2019 to slightly below 5% this year.

Core Inflation Stays Moderate While industry showed a moderate increase at the end of last year, inflation hit 4% in December. Consumer prices were 4% higher on average in December than a year earlier. Significant price increases were measured over the last 12 months for alcoholic beverages and tobacco, motor fuels as well as food. In 2019, consumer prices rose by 3.4% on average compared to the previous year.

But although the headline inflation increased significantly, core inflation slowed a little, therefore the National Bank of Hungary (MNB) is likely to remain calm. According to KSH data, core inflation (which excludes unprocessed food, energy and administered prices) came in at 3.9% on a year-on-year basis in December, posting a 0.1 percentage point drop compared to the November reading.

“As the rise in consumer prices didn’t surprise the market or the central bank and was driven by one-off technical factors and supply-side shocks, we expect the central bank to look past the recent pick-up in the headline reading,” ING Bank analysts wrote.

“In our view, we expect CPI to move above 4% but core inflation to continue its incremental slowdown. Amidst high volatility, we see headline CPI at 3.5% year-on-year in 2020 after the 3.4% average in 2019. Our core inflation forecast in 2020

stands at

3.8%

year-on-year - almost flat compared to last year,” the bank said.

Domestic consumption, investments and exports will drive the economic growth in 2020, analysts at Equilor Investment said in a recent press release.

According to their forecast, GDP could grow by 3.8% in 2020 and economic growth could slow to 3.5% in 2021.

“In our view, we expect CPI to move above 4% but core inflation to continue its incremental slowdown.

Amidst high volatility, we see headline CPI at 3.5% year-on-year in 2020 after the 3.4% average in 2019.

Our core inflation forecast in 2020 stands at 3.8% year-on-year - almost flat compared to last year.”

Both investments and export growth are set to slow. Wages in real terms will continue to increase, but at a slower pace than before. The number of employed will stay at a peak level and firms in the corporate sector will continue to face labor shortages.

Analyst Lajos Török said the MNB could well stick to an accommodative monetary policy in 2020, and might start tightening monetary policy only in 2021; before raising the base rate, it will first step back from its non-conventional measures, he added.

Numbers to Watch in the Coming Weeks The year starts slowly regarding economic data releases: only two important figures will be published in the second half of January. First, employment and unemployment data for the October-December period will be out on January 29. Two days later, we will learn about the earnings Hungarians made between January and November last year.

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Budapest Business Journal | January 17 – January 30, 2020

Orbán Pledges Action on Poverty, Healthcare and Climate Change Photo by Zsolt Szigetváry/MTI

Prime Minister Viktor Orbán addressed a selection of domestic and international media on January 9, speaking on subjects ranging from the economy to energy independence (“it’s better now than 10 years ago”, and from Fidesz popularity to peep shows (“Iʼm not a fan”) in a mammoth, 2 hour 45 minute performance outlining his vision for 2020 and beyond.

KESTER EDDY

The Hungarian economy over the last 10 years has achieved “fantastic success”, with more than 4.5 million now at work in the country for the first time since the collapse of communism in 1989-90, and monthly wages having risen continuously for nigh on seven years, the prime minister declared in his initial summary of the last cabinet meeting, held the day previously.

Citing an employment rate “in excess of 70%” and average earnings up 80% on 2010, when Fidesz took power, Orbán nonetheless said he was “not completely satisfied” as the Czechs “remain ahead of us, albeit by a nose” on jobs data, while poverty remains, particularly in rural areas.

Orbán on British PM Boris Johnson “Personally, I consider Boris Johnson to be one of the most courageous European politicians. I’ve won tough elections in a great headwind, but those were light, evening breezes [compared to] what he won.

“And I think the whole world was against him. The entire liberal-leftist media, the entire Soros network

Orbán on the HUF 100 mln Court Award to Segregated Roma School Children “I’m not from [the village of] Gyöngyöspata, but if I lived there, I would ask what’s going on. For some reason, members of an ethnic group living in the same community will receive a significant amount without having to work, while I [would] have to slave all day for that money. I don’t know how many hours, how many days and how many months I would have to work. How come?”

The prime minister’s address sparked a torrent of criticism from opponents, most notably his comments on a judicial decision to award damages totaling HUF 100 mln to Roma school children unlawfully segregated in the village school of Gyöngyöspata (see box).

Critics also noted the salary numbers failed to take into account the forint’s devaluation (it has lost one quarter of its value in the past decade, falling from HUF 265 against the euro to 333), and the effects of both the flat rate income tax and standard VAT rate of 27%, both of which hit low-income groups disproportionally hard.

Orbán on his Sports and Civic Organization Philosophy

Orbán on Hungary Adopting the Euro “I think Hungary is not ready to introduce the euro. Introducing the euro would result in unforeseen bad consequences, so, it’s not on the table. [But] we are continuously looking at this and monitoring it.”

“Everyone’s incomes have risen, but the wages of people earning the least have increased the most: the minimum wage has increased by 120%, and for skilled workers by 135%. We want to continue these […] because the FideszKDNP alliance will eradicate poverty in

of the world, all the European Union’s pro-state people. And just because he, and the British people, believe in democracy and British independence, they’ve done it.

“So, regardless of the fact that this is not good for us, in itself, as a political achievement, hats off! Hats off! And I really do hope there is going to be a very good relationship between us and them.”

Hungary,” he said, in what appeared to be new concern for Hungary’s poor.

In terms of investment, Orbán declared 2019 a new high, with 101 large foreign and domestic investments topping HUF 1.7 trillion, “the highest level of [annual] investment ever in Hungary”.

Within this, Chinese, Korean and Japanese companies played a major role, being responsible for 38% of new jobs linked to new investments. “I consider this to be a vindication of the ‘Eastward opening’ policy,” he proclaimed.

In other new policy priorities, the prime minister announced initiatives in health and combatting climate change.

Health Service Spending

Healthcare workers will see pay rises totaling 72% in the next two and a half years in an effort to retain and attract staff, while public areas in health clinics are to be entirely refurbished.

However, hospitals will no longer be allowed to rack up debts, as has been the case up to now, in part due to foreignowned companies making what he termed “extra profits”, a practice his ministers would be empowered to stop, he said.

Claiming that Hungary is “among the world’s leaders” in terms of climate change, the prime minister said Hungary would prioritize investment into nuclear and solar farms ( but not wind – see box) in order to limit carbon emissions to just 10% of Hungary’s electricity usage by 2030, he said.

“It’s not competitive sports that is the strategic goal in Hungary, it is sport [of itself].

It helps to develop the character in a way that will allow our children to actually live up to expectations, to be good citizens of a civic Hungary.

“All these civic organizations, culture, sport, churches; I look on these as important allies for the building of the Hungarian future, even if, at the same time, I fully respect their autonomy.”

“His style might seem new, but his sense of reality and the content of his politics are old. The only thing that was surprisingly new was his open racist rhetoric regarding Gyöngyöspata,” Ágnes Vadai, vice president of the Democratic Coalition, told the Budapest Business Journal, when asked for comment.

Orbán: ‘No’ to Wind “The answer is no, we will not issue new licenses [for wind generation]. Because we are not a rich country, so we have to concentrate our resources […] exclusively on two forms, nuclear and solar. We can’t afford to have various high numbers of alternative energy sources. So, this is the priority, and that’s the reason why wind is not in the focus of our considerations.”

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News | 5

News///in brief Warning Garbage may Pile Bird flu Detected in up in Budapest Eastern Hungary, 115,000 Ducks Destroyed Imre Mártha, chairman of the supervisory board of Budapest’s Metropolitan Public Area Maintenance Company (FKF Nonprofit Zrt.) has told Infostart that the situation with the garbage collection in Budapest is tense, because FKF has not received the full amount for its services.

According to the head of the FKF, there may be a build-up of garbage in the streets of Budapest if the management of Budapest cannot agree with the government on the fate of the money retained by stateowned National Waste Management Coordinating and Asset Management Company, commonly known as Kukaholding. Currently, the system works

by Kukaholding billing customers instead of the service provider, and forwarding the money received to the garbage shippers.

According to Mártha, the amount usually arrives at the service provider only after a quarter and a half, which is far from ideal because it separates the customer from the service provider and is much more difficult to enumerate and recover, Infostart said.

Hungary’s National Food Chain Safety Office (NÉBIH) said on January 15 it had detected the avian flu virus at a duck farm in Hajdú-Bihar County (eastern Hungary), marking the second major discovery of the H5N8 strain of the virus in the country in the last few days, state news wire MTI reports. NÉBIH said it had started to destroy the 115,000 ducks on the farm.

A 3 km protection zone and a 10 km surveillance zone were to be established around the site. The authority said the ducks were probably infected by wild birds from a nearby lake and it advised poultry farmers to keep their birds in enclosed areas. NÉBIH found the same strain at a turkey farm in KomáromEsztergom County (northern Hungary) a few days earlier. All 53,500 birds there were destroyed.

Indian Investments to Create 1,000 Jobs in Hungary

There are 152 elderly persons for every 100 youths in the Hungarian capital, and 23% of households live in retirement, according to the annual publication of the Central Statistical Office (KSH) on Budapest data, reports Népszava. In the last three years, the population of Budapest has practically remained unchanged, with about 3-4,000 people coming and going plus or minus, according to the survey, with a total of 1,752,300 people living in the capital last year. Some 49% of the 803,000 households in Budapest are active, 42% are employed, and 7% are entrepreneurs. The proportion of older people first exceeded that of children in the capital in 2005, and by 2018 it had already exceeded 152%, which is much higher than the national average of 132.9%, which means that the population of Budapest is rapidly aging, says Népszava.

Over the next two months, Hungary’s government will announce investments

by Indian companies that will create 1,000 jobs, Minister of Foreign Affairs and Trade Péter Szijjártó told state news wire MTI by phone from Mumbai on January 15. Szijjártó said agreements had been reached on the investments with companies in the automotive, electronics and energy industries based in Mumbai and its environs. They include Tata Sons, Mahindra Group and Hinduja Group, he added. Some 40 big Indian companies already operate in Hungary, employing more than 10,000 people. In addition to talks with Indian corporate executives, Szijjártó said he had also met with Governor of Maharashtra, Bhagat Singh Koshyari.

Population of Budapest Rapidly Aging

Hungary Tops EU in Hospital Stay Length The average length of a hospital stay for in-patients in Hungary amounted to 9.8 days in Hungary in 2017, the longest among all EU member states, according to data by statistical agency Eurostat. The second-longest average length was registered in the Czech Republic (9.6 days), followed by France (9.1 days).

The shortest average length, 4.5 days was registered in the Netherlands, followed by 5.3 days in Bulgaria, and 5.5 days (2016 data) in Denmark.

Eurostat says that although there were more female patients than male patients, the average length of stay for male patients was generally longer in most member states.

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CEE Co-head of Life Sciences Named at Taylor Wessing

Barbora Dubanská has been appointed the new CEE co-head of the life sciences team of international law firm Taylor Wessing alongside partner Dieter Natlacen.

Dubanská is an expert in the fields of pharmaceutical, regulatory and antitrust law. Taylor Wessing says that she will commute between the firm’s offices in Vienna and Prague as a number of key pharmaceutical companies have their regional headquarters in the Austrian capital. In addition, she will work across the entire CEE region, cooperating with local Taylor Wessing teams.

The appointment marks the next step in the enhancement of the company’s CEE life sciences practice.

“Just a few months ago, Agnieszka Sztoldman in Warsaw became a ‘heavyweight’ addition. Now we are pleased to have Barbora Dubanská as an addition to our team in Prague and Vienna,” said CEE managing partner Raimund Cancola.”The team expansion is also part of Taylor Wessing’s international strategy to massively expand legal services for this key industry.”

Barbora Dubanská Prior to her appointment at Taylor Wessing, Dubanská worked at one of the largest international pharmaceutical companies. Earlier in her career, she primarily advised pharmaceutical, FMCG and German-speaking clients with a focus on regulatory issues in international law firms in Prague, London and Munich.

She studied law in several European cities, as well as in Australia, and acquired an LL.M. degree from Cambridge University. She also holds a master’s degree in healthcare administration from the Advance Institute in Prague. She is fluent in Czech, German, English, French, Spanish, and Portuguese.

at the European Commission, including six years in the Directorate-General for Competition advising on complex antitrust, merger control and state aid matters in the energy sector.

with global HR areas and managers, while developing the allotment systems of global functions and service centers.

SAP Names Communications Head for Hungary and SEE

Kristóf Kovács Kovács also served for seven years at the EC’s Directorate-General for Energy, where he led the gas policy team responsible for developing and implementing sector regulation, as well as heading up the performance-based budgeting team within the DirectorateGeneral for Budget.

In recent years, Kovács’ achievements have included overseeing the development of comprehensive pan-European gas sector regulations and the Grid Codes, and leading the Commission’s regional cooperation efforts in Eastern and Southern European gas markets.

“We are very excited to add an economist with significant EU experience to our team,” said Zoltán Hegymegi-Barakonyi, managing partner of Baker McKenzie’s Budapest office.

“Kristóf’s specialist expertise in multiple aspects of the energy sector will enable us to offer our clients real added value in a new way, whereby we can contribute to the success of our clients’ energy sector transactions and assist in market regulatory issues with comprehensive legal and economic advice.”

Kiss Takes Control of all E.ON Business in Hungary

Attila Kiss, the CEO of German energy giant E.ON’s Hungarian unit, has assumed responsibility for all businesses and activities of E.ON in Hungary, the company told the Budapest Business Journal.

Baker McKenzie Adds Kovács as Energy Consultant

Baker McKenzie’s Budapest office is bringing on board Kristóf Kovács as an energy market advisor, strengthening its offering via his long experience gained at the European Commission.

Kovács joins the firm’s energy, mining, and infrastructure industry group. He has spent the past 15 years

Attila Kiss joined E.ON in 1999 after qualifying as an economist, holding a wide range of leading positions both in Hungary and Germany. He became CEO of E.ON Hungária Zrt. in June 2018.

“I am looking forward to working closely with Attila Kiss and congratulate him on his new role,” said Thomas König, member of the E.ON SE board and chairman of E.ON Hungária’s supervisory board.

Attila Kiss

SAP has announced the appointment of Zsuzsa Halpert as head of communications, responsible for both the internal and external communications of the company in Hungary and five other countries in the SEE region.

She arrives from the ACG advertising agency, bringing some 20 years of experience in communications to SAP. Halpert began her career as promo editor and copywriter at a Hungarian television channel, before moving into the field of PR. As a communications advisor, she spent more than 12 years on the agency side, managing the internal and external product communications, press relations, CSR, and employer branding programs of ICT, financial, healthcare, energy, and FMCG companies.

Kristóf Zács “I joined Diageo 11 years ago, where I received numerous opportunities, gaining a lot of knowledge and international experience,” says Zács.

“I will actively work on making our Budapest center an even more attractive employer, and to contribute to the outstanding successes achieved by colleagues, and I would also like to provide development opportunities, experiences, and learning for everybody.”

Scitec Makes Solymos Marketing Director

Zsuzsa Halpert She is now responsible for the press and social media presence and internal communications of SAP in Hungary, Slovenia, Croatia, Serbia, Bulgaria, and Romania.

Sports nutrition supplement maker Scitec has announced the appointment of Ádám Solymos as its marketing director.

Previously, he spent more than 10 years in England working for companies like Reckitt Benckiser. Other companies he has worked for in his career include Procter & Gamble, Kimberly-Clark, and Johnson & Johnson.

Solymos says that Scitec’s most important aim for the future is to become a brand that engages a wider community of athletes, increasing its importance on the market. As the first step towards this goal, the company has already established two sub-brands in order to enhance its product portfolio: Scitec Gym for people aiming for a muscular and aesthetic look, and Scitec Endurance for endurance athletes.

Diageo Appoints Head of HR, Budapest

Multinational alcoholic beverages company Diageo has announced the appointment of Kristóf Zács as head of HR in Budapest. As HR business partner, he is also responsible for global financial control functions.

Zács joined Diageo in 2008, and has held multiple positions. In Budapest he worked in the HR field, before helping Diageo’s expansion in Africa and Asia as change manager. He returned to Budapest in 2014, working as HR business partner.

The company says that, besides heading the team responsible for payroll accounting and rewards, he also achieved notable results in the development of a flexible allotment system.

In the past two-and-a-half years, he became a member of the global team responsible for compensation. In this function, he forged a close cooperation

Ádám Solymos “In the past 20 years, the sports supplement market has grown significantly, but there is still considerable growth potential in the sector,” says Solymos, adding that thanks to its serious R&D background, Scitec aims to play an even greater role on the world market.

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Budapest Business Journal | January 17 – January 30, 2020

Austrian Paper Group to Build EUR 52 mln Packaging Plant

When operational, the Dunavarsány plant will raise the group’s workforce in Hungary to some 1,450 people, and cap a total investment of

EUR 650 mln to date.

In spite of the current labor shortages in Hungary, Prinzhorn, who holds an MBA from Babson College in Boston, USA, said that he was confident of finding staff for the new operation, given that many young people are attracted to “green jobs” in the paper and recycling sector.

In addition, Prinzhorn and Dunapack represent well established brands in their sector, a major factor in successful recruitment.

The Austrian Prinzhorn Group, a major investor in the paper and recycling sector in Hungary and Central and Eastern Europe, is set to announce an EUR 52 million, state-of-the-art packaging plant to be located in Dunavarsány, 15 kilometers south of Budapest. The plant has a target opening date of summer 2021, according to a press release leaked in advance to the Budapest Business Journal.

KESTER EDDY

Miklós Rasovszky, general manager of Dunapack Magyarország, Prinzhorn’s Hungarian packaging subsidiary, is quoted in the press material saying: “With the latest environmentally friendly technology in place, we can serve our customers faster and more efficiently deliver superb product quality, while using less energy and other resources.”

Quizzed for additional information, Cord Prinzhorn, chief executive of the familyowned group, declined to put numbers on the energy savings.

“We do not have comparable figures as the exact machine set up has not been decided yet, [but] we will definitely have a faster and more efficient plant and machinery set up that will result in less energy consumption while providing higher output,” Prinzhorn told the BBJ from the group’s headquarters in Vienna.

“We will definitely have a faster and more efficient plant and machinery set up that will result in less energy consumption while providing higher output.”

Less Downtime

“In addition, [there will be] less downtime due to modern technology [resulting in] increased productivity,” he added.

The plant, which will employ a workforce of some 200, will have a total annual production capacity of 240 million sqm of packaging material.

Put another way, the new plant’s annual production would be able to cover “approximately 33,600 soccer FIFA standard soccer fields measuring 105 x 68 meters,” he said.

This represents a 75% increase on Dunapack’s current Hungarian production capacity of

321 million sqm

from its three sites at Csepel, Nyíregyháza and Dunaújváros.

News | 7

Cord Prinzhorn The company expects domestic demand will take around 70% of the new production, with the remainder for exports.

Recycling Reliant

The new plant will largely rely on recycled cardboard production by Hamburger Containerboard, which is itself supplied by Hamburger Recycling; both are Hungarian subsidiaries of the Prinzhorn Group.

Nonetheless, he admitted that future staffing needs present a challenge. “The long-term perspective on this topic is rather difficult, with birthrates constantly going down and a ‘war for talent’ having already started,” he said.

The group is particularly concerned about finding jobs for older people, and has begun a corporate social responsibility program focusing on three pillars, namely education, environment and community.

“We chose these pillars, rather than, say, art, because people are and will be the decisive factor for success,” Prinzhorn told the BBJ.

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Budapest Business Journal | January 17 – January 30, 2020

Wing Completes Acquisition of Echo Investment Wing is now a majority owner of Echo investment, one of the largest developers in Poland, as the Hungarian company follows through on its strategy to become a dominant player in the CEE region.

GARY J. MORRELL

Having established its position in the Hungarian market as a developer and investor the company is looking at extending its activities to the Poland market.

“The transaction, which was concluded on December 13, saw the Wing Group become the majority owner of the leading Polish real estate developer Echo Investment, a company traded on the Warsaw Stock Exchange,” Wing said in a statement.

Wing acquired a 100% stake in Lisala, which in turn owns a

56% stake

in Echo Investment, a company that has extensive experience across the residential, retail and office segments.

“Building on its success in the Hungarian real estate market, it [Wing] has identified international expansion as its next strategic goal. With this transaction, we can now state that we have taken a major step forward in this direction. We are now a group that is significant at the regional level,” Noah Steinberg, chairman and CEO of Wing,

The Magyar Telekom HQ, purpose built by Wing. commented on the regional expansion strategy of the company.

“The first phase of international expansion was mapping out regional markets; based on property development opportunities and the features of the investment market, the Polish property market proved to be the most attractive investment target,” Steinberg said.

“The company next sought out a strategic investment opportunity that would not only provide stable and profitable operation, but long-term growth potential. Echo Investment SA met these criteria decisively.

Combining Expertise

“By combining the Polish company’s achievements and Wing’s unique professional expertise and leading

position in the Hungarian market, our objective was to become a major player at the regional level.

Wing enters the transaction as a strategic investor supporting Echo Investment’s long-term growth program; however, operationally the two companies will continue to remain independent,” he added.

The relationship with Wing is seen as opening the door to new opportunities for Echo Investment.

“During the last four years, the company has transformed from being a developer that keeps parts of its completed assets to a pure, dividend-generating developer, in line with the strategy of the profitable growth,” said Nicklas Lindberg, CEO of Echo Investment.

“We have become the market leader in the office and retail real estate sectors in Poland and we are on a good way to achieve such a position with the residential part of our business. We

have interesting years ahead of us, transforming parts of the cities around Poland by developing our mixeduse projects, benefiting from all the competences and experience inside the company,” Lindberg added.

Echo Investment has residential, retail and office development projects in Warsaw, Krakow, Lodz and Wroclaw. This reflects the size of the Poland market, which, unlike Hungary, has established real estate sectors in several large cities across the country.

Wing cooperated closely with the investor, Griffin Real Estate in the course of the transaction. Griffin Real Estate is part of same group as Echo and one of the largest and most active investment managers of private equity real estate in CEE. In the coming months, a co-investment with Griffin Real Estate is anticipated.

REM Group Acts as Adviser on Korean Cultural Center The REM Group has acted as property advisor, project manager and now as property manager for the Korean Cultural Center located in District II of Budapest, close to the Margit híd.

GARY J. MORRELL

The building of more than 5,000 sqm was extensively refurbished to house the Korean Cultural Center as part of a relocation. The KCC is a South Korean organization that promotes the culture of the country around the globe, with the

new center is seen as a flagship project in CEE. The Budapest center is the largest in Europe and the second largest in the world, after Tokyo.

REM Group acted on behalf of the KCC to conduct an extensive property search which resulted in the acquisition of the building from the Central European University in 2017.

REM subsequently acted to procure the necessary permits and project managed the refurbishment of the entire building. The end result sees the transformation of what was an office building into a high-profile event and exhibition center.

Special Requirements

“Our client had very special requirements and we had to operate under a very tight timeline, drawing on all of 25 years of experience gained from operating in the Hungarian real estate market to complete the project on time and within budget,” commented József Takács, of REM Property Services.

“We believe that REM Group had not only served as the best project

manager, but also worked with us as a trustworthy partner from the very beginning of this challenging task.

There had been a lot of unexpected obstacles during the whole process,” said Dangkweon Lee, director of the KCC. REM Group has been operating as a property services company in Budapest since 1994. The company has developed approximately 235,000 sqm of commercial and residential properties in Hungary in 25 projects

valued at

EUR 325 million

and acts on behalf of third-party investors and property related clients.

The current company structure is the result of a management buy-out from the Raiffeisen Banking Group.

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Budapest Business Journal | January 17 – January 30, 2020

Business

Microsoft: Helping Unis Harness the Cloud and AI for Hungary

Artificial intelligence could be a great (business) opportunity for Hungary, but it needs to be part of the general education for the country to really benefit from it. Microsoft, a member of the the Hungarian AI Coalition, has teamed up five Hungarian universities to improve access to this technology and move professional work to next level.

ZSÓFIA VÉGH

“Supporting education and artificial intelligence is an issue of strategic importance at Microsoft,” says Ádám Merényi, educational business unit leader at Microsoft Hungary.

“In Hungary, we have seen some good examples for companies improving their competitiveness after starting to apply AI. So we thought, ‘Why not take it to the next level and start working with universities as well?’,” he adds.

Microsoft has teamed up with five universities (Budapest Business School, Budapest University of Technology and Economics, the University of Debrecen, Óbuda University, and the University of Pécs) to create AI Knowledge Centers concentrating data and knowledge on AI.

out that. For instance, if the researchers of the University of Debrecen want to map wolf populations in Hungarian forests, they don’t want to first spend time developing a method for AI to spot wolves.

And now they don’t need to, as they can access image recognition systems from the cloud, Merényi says. They also become more knowledgeable of the potential/ possibilities available. All this boost efficiency Microsoft also helps with the training of professors and curriculum development.

When it enters into a partnership with a university, it first trains the professors the institution says will be involved in the program. With the knowledge gained, those professors test it themselves, then pass it on to their students.

In Hungary, we have seen some good examples for companies improving their competitiveness after starting to apply AI. So we thought, ‘Why not take it to the next level and start working with universities as well?’.”

Christopher Mattheisen, head of Microsoft Hungary (left) and Vice President of Education at Microsoft, Anthony Salcito.

The aim of the initiative is to improve students’ access to new technologies, and help universities already working on AI-projects create projects of great social value.

“Today, artificial Intelligence works as an equalizer,” says Christopher Mattheisen, head of Microsoft Hungary, citing Estonia as a good example. “If you understand technology, you don’t need to be big to achieve great progress; any country can do it.”

Accelerating the Process

Hungary’s aim is to gain this knowledge as fast as possible, and Microsoft together with the AI Knowledge Centers wants to accelerate this process, Mattheisen adds.

AI Knowledge Centers concentrate knowledge on the latest technologies.

They also have the necessary software background that enables students and their professors to succeed in AI-related research.

Universities have been doing AI-related research for decades. By now they have collected enough data and calculating capacities to make it accessible for everyone.

“We tend to say that Microsoft has democratized AI, which no longer is the privilege of a small circle within a faculty but any faculty of any university can access AI capacities and services through the cloud,” Merényi says.

Microsoft supports universities on two fronts. First, it provides them with knowledge: It has prepared an AI-curriculum in Hungary with Eötvös Loránd University (ELTE) and the John von Neumann Computer Society, but materials from the wider world are also available.

Secondly, the company also provides universities with USD 300 worth of

calculating capacities per student, which, calculating with 7,700 IT students, equals

HUF 700 million a year.

This helps students to learn and get an understanding of AI. Universities also have an option to buy further capacities from the company to conduct research.

One major benefit of cloud-services is that is makes all the globally accumulated know-how accessible to everyone. Tapping into this resource saves universities and researchers time, money and energy as they may not need to go through a process step by step if someone else has already done that. This alone improves efficiency.

Piggy Back Research

Researchers will not only be able to access raw data, but also the technology that is

The last “step” is when they work on real projects. Among such research programs are monitoring wild horses with drones at the Hortobágy National Park in eastern Hungary, or looking at what data can be gained from consumers’ reviews of medicines.

“AI-related theoretical knowledge has always been here,” Merényi says. There has also been centrally procured calculating capacity that helps turn this knowledge to practical ends. What the cloud does is that it provide universities with almost unlimited cutting-edge knowledge and state-of-the-art hardware, which is crucial to move to the next level, he adds.

“I can’t stress enough the importance of AI,” says Mattheisen. Companies are on the constant lookout for workforce able to apply new technologies: three-quarters of those asked by Microsoft say they need a digitally-savvy workforce, he adds.

Universities may be the key in teaching AI, but Microsoft says it doesn’t want to stop there; it wants to provide access to AI right across a much wider spectrum, from elementary schools to adult training.

Chancellor of Budapest Economic University (BGE), Dr. Ferenc Dietz.

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Budapest Business Journal | January 17 – January 30, 2020

Looking at the Social Significance of Impact Investing

The Corporate Finance Column

Target Financial Returns Sought

by Impact Investors 15%

In their latest corporate finance column, Les Nemethy and Sergey Glekov look at how impact investing can transform the perception of money as a source for good.

Risk-adjusted, market-rate returns Below- market-rate returns: closer to market rate

19% 66%

Below- market-rate returns: closer to capital preservation

Source: 2019 Annual Impact Investor Survey by Global Impact Investing Network

Impact investing, as that first word implies, is all about investing to make a positive impact on the world, not only generating a financial return. One may define impact investments as investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.

This is not the same as charitable donations, where the donor typically expects nothing in return (except for perhaps a tax deduction). They each have their own separate and crucial roles. Impact investing has been growing exponentially all over the world recently, even partially displacing traditional charitable donations.

Charities are important and effective in meeting immediate needs, such as food, shelter, and sanitation. Social impact investments can be more effective in stimulating long-term sustainability through job creation and entrepreneurship.

Impact investment may appeal to a wide variety of individual and institutional investors, including:

Fund Managers Development finance institutions Diversified financial institutions/banks Private foundations Pension funds and insurance companies Family Offices Individual investors NGOs Religious institutions There are three key characteristics of impact investing. Firstly, there is the intent to produce a positive social impact through mobilizing capital. This is the central idea of the whole concept of impact investing.

Next are the positive financial returns.

The target range of returns for impact investments may range from below market to market, depending on the investors’ strategic goals. Based on a 2019 survey of social impact investors throughout the world, a majority of impact investors still choose to pursue competitive, market-rate returns. But this is not always the case.

The third and most challenging aspect of impact investment is measurement of the impact on the world. The Global Impact Investing Network (GIIN, thegiin.org) establishes criteria for measuring impact:

• • • • • • • • •

• Declaring the social or environmental objectives that an investment is attempting to accomplish.

• Using standardized metrics to set performance targets for these objectives.

• Utilizing Key Performance Indicators (KPI’s) to measure performance and optimizing specific parts of a business model.

• Reporting social and environmental performance in the context of the standardized metrics that were previously set.

According to GIIN, aggregated assets under management in the impact investment industry was estimated

at

USD 502 bln

as at the end of 2018, as laid out in “Sizing the Impact Investing Market” report by GIIN . The growing impact investment market provides capital to address the world’s most demanding challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and housing.

A majority of impact investing organizations is headquartered in developed markets, mainly in the United States and Canada. However, impact investing is a global phenomenon, also with strong roots in Central Europe.

The impact investment ecosystem in the Visegrád countries is relatively well-developed, despite still being in its early stage. A lack of concise nationallevel strategies and gaps in cooperation between entities needs to be addressed in order for the region to ensure the impact investment ecosystem develops to its full potential, according to the “Social Investment Leveraging Index, Investing for Impact in Central and Eastern Europe” by Deloitte .

For many years, numerous investors have been avoiding investments in the so called “sin” industries like alcohol, tobacco, armaments, etc. Impact investment might be viewed as an extension of that trend, to actively seek out investments that will make the world a better place.

One might also view investing in certain high-tech firms as a form of impact investing, if the technology (for example, MedTech or drug research) makes the world a better place.

There is a perception in society in general that money is often a source of evil. Impact investing is proof positive that money can also be a source for good.

Les Nemethy is CEO of EuroPhoenix (www.europhoenix. com), a Central European corporate finance firm, author of Business Exit Planning (www.businessexitplanningbook. com) and a former president of the American Chamber of Commerce in Hungary.

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Business | 11

A quarter of Hungarians subscribe to a streaming subscription like Netflix or HBO GO, research by the IDEA Institute has found. According to the latest survey, those who are willing to pay also take advantage of their subscription, with 39% watching a movie or an episode (or more) from a series every day using online video services.

GERGELY HERPAI

Perhaps not surprisingly, the highest proportion of people with subscriptions to Netflix, HBO GO or other services are found the capital, with the figure at 39%.

The majority of respondents have a streaming subscription with only one provider. Paid streaming is most popular among 18-39-year-olds: one-third of those in this age group subscribe to such a service. Some 37% of respondents say they watch on a television, with laptops the second most popular device (26%).

Interestingly, 76% of subscription video on demand (SVOD)-subscribers responded that despite paying for a streaming service, it has not change their behavior concerning going to the cinema.

However, a quarter of respondents say they are less likely to go to the cinema, as it is cheaper to watch a movie via an SVOD subscription than to buy a cinema ticket.

In addition, many people say they find watching movies at home more comfortable.

According to the survey, 62% of respondents do not or only rarely go to the cinema. Most people

aged

18-39

say they watch at least one movie a month in the cinema.

The research was conducted by the IDEA Institute between November 29 and December 3, 2019, using a social media questionnaire. The results of the survey are representative of the adult population of the country in terms of gender, age,

Photo by sitthiphong/Shutterstock.com

Hungary’s Growing Subscription Video on Demand Market

education and type of settlement. The margin of error for the 2,000 samples is +/2.2 percentage points, the institute says.

been added since October, with 50 popular Hungarian films in the first round, which includes audience favorites (“Just Sex and Nothing Else”, “Something American” etc.); Important Market internationally acclaimed films such as HBO GO will have been available in the Oscar-winning “Son of Saul” but also Hungary for two years in 2020. Ádám some specialties like “Ruben Brandt, the Pinczés, the marketing manager of HBO Collector”, which was made with unique tells the Budapest Business Journal that animation techniques. it has become an important market for Netflix Originals, featuring Netflix’s “In terms of Customer the provider. self-produced titles, have also received “Compared to 2018, in 2019 we tripled the Hungarian dubbing, with popular Lifetime Value (user number of direct subscribers to HBO GO. series such as “Stranger Things”, This places Hungary in second place in HBO lifecycle), the fact that “Black Mirror” and “The Crown” having GO with the number of direct subscribers received the Hungarian soundtracks Hungarian HBO GO in the CE region, ahead of Romania and the since early October. subscribers are particularly Czech Republic,” Pinczés says Netflix seems to have realized that In addition, the number of registered there is much less demand for subtitled loyal compared to other users through operators (B2B foreign language content in Hungary than CE countries is not to subscription model) continued to for Hungarian-dubbed content. This has increase significantly, doubling in 2019 significantly hindered the spread of online be overlooked.” compared to 2018 at HBO. video services in Hungary.

“In terms of Customer Lifetime Value In fact, Netflix was in dire need of (user lifecycle), the fact that Hungarian European and among them, Hungarian This HBO data is interesting because HBO GO subscribers are particularly loyal users, as for the first time in eight years, compared to other CE countries is not to be it contradicts the IDEA survey of the the number of Netflix subscribers in the market as a whole, according to which the overlooked,” he also added.

United States has fallen and the Netflix television is the most important device HBO has noted some interesting facts subscriber base has expanded at a slower used and laptop comes second, putting concerning the streaming user behavior pace than expected. This is partly due to mobile users at the third place. in Hungary. The operating system here is the increasing competition for on-demand “IDEA representatives did not try to dominated by Android, with a video content services from the likes of contact us and we have our own in-house HBO GO, Amazon and now Disney Plus. surveys made,” Pinczés confirms to the BBJ. “Netflix is currently available in 190 share. countries and 32 languages, with 151 Hungary is first in the “download” function, Made in Hungary million active subscriptions worldwide, For the other big streaming video service, which means, that users are rather potentially representing downloading the movies and episodes from Netflix, Hungary has also become an the shows, than simply watching them online. increasingly important market since viewers October, last year. The company has This makes good sense, since it means who spend 115 billion hours a year added a Hungarian-language interface users can download everything first consuming Netflix content. China, the and Hungarian subtitles were also at home, using Wi-Fi, and can then Crimea, North Korea and Syria are enhanced by the well-known video watch movies on-the-go, say on public all excluded from Netflix,” Dorottya service, and it has also filmed some of transport, without eating into their Székely, Netflix’s content marketing its shows in Hungary like “The Witcher”, mobile internet subscription. officer for Europe, Middle East and which had a huge success on Netflix.

It’s also worth noting that, since highAfrica, told the BBJ. Hungarian content has also gradually end mobile penetration in Hungary is high, HBO GO users prefer to watch the streaming video service through mobile screens, rather than television. According to Pinczés, mobile viewing accounts for roughly 50% of the total, while TV takes a 30% share and only 20% of people watch on a laptop or a home computer.

73%

450 million

12 | 2

Business

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Budapest Business Journal | January 17 – January 30, 2020

Hungarian Video Analytics Startup Goes Worldwide

S TA R T U P S P O T L I G H T

Asura Technologies is a Hungarian startup specializing in video analytics, and has quickly been gaining a foothold on international markets. The Budapest Business Journal talks with CEO Máté Kiss-György about the project.

BENCE GAÁL

BBJ: How did the core idea of Asura Technologies come about?

Máté Kiss-György: We wanted to deliver a solution with a tangible benefit to the smart city market. In early 2016, we successfully programmed a vehicle recognition system, easily embedded in parking, traffic, and security systems.

A year later, our first product, ARU was launched, and was immediately recognized by market professionals, earning us a special mention at the 2018 Intertraffic Innovation Awards.

BBJ: What does Asura have to offer that puts it beyond your competitors?

MK-Gy: Competition is fierce; Asura Technologies is not the only company with smart and ambitious people on board. Simply selling our products just doesn’t cut it; we continuously follow-up with customers, ensuring they got exactly what they paid for and immediately make any changes and improvements, should something go wrong. We have a camera agnostic vehicle recognition software combining license plate, brand, model, category and color recognition and various parking and traffic

Hungary, we are trying to show political and business decision-makers that things can go differently than how they used to. We are happy to have signed an R&D cooperation agreement with ZalaZone and we are becoming members of the Hungarian Defense Industry Association.

BBJ: Is there a venture capital involved in the company?

MK-Gy: GB & Partners recently invested HUF 700 million into Asura Technologies, financed by Exim Exportösztönző Magántőkealap. GB & Partners has proved to be the ideal partner; their attitude centered around supporting and helping Asura instead of demanding overdue reports and pushing for early profits. Ágoston Gubicza, with his team at GB, is a real gamechanger, they brought a very different and much needed positive attitude to the Hungarian fund management scene. We are happy to have joined forces with them.

functionalities. Our systems use minimal resources to stay price competitive: no external sensors for triggering, working with a sole IP camera and our software.

“Access Shield”, to be launched this month, is a good example of innovation, combining vehicle and face recognition of the driver for high-security access control.

BBJ: Who are the members of your team?

MK-Gy: There are 24 of us, including the U.S. branch, and the team is continuously growing. We plan to expand to 35 people in 2020. The team is a great bunch of smart ladies and gents led by an extremely dedicated management team, whom we often refer to as our “Band of Brothers”.

We are not daydreamers sitting in cafés; you start the day early with a call with your Far Eastern partner and often finish at night, talking to a U.S. partner while bathing your kid.

BBJ: What successes has Asura achieved so far?

MK-Gy: We are active all over the world, currently busy in the United States, at more than 100 parking sites in Denver, Dallas, and Chicago. In the Far East, we will be negotiating the implementation of our parking space occupancy detection

Máté Kiss-György software into parking systems supplied

by ZTE-ITS and our partner EPS Ltd. in their Chinese sites. There are negotiations in Indonesia to include our video analytics solutions into Telkom Indonesia’s Smart City platform.

Asura is also activating in the Middle East, working with local partners on Bahraini and Kuwaiti projects. In

BBJ: What are your plans for the future?

MK-Gy: We focus on dynamic growth, planning to further expand our presence in the United States, while pressing for more projects around the globe. Deep down, we also hope to play a part in transforming our cities into a smarter, smoother version of themselves. Still, amidst all the growth plans, we will not change working with the right people, doing business the right way, and, who knows, we may even become a role model for Hungarian startups.

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Business | 13

Company ///news Clearwater Bought

by U.S. Peer Cott Clearwater Kft., the market leader for water coolers in Hungary, has been acquired by an American peer, according to economic news portal G7.hu. The buyer is Eden Springs, a subsidiary of the U.S.based Cott Corporation. Founded in 1923, the Cott Corporation describes itself as a leading provider of home and office bottled water delivery services in North America and Europe. In addition to water coolers, Cott also specializes, through Eden Springs, in coffee roasting and tea blending, with products sold by Starbucks and Lavazza, among others. The purchase price has not been disclosed, G7.hu says.

price settled yesterday, Master Good informed state news agency MTI. According to the announcement, the transaction has already been approved by the Hungarian Competition Authority (GVH). Headquartered in Kisvárda (285 km northeast of Budapest), the Master Good group accounts for more than 40% of Hungarian chicken production and processing, with the majority of its sales being exports, while also being the market leader in Hungary. The group employs nearly 2,000 people. Saga Zrt., headquartered in Ságvár (120 km southwest of Budapest) is Hungary’s market leader in the production of processed poultry products with 260 employees, said Master Good.

Hungarian Poultry Empire Expands

Spar Completes Wage Negotiations

Hungarian-owned Master Good Kft. has bought 100% of the Britishowned Saga Zrt., with the purchase

Spar Hungary Trade Ltd. and the Trade Employees’ Trade Union (KASZ) have agreed on wage developments for 2020,

MÁV-Start to Purchase 115 New Locomotives MÁV-Start, the passenger division of Hungarian State Railways (MÁV), has launched a public procurement procedure for the purchase of 115 modern electric locomotives,

reports piacesprofit.hu. The communication highlights the need for advanced, high-speed locomotives with the capacity of travelling at 200 km/hour, and able to reach 160 km/hour on refurbished track sections. In addition to serving domestic needs, the trains would operate on some international routes such as to Germany, Slovakia and Slovenia. With the purchase of the 115 new locomotives and a fleet of vehicles for their operation, it will be possible to substantially renew the fleet, some of which is 40-yearold, MÁV-Start says. According to the announcement, the national railway company is primarily planning to replace the outdated 431-series electric locomotives, which has a maximum speed of 120 kilometers per hour.

Budapest Airport Sees Record 16 Million Pax in 2019 A record total of 16.1 million passengers flew through Ferenc Liszt International Airport in 2019, operator Budapest Airport Zrt. (BUD) said, reports hvg.hu. This represents an 8.8% increase in traffic. The pace of development is more than twice the annual growth rate of 4% for most other European airports, BUD says. The list of the most popular routes continues to be topped by London: every ninth passenger through the airport traveled between Budapest and

reports uzletem.hu. Spar Hungary, which employs more than 13,000 employees, will provide its employees with a higher wage than the statutory minimum and skilled minimum wage, and continue to add to its loyalty program benefits. The lowest gross base salary available is HUF 235,000 during the trial period and HUF 245,000 after that is successfully completed. The company will continue to provide high-performing stores with additional income in addition to the basic salary, uzletem.hu adds.

South Korean Firm to Invest in Tatabánya South Korean firm Soulbrain, based in the Tatabánya Industrial Park (58 km west of Hungary), will produce

the British capital. The number of takeoffs and landings also increased slightly, with 122,814 arrivals and departures in 2019; however, this is still some way off from the record 127,000 flight operations in 2006. Last year, CO2 emissions per passenger fell by nearly 20% compared to 2018. Budapest Airport retained its carbon neutral rating for the second year in 2019, making it the first and only such airport in the region, hvg.hu added. Photo by Budapest Airport.

electrolytes needed for lithium batteries at a new plant, says origo.hu. The state-owned National Industrial Park Management and Development Company (NIPÜF) has sold four acres of land for construction to Soulbrain’s Hungarian subsidiary. According to NIPÜF, in the first phase of the investment, a 4,700 square meter hall will be built and 40 new jobs will be created. It is planned to start a trial run at the factory by the end of 2020. According to the announcement, road connections were made prior to the sale of the site and utilities were built up to the site boundary. The communication did not indicate the expected amount of the real estate purchase or investment, origo.hu notes.

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Hungarian-based Global Automotive Software Supplier NNG on Automotive Industry Trends The continuous development of the software industry is having a powerful impact on a growing number of other sectors. In the years ahead, software solutions will continue to invade our daily lives, in ways we would have considered to be sci-fi just years before. The forthcoming expansion in the number of connected devices will enable technology to assist users in almost every life-situation.

With mobile network technology now entering its fifth-generation, transportation, like many other industries, is expected to increase its investment in smart and electric vehicles, rewiring how we think about travelling.

Most mobile network providers will roll out 5G services by the end of 2020 at the latest, and this technology is seen as likely to play a pivotal role in the realization of smart transportation and smart-city solutions. It is widely expected that connectivity will bring enormous change to the industry in terms of safety, convenience, comfort and efficiency.

As such, 5G is vital for making connected, and self-driving cars a reality, not least through the new sensor applications.

Besides efficiency and safety, vehicle user experience (UX) also plays an increasingly important role in car making.

Just as there is no smartphone without iOS or Android, so too, the automotive software and on-board systems that provide the vehicle UX will become a pivotal element in car-manufacturing in the coming years.

The quality and aesthetics of infotainment and driver-assistance systems can already be considered a distinct competitive advantage for every car brand. Car buyers expect their preferred vehicle to offer the same seamless experience provided by their smart devices. Accordingly, consumer demand will drive vehicle development over the coming years. Expect our cars to become smarter, safer, and much more than a simple tool for getting around in the city.

Many connect future motoring and transportation with electromobility, which may gain ground on a larger scale than self-driving cars. However, there is a factor that plays a key role in both areas: efficient navigation.

Built-in navigation is one of the most substantial factors regarding the usability of an electric car. Navigation is crucial for covering long distances in an electric car, or for preventing the battery from running down unexpectedly. The navigation system must have full knowledge of the car, its technical features, the driver’s driving style, based on which it can calculate which charging point makes a reasonable choice. It may even, in the future, book the selected timeslot for the car.

“If the software in connected cars can make the different vehicles communicate with each other, in the future we may see much more optimized traffic. The software solutions of the future will prevent large traffic jams, moreover, they may lead to a decrease in the number of accidents resulting from human error, as has already started with driving assistance software,” said Martin Pfeifle, CTO of NNG LLC As connectivity becomes ubiquitous, new areas of vulnerability open. The threat to the vehicle comes from the architecture of the in-vehicle network over which all the connected components, or electronic control units and car systems, communicate. Designed in a time before wireless connectivity was a realistic

ready solutions by Frost and Sullivan and awarded its 2019 Best Practices Award for Technology Innovation.

Although smart and self-driving car technology is evolving rapidly, the appearance of ubiquitous self-driving cars in the next decade, say, might not be realistic.

Much depends on the industry, regulatory factors, and consumer trends. Most probably, self-driven cars will be used in specific, geofenced areas, such as highways, then slowly rolled-out to cities as the technology evolves.

New Dawn

At the dawn of a new era, with standards only now being formed, automakers need to make decisions today that could well determine their future. Judging the trends incorrectly could mean the end of a company. With its 15 years of experience and a rock-solid reputation, NNG is forging ahead of these trends, developing cutting edge software solutions, and supporting its partner automakers with their needs for cyber-security, UX, Dr. Martin Pfeifle, CTO of NNG LLC. navigation, and infotainment solutions.

During 2020’s CES, one of the world’s largest and most influential tech conferences, NNG announced its latest consideration for the car, there is no inherent security, and connected Electronic development. The new software is a first-of-its-kind solution providing a Control Units communicate freely with situational analysis and lane-guidance each other with no authentication. module for navigation, along with other In theory, terrorists could take control ADAS (advanced driver assistance system) over hundreds of cars or shut down whole features providing a basis for future transportation systems. Such a threat automated driving applications. must be eliminated, NNG believes. As a NNG’s solution can, by algorithmically totally new area for automakers, and one calculating lane occupancy, predict in which they need to excel, the pressure other vehicles’ positions in surrounding is high: consumers are focusing more on lanes, enabling the car to suggest this problem, and governments have also tactical maneuvers to the driver or to the realized that, similarly to other safety autonomous driving module. The solution regulations in the car like the seatbelt, this also features optimized guidance timing also needs to be addressed. helping to dramatically reduce driver NNG acquired Arilou to address the cognitive load, increasing road safety. growing problem of in-vehicle cyber“The recent ground-breaking security in the automotive industry. Arilou improvements in vehicle-sensors, AI develops solutions that protect and enhance the in-vehicle network; its expertise prevents technologies, and HD mapping not only enable automated driving but can also unwanted parties taking over control of the be used to make manual driving safer by car. Without the seamless, safe, and secure warning the driver, via modern humansoftware operation, connected cars will not machine interfaces such as augmented find wide acceptance. reality head-up displays,” said Pfeifle.

NNG was recently recognized for its “NNG is excited to be at the forefront of cyber-security excellence and marketthis wave of innovation.”

What does the future hold apart from smart, electric mobility protected by cyber security solutions?

Trends show that not only technology changes, but also socio-economic factors will play a very important role. Car ownership models are expected to change, the need for owning a car will slowly decrease as mobility as a service (MaaS) providers emerge.

This trend will shape market demand in the long run. In the next decade, it’s likely only a handful of cities will ban conventional cars and rely solely on selfdriving and on demand transportation.

However, these technologies will still improve the utilization and efficiency of vehicles. In turn, this will help reduce pollution and congestion.

Additionally, by eliminating parking cars from cities, the liberated area can be used for other purposes, such as green parks and pedestrianized streets, making the urban areas much more livable.

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Budapest Business Journal | January 17 – January 30, 2020

Special Report The Year Ahead

Hungarian Gas Supply: Streams and Interference Sanctions Threat

Besides Ukraine and migration, certainly the most intensely communicated issue by Hungary’s Ministry of Foreign Affairs and Trade in 2019 was gas supplies.

Recent months saw several key problems solved, while others generated further uncertainties and, in some cases, risks.

BALÁZS BARABÁS

In December 2019, an important agreement for European gas supplies, which had regulated the terms of Russian gas transit via Ukraine in the last 10 years, ended. A renewal of the agreement was in the interest of both sides, however, neither of them rushed to sign it, so much so that trilateral negotiations were envisaged between Russia, Ukraine and the EU to unblock the situation.

Meanwhile, several others projects have been started, two of them designed to transport – again – Russian gas: North Stream 2 to Germany via Denmark, and TurkStream through Turkey, Bulgaria and Serbia, and Hungary, at a later stage.

These infrastructure projects can handle huge quantities (an annual 55 billion cubic meters in the case of North Stream alone), and the revenues they generate will inevitably collide with the interests of other players on the gas market, not least, the United States, but more about that, later.

Russo-Ukrainian relations have been heavily burdened since 2014, when Russia annexed the Crimean Peninsula and an armed conflict erupted along the Eastern border of Ukraine, resulting in military and civilian losses (including the 283 passengers of a Malaysia Airlines flight shot down by a surface-to-air missile in March 2014).

The bill requires the U.S. State Department to report back within two months with the names of companies and individuals involved in pipe-laying for North Stream 2 and TurkStream. The sanctions envisioned by the bill include asset freezes and revocation of U.S. visas for the contractors.

European politicians reacted swiftly: EU Trade Commissioner Phil Hogan said Brussels “opposes the imposition of sanctions against any EU companies conducting legitimate business.”

German Foreign Minister Heiko Maas sent a much bolder Twitter message: “European energy policy is decided in Europe, not in the U.S. We reject external interference.”

A less spectacular, but nonetheless important, issue for the future of the regional gas supply is unfolding in Russian President Vladimir Putin (left) and President of Romania. Below the Black Sea lie large, Turkey Recep Tayyip Erdogan, mark the completion of the offshore but expensive to extract gas deposits. section of the TurkStream pipeline on November 19, 2018 in Two Western companies enrolled for the Istanbul, Turkey. File photo by quetions123/Shutterstock.com project, dubbed Neptune Deep, one of them being America’s ExxonMobil.

While things started well, after a while Turkish President Recep Tayyip Erdogan, the project hit the buffers due to political No wonder that any agreement Bulgarian Prime Minister Boyko Borissov reasons. It now seems that ExxonMobil between the two countries should and Serbian President Aleksandar Vucic. aims to sell its share in the project. encounter severe resistance from both Russia’s Gazprom will ship an annual Romanian President Klaus Johannis sides and be delayed until (literally) the three billion cubic meters of gas to recently stated that “the information that last second before the deadline: The gas Bulgaria via TurkStream, replacing a route has been circulating for some time is not transit agreement was signed on the last that formerly passed through Ukraine real,” adding that “Romania will have a day before the December 31 deadline. and Romania. In Hungary, both Prime heavy say in that.”

The most pressing issue on the European Minister Viktor Orbán and Minister of gas market has thus been solved, in Foreign Affairs and Trade Péter Szijjártó a five-year deal costed at welcomed the news.

But elsewhere, tensions are mounting.

Hungarian Prime Minister Back in November 2018, Secretary Viktor Orbán again Russia has reasons to be pleased in of Energy Rick Perry met Szijjártó other areas, too. First, North Stream 2; in Budapest, where he unequivocally expressed, during his the original concept behind the pipeline emphasized “the United States’ annual press conference on was to connect Russia with Germany opposition to both the Nord Stream via Denmark, starting in 2020. But 2 and the multi-line Turkish Stream January , that his country construction was halted when Denmark natural gas pipelines, both of which refused approval for laying the pipeline would extend and deepen Russia’s energy remains interested in on its territory, invoking environmental dominance in the region.” buying Romanian gas, as damage concerns.

In welcoming the opening of TurkStream, one means of reducing its Szijjártó is demonstrating, as he has many Obstacle Removed times before, a “Hungary first” position. dependence on Russian gas.

This obstacle was lifted last year, with However, confronting the United States on Copenhagen issuing the permit to build the Turk Stream issue might well be a red a section of the pipeline on the Danish line for the U.S. administration, despite continental shelf in the Baltic Sea. The According to unconfirmed rumors, the spectacularly improving U.S.-Hungary project is expected, from somewhere Russian oil company Lukoil is interested relations since the arrival of ambassador around 2023, to double shipments of in buying the business, but Romanian David B. Cornstein.

Russian gas to Germany, eliminating Prime Minister Ludovic Orban said that Meanwhile, the United States has the risks of future disputes related to the company only “asked for information” stepped up measures to contain Russian Ukrainian transit. Half of the project about the opportunity. gas sale expansion.

On December is being financed by Russian gas giant The outcome is hard to predict, Gazprom, with the rest covered by but Hungarian Prime Minister Viktor private European companies.

Orbán again expressed, during his the U.S. House and Senate agreed a January marked the opening of annual press conference on January , defense bill that would force Donald another important project for Russia, that his country remains interested TurkStream. Leaders at the highest levels Trump’s administration to impose in buying Romanian gas, as one sanctions on companies involved in the participated in the ceremony in Istanbul, means of reducing its dependence North Stream 2 and TurkStream pipelines.

Russian President Vladimir Putin, on Russian gas.

USD 7 billion.

9,

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Special Report

www.bbj.hu

Budapest Business Journal | January 17 – January 30, 2020

2020: The Analysts Look Into Their Crystal Ball Just like a year earlier, analysts’ predicted growth forecast for 2019 fell short of the actual rate the economy grew by last year. Among the reasons were strong domestic consumption, still on the rise, and a high volume of investments. The global economy impacted Hungary less than experts thought would be the case. The Budapest Business Journal asked senior analysts about the country’s economic outlook in 2020.

ZSÓFIA VÉGH

K&H Bank

“The economy grew faster than we thought: we put growth somewhat below of 4% and now it looks it is going to be around 5%,” Dávid Németh, senior analyst of K&H told the BBJ. “The Purchasing Manager Index was dropping globally and we were not sure to what extent it would affect Hungary, hence our pessimism,” he adds.

Growth in Hungary and the entire region has been quite favorable. But how could this region remain more or less unaffected from the deterioration of the external environment? High employment and very low unemployment rate, and growing purchasing power have all been driving growth, Németh says.

EU-funds also helped growth remain strong compared to more mature economies, such as Germany. From a fiscal point of view, there is no need

for austerity in any of these countries: most have low state debt and an interest rate environment and that helps spur growth, the expert says. In addition, much of the production comes back to Europe or is not taken elsewhere, for example, to China, for fears of a potential trade war. All these factors lead to a stronger growth in the region and Hungary.

How will the economy look like this year? The Hungarian economy is expected to slow down: GDP growth of 4.8% this year is expected to decline to 3.5% in 2020, while investment growth of around 20% may slow significantly, according the analyst.

The more subdued economic and investment performance can be explained by the smaller role of EU funds, a slowdown in construction development, and the uncertain international environment.

Despite some easing, the labor market will remain “tight” this year, but slightly less so than in the previous years. The fact that both the global and the Hungarian economy will slow down means that companies will need less labor.

Also, to handle the labor shortage, companies have taken steps to replace and reduce their need for human workforce.

These investment are now turning to fruition and easing pressure.

At the same time, the pool of employable workforce is shrinking. Ageing baby boomers (in Hungary known as the Ratkó generation, named for Anna Ratkó who

served as Minister of Health when the communist government introduced a severe ban on abortion in 1952, which remained in force for four years) are retiring and the number of new entrants is too low to replace them. Overall, the pressure will be less on companies, Németh notes and wage growth will continue, though at a lower rate.

“No one expected that rate of growth.

The National Bank of Hungary, the European Commission, the IMF; all had a more conservative forecast.”

Purchasing power will be slightly less strong than last year, but households will continue to take out loans. As a result, domestic consumption, will remain strong in 2020 as well. Inflation will be around 3.5%, with some fluctuation throughout the year. It will be at its highest, about 4%, at the beginning of the year; in May and June, it will drop back to 3% and will be 3-3.5% for the rest of the year.

The Hungarian currency has been weakening constantly and its depreciation

will continue next year: it may weaken by as much as 2% annually in 2020. Its range will be between HUF 328-336 – with HUF 330 in the first half and around HUF 340 in the second.

GKI Economic Research

“No one expected that rate of growth,” says András Vértes, chairman of GKI Economic Research. “The National Bank of Hungary, the European Commission, the IMF all had a more conservative forecast.” Estimates put growth between 3.7-4.3%, as opposed to about 5% we are likely to see mostly because everyone overestimated the effects of the slowing global economy on Hungary.

The slowdown of the auto industry in Germany has impacted car manufacturing in Hungary much less than expected; probably because companies cut output at home rather than here where manufacturing costs are lower, Vértes says. The government also boosted growth with “tools” such as child-support loans, Vértes adds.

This year, however, a slowdown is guaranteed, experts agree. GKI puts 2020’s growth figure at 3.2%, which is roughly the consensus, Vértes notes.

Worldwide, economies, and the global environment are losing momentum.

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Budapest Business Journal | January 17 – January 30, 2020

Growth is unlikely surpass 0.5% in the EU, not to mention the uncertainties surrounding Brexit, which all contribute to the moderation of growth.

In Hungary, one main driver of the growth has been EU-funded investments.

“Although Hungary has not received a large portion of these funds, much of the achievements, investments and works set for the current seven-yearold period has been done. Growth in the construction industry will slow down as well, and so will car manufacturing.

Also, the previous years’ acute labor shortage seems to be decreasing as well.

The 2021-2027 EU multiannual budget has not been finalized yet, which also supposes a delay in the distribution of funds.

The rapid wage growth of 8-9% in recent years (6-7% real growth) may “work” for large companies but small firms, accounting for 94% of all businesses in Hungary, have a hard time keeping up. Wage growth will still be strong but a slowdown will start here as well, Vértes says.

Another factor that will curb growth, though not instantly is the decline of EU funds. Under the current budget period, Hungary has received 4% of its GDP in funds (of which it paid 1% back).

“We don’t know at this point how the new budget will look but, at best, Hungary will receive roughly half of what it does now, approximately 1.5% of its GDP. The reasons for the decrease is the growth of the country as well as some new priorities within the EU,” Vértes notes adding that rule of law issues may also play a part.

Hungary “stands out” in three fields from the EU. One is inflation, currently almost the highest with only Romania ahead.

Hungary has failed to modernize fields such healthcare or education as well and is among the worst performers in Europe in terms of the government’s activity in those fields, Vértes says.

The car manufacturing industry, a strong pillar of the country’s economy, will probably not progress at the same pace, he adds. A fourth element which puts the country in an unfavourable position is corruption.

OTP Bank

Analysts concerns in terms of the negative effect of the external environment or its extent in general proved wrong. “Everyone expected the external environment to affect Hungary more,” Gergely Tardos, senior analyst of OTP Bank says.

In the first half year, it was investments that brought stronger growth. Strong export and industrial activity further enhanced growth, which was not coupled with the deterioration of the current account, Tardos says. The volume of foreign currency debt has shrunk considerably; the National Bank of Hungary has more room for maneuver, too, he says.

With regards to this year, this dynamic growth will definitely slow down, the expert says. One major reason is that state investments financed with EU

money are starting to decline, in part because much of them have already been done and paid in advance.

As a result, the construction sector will also see a slowdown and not even strong demand from the private sector will be able to counter this. This year, the negative external environment will have effect on the economy. (Last year, it was state investments that cushioned its impact).

There a lot of uncertainties Europe and worldwide: the European economy is continuing to slow, Brexit is still to be finalized, and major global economies such India and China are also facing setbacks.

“We don’t know at this point how the new [EU] budget will look but, at best, Hungary will receive roughly half of what it does now, approximately 1.5% of its GDP. The reasons for the decrease is the growth of the country as well as some new priorities within the EU.” What will propel the Hungarian economy is strong internal demand, Tardos notes. Because of this, the expert puts this year’s GDP at 3.3%. Inflation will likely peak at 4% at the beginning of the year, though later it may drop to 3-3.5%,

Special Report | 17

the forint will continue to weaken by HUF 4-5, and interest rates will stay neutral, according to the expert.

Kopint-Tárki

Following strong growth in 2019, KopintTárki expect a significant slowdown of the economy in 2020 and puts this year’s growth at 3-3.5%.

The fact that the use of available EU funds has peaked in the current budget cycle contributed to the previous year’s growth significantly, mostly in the field construction and investments. This growth, however, is expected to slow down in 2020 due to a smaller inflow of EU funds.

On the consumption side, outstanding export growth was measured and, as a result, net exports again contributed positively to economic growth. Household consumption has remained unaffected by the gradually decreasing real wage growth rate. Strong borrowing activity also help keep it high.

Still, analysts expect some moderation in consumption dynamics in 2020 due to the continuing slowdown in real earnings growth. Overall, Kopint-Tárki expects domestic consumption to remain a solid pillar to economic growth in the coming quarters.

Kopint-Tárki’s inflation estimate is 3.4% for 2020. The upward momentum of the consumer price index, caused by the price increase of consumer goods and food is expected to continue. The 3 ± 1% inflation target may not be reached but, overall, inflation will be quite high compared to the rest of the EU, the organization forecasts.

Dávid Németh, senior analyst of K&H. With 2019’s accrual-based general government deficit expected to be at 1.8%, Kopint-Tárki considers the 1% budget deficit target for 2020 to be achievable.

Government debt may continue its slow decrease, they say. The restructuring of government debt will also continue with the share of forint debt and the weight of households increasing.

Regarding the currency, analysts does not rule out a possible further slowdown in the exchange rate, after the forint hit a psychological barrier in November 2019 (337 HUF/EUR) but they do not expect a dramatic fall. In the short-term, a slight exchange rate correction in the direction of exchange rate appreciation might even be possible, Kopint-Tárki notes.

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Special Report

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Budapest Business Journal | January 17 – January 30, 2020

Save Tax Specialists From Extinction, Continuing Conference Center Blues, and How to Avoid Feeling Like a Future Short-termist Jerk As is now tradition, the Budapest Business Journal has asked a wide variety of folk in business and services around the country for their wishes for 2020 – the Chinese year of the Rat. KESTER EDDY

Climate Change? What we all Need is a Good Dash of WMKP!

be more intelligent and responsible about climate change and the destruction of the natural world: businessmen and women, investors, people in government office, policy makers, people on television and other media.

I hope they realize that focusing your life around getting richer and more powerful is, well, plain stupid when you have a climate emergency going on. Remember those sun-and-seaside lifestyles? Such assets that constitute wealth become worthless when things break down.

I use what I call WMKP. It’s a tool to help myself, and anyone, make business decisions which resolve the conflict between short- and long-term interests.

Each time you are faced with a business decision, ask yourself the question: Would My Kids be Proud? It encourages you to consider the longer term implications of any investment or decision; look ahead 20, 30, 40 years and think about what your kids or grandchildren would make of the decision, looking back at it from the future.

If you’re gonna look like a selfish, shorttermist jerk in their eyes, it’s probably not the right decision.

James Atkins is chairman of Vertis Environmental Finance, a Budapestbased, regulated investment service provider active across Europe in emissions trading, climate finance and strategy. He is also the author of “Climate Change for Football Fans”.

Let This Year be Less Taxing, More Understanding

James Atkins I’ve been worrying about climate change for more than 30 years, and then suddenly in 2019 everything happened at once: Fires ravaged Brazil, the United States, the Arctic, and then Australia. Sun-andseaside lifestyles, the hopes of so many, turned to ashes and dust in a few days.

And Extinction Rebellion protests and climate strikes sprung up around the globe.

At least Budapest seems safe enough, except for snowdrops in early December.

But living in a bubble won’t stop millions of European migrants surging northwards from the Mediterranean when, in a few years’ time, the same immense fires rip across Greece, Italy, Spain and Portugal.

That bubble won’t help when high temperatures cut Hungary’s domestic agricultural yields to levels below that needed to sustain civilization.

So my wish for 2020 is that people in positions of influence in Hungary start to

I wish 2020 to be a year of goodness, love and going back to basics. It is a world that is changing too fast to have time to grasp it. Technologies are replacing manual work in VAT compliance work, yet at the other extreme, they miss practical details.

I wish that we can just be good with each other, understanding, and do our best as the future looks bright for tax professionals.

Ancuta-Elena Cotuna is from Romania, and a tax compliance specialist, based in Budapest

Ancuta-Elena Cotuna

Give Youth a Chance, and Proper Reimbursement

Tibor Derdák

Teenage Tram-travelers Study for Their Dreams in Miskolc

I meet teenagers every day who have a dream. They have come from destitute, rural communities in Hungary’s northeast into Miskolc, the main city in the region, in order to study, to get a secondary and higher education. They have to cope with the extraordinary gap between the perspectives of their villages and the opportunities, requirements and lifestyle of an urban high school and its dormitory.

They learn how to swim, they begin to speak English and they typically enter into romantic relationships, but without becoming parents too early, because they have plans to graduate from a university some years later.

They frequently suffer and have to fight against racial prejudices, as they are Roma.

2020 will not be long enough to fulfil their dreams. But they have at least taken the decision to work their way out of their impoverished villages and life as an uneducated communal worker depending on social grants.

And a year is enough to change their mindsets, to become confident students with far higher expectations.

The Martin Luther King dormitory and Dr. Ámbédkar High School, both located in Miskolc, are the best places for them to kick start their difficult, life-changing journeys.

They take the trams in the city every morning, with their exercise books and in sports kit. Many not in the dorm leave their homes in darkness to start school at 8:30 a.m.

Some passengers cannot believe their eyes: you can see it in their faces. Why do these Gypsy youngsters go to high school while others sweep the streets? But some passengers watch, and hope that these young people have made the correct choice.

My wish is that these passengers will be proved right.

Tibor Derdák, an MP in the democratically elected Hungarian parliament of 1990-94 (the first free election after the fall of communism), is the director of both the Martin Luther King dormitory and Dr. Ámbédkar High School.

My wish for 2020 is for young adults like me to get more chances to show our talent, creativity and to make a living out of them.

Becoming financially independent is not easy for university students and people who are about to start building their careers, especially in Budapest.

Coming from Gyula, a small town next to the Romanian border, establishing a life in the capital would have been basically impossible without the help of my family.

However, as I’m getting closer to the end of my university studies and more and more enthusiastic to start working in the field I’m interested in, namely the film industry, I also have a strong desire to at least partly finance myself; I don’t want to further burden my parents.

The biggest barrier I have encountered so far is that most employers are happy to hire us… without a salary. The first time this happened to me I happily agreed as it was a job that I really wanted to do; besides it looked good on my CV. I enjoyed it a lot.

However, working five or six times a week, more than 12 hours a day for two months without getting a penny (or forint in this case) didn’t feel so right.

Bea Magyar I learnt a lot during work and I managed to become a little more experienced, thus I can say it was worth it. However, I also learnt that, next time, I want people to reward my work, the years I have spent studying and producing references for myself.

This is why my greatest wish for this year is for people around my age to get the attention and chances we deserve because I strongly believe that this generation is a highly competitive one and competitiveness is a quality that will be needed more than ever soon enough.

Bea Magyar, from Gyula, is a third year BA student reading Communication and Media Science

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Budapest Business Journal | January 17 – January 30, 2020

Peace to all Tourists – and What About a Conference Center?

Peter Kraft As tourism is my field of expertise, I wish that Hungary continues to be an “island of peace”, and the serious growth of recent years continues.

Last, but not least, I hope that the government leaders, and this after 20 years of lobbying, finally decide to build the 5,000 people capacity Conference Center instead of new soccer stadiums.

But for this to happen, we need to face up to the problems and to fundamentally change our attitudes in many, many areas.

In particular, heads of SMEs have long been waiting for a more innovationfriendly business environment in reality, and not just in rhetoric.

Hungary, a country largely lacking natural resources, must develop innovation as the basis for its national economy, and this should be nurtured through a package of measures, including favorable tax policies.

Sadly, our national policies have long ceased to consider the enterprises capable of creating an alternative to the piecework economy provided by the foreign companies that have set up in the country.

Basic reforms are also required in education. In total contrast to today’s focus on short-term results, innovative thinking should become the main focus in public, professional and adult education.

And let’s not forget the public sector.

Here the list of social innovation measures is also long, but absolutely necessary to serve the development of the Hungarianowned economy.

We could learn, for example, from Estonia when it comes to the transformation of the state administration.

There, reforms resulted in both a faster, more efficient service and a reduction in civil service employees.

Péter Kraft, is head of Kraft Associates, a tourism consultancy. He was government Secretary of Tourism (1999-2000), and is a former ambassador for the country

Reform, not Rhetoric, for an Innovation-friendly Environment to Support Domestic SMEs

Our next contributor wanted a wish for the decade, rather than a mere 12-months!

Three decades after the so-called “regime change”, I wish for a fourth decade that will usher in a modern age of enlightenment in Hungary, leading to a period of seizing, rather than wasting, opportunities.

János Reith

The result of such policies would be an environment where Hungarian-owned SMEs could develop and flourish, to truly become the backbone of the national economy, in turn supporting higher living standards across the country.

So, finally, what could an SME leader wish for himself and his colleagues? Many satisfied customers, who in future will seek to buy products which were developed and manufactured in Hungary.

Special Report | 19 Certainly, if it is to decrease compliance costs for companies and make life easier for decision makers, let it be. But AI has its limits, and its risks. One issue is that Hungarian tax law is versatile and frequently changing, which requires potential AI systems to be constantly updated.

János Reith is executive director of Direct-Line Kft, a Hungarian company with some 30 employees manufacturing stainless steel products such as swimming pools. Based in Dunaharaszti, 15 km south of Budapest, Direct-Line operates its own R&D unit.

Don’t Write off the Tax Professional, at Least not yet, and Certainly not in Hungary

Being a tax advisor for more than half my adult life, I have witnessed overwhelming changes in the business world, the greatest of all being the introduction of the artificial intelligence. Governments around the world have been making systematic efforts to develop AI as their developing “armed force” in raising taxes.

Tax collection is a complex task for which governments need uncompromising, automated minds to ensure smooth compliance by taxpayers without the chance of human errors: the process embraces the monitoring of taxpayers’ revenues, detection of fraud, automated tax auditing and decision-making, all to prevent tax evasion.

In the ambitious vision of the Hungarian National Tax and Customs Administration (NAV), it will be able to prepare personal income tax returns for natural persons starting from 2020, and automated VAT returns for companies starting from 2021.

So far, so good. Yet, while AI robots acting as tax accountants/tax officers seems to be unlikely, doomsayers already envision the extinction of tax professionals as a species.

Lilla Stricca But an AI system is not able to update itself, manual adjustments will always be needed. Just to mention a few: credits and exemptions rules, allowances and deductions, the various quantitative and other applicable limitations (especially if international tax law is also part of the game), all these will need to be updated, by specialist humans, in order to accommodate policy changes. Thus, please do not bury the profession prematurely!

Nevertheless, AI can be developed into a potential backup warning system, a kind of watchdog, which will help both corporations and governments establish the main risks and draw the necessary red lines.

With this in mind, I wish a successful business and “intelligent” tax compliance to all of us in 2020.

Lilla Stricca is managing director of CCSG Hungary Kft., a Hungarian professional services provider, specializing in tax advisory and VAT compliance in crossborder transactions.

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Budapest Business Journal | January 17 – January 30, 2020

Investment Volumes Expected to Follow Pattern of Previous Year A wider pool of international investors have made acquisitions in Hungary, although domestic funds represent around 50% of activity. While the fundamentals are positive from both a supply and demand perspective, the low availability of investment grade product is acting as an impediment to market development.

GARY J. MORRELL

Despite that, sector pipelines are seen as disciplined with continued high demand in the New Year and a high proportion of preleases in the office and logistics market.

Further, increasing construction costs of around 10% annually are acting as a brake on development and property management.

It remains to be seen if more skilled workers can be persuaded to return to Hungary and more young people can be attracted to the technical professions.

The 2019 total investment volume in Hungary surprised on the upside and matched the

EUR 1.8 billion traded

in 2018, despite the severe product shortage investors refer to as the main bottleneck of further market growth, according to CBRE. “Based on most recent data, the Hungarian economy remained in a very strong shape throughout 2019 and is expected to strongly outperform the rest of Europe in 2020 as well, although growth will be more moderate,” says Gábor Borbély, head of research at CBRE Hungary.

“CBRE registered EUR 1.8 bln turnover on the Hungarian commercial property investment market in 2019. This was the third year on record with this level of investment, which proves that further market growth is limited by scare supply rather than potential demand,” he explains.

“Investors’ sentiment around Hungary remains solid as we step into 2020.

Based on our pipeline estimation, we expect the market to see more largescale transactions this year compared to previous years,” Borbély adds.

Colliers International put preliminary 2019 investment figures for CEE (Hungary plus Bulgaria, the Czech Republic, Poland, Romania and Slovakia) at about EUR 13 bln. The estimated total for Hungary stands at EUR 1.7 bln, or EUR 1.89 bln including land and development deals.

This compares to EUR 3 bln for the Czech Republic, a similar sized country to Hungary, and EUR 7.3 bln for Poland, which continues to be the largest investment and development market in the region. A yield differential of 75-100 basis points between Hungary and the Czech market is expected to be maintained this year.

Clear Disbalance

“It is clear that there is a disbalance between supply and demand in almost all the markets in CEE and even more broadly across Europe,” comments Luke Dawson, head of CEE capital markets at Colliers International.

“However, I believe that this lack of supply is not a negative factor overall as it speaks firstly to the fact that existing holders are not looking to exit their positions in CEE. Secondly, it keeps our markets from overheating. For 2020, I would expect the same with the sector breakdown continuing to favor office,” Dawson says.

Total supply in the Budapest office market has reached around 3.6 million sqm according to the Budapest Research Forum (the BRF is made up of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary).

From this figure, a little more than 3 million sqm is defined as Class “A”.

Vacancy has fallen further to

close to

7%,

one of the lowest levels ever recorded in the Budapest office market. The industrial market currently has vacancy rate of 2.4%,

a historical low in a market that, in the greater Budapest area, has a total stock of 2.2 million sqm. Very few existing logistics projects have 5,000 sqm plus spaces available, according to BRF. Benjamin Perez-Ellischewitz, head of capital markets at JLL, argues that, in contrast to previous development cycles, there is little possibility of oversupply with, for example, pipeline in the Budapest office market representing around 10% of total stock. Investors also now have far better knowledge of the development markets.

Hotel Attraction

With a limited supply of assets in the office, industrial and retail sectors, investors are looking to make acquisitions in the hotel sector.

“The low interest environment, supported by central bank policies, is set to continue through 2020. This will support the attractiveness of real estate yields compared to other asset classes, bringing fresh opportunities for the sector to attract institutional investors.”

“European hotels outperformed the other key regions in 2019, both in terms of hotel operating performance and occupancy, with growth in demand expected to persist in 2020,” says CBRE. “As a result, institutional investors will increasingly consider operational hotel investments. In 2020, it is expected that institutional capital will account for more than 30% of the European hotel deal volume,” it adds.

With regard to the wider European investment climate (and against the backdrop of U.S.-EU trade tensions and some political uncertainty in Italy and questions over what Brexit will look like in the United Kingdom), economic growth, while slowing, is set to remain positive.

“The low interest environment, supported by central bank policies, is set to continue

through

2020.

Agora Tower by HB Reavis is being offered to investers in Budapest.

This will support the attractiveness of real estate yields compared to other asset classes, bringing fresh opportunities for the sector to attract institutional investors across Europe,” says Richard Holberton, head of occupier research for EMEA at CBRE. “Regulatory and social pressures surrounding sustainability will be a growing influence on occupier decisions and increasingly have knock-on effects on funds and property managers,” he comments.

As to the origin of investors in Hungary, Mike Edwards, head of capital markets at Cushman & Wakefield Hungary, expects more international investors competing with the established domestic real estate funds: Erste, OTP and Diófa.

In addition, a further strata of private Hungarian capital is becoming more active on the Hungarian market and increasing competition for investment grade product, Edwards says.

www.bbj.hu

Budapest Business Journal | January 17 – January 30, 2020

PRESENTED CONTENT

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Cisco: Tech Trends for 2020 and Beyond The Budapest Business Journal talks with Cisco Hungary general manager Ottó Dalos about the tech trends that will define the upcoming decade.

Special Report | 21 “At Cisco, we don’t see SDN as an end-stage, rather an important step in the necessary journey of networking infrastructures towards true Intent-based Networking (IBN). These systems use AI and machine learning to anticipate actions, detect and resolve anomalies automatically, stop security threats in their tracks, and in the meantime they continue to evolve and learn,” he says.

According to the Cisco Global Networking Trends report, some 41% of the more than 2,000 surveyed IT leaders and network strategists have SDN in at least one of their domains. Yet, a mere 4% believes that their networks are truly intent-based at the moment. About 78% stated that they believe their networks will move towards service-driven and intentbased networks in the next two years.

Some 35% believe their networks will be fully intent-based within the same period.

BENCE GAÁL

“What a decade this has been: From global adoption of smartphones, to the penetration of AI into our businesses and homes, and the now-total ubiquity of cloud usage, apps, and social media, it’s easy to forget how much has changed in the last 10 years,” Dalos says of the rapid technological advancement of the 2010s.

Regarding predictions for the upcoming period, he notes that Cisco likes to take the “long view”, meaning that many of the company’s predictions from last year, such as expansion in mobile connectivity and continued development in the use of AI/ML, will stay relevant in the upcoming years.

“Digital transformation is taxing today’s internet infrastructure to its breaking point, and we’re about to hit an innovation barrier. We need to develop an internet for the future,” he argues, adding that there will be some 49 billion devices connected to the internet by 2023. Among the technologies likely to become the most important in the 2020s, he mentions virtual and augmented reality, 16K streaming, AI, 5G, quantum computing, adaptive and predictive cybersecurity, autonomous vehicles and intelligent IOT. Dalos says that networks have never been more important to businesses, playing a critical role in re-imagining applications, securing data, transforming infrastructure and empowering teams.

“Cisco has recently announced its plan for building the internet for the next decade of digital innovation. The core of this ‘Internet for the Future’ technology strategy is based on development investments in silicon, optics, and software that will allow us to meet this future head-on,” he explains.

Citing the findings of the App Attention Index from AppDynamics, a company that is part of Cisco, Dalos believes that the use of digital services has evolved to become an unconscious human behavior, a “digital reflex”. According to the index, some 71% of respondents admit that digital services are intrinsic to their daily lives.

“The research shows that people will quickly turn their back on brands whose apps do not offer a premium experience,” the expert argues. Indeed, the research found that a significant number of consumers will turn to the competition (49%) or actively discourage others from using a service or brand (63%), in the case of performance issues.

“Digital transformation is taxing today’s internet infrastructure to its breaking point, and we’re about to hit an innovation barrier. We need to develop an internet for the future.”

Ottó Dalos, general manager, Cisco Hungary.

Pay Attention

“In 2020 and beyond, businesses need to pay attention to consumers’ zero-tolerance for anything other than an easy, fast and exceptional digital experience. This will make the ability to analyze data on application performance in real-time of critical importance, to find bottlenecks and enable immediate action,” Dalos says.

Regarding cybersecurity, he argues that reactive security, largely addressing problems only as they begin impacting systems, is not enough anymore. The key term for the 2020s is “zero trust”.

“The original ‘zero trust’ model was developed by Forrester. It is based on the principle that organizations do not trust anything inside or outside their network perimeter. Access is only granted to authorized users, devices and workloads after establishing trust and preventing threats, all without a decline in the user experience. This approach may become almost ubiquitous in the coming years,” the general manager predicts.

Threat hunting is also set to play a larger role in holistic security positions. This goes beyond known dangers, and analyzes the unknown. The goal of the method is discovering new, unknown vulnerabilities and malware. This regular search for danger reduces the number of potential attack vectors.

“Experts at Cisco Talos have created an e-book, ‘Hunting for Hidden Threats’,

that outlines how threat hunting pays off, who needs to participate, and what, where and when to look for. In addition, it compares this approach with other security methodologies,” he adds.

Step on the Way

Software-defined Networks (SDN) are often referred to as an important next phase of network evolution. While they bring many advantages, such as centralized management and security, flexibility and reduced operating costs, Cisco says it is thinking even beyond this technology.

In another global Cisco survey of 600 IT and business decision makers, 93% claim to have a talent gap so serious that it slows their business’ transformation.

“The lack of IT experts is also very prominent in Hungary. At the same time, the types of roles that are most in demand are changing as well,” the general manager says. “It should be no surprise that roles related to growth areas, such as data science and AI, continue to be in increasingly high demand. To meet the needs of today’s businesses, IT needs to change from ‘order takers’ to strategic business partners. That means changing the day-to-day roles of IT workers from configuring devices to solving business problems with technology.”

How will this need be met in the future? Dalos says, “Companies that were successful in their business transformation efforts showed a general preference for retraining IT [staff] for business skills, over hiring or outsourcing, thus preserving knowledge of the organization, its culture, and its values.”

Tech Trends 2020 and beyond

We need to build an Internet for the Future

‘Application Loyalty’ is the new ‘Brand Loyalty’

Companies will increasingly engage in ‘Zero Trust’ and Threat Hunting

We’re on the road to Intent-Based Networks

Technologists with business skills will increasingly be the ‘must have’ hires

© 2019 Cisco and/or its affiliates. All rights reserved. Cisco Confidential

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www.bbj.hu

Budapest Business Journal | January 17 – January 30, 2020

Socialite A Winter Break at Lake Balaton The first time I saw Lake Balaton, I almost didn’t see it. But, in my five years of coming to Hungary, I’d never seen Hungary’s inland sea and I was determined to stand on that fabled shore.

Healthy Options

DAVID HOLZER

On the morning of our last day in Siófok, I left the splendidly warm and comfortable bubble of Residence Balaton, where my partner and I had gone for a few days of pre-Christmas wellness, and tottered the block or so down to the lake. It was draped in a heavy, whispering mist and I could see practically nothing.

I scampered back to Residence Balaton down an unpaved road that ran between holiday villas and pensions closed for winter, thinking this would be the perfect setting for a horror movie.

My constitutional walk to the lake had taken all of five minutes. Although it was tempting to hurry back inside the hotel, I’d told my partner, who I’d left

breakfast and dinner, which I’ve managed to get down to a maximum of three visits to the buffet.

Incidentally, what’s your strategy when it comes to breakfast? I’ve never figured out in what order to have my eggs and whatever, muesli and pastries. Normal meal logic would dictate savory followed by sweet, but I often see people having sweet stuff like fruit first. It’s an endlessly fascinating conundrum.

reclining in bed, not to expect me back for an hour at least. I’ll check out Siófok, I thought.

In German, Siófok is ‘Fock’.

I wondered whether that might relate to the town’s pre-1989 history as a popular destination for reluctantly socialist East German tourists enjoying the comparative freedom of Hungary.

The name actually comes from ‘fuk’, the term for a small brook. I have to say that the river that now runs through the middle of Siófok is a lot larger than that.

If you’re thinking about taking a winter break in Siófok, I would suggest you waste no time exploring the town.

There are a couple of good cake shops but that’s not much use when you’re on a wellness break.

Bursting at the Summer Seams

Summer’s a different matter, apparently.

This is when Siófok’s 17 kilometers of coast are packed and the hotels, bars, restaurants and night clubs are bursting with Hungarians on holiday and determined to party. In winter, Siófok becomes one of the country’s most popular wellness and conference destinations.

This meant that, when she began researching into places for us to stay where we could get in some much-needed wellness and I could see Lake Balaton, my partner had plenty of options. In Residence Balaton, she chose wisely.

If it’s your thing, some of Siófok’s discos must be open all-year round. The bar at Residence Balaton was dead by 9 p.m. but we were woken in the wee hours

“[Summer] is when Siófok’s 17 kilometers of coast are packed and the hotels, bars, restaurants and night clubs are bursting with Hungarians on holiday and determined to party. In winter, Siófok becomes one of the country’s most popular wellness and conference destinations.” by the sound of male voices raised in cheery song and laughter. Next morning at breakfast, the flock of young guys gathered round a long table guzzling coffee and juice and wolfing down fried breakfasts looked nicely hungover and decidedly sheepish.

The problem with all-inclusive wellness breaks – at least for me – is that the sustenance side of things is usually catered for by all you can eat buffets.

Another challenge, as wellness people would say, is that the food on offer is often of the deep-fried, carbohydratepacked variety. I don’t dare weigh myself before and after a Hungarian wellness break.

I’ve learned my lesson insofar as we now only pay for half-board. At least there’s an entire 10 hours between my five-course

Anyway, one of the really good things about Residence Balaton is ‘kreatív séf’ (creative chef, if you couldn’t work it out) Gábor Krausz has included plenty of healthy, light, vegetable, soup and salad options alongside the meat fest you’d expect on a Hungarian menu. I believe you can also go vegan if you wish.

Despite Residence Balaton bending over backwards to offer a healthy menu, this is Hungary. Which meant that part of the fun was watching how many times people went back to the buffet during the course of dinner. The most I counted was 11 times.

The person I surreptitiously observed wasn’t actually overweight. Perhaps they’d been making diligent use of the Residence Balaton spa.

It was great that the spa at Residence Balaton includes a decent sized indoor pool, jacuzzi, plunge pools and so on.

But my partner and I are sauna connoisseurs, and this is what wellness is all about for us. Residence Balaton didn’t disappoint.

I sweated and she perspired in the usual, ferociously hot sauna.

We fell asleep in the salt and infrared sauna. Salt therapy, also known as halotherapy, is meant to ease your breathing by helping to dry up bronchial infections. Infrared saunas heat up your body rather than the air around you which makes them much more bearable.

If 15 minutes in a conventional sauna sounds like your idea of hell, 45 minutes in an infrared sauna is, as I say, so pleasant it’s easy to relax so much you drift off.

There’s also an aromatic sauna but this was pretty boring. Imagine sitting in a vaguely warm shed where some herbs once lived, and you get the picture.

Still, we smelled suitably fragrant as we sashayed off to the buffet.

Trains go to Siófok every two hours or so from Budapest’s Déli (Southern) station. It’s not a great idea to arrive at Déli in plenty of time to get the train, especially on a cold day. If you go to Lake Balaton from this station, you’ll understand why. Residence Balaton can be found online at www.rhb.hu

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www.bbj.hu

Budapest Business Journal | January 17 – January 30, 2020

Socialite | 23

Pannon Producers Power Ahead Into 2020 The annual Pannon Karácsony (Christmas) tasting saw many of Hungary’s big names hit the capital on December 18, with each of the 33 members pouring a pair of wines at the event hosted at the Corinthia Hotel Budapest. As usual, there were plenty of fine wines to be had and news to catch up on, as the Pannon Bormíves Céh (Wine Guild) celebrated its 20th year.

ROBERT SMYTH

It is good to see that the Bussay cellar, from the lesser-visited Zala wine region, located just southwest of Lake Balaton, is doing well and making very nice wine, some five years after the passing of its founder, László Bussay. He was an important figure in the post-transition development of Hungarian wine, as well as serving as a local doctor in villages in Zala County.

The wines are now made by his eldest daughter, Dóra Bussay, in tandem with her husband, the highly talented Somló vintner Tamás Kis, who also makes his own wines under the name of Somló Vándor. Kis told me that the pair take all the winemaking decisions together when making Bussay wine.

“Variety is the spice of life,” Kis says when I ask him what it’s like making wine in two places. “Zala and Somló are very different terroirs, but both are extremely unique. In Zala we can work with reds, which is very good fun for me. Zala is more about round, deep, fatty flavors, while Somló is more mineral driven,” Kis adds.

I first encountered the well-built, former judo champion when he was working for the prestigious St. Andrea winery from Eger. Incidentally, St. Andrea’s current winemaker György Lőrincz, is now serving as president of the Pannon Wine Guild.

Bussay’s Mura Fehér Házasítás 2018 (HUF 2,950 from Bortársaság) is a blend of

50%

Olaszrizling,

25% Riesling and 25% Pinot Gris, and was named after the River Mura that moderates the climate in Zala’s vineyards, from which hills in Croatia and Slovenia can be seen in the distance.

It comes from a sunny plateau comprising thick clay and calcareous loess, along with pebbles deposited by the river.

It was spontaneously fermented and aged in old, 1,000-liter barrels, as well as tanks.

Rustic but Honest

This wine is slightly rustic, but in a nice way and is very clean and honest; it speaks of its place of growth and it feels very much handmade, with a nice touch of controlled oxidation from the barrels bringing complexity and depth.

“Kékfrankos has always been a kind of a side story; this is good opportunity to step up in terms of wine style.”

What the previous wine may have lacked in elegance was more than made up by Bussay Charmes Pinot Noir 2017 (HUF 3,950 from Bortársaság), which comes from a hillside of deep clay overlooking the River Mura, which, again provides a moderating influence.

It was fermented in open vats, then aged for a year in old barrels. It comes from a Burgundian clone (Dijon 777) with cherry, red fruit compote, and earthy aromas and

flavors, and a nice pinch of spiciness that gives a local touch to this otherwise varietally pure and rather Burgundian Pinot Noir.

It is light- to medium-bodied with restrained tannins, but deep in flavor and has good length. Pinot Noir was the first black grape to be planted by the family.

The Bussay winery works

5.5

hectares

of vines overall.

This year’s László Bussay memorial award was presented at the Pannon Christmas tasting to Pál Rókusfalvy, who makes his own wine and has a restaurant in Etyek. He has done much to promote that town, as well as cooperation with other wine regions, whereby winemakers from elsewhere are invited to show their wares at the Etyek wine festivals.

Meanwhile, Szekszárd’s Heimann winery is going to launch a new brand in March called Heimann és fiai (sons), which Zoltán Heimann Jr. sees as an opportunity to develop stylistically with the Kadarka and Kékfrankos grape varieties.

“Kékfrankos has always been a kind of a side story; this is good opportunity to step up in terms of wine style,” he tells the Budapest Business Journal.

Three of the four Kékfrankos wines will be from a single vineyard, which is an exciting development and it will be very interesting for wine lovers to see how Kékfrankos can be an adept articulator of terroir. More on those closer to their release.

Two Options

Meanwhile, the new range will also feature two Kadarkas: one that is a blend across a number of vineyards and simply called Szekszárd; and one which is from a single vineyard, the Porkoláb-völgy (völgy means “valley”).

Both wines were spontaneously fermented in whole bunches, which Heimann Jr. says can add more layers and length to the wine (though less color) and are unfined and only roughly filtered.

The Porkoláb was aged in clay amphora, which has a neutral effect on the wine’s character (unlike oak) but it does allow the wine to get more oxygen than with stainless steel.

This wine is made of the three most promising clones (P115, P123 and P131) planted in the vineyard, which were developed in tandem with the Pécs Research Institute. Altogether, the Heimann winery has eight clones of Kadarka now planted in its vineyards, including the

original

P9.

“This rebranding is also aimed for export [the labels feature descriptions in English, creatively presented]. Kadarka is our most exported wine and the ones made in large barrels have been the most successful,” says Heimann Jr., whose Facebook moniker is Kadarka Man. Accordingly, the two new Kadarkas have not seen any oak, which Heimann Jr. feels can block out varietal character ; that’s something I couldn’t agree more with.

The Heimann Szekszárd Kadarka 2018 (which will cost around HUF 3,200) is raspberry colored with pale intensity and aromas of the same fruit, as well as rosehip and red pepper. It’s light and airy on the palate with feather-light tannins and a spicy twist on the finish.

The Porkoláb-völgy 2018 (around HUF 6,000) is more floral, with red peepers and complex aromas of anise, lace and red berries, and with more weight. Both nicely capture the essence of the variety.