Budapest Business Journal 2813

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

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BUSINESS JOURNAL BUDAPEST

VOL. 28. NUMBER 13

JULY 3 – JULY 16, 2020

SPECIAL REPORT

U.S. Country Focus

SPECIAL REPORT

From Uni Party Webpage to Success in the States Stylers Group has evolved from a project by three university roommates to become a business serving up IT solutions to the likes of Oprah Winfrey and Deepak Chopra. The Budapest Business Journal asks the founders about their path to success Stateside. 12 SPECIAL REPORT

HIPA Committed to Growing American Business Links Over the past few decades, Hungary has become a major investment location for U.S. companies, the Hungarian Investment Promotion Agency says.  13

SOCIALITE

Seven Billion Dollar Smile

Art Cinemas Open Their Doors While Drive-ins Thrive

The news that the art cinemas of Budapest would be opening their doors without restriction at the end of June has put a smile on the face of the city’s cineastes, including that of David Holzer.

The city’s drive-in cinemas are also doing a good trade, he discovers.  15

NEWS

Surprise Move

by Central Bank Shakes Forint The Monetary Council of the National Bank of Hungary (MNB) surprised the markets with a decision that took what had already been a record-low base rate down to 0.75%. The move sent the already volatile forint to a historic low.  3

IAL R SPEC

T EPOR

U.S. Embassy Chargé d’Affaires Marc Dillard discusses the USD 7.23 billion two-way American-Hungarian trade, the end of “reflexive offshoring”, concerns over Chinese involvemnet in 5G networks, and what the embassy does to help develop business links further.11 BUSINESS

Sampling ʼNew Normalʼ Business Sentiment Now that the lockdown and restrictive measures have been lifted, businesses in Hungary are adapting to business as a “new normal.” Consultancy Develor says how companies adapt could influence their very survival.  7

News

2|1

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL CONTRIBUTORS: Zsófia Czifra, Kester Eddy,

Bence Gaál, Gergely Herpai, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Ekaterina Sidorina, Robert Smyth, Zsófia Végh.

LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

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What We Stand For: The Budapest Business Journal aspires to be the most trusted newspaper in Hungary. We believe that managers should work on behalf of their shareholders. We believe that among the most important contributions a government can make to society is improving the business and investment climate so that its citizens may realize their full potential.

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

Reproduction or use without permission of editorial or graphic content in any manner is prohibited. ©2017 BUSINESS MEDIA SERVICES LLC with all rights reserved.

BBJ-PARTNERS

The Budapest Business Journal is now entirely owned by its Hungarian management. I, for my sins, which must surely be many, am a British citizen. Yet the BBJ started life 28 years ago as an American-style business publication, founded and at least partially staffed by U.S. expats. That inheritance helps explain our continued use of American English, for example, but we also share our founders’ belief in a free press and the vital importance of timely, accurate business information. And so today, July 3, 2020, a U.S. national holiday, we are very pleased to wish America a happy 244th birthday as an independent nation.

The timing is clearly apposite for our now annual U.S. Country Focus, a special report looking at the significance of American foreign direct investment in Hungary. To that end we have interviews with the U.S. Embassy’s Chargé d’Affaires Marc Dillard, AmCham Hungary, and the Hungarian Investment Promotion Agency, but we also look at Stylers Group, an IT company founded by three Hungarians who met at university, and now boasts Oprah Winfrey and Deepak Chopra Among its U.S. clients.

It’s no secret that the political bilateral relationship between Hungary and the United States is particularly strong right now. It undoubtedly helps that the current U.S. Ambassador, David Cornstein, is a friend of President Donald Trump, and has on several occasions said that he regards Hungarian Prime Minister Viktor Orbán as a friend, too. Such close personal connections still matter, even in today’s ever more digital society. But the governments themselves are also ideologically close. Minister of Foreign Affairs and Trade Péter Szijjártó has often said that Hungary admires Trump’s “America First” philosophy, that it pursues its own “Hungary First” agenda and believes that should

be the starting point for all national governments. Poland’s President, Andrzej Duda, a recent visitor to the White House and a political ally of Orbán, clearly takes a similar view.

It is not just about the rhetoric, however; it is also matters how the message is delivered. Now former Hungarian Ambassador to the United States László Szabó told an AmCham meeting in 2019 that the previous administration of Barack Obama has told the former Eastern Bloc countries how they should think and behave, and chastised them whenever they dared to veer away from that in pursuit of their own agenda.

All relationships have their ups and downs, of course; just think of Hungary and Germany, whose governments are far from ideological soul mates right now, despite the strength of business connections (we will look into this in more detail in a Germany Country Focus in the fall).

But Hungary’s friendship with America goes back a long way. After the defeat of the 1848 Revolution and War of Independence, Lajos Kossuth was invited to the United States on a talking tour in 1852. Kossuth County in Iowa was named for him. A bronze bust of the statesman can be found in the United States Capitol, describing him as the “Father of Hungarian Democracy.” Other so-called 48ers stayed on in the United States and fought in the American Civil War (mostly on the Union side, perhaps most famously the cavalry officer Major Károly Zágonyi, but a few fought for the Confederacy, the best known being another cavalry officer, one Colonel Béla Estván).

Wherever and however you celebrate it, Happy Fourth of July.

Robin Marshall Editor-in-chief

Photo: fortepan.hu/Tamás Cholnoky

VISIT US ONLINE: WWW.BBJ.HU

INDEPENDENCE OF BODY AND SOUL

THEN & NOW

A new seven-story, 22-meter viewing tower has been erected in Zengő, near Hosszúhetény (the most populous village in Baranya county, in southwest Hungary, located 18 km northeast of Pécs, the county capital), and opened at the end of June. The black and white photo from the Fortepan public archive shows the inauguration of another viewing tower on the 652-meter-high Naszály-hegy (54 km northeast of Budapest, near Vác) in 1925.

Photo: MTI/Tamás Sóki

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News///macroscope

Surprise Move by Central Bank Rattles Forint

The Monetary Council of the National Bank of Hungary (MNB) surprised the markets with a decision that took what had already been a record-low base rate down to 0.75%. The move sent the volatile forint to a historic low.

Changes in Average Earnings in Hungary (January-April 2003-2020) Full-time employees; average monthly net earnings; HUF / month

is expected to be 0.3–2% in 2020, 3.8–5.1% in 2021, and 3.5–3.7% in 2022,” according to the MNB’s statement. It also says that a pick-up in public investment and an expansion in corporate lending requires a quick ‘V’ shaped economic recovery in the second half of the year.

Forint Struggling

As an immediate effect of the rate cut, the Hungarian forint weakened after the announcement: the forint/euro exchange rate stood at 346 at the beginning of the day on June 23, was at 348 right before the decision, and fell to 350 just after it. It didn’t stop there for long, and has hit further historical lows since: on the morning this paper went to print, the Hungarian currency stood at 355.14 against the euro.

The new deputy governor of the MNB, Barnabás Virág told a press conference that the base rate cut was a “symbolic” step, a “discrete decision”, and not a decision on the start of a cycle. However, he also said that the MNB may cut its base rate by another

State Sector Private Sector

15

basis points

ZSÓFIA CZIFRA

In an unexpected move, the MNB cut the base rate by 15 basis points to 0.75% on June 23. The base rate had been set at 0.9% since May 25, 2016, so the current decision marks the first time in four years that the central bank has utilized this tool; up until now it usually deployed other, so-called nonconventional moves.

But at the latest rate-setting meeting, the Monetary Council decided to further lower what was already a historically low interest rate in order to stimulate the economy.

“In the current extraordinary economic environment, the MNB’s mandate is still to achieve and maintain price stability, to preserve financial stability, as well as to support the government’s economic policy,” the central bank wrote in a press release following the decision.

Based on incoming data, Hungarian economic performance

in

2020

is likely to be more subdued than earlier expected, while the outlook for inflation has shifted downwards persistently; therefore, to maintain price stability and support the recovery of economic growth, fine-tuning of the monetary conditions had become necessary, the MNB said in justifying the move.

On the Hop

The decision certainly took the market by surprise, as there had been no direct sign of a rate cut; what’s more, some

* without family social benefits Source:

even thought that the MNB would rather increase the base rate in order to protect the Hungarian currency after its poor performance this year.

However, the possibility of an easing cycle has been in the air for some time, as other central banks in the region had already cut their interest rates in order to counterbalance the devastating effects of the coronavirus-crisis. The MNB, for various reasons, had not gone down that road, until now.

Initially, the central bank started holding auctions, on a weekly basis, to buy government securities early in May, but it has now not held any for more than four weeks in a row.

It seemed that the “magic tool”, as it was referred to in the Hungarian press, had started losing its appeal.

Hungarian monetary policy has tried to adjust to the crisis induced by the novel coronavirus, which is a difficult task as there are several uncertain factors to consider.

Due to the coronavirus pandemic, disinflationary effects have strengthened generally and outlook for growth in the global economy has deteriorated significantly. In parallel, the leading central banks globally had announced further easing measures.

Strong Fundamentals

The coronavirus pandemic hit the Hungarian economy when its fundamentals were stable, and growth was strong, the MNB notes in its press release following the latest Monetary Council meeting.

The economic policy pursued over the past decade has maintained the country’s macroeconomic balance and reduced its external and internal vulnerability. In the first quarter of 2020, Hungary’s economic growth slowed

in July.

However, he emphasized that after the July reduction, should it come, no further cuts should be made to the base rate, as a rate of 0.6% would be appropriate to support economic recovery and strengthen financial stability. Any further reductions after July could thus be ruled out, Virág stressed.

Analysts, however, think that the forint still might easily fall victim to the economic boosting measures deployed by the MNB, as the new prognosis of the bank is more like a target and not an outlook, and further monetary steps are needed in order to meet the target.

Such steps are not likely to strengthen the Hungarian currency, but quite the contrary, analysts say. Most agree that a forint exchange rate to the euro of around 330 is a thing of the past and the new course might be at around 350.

to

2.2%

year-on-year.

However, the Hungarian economy’s growth surplus compared to the euro area far exceeded the value of around three percentage points achieved in recent years.

Hungary’s defense against the first wave of the coronavirus has been successful, which provides appropriate foundation for the economic recovery, the press release reads.

The MNB has lowered its economic growth expectations: it now expects the effects of the pandemic to be the strongest in the second quarter, after which a recovery would happen.

“Overall, Hungarian GDP may grow at a restrained pace in 2020. Economic growth

Numbers to Watch in the Coming Weeks On July 6, the Central Statistical Office (KSH) will publish retail trade figures for May; as lockdown was still in place for the most of the month, no miracle is expected here. The same applies to the May industrial production data; in April, the KSH registered a massive, 36.8% year-on-year fall. On July 8, the KSH will release the consumer price index for June.

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News

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Budapest Business Journal | July 3 – July 16, 2020

Do you know someone on the move? /// Send information to news@bbj.hu

Fresh Management at Property Market and Kopaszi Gát

Mihály Schrancz Property Market Real Estate Development Ltd. announced the appointment of Mihály Schrancz as managing director, and named Bence Nádasdy the managing director of Kopaszi Gát Ltd., the group’s asset management company. The appointments were effective from May 1.

Both Property Market and Kopaszi Gát were previously managed by Gergely Árendás until May. According to the press release, he will continue to work with Market Group on real estate issues.

The owners have decided to create a new organizational structure in order to successfully establish the BudaPart neighborhood and other large-scale real estate development projects and to achieve long-term goals.

So far 266 apartments in two residential buildings and a 20,000 sqm of office space have been handed over in the BudaPart neighborhood.

A further three residential buildings and two office buildings are under construction.

As part of the overall investment, another 20 buildings are planned to be developed.

CEO Appointed at Hunguest Hotels Andrea Róna has been appointed the new CEO of Hunguest Hotels Zrt., having taken over the management of the hotel chain on June 22.

Róna, who has been acting as the head of brand business development at Gránit Pólus Group until now, has two decades of experience in hotel management, property development, and asset management.

In addition, she has also performed the business development tasks at Papp László Budapest Sportaréna, and was managing director at Aréna Catering Kft. and West End Hotel Management Kft. Earlier in her career, she participated in the market launch of Hilton Budapest City and Corinthia Budapest, gaining years of experience at other international and domestic hotel management companies.

Opus Global Nyrt., the owner of the hotel chain, has recently announced that the hotel renovations originally planned to be started in December will be scheduled to a later date due to the coronavirus epidemic.

As a result of the major renovation program carried out in several phases, the hotels within the hotel chain will be moved up to four-star and four-star superior levels.

Attila Zsolt Dzsubák Ádám Balog, the chairman-CEO of MKB Bank, as deputy chair.

Opus chairperson Beatrix Mészáros said that Gál had successfully closed the company’s merger with holding company Konzum, and had managed to reorganize and dynamize the company. The changes at Opus Global will not affect Gál’s other positions within the Mészáros Group, according to the press release.

The chairperson noted that Opus’ strategic goal remains to be an attractive target for large institutional investors and funds that follow a conservative investment policy.

Regarding the new CEO, she said that Dzsubák’s experience is a guarantee for investor-focused control.

In the coming year, Opus aims to provide a stable growth path for the companies belonging to its portfolio, despite the negative economic effects of the coronavirus pandemic. In addition, the acquisition and integration of businesses with significant growth and earnings potential remains a main goal for the company, the company said.

Partner Admitted, new Practice Launched Andrea Róna “Over the next [few] years, the complete Hunguest Hotels will be renewed, which serves both the further strengthening of our leadership in the rural market and, in addition to serving our present target group, providing reliable and quality service to the younger generations,” says Róna.

“During my career, I had the opportunity to lead several hotel development projects in the country, and therefore I was pleased to accept the invitation of Opus Global to head this prestigious Hungarian hotel chain,” she adds.

András Fenyőházi will lead the construction group of Cerha Hempel’s Budapest Office as a partner, the Budapest Business Journal has been told.

Fenyőházi joined the law firm’s real estate group in 2014, where he has primarily represented his clients, both

Opus Global Picks Replacement CEO

Bence Nádasdy

Attila Zsolt Dzsubák was due to take over as CEO of holding company Opus Global from July 1 (the day this issue went to print), replacing Miklós Gál, according to the company.

The company also announced the appointment of board member

András Fenyőházi

contractors and investors, in construction and civil engineering projects.

With his admission to the partnership, Fenyőházi will also act as the leader of the construction group that, thanks largely to his work, has been elevated to the status of a separate practice within the firm.

According to Cerha Hempel, his team are equally at home in the management of contract negotiations concerning construction projects, debt recovery during implementation and in advising and representing clients in litigious and non-litigious construction disputes.

“With András’ admission, we are joined by an excellent lawyer with a precise legal mind who, besides his clientfriendly approach to practical matters, also places great emphasis on having an in-depth understanding of the theoretical underpinnings of everyday legal matters in order to enhance the quality of the services we offer to our clients,” noted Attila Dezső, the firm’s managing partner.

Lead Country Manager Takes Over at ExxonMobil

Jeroen Kirschbaum As of 1 July 2020, ExxonMobil’s Hungarian Global Business Center has a new lead country manager/managing director.

Romke Noordhuis, the current head will be leaving for a new assignment after a handover period, and Jeroen Kirschbaum will take his position, the company has told the Budapest Business Journal.

Kirschbaum joined ExxonMobil in 2003 with a Master’s degree in econometrics from Tilburg University in the Netherlands. He spent his early career gaining experience in financial reporting, controllership, and corporation finance in various assignments in the Netherlands, Belgium, and the United States.

He also led the digital transformation for ExxonMobil’s finance functions worldwide, based out of Houston.

In 2018, Kirschbaum was appointed as the planning and financial markets manager for ExxonMobil Corporation at the corporate headquarters in Dallas.

He will assume the role leading ExxonMobil’s Global Business Center in Budapest, with 1,800-plus people providing financial, commercial and IT support to ExxonMobil’s businesses in the Europe, Africa & Middle East region and globally.

News | 5

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Budapest Business Journal | July 3 – July 16, 2020

Coronavirus ///roundup Yet More Restrictions Lifted Due to the waning severity of the coronavirus epidemic in Hungary, more restrictions have been lifted over the past couple of weeks, including allowing musical events for up to 500 people, and the removal of the exclusive shopping period for the elderly, but the wearing of masks on public transport and in shops is still required, writes hrportal.hu.

NICHOLAS PONGRATZ

Other indicators of returning social norms include the opening of Art Cinemas throughout Budapest, and post offices reinstating their previous waiting system, allowing customers to line up inside, rather than outside.

As things are slowly returning to normal socially, more effects of the epidemic are being revealed. During the emergency period, both undeclared work and wildlife poaching saw a marked uptick, due to the diminished oversight of state regulators.

According to the National Toll Service Provider Zrt. (NÚSZ), e-sticker sales dropped drastically because of the proliferation of telecommuting, enabling workers to stay at home, and the evaporation of tourism.

In a rare piece of good news from the hospitality sector, restaurants in Budapest were able to maintain their Michelin Stars, despite the lack of clientele, Forbes.hu notes. Also, due to pervasive self-quarantining, the rate of personal patient-doctor encounters dropped

to

57%

of what it normally would be, according to Zsolt Kiss, director general of the National Health Insurance Fund (NEAK).

According to a new indicator from the Ministry of Finance, the decline of the Hungarian economy may have been 16-18% at the end of March and into the first three weeks of April, when compared to the previous year.

Deep Recession

JP Morgan referred to this period as a “deep recession”, saying that industrial production was the weakest in Hungary among the entire emerging region in

April; the country’s exports collapsed, consumer confidence plummeted, but retail and construction survived with a slightly smaller decline.

According to the most recent data from the Central Statistical Office (KSH), the average number of unemployed

was

190,000

between March and May, and the unemployment rate was 4.1%.

However, despite the number of jobseekers increasing by 10% in May, according to the National Employment Service (NFSZ), the rapid increase in the number of registered jobseekers has stopped, having peaked in June, State Secretary Sándor Bodó, of the Ministry of Innovation and Technology, told Magyar Nemzet (Hungarian Nation).

Indeed, the consumer confidence, business confidence, and business cycle indices from GKI Economic Research Zrt. have strengthened from May to June.

As the economic outlook stabilizes, many are now speculating about Hungary’s recovery prospects. According to the London analytics division of Morgan Stanley’s global financial services group, Hungary will be among the emerging economies in Europe where the value of gross domestic product will reach its pre-COVID-19 level by the end of next year, writes Világgazdaság (Global Economy).

According to the expectations of the Moody’s credit rating agency, Hungary’s GDP will decrease by 4.8% in 2020 as a whole, but will increase by 4% in 2021, while Fitch said it expects real GDP to fall by 5.9% this year due to the coronavirus shock, followed by 5.4% real growth in 2021.

For the year as a whole, GKI expects a decline of 6%, while the National Bank of Hungary in its recent inflation report said GDP may grow between 0.3-2% this year, with heartier expectations of 3.8-5.1% for 2021, and 3.5-3.7% for 2022.

1st District

2nD District

2nD District

288 sqm – 5 rooms, Corvin square

36 sqm – 1 room, káplár street

118 sqm – 3 rooms, kaviCs street

At the bottom of the Castle Hill, in one of the historical areas of Budapest, this baroque style villa house built in the 18th century has 380 sqm of lot and many make over possibilities.

Excellent investment opportunity near Mammut shopping mall and Millenáris Park. This entirely renovated, garden facing apartment is situated within a condominium in good condition.

In a villa house in good condition, this sunny apartment benefits of a 9 sqm of veranda and a 6 sqm of terrace. Parking space belongs to it in the garden.

390.000.000 HuF

35.800.000 HuF

115.000.000 HuF

+36.70.365.0827

2nD District

+36.70.365.0827

2nD District

+36.70.365.0827

3rD District

192 sqm – 6 rooms, BalogH ádám str.

279 sqm – 5 rooms, nyék

58 sqm - 2 rooms, lestyán street

In a diplomatic area, this completely renovated, top floor, luxury, duplex apartment has beautiful panorama from the 95 sqm of rooftop terrace and a 40 sqm of 2 car garage in the courtyard.

This four-storey detached house in good condition has 1050 sqm of lot, 2 big terraces, 2 garages and a lot of storage places. It is located in a green and quiet area.

In a new built condominium, this bright and quiet, street facing apartment in good condition benefits of 2 separate rooms, balcony and storage space.

199.000.000 HuF

199.000.000 HuF

44.700.000 HuF

+36.70.376.4138

3rD District

+36.70.376.4138

3rD District

+36.70.328.8501

5th District

96 sqm – 3 rooms, Judit street

340 sqm – 9 rooms, táBorHegy

95 sqm – 3 rooms, párizsi street

On Táborhegy, this well divided, two-storey semi-detached house, that needs renovation, has spacious rooms, large spaces, a cozy terrace, private garden and garage.

In a quiet and green area, this two-storey semidetached house has 500 sqm of lot, 2 bathrooms, 3 balconies, a terrace, well-kept garden and garage.

In the centre of the city, within an elegant, modern, Bauhaus style building, this high floor apartment is facing over a pedestrian street and benefits of two balconies.

93.900.000 HuF

129.900.000 HuF

89.000.000 HuF

+36.70.328.8501

5th District

+36.70.328.8501

5th District

+36.30.886.1014

7th District

140 sqm – 4 rooms, Balaton street

113 sqm – 4 rooms, sas street

68 sqm – 2 rooms, rottenBiller street

This completely renovated, very bright, well divided, high floor, luxury apartment has 2 bathrooms and a 14 sqm of balcony with a view over the Danube.

New built, luxury apartments for sale with huge terraces and fascinating view over the St. Stephen’s Basilica, in the centre of the city.

In a renovated building, this spacious, entirely renovated, street facing apartment has separate rooms, balcony and private gas heating. Next to the University of Veterinary Medicine.

174.900.000 HuF

195.000.000 HuF

45.900.000 HuF

+36.30.886.1014

7th District

+36.30.886.1014

7th District

+36.1.351.0446

13th District

74 sqm – 3 rooms, rákóCzi street

150 sqm – 4 rooms, damJaniCH street

77 sqm – 2 rooms, pozsonyi street

Between Blaha Lujza Square and Keleti railway station, this apartment in good condition benefits of separate rooms and balcony. It is located close to the Erkel Theatre.

Close to the City Park, within a beautiful period building with elevator, this very spacious, street facing apartment in good condition benefits of 4 separate rooms, 2 bathrooms and balcony.

This beautiful apartment, that needs renovation, is located in the heart of the district, close to the Danube and the St. Stephen’s Park. Excellent investment opportunity.

54.900.000 HuF

105.000.000 HuF

54.900.000 HuF

+36.1.351.0446

13th District

+36.1.351.0446

13th District

+36.70.414.7759

nagykovácsi

65 sqm – 2 rooms, Hollán ernő street

103 sqm – 4 rooms, Hegedűs gyula str.

230 sqm – 6 rooms, nagykováCsi

This completely renovated, street facing apartment has 2 balconies and it can be converted to a 3 room property as well. It is located close to the Danube and the St. Stephen’s Park.

In the heart of the district, this well divided, completely renovated apartment benefits of spacious and very bright rooms. Excellent investment opportunity.

In Pest County, close to the American School, this new built detached house designed with high-quality materials and has 810 sqm of lot.

Price includes the built-in kitchen.

64.000.000 HuF

66.900.000 HuF

149.800.000 HuF

+36.70.414.7759

+36.70.414.7759

+36.70.376.4138

gruppo t.F.m. kFt. 1068 Budapest, király u. 102. each agency independently owned and operated. • these offers are valid, till the apartments are sold. • these information do not constitute a contractual element.

News

6|1

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Budapest Business Journal | July 3 – July 16, 2020

GalCap Europe buys Rumbach Center for German Fund GalCap Europe, a real estate asset and investment manager specializing in Austria and Central Europe, has acquired the Rumbach Center for a German pension fund portfolio from the

by Dubai-based Al Habtoor Group.

Manfred Wiltschnigg, managing partner of GalCap Europe.

The conventional wisdom is that there will not be a recovery in investment market activity until the second part of the year as more borders are unlocked and meetings and viewings in person become possible.

Further, office asset owners are not in a position where they need to sell and could adopt a wait and see policy to assess their position in the market.

Prime Budapest offices are still expected to trade at low 5%, while secondary or value-add opportunities are estimated at a spread of at least 150 basis points, according to Colliers.

Wiltschnigg expects yields for office buildings in Budapest to increase to around

100

basis points

Rumbach Center, purchased by international investors.

The earlier generation, 7,600 sqm Rumbach Center was built in 1992, renovated in 2008 and again

in

GARY J. MORRELL

The latest research by Real Capital Analytics (RCA) has indicated that in the recent lockdown environment, investment deals in Europe have become harder to complete and the number of cancelled transactions has risen.

Office has proved to be the asset sector of choice in CEE, closely followed by industrial according to Colliers International, who brokered the GalCap deal. Investors have been facing problems caused by the lockdown in addition to the existing issue of a low supply of investment grade assets.

2014

and is located in the historic center of Budapest.

“Rumbach Center provides a stable cash flow on the one hand and offers high potential for value appreciation on the other,” comments Marco Kohla, managing partner of GalCap Europe and the official responsible for the transaction.

“The acquisition perfectly matches our value-driven investment strategy and is an ideal addition to the innercity Merkur Palota and Central Udvar, a mixed-use scheme in the heart of Budapest, both cornerstones of the fund,” he adds.

Acquisitions concluded by GalCap Europe could be seen as reflecting

the creativity needed by investors in the coronavirus-era Budapest office market, with limited supply and increasing completion for assets from both domestic and international investors and asset managers.

‘Great Opportunities’

“Closing this acquisition in the current environment shows that there are great opportunities even during times of uncertainty. Identifying these and executing them promptly needs market expertise and the right people on the ground,” says

immediately after the corona crisis.

“Bringing a deal to a positive closing in times of lockdown in a third country only works if experienced professional managers, both at headquarters and on-site, work together with excellent external advisers,” he explains.

“Due diligence, valuation, setting up the deal and company structure, securing financing, purchase contract negotiations and signing, as well as the entire approval process of the investor, are coordinated online from headquarters and should ideally be carried out as quickly as possible without mutual irritation of the negotiating partners,” Wiltschnigg says.

“We will continue to act as buyers on the Hungarian market and other CEE countries for our existing mandates. We are also working intensively on the preparation of our own CEE vehicle, the GalCap CEE Office Fund, which will invest in office properties in prime locations in the Central European capitals from next year on,” he concludes.

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Business

Sampling ʼNew Normalʼ Business Sentiment Now that the lockdown and restrictive measures introduced to keep the spread of the novel coronavirus at bay have been lifted, businesses in Hungary are adapting to business as a “new normal.” Hungarybased international consultancy Develor says this restart period is a time of challenges.

Furthermore, how companies adapt may influence their success in this changed environment, if not their very survival.

CHRISTIAN KESZTHELYI

Develor Tanácsadó Zrt., which specializes in leadership, sales, talent development and human resources, surveyed business leaders from May 13 to June 1 to tap into the corporate sentiment post-lockdown, conducting 201 online surveys and 17 structured deep interviews.

The big majority of respondents, 32%, were from the manufacturing industry, followed by services (14.2%), others (13.2%), banking and insurance (11.7%), and retail (8.6%).

Some 32% of the respondents employ 50-249 people, 32% have 250-999 employees, 20% have 1,000 to 4,999 employees, 14% has 0-49 employees and 2% have 2,000+ employees. Some 75% of the respondents were C-Level executives, 20% were middle managers, 3% were experts and 2% others.

Of the respondents, 38.1% work for companies who experienced no slowdown or stoppage at all due to the coronavirus, while another 38.1% were restarting their operations at the time of the survey.

Another 15.2% was expecting to launch the restart in the first two weeks of June while

Change of Strategy We changed strategy and already introduced the new direction and goals to our employees

14.7%

We have changed strategy, we have an action plan broken down into specific areas along with new directions

18.8%

We have made a change and determined new directions

28.4% 16.8%

We need to change, but it hasn’t happened yet No change because it is not necessary

21.3% Source: Develor

the remaining 8.6% expected to relaunch operations around the end of June.

From the telecommunications industry, 67% that they did not experience any slowdown or stoppage, while the

remaining

33%

was already restarting in the second half of May. In the agricultural sector 55% of the respondents said they experienced no disruption. In the retail sector this was true for 47%, for IT companies it was 40% and in manufacturing it was 37%.

Unsurprisingly, with airplanes grounded and restaurants shut, companies in the hospitality industry (HoReCa) saw a significant blow to business. However, their answers signal positivism, or at least a restlessness to do business again.

Some 60% of the respondents said they were expecting to restart in the first two weeks of June, while 40% was already working on doing that at the end of May. Nevertheless, in the short-term, pessimism, or rather cautiousness, characterizes the overall business sentiment as 51.3% of the respondents expect unfavorable business prospects in the post-COVID era. Some 22.8% see prospects staying the same, 14.7% hope for a bit better, while 9.1% say that they will get worse. Only a tiny fraction of 2% expects for great improvement.

Most Pessimistic

Banks and insurers appear to be the most pessimistic; 87% of the respondents believe that short-term business opportunities will be worse than before the pandemic, while 13% foresee no changes. Among public utility companies, 60% expect a worse climate and 40% no change.

For the HoReCa sector, 40% think the business climate will be “much worse”, another 40% that it will be “worse”, while a thin 20% expects a slightly better environment.

Services and the agriculture sector are more optimistic and expect no change in 71% and 64% of cases, respectively. The most

optimistic sector is telecommunications; 100% of the respondents see no change to their business post-lockdown, when compared to pre-pandemic.

Overall, no significant optimism appears to surface in the mid-term (three to 10 months). Worse business opportunities are expected

made no changes as they see that their business environment has remained unaltered. Interestingly, the

remaining

40%

of public utility respondents said they have made changes and determined the new by directions.

The majority of respondents, 58.4%, expect organizational changes to a small of the respondents, 27.4% expect no change, extent only, with 21.3% not expecting any 18.8% expect things to be a bit better, 3.6% changes, 13.7% expecting "significant foresee it as much better, while 2% expect changes", 5.6% having identified the especially bad circumstances. necessary changes, and 1% expecting Some 80% of the HoReCa-related changes to a "great extent." respondents expect worse circumstances, Despite the problems the pandemic with 20% expecting an “especially bad” caused, 55% saw innovative practices being business environment in the midintroduced due to COVID-19, 24% saw “many term. While 57% of banks and insurers innovations”, 13% saw it rather problematic expect things to be worse than before the and 4% saw conflicts and challenges. pandemic, 26% expect no change and 17% The majority of respondents, 58%, expect foresees better circumstances. another lockdown period and have an Telecommunications companies are much action plan in place for such an occurrence, more confident: 33% expect no change, 22% believe it is unlikely to happen but while the remaining 67% expect better will react if it does, 13% do not expect it to business results than before the pandemic. happen and 7% are certain it will happen Some 76% of retail businesses, however, and keep optimizing their operations to expect worse, a view that is shared by 53% face such a scenario the best they can. of the respondents in manufacturing, 46% The crisis seem to have boosted in services and 40% in IT. In public utilities, employee commitment, as 65.5% see 80% expect no change with the remaining employee morale as having strengthened 20% expecting a better environment. in this period. Some 4.1% saw “significant” strengthening, 19.8% saw no change, and Changed Strategy 9.1% saw some weakening. No respondents Some 18.8% of business overall say they reported “significant weakening.” have changed strategy and set up definite The business leaders answering action plans, and 14.7% having made Develor’s survey believe that their own changes and informed their employees. recognition strengthened in 43.7% of cases, While 21.3% of the respondents say that did not change for 34.5%, worsened slightly they are not changing business strategy as in 8.6% of cases, got worse for 4.6% and there is no need for it, 16.8% say they need “significantly worse” for 0.5%. to change but have not started yet.

After the lockdown, businesses appear to A mighty 80% of HoReCa companies have plenty to do. Although 69% say that have made changes and determined new employees have partially been prepared directions, while the remaining 20% have for the “new normal” and have learned a already informed employees about the lot, only 16% say that everybody has been changes and new goals. prepared, while 12% will play it by ear and Telecommunications companies (67%) ask staff to learn on the go, and 3% has not and public utility businesses (60%) have made any preparations at all.

48.2%

8|2

Business

www.bbj.hu

Budapest Business Journal | July 3 – July 16, 2020

Bankruptcy as an Exit Option The most obvious form of business exit owners spend time, thought and effort planning for or trying to avoid is to sell up or be bought out.

But, as Les Nemethy points out in his latest column, far too little thought is given to bankruptcy.

In my book, "Business Exit Planning "(John Wiley & Sons, 2012), I confess to have made a significant error in judgment: I have barely touched on the option of bankruptcy as an option for exit.

It is an option that should be considered seriously for quite a number of companies, especially now in this age of coronavirus, where the competitiveness of many companies may be dramatically reduced for the medium- to long-term.

I have seen too many companies that are like the “living dead”, sometimes called “zombie companies”, usually characterized by difficult-to-manage levels of debt.

They go on from liquidity crisis to liquidity crisis, stretching receivables to the limit, somehow surviving because neither banks nor suppliers want to “pull the plug.”

Treading on water like this does not create any shareholder value.

On the positive side, you might say that at least a number of people are kept employed; on the negative side, resources are tied up when they might be more gainfully deployed.

The Corporate Finance Column

bankruptcy in a perfectly legitimate fashion should not be stigmatized.

Another frequent trap that I’ve seen numerous business owners fall into is what I call “feeding the monster.” They keep injecting cash into their companies, whether from their personal savings, or by providing loans from related companies.

This extends the scope of the damage, to potentially destroying an entire group of companies, or potentially even having to declare personal bankruptcy.

The decision to inject liquidity into a failing company should be taken in an extremely hard-nosed fashion, not just from a perspective of wanting to avoid or postpone the pain and agony of a bankruptcy.

The short-term expediency of feeding the monster very often only extends the extent of the damage, for the short-term expediency of avoiding the embarrassment and pain of a bankruptcy.

So, if you are involved with a company that is lurching from liquidity crisis to liquidity crisis, with little time and money to plan and invest for the future, give some serious thought to bankruptcy.

“Opportunity cost” is a financial term; you could be doing other things with your money; unfortunately, you can never recover the lost years.

There is another form of bankruptcy Photo by LightField Studios / Shutterstock which you should seek to avoid at all cost: where business owner/managers fail to plan for succession, and they pass away or So, should the shareholders (or their become indisposed, the business may go type of work-out with creditors. Such a representatives, the directors) consider either rapidly or slow motion into a tailspin. work-out buys additional time. pulling the plug? Such companies are This is one of the most common reasons But, once again, I would ask the usually unable to invest in the future, for bankruptcy. And it is probably the saddest question: buying time for what? If it is or even to spend management time form of bankruptcy, because such bankruptcies just to buy time to face a slow and painful envisioning the future or strategizing for can usually be avoided with advance corporate death, it makes no sense. the future. Competitive position, over time, planning, and these are often perfectly good, Fooling your creditors might not be that therefore, is only likely to erode. competitive businesses which go under. difficult; much more serious is that you It is often an exercise in postponing may be fooling yourself. If there is a real the inevitable, namely bankruptcy. The strategy for post-work-out survival (e.g. owner/managers of such companies are more than just a blind hope that markets Les Nemethy is CEO of Eurooften sacrificing the best years of their will somehow improve), then of course it Phoenix (www.europhoenix. lives. Their ego may be tied up with the makes great sense to pursue a work-out. com), a Central European business. Indeed, due to the high stress corporate finance firm, Legitimate Approach involved in such situations, they often author of Business develop health problems that plague them Some shareholders pursue bankruptcy Exit Planning (www. as a method of defrauding their in later years. businessexitplanningbook.com) companies, for example by stripping In most countries there are usually at and a former president least two forms of bankruptcy: a liquidation out assets. Unfortunately, fraudulent of the American Chamber bankruptcies give bankruptcy a bad or winding up procedure, and a “Chapter of Commerce in Hungary. name; those entrepreneurs who pursue 11” type procedure, which involves some

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Budapest Business Journal | July 3 – July 16, 2020

Hungarian Startup Makes COVID Drive-thru Testing Software Open Source Hungarian startup Rollet has made the software it developed for administering in-car coronavirus testing freely available for any government or organization to help speed up response on a possible next wave.

BBJ STAFF

As previously reported in the Budapest Business Journal (see “Drive-thru COVID19 Testing at Groupama Arean” in the May 22 issue), the startup’s drive-thru testing station was first launched in Budapest in April, with what the company says were “hundreds of visitors” tested over the course of a few days.

The drive-through COVID-19 testing method is not a novel concept, and was widely used in several Asian countries before the Hungarian solution.

But these approaches were paperbased, Rollet says, which was slow and put people at a relatively high risk when contact was made between staff and patients in the process.

The contactless solution developed by the startup means that patients arrive at the test station at a confirmed time after online pre-registration.

Data recording is paperless, as test station workers identify clients based on QR codes, and authorize visitors through the mobile application, which Rollet has now made open source.

As well as the entry check, sampling administration takes place in the app too, pairing the given patient’s QR code with the samples. This contactless method eliminates the chance of wrong inputs and human errors under stress.

“We agreed with the Rollet team at the very beginning of the project to make the end product widely available so that governments worldwide can respond immediately and appropriately to the crisis when needed,” says Andy Zhang, founder and CEO of Rollet.

Highly Efficient

“Being a Hungarian company, the size and population of our cities needed a highly efficient solution for mass testing, which forced us to create a technology solution that was simply not available before.

There is still no consensus on whether the coronavirus will cause another wave of pandemics in the fall, but in any case, our system offers a very fast and effective solution for identifying COVID-19 patients,” he explains.

The testing project, codenamed “NOÉ”, can now be freely adapted by both private companies and government organizations, as it has been released under a so-called MIT licence (a Massachusetts Institute of Technology License that grants the end user rights such as copying, modifying, merging, distributing, etc.) and is available at Github.com/rollethu/noe.

According to the startup, the code can be used to help start a drive-thru test

Business | 9

station within a few days, as the program is suitable for receiving and sampling thousands of guests without additional development.

The software can not only be used for coronavirus testing, but also for the rapid sampling of all viruses where a vehicle provides a suitable containment environment for sampling and screening.

“Being a Hungarian company, the size and population of our cities needed a highly efficient solution for mass testing, which forced us to create a technology solution that was simply not available before. There is still no consensus on whether the coronavirus will cause another wave of pandemics in the fall, but in any case, our system offers a very fast and effective solution for identifying COVID-19 patients.”

Rollet launched contactless drive-through payment services in Hungary in 2017, and since then, says cashless, in-car payment methods have been made available to motorists in dozens of locations, including parking lots, office buildings, industrial areas, and business parks.

In 2020, The Next Web chose Rollet as one of the best Hungarian startup innovations in Europe, and last year the audience of the Vienna Property Forum chose Rollet as “CEE’s Best Emerging Startup”.

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Budapest Business Journal | July 3 – July 16, 2020

Building the Startup Community Thru Crowdfunding born through crowdfunding, onboard the picturesque TRIP ship at Batthyany tér, where expats can enjoy English performances either in person or online.

These initiatives need the crowd’s support.

Tokeportal bills itself as the first Hungarian equitybased crowdfunding platform, and one of the pioneers in Central and Eastern Europe. The Budapest Business Journal spoke with business development manager Nóra Szeles about bringing the concept to Hungary.

BENCE GAÁL

BBJ: What is crowd funding and why is it becoming so popular?

Nóra Szeles: Crowdfunding has always been here and will always exist. Ever since people wanted to realize their ideas and did not have enough resources, they asked their network for money. Now it is all web-based.

Crowdfunding is a platform-based financial service, where campaign initiators ask people to participate in their campaign. If they return the money in the form of a share, it is then crowd investing, if they do not offer any compensation, then it is donation. Crowd funding raises awareness for local projects and enterprises and offers easy access to investments to a large number of people who would contribute with small amounts.

BBJ: When and how did Tokeportal.hu come into being?

NSz: Ever since the World Bank published its first in-depth research on the effects of the new born crowdfunding market in 2013, which highlighted how important the role of crowd diligence is, namely the communication process that validates a startup, and how much new capital can enter the economy through crowd funding, we started to think about launching a platform. When the European Crowd Funding Service Providers Regulation was drafted, we knew this would change the capital market. Then MKB bank established its FinTechLab and invested

BBJ: Does Tokeportal.hu have regional aspirations?

NSz: Sure we do, there is still space in the neighboring markets such as Romania or Bulgaria. This is a next step.

in our project. Since then, business angels have joined our journey. We launched the first campaigns not long ago, and realize a growing interest from both retail and institutional investors, despite COVID-19, which of course occurred as a black swan.

BBJ: How do equity-based campaigns work on Tokeportal.hu?

NSz: In accordance with industry standards, similarly to what venture capitalists do, we review and score all campaigns before they hit the platform. Depending on the phase of the project, this can take four10 weeks. Crowdfund seekers should do their homework and we help them a lot in order to onboard their prospective investors, including perhaps a lead investor. We help them establish the investable company structure, strengthen the value proposition and communicate successfully.

BBJ: Who are the platform’s most important cooperating partners?

NSz: We believe in building and contributing to the startup ecosystem that includes incubators, accelerators, startup experts and mentors and industry associations and, of course, the regulators. We recently established the Hungarian FinTech Association, as together we can better strengthen our mission, and advocate our interests.

We believe that large institutions such as the Budapest Stock Exchange, or even Big 4 company such as KMPG, which is a partner, are stakeholders, as

Nóra Szeles crowdfunded companies are more open to a later IPO than bank-financed or private ones. Advisers from the large British platform Seedrs and the Austrian Conda and the Estonian Funderbeam, and the European Crowdfunding network all believe that the local ecosystems are key drivers of the economy.

BBJ: What would you consider the biggest success of your platform so far?

NSz: Despite our small size and early phase, we notice that our brand is acknowledged. Even foreign investors have expressed an interest, and a few Budapestbased expats have also already contributed to a few campaigns. Not only Rotary Club Budapest-Center closed a successful campaign, but a new Hungarianinternational cultural medium is being

“When the European Crowd Funding Service Providers Regulation was drafted, we knew this would change the capital market. Then MKB bank established its FinTechLab and invested in our project. Since then, business angels have joined our journey. We launched the first campaigns not long ago, and realize a growing interest from both retail and institutional investors.”

BBJ: How does the portal’s Crowd Capital Indicator contribute to the fight against COVID-19?

NSz: The CCI represents the crowd capital that the society is able to offer in such times. The index, which has just hit HUF 12 billion, mirrors the value of donations that aim at abating the negative effects of the pandemic. Those who donate to the fight against COVID-19 will be rewarded by having their good deed communicated to the public via the index.

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Budapest Business Journal | July 3 – July 16, 2020

Special Report U.S. Country Focus

U.S. Embassy: ‘Proud of a Strong and Growing Economic Relationship’ U.S. Chargé d’Affaires Marc Dillard discusses the state of the American-Hungarian bilateral relationship, growing business sectors, the end of “reflexive offshoring” and what the embassy does to help trade links.

ROBIN MARSHALL

BBJ: How strong is the bilateral trade relationship between the U.S. and Hungary? What are the numbers?

Marc Dillard: We’re proud that our economic relationship is both strong and growing. As the country with the largest economy in the world, the United States has a market full of opportunities, as it boasts one of the best business environments in the world. Hungary possesses a strategic location in Europe, access to EU markets, a highly skilled and educated workforce, and a sound infrastructure, which have attracted companies such as GE, Arconic, BlackRock, UPS, Coca-Cola, National Instruments, Microsoft, and IBM. There are also opportunities in the large number of connections between our two countries in the high-tech and startup fields. Our two-way trade is now valued at USD 7.23 billion, with the United States exporting around USD 1.92 bln to Hungary and Hungary exporting about USD 5.31 bln to the States. Moreover, we are the second largest investor in Hungary, after Germany. That means U.S. firms in Hungary employ more than 105,000 Hungarians.

BBJ: What are the most significant sectors, both for U.S. imports from Hungary, and U.S. exports to Hungary?

MD: Of course, all the different sectors that make up the trade relationship with Hungary are important to the Embassy, because they contribute to the livelihood of businesses and individuals in both countries. Some of the larger sectors include transportation, chemicals, and technology. In addition, these sectors also account for some of the most significant growth. If we look more closely at the U.S. exports to Hungary, we see that, for example, computers rose 30%, by USD 94.5 million to USD 410.3 mln. We see that aircraft engines and engine parts rose 17.44%, to USD 190.5 mln. These are significant numbers.

BBJ: Has this been fairly static, or has it changed over the years? Are there any upcoming new sectors?

MD: The overall trend has been for increased trade over the years, with some variation in the proportion of the sectors. The numbers above illustrate the fast growth that certain sectors have enjoyed. On new sectors, from both an economic and security perspective, we think there is potential for further growth for U.S. firms in the energy sector. It is vital for countries to have diverse sources of energy, and we think it is particularly important that our NATO allies bolster their energy security. Already, U.S. companies are some of Hungary’s largest domestic oil and gas producers. We also believe that U.S. firms can provide

“Some of the larger sectors include transportation, chemicals, and technology.

In addition, these sectors also account for some of the most significant growth.

If we look more closely at the U.S. exports to Hungary, we see that, for example, computers rose 30%, by USD 94.5 million to USD 410.3 mln. We see that aircraft engines and engine parts rose 17.44%, to USD 190.5 mln. These are significant numbers.” important options for Hungary. For example, renewables, liquified natural gas (LNG), small modular reactors, and unconventional drilling could all help boost Hungary’s energy security and drive down energy costs for consumers.

Marc Dillard BBJ: How has COVID-19 impacted the figures? When do you expect trade will pick up and get back on track?

MD: There is a lot of uncertainty today, and the embassy is certainly focused on doing what it can to help in these difficult times for us all. COVID-19 has affected nearly every country and every sector, and U.S.Hungary trade is no different. I have no specific prediction on timing, but I am an optimist. U.S. companies are the world’s most innovative, and we see that financial relief bills passed by Congress and signed into law by President [Donald] Trump are helping both U.S. consumers and businesses.

I believe that the creativity and resilience of the U.S. private sector – and partners around the world – will adapt to new realities.

Already individuals and businesses are using technology in new ways to work and reach their goals, and we expect to see the same kind of resilience play out in the U.S.-Hungary economic relationship.

BBJ: Do you foresee any long-term changes in bilateral trade as a result of the pandemic?

MD: The pandemic has in the short term changed many things, such as impacting travel between the countries. However, over the long-term, our trade relationship will continue to be an important part of our bilateral relationship. But one thing the pandemic has shown is how fragile our supply chains can be, especially for crucial medical supplies. As the United States Trade Representative Robert Lighthizer said in an New York Times op-ed on May 11, this reevaluation of trade means the era of “reflexive offshoring” is over. This

is why transparency, a favorable business environment, highly qualified labor and stability are important considerations before an investment decision is made.

BBJ: Are there any outstanding trade issues between the two countries? What is the latest position with U.S. travel visas for business people from Hungary?

MD: While we don’t have any trade issues with Hungary, we have shared one area of concern more broadly, which is the building of the 5G network. Chinese practices as regards key infrastructure investments also raise national security issues. The Chinese government can order Chinese companies to share data with them, and if these networks are used for national security-related purposes, classified information of various countries can easily become accessible to the Chinese government. That’s why we have raised this concern with the Hungarian government. It is important for us that Hungary, a NATO ally, preserves its sovereignty.

Regarding visas for business travel, while there are currently travel restrictions in place for residents within the Schengen zone, we see improvements in the area. We will resume routine visa services as soon as possible, but are unable to provide a specific date at this time. We understand this is a challenging situation for the international business community; again, we hope the current visa suspension is resolved in the near term.

BBJ: What do you offer Hungarian business folk thinking of expanding into the U.S. market, or U.S. businesses looking to move into Hungary?

MD: U.S. Embassy Budapest is fortunate to have a U.S. Commercial Service Office, whose responsibilities include both of these areas. The U.S. Commercial Service is the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Its more than 200 foreign commercial officers lead a worldwide network of trade and investment professionals, focused on supporting American jobs by helping U.S. companies create new market opportunities. They work with foreign companies to invest in the United States and hire American workers.

U.S. Embassy Budapest offers services to Hungarian companies, and brings U.S. companies to Hungary as well. For example, last year Ambassador [David] Cornstein led a delegation of 17 Hungarian business people to the SelectUSA summit. At this summit, Continent, a Hungarian company, even won an award. Another example is that late last year we brought seven U.S. companies interested in franchising to Hungary; we hope to have results from that tour later this year. Please contact the Commercial Service Office for any inquiries at Office.Budapest@trade.gov.

12 | 3

Special Report

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Budapest Business Journal | July 3 – July 16, 2020

From University Party Webpage to Success in the States While much of our focus is on U.S. investment in Hungary, there is an increasing number of Hungarian companies that have already tasted success across the Atlantic. One such is Stylers, which evolved from a project by three university roommates to become a business serving up IT solutions to the likes of Oprah Winfrey and Deepak Chopra. The Budapest Business Journal asked the founders about their path to success Stateside.

BENCE GAÁL

BBJ: How and when did the story of Stylers begin?

Stylers: Our story dates back to the beginning of the 2000s when Gábor Laczkó (later a bioengineer), Péter Tiszavölgyi (who would go on to be a plastics engineer) and chemical engineerto-be Gábor Gönczy were studying at the Budapest University of Technology and Economics and we happened to get into the same dormitory room. It was there that we created our first webpage, called egyetemibuli.hu (university party), in

Gábor Laczkó response to needs. Its most important benefit was that all three of us fell in love with the IT profession and it was during our university years that we founded Stylers Group in 2004.

Right after the graduation there came an opportunity, bringing about our first job for thevisualmd.com.

We had to develop an online presentation software explicitly for doctors. Later on, it was introduced at the TEDMED Conference in San Francisco. It brought about such unprecedented customer satisfaction that it gave rise to further orders from America.

Shortly afterwards we founded our sister companies in New York and later San Diego and we started delivering to the [meditation] media empire of Oprah Winfrey and Deepak Chopra.

“When we introduced our software at the TED conference in San Francisco, our client was so satisfied with us that he referred us to Deepak Chopra, whom he knew in person. We started to deliver to him first, later on we were put in charge of creating the webportal of the Meditation Challenge marketed by Oprah Winfrey and Deepak Chopra.”

BBJ: What was Stylers’ breakthrough moment on the U.S. market?

Stylers: Success came on the U.S. market when we started working on digital transformation projects where the goal was to make high-load software. It was a huge breakthrough as we run that to handle daily individual views of more than a million. The other great moment was founding the San Diego Tech Hub. This is a professional and business community consisting of 3,000 people, which provided an even deeper insight into the American market.

BBJ: What is the story behind the Meditation Challenge project with Oprah Winfrey and Deepak Chopra?

Stylers: When we introduced our software at the TED conference in San Francisco, our client was so satisfied with us that he referred us to Deepak Chopra, whom he knew in person. We started to deliver to him first, later on we were put in charge of creating the webportal of the Meditation Challenge marketed by Oprah Winfrey and

In parallel, the Hungarian firm has been developing, too: it mainly deals with production; we support the digital transformation of domestic medium- and large-sized companies. We launched our education center, called the Braining Hub, three years ago, which in addition to training junior programmers, also organizes internal IT training for the programmers of large companies. It also promotes the domestic IT market with education management.

BBJ: How did the company’s profile evolve from offering website design to developing complex IT systems and supporting digital transformation?

Stylers: It was the outcome of a natural course of events, as we were asked to take part in bigger and more complex projects over the years, thanks to our former results.

It does help a lot that we are present on the American market, where there is different business and technological know-how: it enables us to look into the future and know what will be the dominant trend, which turns up after six months in the domestic market.

Gábor Gönczy Deepak Chopra. Owing to this project and hard work, we have been operating e-commerce portals where the daily individual views exceeds a million.

BBJ: When did the firm’s San Diego office open, how many people work there?

Stylers: We established our subsidiary first in New York, in 2010; then in response to business needs the office moved to San Diego in 2012, where there are three co-workers working currently.

BBJ: What advice would you give to Hungarian businesses trying to succeed in the United States?

Péter Tiszavölgyi Stylers: First of all, they must have a vision, otherwise it is incredibly difficult to enter the American market.

“It does help a lot that we are present on the American market, where there is different business and technological know-how: it enables us to look into the future and know what will be the dominant trend, which turns up after six months in the domestic market.”

The second thing to consider to be able to work successfully in America is the presence of fierce competition, which is why it is worth launching a product and dedicating time to get familiar with the American business culture and mindset, both of which are completely different from those of Europe. Our third piece of advice is having an active presence there; that is why one of our co-founders, Péter Tiszavölgyi, moved to the United States 10 years ago. Finally, it may also be worth establishing an American firm: a webinar was held by Péter for our Hungarian audience on this topic, which can be viewed on our YouTube channel.

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Budapest Business Journal | July 3 – July 16, 2020

PRESENTED CONTENT

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Special Report | 13

HIPA Committed to Growing U.S. Business in Hungary Over the past few decades, Hungary has become a major investment location for U.S. companies, the Hungarian Investment Promotion Agency says. It lists a stable political and economic environment, high quality infrastructure, favorable taxation system, motivated and highly-skilled work force, diverse language and technological capabilities as just some of the features of Hungary that make it particularly appealing when it comes to choosing a location to settle.

BBJ STAFF

With its geographical central location, Hungary also offers ideal conditions for both manufacturing and service activities, providing a close proximity to a market of 250 million people and the opportunity to deliver global services around the clock.

When it comes to numbers, the United States plays a major role in the Hungarian trade and investment field. American companies are present in economic sectors ranging from general and advanced manufacturing to business services and a great variety of high value-added areas like electronics and medical technology.

Forty out of the 50 biggest American companies have a presence in Hungary.

By last year, the United States had risen to become the second largest investor in Hungary, with more than

1,400 companies

employing around 100,000 people.

Between 2016 and 2019, HIPA supported more than 50 new investment projects from the States, leading to almost 8,000 new jobs for Hungarians with a total investment volume of more than EUR 800 million. In 2017, U.S. foreign direct investment stock reached more than

HIPA Strengthening Ties With Site Selectors Guild

USD 11.1 billion, amounting to almost 11.9% of total FDI stock of Hungary.

Bilateral commercial trade reached USD 5.8 bln in 2019, which was a 2.3% increase compared to the previous year. According to the Central Statistical Office data, America was the third most important trade partner for Hungary outside of the European Union in 2019.

Largest Consumer Imports were more than USD 2.4 bln, putting the United States in 14th place on the list of import source countries.

America is the largest consumer of Hungarian exports outside the EU, with more than USD 3.4 bln of imports. In the past five years alone, Hungarian exports grew by 22%, making the States now the 12th most important export market of Hungary.

American operations in the field of electronics, automotive and engine parts manufacturing, life sciences, agricultural, and logistics play the most oversized role.

Fourteen major U.S. companies (including GE, National Instruments, Aptiv, Jabil, Coca-Cola, Arconic, and Lear) employ more than

43,000 employees

with locations from Szombathely to Debrecen. Companies within business services and ICT sectors have traditionally had a strong presence in Budapest (examples include Morgan Stanley, IBM, Microsoft, Citi, BlackRock, and Oracle).

A clear sign of trust in the Hungarian business environment is that, increasingly, more U.S. companies present in Hungary are deciding to reinvest or expand their operations with a wider and more comprehensive range of activities, many times of high added value.

In addition, there is an increasing emphasis on talent management, educational collaboration and innovative solutions. In the business services sector,

for example, the accumulated experience in the industry has led to the emergence of centers of excellence in recent years where ever more complex activities are carried out, including functions like R&D, corporate finance, and credit management.

HIPA offers a wide variety of incentives to facilitate FDI and reinvestments by the enterprises, mainly cash subsidies or tax benefits. The shift from “Made in Hungary” towards “Invented in Hungary” aims to attract high value-add technologyintensive investment and R&D activities that will increase the competitiveness of the Hungarian economy.

Over the years, HIPA has provided its one-stop-shop management consultancy services to U.S. businesses establishing or expanding their operations in Hungary.

The agency has also been quite active in policy advocacy, and has a long-standing partnership with the U.S. business community and the American Chamber of Commerce in Hungary (AmCham).

Competition and Cooperation With the support and assistance of HIPA, competition has also fostered increased cooperation, and, for example, Citi and Morgan Stanley are pioneering sectorial collaboration with their fellow financial players MSCI and BlackRock, launching the Career Networking Event series, aiming to attract talents back to Hungary from other parts of the world.

AmCham has a significant role in supporting member companies and facilitating a constructive dialogue with the Hungarian government and HIPA. The past few months have shown that crisis resilience, supply chain security and active government support for business will play an increasingly important role in the future of global investment decisions.

Hungary has been firm and swift to respond to the unforeseen challenges

In March 2020, HIPA participated for the third time as a professional partner at the annual of Site Selectors Guild conference, this time in Atlanta. The cooperation between one of the world’s most renowned associations of site selection professionals and HIPA goes back over several years. The first international advisory forum of the SSG was held in Hungary in 2017.

The event was a unique opportunity for HIPA to present the Hungarian business and investment environment, to build relationships, and to develop already existing collaborations with the type of focused professional audience that is not available anywhere else in the world. HIPA is in contact with a number of SSG members who have brought investment projects to Hungary in the past or who have clients that are currently considering investments in the country.

As part of the professional program in Atlanta this spring, HIPA held a special investment seminar for Georgia-based companies with the largest investments in Hungary (such as AGCO, CocaCola, and UPS) and other company representatives planning to expand in Europe in the near future.

caused by the COVID pandemic, and implemented the most significant economic stimulus package in the country’s history.

In the midst of events, U.S.-Hungarian economic relations are strong and continuously growing, which is the result of the accomplishments and mutual trust.

Hungary remains determined to maintain efforts to ensure a most favorable and competitive business environment, and is committed to support the continued successful operation and further growth of U.S. companies in Hungary.

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Special Report

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Budapest Business Journal | July 3 – July 16, 2020

AmCham: Proud to Boost Competition, Efficiency, Transparency and Cooperation In an exclusive interview with the Budapest Business Journal, Írisz LippaiNagy, CEO of the American Chamber of Commerce in Hungary, explores the economic impact she thinks American culture has had on the country, and AmCham’s links with the U.S. business world.

“As one of the largest investors in Hungary, the United States has had a massive influence on the local business community.

As Hungary transitioned into a market economy after the fall of the Soviet Union, the arrival of international companies, Americans among them, brought a significant change in business conduct and culture, corporate leadership, company structures and of course, new ways of thinking.”

ROBIN MARSHALL

BBJ: AmCham obviously stands for American business values, but how well connected is it with business in the United States? Do chamber staff get to travel to the States much? Írisz Lippai-Nagy: Most European countries have an American chamber and we are all part of an umbrella network organization, AmChams in Europe (ACE) whose mission is promoting the importance of the transatlantic economy and representing American and European businesses on both sides of the Atlantic. Every year, ACE organizes a trip to Washington D.C. where European AmCham leaders meet the representatives of the U.S. Chamber of Commerce, which is our parent organization and of which we are all members.

The U.S. Chamber of Commerce is the world’s largest business organization, it is the voice of its members in Washington. We share best practices, meet congressmen, officials, major economic players, trail blazing businesses and companies who invest heavily in Europe.

Even though this year’s trip was cancelled due to the pandemic, we are holding most of the planned discussions with our partners on the other side of the Atlantic on-line. International cooperation remains a priority in the recovery of both the U.S. and EU economies. We must work hard to rebuild trust, protect and encourage investments and mend the global supply chain amid talks of protectionism.

BBJ: How much of your work is fielding questions from U.S. companies looking to make contacts here, or Hungarian companies hoping to do the same Stateside?

Soviet Union, the arrival of international companies, Americans among them, brought a significant change in business conduct and culture, corporate leadership, company structures and of course, new ways of thinking.

These new investors also introduced a new set of business values such as competition, efficiency, transparency and cooperation, which continue to have a driving influence on the ways we operate to this day.

AmCham CEO Írisz Lippai-Nagy ÍL-N: Our main priority is representing the interests of the local business community, Hungarian and international companies alike, but occasionally we receive inquiries from the United States.

“We at AmCham have worked hard with the members and the government to aid efforts to mitigate the economic effects of the virus. This pandemic really highlighted the importance of cooperation across sectors and stakeholders.

We are proud to say that the chamber has had a significant role in this.”

The Hungarian Investment Promotion Agency, our strategic partner is the main point of contact for companies looking to make business in Hungary, so we help them get acquainted. For businesses who want to export to the

States, we recommend the Hungarian Export Promotion Agency and help them get in touch with consulates.

BBJ: Have those sorts of contacts come to a complete halt due to the COVID-19 pandemic, or are you still receiving enquiries? ÍL-N: Since the outbreak, we have not received any contact from the States, but it is not unusual as we receive very few enquiries of this kind in any case. I think in the last few months, everyone has been working to steady the ship and adapt to the unexpected change brought about by COVID-19.

We at AmCham have worked hard with the members and the government to aid efforts to mitigate the economic effects of the virus. This pandemic really highlighted the importance of cooperation across sectors and stakeholders. We are proud to say that the chamber has had a significant role in this.

BBJ: The chamber was founded more than 30 years ago, with many pioneering American business involved.

Would you say the Hungarian business world and culture is more American today as a result? ÍL-N: As one of the largest investors in Hungary, the United States has had a massive influence on the local business community. As Hungary transitioned into a market economy after the fall of the

AmCham was founded to promote these values, to help build long-lasting business relationships and make Hungary more competitive. We take great pride in that mission.

BBJ: We all know the Hungarians are a unique people. What would you say is their most American trait? ÍL-N: Hungarians and Americans share a great and rich heritage of innovation. Unfortunately, we are lagging behind these days in this area and it is only recently that innovation has become a priority for the country again. We must instill the spirit of innovation in the Hungarian SME sector again and facilitate innovation at universities by supporting tight cooperation between industry and academia. Innovation is our opportunity to stand out in a competitive region.

One thing we need to learn from the Americans is entrepreneurship. We have a responsibility to inspire the next generation of entrepreneurs who can drive change, foster innovation, develop new markets, generate new wealth and overall, boost the economy.

BBJ: Although it is the American Chamber of Commerce, you attract a wide mix of nationalities. What percentage of your membership is American or from U.S.-based companies? ÍL-N: We are fortunate to have a diverse membership covering a wide range of sectors and nationalities. Roughly a third our members are American companies, a third are Hungarian and the rest are from more than 20 other countries.

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Budapest Business Journal | July 3 – July 16, 2020

Socialite Illustration by ShlyahovaYulia/Shutterstock

Art Cinemas Open Their Doors While Drive-ins Thrive The news that the art cinemas of Budapest would be opening their doors without restriction at the end of June has put a smile on the face of the city’s cineastes, including my own.

DAVID HOLZER

Movies will be shown at the Művész, Pushkin, Toldi, Tabán, Kino Cafe and Corvin cinemas without restrictions, although there will be one performance a day.

For those of us who love to watch movies – or to sit blankly staring into space while pretending to do so – the last few months of lockdown have been a version of cinematic cold turkey. The various online platforms have been a poor substitute.

Wanting escapism, I’ve gorged on those Hollywood comedies that usually involve at least one gross out moment to qualify for “edginess”. These are movies that camouflage their reliance on the unthreatening three-act structure with knowingly dumb dialogue.

I’ve inhaled entire ten-hour online series’ over just two days, from baffling sci-fi thrillers involving clones and bewildering alternate realities to nauseatingly glossy reality TV product.

Maybe one is the result of the other.

Watching great movies at home hasn’t been much of a consolation. Our TV covers most of a wall but it that still wasn’t large enough to do justice to Quentin Tarentino’s almost three-hour long “Once Upon a Time in Hollywood.”

When we watched the movie at our local cinema, my partner and I were mesmerized by its sheer sprawl and cheerful refusal to offer much in the way of a story. We agreed that, long as it was, we’d have been happy if it was twice the length. On TV, we couldn’t wait for it to be over.

Not that we needed reminding, but part of the great pleasure of watching great movies is being in a decent cinema and Budapest has its fair share of them.

Enormous Kick

I also get an enormous kick out of watching Hungarian movie-goes in their natural habitat. What follows is, as ever, a gross generalization, but it is based on a few years of observation.

Unlike the British, Hungarians insist on sitting in the seat they’ve paid for. On the one occasion I gave in to my anarchist tendencies and sat where I wanted, I almost caused an international incident.

The fact that I couldn’t understand my ticket and wasn’t able to find my seat by myself didn’t help.

could be checking to see if any Hungarian best boys, gaffers or grips were involved in the making of the movie.

Because, as we all know, Hungarians have always been the secret rulers of Hollywood.

Although we’re rubbing our hands with glee at the prospect of our local cinema reopening, my partner is somewhat concerned by the health and safety aspect. If the cinemas are opening without restriction, it would seem inevitable that people will sit next to each other.

One way to enjoy the movies without worrying about a stranger sneezing Drive-in Options all over you in the dark, is to One way to enjoy the movies without worrying about a stranger sneezing all over get your cinema fix at one you in the dark, is to get your cinema fix at of Budapest’s drive-ins. one of Budapest’s drive-ins.

Hungarians love to eat cinema food, especially those giant tubs of popcorn and vats of soda that come with a collapsible step ladder so you can climb up the side of them and dive in.

Incidentally, have you ever wondered why the food sold in cinemas is so spectacularly wrong for a darkened space that’s meant to be quiet? Whose bright idea was it to sell smelly, loud food that stains your clothing forever if you miss your mouth?

But the biggest difference between Hungarian audiences and those in other countries is that here people sit and watch the credits to the very end.

This could be down to making absolutely sure they get value for money. Or they

Although the idea of drive-in cinema is being enthusiastically promoted right now, it’s actually not new to Budapest. Our friends at welovebudapest.com list four in the city. Of these, two offer movies with English subtitles.

The Westend Rooftop Cinema and the cinema at Mammut 2, on the Buda side of the city are both operated by Budapest Rooftop Cinema (BRC). Since 2013, BRC’s brief has been to combine the pleasures of classic movies, cinema al fresco and trendy rooftop bars.

BRC requests that rooftop cinema goers stay in their cars and listen to the movie via their FM radio. I’m not entirely sure what happens if you need the restroom. Maybe they don’t sell swimming pool sized buckets of soda.

You don’t even need your own car if you choose the Rooftop Cinema at the Westend shopping mall next to Nyugati railway station. There’s the option to hire seats in a limo.

The limo can have its roof closed or open. BRC recommends that you only book for two passengers. Sadly, you can’t ask to be collected and dropped off at your home in the limo.

Don’t quote me on this (I relied on Google translate) but it seems from the website that, during the pandemic, entrance to BRC events has been free for healthcare workers, police officers and firefighters who have booked in advance.

BRC has also been donating part of its proceeds to hospitals, healthcare and social institutions in need of support.

So, if you do check out Budapest Rooftop Cinema at the Westend or Mammut 2, you won’t just be indulging in your cinema craving. You could be contributing to a good cause.

The only problem with both drive-in cinemas and the open-air kind is that they only really suit certain kinds of movies. For example, it’s hard to imagine being able to sit in your car for the entire duration of “One Upon a Time in Hollywood” unless you’d hired the limo.

Details of Budapest art cinemas now open at www.artmozi.hu.

Drive-in options at www.budapestrooftopcinema.hu.

16 | 4

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Budapest Business Journal | July 3 – July 16, 2020

Up and Coming Bükk Buckles Down Wine columnist Robert Smyth luxuriated in a welcome chance to physically return to wine country last month, to witness a barely-known, and thus much less prestigious, region take great strides forward in a bid to establish itself as a producer of fine wines.

ROBERT SMYTH

Almost two years ago, I enthusiastically reported on a talented band of winemakers in the Bükk region, making exciting wines that dramatically belied this northeastern region’s hitherto shaky reputation. Fast forward to today and the momentum of the Miskolc massive is building unabated.

On June 12, Roland Hajdú, president of Terroir Bükk, the wine association for the region, and Pál Veres, the Mayor of Miskolc, signed an agreement to get the region’s wines firmly established in the restaurants and bars of the city, as well as its popular environs, including Miskolctapolca, Diósgyőr and Lillafüred.

This may sound like an obvious move, but how can a wine region truly exist without the local wines being available to locals and visitors alike? Imagine not being able to find a selection of Bordeaux wines in a regular restaurant in the city of Bordeaux.

The mayor, a former schoolmaster who ran for office as an independent candidate, and who appeared to know his wine, noted that the Bükk had suffered even more than most wine regions from phylloxera (the vine-destroying louse which devastated European vineyards in the late 19th century), and worse still, from a subsequent lack of replanting.

Grape Grounding Zenit is a Hungarian grape that was created by Ferenc Király in 1951, when he crossed Ezerjó and Bouvier in Pécs, and is sometimes referred to as Badacsony 7, accordingly named after the wine region in which it was then developed.

It is one of several grapes made

5,300 bottles

The Bükk Wine Region

Budapest

The region today has a mere 900 hectares of land under vine, spread across

24

winemaking

settlements. Yet, it offers vast winemaking potential and opportunities, according to Hajdú, who says that his association will help new investors to set up wineries in the region. “They will not see competition, but get assistance,” Hajdú promises.

The Terroir Bükk president, a winemaker himself, referred to the 400-point Szőlő termőhelyi kataszter (or Grape Growing Site Cadaster, a type of agricultural land registry), which evaluates the quality of each regions’ used and potential grape growing land divided into blocks; Bükk is listed in second place out of 22 wine regions with an average score of 332 points.

Value for Money

Hajdú added that only BalatonfüredCsopak came higher, with an average score of 333, while Tokaj, widely considered Hungary’s greatest wine region, obtaining an average of 327 points.

However, the price of Bükk land remains very cheap, adds Hajdú, who founded the association together with fellow vintners Zsolt Sándor (Sándor Zsolt Organikus Szőlőbirtok és Pincészet) and Roland Borbély (Gallay Pince).

On the sidelines of the event, held at the lovely Avasi Présház (itself a wine producer and a member of the association), Hajdú told me about a particular unplanted block in Bükk of 20 hectares that had a rating of

385 points

on the cadaster, and was one-third the price of unplanted land in Tokaj.

by the crossing of these two varieties (the others being Zeus and Zengő). Local producers feel that Zenit is particularly well suited to Bükk, as is the Austrian Zweigelt grape for red. Gallay’s spicy, floral and zesty Nyékládháza 2016 (HUF 3,610 from Wineloverswebshop.hu) is a great example of what the Zenit grape can do in Bükk.

Overall, Bálvány wines from six producers have made the grade from the 2019 vintage, and are all of a good standard and worth checking out; the

He also mentioned the unlikelihood of finding 20 hectares of prime land in a single block elsewhere. Indeed, Bükk, with its broad range of soils and nicely positioned vineyards that gain ideal exposure to the sun for ripening, is something of a hidden treasure.

This region that for long sat silently, and all but forgotten, between the rather more famous and legendary regions of Eger (to the west) and Tokaj (to the east), was previously known in wine circles as a place to overlook, to put it mildly, for its paint-stripping and acid attack excuses for wines that were barely OK for quaffing in the heat of summer, but better in a fröccs (spritzer).

This turbo-charged acidity may, nevertheless, in future be considered a blessing rather than a curse, as rising temperatures comprise the ability of grapes to retain this all-important component of wine.

A number of boutique producers have learned to temper that tearaway acidity and are now turning out some rather fine and subtle stuff, which often strikes a balance between vibrant aromas, ripeness of fruit and zesty (not bitingly sharp) acidity.

Brand Launch

The Terroir Bükk event also witnessed the launch of the Bálvány brand, whereby individual winemakers make and release a white wine that represents the region’s best qualities. Balvány wines must all use the same combination of grapes (one third each of Chardonnay, Olaszrizling and Zenit), be made in stainlesssteel tanks and be kept on the lees, and possibly stirred, the latter method being a great way to soften acidity and to add a touch of round creaminess to the wine.

are set to be distributed around the country.

The pick of the bunch for me were from Sándor Zsolt Organikus Szőlőbirtok és Pincészet and Gallay Pince. Sándor’s organic Bálvány 2019 has floral and citrus aromas, with a touch of yeastiness from the lees on the round, but still zesty palate.

“Bükk acidity is special and not just high,” says Sándor.

The Bálvány wines are named after the highest peak in the Bükk mountains (956 meters), but is also the Hungarian word for a cult image. Sándor also showed that complex wine can be made from the Cserszegi fűszeres grape, with his spontaneously fermented and lengthily lees-aged (14 months) Lou Lee 2018 (HUF 5,500 from deminjohn.hu), which comes from the Csattos vineyard.

Gábor Galuska, formerly winemaker at Eger’s Gajdos Pince, which has recently been sold, makes his living as the head of a couple of wine communities and makes wine in Bükk “as a hobby” for his Palmetta pincészet.

Look out for Palmetta’s nicely crafted Olaszrizling Orange wine 2017, which was given 30 days of skin contact. The other three Bálvány wines come from Hajdú himself, Csáter Apó Pincéje (run by his brother Ádám Hajdu) and K.T. Kézműves Pince.

MARGARET ISLAND OPEN-AIR THEATER

GRAND OPENING 17 JULY 2020 The Margaret Island Open-Air Theater opens first among major European stages with the participation of world stars.

Opera & Operett Gala 17 July 2020 8 p.m.

Andrea Rost

Giorgio Caoduro

Piotr Beczala

Annalisa Stroppa

Bánk Bán 19 August 2020 8 p.m.

The Barber of Seville 7 & 9 August 2020 8 p.m.

Emir Kusturica

Federico Fellini 100

& The No Smoking Orchestra

24 2 4 July y 2020 8 p.m.

Nino Rota (1911-1979

Featuring: Danubia Orchestra, Óbuda Conductor: Marcello Rota

30 July 2020 8 p.m.

Réka Bori Elisabeth 4 & 5 September 2020 8 p.m.

Buy tickets online: eng.szabadter.hu

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Budapest Business Journal | July 3 – July 16, 2020

30 YEARS OF FREEDOM Truman Doctrine

How NATO and the Warsaw Pact lined up circa 1973 Members of NATO Pact Members of Warsaw Pact Former Members of Warsaw Pact

Graphic by vectorissimo / Shutterstock.com

Hungary’s Euro-Atlantic Pivot

The perceived necessity of containing Soviet geopolitical expansion was raised in the United States to state policy level in 1947, when President Harry S. Truman announced to Congress what later became known as the Truman Doctrine.

Some of its elements are better known to history as the Marshall Plan, a pledge of economic assistance for European countries willing to participate, and Radio Free Europe/Radio Liberty, an alternative to the socialist propaganda-dominated press in the Eastern bloc countries.

The doctrine also led in 1949 to the formation of the North Atlantic Alliance, or NATO. In response, the Soviet Union formed the Warsaw Pact in 1955.

The USSR left no doubt about its domination plans. Berlin had been separated into four zones, controlled by the Soviets, the Americans, the British, and the French. As tensions mounted, Stalin in June 1948 instituted the Berlin Blockade.

His aim was to prevent food, materials and supplies from arriving in West Berlin.

The Western countries began a massive airlift to supply West Berlin, and Stalin gave up the blockade a year later. Also in 1948, the Communist Party of Czechoslovakia, with Soviet backing, seized power in the country with a coup that alarmed Western countries and accelerated the adoption of the Marshall plan.

Stalin died in 1953, which temporarily relaxed tensions, and with the formation of the Warsaw Pact in 1955, many in Eastern Europe hoped that the formal military alliance would satisfy the USSR in terms of its internal dominance. This hope proved to be very wrong.

Hungarians rose in 1956 against their Stalinist leader Mátyás Rákosi and demanded free elections, the withdrawal of Soviet troops, freedom of speech and a free press. Having initially withdrawn, the Soviet Army invaded the country and crushed the revolution.

Apart from historians and foreign policy scholars, possibly few people remember the Warsaw Pact, the Eastern bloc’s military alliance. While the demise of the Pact was inevitable, it was also crucial for Hungary’s Euro-Atlantic alignment.

Completed in 2004, the integration of Hungary into the Western European structures marked the end of a long road of negotiations and cooperation, to which parties from across the domestic political spectrum contributed.

Prague Spring BBJ STAFF

History is not without a sense of irony.

On July 1, 1991, the delegations of the Warsaw Pact (formally the Warsaw Treaty of Friendship, Cooperation, and Mutual Assistance) member states agreed on ending

the military-political cooperation of the former socialist states.

The summit was hosted by Prague, the capital city of what was then still Czechoslovakia, where an emergent democracy had been ruthlessly crushed in 1948 by Soviet-backed communists in the Czechoslovak coup d’état and again in 1968 by the Warsaw Pact itself.

East German (GDR) postage stamp from 1985 celebrating 30 years of the Warsaw Pact, with the word “Frieden” (“Peace”) spelt out by the flags of the member states.

Photo by Mitrofanov Alexander / Shutterstock.com.

While the organization was formally created to protect the Socialist countries from an external military intervention, the Pact never had to counter such a threat. Instead, paradoxically, it was used against the member states it was supposed to protect.

At the end of World War II, European nations were longing for peace and reconstruction and for the wounds to heal.

But the decade that followed was far from it.

In the summer of 1945, the leaders of the USSR, the United States and the United Kingdom gathered at Potsdam to decide how to administer defeated Germany, establish the postwar order and counter the effects of the war.

The Potsdam Conference seemingly ended in a positive tone, but this did not last long. Distrust developed quickly between the communist bloc, dominated by the USSR, and the Western world. By 1946, the terms “Cold War” and “Iron Curtain” had been coined.

In 1968, Czechoslovakia suffered a similar fate: a period of political liberalization, dubbed the “Prague Spring” ended in August, when the Soviet Army invaded the country, together with most of its Warsaw Pact allies.

(Albania, which withdrew from the pact that same year, and Romania refused to join, Yugoslavia was never a member and did not participate; Hungary, however did send troops.)

If this historical retrospective seems lengthy, it is necessary to understand the significance of the events that had developed in Eastern Europe after 1990, as well as the deep tensions and fears inflicted during decades of domination by the USSR. Most families in the region had relatives executed, imprisoned or deported to Soviet labor camps for merely expressing their desire for freedom. The precedents of the 1956 Hungarian Uprising and the 1968 Prague Spring were a long-lasting warning to all political leaders, who barely considered the idea of distancing themselves from the Kremlin.

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Budapest Business Journal | July 3 – July 16, 2020

As a compromise solution, NATO started what it called Partnership for Peace, a program intended to offer closer cooperation to these countries, but not yet membership.

Hungary joined the program in February 1994 and participated actively to NATO’s operations in Bosnia and Croatia within the IFOR (Implementation Force) multinational peace enforcement operation.

Hungarian troops contributed to rebuilding railroads, roads and bridges and demining former combat areas.

Hungary also contributed to NATO operations in Bosnia through making its logistical and air force bases available in Kaposvár and Taszár.

Hungary formerly declared its aim to join the Alliance in 1996 and a referendum to win public backing was held the next year, with a turnover of 49.2% of all voters. The approval rate was an overwhelming 85.3%.

In 1999, NATO integrated its first new members from the former Socialist bloc: Hungary, Poland and the Czech Republic.

Following integration, Hungary actively participated in NATO operations: as part of the KFOR deployment in Kosovo (1999), in Afghanistan (from 2003) and Iraq (2004), as well as in EU and NATO operations in Lebanon, Cyprus, Congo, Uganda and the Sinai Peninsula.

A weak point in the Hungary-NATO relations has been meeting the requirement to spend 2% of its GDP on defense (a failing common to many members). Hungary has still not reached this amount yet, but it has pledged to do so by 2024, and the government of Viktor Orbán has increased military spending.

While NATO is primarily a military alliance, and membership has greatly helped to modernize Hungary’s armed forces, the gains extended beyond that. For historical reasons (not least the 100-yearold Trianon peace treaty signed at the end of World War I), large Hungarian communities live in neighboring countries and NATO puts a great emphasis on strengthening democracy and protecting minority rights.

Brezhnev Doctrine

Dismantling the Warsaw Pact was only a matter of time, and that time came in July 1989. At a summit in Bucharest, the organization took the historical step of dropping the so-called Brezhnev doctrine, which had been the basis of the invasion of Czechoslovakia in 1968, and recognized the right of members to pursue their own policy.

The final blow for the Pact was the reunification of Germany in October 1990, which meant relinquishing the German Democratic Republic (the GDR or East Germany) to the much-loathed West.

On February 12, 1991 Moscow declared that it would end the Pact by April 1.

The withdrawal of the Soviet troops from Eastern Europe began, and was completed in Hungary on June 19 (see our June 5 issue for more on this).

The final act was set for July 1st, in Prague. Closing the Warsaw Pact also meant the end of the Cold War and the defeat of the USSR. As a last gesture, the Kremlin called on Washington to end NATO as a reciprocity, a call unsurprisingly ignored by Washington. Within a few years, all the members of the Warsaw Pact had been incorporated into NATO. For Hungary, the drive to join NATO was given impetus by the bloody disintegration of Yugoslavia (a process that had begun with the death of Tito in 1980) into its constituent republics: Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia.

The wars in its immediate vicinity came at the worst possible moment for Hungary, with defense at minimal levels. The economy and state finances were close to bankrupt, the military equipment obsolete.

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Thus, Hungary has had a stronger influence in promoting the rights of Hungarian minorities in bilateral relations.

On the other hand, countries which were not included in the first wave of enlargement (Romania, Slovakia) needed to rely on Hungary’s support in their goal to join the Alliance.

Magic Wand

Together with NATO enlargement, Eastern European states had one other major goal: joining the European Union. While NATO membership was a clear issue (a shield to protect from foreign intervention), the EU was a rather different story.

Some regarded it as a magic wand that would bring immediate prosperity and Western European standards of living, Mercedes cars and trips to Paris. Others were deeply suspicious, regarding the EU as a ruthless space where poor newcomers would be stripped of their independence and what assets they had left after communism.

Be that as it may, it was a generally accepted idea that joining the EU would repair a historical injustice that had thrown the Eastern European countries behind the Iron Curtain into a system that they never wanted and never fully belonged to.

Official relations between Hungary and the EU, at that time known as the European Community, began as early as 1988, when diplomatic ties were established. After it gained independence, Hungary pursued membership, officially applying for it in 1994.

A major step from the EU side was the European Council summit in Madrid in December 1995, where the participants declared that enlargement was both a political necessity and a historical opportunity for Europe. The summit also stated that membership applications would be carefully studied and approved only if economic and general political development conditions were met.

In the next two years the European Commission reviewed the reports of the 10 candidate states and recommended starting accession negotiations with Hungary, among others.

The negotiations were closed in 2002, and the next year a referendum on accession was held with a turnover of 45.6%, of which 83.7% voted in favor of joining the EU. The first wave of enlargement was formally completed on May 1, 2004.

Benefit Gained

Source: AMECO. Note: 2010 as baseline year

2000 2018

E s 28 to ni La a Li t vi th a C z uan e c ia h R H ep un . ga Po r y l S l and ov e S l nia ov a B u k ia lg R o a r ia m an N C r ia .M o ac ati M ed a on on te ia ne gr Se o rb A l ia ba ni a

Compromise Solution

Gross Domestic Product per Capita, in Purchasing Power Standard in thousand €

NATO membership was not in sight.

While the Yugoslav wars did not reach Hungarian territory, it became obvious that neutrality or any other loose form of military alliance were not a viable option for Hungarian defense.

NATO membership therefore became crucial, but NATO had its own problems.

With the disappearance of the bipolar East vs. West world order, asymmetrical threats emerged and the Alliance had to reshape its strategy and resources. But it was also obvious that integration of former Socialist countries was inevitable.

EU

Only two leaders reached a relative independence: Josip Broz Tito in Yugoslavia and Nicolae Ceauşescu in Romania.

The Warsaw Pact had been renewed in 1985 for 20 years, but history, as it so often does, stepped in. Hard line Soviet leader Leonid Brezhnev died on November 10, 1982 and was briefly succeeded by former KGB hardman Yuri Andropov (November 12, 1982-February 9, 1984) and then, even more briefly, by Konstantin Chernenko (February 13, 19-March 10, 1985).

Eventually, the baton was passed to Mikhail Gorbachev, who inherited a declining economy, and found he was unable to finance military operations and equipment upgrades any more. He started negotiations with the United States to reduce both the nuclear arsenal and the number of Soviet troops stationed in Eastern Europe. He also started the withdrawal from Afghanistan.

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You might not realize it from some of the rhetoric, but accession proved beneficial, even if results did not emerged from day one, as some hoped for.

A conference held by the European Commission on the occasion of the 15th

anniversary of the enlargement presented data on how countries had performed during this period (the full report can be accessed on ec.europa.eu).

The most commonly used indicator, GDP per capita, rose in the new member states on average by 250%: by 2018, all of them had reached 70% of the EU average economic development level.

In the case of Hungary, the rise is spectacular: while in 2004 the GDP per capita was somewhat more than EUR 10,000, by 2018 it had reached EUR 22,000. Labor productivity and real compensation per employee (salary) also rose significantly in Hungary, but the real gain is visible in the labor market activity rate of those 20-64 year olds, 77% in 2017.

From 2017 onwards, things got more complicated, especially with the United Kingdom’s decision to leave the EU. But that is a different story.

Euro-Atlantic Timeline • May 8, 1945 Victory in Europe • August 15, 1945 Victory over Japan • September 2, 1945, Surrender ceremony onboard U.S.S. Missouri marks the official end of World War II • April 4, 1949 Formation of NATO with signing of North Atlantic Treaty • May 14, 1955 Formation of the Warsaw Pact • 1991 End of the Warsaw Pact; beginning of the Yugoslav Wars • 1994 Hungary joins the NATO Partnership for Peace program, applies for EU membership • November 16, 1997 Hungarian referendum on NATO accession, 85% approval • March 12, 1999 Accession of the Czech Republic, Hungary and Poland to NATO • April 12, 2003 Referendum on EU accession, 83% approval; the second Iraq war • May 1, 2004 Hungary joins the EU