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BUSINESS JOURNAL BUDAPEST

VOL. 29. NUMBER 1

JANUARY 15 – JANUARY 28, 2021

SPECIAL REPORT

Year Ahead

SPECIAL REPORT

Vaccine Rollout key to Rate of Recovery Following the deep lows the global and Hungarian economies experienced last year due to the coronavirus pandemic, 2021 will see a return to growth, analysts say. Still, it will take a while for the economy to get back onto its feet, and even longer to return to pre-COVID prosperity levels. 10 SPECIAL REPORT

Analysts Look to 2021 for Recovery in Real Estate Markets Real estate editor Gary Morrell speaks with market professionals operating in Hungary about the prospects for the development and investment markets after a difficult 2020. 14

Building Back Better

SOCIALITE

Bringing Back the Ancient Bubbles A tempting tonic for the most part gloomy, curfew-enclosed January and a way to keep the bubbles flowing, while also trying something hip and happening and realizing your New Year resolution to keep up with trends, could be presented by Pét-Nat. And you can even find it here in Hungary. 19

NEWS

Industry was Back on its Feet by Yearend The latest industrial data suggests the sector contributed to the Hungarian economy to a greater extent than previously thought. At the same time, however, the World Bank has lowered its prognosis for 2021 GPD growth for the country. 3

N ES BUSI

In his first exclusive sit down interview with the BBJ, “new” British Ambassador Paul Fox is confident the bilateral trade relationship between Hungary and the U.K. can only get better, as he urges Brits living here to apply for new residence status.7

BUSINESS

COVID Helps Insurance M&A, Hurts Banking Mergers in CEE Mergers and acquisitions activity and competitiveness in the CEE insurance market appears to have remained undimmed in 2020 by the uncertainties around the coronavirus pandemic, Deloitte says. 6

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News

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Budapest Business Journal | January 15 – January 28, 2021

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL CONTRIBUTORS: Kálmán Béres, Zsófia

Czifra, Kester Eddy, Bence Gaál, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Gergely Sebestyén, Robert Smyth, Zsófia Végh. LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

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The American political scientist Francis Fukuyama may well have been wrong (or at the very least premature) when he first posited the question “The End of History?” in 1989. But those of us who glibly reckoned 2021 could not be any worse than 2020 may have some reevaluating of our own to do. Whether it is roads turned into ski slopes in Madrid, the rising number of COVID patients (and deaths) threatening to overwhelm Britain’s National Health Service, or the jaw dropping Capitol Hill riot in the United States, it has been a tumultuous start to the year. The disturbing progress of the pandemic in the United Kingdom, complete with its own, highly infectious Kent variant of the coronavirus, invites us to draw a parallel between the differing approaches of Prime Ministers Boris Johnson and Viktor Orbán. Critics of the British leader claim that the Johnsonian approach is to always seek out the positive, but add that he finds it very hard to make difficult decisions. The handling of the postChristmas start of term (he urged parents to send their children to school on an influential Sunday morning talk show, but the very next day announced lessons were to move online with immediate effect) will have done little to undermine that point of view. There is no such apparent indecision from Orbán, of whom German Chancellor Angela Merkel once remarked that he gave the impression of having an unshakeable faith in the correctness of his own views (I paraphrase, but that was the gist of it). In his weekly interview on Kossuth Rádió, the Hungarian

PM announced that restrictions brought in to contain the spread of the coronavirus back in November would again be extended, this time at least until February 1. So the evening curfew remains and secondary school students in grades 9-12 will continue their education online. Pointedly, Orbán remarked that Hungary had taken a different approach to pandemic restrictions than countries in the West, where measures have changed from week to week. “We didn’t take that path, because we thought that predictability builds confidence,” he said. “Predictability is at least as important as efficiency.” The approach may not be particularly nuanced, but it does mean everyone knows exactly where they stand, while we wait for the roll out of the vaccines (one area where the United Kingdom does seem to be leading the way). The link between the vaccine and the recovery is a theme you will read time and again in this issue of the Budapest Business Journal, whether in our round up of analysts’ predictions for the year ahead in the economic, real estate and labor markets, or our annual wish list from the great and the good. It is a theme that will be ever present at least until Easter, I would guess, though we will try not to bore you with it issue after issue. So, yes, 2021 has come in with a bang, but these are early days in which to write off an entire year. Whatever your wish for 2021, I hope that you stay safe, and that all our businesses prove resilient and prosperous. Robin Marshall Editor-in-chief

Photo by MTI/Márton Mónus

Photo by Fortepan.hu/Rita Lovas

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2021 MAKES EARLY BID NOT TO BE OVERSHADOWED

THEN & NOW

Police officers patrol Budapest on foot on New Year’s Eve 2020 along streets emptied by the night curfew to help keep coronavirus infections at bay. In the black and white image from the Fortepan public archive, the New Year celebrations from 1933 remind us of times when social distancing was not a primary concern.

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Budapest Business Journal | January 15 – January 28, 2021

News///macroscope

Industry was Back on its Feet by Yearend

The latest industrial data suggests the sector contributed to the Hungarian economy to a greater extent than previously thought. At the same time, however, the World Bank has lowered its prognosis for 2021 GPD growth for the country. The same report also finds this year’s global economic outlook is rather uncertain due to the various possible scenarios raised by the pandemic. ZSÓFIA CZIFRA

The volume of industrial production grew by 3.5% year-on-year in November 2020 according to crude data released by the Central Statistical Office (KSH), up from the 0.6% year-on-year increase registered in October and beating market expectations of 3.3% growth. Based on working-day adjusted data, production rose by 1.6%. The decrease was

1.2% compared

to the previous month according to seasonally and working-day adjusted data. The manufacture of transport equipment, having the largest weight in the sector, as well as the manufacture

Industrial Production in Hungary, 2001-2020 (January-November)

depending on which companies will be the losers and the winners of the pandemic situation. He also noted that December’s industrial data, expected to be released on February 5, will mainly be influenced by the length of the yearend halts in production, while in 2021, the external environment and the post-pandemic recovery will shape the industrial output.

No Worries

Source:

of computer, electronic and optical products increased. However, production volume dropped in the majority of the manufacturing subsections, with declines also recorded in the manufacture of food products, beverages and tobacco products. When looking at the nearly full year data for industrial production, it unsurprisingly reflects the negative effects of the coronavirus pandemic: in the first 11 months of the year, production was 7% lower than in the same period of 2019. The data does show an encouraging tendency, though: industrial production in November (according to seasonally and working-day adjusted indices) grew by 63% compared to the nadir of April.

Stabilization

In the fourth quarter of 2020, industrial output seemed to have stabilized and may have slowed down the GDP contraction, analysts commented on the KSH data. Industrial production contributed a 4.2 percentage points deterioration to the annual growth rate of the Hungarian economy in the second quarter of 2020, and 0.4% in the third quarter. Stabilization of Hungary’s industrial sector could continue in the coming months, said Takarékbank’s head analyst Gergely Suppan. Production was able to increase on an annual basis in the fourth quarter of 2020, partially

due to the lower base of the previous year, partially due to the calendareffect, he emphasized. Thus, industry is likely to contribute to annual GDP growth by as much as one percentage point in Q4 2020, he said, adding that this will significantly moderate the setback caused by the restrictions introduced in the second wave of the pandemic. He added that delayed consumption also shows in the latest data, so he expects a gradual livening in industrial production in the coming months, which is also supported by deploying new capacities in the near future. While the annual decrease might have been around 5.5-6% in 2020, this year, due to the low base effect and the new capacities, an increase

14-16%

is not impossible, he said, adding that this might mean a contribution of more than three percentage points to GDP growth in 2021. Industry has put its worst period behind it, opined Gábor Regős, head of the macroeconomics division of thinktank Századvég Gazdaságkutató. He also noted that the effects of the second wave was not as severe as those of the first in the spring. However, he thinks that a rearrangement among the subsectors of industry is likely to happen,

Although industrial production decreased on a monthly basis in November, there is no reason to worry, commented ING Bank head analyst Péter Virovácz. However, he added that in the fourth quarter of the year, Hungary’s GDP might have contracted compared to Q3 as, in spite of the better-performing industry, the suffering service sector could have seriously impacted economic growth in 2020. In the meantime, the World Bank has released its global economic outlook for 2021, in which it cut its GDP forecast for Hungary. The bank now expects GDP here to grow by 3.8% in 2021, down from the 4.5% expansion it predicted last June. For 2020, Hungary’s GPD is estimated to have fallen by 5.9% according to the organization, which would be a 0.9% percentage point bigger drop than it earlier said. As for 2022, the organization predicts

4.3% GDP

growth for Hungary. The World Bank said that economic activity in Europe and Central Asia (ECA) is estimated to have contracted by 2.9% in 2020 in the wake of the disruptions related to the COVID-19 pandemic. Economies with strong trade or financial links to the euro area and those heavily dependent on services and tourism have been hardest hit. Due to a resurgence of COVID-19, the pace of recovery in 2021 in the region is projected to be slower than originally anticipated, at 3.3%. Growth is then expected to rise by 3.9% in 2022, as the effects of the pandemic gradually wane and the recovery in trade and investment gathers momentum.

Numbers to Watch in the Coming Weeks November construction data is release on January 14, and the KSH will also publish inflation figures for December and for the entire 2020 on the same day. On January 15, we will find out how the heavily impacted tourism sector performed in November.

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News

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Budapest Business Journal | January 15 – January 28, 2021

Restrictions Extended, Vaccination Registrations Increasing Hungary will extend restrictions in place to contain the spread of coronavirus until February 1, Prime Minister Viktor Orbán said in a weekly interview on Kossuth Rádió on January 8. An evening curfew will remain in place and students in grades 9-12 will continue their schooling online, Orbán announced. Hungary introduced its curfew between 8 p.m. and 5 a.m. early in November. NICHOLAS PONGRATZ

More than one million Hungarians have registered for COVID-19 vaccinations, State Secretary Csaba Dömötör said in a message posted on his Facebook page on January 6. Dömötör explained

Coronavirus ///roundup hu. Hungary will get 3,600 doses of the Moderna vaccine, Galgóczi said. She added there is “no real difference” between the two vaccines; the BioNTech/ Pfizer vaccine is being delivered weekly, while shipments of the Moderna vaccine will arrive biweekly. Hungary is expecting to get 1.744 million doses of the Moderna COVID-19 vaccine, enough to inoculate 872,000 people. To date, nearly 21,000 healthcare workers have been vaccinated at the

vaccination

Chief Medical Officer Cecília Müller receives her Pfizer-BioNTech vaccine against coronavirus from Róbert J. Bedros, head physician and general director of Szent Imre University Teaching Hospital, in Budapest on January 13, 2021. MTI / Zoltán Balogh that 632,000 people have put their names forward via the vakcinainfo.gov. hu website and another 391,000 have registered by post. Vaccination not only protects against disease, but also against fear, said János Szlávik, chief infectologist of the South Pest Central Hospital on the news channel M1. As time goes on, more and more people will want to vaccinate themselves, the expert said. As the number of new coronavirus infections and deaths from the disease have been declining for several days, the chief physician reminded people to continue to be careful, adhere to protective measures, and wait for the vaccine.

Deliveries of the COVID-19 vaccine developed by BioNTech and Pfizer have been arriving steadily since

10,000 doses

were first delivered on December 26. A second delivery with 70,000 doses arrived on December 30, and another 39,000 doses arrived on January 5 and 12, according to koronavirus.gov.hu.

Moderna Arrives

Hungary received its first delivery of the Moderna vaccine on January 12, Ágnes Galgóczi, the head of the pandemic department of the National Public Health Center (NNK) said at a press briefing, according to koronavirus.gov.

points currently in operation, the Chief Medical Officer Cecília Müller said at an online press conference given by the Operational Corps responsible for fighting the coronavirus epidemic, according to koronavirus.gov.hu. In accordance with the vaccination plan, in addition to vaccinating healthcare workers, the workers and residents of nursing homes have also been receiving inoculations, the Coronavirus Press Center informed state news agency MTI. A Chinese COVID-19 vaccine could be available sooner and in greater quantities than another one being developed in Russia, Prime Minister Viktor Orbán said in an interview on Kossuth Rádió on January 3. “We know that the Russian vaccine is good, but there isn’t enough and there probably won’t be enough because there are production capacity limitations,” he said. Hungary will get millions of doses of COVID-19 vaccine under a joint European Union order from pharmaceutical companies in the West, but it has also looked into getting vaccines being developed in Russia, China and Israel.

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WHO’S NEWS

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

a cohesive approach at the same time. Property management is such a diverse service, covering everything from technical, financial, and marketing tasks to continuous supervision of building services and energy efficiency operations to dedicated on-site staff.” She continues, “Our proactive and tenant-focused building management aims to deliver the most optimal operation solutions. The best feedback for us is if tenants simply feel comfortable in the building and are happy to stay in the long run. The many lease extensions recently signed are the best feedback on our work.”

Telenor Hungary Announces Peter Gazik as CEO Peter Gazik took over as CEO at Telenor Hungary from January 1, 2021, according to a press release sent to the Budapest Business Journal. In the past five years, Gazik acted as CEO of O2 Slovakia. He takes over as CEO of Telenor Hungary from Jan Hanus who had led the company since July 2018. “I would like to thank Jan Hanus for his efforts and his excellent job on the Hungarian market, turning Telenor into a dynamically growing mobile operator. It is also my privilege to welcome Peter on board. He comes as an experienced successor to continue in further strengthening Telenor’s growth in the future,” said Ladislav Bartonicek, PPF Group shareholder and CEO of PPF Telecom Group.

Peter Gazik “I am determined to lead the team of Telenor Hungary to continue its momentum. I believe that my leadership style, experience from other markets, creativity and dedication will strongly contribute to our future success on the Hungarian market,” added Gazik. Commenting on his successor’s appointment, Hanus said, “I took over the company in a rather challenging situation with the ambition to turn Telenor’s wheel to the right direction. With the momentum the company has gained upon till now and with the current great team at Telenor, I’m happily passing the baton to Peter and wish him good luck and lots of success in writing the next chapter of Telenor Hungary.”

PwC Hungary Names 3 Partners Csaba Zeley division for the last five years. His contribution to the success of ConvergenCE as we celebrate over 15 years in business is unquestionable and I have full confidence in his ability to lead the Hungarian business in the future.” Zeley himself added: “I’m very honored by the appointment and the trust placed in me. ConvergenCE will strengthen its in-house investment and development businesses in future whilst continuing its boutique asset, property, facility and project management services to select international building owners in Budapest.” Vincent will continue as a non-executive director, leading fundraising for future investments as well as pan-European service provision to cross border investors.

PwC Hungary has announced the appointment of three new partners: Barbara Koncz, Gábor Farkas, and Peter Durojaiye, effective from January 1, 2021. Koncz and Farkas will serve in their new roles in the tax advisory service line, while Durojaiye will bolster PwC Hungary’s risk assurance and cybersecurity services team.

ConvergenCE Appoints Head of Property Management Real estate investor and developer ConvergenCE announced that it has recently put Bernadett Zádori in charge of its property management business line. She has taken over the position vacated by the retirement of Gabriella Fábri in the summer of 2020.

Csaba Zeley Made Managing Director of ConvergenCE Property investor and developer ConvergenCE has announced that, from December 2020, Csaba Zeley has taken on the position of managing director, replacing Alan Vincent in the role. Vincent, the founder of ConvergenCE, said, “Csaba has been a member of the ConvergenCE team since 2008. He has taken on increasing responsibilities in recent years, including successful leadership of the asset management

News | 5

Bernadett Zádori Of her appointment Zádori notes, “In addition to buildings, their design and technical content, the real estate industry is primarily based on people and their needs. It’s about paying attention to the smallest details and

Barbara Koncz Barbara Koncz joined PwC Hungary’s tax advisory service line in 2008. Her major area of expertise is value-added tax advisory. She has also gained significant experience in the field of direct state aid and services concerning research and development. She has set up and continues to lead a team of R&D experts, who help clients prepare R&D classification applications and claim cash subsidies and tax incentives. From 2021, she will assist clients as a partner responsible for VAT services in the company’s indirect tax team, and will lead the state aid and research and development teams. In recent years, she has played an active role in conducting PwC Hungary’s CEO Survey and publishing its results. The expert graduated from Eötvös Loránd University’s Faculty of Law, and she earned an undergraduate degree in economics from Széchenyi István University. She is a certified tax advisor. Gábor Farkas has been a tax expert at PwC Hungary’s tax advisory service line since 2008. Specializing in value-added tax, he has assisted local municipalities, as well as Hungarian and multinational companies in managing their tax matters and tax disputes.

Gábor Farkas After returning from a posting in Munich, he set up a new tax consulting team in PwC’s Budapest office. He is also active in the Hungarian startup ecosystem and has assisted several innovative companies in their market entry. As partner, Farkas will lead PwC Hungary’s indirect tax team, which includes the unit responsible for smart tax solutions, as well as tax advisory teams focusing on VAT, customs duty, and other indirect taxes. Farkas’s portfolio also includes supporting the firm’s innovation and digitization efforts. He obtained his MBA from the Budapest University of Technology and Economics, and is a certified public accountant and tax advisor. Peter Durojaiye joined PwC’s cybersecurity and privacy consulting practice in California in the United States in 2006. Durojaiye, who has Hungarian and U.S. citizenship, returned to Budapest in February 2018 after 20 years. As regional director for the cybersecurity field, he worked to make the Hungarian firm’s cybersecurity strategy competitive on the international market, in line with the strategy of the CEE region. He was appointed to lead PwC’s Global Cyber Impact Center for Europe, the Middle East, and Africa in 2018. As partner, he will continue to play a leading role in developing cybersecurity and privacy expertise in the EMEA region. He earned a BS in Computer Engineering and an MS in System Engineering at the University of California, Los Angeles (UCLA).

Peter Durojaiye

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Business

COVID Helps Insurance M&A, Hurts Banking Mergers in CEE

Mergers and acquisitions activity and competitiveness in the Central and Eastern European insurance market appears to have remained undimmed in 2020 by the uncertainties around the coronavirus pandemic. CHRISTIAN KESZTHELYI

The bank sector M&A market will undoubtedly see a negative impact on its performance, however, once the final figures of 2020 are confirmed, two Deloitte surveys published at the end of 2020 show. In 2019, the insurance sector’s total premium income in the CEE region continued to grow, while the life insurance business’ years-long downward trend was also reversed. Fueled by sustained economic growth, the region’s total premium income grew by a further 6.3% in 2019, breaking the record gross premium income of 2018, according to the Deloitte CEE Insurance M&A Study. The expansion of the non-life business continued to drive growth. Simultaneously, the long-running downward trend in the life insurance business also turned positive, showing a modest 2.1% growth at the regional level in 2019. Average insurance premium penetration (the ratio of gross world product or GWP to GDP) remained virtually unchanged in all

countries

in the CEE region in 2019, at around 2.4%, while average annual premium

income per capita rose by 6.4% to around EUR 348 in 2019. The top 10 life insurance groups in the region share 75% of the regional market’s premium income. Typically, such a group has a presence in five or six countries, generating a total premium income of around EUR 929 million. In the non-life business, the top 10 groups account for 69% of the premium income, generating an average total premium income of EUR 1.809 billion. As several international insurance groups started reviewing their regional presence and considering their possible exit in 2020, industry players experienced unprecedented volumes of transactions, Deloitte says based on its figures.

transactions closed and three pending. Meanwhile, other significant buyers included the Canadian Fairfax Group, Generali, Euroins, Uniqua, and Allianz.

Transactions

“In 2020, thanks to large international groups reviewing their regional presence and significant players continuing to strengthen their market presence, insurance transactions continued despite the pandemic-dominated environment,” said Zsolt Vajda, director at Deloitte Hungary. In terms of the number of transactions in the period covered by the study (November 2015-2020), the CEE region’s most active market was Poland with 17 transactions, followed by the Czech Republic

Zsolt Vajda France’s AXA sold its Polish, Czech and Slovak interests for EUR 1 bln to Austria’s Uniqua, while the Dutch Aegon sold its Hungarian, Polish, Romanian, and Turkish portfolio to VIG

for

EUR 830 mln.

Balázs Bíró (14), Hungary (nine), Romania and Bulgaria (with seven each). The Austrian VIG Group was the most active buyer in the region with 10

“The regional insurance market consolidation is expected to continue in the sector in the coming years,” Vajda says. But while the insurance market was busy, banking M&A is seen as facing some severe challenges. In 2019, CEE banks had performed outstandingly well in a stable macroeconomic environment before the COVID-19 pandemic reversed the favorable upward trend in 2020, reducing banks profitability and capital adequacy prospects, the Deloitte CEE Banking M&A Study 2020 finds. “In such circumstances, which negatively affect bank profitability and capital position, smaller and less stable players may not be able to meet the challenges [caused by the economic repercussions of COVID-19] alone,” says Balázs Bíró, managing partner for financial advisory services at Deloitte Central Europe.

Opportunities

“Stability, resilience to negative effects, economies of scale and operational efficiency will be even more important

than before. As a result, larger, more diversified banking groups are expected to have the opportunity to make selective acquisitions,” Bíró adds. In terms of the number of transactions, the most active regional markets between September 2019 and September 2020 were the Baltic countries and Serbia (with six transactions each), the Czech Republic (three transactions) and Romania (also three transactions). The most active buyers in the region were Hungary’s OTP Bank and the KBC Group (with three acquisitions each). The most active sellers were Société Générale (four transactions), Danske Bank (two transactions completed and a third ongoing) and Piraeus Bank (two transactions). In 2019, the capital adequacy ratio remained stable, averaging 20%, an increase of 0.2 percentage points when compared to 2018 in the region. Average profitability was also durable, with a

12.7% return

on equity and a 1.5% return on assets. In most of the countries surveyed by Deloitte, profitability ratios remained unchanged or declined slightly. Nevertheless, the high level of profitability is expected to decrease due to the challenges posed by COVID-19.

“Stability, resilience to negative effects, economies of scale and operational efficiency will be even more important than before. As a result, larger, more diversified banking groups are expected to have the opportunity to make selective acquisitions.” “Based on our recent consultations with banking sector leaders, we see that market players are waiting to see the real effects of the COVID-19 crisis before starting to phase out moratoria gradually,” Bíró added. He also noted that the pandemic’s real damage could only be assessed later, possibly leading to further consolidation in the CEE banking sector.

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Budapest Business Journal | January 15 – January 28, 2021

DI PLOM AT IC A L LY SPE A K I NG : B R I T I SH A M B A S S A DOR PAU L FOX

Building Bilateral Success Post-Brexit Britain’s first postBrexit ambassador to Budapest, Paul Fox, insists the United Kingdom’s new status outside the EU will not harm bilateral relations with Hungary. If anything, he says he expects trade to grow.

Balkans Cooperation

“One area where we are keen to work together is the Western Balkans. Hungary has a lot of knowledge and direct experience of the Western Balkan. We have as well, but from a different perspective, and we both share the same aim, which is

we can work together. One area has been smart cities; we see smart cities as a way to advance the climate agenda. Just before Christmas, I signed an MoU [memorandum of understanding] between Paks, the town where the nuclear power plant is, and Milton Keynes on collaborating on smart city initiatives,” Fox says. “I do see that as being a real area of development, whether it be things like smart cities or renewables, and also pushing towards a carbon-free future. [.…] I do see this as a key area which will underpin or develop the bilateral relationship between the U.K. and Hungary.” The ambassador insists the relationship will be robust. If there is a need to raise an issue, it will be done, but not in public.

“I don’t think megaphone diplomacy works. If there were to be disagreements, you talk to each other openly, honestly and, more often than not, privately.”

ROBIN MARSHALL

“We Brits have always prided ourselves on being a free trading nation; we see that as a path to prosperity,” he tells the Budapest Business Journal in an exclusive interview. “I do not think our departure from the institutions of the European Union, from the Single Market, the Customs’ Union, should stop the development of a stronger trading relationship between our two countries, because there are plenty of opportunities on both sides.” Fox took up his position as ambassador in September 2020. He says there are three pillars to developing the new relationship, building of long years of cooperation: Commerce and trade; defense and security; and people-topeople connections. There are many areas of obvious connection between the two countries. Both remain members of NATO, for example, and, although the precise nature of the relationship has changed, Europol is another point of contact. “There is also the broader national security, what you can call Pol-Mil, type of cooperation. In the short time I have been here, our relationship with the defense ministry has developed substantially,” Fox says.

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British Ambassador Paul Fox maintaining stability in that region, because it still remains fragile.” That is more than just a strategic geo-political point of view, however. Fox jokes that his diplomatic career can be summarized as “conflict and commerce”, with Iraq and Afghanistan featuring prominently in the former column. But the ambassador’s earliest appointments were as a research assistant (1987-88) and then desk officer (1988-90) for Yugoslavia. “I have spent a fair amount of my career working on the Western Balkans, so it is something in which I am personally interested.” Hungary has always argued the former Yugoslav states should be allowed to join the EU as soon as possible. What is the British position, does it think these countries should join a bloc it has just left? “It is not for us to say who should and who should not join the EU, but what I can say, based on my own previous experience, is that the prospect of joining the European Union has helped those countries in the Western Balkans move away from conflict,” Fox explains. “If it is about underpinning stability, underpinning peace and encouraging prosperity, that type of European perspective cannot do any harm.”

Climate Agenda

The commercial and trade pillar on which the ambassador plans to build his approach is most obviously represented by high profile British companies already present in Hungary such as Tesco, Vodafone, BP, and Shell. A perhaps less obvious area of cooperation, but one that will certainly become ever more important, is the climate agenda. Environmental issues have long been an area of particular interest for Hungary’s President János Áder, but the ambassador says it goes further than that. “A broad range of people in the Hungarian government see this as an area where they can make an impact. They can lead the V4 region. They are going to hold the presidency from July; they see this as an opportunity to raise Hungary’s profile and they have done a lot of good work.” The United Kingdom will host COP26, the 26th UN Climate Change Conference, in Glasgow from November 1-12 this year, and has recently set highly ambitious targets of reducing its carbon footprint by 68% from 1990 figures by 2030, but the embassy has been pursuing green issues in Hungary for several years. “We have been talking to them [the Hungarian government] about where

“It is not for us to lecture Hungary. We are ‘sovereign equals’, to use a phrase that is fashionable at the moment. [….] My job as a diplomat is very straight forward: it is to promote, project and protect British value and interests. I don’t think megaphone diplomacy works. If there were to be disagreements, you talk to each other openly, honestly and, more often than not, privately,” he says. The ambassador’s third pillar is people. There are 112,000 Hungarians registered in the United Kingdom, although guestimates for the real total vary from 200,000-300,000. No one knows for sure how many British citizens live in Hungary, but there are an estimated 5,000 registered. Those who were here officially prior to December 31, 2020 now have until the end of this year to register for new, permanent status under a law the Hungarian parliament passed in December. The new arrangements will also cover areas such as healthcare and driving licenses. “I think the key message is that there is now a process, it is straightforward, I would urge them [British citizens] to engage with it and regularize their situation here.”

British citizens looking to register in Hungary can find more information at the embassy’s Living in Hungary page (www.gov.uk/guidance/ living-in-hungary) or the Permanent Residence Card page of the Hungarian National Directorate-General for Aliens Policing website (bmbah.hu)

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Business

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Is the Global Financial System Unstable?

While we should enjoy good financial markets while they last, we should also look around the corner at possible risk factors, particularly systemic risks. If a system is unstable, any number of triggers could cause the financial system to unravel, precipitating a recession or depression. This article summarizes five sources of systemic instability.

High Debt

Photo by Patrick Daxenbichler / Shutterstock.com

The good times seem to be rolling: stock valuations have defied gravity and interest rates have plummeted. The world is awash with liquidity. Financial markets seem to be in a sweet spot; not even a major pandemic could derail markets. Columnist Les Nemethy looks at what might be the downside risks.

The Corporate Finance Column ability to maintain global reserve currency status for the dollar, as investment strategist Lyn Alden argues in a December 6, 2020 article called “The Fraying of the US Global Currency Reserve System.” The weakness of the dollar as a reserve currency is a global risk, because “treasuries are the biggest component of most countries’ foreign-exchange reserves,” Alden writes. Many countries are now attempting to diversify their reserves away from the U.S. dollar, which in turn risks accelerating the decline.

Derivatives

ratio. Currently, the U.S. ratio is 72% over its historic average, higher than ever before, including before the 2008 crash, says currentmarketvaluation. com. Most other metrics, such as price/ earnings ratios and CAPE ratios, are also frothy. Historic highs have typically been followed by crashes and multi-year periods where investor returns are low. Today, investors have reason be skittish, and may well opt to divest on signs of weakness and lock in gains. There is a case that low interest rates may actually justify astronomic valuations. But what if interest rates start rising, say due to resurging inflation? Many governments and corporations would default, creating a wave of bankruptcies, triggering a recession or depression.

Global debt has increased at an accelerating rate to USD 277 trillion, some 364% of global GDP, according to axios.com, higher than any time since World War II. The quality of debt has Central Banks diminished, with the percentage of total Central banks have been buying massive debt denominated as junk increasing amounts of bonds, driving interest rates from 33% to 36% during the past year down. Hence, investors must invest in alone, according to msn.com; during the pandemic, this trend is likely to continue. higher risk securities in order to achieve High debt levels are inherently unstable, yield objectives. Lower interest rates diminishing resiliency to absorb shocks and encourage greater risk taking (higher debt levels, lower debt quality, etc.) increasing likelihood of default in the case When the next crisis comes, to right of interruption or diminution of revenues. the ship, far greater amounts of stimulus will be need than ever before. While Stock Valuations at stimulus will provide short-term relief, Historic Highs, Interest even the IMF admits “policymakers Rates at Historic Lows must weigh the pros of more stimulus Warren Buffet’s favorite indicator is today against the cons of higher financial the Market Capitalization to GDP stability risks in the future.”

Warren Buffet has famously called derivatives “weapons of mass destruction.” During the 2008 crisis, according to the Financial Crisis Inquiry The Fed owns an ever-larger share of treasuries. Other investors are becoming Commission, “the existence of millions of derivatives contracts of all types increasingly reluctant to invest in a treasury market so dominated by the Fed, between systemically important financial institutions – unseen and unknown constraining the government’s future policy options. Financing the deficit may in this unregulated market – added to uncertainty and escalated panic,” writes become increasingly linked to printing wallstreetonparade.com. money, potentially resulting in loss of In 2016, the IMF concluded that confidence, weakening of the U.S. dollar, Deutsche Bank’s links to other financial inflation, etc. institutions, as related to derivatives, Triffin Dilemma posed a greater risk to global financial Given that the dollar is the global stability than any other bank. In 2018, reserve currency, the United States DB still had USD 43 tln of derivatives. must constantly furnish the global In a nutshell, there are many instabilities. financial system with dollars, hence it Each of the five described above has must consistently run a trade deficit. No the potential not only to degenerate into matter how many “deals” Trump tried to vicious circles, but also to fortify each strike to reduce this, the U.S. deficit only other, creating a perfect storm. grew further. According to Didier Sornette, an ETF Economists have been writing for Professor, the collapse is fundamentally decades about the Triffin paradox, and due to the unstable position; the the resulting instabilities in the global instantaneous cause of the crash is financial system. Forty or 50 years ago, secondary. Unfortunately, after a crash, when the States accounted for 40% of the debate tends to focus on why no global GDP, 70% of world trade was in U.S. one saw the trigger. dollars, and the States was the world’s largest importer; then, America had the wherewithal to maintain the system. Les Nemethy is a former World Banker, Fast forward to today: the U.S. share of CEO of Euro-Phoenix Financial Advisers Ltd. (www.europhoenix.com), a Central global GDP has diminished to 24%, only European corporate finance firm, 37% of global payments are in dollars author of Business Exit Planning (with the euro catching up rapidly at (www.businessexitplanningbook.com) 33%), according to globaltimes.cn. As and a former president of the American U.S. dominance of the global economy Chamber of Commerce in Hungary. diminishes, so too does the country’s

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Business | 9

DI PLOM AT IC A L LY SPE A K I NG : M E X IC A N A M B A S S A DOR DAV I D NÁ J E R A

Giving Mexico a ‘Global Promotion’ in Hungary By the time you read this, the three-and-ahalf year posting of David Nájera as Mexico’s Ambassador to Hungary will have come to an end. While the last year, conducted under COVID-compliant restrictions, is not as he would have wished it, he says the bilateral relationship is in a good place, and will surely strengthen further once something like normalcy returns. ROBIN MARSHALL

“There is a growing trend,” the ambassador tells the Budapest Business Journal in an exclusive interview at the residence just before Christmas, albeit one also attended by his dog, Bruno. “We are the second partner in the Americas, just after the United States, for Hungary.” It is a statistic that surprises some, Nájera agrees. Hungarians are generally aware of the cultural importance of May 5, Cinco de Mayo (although they might not know Independence Day is actually September 16), and Día de los Muertos (Day of the Dead), but the scale of bilateral trade is less well known. “We are around USD 1.65 billion, which is much more Hungarian exports than Mexican imports,” the ambassador explains. “What we can see is a constant growth, which is much more related to the efforts of the entrepreneurs, the companies, than the governments. The governments have, of course, been providing the framework, but it is much more [down to] when the people discover the convenience to export to that market or this market. In that sense, the main work to do for both parties, is to help the business community discover one another.” That discovery should also be seen as opening a door, the ambassador says. Mexico’s most significant economic relationship is with the United States to the north; for Hungary it is the European Union in general, and Germany in particular. So Mexican companies doing business in Hungary, or Hungarian firms setting up in Mexico, also gain access to much bigger markets beyond that. It allows parties in both countries to supply components to a more complex end product. “The main advantage for this business relationship is to be part of a global process,” Nájera explains. Too often in the past, the ambassador says, Mexican businesses have exported

a single product to a single market. Growth has followed that traditional if somewhat slow-paced model. Nájera believes firms from his home country should think bigger and “take the initiative” when it comes to expansion.

Bigger Horizons

“We have been trying to link Mexican companies with business opportunities here. [….] One of our main arguments is that Hungary is a hub for the region, to see the region as a full market.” To that end, it helps that the embassy in Budapest is also responsible for Croatia and Bulgaria. It is not all about business, of course. The Frida Kahlo art exhibition in the Hungarian National Gallery in the summer and fall of 2018, was a major success. “A huge part of the work of the embassy was not so much inside the National Gallery but outside.” Part of that was convincing the authorities that this exhibition could “help locate Budapest as an art tourism destination,” Nájera says. Mexican embassies across the region worked together to promote the exhibition in Budapest. “And then we discovered that this artist is a phenomenon here in Hungary. That helped us a lot to open up, to talk about Mexico, Mexican food, the museums, holiday destinations. That exhibition has been a very important base from which to promote Mexico in general.” This idea of combining interests is a theme Nájera and his team have sought to develop. He says the embassy is no more than mid-size in comparative terms for the Budapest diplomatic corps. That means it has to be creative, to find areas where it can tie in several strands. Language is a great example. “We present a prize for the best Hungarian students in Spanish,” he says. “We work with 16 institutes and gymnasiums in Hungary that teach Spanish as a second language.” The embassy organizes a diplomatic reception for the top three students in Spanish, where they are provided with a diploma and a medal.

links and builds connections with students who may go on to study or work in Spain, South America or Mexico. “This is a good example of how we try to link several objectives, we make a ‘global’ promotion.”

Tourism Trade

Tourism is another area of growing interest, although the 2020 figures can be ignored in terms of tracking the trend. The estimate for Mexicans visiting Hungary is put at 100,000, although the country tends to be part of a modern day “grand tour” or Danube cruise, taking in several other countries. For Hungarian tourists, Mexico is more likely to be a single destination, and the trend has been upward. “We have passed from 7,000 to 12,000 [in 2019] in three years,” the ambassador says. We are close to the ceiling for Hungarians visiting Mexico, because this [Hungary] is a very small market. Mexican Ambassador David Nájera So, we can grow, but I do not think there is a huge space [for more], while regarding to Mexicans, the possibilities are quite different.” “When they study Spanish, we want “How can we be effective and them also to think about Mexican modern in creating those links. That Spanish. The reception is based on means you need to try and establish Mexican food, so we invite two or three personal links with as many economic Mexican restaurants, together with what actors as you can. we produce here. These young guys are Having spent 10 years out of Mexico in going to become customers of those postings to China, the United Kingdom restaurants, sooner or later, and they and Hungary, Nájera will spend a couple will see the difference between Tex-Mex of years back in Mexico City at the cuisine and Mexican,” Nájera says. Ministry for Foreign Affairs. And there “We invite the three winners, their may be some returns due in terms of Spanish professors and the director of marriage support. each institute. We have representatives “My wife is a diplomat and has been of universities that teach Spanish, or posted; she is in charge of our embassy has Hispano-American studies or in the U.K. now, so we need to see what international relations studies there, is the future course of her career, how I so there is an interesting chance for can support her. We have been paying the students to have first contact with a price to live this separation, so we are those Hungarian universities. In a looking forward to being together,” the regular year we would have […] around ambassador adds. 150 guests. The whole ceremony is “My successor, who will be here in the in Spanish, which is a challenge to spring, I guess, I think she will find a some people, but is also part of the very well positioned embassy; a solid recognition for these students.” base for her to work on and to establish The events take several months her own agenda.” to prepare, but it creates many little

Mexico-Hungary Bilateral Trade Year

Export

Import

Total Trade

Balance

2015

220,342

971,608

1,191,950

-751,266

2016

288,446

997,335

1,285,781

-708,889

2017

226,952

1,415,616

1,642,568

-1,188,664

2018

240,216

1,461,680

1,701,896

-1,221,464

2019

268,162

1,377,466

1,645,628

-1,109,304

2020*

141,626

614,814

756,440

-473,188

* Unconsolidated data. Figures in billions of USD. Source: Mexico’s Office for Economic Affairs

Until 2000 the trade balance was in surplus for Mexico. Since then the surplus has been in Hungary’s favor.

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Special Report Year Ahead

fell by

2.2%

and since non-residents’ consumption also declined, domestic consumption dropped by 6.6% according to KSH.

“We expect the first quarter to be weaker than in 2020, while the second quarter will be much stronger, but mostly mathematically.”

ZSÓFIA VÉGH

It is putting it mildly to say that the world’s economy went through some challenges in the past year. The coronavirus brought the world to its knees, and halted economies regardless of how prosperous and strong they might have been. Labelled as the worst health crisis since the Spanish flu outbreak at the end of World War I, we are not even close to the end but hopefully over the worse now vaccines are being rolled out. Much is still unknow, but unlike last year, when businesses were caught completely off guard, at least in 2021 they have been able to factor in the uncertainty and also some hope. Estimates of how badly the economy was affected last year vary but most agree on roughly a

contraction.

While the pickup in the third quarter may have mitigated some of the damage caused by the virus during spring, it is yet to be seen how much the winter months will be affected by the restrictions due to the second wave.

With almost 60% drop in Q2, and 21% in Q3, the hospitality business took the largest hit. However, other services such as IT and finances saw growth that somewhat compensated for some of the losses. Overall, the services sector saw -12% and -4% contractions in quarters two and three, respectively. Construction also contributed substantially with drops of 13% and 17.6% in Q2 and Q3. Domestic consumption shrank considerably as well: those who could afford to spend did not have the chance to do so with travel and other restrictions in place. The rest (and probably the larger portion) either could not or chose not to spend due to the uncertainty. As a result, in the third quarter, household consumption

Dávid Németh According to the Organization for Economic Cooperation and Development (OECD), global GDP is projected to rise by 4.2% in 2021 after a 4.2% dip last year, with China alone expected to account for more than a third of that growth. Faster vaccine deployment and better cooperation over its distribution would boost confidence and strengthen the pickup, but continued uncertainty risks further weakness, the OECD says. Looking at the major economies, there is some deviation in figures; GDP in the United States is expected to have dropped by 3-4%, with a fall of 5.3% in Japan. China is likely to be the only economy in the world to have posted positive growth (1.8%) in 2020. Within the European Union, the EU-19 member states that make up the eurozone or euro area are expected to have seen an 8.5% decline, while for the EU as a whole the projection is for a 7.9% fall, according

to Kopint-Tárki. In Eastern Europe, the organization expects a drop of 4.7%, and a 4.1% rebound in 2021.

Hungary’s Growth

For Hungary, the consensus is that in 2020 GDP will have contracted by approximately 6-7%. Kopint-Tárki puts it the decline at 5.8%, GKI 6%, Századvég Economic Research Zrt. 6.1%, while Raiffeisen Bank expects it to be in the region of 6-7%. The figure is more or less in line with the European Commission’s forecast which expects the Hungarian GDP to have dropped by 6.4% in 2020. In a quarterly breakdown, GDP grew 2.2% year-on-year in the first quarter, plummeted by 13.5% in the second and bounced back to -4.6% in the third quarter, according to data from the Central Statistics Office (KSH). The fourth quarter will definitely see a contraction again, of 6.6% according to the estimate by Kopint-Tárki.

Industry’s performance had improved dramatically by the third quarter, albeit from a low bar, rising from -20% to -2.4%, in part thanks to exports as well the growth in some branches of manufacturing. Although a full recovery is still some way distant, the new year does bring growth with it. GKI expects an expansion of 3.5-4% by 2021 and close to 4% by 2022. Kopint-Tárki has not changed its economic forecast for 2021 from September, it still expects growth of 3.5%. K&H puts it between 3.5-4%. With 4.2% growth in 2021, and 4.5% in 2022, the pro-Fidesz Századvég is more optimistic. The EU’s forecast is for 4% in 2021 and 4.5% in 2022, while the OECD forecast is markedly more conservative at only 2.6% and 3.4%. This may change though, analysts add.

Vaccine to the Rescue

Much of this depends on how successful and fast the vaccination program is, how much trouble the new virus strains from the United Kingdom and South Africa might cause and, of course, at what pace business and general confidence returns. “We expect the first quarter to be weaker than in 2020, while the second quarter will be much stronger, but mostly mathematically,” Dávid Németh, senior analyst at K&H Bank told the Budapest Business Journal.

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Similarly, the fourth quarter figure may stand out due to the restrictions in place

2020

that will no longer be in effect (or only a very small number) by yearend 2021, he adds. Part of the growth is, therefore, statistical, but real growth will also take place as sectors open up and investments start to increase.

rise considerably when, for example, free parking will be withdrawn or due to the consolidation of fuel price,” Németh says. Based on the projections, the Hungarian economy is likely to recover from the crisis caused by the pandemic much faster than it did after the Great Recession (December 2007-June 2009). The economy now is much more stable and, following a long period of growth, there has been more room to repurpose or rearrange funds from the budget, not to mention the aid from the European Union.

“We will likely see some Weak Areas fluctuations in the level of “The Hungarian performance is still inflation as well. Overall, very weak and requires improvement at many points when it comes to either it will likely be around 3.2the pandemic or the economy,” András 3.3% according to K&H, Vértes, chairman of GKI Research with some higher peaks Institute told the BBJ, citing in particular ownership rights, competition, or in the second quarter of corruption. It is important that the up to 4%. It will likely rise roughly HUF 50 billion gross in EU funds Hungary expects to receive in the considerably when, for next seven years is spent well, he adds. example, free parking will Gross public debt as a percentage of be withdrawn or due to the GDP will jump from 65.4% in 2019 to approximately 78% in 2020, followed consolidation of fuel price.” by 77.9% in 2021 and 77.2% in 2022, Although the allegations of rule of law backsliding in Hungary and how the EU will handle that matter may add some uncertainty regarding the EU-funds available to the country (and, indeed, to Poland), funds may start to come this year, Németh notes. Some delays are likely though, depending on the outcome, he adds. Investments, too, will resume, though – due to the same uncertainty regarding the arrival of EU funds – these may be pre-financed by the state. “We will likely see some fluctuations in the level of inflation as well. Overall, it will likely be around 3.2-3.3% according to K&H, with some higher peaks in the second quarter of up to 4%. It will likely

analysts go further: Commerzbank expects the exchange rate to be at HUF 370 at the end of 2021, and HUF 380 by the end of 2022, portfolio.hu writes. A sustained recovery from the coronavirus crisis may begin in the second half of 2021, spurred on by vaccinations and state and EU recovery programs. Depending on the specific industry, this is thought the earliest time when companies will have the confidence to hire again. By this time, restrictions may be eased and the hardest hit hospitality sector could start to rejuvenate. GKI expects employment to increase by 0.7%-1% per year in 2021-22, and puts unemployment at around 4.5% in 2021, and 4% in 2022, while Tárki expects it to be 4.3% and 4% respectively. There are some exceptions: in the fields of IT and engineering, a labor shortage will remain a problem.

according to the European Commission. GKI expects it to be 78-80% in 2020, 83% in 2021 and 82% in 2022. Századvég’s projection is for 81% in 2020 and 73.7% in 2022, while KopintTárki’s is 77.2% and 78.4%. The budget deficit could reach 9% in 2020 according to the Ministry of Finance. The target figure for next year is

“Some of the negative economic processes have had spill-over effects and governments are only able to mitigate a part of that. So, the recovery will be based on at least three factors: regulatory; economic; and societalpsychological.”

Minister of Finance Mihály Varga said in December. The national currency will continue to be weak, though the rate of devaluation will be not as dramatic as it was last year. The EUR/HUF exchange rate average will hover around 360 in 2021, and 366 by 2022 according to GKI. Some

The recovery will likely be accompanied by an acceleration of structural changes. How long lasting they will be is an open question, but it is certain that digitization and the penetration of telecommunication solutions (telemedicine, teleworking and distance education, etc.) will determine future processes.

6.5% of GDP,

Special Report | 11 Tripartite Recovery

Csaba Polacsek Partner, Advisory, PwC Hungary There is a lot of uncertainty that may affect growth in 2021. The situation today is starkly different from that of 12 years ago as this is the economic reflection of a series of responses from governments and regulators to a public health issue. Therefore, for the recovery it is essential for governmental and regulatory steps to change; people do not refrain from travelling because they cannot afford it but rather because of the restrictions in place. However, governments can change those measures only when the necessary conditions are ensured. Also, some of the negative economic processes have had spill-over effects and governments are only able to mitigate a part of that. So, the recovery will be based on at least three factors: regulatory; economic; and societal-psychological.

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Labor Market Pendulum Swings Back Thanks to COVID Among the many changes the coronavirus has wrought, work has been much affected. And not just labor market dynamics; from the way we work to where we work to how we communicate; there is hardly a segment that has remained unaffected. Some of these changes had been in the offing, some were long overdue, while a great deal occurred earlier than expected. Overall, they required a great deal of adaptability from both companies and employees. ZSÓFIA VÉGH

Perhaps the most significant change from an economic perspective is that what was very much a candidate-driven the market has swung back to a more balanced model, and in certain sectors to an employer-driven state. “The past eight years, and in particular the last four, was about employers chasing employees,” István Martis, CEO of Profession.hu told the Budapest Business Journal. “This environment has changed drastically as in a very short amount of time tens of thousands of people appeared on the job market due to company closures, or Hungarians working abroad returning home.” As a result, employers had the best quality workforce queuing for a job, unlike in the past where they were often forced to make comprises, and take on someone they may have felt was a less good fit for a lot more money. In fact, COVID-19 created an opportunity for employers to let go of some the workforce they hired in need but were not satisfied with.

István Martis Administrative positions saw the biggest declines, along with jobs in tourism and hospitability, according to data by profession.hu. Unskilled manual labor and customer service positions were also badly hit.

“Part of the candidate experience which bears on their final decision is the impression they get upon entry at the company. The interior, how they are received, the atmosphere during the interview; these cannot be reproduced in a two-dimensional video call.” Those who didn’t lose their jobs are more loyal than they used to. Prior to the pandemic, a slightly better offer from a rival firm was often enough for someone to change jobs; now, people are holding on to their positions more firmly. This also has to do with greater uncertainty. At the outbreak, companies froze hiring, furloughed or laid off staff as they did not know how they business would cope. In spring, the visitor traffic of job portals dropped to 20% on average. It has now has returned

80%

of the pre-COVID level, and may return to 100% by the end of this year, Martis says. “Companies continue to be cautious when it comes to hiring as taking on a new employee is costly,” he explains. But

some have already stated they will return to the market when they see the situation is improving, he adds.

First Casualties

The first casualties of the pandemic were temps and people working under flexible working conditions. Now, with companies still hesitant about hiring full-time employees, these same positions again come to forefront. After a dramatic drop in job ads at the beginning of 2020, during the second wave, the domestic job market was already expanding in several areas. By the fourth quarter of 2020, the number of new job advertisements was only 1% lower than in the same period last year, latest data by profession.hu reveals. Expansion in many sectors began in the third quarter and this trend continued in the fourth, it reports. Compared to the same period in 2019, agriculture (28%), construction (25%), health and pharmaceuticals (22%), education, research and science (17%) and manufacturing (11%) saw the largest growth in Q4 2020. In contrast, the largest declines yearon-year are in hospitality and tourism (79%), business support centers (37%), customer service (36%), business management and administration (28%) and professional work (25%). In Q3 2020, on average 40% more people applied for advertised positions than in the same period in 2019. In the fourth quarter, however,

blue-collar work (47%) and skilled work (43%), while the most significant drop was in hospitality and tourism (84%), business management (44%) and agriculture (25%), according to profession.hu. “The pandemic is not yet over; however, with the arrival of the vaccine, that time is coming into reach,” Balázs Molnár, HR consultant for people and organization at PwC Hungary told the BBJ. According to the expert, the employment rate will return to pre-COVID levels this year. With that, labor shortage experienced in recent years and growing competition for talents will also return.

“There have been plans for bringing in new functions to some Hungarian SSCs, but they were not realized as, at the time, they may not have offered that much of a saving. Now, those plans are being dusted off as companies are looking at cost-saving options and are planning to outsource operations from more expensive locations to here.”

only

27%

more people applied for jobs than a year earlier. Compared to 2019, the largest surge in applications in Q4 was in education, research and science (73%), marketing, media and public relations (51%), IT programming and development (50%),

Touristic Recovery

When it comes to the tourism industry, experts agree that it will be a while before it recovers. Regarding those who made a living working in the sector, opinions differ. “The skills of workers in these two sectors are difficult to capitalize on in

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Low Real Wage Growth Expected Regarding wage growth, official figures for 2020 may show a brighter picture than the reality, experts note. That is because the methodology used does not include those working on reduced hours or part time, or enterprises with less than five people. Nor does it include those on unpaid leave, whose number has also significantly grown in the past year. It has also been fairly common for firms wishing to retain their workers but unable to pay them to give them a period of unemployment period in rotation.

“The pandemic is not yet over; however, with the arrival of the vaccine, that time is coming into reach.” others, so we expect unemployment here to be a permanent phenomenon

throughout

2021,”

Molnár says. But György Palásti, managing director of Grafton Recruitment, tells the BBJ he does see some hope. “Due to their language command and other skills, some of those who worked in tourism may be sucked up by customer and business service centers,” he says. Shared and business services centers in Hungary could be winners of the pandemic. Although some were forced to lay off hundreds of people, in the medium term they may be able to capitalize on companies’ cost reducing efforts.

Also, many of those who lost their jobs belong to the lowerwage bracket, as a result, the average figure is somewhat distorted upwards. Gross wages rose will rose 9.5% in 2020, according to GKI (the figure being for those in fulltime employment and excluding businesses with fewer than five people). In 2021, the GKI Economic Research Co. says it expects gross wages to grow by 4.5%, rising to 6% in 2022. Real wages, however, will increase 6% in 2020, 1% in 2021 and 2.5% in 2022, according to GKI.

“There have been plans for bringing in new functions to some Hungarian SSCs, but they were not realized as, at the time, they may not have offered that much of a saving,” Palásti says. “Now, those plans are being dusted off as companies are looking at cost-saving options and are planning to outsource operations from more expensive locations to here,” he adds. There are some other winners as well. While the pandemic has affected most sectors adversely, it has spared (or even gave a boost to) those where special skills and high-quality workforce are required. Here the labor shortage continues to be a problem. Unsurprisingly IT jobs, both programing and system operators are much sought after, in part because of the forced digitization companies had to switch to. In construction and infrastructure, demand is higher than the supply. The same is true for engineers with special expertise.

Retain the Best

Similarly, retaining quality workforce will again be in focus in the future.

Employment branding, however, has taken a back seat, at least temporarily, as companies have been kept busy applying crisis management measures. Before the pandemic, there was much emphasis on the candidate experience; companies tried very hard to show their best. “With layoffs and restrictive measures, the focus has shifted which, at many places, also resulted in declining employee commitment,” Palásti says. Hungary is too small a country to make generalizations even within a sector, situations vary by company, but some of the changes the coronavirus has brought about apply to all areas. One such is the workfrom-home phenomenon and digital/ remote solutions. Recruitment has gone online too, which requires new skills from recruiters. “Part of the candidate experience which bears on their final decision is the impression they get upon entry at the company. The interior, how they are received, the atmosphere during the interview; these cannot be reproduced in a two-dimensional video call,” Palásti explains.

“The past eight years, and in particular the last four, was about employers chasing employees. This environment has changed drastically as in a very short amount of time tens of thousands of people appeared on the job market due to company closures, or Hungarians working abroad returning home.”

Special Report | 13

György Palásti Trust is harder to gain, too, so headhunters need to adjust and make the most of the tools they have at hand. “It takes some experience and new methods, but when done well, the outcome can be very positive,” he notes. Switching to digital methods may not always be smooth, but it does have its advantages. Since everyone works online and companies have adapted to enable remote work, they are no longer limited to recruiting locally. Depending on the type of work and the industry, they can recruit from abroad, and thus improve the quality of workforce. Enterprises also report that making a business deal with foreign partners has become much easier lately, as they no longer have to travel to a location. With the pandemic, borders, in work at least, seem to have dissolved.

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An improvement in the investment market is anticipated with the widespread use of a COVID vaccine in the view of most analysts. The logistics and office sectors are seen as being the most favorable positions for a postCOVID crisis environment. “In 2020 we experienced a fall in the volume of Hungary investment deals and the market expects a recovery around springtime, when the economy will calm down with the arrival of vaccine,” says Csaba Zeley, head of asset management at ConvergenCE. For 2020, CBRE traced around EUR 1 billion in income producing assets transacted for Hungary: 60% for office; 15% for industrial; 15% for the hotel sector; and 7% for retail. The consultancy has already traced an investment pipeline of about EUR 700 million in ongoing deals likely to close in the first half of this year. Industrial has overtaken retail in terms of popularity, although it suffers from a lack of available assets. Office remains the asset sector of choice, with deals for the 70,000 sqm first phase of Agora by HB Reavis and the 20,700 sqm Building “F” at Váci Greens by Atenor ongoing according to Gábor Borbély, head of business development and research at CBRE Hungary. Mike Edwards, head of capital markets at Cushman & Wakefield Hungary, argues that, all being well with regard to the COVID environment, Hungary will get back to above EUR 1.5 bln in annual investment volume. Eston International agrees, saying, “The Hungarian property investment market has had a great series of three record-level years, so a correction had been expected in advance. Annual investment turnover may slightly exceed EUR 1 bln, representing a nearly 50% drop from 2019 volume, but investors’ activity is picking up and funding still seems abundant. Many deals that have been postponed are expected to be closed in the first half of 2020.” Colliers estimate for 2020 is in line with Eston’s. “It is important to highlight that more acquisitions have now slipped over to

Agora Budapest the next year, which will boost the volumes in early 2021,” comments Bence Vécsey, head of capital markets at Colliers Hungary. With regard to yields, CBRE expects industrial to compress to sub-7% and 6.5% at the prime end. Office is expected to be at 5.5% for prime, with retail at 6-6.5%, although no assets are seen as being available. “Prime offices will likely enjoy a slight rebound in cap rates from their current contracted prices, slightly off-setting the negative changes in real rents. Logistics warehouses, as the new safe haven, are anticipated to mature to around

6.75% yields

or better in Hungary. There is no wide consensus on where cap rates on shopping centers or hotels will stand, hence each opportunity will need to be thoroughly analyzed,” says Vécsey. “Colliers expects a strong uptick in logistics deals and even offices. We left the year [2020] on a positive note, expecting activity to increase in 2021, but pricing in general will likely remain below levels of 2018 or 2019 given pressure on occupancy, rents and increased return expectations by investors,” he adds. Domestic capital is expected to maintain a significant position according to Zeley of ConvergenCE. Local investors are supported by their thorough knowledge of the characteristics of the Hungarian market, while international investors tend to draw parallels between different markets of the region. ConvergenCE is planning to strengthen its domestic investments. Analysts at Cushman predict that, while the full economic impact of the

crisis for Central Europe may take one to two years, there is sentiment for the real estate market to bounce back more rapidly in the second and third quarters of 2021. A region-wide investment total is regarded as difficult to predict. “But the best guestimate is similar to this year, maybe slightly more. We expect the first three to six months to remain slow and then transactional activity to increase in the second half as pressure of under deployed capital is pushed out, but there is always a time lag of closures,” concludes Jeff Alson, head of CEE capital markets at Cushman & Wakefield.

Office

CBRE estimates the 2001-2002 office pipeline at around 500,000 sqm, split evenly across the years. “Developers are going ahead with the delivery of shell and core and with the securing of preleases the financing of fit-out is possible,” comments Gábor Borbély. Eston International expects office development to slow down in line with declining demand due to uncertainty of future office usage standards. Previous plans included nearly 240,000 sqm of offices to be completed in 2021; however, a development volume

close to

100,000 sqm

seems more realistic, Eston says. These thoughts are reflected by Colliers, from a CEE perspective. “Depending on how the situation with the pandemic evolves over the next six to 12 months, we might expect to see some delays to projects that have not yet commenced construction. Office projects that require a certain level of pre-lease in order to secure development financing could also potentially expect some delays,” comments Kevin Turpin, director of CEE research at Colliers International. “Currently, the biggest question is how working trends and habits will change in the near future. I hear from more and more companies, that home-office will become partially their standard, also after the pandemic, so they can save significant amount on office space lettings etc., but we will see during the upcoming year where the trends are going to,” comments Zsombor Barta, president of the Hard Rock Hotel Budapest Hungarian Green Building Council.

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According to Peter Számely, executive director of finance at Hypo Noe Landesbank, a developer can only get a use permit in Hungary if a certain level of energy efficiency is provided. “This is, on the legislative side, a kind of push factor. On the demand side, more and more end-users require certain green building specification, which may be over and above the legislative level. Developers and investors must be aware of this, when pursuing with a project or with an investment.”

“In 2020 we experienced a fall in the volume of Hungary investment deals and the market expects a recovery around springtime, when the economy will calm down with the arrival of vaccine.” Barta adds: “It is without question that sustainability will be a dominating aspect of the upcoming years and is therefore also an increasing factor in investments as well. Also, financial institutions are implementing green financing structures more and more; again, a framework, which requires the implementation of sustainability and sustainable aspects.” From a developer perspective, Nikolett Püschl, leasing and development director at Atenor Hungary, argues that sustainability in the COVID-19 environment is further evolving and getting more attention, together with the importance of health and safety and contactless technical solutions. Currently, the main focus is on building machinery, especially the air handling systems, which should the most energy efficient possible and 100% free of mixing fresh and used air. “For example, in all of the projects of Atenor, these kind of systems have been installed, which is now very helpful. In terms of fit-out and interior design we follow the newest and the most ergonomic trends with a main focus

Special Report | 15

on modernity, efficiency and multifunctionality,” Püschl says. “Property managers are involved in elaborating more and more smart contactless solutions and also facilitating the necessary social distancing. Also more new practices, rules, measures will be adapted in relation to health and safety in the construction environment,” she adds.

Industrial

Many people believe that, while office will be in demand again in the future, it will be to a lesser extent than in previous years. Logistics is the clear winner of the current situation and this will be continuing over 2021, says Számely, of Hypo Noe Landesbank. Gábor Halász-Csatári, head of industrial & logistics at Cushman & Wakefield Hungary, agrees with that assessment. “Logistics and ecommerce requirements are likely to drive the Budapest market in the coming six to

12 months,

while the countryside will be dominated by industrial, manufacturing and production investments, many of them tied to the automotive sector,” he says. “Cushman forecasts a healthy development pipeline for Budapest especially with the expected new market entrants delivering significant new stock over the coming months,” Halász-Csatári comments. CBRE have traced a strong pipeline of 200,000 sqm for the Budapest area with no real developer-led market in the regions. Logistics developments may set a record with a completion of 150,000 sqm plus, according to Eston International. “We expect to see speculative developments coming back to the market with technically no vacancy in modern logistics parks and dynamic demand from service providers and retailers,” the agency says. “As for the prospects, our COVID19 special report series suggests that the pandemic has accelerated changes in the retail environment and has a significant influence on logistics real estate. We expect that the pandemicrelated slowdown in demand will not last long since logistics real estate is poised to benefit from the emergence of e-commerce,”

Prologis Park Budapest-Harbor concludes Paweł Sapek, regional head for Central Europe at Prologis.

Hotel

CBRE have traced a provisional development pipeline of 3,340 hotel rooms across 27 hotels in Hungary due to complete by the end of 2022. Budapest, with a

75% plus

share of this pipeline, is the primary destination for hotel developers and operators.

“I hear from more and more companies, that homeoffice will become partially their standard, also after the pandemic, so they can save significant amount on office space lettings etc., but we will see during the upcoming year where the trends are going to.” “Demand is slow as the capital is suffering from a lack of international travel, which will not return until 2022,” says Gábor Borbély.

Bálint Erdei, founder and CEO of Redwood Real Estate Holding, is planning a soft opening of the Hard Rock Hotel Budapest in summer. He sees a slow recovery from the second half of 2021 with a potential 50-60% occupancy rate at Hard Rock Hotel Budapest by 2022, moving upwards to a projected 70-75% rate by 2023.

Retail

Although e-commerce is seen as a threat to bricks and mortar retail, the proportion of online shopping is relatively low in Hungary compared to Northern Europe. Euromonitor places online retail activity here at 8-9% with an estimated predicted rise to 10-12% by 2024. In the view of Cushman & Wakefield, retailer activity is expected to be moderate, with firms rationalizing their portfolios. The first major Budapest shopping center delivery for several years, the 55,000 sqm Etele Plaza by Futureal, now has a rescheduled handover target of 2021/2022. Analysts say the project is in a good location, well designed and will have a well-conceived tenant mix. “The low industrial rate environment will maintain interest for real estate in 2021. As soon as the measures introduced to fight the pandemic start to be relaxed, the economy is expected to develop sharply,” concludes Szamély.

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The Budapest Business Journal 2021 Wish List For the third year running, Kester Eddy rounds up a gathering of the great and the good, including voices that tend to get less coverage in a business publication such as ours, to ask them what their wish for 2021 is. KESTER EDDY

So the new directions have been set: My wish for 2021 is that all these initiatives make real progress.

Ecological Footprint, Education, Creativity, Children Mónika Imreh-Tóth, assistant professor at the University of Szeged, Faculty of Economics and Business Administration, and founder of Innoversity, a consultancy that supports enterprise development using academic knowledge.

In recent years, I have been pondering the above four areas of life. I would venture to say I was doing so somewhat aimlessly at first, but, as in many cases, it has since been proved that everything is interconnected. Environmental protection and the reduction of our ecological footprint are crucial issues because our children’s futures are at stake, in addition to our very own.

Follow the Green Path Gellert Gaál, senior equity analyst with Concorde Securities, Budapest

2020 was an awful year in many aspects, however amongst the results of lockdowns and the abrupt stop in economic activity, we can find something positive: global carbon dioxide (CO2) emissions from fossil fuel and industry are expected to drop by a high single digit compared to 2019. This annual decline is the largest absolute drop in emissions ever recorded, and the largest relative fall since World War II. Additionally, policy makers across the world seemed to put more and more emphasis on fighting climate change. As an example, the European Union aims to cut greenhouse gas emissions by at least 55% by 2030. This sets Europe on a responsible path to becoming climate neutral by 2050.

Gellert Gaál Similarly, after the U.S. presidential election, the United States also announced its first-ever climate envoy for national security, replete with a USD 2 trillion climate-change plan.

Mónika Imreh-Tóth We can foster our children’s awareness of this issue through education, but this is impossible, or at best ineffective, without creativity, a factor which is often forgotten, unfortunately. Children are themselves both the creativity and the future. Having two of my own and experiencing home office and home schooling simultaneously in 2020 has taught me several things: we need a lot fewer material things than we think; creativity helps problem-solving in all areas; education is not bound to location; and without children, the first three may not make any sense. Environmentally conscious consumer behavior is crucial to reduce our ecological footprint. Today’s world has accelerated enormously, and we are affected by numerous impulses every day, a result of advancing technology, consumer pressure, travelling and a very human compulsion to conform. Yet the home office has made the world slow down, even if only a little, and real values involving family, the natural environment, time and care have become more visible. Thus, for 2021, I wish we do not forget what 2020 has taught us and we pay attention to what is really important.

If we can leave a smaller ecological footprint behind us, we can preserve the ecosystem of the earth, but it requires young people to understand the importance of their role, and to cooperate in preserving natural capital through their creativity.

Artists Forgotten in the COVID Pandemic György Szabó, artistic director, Trafó House of Contemporary Arts

For decades we have been witnessing an expansion of services in Europe. People have been forced to find jobs in the gig economy via an ever growing matrix of bars, gyms, restaurants, webshops and delivery services. Most classical artists, such as actors, musicians, visual artists and dancers, have been freelance workers for centuries. What kind of people do employers need as their workforce in these fields? They need you to be flexible, adaptive, always available, international, talented, unique, and cheap. You must be ready to jump at any request. Day and night. It is very insecure and stressful. Artists are in an even more precarious position than most. Since much of their work has been supported by public money, that makes them open to accusations of being of no use, lazy and of wasting taxpayers’ money. And then came COVID. No more parties, no music, no performances, no dancing on the stage, or in bars. No concerts. No fun! Now, only silence remains. We must realize that artists are especially vulnerable. But in times of crises, there are no rules, nor regulations. Artists are considered mere puppets of our spare time. But they are real people, like airline pilots, hoteliers and restaurateurs. And they too, are suffering.

György Szabó The crisis has shown the need for stronger labor codes for the world of arts, codes which guarantee some protection and assistance in future crises. My wish in 2021 is for parliament to take this issue seriously – as seriously as the tourism industry – and not to leave people adrift, with no income for physical security, nor work for their

mental health and self-esteem. A society without a thriving arts sector is no society. We need to look after artists now for the sake of a happier, healthier, culturally rich future.

Fight Bias, Because Diversity Pays off Edina Heal, co-founder and leader of Egyenlítő Foundation (Equalizer Foundation), a Budapest-based NGO working for gender equality at work.

Edina Heal Times changed in 2020. The last century was closed, stopped, killed, and we finally made the move to the 21st century. I’m saying we became digital. It’s long overdue, by 20 years. We brought in the gig economy, again overdue by 20 years. And we are just about starting to figure out how to manage our companies not by moving and watching over “bodies” in office buildings, but by setting targets for experts, wherever or whoever they might be, and only worry about their results. These advances should all help disadvantaged groups to get more equal work opportunities, at least in theory. Color, gender, accent and ivy league schools should become unimportant when companies hire for results. No more chats around the water cooler and choosing the successor based on similarity to the previous one. Similarities, looks or different looks, clothes and styles should not be so important when the teams are remote, when the results are objective and measurable, meaning achievements are not just perceived by biased individuals. I wish that companies can now figure out how to set these targets fairly, how to close their eyes filled with unconscious bias to differences they have been unable to overcome until now. At the Equalizer Foundation we wish to help more companies this year educate their talent about these biases, and how to fight them. We wish they experience the great advantages that diversity and inclusion bring to business (as has been demonstrated by numerous studies), such as increased innovation, better

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engagement of all employees, tackling bigger markets, better understanding of real demands and opportunities, and last, but not least more loyal clients and employees.

Keeping Hungary in the Fold Imants Lieģis was Latvia’s Ambassador to Hungary from 2012-2016, a former Latvian Minister of Defense and is currently senior fellow at Latvian Institute of International Affairs. He is pictured in front of the Freedom Monument in Riga, Latvia, built with contributions from the Latvian population in the 1920s. Later, under Soviet occupation, Moscow realized it was too risky to knock down, but tried to push it into the background by having public transport circulate around it.

My work involvement with Hungary concluded almost five years ago, but the fond memories of the country and its people have stayed with me. That’s why my main wish for 2021 is that Hungary stays within the European democratic fold, even with the selfproclaimed illiberal leanings (and other shenanigans) of the current leadership.

As a retired Latvian diplomat, my stint in Budapest convinced me of the unique cultural and historical importance of Hungary’s place within Europe. Retaining joint European values is crucial if the European Union is to achieve its aim of being a global power. Unity among the 27 member countries is a pre-condition for the EU to move towards such a goal. This unity was effectively maintained at the end of 2020 by Germany’s Chancellor Merkel ensuring that Hungary, together with Poland, accepted a compromise on money matters. The EU goes into 2021 with an agreed seven-year budget worth EUR 1.1 trillion. In addition, a one-off EUR 750 billion fund was agreed to support recovery from the COVID-19 crisis. This latter injection of much needed cash has a proviso: if a qualified majority of members agree, the disbursement can be blocked to recipient governments suspected of corruption or other forms of foul play. Finger pointing is not the best way of achieving unity. This time it seems to have worked. Just as in Latvia, my wish is that the much-needed EU recovery fund monies will be spent wisely in Hungary on projects in the digital technology and climate friendly spheres. In that way there will be long-term benefits for the people of our countries following the disastrous consequences of the pandemic.

Taking People Back to Nature Ildikó Prónay is co-founder and guide of Proko Travel, based in Szeged.

Imants Lieģis

What did 2020 bring to my family business? Fewer smiles. Briefly, that’s it. But we were also able to find a silver lining. We got inspiration from observing the natural world. Last year the slump in tourism resulted in wild animals that had been hiding for so long

3 peacefully grazing in previously noisy, disturbed areas. And the meadows and mountainsides were greener than ever.

Ildikó Prónay Experiencing this affected our goals going forward. We intend to organize more relaxed, close-to-nature programs, very different from traditional mass tourism, in the Alpine countries. Surveys have shown that people who travel regularly are happier. That’s what I’m trying to accomplish this year. I want to see smiles on the faces of our clients, co-workers and my family.

Special Report | 17 pandemic and the subsequent reduced economic tax base will bring. A sustainable recovery will take much greater social investment in public services, from strengthening healthcare services, to helping sustain small businesses and expanding the social safety net. The increased government role needed for this recovery must, however, be guided by policies that address issues of equity, that ensure greater social justice, that reinforce social and civic participation and that restore trust in our public institutions and political leaders. These kinds of social policies also directly benefit the business community by providing the stability of a healthy workforce, ensuring that consumers are economically secure, and delivering certainty that governing institutions can be relied upon as fair and trustworthy in applying rules and regulations.

Let’s Start Rebuilding, There’s a lot to Be Done Merrill Oates has worked as an IT consultant and trainer to non-profit organizations, social advocacy groups, EU Grant projects, and professional services companies. He is also chair of the Hungary committee of American Democrats Abroad.

My wish for 2021 is that we can begin to see a sustained recovery and start rebuilding from the devastation of last year. In terms of economics, I fear that we have only begun to register the damage and displacement that the

Merrill Oates I have real hope that with the right kind of leadership and policies, we can build back the economy and restore the livelihoods, the businesses and the social wellbeing that have been so damaged by the COVID pandemic.

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Socialite

Mixologists and Baristas: a Cocktail of new Opportunities “Some just want to impress at home. These people might want to raise their knowledge to a professional level because they can. Others have been sent by their bosses for professional development. There are also the people who want to open a bar or coffeehouse,” Biró explains. “What they all have in common is a thirst for new information, a curiosity about the tricks of the trade and a love of the creative side of what we do.”

Mixing perfect cocktails or, as Detective Dale Cooper put it the culthit TV series “Twin Peaks”, “a damn fine cup of coffee” has always been an art. Now bartenders are mixologists and people who make coffee in cafés (what was the old word for them?) are called baristas.

Theory and Practice

DAVID HOLZER

This isn’t just a case of a profession seeking to raise its status by giving itself a new, scientific-sounding name. We’re all now far more interested in whether what we drink is as good for us as it is tasty. We’ve fallen in love with obscure ingredients from strange places. To capitalize on this demand, new artisanal bars and coffeehouses are opening all the time. Or at least they were until C*V*D (I am now treating it as a swear word) stopped the world of socializing in its tracks. So, v*r*us notwithstanding, train as a “We have taken advantage of a gap in the mixologist or barista and you could have Hungarian education system at that time an entrée to a career that’s gaining in and drawn on our international experience status all the time and a passport to travel. to establish the school,” Biró told me. My friend Zsófi, who’s thoroughly “Our instructors are professional health-conscious, loves to experiment mixologists and baristas who teach their with recipes and, most importantly, profession from basic to professional would like to take her career to a higher levels, our American Bartending and level, discovered a course offered by Barista Master Class courses.” Budapest’s grand sounding Mojito Brand Ambassadors Mixeriskola and Barista Academy. She’s been raving about it, so I thought Ambassadors from different beverage brands regularly give lectures to I’d better find out more. Péter Hajdu introduce students to what really goes and Tivadar Biró of the school kindly on in the industry. answered my questions. “We’re fortunate to have the support of Mojito was founded by Biró in 1999 beverage companies,” Hajdu adds. “They when he realized that there were no recognize that having the right people courses of a decent standard in Hungary preparing people to go into mixology. He to maintain high standards in bar and coffee culture is in everyone’s interest.” studied professional schools around the This thinking is behind the school’s world and gathered the best ideas. motto: You are one of the most Hajdu joined Biró in 2009 when they important ingredients in the perfectly co-founded the Barista Academy. István made cocktail or coffee. Ludányi is also a partner and co-owner.

Biró is one of the hands-on professionals at the school who makes sure students become that key ingredient. He started his career in hospitality and worked his way up to being part of a team in the finest establishments, learning from the older generation as he went. In 1995, when he began to specialize in mixology, there were few like him and he was in a privileged position. “Everyone was looking at the bar and wanted to know what I was making,” he says. “Next they wanted to try one.” Since then, Biró has risen to the heights of mixology, receiving the title of Master Bartender from the Hungarian National Gastronomic Association and becoming its president. He’s also been a judge of professional competitions. People sign up with the Mojito Mixeriskola and Barista Academy for many different reasons.

Whatever level students aspire to, they benefit from intensive practical training grounded in a solid theoretical foundation. “It’s all about quality raw materials, a sound infrastructure and constantly evolving expertise,” says Biró. “Without these there’s no cocktail, coffee or catering industry.” The school’s relationship with students doesn’t end when a course is completed. They can take advantage of additional free training and unlimited practice on the school’s mobile bar counters. When a student is qualified, there’s no shortage of opportunity in the catering trade and hotel industry, in Hungary or abroad. “Our domestic and foreign partners regularly send job opportunities,” Hajdu says. “Whether it’s in Hungary or another country, hotels, restaurants, bars, cafes, ocean liners and river cruises are waiting for our graduates.” How about opportunities post-COVID? “We see the virus as an opportunity,” Hajdu insists. “Now is the time to learn and prepare for when everything reopens. In any case, we don’t believe the virus will have a long-term effect on the domestic and foreign hospitality industries. Everything today moves at an incredibly fast pace and all the signs are that the restart will be rapid. We all want this.” For the last word on the course, I asked my friend Zsófi. “I like the course because it’s given me real answers to the questions I had about mixology and being a barista,” she told me. “Although I worked in this kind of environment before, learning from all my teachers has given me the tools to rise up the career ladder and maybe to work overseas. All the teachers are highly successful professionals who have travelled to the source of modern mixology and coffee culture and brought back their knowledge to share with people like me.”

You can find out more about what the Mojito Mixeriskola and Barista Academy offers at mojito.hu

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A tempting tonic for the most part gloomy, curfewenclosed January and a way to keep the bubbles flowing, while also trying something hip and happening and realizing your New Year resolution to keep up with trends, could be presented by Pét-Nat. ROBERT SMYTH

Ultra-trendy Pét-Nat is short for Pétillant-naturel, whereby natural bubbles are retained when the stillfermenting wine is bottled, and usually also contains the sediment, which renders the wine cloudy in the glass, although some producers of this style do remove the sediment by disgorging. While it may sound new and groundbreaking, it in fact uses the méthode ancestrale (ancestral method), the oldest method of making sparkling wine of all, which predates the traditional method used to make, for example, French Champagne (note that in Champagne itself that method is known as méthode champenoise). Pét-Nats may lack the precision, poise, persistence and complexity of Champagne, but they tastily tap into the past, getting back to basics and it is a very natural, technologyfree approach. Indeed, it comes as no surprise that the style has been described as “Hipster bubbles.” Pét-Nats are few and far between in Hungary, but one Mátra winery believes in the style so much that it made three of them from the 2019 vintage. Rather than following fashion and jumping on the bandwagon, winemaker Zoltán Kerekes, owner and winemaker of Hoop Wines, happened upon the method by accident. In the problematic 2014 vintage, Kerekes (who then made wine in the cellar under his house in Pomáz, about 22 km north of central Budapest), had one rosé that hadn’t completed fermentation. He bottled it and stuck it in the fridge and forgot about it, and was later thrilled by the fizzy, frothy result.

Photo by Dasha Petrenko / Shutterstock.com

Bringing Back the Ancient Bubbles

Kerekes went on to establish Hoop Wines, which came out with its first wines from the 2019 vintage. He chose the name Hoop as there was already a Mátra winery called Kerekes, and opted to choose the word that is the English translation of his name, especially as it also refers to a part of the barrels used for winemaking.

There’s a certain unpredictability and wild edge to this ancient method, which makes it appealing, albeit a tad rough and rustic. I caught up with Zoltán Németi, Hoop’s assistant winemaker, by phone recently to discuss their approach to Pét-Nat. The two Zoltáns met in 2017 while taking a winemaking course at Budapest’s Soós István Borászati Technikum és Szakképző Iskola.

Buying In

Hoop Wines, which has a 0.8 hectare plot to its name in the prestigious Gereg vineyard (overlooking the town of Gyöngyöspata, 85 km northeast of Budapest, in the Mátra Hills) that is yet to yield, is for the time being buying in grapes, and decided to experiment with Pét-Nat rosé from three grape varieties in the 2019 vintage: Kékfrankos, Pinot Noir and Syrah. There’s a certain unpredictability and wild edge to this ancient method, which makes it appealing, albeit a tad rough and rustic. The trick is to catch the fermenting still wine when it hits around 15 grams per liter of residual sugar, and then transfer it into the bottles and cap it, where it remains until opening. The two Zoltáns taste the fermenting wine for the first week or so, but once it

starts to turn drier, they rush off to the lab in Eger to get the sugar levels tested, almost on a daily basis. Inaccurate readings and delays mean sometimes the optimal level is missed. The Pét-Nat normally goes into the bottles after around two weeks, and the wine ferments out to dry in the bottles. While the grapes are picked on the early side, like for other sparkling wine, Hoop Wines is looking for a bit more in the way of fruitiness and richness in the wine. Hoop’s Pink Pinot Noir Pét-Nat is still available for HUF 4,500 a bottle from Borfalu Bortéka or from the winery itself. The Syrah Pink is also available from the Kálvária Pince, in Budakalász for HUF 5,000 (with free delivery in Budapest if you buy three bottles). Hoop Wines’ longer term aim is to concentrate on local varieties, so the 2020 Pét-Nat, which is to be released from the end of January at HUF 3,500, will be a Kékfrankos, although this is not without challenges, explains Németi. Kékfrankos typically has a high amount of rougher malic, and less of the smoother tartaric acid, leading to the wine being more rustic. “The future will be about finding the right terroir where Kékfrankos has lower malic acid,” he says, adding that they’d also like to make a white Pét-Nat.

Very Risky

The Hoop rosé Pét-Nats underwent very little skin contact, basically just being crushed, then pressed, in order to avoid bitter phenolics from the skins. Németi adds that fermentation of PétNat’s is very risky, which made them decide against

Socialite | 19

spontaneous fermentation and use a yeast strain that can handle the pressure. Németi is also a wine blogger and writes for A Művelt Alkoholista (literally “The Educated Alcoholic”), and has his own insightful English-language blog, Screwcapped.com, and plans to release his own wines in the near future. Opening a chilled bottle of Pét-Nat, it’s wise to pour a couple of glasses immediately to avoid a build-up of pressure in the bottle and also to taste the wine clear, before it clouds up as the bubbles bring up the sediment. The further you top up your glass the cloudier it gets, while the texture gets creamier too. Having tried the Kékfrankos Pink and Syrah Pink Pét-Nats, it was impressive how much they oozed the delicious primary fruit of the grapes. Serving the Kékfrankos in a Burgundy glass, led to a creamy head being maintained, which delightfully complemented the pure raspberry and cherry flavors. Over in Tokaj, Dorka Homoky’s Pét-Nat is made from 80% Furmint and 20% Hárslevelű, and she felt confident enough to allow the grapes to spontaneously ferment, with the 2019 ending up with a touch of residual sugar (2.1 grams per liter), which served to take the edge off Furmint’s electric acidity. The 2019 claimed 66th spot in Winelover’s 100 best Hungarian wines, and was a delicious bubbly bowl of primary (mainly) Furmint fruit of quince and Williams pear. It has sold out, but the 2020 is on its way later this month and will cost HUF 5,600 from homokydorka. hu. She delivers the wine to Budapest. Elsewhere, also look out for the next vintage of P.A.N.K. from Attila Pálffy from the Káli Basin in the Balaton Uplands.

, T R A T S H S E R F

S N O I T U L O S T S E B , T E E L NEW F

ng i s a e L al n o i t a Oper g nt n e i c m n e a g n na a m Fleet fi & ns o i t u l o Fleet s tal n e r term t r o h S budgethu

budgethu

budgetflotta.hu/en budgetflotta@budget.hu +36 1 700 4864 Fuel consumption: 1,6-1,4 l/100 km, CO2 emissions: 41-38 g/km, current consumption: 18,0-15,7 kWh/100 km.

An old companion for the long run