The European Times - Hungary 2 by The European Times

HUNGARY

Content

Hungary INTRODUCTION

• Successful Transition to Free Market Economy • Hungary’s Fact File • Ministry Targets Four High Potential Sectors • Coping with the Economic Crisis • Enhancing Competitiveness Key Goal for Economy Ministry • Current Government Facing Significant Challenges • Embassy of Great Britain to Hungary • British Chamber of Commerce in Hungary

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BUSINESS & INVESTMENT OPPORTUNITIES

• Economy: Back from the Brink • French Embassy in Hungary • Labour Ministry Working to Retain and Create Jobs • Hungarian Investment and Trade Development Agency • German-Hungarian Chamber of Industry and Commerce • Embassy of Germany in Budapest • National Development Plan Outlines Ambitious Goals • Now Is the Time to Invest in Hungary • Strong International Support for Banking Sector Reassures Investors • Hungarian Banking Association

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ENERGY & GAS

• Ensuring Tomorrow’s Energy Needs • Hungarian Energy Office • Dunamenti Power Plant • Impressive Track Record in Reducing CO2 Emissions

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Director: Lieve Luyten

Regional Manager: Adam Bozsoki

Design: Martine Vandervoort, Carine Thaens, Johny Verstegen, Walter Vranken, Dirk Van Bun

• High-Potential ICT Sector Building on Tradition of Innovation • Hungarian ICT Associates • National Development Plan Targets ICT • Focus on Research, Development and Manufacturing of Cutting Edge Technologies • Infineon Technologies

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INFRASTRUCTURE

• World-Class Infrastructure Supporting Ambitious Growth Plans • Óbuda-Újlak Group • Major Construction Projects Offer Investment Potential

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AGRICULTURE & FOOD INDUSTRY

• Agriculture Sector Continues to Perform Well in Times of Crisis • Thriving Agriculture Sector Sees Growth in Added Value and Revenues • Pápa Meat 1913 Ltd. • Food Industry Helping to Achieve Rural Develop ment Goals • Boosting Growth and Quality of Healthcare Sector • Developing World-Class Healthcare Facilities and Services • Globally Competitive in Life Sciences

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TOURISM

• High Potential Tourism Industry Set to Boost Its Contribution to GDP • Exceptional Growth Potential for Tourism Sector • Mellow Mood Group • Unique World Heritage Sites throughout the Country • Exceptional Tourism Potential beyond Budapest • Health Tourism: Priority Investment Opportunity

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IT & TELECOM

HEALTH

TRANSPORT & LOGISTICS

• Top Intercontinental Cargo Hub and Logistics Service Centre • Rolling Out the Red Carpet for Investors in Transport and Logistics • Budapest Airport • National Transport Authority

• EMFESZ • High Potential Investment Target: Renewable Energy

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HUNGARY

Successful Transition to Free Hungary, an ancient nation in the heart of Europe, has a history of forward-thinking policies. It was the first country in Central and Eastern Europe to initiate economic reforms (in 1968) and the first in the region to launch market-based privatisation – including of strategic sectors like energy and banking – as well as public sector reforms. Hungary has successfully made the difficult transition from a centrally planned system to a free market economy.

Between 1997 and 2006, Hungary made significant progress in achieving sustained economic growth, registering GDP increases of around 4% per year throughout the decade. During the same period, the government managed to reduce the level of inflation continuously, from around 30% in the mid 1990s to around 2.5% in 2009.

Several Nobel laureates To accomplish these feats, Hungary built on a long tradition of cultural, scientific and economic achievement. As Norman Macrea, former editor of The Economist magazine, wrote in 1992, “Early in this century, Budapest was the fastest developing metropolis in Europe. This city produced a legion of scientists, artists and would-be millionaires in numbers only comparable with the renaissance city states of Italy.” Twelve Nobel Laureates of the 20th century could trace their roots back to Hungary (seven were from Budapest),

Introduction

Market Economy and in 2002, Imre Kertész became the first Hungarian to win the Nobel Prize for Literature. Well before most of its neighbours in the region, Hungary established comprehensive laws on banking, foreign investments, company creation, trade, competition, labour, intellectual property, and bankruptcy. It also liberalised wages, imports and prices.

Productive member of international community Hungary’s commitment to being a productive member of the international community is reflected in its active participation in and partnerships with a number of global organisations. Hungary has been working with the International Monetary Fund, the World Bank and the International Finance Corporation since 1982 and became a member of the OECD in 1996 and of NATO in 1999. Additionally, Hungary is a signatory to the GATT (General Agreement on Tariffs and Trade), and is a member of the World Trade Organisation, the World Intellectual Property Organisation and the Central European Free Trade Association (CEFTA).

Meeting EU standards Most significantly, Hungary became a member of the EU in 2004 and ever since has been working hard to close the gap between its level of development as a new EU member country and the EU average.

The Hungarian government is establishing the physical and legal infrastructure to help the country effectively channel EU funding support, as well as to complement these sources of funding with domestic and international private sector financing. As a result of these efforts Hungary has been one of the few new EU member countries which successfully launched new programmes for the 2007-2013 period.

Top target for FDI Thanks to its strong economic performance along with its modern reform measures and increasing integration with the European and global economies, Hungary has become one of Europe’s top targets for foreign direct investment. An additional draw for investors is that Hungary’s regulatory environment reassures them: the Hungarian Act on Foreign Investment specifies that investments by non-residents enjoy full legal protection and security, and additional protection for foreign investors is guaranteed by bilateral treaties in force. The private sector now accounts for more than 80% of Hungary’s GDP, and foreign ownership of and investment in Hungarian firms is widespread, with cumulative foreign direct investment totalling more than €136.6 million between 1989 and 2009.

Attractions for investors Investors are attracted by Hungary’s central location, highly skilled mul-

tilingual population, low costs of doing business, tax incentives, modern transport and telecommunications infrastructure, and long history as a trade hub. In fact, GDP growth in Hungary in recent years has been driven by the expansion of exports and investments. Between 2001 and 2008 export growth was exceptionally high (11.5%), especially concerning technology-intensive and high value-added sectors such as machinery, transportation equipment, and ICT products. Hungary has faced challenges in recent years, and the global economic crisis has hit the country hard. Most analysts believe, however, that renewed mergers and acquisitions activity as well as a revival of bank financing will help to fuel Hungary’s continued economic growth in years to come. In mid January, the head of Hungary’s banking association, Erdei Tamas, predicted a “serious upswing” for the Hungarian banking sector beginning in 2011. He added, “Banks’ pre-tax profits will be at least 20% to 30% percent lower in 2009 than in 2008, but this is still outstanding, considering that 2009 brought the brunt of the crisis.” Hungary’s leaders remain confident in Hungary’s long-term prospects. They are also committed to positioning Hungary as a strong member of the EU and the global economic community, and to enhancing the country’s appeal for foreign investors.

HUNGARY

Hungary’s Fact File Location:

East-Central Europe

Official name:

Republic of Hungary

Head of State:

László Sólyom, President

Head of Government: Gordon Bajnai, Prime Minister Area:

93,030 km2

Capital:

Budapest

Largest towns:

Debrecen, Miskolc, Szeged, Pécs, Györ

Time zone:

GMT + 1 hour

Population:

10,028,000 (January 2009)

Ethnic groups:

Hungarian 96.9%, Roma 1.9%, German 0.6%, Slovakian 0.2%, Croatian 0.2%, other 0.2%

Religions:

Roman Catholic 51.9%, Calvinist 15.9% Lutheran 3% Greek Catholic 2.6% other Christian 1% other or unspecified 11.1% unaffiliated 14.5%

Climate:

temperate; cold, cloudy, humid winters; warm summers

Geography:

landlocked; strategic location astride main land routes between Western Europe and the Balkan Peninsula as well as between Ukraine and the Mediterranean basin; the north-south ﬂowing Duna (Danube) and Tisza Rivers divide the country into three large regions

Terrain:

mostly ﬂat to rolling plains; hills and low mountains on the Slovakian border. Highest point: Kékes (1,014 meters). Lowest point: Tisza River (78 m)

Main rivers and lakes: Danube, Tisza, Lake Balaton, Lake Velence

Introduction

Natural resources: bauxite, coal, natural gas, fertile soils, arable land Land use:

arable land: 49.58%, permanent crops: 2.06%, other: 48.36% (2005)

Irrigated land:

2,300 sq km

Environment:

Large investments are underway to upgrade Hungary’s standards in waste management, energy efficiency, and air, soil, and water pollution to meet EU requirements

Per capita GDP: €15,700 (US$19,330 – January 2009)

Currency:

Forint (HUF); Hungary is making vigorous efforts to join the Euro Zone

Composition of GDP:

agriculture: 3.2%

industry: 31.9%

services: 65% (2008 estimate)

Transportation:

railway network: 7,937 km (2,628 km

electrified), public road network: 160,680 km, six international airports. (2008) Targeted Sectors for Investment:

The Hungarian Investment and Trade Development Agency (ITD Hungary) is currently focusing on promoting investments in the following sectors:

• biotechnology/life sciences

• ICT

• logistics

• renewable energy

• tourism

• food industry/agriculture

• real estate

Financial or strategic investors looking to invest in Hungary can contact ITD Hungary’s sector specialists for further information on the latest opportunities available.

HUNGARY

Ministry Targets Four High Potential Sectors Hungary’s Ministry for National Development and Economy is spearheading the country’s New National Development Plan, which aims to get Hungary’s economy up to EU levels with the support of EU structural and cohesion funds. The plan calls for a focus on four key sectors in which Hungary has a competitive edge: the automotive industry, the logistics sector, bio-pharmaceuticals, and information and communications technologies (ICT). Istvan Varga, Minister for National Development and Economy, explains, “The government, industry leaders and key institutions have worked together to develop action plans for these sectors, with the aim of developing Hungary’s economy in a sustainable way, not just managing the current crisis.” The automotive industry employs more than 60,000 people in Hungary directly or indirectly and contributes more than 3% of the country’s GDP. Istvan Varga says, “We want to attract investors to this sector and to encourage Hungarian small and medium-sized enterprises (SMEs) to become second tier service suppliers to the major multinationals who are already in Hungary, like Audi and Suzuki.”

Istvan Varga, Minister for National Development and Economy

Hungary’s logistics sector benefits from Hungary’s strategic location as well as its well-developed infrastructure. The government aims to enhance the country’s transport infrastructure and improve industrial parks to attract investors in logistics activities.

nations concerning investor attractiveness even in this time of global crisis. Istvan Varga points out, “Hungary is maintaining its global position; in the first quarter of 2009, FDI exceeded €535 million. The government has created a platform for growth which can be called an austerity package, with very drastic savings and rigid budget plans, but we believe Hungary will be in a position to catch up very quickly after the economic recession.”

Concerning bio-pharmaceuticals, Hungary is building on its long tradition of research and development in this field, while the ICT sector is already thriving and expected to continue to perform strongly. “In all these sectors, we are focusing on research, development and innovation,” Istvan Varga explains.

Hungary has a liberalised and open economy and a very talented, hardworking workforce. Now the government aims to streamline bureaucracy and to focus on promoting entrepreneurship, including among SMEs. Istvan Varga concludes, “Hungary was a completely different nation 20 years ago; it is evolving very well.”

Coping well with crisis Hungary has been attracting around €4 billion per year in foreign investments, and a recent study by global consultants Ernst & Young states that Hungary has been performing on par with Western European

Ministry for National Development and Economy 1055 Budapest, Honvéd u. 13-15 P.O. Box: H-1880 Budapest, Pf.: 111, Hungary Tel.: +36 1 374 2700 Fax: +36 1 302 2355 www.nfgm.gov.hu

Chain bridge in Budapest

Coping with the Economic Crisis Hungary is an open, export-driven economy, so the global economic crisis has had a significant impact on its economic growth, especially in exportoriented sectors like the automobile industry and consumer electronics. The crisis comes on top of the government’s IMF mandated austerity programme aimed at reducing the budget deficit. This programme has been successful; the deficit dropped from over 9% of GDP in 2006 to 3.3% in 2008. Inﬂation also dropped, from 14% in 1998 to 6.1% last year. These reforms, however, cut into domestic consumption, reducing GDP growth to less than 2% in 2007. Hungary’s impending inability to service its short-term debt – brought on by the global credit crunch in late 2008 – led the government to seek and receive an IMF-arranged financial assistance package worth over $25 billion

(€17.7 billion). The global financial crisis, declining exports, low domestic consumption and fixed asset accumulation, dampened by government austerity measures, will result in a negative growth rate of about -1.5% to -2.5% in 2009, especially given falling demand in Hungary’s main European export markets and slowing domestic consumption.

Stringent austerity measures To cope with the crisis, the government released a report in April 2009 that details a number of recommended measures. These include increasing the efficiency of the public sector, rapid debt correction, boosting the country’s growth rate, and cutting expenses on social benefits by targeting the neediest while also cutting the state’s operating costs. The plan calls for a focus on “implementing austerity measures that are less of a risk for economic growth and can be implemented quickly.” The

plan also says that the government infused some HUF400 billion (€1.45 billion) into the economy in February 2009 to mitigate the effects of the crisis, and that another HUF900 billion (€1.81 billion) will be allocated for this purpose in 2010. Other goals outlined in the report are to stabilise the financial system, retain jobs, find ways to assist in financing small and medium-sized enterprises, speed up the implementation of EU funds, and continue to fight corruption and inefficiency. In spite of these significant challenges, Hungary’s growth prospects are likely to improve beyond 2009, owing to the loan offered by the IMF and EU funds; an EU subsidy of €22.4 billion is available to Hungary until 2013. The country’s traditional growth factors are also making investors confident in Hungary’s long-term prospects. These include relatively low wages, high skills, advanced infrastructure and an advantageous geographical position.

HUNGARY

Enhancing Competitiveness Key Goal for Economy Ministry The Ministry for National Development and Economy is committed to making Hungary a modern, competitive EU member. Zoltan Mester, State Secretary for Competitiveness and International Economic Relations, explains that his office currently has three major projects in the works. The first is to streamline administrative procedures by around 25% in order to cut red tape for companies. Secondly an actionplan will be put in place to promote the development of four targeted sectors: information and communication technology (ICT), logistics, the automotive industry, and pharmaceuticals. The third project is to enhance export possibilities of Hungarian SMEs.

ranked number three in Europe in transport and logistics according to the Cushman&Wakefield gradiation of European countries. Investors in Hungary can count on national and EU funding support for certain projects.

Low budget deficit

Focus on R&D

Even during the global financial crisis, Hungary has kept its financial fundamentals solid through a tight fiscal policy. “Hungary now has one of the lowest budget deficits in the E.U. We have cut government spending as well as certain labour related taxes,” Zoltan Mester says. He adds that two sectors have been performing relatively well even during the crisis, i.e. agriculture, with around €6 billion in exports per year, and service centres.

Another key goal for the Ministry is to attract investment from abroad. Zoltan Mester says, “Hungary has to create an environment which is lucrative for the international investment community. For example, in the pharmaceutical sector, pharmaceutical companies could have an allowance from the government to deduct their R&D costs from their taxes.”

To potential investors, Zoltan Mester concludes, “During the global financial crisis, we have a unique opportunity to put the Hungarian economy on a long-term, sustainable path. The tax reform, the restructuring of budget, cutting of social spending all are aimed to create a more competitive, sustainable economy.”

In the automotive sector, the government is working to attract more suppliers to support auto manufacturers so that they will be more likely to invest in Hungary. In the logistics sector, Hungary is building on its strategic location at the intersection of four European transport corridors; Hungary is already

Ministry for National Development and Economy Honved u. 13-15 H-1055 Budapest Tel: +36 1 374 2700 Fax: +36 1 331 2355 www.nfgm.gov.hu

Zoltan Mester, State Secretary for Competitiveness and International Economic Relations

Royal Palace

Current Government Facing Signiﬁcant Challenges Hungary’s ruling Socialist party, which has been in power for almost eight years, has had a difficult task in managing the country during its biggest recession in almost two decades. To cope with the challenges, the government formed a crisis management cabinet last spring, headed by Prime Minister Gordon Bajnai, who has presided over a number of ambitious reforms that have proved successful in reducing the country’s budget deficit. Hungary was the first EU member to secure International Monetary Fund (IMF) and EU financing last October to prevent financial meltdown. The current government has managed to cut state spending sharply to meet the conditions of its international lenders, even at a time when other EU countries have increased spending to mitigate the effects of the crisis. In a recent vote, the Socialist party chose economist Attila Mesterhazy, 35, as prime ministerial candidate for Hungary’s next parliamentary election, which is set for April or May 2010. Opinion polls show that the Socialists are set to lose the 2010 vote to centre-right opposition party Fidesz. Because of the crisis, the government expects the economy to contract by 6.7% this year and a further

0.6% in 2010. Prime Minister Bajnai argues that the current stringent financial policy, though unpopular, should not be loosened, and he has said that Fidesz’ pledge to lift next year’s deficit would be dangerous for the economy. Fidesz says the deficit could rise to 7% or 7.5% of GDP in 2010, while the current government targets a 3.8% deficit; analysts believe that the IMF and the EU are unlikely to approve the deficit increase advocated by Fidesz. The Socialist government’s new tax law, approved by Parliament last June, cuts payments made by companies to the state for employee benefits and also cuts personal income taxes. This and other efforts by the current government have helped the forint to recover from all-time lows hit versus the euro in March 2009, and have helped rebuild some investor trust in Hungary. Attila Mesterhazy says that the success of the economic stabilisation efforts should be the ground for Socialist politics, and that these efforts will pay off after the economy recovers from recession. As Barclays Bank comments, “The current Hungarian government has delivered on structural fiscal reforms, including a shift in taxation from labour to consumption taxes, a reduction of subsidies and pension reform, all of which have helped improve financial stability, but the fundamental challenges remain significant.”

HUNGARY

Embassy of Great Britain to Hungary

Your Business Partner in Hungary The first edition of The European Times investment guide for Hungary, in which I described our Embassy’s work and relations between our two countries, issued relatively recently. But in the meantime much has changed globally. The financial crisis has required unprecedented co-ordinated action by countries around the world and the leading international financial institutions to meet today’s shared challenges. In Hungary there has been a change of political leadership, with Prime Minister Gordon Bajnai overseeing new austerity measures and painful but necessary reforms to the national economy. Although these have gone down well with the international financial and business world they have inevitably been less well received by his domestic audience. But from the perspective of a country that is the fourth biggest foreign investor here, they are positive changes. As a result, the economic future looks brighter. The annual report of the Hungarian European Business Council, whose members are amongst the most prominent European multinational companies, recently indentified a range of strengths and opportunities on which the Hungarian economy can build - notably Hungary’s human capital, improving national infrastructure, continued attractiveness to foreign investment and opportunities for the agricultural sector (given rising global food prices). The Council also indentified a key area of opportunity: the Hungarian government’s use of EU Structural and Cohesion Funds. With European Commission negotiations on the New Hungary Development Plan complete, Hungary will receive €22.4 billion in funding until 2013 to close the country’s “development gap”. The existence of EU financed projects will be extremely attractive to British and other companies and their financiers. And the planned acceleration of grant payments and more favourable and flexible grant facilities from 2009 could

Greg Dorey, Ambassador

hopefully help moderate the negative effects of the economic crisis. This must be good news for Hungary. And potentially for Britain. There will of course be obstacles to progress. Many argue that some of these obstacles can be overcome through a mixture of better (and less) regulation; further reform to public administration and local government; and continued efforts to improve Hungary’s reputation as a transparent economy. If Hungary can address these reputational issues with the same determination that it is currently addressing its economic condition, the future can be very bright indeed. In the meantime, I strongly recommend those companies interested in establishing a regional presence or expanding their trading links with Central Europe to come and take a close look at Hungary. British Embassy, Budapest Harmincad u. 6 - H-1051 Budapest Tel.: +36 1 266 2888 - Fax: +36 1 266 0907 info@britemb.hu www.ukinhungary.fco.gov.uk

Introduction

British Chamber of Commerce in Hungary

British Chamber Helping Companies Survive the Crisis The British Chamber of Commerce in Hungary is playing a key role in helping to keep the country’s economy on track in challenging times. Gergely Mikola, Chairman, says that the Chamber has been growing over the past year, a reflection of the organisation’s status among Hungary’s business leaders. He adds, “The current strategy of the Chamber addresses the challenges that our member companies in various sectors are facing due to the significant changes in the business, economic, as well as EU and local political environments. At the same time, special attention has to be paid to smaller and medium-sized enterprises, since they do not have the financial clout to manoeuvre in tight economic times.” The good news, according to Gergely Mikola is that “there is unavoidably a rebound, a point from where a new development follows. I believe the more prepared a business is for the rebound, the more favourable position it will have in a reshaping world. In my view, it will be a business environment with a series of different agendas, different priorities and different opportunities.”

Mission: establishing strong trade links between Hungary and the UK

Gergely Mikola, Chairman

The Chamber’s overall mission is to improve trade relations between the UK and Hungary and to assist member companies in developing their businesses. Providing networking opportunities is a key service of the Chamber, which organises around 60 events every year to “help make business happen,” Gergely Mikola explains. The Chamber also helps local businesses become more competitive through offering seminars and training sessions.

The British Chamber strongly praises Hungary as an investment target and business base. Gergely Mikola says, “It is important to change the misconceptions about Hungary that are held in Western Europe. The Chamber feels there are many reasons to invest and do business in Hungary, such as the country’s excellent infrastructure, including IT infrastructure; the highly educated and hardworking workforce; opportunities for research and development; a strong banking system; and a strategic location. We are positive that those who are able to switch their mindsets to relatively new situations will be successful in the future.”

The British Chamber is part of the Manifesto Group, an informal organisation created by the majority of business representations in Hungary; is also active in the Economy Consultancy Forum as well as the EU Chambers of Commerce; and co-operates with Transparency International and other local and international organisations. It also participates in an EU initiative to reduce bureaucracy in Hungary.

British Chamber of Commerce in Hungary H-1137 Budapest, Szt. István krt. 24. IV/3. Tel.: +36 1 302-5200 or 302-5201 Fax: +36 1 302-3069 bcch@bcch.com www.bcch.com

• Economy: Back from the Brink • Agency Serves as Foreign Investors’ Top Local Partner • Now Is the Time to Invest in Hungary • Strong International Support for Banking Sector Reassures Investors

Business & Investment Opportunities

“We anticipate that GDP will grow to 3% to 4% by 2011. Hungary’s strengths are its macroeconomic fundamentals, good business infrastructure, and an attractive cost quality ratio.” Csaba Kilian, Executive Director ITD Hungary

Business & Investment Opportunities

Economy: Back from the Brink Although Hungary, with its export oriented economy, is among the EU members that have suffered the most in the current recession, some light is appearing at the end of the tunnel.

Hungary has managed to avert an exchange rate and liquidity crisis, and the government has a good change to reduce the budget deficit to 3.8% of GDP in 2010 if it maintains a tight fiscal policy this year. A predicted run on the currency, the forint, has receded, and Hungary’s banks, mostly foreign-owned, have not collapsed, as many had feared. The Central Bank of Hungary has felt able to start cutting interest rates, and Finance Minister Peter Oszko has observed that with the IMF loan extended until next October, the government can again raise money from the market. The debate continues on what an acceptable level for the budget deficit would be in 2010 (when the opposition party, which favours a higher deficit, is expected to win the next election), and how soon Hungary should try to adopt the euro. The Socialist government wants to maintain the deficit at 3.8% of GDP, a level which a leading economic researcher, Andras Vertes of economic think tank GKI, says would be “risky, but appropriate”. He adds that Hungary could and should join the ERM-2, the “waiting room” for the euro, in the spring of 2010.

Buda castle and chain bridge at night

Private sector regaining confidence Meanwhile the private sector is showing signs of regained confidence in Hungary’s economy. According to a recent Deloitte survey, company managers in Hungary were more optimistic in December 2009 with regard to the economic outlook of both the country and their companies than they were in September. Around 40% of the leaders surveyed said they expected the economy to recover in the next six months, compared to just 25.8% three months earlier.

One third of those surveyed said they expected to invest more in capital goods over the next 12 months, compared to only 18.5% who said they expected to do so in September. The survey covered companies in countries throughout the region, and Hungarian companies were among the most optimistic with regard to sales prospects, with 63.3% of the respondents expecting growing sales revenue in the 18 months ahead. In addition, 56.7% of the Hungarian companies surveyed said they could get a loan if needed, an increase of 21 percentage points from the previous survey. Hungary seems to have come back from the brink.

HUNGARY

French Embassy in Hungary

French Investors Finding Hungary a Proﬁtable Base for Business French investors are stepping up their involvement in the high potential Hungarian economy, according to René Roudaut, Ambassador. He explains, “French companies have a 4% market share in Hungary, which is far behind Germany’s share, but France is in third or fourth place concerning foreign direct investment here. There are now 380 French companies operating in Hungary, from small and medium-sized firms to multinationals.” French companies have been awarded many of the tenders for projects in Hungary which have been financed by EU structural funds, including infrastructure and water treatment initiatives. The ambassador adds that France has a particularly strong presence in the pharmaceuticals sector as well as in large distribution networks and in the tourism sector, including hotels. French investors targeted Hungary later than German and Austrian investors, according to René Roudaut, but began to target the country extensively in the mid 1990s. Now, even with a drop of 8% to 9% in turnover by French companies in Hungary this year as a result of the global financial crisis, no French company in Hungary has announced plans to leave, and several companies which had planned investments in Hungary are moving forward with their projects.

Skilled human resources, strategic location Hungary offers very interesting investment potential, René Roudaut believes. He says, “Hungary is changing for the better and the government and business leaders are doing a good job. In addition to this, Hungary has extremely talented, hardworking and highly educated human resources, especially in the areas of technology and information technology. Also, Hungary’s geographically strategic position makes it a very attractive choice for production facilities and logistics operations.” In fact, more and more companies are choosing to make Hungary their export hub for Central and Eastern Europe.

René Roudaut, Ambassador

To highlight the French presence in Hungary as well as Hungary’s investment potential, the embassy organised the “French Economic Year in Hungary”. As the ambassador points out, “We are involved in making French businesses aware of Hungary’s potential as well as in helping Hungarian companies promote themselves in the French market. One effort that has been very successful is the establishment of a Hungarian Chamber of Commerce in France.” Ambassador René Roudaut concludes, “Hungarian government leaders have made some courageous decisions over the past three years which will have very positive long-term effects which will become clear by 2010. The majority of French companies operating in Hungary are happy about their environment, even if they complain about red tape and absence of stability in the legal and tax framework, as it appeared in the recent weeks with a municipality which has decided unilaterally to terminate a contract, thus casting a shadow on the reliability of some partners.” French Embassy in Hungary Lendvay utca 27 H-1062 Budapest, Hungary Tel.: +36 1 374 11 00 Fax: +36 1 374 11 40 www.ambafrance-hu.org

Business & Investment Opportunities

Labour Ministry Working to Retain and Create Jobs The Ministry of Social Affairs and Labour works to retain and create jobs in order to boost the employment rate from the current 57% and to bring more inactive people into the workforce. It is also involved in reforms to the country’s pension programme and in such key issues as retirement policies. According to László Herczog, Minister of Social Affairs and Labour, the global economic crisis has caused the ministry to shift its focus from job creation to job retention and to implement ambitious programmes to keep economic growth on track. He says, “The ministry launched programmes for enterprises which were suffering because of the crisis but were on the whole competitive; these programmes include a labour market fund as well as an EU programme for job training budgeted at HUF30 billion (€109 million). Around two-thirds of this funding is for small and medium-sized enterprises and the rest for large enterprises.” The crisis hit Hungary at the worst possible time, according to László Herczog, since the government was very focused on reducing the national budget. He says, “Because of the crisis, the government has not been able to provide the social welfare programmes that people had hoped for. In the long run, however, the crisis management measures the government has taken will be beneficial for the country’s economy.”

Ensuring long-term stability of pension programme In fact, the government is currently putting much of its focus on mitigating the negative effects of the economic crisis. “At this time, true pension reform is out of the question, so the government is concentrating on the long-term sustainability of the pension programme while also expanding the labour supply,” László Herczog explains. Various measures which have

László Herczog, Minister of Social Affairs and Labour

been enacted include raising the retirement age from 62 to 65, eliminating the “thirteenth month” payment, and reducing pension payments for workers who retire before retirement age. Overall, according to László Herczog, “Hungary is working to develop rules to increase competitiveness and employment opportunities in accordance to EU standards. Now that Hungary is an EU member, the ministry is in daily contact with the EU Commission concerning these efforts.” In addition, he says, the ministry is trying to establish grant programmes in line with EU criteria and to encourage private investment, including private support for the country’s pension programme. He concludes, “We foresee the private sector taking on an ever more important role in the country through very secure investments.” Ministry of Social Affairs and Labour Alkotmany U. 3, 1054 Budapest, Hungary Tel.: +36 1 473 8100 www.szmm.gov.hu

HUNGARY

Hungarian Investment and Trade Development Agency

Agency Serves as Foreign Investors’ Top Local Partner The Hungarian Investment and Trade Development Agency (ITD Hungary) is the ideal local partner for investors in Hungary’s high potential economy. Founded in 1993 to help implement the government’s investment and trade promotion policies, ITD Hungary has been steadily growing and has 20 offices in Hungary besides the main office in Budapest and 56 offices in 46 countries, to better serve investors all over the world.

Liaison between public and private sectors ITD Hungary’s highly skilled team of professionals is ready to assist investors in starting business operations in Hungary. The organisation’s web site has a section on “Invest in Hungary” which contains a wealth of information about investment opportunities and procedures. ITD plays a key role as a liaison between government, local authorities and the private sector, and it can help streamline the investment process significantly. In 2008 ITD Hungary handled 564 investment project initiatives, was involved in more than 300 projects and brought 30 projects to a successful completion. It also organised 118 events to promote foreign direct investment in Hungary, helped attract €1.54 billion in foreign capital, helped to create 8,094 new jobs, and hosted many conferences and other networking events to bring local and international players together.

More than €4 billion in FDI in 2008 Csaba Kilian, ITD Hungary’s Executive Director, says that the agency is currently working to keep FDI flows coming into Hungary in spite of the global economic slowdown. He says, “Hungary attracted more than €4 billion of inward investment last year and reinvestment is growing.” Hungary’s attractions remain strong: a competitively priced, highly skilled labour force, easy access to neighbouring markets, advanced business infrastructure, and one of the lowest corporate tax rates in Europe. Hungary is generally faring well during the global crisis. The automotive sector, while hurt by the crisis, nevertheless continues to attract significant FDI and has strong long-term growth potential. “Daimler will invest around €800 million in a new plant which will start production by the end of 2011 or early 2012; this venture will directly create 2,500 new jobs and more jobs indirectly,” Csaba Kilian says.

Business & Investment Opportunities

The electronics sector also continues to attract investors even though competition is heating up. Samsung is producing plasma and LCD televisions at 3 locations in Hungary and is transferring more of its production to Hungary, where the global group is reinvesting.

Significant investment and reinvestment in key sectors Services activities are also bringing in investments, including an expansion by BP which will create 1,100 new jobs, a reinvestment by IBM which will create 290 jobs and a venture by British Telecom which will create 600 new jobs. Biotechnology and pharmaceuticals as well as renewable energy initiatives are other growth sectors in Hungary. Csaba Kilian says, “We are seeing serious large investment and reinvestment in biotech and pharmaceuticals R&D activities, and in renewable energies there are significant new investments in biomass, wind and solar energy ventures, including a possible plant to produce solar panels in rural Hungary.”

GDP growth up to 3% or 4% by 2011 In fact, while Hungary is expecting negative GDP results this year, the economy should rebound quickly. Csaba Kilian explains, “We anticipate that GDP will grow to 3% to 4% by 2011. Hungary’s strengths are its macroeconomic fundamentals, good business infrastructure, and an attractive cost quality ratio. Hungary is moving up the value chain in the quality of labour that it can provide while still keeping costs reasonable. This is why many companies involved in R&D, engineering and other high-tech ventures are reinvesting here.”

Csaba Kilian, Executive Director

Hungary’s borders,” Csaba Kilian explains. ITD Hungary plans to screen around 2,000 SMEs and single out the ones with the most potential for exports. To encourage investment, ITD Hungary works with the Ministry of National Development and Economy to provide cash and job creation incentives and training subsidies to investors, and a special incentive package for investors in larger projects has been implemented. ITD Hungary is confident about Hungary’s future prospects. Csaba Kilian says, “About 40% of Hungary’s GDP is from foreign investments here in Hungary. The government which wins the next elections must concentrate on creating an environment that allows these enterprises, as well as SMEs, to grow and be profitable. Hungary is very competitive in both manufacturing and services and foreign investors should utilise the country’s innovative, skilled professionals.”

ITD Hungary is helping to push forward Hungary’s new national development plan, which is supported by EU structural and cohesion funds. “These funds will play a very important role in attracting new investment, and the government is working to speed up the tender process,” Csaba Kilian points out.

Stimulating growth of SMEs Another goal for ITD Hungary is to spur on the growth of Hungary’s small and medium-sized enterprises, which are set to play a very important role in the country’s future. “We are encouraging our SMEs to think beyond

The Hungarian Investment and Trade Development Agency Andrássy út 12, H-1061 Budapest, Hungary Tel: +36 1 472 8100 - Fax: +36 1 472 8101 Mail: info@itd.hu - www.itdh.com

HUNGARY

German-Hungarian Chamber of Industry and Commerce

German Chamber Serves as Advocate for Investors Germany recognises the potential of the Hungarian economy. German businesses account for 25% of total foreign direct investment in Hungary, and of some 25,000 foreign companies operating in the country, around one quarter are German enterprises in a wide range of sectors. These companies also carry out half of all reinvestments done by foreign business in Hungary. Tamas Vahl, Chairman of the German Hungarian Chamber of Industry and Commerce, says, “Many German companies have established subsidiaries in Hungary because of favourable conditions at the local labour market, for logistical reasons, and also because they know that if a German company comes to Hungary, it can find the infrastructure and all the services it needs.” While the current global economic crisis has had a negative impact on the Hungarian economy, around 80% of German companies in Hungary say they are satisfied they invested there, according to regular surveys conducted by the Chamber. “These companies came to Hungary for profitable business and are still finding it here,” Tamas Vahl points out.

German investment still pouring in German investors continue to enter the Hungarian economy or expand their presence there. MercedesBenz has announced a new investment in Hungary and several small and medium-sized German enterprises are setting up operations there. “SMEs make up a large percentage of the German Chamber’s membership and are being warmly received by the Hungarian market,” Tamas Vahl says. The German Chamber provides its members with essential information about the Hungarian economy, from short-term indicators to long-term opportunities. The Chamber also assists its members and other companies with legal issues, tools for maintaining

efficiency, and ways to reduce layoffs in difficult times. The Chamber serves as a liaison between the private sector and the government, and co-operates with other German chambers of commerce in about 80 countries around the world. Tamas Vahl points out that Hungary’s investment attractions include the productivity and quality of its labour, its well-developed business infrastructure, and its strategic location. Looking to the future, he says, “The next two to three years will be crucial for Hungary. The current government is trying to start reforms to pull Hungary out of the economic recession, but whatever government is in power, it will have to implement the changes needed to improve the business environment and relations with other European countries. There have been negative portrayals of Hungary in the media, but the German Chamber believes Hungary has great potential. It is important to provide facts about the country so that investors can make informed decisions.” German-Hungarian Chamber of Industry and Commerce Lövoház u. 30 1024 Budapest Tel: +36 1 345 7600 Fax: +36 1 345 0744 info@ahkungarn.hu www.duihk.hu

Business & Investment Opportunities

Embassy of Germany in Budapest

Close Business and Cultural Ties between Germany and Hungary Germany and Hungary have established close business and cultural ties, one reason Hungary has proved such a popular choice among German companies and investors. Dorothee Janetzke-Wenzel, Germany’s Ambassador to Hungary, explains, “Many large German enterprises that have subsidiaries here in Hungary work with local universities, exchanging knowledge and creating value. The close relationship between Germany and Hungary is longstanding, dating from even before the fall of the Iron Curtain.”

Germany is Hungary’s top trading partner and has provided around 27% of the country’s foreign direct investment. The current global economic crisis has not dampened German investors’ enthusiasm for Hungary. Dorothee Janetzke-Wenzel says, “German investors in Hungary were surveyed in spring about whether they were pleased with their investment choices, and four out of five responded that they again would invest in Hungary.” In fact, many German companies in Hungary are in the process of reinvesting, including E.ON, Hochtief and Knorr-Bremse, while Mercedes-Benz is setting up a manufacturing plant on the outskirts of Budapest. The Embassy works closely with the German Chamber of Commerce in Hungary, which has 700 German companies as members and 200 Hungarian companies. “This is one of the largest chambers in the world and the second-largest in Central and Eastern Europe,” the ambassador says.

Helping small and medium-size companies One task for the embassy is to assist small and medium-size enterprises. “The smaller companies need our help more than larger ones, and many of the EU structural funds are allocated or re-allocated for small and mediumsized enterprises,” the ambassador explains. She adds that the embassy also helps to set up cultural initiatives and educational programmes involving German and Hungarian participants.

Dorothee Janetzke-Wenzel, Germany’s Ambassador to Hungary

Dorothee Janetzke-Wenzel advises German investors to look into opportunities in Hungary. She says, “Hungary offers excellent infrastructure and human resources, and since German is the second foreign language here, doing business in Hungary is easier for German investors. Hungary also has a strategic location, and, last but not least, Hungarians like doing business with Germans.” The ambassador cites renewable energy, machinery, manufacturing, the automobile industry, medical technologies (including precision instruments) and agriculture as activities with particularly strong potential. She concludes, “Hungary is an excellent business opportunity and, on a personal level, investors will find reliable partners, good human resources, and an environment where they can combine attractive business opportunities and an excellent quality of life.” Embassy of the Federal Republic of Germany in Budapest H-1014 Budapest, Uri utca 64-66 Tel.: +36 1 488 35 00 Fax: +36 1 488 35 05 www.budapest.diplo.de

HUNGARY

National Development Plan Outlines Ambitious Goals The New Hungary Development Plan for 2007 to 2013 outlines the government’s goals for a period in which Hungary has an historic opportunity to build the foundations for long-term economic stability.

During these years, Hungary will be eligible for EU development support totalling some €22.4 billion; this support is designed to help the country re-align itself with advanced economies. With the addition of funds being allocated for rural development, Hungary will be able to count on almost HUF8 trillion (€2.92 trillion) in funding support during the five year period.

Job creation and sustained economic growth The government is well aware that this financial support is a once in a lifetime opportunity for Hungary to jump-start its economy. The plan cites Hungary’s two most pressing needs: to create more jobs and to establish the conditions for sustained economic growth. As the plan points out, half of Hungary’s working age citizens cannot find work and Hungary’s GDP fails to reach even two-thirds of the EU average. In its New Hungary Development Plan, the government addresses Hungarians when it says that the plan aims “to strengthen our existing capacities and eliminate obstacles that hamper our development. If we are able to find our own key leverage points and study our competitors, the economy can show a spectacular growth within the next couple of years. If we stick together, we will succeed.”

The plan calls for taking advantage of the country’s highly skilled human resources to create and retain jobs, and for finding funding to assist those unable to work or otherwise in need. The plan also calls for “an offensive strategy based on our own strengths” and for large scale objectives which will be achieved through working in synergy. Long-term prosperity is the plan’s overall goal. Stepping up Hungary’s competitiveness in global markets is a key feature of the plan, especially given Hungary’s export-oriented economy. The plan states, “If we choose isolation instead of fighting and winning in global competition, we will establish ourselves only for survival. The example of countries in the front rank of realignment shows that we need a brave and creative economic development concept embracing issues of employment and respecting both the satisfaction of social demands and macro-economic stability.”

Focus on products and services with added value The plan recognises that Hungary can no longer rely on low labour costs as its competitive edge; instead, the plan calls for Hungary to offer products and services with high added value. In addition, the government states its commitment to international co-operation as a necessity for success. “The history of the EU is a good example of the

Business & Investment Opportunities

fact that everyday cooperation can create mutual trust opening new horizons of development, eliminating longstanding conflicts. This lesson can be an excellent guideline not only concerning global competition but also in solving old internal conflicts,” the plan states. Furthermore, the plan calls for a Hungary characterised by fewer privileges, higher performance, less bureaucracy and more cost efficiency. To achieve this goal, the plan states, Hungary must increase revenues and cut expenditures, and must re-think the state’s role in the existing welfare system.

• Employment problems must be solved while consumption and wealth must be increased; • Private investments must be encouraged; • Development actions with synergic and multiplier effects must be supported; • A cultural shift must occur which emphasises performance, individual initiatives, self-reliance, social solidarity, co-operation and equality; and • Compliance with laws must become standard.

The plan states that the government will reorganise public services to make them more adapted to people’s needs, modernise healthcare and education, and make social services available to everyone.

Specific objectives outlined Hungary must also ensure environmental, social and economic sustainability, the plan points out. The plan outlines a number of specific objectives to be achieved with the help of EU funds: • Major state distribution systems and public services must be reformed to become more efficient and to serve as catalysts of development; • Distribution of state expenditures must be improved;

The plan recognises that achieving these goals requires the support of all citizens, non-governmental organisations, municipalities, churches, businesses and other groups. As the plan states, “We have to empower our citizens to cope with the competitive world of ours. Similarly, we have to enable the state to support those unable to compete. If the country cannot adjust itself to the rapidly changing world, our system of values cannot be maintained anymore. If we do not allow the talented to soar and we do not support the eager in becoming stronger, then we will not be able to provide security for those falling behind. Envisioning extended employment and economic growth, the government intends to put the country onto a new and sustainable course of development through the New Hungary Development Plan.”

HUNGARY

Now Is the Time to Invest in Hungary Ever since the late 1980s when Hungary began its transition to a free market system, the country has attracted significant inﬂows of foreign direct investment (FDI). In fact, this country with a population of 10 million has attracted more than €60 billion in FDI to date, giving Hungary the highest per capita rate of FDI of any country in Central and Eastern Europe.

Hungary offers highly skilled human resources, a strategic location, a trade-oriented economy, and the advantages of EU membership. Thanks to significant FDI and to the EU and Hungarian government investment financing support currently being offered to keep FDI flowing in, Hungary may approach or in many cases even reach the average level of EU development by 2013, when the country also aims to become part of the euro zone.

ITD Hungary: one-stop shop for investors The key organisation serving to promote Hungary’s investment attractions and assist foreign investors is the Hungarian Investment and Trade Development Agency (ITD Hungary), which offers one-stop-shop services. ITD Hungary supports high value-added investment projects and can assist investors in profiting from the government’s many investment incentives. ITD Hungary is currently targeting investments in the following activities which the government has set as priorities: the establishment of new manufacturing, research and development, bio-energy, logistics and tourism facilities as well as regional service centres. Investors in Hungary can often count on the support of EU development funding. For the period from 2007 to 2013, Hungary has access to

€22.5 billion from EU European Structural and Cohesion Funds. These funds will be distributed to enterprises and certain government institutions under the scope of Hungary’s New Hungary Development Plan and are to be directed towards the following six priorities: economic development, transport development, social renewal, environment and energy development, regional development, and public sector reforms. In addition to the funds coming from the EU, Hungarian co-financing may reach a further €5 billion over the 2007-2013 period. Moreover, the experiences of other new EU member countries indicate that for every euro spent in EU development projects, another euro is invested by the private sector. Thus, the real amount of investment to be mobilised for Hungary by European Structural and Cohesion Funds is expected to be about €60 billion over the next seven years. For projects that do not receive EU funding, the Hungarian government has devised tailor-made incentive packages for projects with eligible costs exceeding €10 million (or €50 million for tourist projects) in any of the government’s priority investment targets. The incentive package may consist of the following: a cash subsidy determined case by case by the Hungarian government, a development tax allowance, a training subsidy, or a job creation subsidy.

Business & Investment Opportunities

Vajdahunyad Castle

Focus on innovation and advanced technologies

around 30,000 companies with foreign participation are operating in Hungary.

Unlike other Central European countries, Hungary has moved beyond the privatisation phase in its efforts to attract investors and is now focusing on promoting the introduction of advanced technologies and innovation to produce goods with higher added value. Thanks to this strategy, Hungary has recently been attracting particularly significant investments in the automotive sector, research and development, information and communications technologies, biotechnology, shared services operations and logistics.

The manufacturing sector has attracted more than half of the FDI in Hungary to date, but the services sector has been gaining ground rapidly, and now FDI in Hungary is more evenly divided amongst sectors than in other countries in the region.

Not only have some of the world’s largest multinational manufacturers and service providers established their facilities in Hungary, but their major international suppliers have come with them as well, and in many cases brought along their subcontractors. Currently

Flow of FDI to Hungary (million ) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2001

2002

2003

2004

2005

2006

2007

2008

Foreign investors from the EU have accounted for the majority (79%) of investments in Hungary, according to the Hungarian National Bank. Germany is by far the most important country of origin with 25% of all FDI, followed by the Netherlands (14%) and Austria (13%). The US has been the largest non-European investor (5%) and in many cases investments going through the Netherlands and other European countries have originated from the US. Among Asian countries, Japan and South-Korea have played an increasing role in Hungary’s FDI. In spite of the global crisis, FDI inflow to Hungary did not drop in 2008 compared to 2007, and reached a total €4.4 billion over the year. In line with global trends, in 2009 and 2010 FDI inflow is expected to fall to €1.5-2.5 billion, but experts forecast a recovery in 2011. Now is definitely the time for foreign investors to take advantage of the many investment incentives Hungary offers, particularly during the period 2007 to 2013 when EU development funding will make investing in Hungary an even more attractive option.

HUNGARY

Strong International Support for Banking Sector Reassures Investors Hungary has instituted a number of measures to maintain an investorfriendly banking system during the global financial crisis. Significant support from international institutions has bolstered the country’s financial sector; this support demonstrates confidence in Hungary’s long-term prospects.

The banking sector’s liquidity has continued to grow in spite of the crisis. In July 2009, the stock of two-week National Bank of Hungary (NBH) bills rose HUF260 billion (€954 million) to reach HUF2.9 trillion (€10.6 billion), and as a result of a HUF491.8 billion (€1.8 billion) rise in assets and a HUF93.1 billion (€341.6 million) fall in liabilities, net foreign assets of the central bank rose HUF584.9 billion (€2.14 billion) to reach over HUF8 trillion

(€29.3 billion), almost double the total a year earlier. The banking sector has been adjusting to the crisis through a contraction in lending as well as a stronger deposit collection, resulting in a decrease in the loan to deposit ratio and a rapid decline in reliance on foreign funding. Banks’ assets side liquidity has also improved. The banking sector managed to achieve higher than average earnings in the

Business & Investment Opportunities

first half of 2009, mainly due to outstanding revenues from financial transactions, rising interest income and improvements in operational efficiency.

Strong capital adequacy ratio, upgraded regulatory environment The banking sector’s current capital position is strong and is expected to remain so. The capital adequacy ratio rose from 11.2% to 12.3% in the first half of 2009, and the Tier 1 capital ratio grew from 9.3% to 10.3% over the same period. This growth stemmed from banks using their strong profits for internal capital accumulation, along with injections of capital from parent banks to reinforce the capital position of their Hungarian subsidiaries. The capital adequacy ratio is expected to remain above 11% to the end of 2010. The government will continue to make available a €1 billion capital fund as part of its bank support package throughout the year. In another move which inspires investor confidence, Hungary’s authorities have formulated proposals for a new financial sector supervisory architecture, in consultation with the International Monetary Fund (IMF). In the proposed framework, the Hungarian Financial Sector Authority (HFSA) would have a right to issue regulations, the responsibilities of the Magyar Nemzeti Bank in the field of financial stability would be broadened, the legal status and organisational framework of the HFSA would be strengthened, and a Financial Stability Council would be established in order to harmonise prudential supervision at both systemic and individual levels.

Significant support from IMF The IMF continues to support Hungary’s economy. Iryna Ivaschenko, the IMF’s representative in Hungary, commented recently, “The success of the government’s Eurobond issuance clearly shows that markets appreciate the efforts that have been made by Hungary in terms of addressing its key vulnerability – the budgetary situation.” In mid 2009, the IMF completed its second review of Hungary’s economic performance under a programme supported by a 17 month Stand-By Arrangement, which was approved in November 2008 for around €11.7 billion. The arrangement entails exceptional access to IMF resources, and the completion of the review enables the immediate disbursement of about €1.4 billion, bringing total disbursements under the program to around €8.4 billion.

National Bank and bank centre

The IMF Executive Board, which reviewed Hungary’s performance in mid 2009, expressed confidence in the government’s efforts. John Lipsky, First Deputy Managing Director and Acting Chair, stated, “The Hungarian authorities’ commitment to the firm and timely implementation of appropriate policies is reassuring. Fiscal sustainability is being strengthened through structural spending reforms, while allowing an increase in the fiscal deficit in 2009, owing to the partial operation of automatic fiscal stabilisers. The permanent budgetary savings from expanded reforms to the pension system, social transfers, and subsidies are encouraging. These reforms, together with tax reform that will shift the tax burden from labour to consumption and wealth, should boost labour participation and potential growth over the medium term.”

EBRD announces major banking sector loans The European Bank for Reconstruction and Development (EBRD) is also supporting Hungary. The EBRD recently announced it would provide a senior loan of up to €100 million to Erste Bank Hungary to help the bank provide medium and long-term financing to small and medium-sized Hungarian private independent companies. The EBRD has also granted a €200 million loan to Hungarian energy group MOL for strategic gas storage in Hungary, enhancing energy sector investment opportunities, and has approved a €200 million subordinated loan to Hungary’s OTP Bank, along with an additional €20 million to acquire OTP treasury shares. The EBRD states, “The project will enhance the capital of OTP, thereby helping the bank to mitigate the impact of the recession and strengthen its market position. In turn, this will contribute to raising the overall level of confidence in the banking sector in Hungary and in the region.”

HUNGARY

Hungarian Banking Association

Banking Association Cites Financial Sector’s Strengths Hungary’s banking sector is performing well, with capitalisation of 11% in August this year as well as the prospect of positive returns on investments in 2009. It has also been coping with the global financial crisis through instituting various measures to keep the sector thriving even in difficult times.

sector has the general commitment to maintain the highest EU and international standards.

Close collaboration with IMF

Dr. Rezso Nyers, Secretary General

Dr. Rezso Nyers, Secretary General of the Hungarian Banking Association, points out that recent negative media coverage of Hungary’s banking sector is inaccurate. He says, “Standard & Poors recently published an analysis of the Hungarian banking industry which was very critical, but it was based on figures which were not correct. In fact, the banking sector’s profitability is relatively high, the deterioration of the loan portfolio is definitely manageable, and both the government and the banking industry have been extremely proactive concerning handling the effects of the global financial crisis. The industry has launched new products for their clients to help them in this challenging time,” he explains. Hungary’s banking sector is owned around 80% by foreign financial institutions and is very international, featuring close ties with foreign banking interests. In addition, the Hungarian Banking Association is a member of the European Banking Federation. The Hungarian banking

The Hungarian Banking Association is a voice for the banking sector when the government is considering policies that will affect financial services. It also collaborates closely with the International Monetary Fund in Hungary. Dr. Rezso Nyers points out, “The IMF is very confident about the way banks in Hungary are utilising the support developed for the crisis, which has included increasing banks’ capitalisation, developing a loan facility, and finding solutions for maintaining foreign currency liquidity. Three banks have benefited from this package, which was not a bailout tool but rather a support measure.” In fact, the banking sector’s effective management of the financial crisis is an indicator that Hungary’s banking sector is solid and positioned to be even stronger and more effective when the crisis is over. Dr. Rezso Nyers explains, “Hungary is near the end of a serious fiscal adjustment policy, and will end the crisis with a sustainable fiscal position. The deficit after the crisis will be approximately 3.8% in 2010, and less than 3% in 2011. We are finding the right solutions.” Hungarian Banking Association Jozsef nador ter 5-6 1051 Budapest, Hungary Tel.: +36 1 483 1866 Fax: +36 1 266 1989 www.bankszovetseg.hu

• Rolling Out the Red Carpet for Investors in Transport and Logistics • Keeping Transport Infrastructure Development on Track

Transport & Logistics

“Because of its strategic location, Hungary can play a key role as Europe’s logistics and transport hub.” Zsolt Csaba Horvath, President National Transport Authority

HUNGARY

Top Intercontinental Cargo Hub and Logistics Service Centre Hungary is positioning itself as a key European transport hub. It offers easy access to top suppliers and sales markets, a cost effective workforce, advanced business infrastructure (including turnkey sites and industrial parks), and world-class logistics services. Hungary’s location is a key advantage. The country is set on the EU’s eastern edge and already serves as a major transport hub for Central and Eastern Europe. Four vital European transport corridors pass through Hungary, providing unparalleled access to all parts of Europe, including key ports and fast growing CIS markets with further access to China. For air freight, Budapest International Airport has the highest traffic and speediest connections to South-East Asia of any airport in Central and Eastern Europe, and the airport’s cargo terminal is being expanded. Hungary also has a busy inland waterway system. Thanks to its many advantages, Hungary has developed a thriving logistics sector centred in the Záhony area, a key road and railway interchange on Pan-European Transport Corridor V. Záhony borders Slovakia and Ukraine and is within easy reach of Poland and Romania. Záhony is an ideal location for foreign manufacturers to set up manufacturing operations aimed at the EU market.

Záhony Logistics Cluster The Záhony Logistics Cluster covers 120 hectares and is to be expanded by an additional 800 to 1,000 hectares; it is already home to 20 regional logistics enterprises. A new Intermodal Logistics and Warehouse Centre will offer a full range of services for East West transport, and the 1,800 sq m Záhony Trading, Business and Logistics Centre is equipped with modern offices, meeting rooms, a service centre and an up-to-date IT network. Záhony offers direct connections to the ports of Koper, Trieste and Rijeka and to the M3 motorway, and will be crossed by the future M34 motorway. Záhony is also on the main railway

line from Budapest through Kiev, Moscow and Yekaterinburg to China. It is the junction between European standard gauge railways and the CIS wide gauge system, giving it a unique role as a reloading hub. Hungary’s transport sector accounts for 6% of the country’s GDP, and the government’s Transport Operational programme aims to achieve an even better structured, higher quality, safer, more intelligent and environmentally sounder transport system in the future. The Transport Operational programme is geared at making Hungary a top logistics service centre and intercontinental cargo hub by 2013. Hungary is already well on the way to achieving this goal. Nyugati train station

Transport & Logistics

Rolling Out the Red Carpet for Investors in Transport and Logistics Hungary’s government has developed a number of incentives for investment in the transport sector, and key projects underway or planned – including motorways, bypasses, and waterway and rail infrastructure projects – represent outstanding investment opportunities. Transport and logistics operations in Hungary can count on well-developed infrastructure, rapid customs clearance, and a variety of modes of transport. The government has established six priority targets for the transport sector, which are to improve Hungary’s access to international road networks; to improve the country’s access to international rail and waterway networks; to improve Hungary’s regional accessibility; to further develop intermodal transport systems through linking different modes of transport; to improve urban and suburban public transport in cities and agglomerations; and to provide technical assistance.

All-inclusive support packages from ITD Hungary The Hungarian Investment and Trade Development Agency (ITD Hungary) supports high-value investments aiming to establish new logistics facilities with one-stop-shop service. As part of its support package, ITD Hungary offers all-inclusive project management for projects granted direct cash subsidies, and provides VIP treatment and comprehensive information about other

subsidies available for high-value investment projects. The government’s incentive packages for transport and logistics projects may include direct subsidies assessed by the government individually (subsidies are non refundable and projects must create at least 10 new jobs); a development tax allowance for projects valued at a minimum of €10 million and creating at least 150 jobs in developed regions and for projects valued at a minimum of €3.3 million and creating at least 75 new jobs in less developed regions, along with a deduction of 80% of the corporate income tax for up to 10 years; training subsidies (from 20% to 80% of total training costs); job creation subsidies for projects

in the Great Hungarian Plain, northern Hungary, South Transdanubia or less developed micro regions that create at least 500 jobs in less developed areas or at least 200 jobs in less developed micro regions; and support schemes through tenders co-financed by the EU, including EU co-financed cash grants. The Záhony region is the hub of Hungary’s logistics sector, and companies creating jobs there can receive various incentives valued at up to 50% of the total value of the investment in the form of direct grants from the government or the EU, tax allowances, and employment and training grants. Local and regional financial support is also available.

The latest World Bank Logistics Performance Index ranked Hungary highest of the CEE countries in 2008. The survey evaluates the logistics services of 150 countries according to factors including speed of customs clearance, transportation costs, average import transaction and export lead times.

Hungary Czech Republic Poland Latvia Estonia Slovak Republic Romania Bulgaria Lithuania Croatia Europe and Central Asia Ukraine Bosnia and Herzegovina Russian Federation Serbia and Montegro

Lpi

Customs

InfraInternational Logistics structure shipments competence

3.15 3.13 3.04 3.02 2.95 2.92 2.91 2.87 2.78 2.71

3.00 2.95 2.88 2.53 2.75 2.61 2.60 2.47 2.64 2.36

3.12 3.00 2.69 2.56 2.91 2.68 2.73 2.47 2.30 2.50

3.07 3.05 2.95 3.31 2.85 3.09 3.20 2.79 3.00 2.69

3.07 3.00 3.04 2.94 3.00 3.00 2.86 2.86 2.70 2.83

2.59 2.55

2.39 2.22

2.39 2.35

2.61 2.53

2.53 2.41

2.46 2.37

2.32 1.94

2.26 2.23

2.50 2.48

2.37 2.46

2.28

2.33

2.18

2.25

2.29

Source: ITD Hungary

HUNGARY

Budapest Airport

Key Hub for Central and Eastern Europe Budapest Airport – Hungary’s main international airport and the second-largest airport in a new EU member state – was recently privatised in a major step forward for the Hungarian economy and now its owners aim to rapidly develop a range of new facilities and services.

Budapest Airport Zrt.’s goal is “to make Budapest Airport the most successful airport in Central and Eastern Europe in terms of passenger growth, service quality and operational efficiency up to 2015. Budapest Airport shall be the key driver of local economic growth for Budapest and for Hungary as a whole,” according to the company’s mission statement.

Jost Lammers, General Director

Jost Lammers, General Director of Budapest Airport Zrt. (the company in charge of managing, operating and developing the airport) explains that global player Hochtief AirPort acquired a 75% one vote stake in the airport for €2 billion. Now some €261 million is invested in upgrades and modernisation to make Budapest Airport a leading European air transport hub. Artist’s impression of Airport City in 2025

To complete everything that the airport has planned requires the support of an additional €160 million in investment, and the airport’s owners are issuing tender opportunities for individual projects valued at around €5 to €10 million each. “The tendering process is always Europe-wide, and we are getting large scale contracting and sub-contracting bids from all over the continent,” Jost Lammers says. A current project is the construction of SkyCourt, which will link the two wings of Terminal 2 and allow the airport to provide more services. It is being built by KÉSZ Zrt., a local construction firm.

Budapest Cargo City Budapest Airport is looking to establish a partnership for a cargo logistics project, Budapest Cargo City. The project will start in 2010. New air cargo facilities will be built next to the airport’s Terminal 2 and will serve both the airport and the city’s cargo logistics sector. With all major cities in Eastern and Central Europe within 600 km of the airport, Budapest is well placed to serve as a hub. In addition, the airport has around 70 hectares of available building land for

Aerial view of the SkyCourt with planned hotel

Cargo City, which will be developed in different phases. By 2012, the airport will be capable of handling 132,000 tonnes of air cargo per annum. All facilities will be tailored to the special needs of each tenant. Jost Lammers points out, “Budapest Airport is always looking for future partners, and already works with a diverse group, including the EU, which contributed €4 million for the development of a temporary transit corridor.”

State-of-the-art facilities and competitive prices A long-term goal for Budapest Airport is to improve both its “software and hardware”, as Jost Lammers puts it. He says, “We are concentrating on constantly improving. We also want the world to know that Budapest Airport has state-of-the-art facilities as well as competitive prices. We are committed to maintaining forward momentum even in this time of global crisis. At Budapest Airport, there are no ready-made solutions to problems. The airport works to create unique and tailor-made solutions.”

would be developed and maintained by a private investor and operated by an international hotel operator, working in collaboration with the airport,” Jost Lammers explains. Hochtief AirPort has already built a 533-room hotel at the Düsseldorf airport, a 266-room hotel at the Hamburg gateway, and a 345-room hotel at Athens International. In fact, Budapest Airport aims to expand its commercial activities in the coming years. “The airport has three profit areas – consumer (duty-free, food and drink, shopping), property rental, and aviation that go along with flights to and from the airport,” Jost Lammers explains.

Well placed to serve as travel and logistics centre Budapest Airport is set for continued expansion as the economy of Central Europe develops. Jost Lammers says that he anticipates 5% annual growth for the airport in the coming years. He concludes confidently, “Hungary and Budapest, and Budapest Airport, will be even stronger in the future. Thanks to productive public and private partnerships, Hungary will be better than ever.”

Budapest Airport is a key contributor to Hungary’s economy. As Jost Lammers points out, “Every job at an airport results in three new jobs in the city where the airport is located. In addition, we are working closely with the tourism office to help bring more visitors to Hungary and to help create joint ventures to promote Hungary as a major travel destination.”

New project to build four-star hotel with partner As part of its drive to stimulate Hungary’s tourism sector and ensure its own prosperity, Budapest Airport is planning to build a four-star, 250-room hotel adjacent to Terminal 2 for a budget of around €25-30 million. The airport’s operators are looking for partners for this high potential project, part of an ambitious Budapest Airport City initiative. “The hotel

Budapest Airport Zrt. 1675 P.O.Box 53 1185 Budapest Budapest-Ferihegy Tel.: +36 1 296 9696 info@bud.hu www.bud.hu

HUNGARY

National Transport Authority

Keeping Transport Infrastructure Development on Track Hungary’s National Transport Authority (NTA) ensures the security and safety of the country’s transport system, including its road, waterway, rail, motorway, aviation and intersection infrastructure. The NTA is in charge of issuing permits for infrastructure development projects and for all types of transport vehicles. The NTA plays a key role in the allocation process of EU funds for transport projects, issued by the government. Zsolt Csaba Horvath, President, explains, “If there are any tenders or bids for EU funds, then a company or investor wishing to be considered will need permission from the NTA, especially during the tendering process, when all parts of the project’s plans are reviewed.” Some infrastructure projects in Hungary are financed 100% by EU funds and others 50%; all are open to tenders. The NTA is analysing public-private partnerships as a potential source of funding.

Streamlining project approval process The NTA was formed three years ago to replace 25 independent authorities in the transport sector which once governed authorisation of projects, a system which sometimes caused significant delays for investors. The NTA is working hard to streamline the project approval process still further, and now it can approve projects in around 30 days, informing bidders electronically. The NTA has a strong track record of efficiency, having reduced to around two to three years the time for local municipalities to approve infrastructure development projects, compared to the EU average of six years. “We have one database which can handle more than 1,000 users at a time, thus creating a system that is more efficient for investors,” Zsolt Csaba Horvath says. Hungary has made significant progress in upgrading its transport sector, which is fully liberalised. Most of its new motorways are nearing completion and within a year all will provide speedy connections to

Zsolt Csaba Horvath, President

major European traffic corridors. The rail system is being expanded to 160 km and will employ the latest safety systems. Other key projects include developing more river transport on the Danube and increasing the capacity of Budapest International Airport to 20 million passengers per year. The government also aims to create a new logistics centre in the Zahony region which will connect the EU’s rail network with Russia’s. “The Hungarian government is developing a railway station and a highway there, and the NTA will manage the whole plan. Because of its strategic location, Hungary can play a key role as Europe’s logistics and transport hub,” Zsolt Csaba Horvath says. National Transport Authority H-1066 Budapest, Terez Korut 38 (H-1389 Budapest, P.O. Box 102) Tel: +36 1 373 1456 Fax: +36 1 332 6532 office@nkh.gov.hu www.nkh.hu/en

• Ensuring Tomorrow’s Energy Needs • Impressive Track Record in Reducing CO2 Emissions • High Potential Investment Target: Renewable Energy

Energy & Gas

“An investor from anywhere in the world who can couple renewable energy with district heating is a real winner who will see great returns. Such investors can partner with municipalities here in Hungary.” Istvan Pataki, former Vice President Hungarian Energy Office

HUNGARY

Ensuring Tomorrow’s Energy Needs Hungary has been steadily liberalising its energy market to heighten competition, create more choices for consumers, modernise the country’s energy infrastructure to meet EU standards, and fulfil Hungary’s energy needs in the future. A number of innovative private companies have entered the energy sector and are launching major projects. Hungary is an energy poor country, relying on imports for over half of its primary energy requirements. Oil and particularly natural gas are still the country’s main sources of energy, although efforts to develop renewable energies – outlined in the government’s Environment and Energy Operational Programme 2007-2013 – are gathering force. Hungary’s only nuclear power plant, in Paks, produces around 40% of the electrical power generated in the country. According to the international Export Council for Energy Efficiency (ECEE), Hungary’s

power generation systems are generally in urgent need of modernisation, with distribution losses of over 20% occurring in some systems. Innovative energy companies are working to change this. Energy supplier EMFESZ, formed in 2003, is building Europe’s most technologically advanced combined cycle gas turbine power plant in Hungary; the €1.5 billion project aims to help stabilise energy prices. EMFESZ is also working to position Hungary as a hub for energy distribution in Central and South-eastern Europe. Thanks to its strategic location at the centre of pipeline infrastructure, Hungary is well placed to play this role.

National Energy Efficiency Action Plan A large share of Hungary’s energy is imported from Russia, and the government is working hard to reduce this dependence. While per capita energy consumption in Hungary remains below the EU average, it is expected to rise as the economy develops. The govern-

ment’s National Energy Efficiency Action Plan outlines strategies for making sure Hungary can meet its growing energy needs. The Hungarian energy policy aims to maintain a balance between security of supply, cost effective delivery of energy to consumers, and energy efficiency. The energy policy calls for the modernisation of district heating systems, energy audits, and more rigorous building codes to guarantee energy efficient construction. The energy action plan’s measures to ensure energy efficiency in the residential sector include energy savings assistance and credit programmes, the development of small scale heating plants, and energy consultancy services. Energy efficient lighting, building certification and periodic inspections of household heating systems are other features of the plan. The government is implementing a more rigorous regulatory environment for energy efficiency and developing more incentives for private investment in the energy sector.

Energy & Gas

Hungarian Energy Ofﬁce

Strategies for Boosting Energy Efﬁciency Hungary aims to boost its energy efficiency to Western European levels, in part through encouraging the use of renewable energies. Istvan Pataki, former Vice President of the Hungarian Energy Office, explains that geo-thermal energy has significant potential in Hungary since the country is already ranked number two in the world in this field. “Hungary’s energy policy needs to be modified to increase support for renewable energy initiatives. Government support for such projects is currently 30%, and one suggestion is to double this percentage,” he says.

Another solution for Hungary in its drive to become more energy efficient is micro-cogeneration, which has been shown to boost energy efficiency up to 75%. The government is subsidising investment in this field until the end of 2010. “There is currently a debate on whether to subsidise this segment of the energy industry past 2010. There has been a significant amount of return on investment in micro-co-generation,” Istvan Pataki says. Wind energy also has potential in Hungary, especially given the EU’s focus on developing this energy segment. Istvan Pataki says that studies show that Hungary could produce 410 megawatts (above the exisiting 330 MW) of energy through wind power. Building “zero energy” housing (residences equipped with small solar panels and heat pumps) is another area for development in Hungary’s energy sector. “We have a good elite spectrum of the economy that could afford it,” Istvan Pataki explains. Producing energy from agricultural waste products and trading renewable energies are other possibilities. As the former Vice President says, “Because of evolving legislation on renewable energy, in a few years multinational corporations will want to advertise to their end-users that they are environmentally friendly. They could purchase electricity from energy trading companies that are trading green energy.”

Istvan Pataki, former Vice President

Outstanding investment potential Hungary’s energy sector offers outstanding investment potential overall. As the former Vice President points out, “An investor from anywhere in the world who can couple renewable energy with district heating is a real winner who will see great returns. Such investors can partner with municipalities here in Hungary.” A government which supports new energies will be another plus. Istvan Pataki says, “I have great hopes for the next government, which will be elected in April 2010, as it appears its leaders are welcoming advice from individual experts and the energy policy they develop will not follow political criteria but rather will be in the interest of securing and improving energy policy and implementation on the Hungarian market.” Hungarian Energy Office 1081 Budapest Köztársaság tér 7. Hungary Tel: +36 1 459 7777 Fax: +36 1 459 7766 www.eh.gov.hu

HUNGARY

Dunamenti Power Plant

Major Upgrades Underway at Hungary’s Biggest Gas Fired Power Plant Dunamenti Power Plant, Hungary’s biggest gas fired power plant, plays a key role in providing power generation for the public sector and is helping to spur on the country’s energy sector development. The plant is part of the GDF SUEZ Group and has almost 1800MW in installed electricity generation capacity and around 1000MW in heat generation capacity. CEO Peter Csiba says that the plant, which has been privatised, has around €220 million in upgrade projects currently underway, including a repowering project called G3 with a major clean-up effort to remove over 8,000 tonnes of asbestos as well as a dismantling project to remove outdated facilities. The plant and the projects are managed according to the highest international standards. Peter Csiba explains, “Dunamenti is using the best available technology for the G3 repowering project which will increase the efficiency by 20% of the repowered unit. We expect the new unit to be in operation in 2011. By removing the oldest equipments and opening up new

economic stability,” Peter Csiba says confidently.

Peter Csiba, CEO

areas for development, we establish the possibility to further increase the efficiency of the entire power plant to become a benchmark for sustainability.”

Energy distribution hub Dunamenti has significant investment potential not only because of the current upgrade but also because Hungary is ideally located to serve as a gas and energy distribution hub for Central and Eastern Europe. “The economic crisis has hit the energy sector very seriously, but Dunamenti views this as an opportunity to succeed and move forward, and a positive outcome will come sooner than expected. We are focusing on long-term environmental and

Dunamenti is already a leader in environmental protection. Thanks to technical improvements to its combustion facilities and a conversion from heavy fuel oil to natural gas and light fuel oil, it has significantly decreased its emissions. It has also joined a national air quality monitoring program. The Municipality of Százhalombatta has awarded Dunamenti a prize for its environmental protection efforts and for its sustainable development, making Dunamenti the first large industrial group to be honoured with this award. Dunamenti Power Plant has made a significant commitment to the Hungarian economy. As Peter Csiba points out, “The investment for the current cleanup and modernisation project came directly from our parent company, GDF SUEZ, which wanted to make the investment itself. This investment project to tear down the oldest facilities and to increase and modernise the plant’s capacities is a long-term investment in the country.”

Dunamenti Power Plant Ltd. 2440 Százhalombatta Eromu street 2, Hungary Tel.: +36 23 544 190 Fax:+36 23 354 381 www.gdfsuez.com

Energy & Gas

Impressive Track Record in Reducing CO2 Emissions Hungary has made impressive progress in meeting EU targets for reducing CO2 emissions. The country’s Environment and Energy Operative Programme for 2007-2013 places a high priority on reducing carbon emissions through increasing the use of renewable energies and energy efficiency. The National Development Agency launched seven tenders in early 2009 designed to achieve these goals: the tenders covered implementing renewable energies to fuel local heating and cooling systems; co-generation of heat and electricity from renewable energies; modernising public lighting systems and buildings to make them more energy efficient; and other projects. The government has set a national cap for Hungary of 30.9 million tonnes of CO2 emissions per year over the period 2008 to 2012; this cap is viewed as realistic by most analysts though is stricter than the targets set in other Central and Eastern European countries. As a signatory to the Kyoto Protocol on greenhouse gas emissions and as a member of the EU’s emission trading scheme (ETS), Hungary allocates carbon emission allowances to companies and other entities in a number of sectors considered as big emitters of carbon dioxide, such as power generation, heating, oil

refining and cement manufacturing. For the first ETS period of 2005-2007, Hungary allocated carbon credits amounting to 30.2 million tonnes annually; over that period, companies in targeted sectors produced carbon emissions of around 26 million tonnes, allowing a number of companies to sell their excess credits to companies in need of them.

Kyoto targets already met Hungary has already met its Kyoto targets, which prescribed a 6% fall in greenhouse gas emissions in 2008-2012 compared to the 1985-1987 base period. Closure of old industrial plants at the beginning of the 1990s and low per capita emissions helped the country reach

this goal. For the 2008-2012 period, Hungary handed out 23.9 million emissions allowances, meeting the two key criteria set by the EU for countries that have already met their Kyoto targets, which are to avoid increasing overall national emission caps compared to the first phase and to take into account actual 2005 emissions figures. Hungary continues to launch innovative energy projects. In December 2009, Budapest was one of four cities in the EU to be honoured with the EU Covenant of Mayors “Benchmark of Excellence” award; Budapest was recognised for its school lighting programme sponsored by General Electric, which achieved a 40% energy savings in the city’s schools.

HUNGARY

EMFESZ

Innovative Gas Supplier Transforming Energy Sector EMFESZ, launched in 2003 when Hungary’s energy sector was liberalised, is transforming the country’s energy sector by providing high quality services for consumers and making sure Hungary has the energy it needs to support its continuing development. The company recently restructured and streamlined its operations to ensure reliable gas supplies for its customers, and has developed a cutting-edge information technology infrastructure as well as world-class personalised customer services and Hungary’s most advanced dispatcher service to guarantee efficient deliveries.

Focus on retail market in 2010 EMFESZ is a model for other energy suppliers. As Managing Director István Góczi says, “Being innovative here in Hungary with our business development will position EMFESZ as a benchmark for other gas providers throughout the EU. In 2010 EMFESZ will implement a significant innovation by transforming 30% of our wholesale business to retail to serve direct end users of gas. This is a move our competitors in the Hungarian market have not yet even thought of.”

István Góczi, Managing Director

EMFESZ anticipates a growth in revenues of 10% to 15% in 2010 as a result of its new focus on the retail market. István Góczi explains, “Now that people can choose, they are choosing EMFESZ. We are responding to what the market is demanding, which is a good, consistent supplier of gas in the retail market.”

Hungary’s leading alternative supplier In 2008 EMFESZ had a 20% share of Hungary’s gas market, supplying gas to 1,000 sites, including 400 major industrial operations. It is ranked Hungary’s leading alternative gas supplier. EMFESZ serves agricultural and industrial units, institutions and heating plants as well as pharmaceutical companies and manufacturers of aluminium, ceramics, bricks and other products. István Góczi says, “We are particularly proud of the fact that the first 12 industrial consumers to become our partners when we entered the market are still our satisfied customers.” EMFESZ supplies gas to the chemical industry, to the rubber industry and to paper manufacturing plants in Hungary.

New 2400MW power plant under construction Now EMFESZ is taking a giant step forward: it is building Europe’s most technologically advanced combined

Energy & Gas

cycle gas turbine power plant. The new plant, which will adhere to the strictest EU environmental protection regulations, will eventually produce 2,400MW of power. This Greenfield investment, budgeted at €1.9 billion, will help stabilise energy prices in Hungary and will thus enhance the country’s attractions as a base for business activities. The plant will initially produce 800 megawatts of power in its first stage, set for completion in 2012. It is located in the village of Nyírtass, in the Baktalorántháza region (Szabolcs-Szatmár-Bereg county) in North-eastern Hungary; in addition to supplying energy for the country, the plant is expected to stimulate the growth of the Nyírség region, which currently has high unemployment and a depressed economy. EMFESZ’s new plant is expected to generate around 2,000 to 3,000 jobs, providing income for several

thousand families. EMFESZ intends to be a primary promoter of the region’s development with the construction of the power plant and other related investments.

Highest possible efficiency, environmental protection The power plant’s turbines will achieve a high 58% efficiency and will not produce any noise or odor. In addition, through a comprehensive programme developed by a team of professors at Debrecen University Agricultural and Technical Sciences Centre, waste heat from the power plant’s production processes will be put to use. The plant is being developed with complete transparency; from the very beginning, EMFESZ has held public meetings with local and regional leaders to discuss the project and its potential impact locally.

Positioning Hungary as hub for energy distribution A long-term goal for EMFESZ is to help position Hungary as a hub for energy distribution throughout the EU. As István Góczi points out, “Although Hungary does not have primary energy sources, its location in the centre of Europe makes it an ideal secondary energy source through an extensive network of pipelines which can be utilised to distribute gas throughout Europe and especially Western Europe.” EMFESZ welcomes the chance to partner with investors and companies throughout Europe as it works to achieve its ambitious goals. “It is important for European investors to be aware of Hungary’s potential as an energy hub and to know that EMFESZ can serve as the ideal partner for those wishing to capitalise on this outstanding business opportunity, especially with the power plant which we are currently developing and with the secondary energy pipeline projects we have planned for the future,” István Góczi says. He concludes, “2009 has been a hard year, but with our young spirit, fast reaction to the market forces, and innovative attitude, EMFESZ can sail out of this storm. Hungary’s energy sector is modern and open, with a strong regulatory environment and exceptional potential. Come join our success!”

EMFESZ Szabadsag ter 7 (Bank Centre) H-1054 Budapest Tel.: +36 1 373 1300 Fax: +36 1 354 1958 info@emfesz.hu www.emfesz.hu

HUNGARY

High Potential Investment Target: Renewable Energy

Hungary is rich in renewable energy sources (RES), and the government’s Renewable Energy Strategy for 2007-2020 targets boosting RES production in Hungary to 15% by 2020. The strategy focuses on decentralised energy production, the co-generation of heat and Did you know … ? • Hungary receives as much as 2,200 hours of sunshine a year. • Hungary’s highway network is the most developed among the new EU member states. • Hungary is among the top fi ve high-tech exporters in Europe. • The National Development Plan has earmarked €380 million to support renewable energy and energy efficiencyrelated investments. • Hungary’s renewable energy potential is more than 2,200 PJ/year. • Hungary’s photovoltaic potential is about 480 billion kWh (based on potentially installable solar modules). • The fi rst E 85 fi lling station opened in July 2007 in Hungary. • 15 million m³ of manure and 300,000 m³ of organic waste for biogas are produced every year.

450

Potential for renewable energy 1750

400 350 300 250 200 150 100

Wind potential current

Water potential current

Geothermal potential current

Biomass potential current

50 Solar thermal potential current

Hungary’s use of renewable energy has been growing rapidly since the country joined the EU. Before 2004, Hungary’s ‘green’ electricity production amounted to only 0.5% of the country’s total electricity production, but by the first quarter of 2009, this percentage had reached 4.3%, with renewable energies accounting for around 5.1% of Hungary’s total primary energy supply. At present, biomass (including pellets and other solid biomass energy sources) represents almost 90% of Hungary’s renewable energy use, with geothermal energy accounting for 8.2%.

Solar photovoltaic potential current

Hungary is working hard to develop its renewable energy sector, which has been singled out as a priority by the country’s investment promotion agency, ITD Hungary. Understanding the sustainable nature, the high growth potential, and the dominance of ‘green’ industries in the 21st century, ITD Hungary strives to attract investments in renewable based heat and power generation and in related manufacturing activities.

Source: Hungarian Academy of Sciences

power, and the establishment of small power stations utilising renewable sources locally. The government forecasts a substantial amount of new investments by 2020 in biomass, wind, solar and geothermal energy. Analysts predict that electricity generation from RES will grow faster than heat generation.

Investment incentives Hungary has developed a number of incentives for investment in RES. These include a feed-in-tariff system, guaranteed until 2020, which favours smaller plants and those providing remote heating. Rates are to be adjusted yearly in line with the inﬂation rate. Investors can also access EU funds; around €280 million in EU funding has been earmarked for supporting investments in the renewable energy sector under Hungary’s National Development Plan. ITD Hungary has developed a number of subsidies for projects involving the use of biomass, biogas, geothermal energy, solar energy, water energy, wind energy and combinations. Subsidies of 10% to 60% of eligible costs may be available. New renewable energy projects are being launched regularly. In August 2009, the Hungarian Energy Office (MEH) called for applications to build 410MW of new wind energy capacity. In 2006, MEH called for applications for projects to ensure 330MW of wind energy; of this total, around 190MW had been built at the end of 2009.

• Promoting Development of High Potential IT and Telecom Sectors • National Development Plan Targets ICT

IT & Telecom

“Hungary is more developed than most people expect, but not as developed as Western Europe, so there are many opportunities for partnerships and co-operation.” Janos Keresztesi, President Hungarian ICT Associates

HUNGARY

High-Potential ICT Sector Building on Tradition of Innovation Hungary’s information and communications technology (ICT) sector has matured rapidly in recent years, building on the country’s long tradition of achievement in ICT fields. Hungarian ICT pioneers include Janos Neumann (John von Neumann), who in 1951 developed operating principles which still determine how PCs work today; John G. Kemeny, originator of the BASIC programming language; and Marcus Janosi, who developed the original ﬂoppy disk. More recently, innovative Hungarian ICT companies have created cutting-edge software employed worldwide.

Hungary has seen significant investment in its ICT sector and in fact ranked number one in Europe in per capita ICT expenditure in 2007. The sector grew by an average 6.5% per year between 2003 and 2007, well above the EU average of 2.6%, and the Hungarian ICT market now represents 12.8% of the CEE total. The market is expected to continue to expand by around 5% per year.

Focus on software and IT services Trends include increased investment in software and IT services, given Hungary’s service-based economy and demand for complex IT systems. Foreign investors have targeted Hungary’s ICT sector because of Hungary’s highly skilled workforce, favourable business environment, investment incentives and internationally successful ICT activities. Hungary has become a popular location for call centres (which employ 10,000 people in Budapest alone), and Nokia, Exxon Mobil, EDS, GE and IBM have all set up global and regional accounting centres in Budapest and other Hungarian cities. Hungary’s telecommunications sector is now fully

privatised and is more liberalised than others in the region. Thanks to the region’s highest level of cell phone usage (90% penetration), the Hungarian market is particularly ready for the transition to 3G networks. Vodafone recently announced plans to invest US$1 billion to establish 3G networks by building 4,000-5,000 base stations in Hungary. T-Mobile has introduced services that enable mobile users to make payments via a mobile credit card with M-Commerce. Oracle and Sun Microsystems are other global players active in Hungary’s ICT sector. Internet penetration remains low at around 20%, and Internet service providers are expecting rapid growth in Hungary, particularly in broadband services, which have been targeted in the country’s national development plan for 2007 to 2013. Software sales have also been growing rapidly, while triple play cable is gaining market share and incumbent service providers are considering launching large scale optical network deployment projects. Preparations for the conversion from analogue to digital television have also been launched. Hungary’s ICT sector represents outstanding growth opportunities.

IT & Telecom

Hungarian ICT Associates

Promoting Development of High Potential IT and Telecom Sectors The Hungarian ICT Associates (IVSZ) is a major player in Hungary’s economy. Now with more than 300 members, it represents all the country’s IT and telecom companies. IVSZ’s mission is to lobby the government on behalf of Hungary’s IT and telecom enterprises and to support the development of both industries. IVSZ is also playing a key role in Hungary’s e-government initiative. IVSZ recently took a major step forward by forming a partnership with Hungary’s electricity industry, which is the second-largest in Europe. “The electricity industry is so involved with the IT sector and the technologies developed in it that this partnership was logical and makes both associations stronger. Together, these three industries - IT, telecom and electricity - account for 15-20% of Hungary’s GDP,” explains Janos Keresztesi, President. Hungary’s IT sector is dominated by small and mediumsized enterprises, and IVSZ provides essential support for these companies through offering education and training programmes to help the companies promote their products and services both in Hungary and abroad. IVSZ is also involved in assisting IT and telecom companies meet EU standards and form productive partnerships with other companies.

Facilitator for EU funding support IVSZ is also working to help IT and telecom companies access the 1 billion in EU funds promised to Hungary. “The IVSZ is a facilitator of these EU assistance projects, acting on the behalf of companies. Current challenges, besides this, include the regulation of how the government is spending the money that is being given by the EU and which companies are receiving these tenders,” Janos Keresztesi explains. The IT and telecom sectors in Hungary are already quite advanced. Janos Keresztesi points out, “It is

Janos Keresztesi, President

important to highlight the Hungarian companies which are developing third generation advanced technologies. Software for video games is also an expanding market in Hungary’s IT sector, and many local companies are working for companies in Western Europe and the US, developing new technologies.” Hungary’s IT and telecom companies offer significant investment potential. Janos Keresztesi singles out innovative companies involved in creating computer games as well as providers of mobile services and imbedded systems as areas with particularly strong growth prospects. He says, “Hungary is more developed than most people expect, but not as developed as Western Europe, so there are many opportunities for partnerships and co-operation. Come to Hungary! There are many talented people here, and doing business can be very easy.” Hungarian ICT Associates Vermezo u. 4. Budapest, H-1012 Hungary Tel.: +36 1 266 6346 Fax: +36 1 411 0914 iroda@ivsz.hu www.ivsz.eu

National Development Plan Targets ICT Hungary’s National Development Plan for 2007 to 2013 earmarks around €790 million of the country’s EU funds for ICT sector initiatives, and the government recently announced a new two to three year ICT action plan which focuses on developing ICT research and development initiatives and ICT training programmes as well as on attracting and maintaining ICT investment. The government has launched a number of IT parks to serve as the ideal base for innovative ICT companies. These include Infopark, Graphisoft Park, and Corvin Park in Budapest; Talentis Business Park in Zsambék; and Airport Debrecen Park. ICT investors can count on a 10% tax reduction on labour costs for software development, among other incentives. Hungary is already the home of a number of innovative ICT companies which have made their mark in global markets, including Kurt, Rocognita, Graphisoft, Colorfront, VirusBuster, ITware, and Adaptive Recognition, among others. Fast-growing ICT subsectors in Hungary are software and hardware production, IT services, IT outsourcing, and telecommunications. Software production grew by almost 10% to reach €350 million in 2007, and grew by 8.2% between 2007 and

2009, with an anticipated compound annual growth rate of 11% between 2003 and 2010. Operating systems and system level software account for around a fifth of this market followed by system and network management, storage software and business applications. Concerning hardware, Hungary leads the CEE in computer assembly (€2.56 billion in 2007) and manufacturing communications equipment (€11.41 billion in 2007). Sales of computer equipment and accessories in Hungary totalled €695 million in 2007 and are growing at 6% per year. Key market drivers include FDI in IT outsourcing, EU market regulations, and increased demand from SMEs stimulated by EU structural funding. The Hungarian IT services market reached €802 million in 2009, up from €659 million in 2007, and IT services are expected to account for more than 40% of the ICT market in the future. The project services segment reached €399 million in 2007, a 60% share of the overall ICT services market, and is growing by around 10% per year. Hungary’s ICT outsourcing market leads the CEE and grew by 11.4% in 2007 to reach €100 million, with the top ten players accounting for almost 80% of the activity. Captive outsourcing is gaining more ground in Hungary, especially in the telecommunications sector. In the telecommunications market, while the fi xed-line voice market is falling, strong growth is anticipated in mobile services (including 3G), cable and television services.

IT & Telecom

Focus on Research, Development and Manufacturing of CuttingEdge Technologies

Inﬁneon Technologies High-Tech Company Delivers on its Promises

Hungary was chosen as the home of the new European Institute of Innovation and Technology, reﬂecting the country’s well-established reputation for excellence in research and development. Now Hungary is building on its expertise to position itself as a leader in the cutting-edge field of semiconductors employed in a wide range of applications, including renewable energy systems, automotive manufacturing and diverse industrial products.

Global group Infineon Technologies focuses on energy efficiency, communications and security, and provides semiconductors and system solutions for automotive and industrial electronics, chip card and security applications, and applications in communications.

The government is particularly targeting the energy sector as a growth engine for the country’s economy and is hoping to boost the share of renewable energies in Hungary’s total energy production to 15% by 2020. The development and manufacturing of state-of-theart computer chips and components used in renewable energy systems can help give Hungary a competitive edge in this fast-growing field. Infineon is one success story; in Hungary, the global company focuses on back-end housing for microchips used particularly in high power applications and renewable energy systems, and it has won significant tenders for its operations. Investment promotion agency ITD Hungary, which has assisted Infineon in establishing its Hungarian enterprise, welcomes the chance to assist other long-term investors in research, development and manufacturing ventures featuring advanced technologies.

In Hungary, Infi neon manufactures “back end” housing for chips. Enhancing energy efficiency, these so-called power modules are key components used in wind turbines and solar inverters for photovoltaic systems, as well as in traditional motor drive systems, such as locomotive drives, streetcars, manufacturing plants, escalators and elevators. József Bodor, General Director, points out that Infi neon has won four tenders from the Hungarian government in the past ten years, the most recent one valued at €1.4 million. Infineon has made a major commitment to the Hungarian market, recently having invested €14 million in its plant in Cegléd that is located around 80 kilometers to the southeast of Budapest. “Greater effi ciency in the utilisation of energy will become tomorrow’s most important energy resource, and Infineon chips and modules play a valuable role in minimising power loss and maximising power savings. Expanding our Cegléd site, where we assemble and test power modules, is an important investment in the future. The backing we receive from Hungary supports our efforts to further expand the capacity for solar, windpower and other renewable energy applications, increase product functionality, and serve new applications in hybrid technology and e-mobility,” József Bodor says. In-depth, proven expertise in its specialty and a track record of delivering what it promises are the reasons Infineon has proved so successful in winning tenders, József Bodor explains. Infi neon will continue to support Hungary’s economic development and plans to double its production capacity in the near future.

József Bodor General Director

• World-Class Infrastructure Supporting Ambitious Growth Plans • Major Construction Projects Offer Investment Potential

Infrastructure

World-Class Infrastructure Supporting Ambitious Growth Plans Hungary is building the foundations for its future growth through ambitious infrastructure projects recently completed, underway or planned. In fact, even in a recession year, the output of Hungary’s construction sector rose 15.9% in June 2009 compared to June 2008, largely because of large civil engineering projects. The country has earmarked €4 billion for the expansion and modernisation of its rail and road network over the next seven years in an effort to streamline logistics for the business sector and help position Hungary as a key regional transport hub. Four vital European transport corridors pass through Hungary and improving access to these major routes is a prominent feature of the government’s infrastructure development strategy.

even greater role in the national economy in years to come. Hungary’s air transport is centred on Budapest International airport, which has been seeing growing numbers of passengers (8.5 million in 2007) and is being modernised in a €261 million programme designed to stimulate more air passenger and cargo traffic while also improving customer service. Major Hungarian cities have also reopened and are continuing to modernise their own airports.

Expenditure on telecom infrastructure almost double EU average Concerning its information technology and telecom infrastructure, Hungary has been spending almost twice as much as the EU

average on upgrades and now has an extensive, world-class telecom network. The Hungarian telecom market is also one of the most competitive and best regulated in the region and has attracted major international investors, including Deutsche Telekom, Telenor and Vodafone. European standard telecom infrastructure is readily available throughout the country, including mobile, fixed-line and Internet coverage. Hungary is linked to the international fibre link network. Internet penetration in Hungary is expected to reach 40% by 2011 (from 30% in 2006) and broadband penetration is estimated to increase to 18%. T-Mobile, Invitel, UPC, Enternet, Freestart, GTSDatanet, Tvnet, Inet.net, Euroweb and PanTel handle around 90% of the country’s Internet traffic.

Hungary now has around 160,000 km of roads and the government plans to extend this network by 770 km by 2013. All Hungary’s main transport routes, including motorways and trunk roads, are being extended to reach the country’s borders through massive recent construction projects. Concerning its rail network, Hungary has the highest railway density (13.7 km per 100 km) of any country in Central and Eastern Europe, yet another reason the country’s transport and logistics activities are expected to play an

The so-called ‘Combino-type’ tram in Budapest, the longest tram in the world.

HUNGARY

Óbuda-Újlak Group

World-Class Engineering and Construction Services The Óbuda-Újlak Group is a pioneer in offering world-class engineering consulting services in Hungary, throughout Central Europe, and beyond. The group was founded in 1998 and has steadily grown to become a regional leader in its field. As CEO János Kalmár explains, “Having gained the confidence of our clients, our group, thanks to its abilities and performance, has steadily gained market share to become a decisive engineering service supplier in the field of construction. We offer a full range of services.” In addition to its activities in Hungary, Óbuda-Újlak has established subsidiaries in the CEE region, with substantial activities in Russia, Ukraine, Romania, Croatia, Serbia and Slovakia.

Providing high quality services from start to finish The Óbuda-Újlak Group can handle the entire life cycle of a wide range of projects, including providing initial development analyses, feasibility studies, organising financing, planning and designing the project, handling engineering and construction activities, ensuring technical supervision, and on-going facility management. The group has developed strong working relationships with high quality subcontractors as well as with financial institutions, government bodies and all other relevant

specialists, all of whom are able to work in several foreign languages. The group’s senior managers, project managers and engineers have all had several decades of planning, investment and construction management experience, as well as extensive managerial and organisational experience.

Ideal partner for foreign investors

János Kalmár, CEO

partners involved in engineering and construction projects. János Kalmár says, “Thanks to our core values of commitment, knowledge and professionalism, we aim to establish long-term partnerships.” Óbuda-Újlak has been applying the ISO Quality Management system since 1999 and it also meets ISO 14001:2004 environmental standards. In addition, the company has its own stringent quality assurance practices developed over several decades.

Team of highly experienced professionals The Óbuda-Újlak team includes architects, engineers and economic

Foreign companies looking for a reliable partner for their projects in Hungary and beyond should call on Óbuda-Újlak. As János Kalmár points out, “Óbuda-Újlak can meet the needs of all its Western clients since we share the same business culture. We do not want to compete by being cheaper as we would not want to compromise quality only to win a tender. We only accept quality jobs where we can provide good service.” The group’s mission is to provide quality service tailored to each client’s needs, to offer objective professional knowledge, to constantly update its technical services, and to ensure effective organisation and transparency.

Ready to support major projects Óbuda-Újlak’s satisfied clients in Hungary include Mercedes-Benz, which is currently building a new production facility in the country. “We need to enhance our presence on the international market and

Infrastructure

Wide range of skills Óbuda-Újlak specialises in technical and economic consulting, costs analysis (QS), architectural planning, project management, organisation of projects, technical supervision, general construction, general contracting, real estate development, real estate sales, facility management, independent engineering activities required by financial institutions, and project monitoring.

Becsi Corner office building

particularly in Western Europe and this why we are proud to be working with Mercedes. We work closely with investors who are coming to Hungary who have projects starting at €200 million,” János Kalmár says.

High-profile projects The group’s current projects include the new Mercedes-Benz manufacturing plant in Hungary, which covers 280,000 sq m; a new headquarters for KBC Bank (52,000 sq m); offices for Laurus (28,000 sq m); offices for K3 (32,000 sq m); new headquarters for Ericsson (17,000 sq m); the Museum of Fine Arts in Budapest (8,000 sq m); the four star Continental Hotel

Becsi Corner, interior completed in 2009

Zara (13,000 sq m); the Hilton Hotel Visegrad (20,000 sq m), the five-star Renaissance Hotel in Budapest (18,000 sq m), and the Lemo Redell manufacturing plant (4,000 sq m). Past projects include Eger Agria Park together with WING, a property development subsidiary of Wallis (40,000 sq m); retail facilities for Park Centre, Aldi, Spar, Auchan and Elektroworld (totalling 180,000 sq m); logistics centres for Tesco and Prologis (totalling 100,000 sq m); and hypermarkets for Tesco (totalling 500,000 sq m).

Its construction projects include office buildings, banks, hotels, spas, residential developments, commercial and other retail projects, industrial, logistics, educational and sports facilities, healthcare facilities, religious centres, motorways, roads, bridges, public utilities projects and site preparation.

Focus on serving the private sector Private sector projects account for 99.9% of Óbuda-Újlak’s business, and the group welcomes the chance to work with European companies. Óbuda-Újlak has maintained strong relationships with current and potential new partners throughout the current economic crisis and is positioned to assist investors in new projects now and when the crisis has passed. János Kalmár concludes, “We focus on quality.”

Óbuda-Újlak H-1033 Budapest, Hévízi út 3/a Tel.: +36 1 250 0105 Fax: +36 1 368 7205 info@obuda-ujlak.hu www.obuda-ujlak.com

HUNGARY

Major Construction Projects Offer Investment Potential The New Hungary Development Plan includes a wide range of ambitious projects aimed at strengthening and diversifying the country’s economy and improving quality of life for Hungary’s population. These projects offer outstanding opportunities for foreign investors and companies.

Many of the projects are geared to enhancing Hungary’s role as a hub for North-East and South-West European transport traffic. One focus is the Danube, which is being developed for water transport in co-operation with other countries crossed by the great river.

Focus on the Danube Several infrastructural and institutional development initiatives have already been implemented on or near the Danube (including bridges, new roads, ports, industrial parks, logistics centres, and tourismrelated facilities), and more projects are planned to improve navigability and access to the river as well as streamline water transport. All developments along the Danube are being planned in accordance with EU directives, including the Water Framework Directive and the Natura 2000 initiative. The Danube’s natural and cultural resources as well as its role as a transport waterway are to

be protected and enhanced through co-ordinating agricultural, fishing, forest and game management, ecotourism and infrastructure projects along the river.

motorway and of express highways serving the southern part of the country as well as new and better roads and bridges for Budapest.

Along with upgrading Hungary’s waterways, the government is focusing on building new bridges; currently 20 railway and road bridges cross the Danube in Hungary, but many of these bridges are in Budapest. Bridges across the river outside Budapest are around 50 km apart, and the government would like to reduce this to the European average of around 21 km.

Significant investments in the Danubian region

Another bridge project aims to improve connections between Hungary and Slovakia, now connected by only three low capacity bridges. Owing to increasing international traffic, new bridges are especially needed near Komárom and Esztergom, and the government is planning a new bridge near Mohacs on the Lower Danube. Budapest also needs new bridges to alleviate traffic congestion. Hungary has already inaugurated a key bridge on the MO motorway to allow for a time-saving northern bypass around Budapest, and has completed high capacity bridges at Szekszárd and Dunaújváros. Thanks to this effort, Dunaújváros in particular is expected to become a major logistics centre. The two bridges also help streamline road traffic south of Budapest. Concerning road projects, priorities are the construction of the M8

A major project is the construction of the Gyor-Gönyu National Public Port, which will offer exceptional intermodal freight transport and forwarding by water, public road and railway, and will be coupled with an integrated logistics hub to serve companies operating in the port area. Gyor Industrial Park adjoining the port recently inaugurated a HUF650 million (€2.4 million), 17.5 hectare expansion which is expected to be the home of 15 to 20 companies over the next two years. Overall, around HUF2.5 trillion (€9.26 billion) has been invested in more than 200 industrial parks in Hungary, and these parks are now the base for more than 4,000 companies employing a total of around 200,000 people.

Innovative eco-centre Another new project in the New Hungary Development Plan is the Lake Tisza Eco-Centre in Poroszló, budgeted at around HUF2.2 billion (€8.1 million), including around HUF1.9 billion (€7.04 million) in EU funds. Lake Tisza, Hungary’s second biggest lake, is the heart of a unique region viewed as ideal for eco-tourism projects. The new eco-centre will contain a

Infrastructure

Budapest

726,000 cubic litre freshwater aquarium, a 3D viewing room and a conference room. The surrounding park will have hiking trails and facilities for cycling and canoeing.

Urban renewal, higher education and healthcare projects Other projects underway include the urban renewal of Kaposvár and Nyíregyháza, two projects among some 20 priority urban rehabilitation projects receiving government and EU funding support. The government expects a total investment of over HUF43 billion (€159.4 million) in urban renewal projects. In addition, around HUF55.4 billion (€205.3 million) is being invested in higher education projects in 13 institutions as part of the New Hungary Development Plan. In one example, the University of Pannonia, based in

Veszprém, will be the target of a major modernisation of its information technology and telecom network, and a new research, development and innovation centre will also be established at the university. The government is focusing on enhancing co-operation and knowledge transfer between higher-education institutions and the private sector. In the healthcare sector, around HUF9.6 billion (€35.5 million) has been allocated for upgrades to Jávorszky Ödön Hospital in Vác and the reconstruction of Saint Imre Hospital and Uzsoki Street Hospital. Overall, around HUF481 billion (€1.78 billion) in EU funding has been earmarked for improving healthcare facilities and services over the period 2007 to 2013. The New Hungary Development Plan will position Hungary as a modern, competitive EU member state.

• Agriculture Sector Continues to Perform Well in Times of Crisis • Thriving Agriculture Sector Sees Growth in Added Value and Revenues • Food Industry Helping to Achieve Rural Development Goals

Agriculture & Food Industry

“Hungary has favourable geographical, natural and ecological features which support a multifunctional, export-oriented, internationally competitive agricultural economy that is capable of dynamic development.” Jozsef Graf, Minister of Agriculture

Agriculture & Food Industry

Agriculture Sector Continues to Perform Well in Times of Crisis One of Hungary’s great natural advantages is its fertile farmland, and the country’s agriculture sector offers exceptional development potential. Jozsef Graf, Minister of Agriculture, explains, “Hungary has favourable geographical, natural and ecological features which support a multifunctional, export-oriented, internationally competitive agricultural economy that is capable of dynamic development. Our agricultural production already exceeds domestic consumer demands.” Hungary’s agricultural output grew by an impressive 15.2% in 2008 and the agriculture sector achieved turnover of HUF1.9 trillion (€6.8 billion), while total agricultural production volume grew by 27%. Revenues from the agriculture sector have been rising for the past five years, with pre-tax profi ts of agricultural enterprises rising by 25% between 2007 and 2008 alone. The global financial crisis has not had a significant negative effect on Hungary’s agricultural exports, which, even in the difficult last months of 2008, still achieved monthly turnovers of €500 million at a time when Hungary’s industrial exports fell by 30%. “Without the agriculture sector’s performance, Hungary’s GDP growth would have been negative in 2008,” the minister points out.

Financial support in times of crisis The crisis did have a negative impact on agriculture, however, in that credit sources dried up; yet agricultural producers’ expenses are high and continuous. In response, the minister says, “The agriculture ministry established several credit programmes aimed at sustaining sector liquidity and improving profi t producing capacity.” These measures included a HUF30 billion (€107.9 million) financial framework to ensure credit for the food industry. The ministry’s strategies for the agriculture sector are closely tied to environmental and rural issues. As Jozsef

Jozsef Graf, Minister of Agriculture

Graf points out, “We view agricultural and rural development as a unifi ed policy area.” The European Agricultural Rural Development Fund (EARDF) has been funding projects in Hungary, and many other support mechanisms are available for agricultural enterprises, including through the €5 billion New Hungary Rural Development Programme. High potential activities in which the ministry particularly welcomes investment include livestock farming; crop cultivation and horticulture (including wine, fruit and vegetable production); the economic revival of rural areas and the preservation of rural culture; the preservation and use of Hungary’s waterways; and the production of renewable energy utilising biomass sources. To prospective investors, the minister concludes, “I would like to encourage you to share my optimism for the Hungarian agriculture and food sector. Come and make use of our great possibilities, consume our products, and enjoy our beautiful country!” Ministry of Agriculture and Rural Development Kossuth Lajos tér 11 1055 Budapest Tel.: +36 6 1 301 4000 Fax: +36 6 1 302 0408 www.fvm.hu

Thriving Agriculture Sector Sees Growth in Added Value and Revenues Hungary benefits from many natural features which provide favourable conditions for agriculture: fertile plains, an advantageous climate, proximity to export markets, and availability of water. Hungary produces a full range of agricultural products, from cereals and livestock to fruit, vegetables and wine. These factors have made Hungary’s agriculture and food sectors among the most successful in Europe. In 2008, for example, fair weather conditions resulted in a 28% rise in agricultural production in Hungary compared to the European average of 3% growth that year, according to the Economic Accounts for Agriculture (EAA), a division of the European System of Integrated Economic Accounts.

€1.3 billion in EU funding Hungary’s agriculture and food sectors have been attracting increasing investor attention; major investment projects in animal farming were launched in 2009, for example. In fact, around €1.3 billion in EU funding will be granted to the Hungarian agriculture

sector, and this inﬂ ux of fi nancial support is expected to stimulate double that amount in investments. As Jozsef Graf, Hungary’s Minister of Agriculture and Rural Development, points out, “This will create the foundations for the future of Hungarian agriculture.” To maintain its competitive edge in EU markets, Hungary’s agriculture sector is being brought up to EU standards in every area. Of Hungary’s animal products, Jozsef Graf explains, “We are doing everything in our power to protect Hungarian producers and prove to the world that our products are made in full compliance with EU regulations and animal protection laws.”

Strong growth in recent years The agriculture sector has been registering strong growth in recent years in both added value and revenues. Gross value added for the Hungarian agriculture sector increased by a very impressive 80% over the year, for example, while agricultural income grew by 42% over the same period to reach a total HUF421 billion (€1.56 billion). Income from agricultural activity per fulltime worker equivalent rose by 27%. In 2008, around 59% of Hungary’s total agricultural output was in crop production, which grew by 48% compared

Agriculture & Food Industry

Winery Disznoko

Eger grapevine

to 2007 mainly due to an increase in cereals production (76%). Hungary’s wheat production alone, for example, totals over 5 million tonnes per year on average, of which 1.5 million to 2 million tonnes is exported.

Variations among regions

The production of industrial agricultural crops grew by 36% in 2008, while fruit production grew by 68%, grape production by 9%, and wine production by 2%; vegetable production saw a slight decrease (2%) over the year.

Livestock production 33% of total agricultural output Livestock production is very significant in Hungary’s agriculture sector, making up 33% of total agricultural output. Current trends in livestock production include a drop in pork production, which fell by 12% in 2008, and a rise in sheep production to reach some 1.3 million sheep on Hungarian farms by the beginning of 2009. According to the EAA, Hungarian farms had a total of around 730,000 cattle at the beginning of 2009, a drop of around 5,000 from the previous year, while the number of pigs dropped by 500,000 over the same period. The number of chickens grew by 942,000 over the year, with 260,000 more geese and 845,000 more ducks in production. Milk production remained steady in 2008 while egg production grew by 2%. Agricultural services (6% of total agricultural output) increased by 15%. Other 2008 trends in the agriculture sector included a 4% rise in energy consumption and a 13% rise in the use of plant protection products, while the use of fertilisers dropped by 8% and the use of animal feeds dropped by 3%.

The production of agricultural goods and services significantly differs from one region to another in Hungary. The Great Plain accounts for around 27% of Hungary’s agricultural production and the Northern Great Plain accounts for around 21%, with Central Hungary accounting for around 6%. Concerning types of products, Central Hungary is characterised by a high percentage of horticulture production, while Southern Transdanubia focuses on the production of cereals and other parts of Transdanubia concentrate on livestock production. Northern Hungary is known for the production of fruits and industrial crops, while the Great Plain is known for the production of live animals, animal products and cereals. The Southern Great Plain and Southern Transdanubia are especially known for cereals production, while industrial crops are mainly produced in the Great Plain. Grapes and fruits are mostly produced in Southern Great Plain and in Northern Hungary. The Northern Great Plain achieves the highest net entrepreneurial income from agricultural activity in proportion of gross agricultural output (25%), closely followed by the Southern Great Plain (22%), while agricultural production is less profitable in Central Hungary (4%) and in Southern Transdanubia (8%). The government’s policy is to stimulate further growth in the agriculture and food sectors and to boost their contribution to Hungary’s GDP.

HUNGARY

Pápa Meat 1913 Ltd.

Leader in Meat Industry Plans Innovative Projects Pápa Meat 1913 Ltd. is a leader in the Hungarian meat market. The company handles the full range of activities related to meat, from livestock breeding, fattening and processing to the production, distribution, and retail and wholesale sales of high quality raw meat and ready to eat meat products. Pápa Meat 1913 even manages its own ﬂeet of vehicles. The company exports its products to the US, Japan, South Korea, Russia, the EU and other markets. In Hungary, Pápa Meat 1913’s raw meats and ready-to-eat meat products are sold in the company’s 11 shops and are distributed through all the country’s leading supermarket chains, including Tesco, Auchan, Metro and Spar.

Pápa Meat’s history goes back to 1913 but the current company was launched in January 2009 when Pápa Meat 1913 Ltd. acquired the resources of Pápa Meat Plc. The new company’s founders are Dedeko Ltd.

(the previous company’s production management division); West-Agro Ltd. (a group of 31 livestock breeders); the municipality of Pápa; and the town’s water and sewerage operation.

Significant contributor to Hungarian economy Pápa Meat 1913 Ltd. achieves annual turnover of €66.6 million (HUF18 billion), of which around 70% is earned through sales in the Hungarian market. The managing director of the company is József Politzer, who has had 40 years of experience in the Hungarian meat industry and is known for his professional, competent management. Pápa Meat 1913 Ltd. now has around 1,100 employees and is a key contributor to Hungary’s economy. The company processes around

Agriculture & Food Industry

270,000 swine per year and produces around 50% of its raw materials. It owns 3,500 sows and raises around 80,000 pigs for slaughter per year, with another 100,000 pigs supplied by breeders. Pápa Meat also raises pigs on nearby farms which it rents.

Compliance with highest international standards While it has a long history and is regarded as one of the symbols of the town Pápa, Pápa Meat 1913 has implemented the latest technologies to ensure the highest quality production and packaging of its products. The company’s technology complies with the highest international standards for quality and hygiene in the food industry. The Pápa Meat plant has been certified by veterinary authorities for exports to the EU, the US, Canada, Japan, Taiwan, China, South Korea, South Africa, the United Arab Emirates, Russia, Croatia, Serbia and fulfils the requirements of NATO military standards. Pápa Meat 1913 has also been awarded ISO 9001, International Food Standard (IFS), British Retail

Consortium (BRC), Hazard Analysis and Critical Control Points (HACCP), and Sanitation Standard Operating Procedures (SSOP) certification. The company has developed high quality packaging and labelling which has proved very successful among consumers. In fact, a key goal for Pápa Meat 1913 is to gain and maintain customers’ trust by continuously providing high quality products for both the domestic and foreign markets. To guarantee the quality of its products, Pápa Meat 1913 is committed to overseeing the complete production process for meats, from breeding of animals to final processing. The company operates its own laboratory and ensures that veterinary inspections are carried out throughout the production process.

Ambitious upgrades planned To maintain its competitive edge and expand into new markets, Pápa Meat 1913 Ltd. plans significant innovations for 2010 and 2011 at both

its farms and its processing plant. The company’s investments will focus on transformations which will upgrade environmental protection and feeding technologies, boost the efficiency of the production facility, install new industrial machinery, and implement new packaging technology for packaging raw meat as well as ready-to-eat products. Pápa Meat 1913 Ltd. is a true Hungarian success story, a company which has earned its high reputation in all its markets and which continues to thrive in spite of the current global financial crisis.

Pápa Meat 1913 Ltd. H-8500 Pápa, Kisfaludy u. 2. Tel.: +36 89 313 044 +36 89 324 514 Fax: +36 89 324 649 www.papaihus.hu

HUNGARY

Food Industry Helping to Achieve Rural Development Goals Hungary’s New Rural Development Programme emphasises promoting sustainable, ecologically responsible agricultural activities as well as diversified economic activities for rural areas. The food industry is expected to play a key role in achieving these goals.

Hungary’s food processing industry, which accounts for 14% of Hungary’s total industrial production, is one of the country’s leading sectors, ensuring Hungary’s domestic food supply as well as contributing to Hungary’s export totals. According to investment promotion agency ITD Hungary, around one-fifth of the Hungarian food processing industry’s products are sold abroad, with EU markets accounting for 80% of the total. Food exports make up around 8% of Hungary’s total exports. According to the Federation of Hungarian Food Industries (FHFI), which represents the industry nationally and internationally, Hungary’s food industry achieves around €7.4 billion in annual turnover and uses 70% of Hungary’s total agricultural production. FHFI member companies employ 86,000 people, or 75% of total employment in Hungary’s food industry, and have achieved a positive foreign trade balance.

Target for foreign direct investment Thanks to Hungary’s thriving agriculture sector and well-established food industry infrastructure, the food sector has been a target of foreign investment ever since it was privatised in the 1990s. Foreign investors have helped to promote the industry’s modernisation and technological advancement. Around half of investments in Hungary’s food sector over the past decade have come from the EU. A priority for the sector is to conform to EU standards in quality, food safety, animal protection, hygiene and environmental protection, and Hungary has established a strong regulatory environment to ensure that these goals are reached.

The food industry received a boost in 2009 from the lowering of the value-added tax on stable food products (including bread and dairy products) in a bid to help consumers weather the recession. While excise duties on alcohol were raised in 2009, Hungarian distillers benefited from a €11.4 million grant from the EU and the government. Hungarian Palinka (traditional fruit brandy) has been achieving double digit growth in revenues. The Hungarian meat processing industry is one segment of the food industry which is attracting strong long-term investment. Hungarian meat sales increased in value by 6% between May 2008 and May 2009, and in June leading Czech food company Hamé bolstered its presence in Hungary by acquiring the canned meat business of Hungarian firm Globus, just one example of a foreign investor betting on Hungary’s food sector.

• Boosting Growth and Quality of Healthcare Sector • Globally Competitive in Life Sciences

Health

“Investing in Hungary’s healthcare sector is an excellent choice because Hungary already has highly skilled human resources in this field.” Dr. Tamás Székely, Minister of Health

HUNGARY

Boosting Growth and Quality of Healthcare Sector Hungary’s Ministry of Health is committed to upgrading the country’s healthcare facilities in order to provide high quality services for all segments of the local population. Dr. Tamás Székely, Minister of Health, explains that the ministry is employing EU funds in its efforts to improve the healthcare sector and last year launched an approximately €330 million tender for the restructuring, development and renovation of eight ’flagship’ hospitals. Another €280 million tender has been announced for other hospitals. The objective is to create state-of-the-art and cost-effective healthcare institutions. Apart from hospital development, the ministry has launched a €100 million project to build outpatient centres in 25 localities which currently lack access to outpatient services. In another tender initiative, the ministry developed a project to upgrade emergency services and 26 institutions will each receive €50,000 for this effort. Improving human resources in all the country’s healthcare facilities is a priority for the ministry, which has launched tenders for human resources development in certain institutions. “We aim to make our healthcare system more balanced and more accessible,” Dr. Tamás Székely says. Hungary welcomes private-sector investment in its healthcare sector and offers significant opportunities. One high potential segment of the sector is spa tourism, building on Hungary’s long tradition of health spas. “We have high expectations for our spa and health tourism niche,” the minister points out. Developing specialised health centres which meet international standards of quality is another area with attractive prospects for investors. “An example would be a health centre for an initial investment of a couple of hundred thousand euros which would provide specialised health services e.g. knee and hip prosthetics. This can also be combined with tourism, providing wellness and recreation services for the patient’s family,” the minister says.

Dr. Tamás Székely, Minister of Health

High potential pharmaceuticals The pharmaceuticals sector is also attracting international investment. The sector achieved revenues of €2.53 billion last year, of which around 72% was in exports. “We are seeing significant investment in pharmaceuticals research and development projects and in Greenfield projects,” Dr. Tamás Székely points out. The government has created a tax deduction incentive through which pharmaceutical companies can deduct 20% of research and development expenditure in 2010 and 100% in subsequent years. As the minister explains, “Investing in Hungary’s healthcare sector is an excellent choice because Hungary already has highly skilled human resources in this field.” Urging European investors to investigate opportunities in Hungary’s healthcare sector, Minister Székely concludes, “Any investors in Hungary’s healthcare system will discover that this is a reliable, stable investment choice with reliable long-term profits.” Ministry of Health 1051 Budapest Arany János u. 6-8 Tel.: +36 1 795 1100 Fax: +36 1 795 0012 ugyfelszolgalat@eum.gov.hu www.eum.hu

Health

Developing World-Class Healthcare Facilities and Services Hungary is significantly upgrading its healthcare facilities and services with the support of EU and government funding. A total of €1.8 billion has been earmarked for healthcare development during the period 2007 to 2013. Projects include building new healthcare facilities, modernising current facilities, purchasing new medical equipment, and upgrading technologies for the healthcare sector, including information technology. In central Hungary, the focus is on the development of key hospital infrastructure and outpatient care. A key feature of Hungary’s healthcare development strategy is to promote close co-operation between universities, hospitals and private pharmaceuticals companies in order to achieve groundbreaking research in healthcare and drugs. Both universities and major research hospitals have been granted EU funding to stimulate their research efforts. Other priorities for the healthcare sector include preventative medicine, such as the promotion of healthy lifestyles, national screening programmes, early childhood development checks, and the establishment of a national health monitoring system. Hungary’s healthcare strategy also calls for expanded human resources training for healthcare professionals and stringent quality controls for healthcare facilities. Around €327.6 million will be devoted to the development of “health poles” in six convergence regions; these poles will include university clinics and hospitals with the highest number of active inpatient beds in each region. Regional centres focusing on particular medical issues will be developed as well; a current tender is for the development of a regional oncology centre budgeted at HUF7 billion (€25.8 million).

Focus on medical tourism Hungary also aims to develop its medical tourism infrastructure, in particular the country’s many spa

facilities. Hungary’s pharmaceuticals sector is also a target for development. Hungarian researchers have made considerable contributions to the pharmaceuticals field and a number of foreign and local pharmaceuticals firms are already operating successfully in the country. In addition to public healthcare facilities and services, Hungary has a growing private healthcare sector which ranges from physicians working individually to nonHungarian companies which are part of an international network. The majority of private medical care is financed through direct payments by patients, whilst public healthcare is funded by a comprehensive and compulsory national health insurance scheme. Logistics for the healthcare sector are also being upgraded. The government’s policy for the healthcare sector states, “The primary aim is to create healthcare institutions that are up to the current international technological standard, can be optimally utilised, and can be operated cost-effectively and sustainably.”

Globally Competitive in Life Sciences Hungary is positioning itself as a regional life sciences hub. The country is already ranked 24th in the world in “scientific capacity” in the Global Competitiveness Report and has over 50 thriving biotechnology companies as well as an internationally successful pharmaceuticals sector.

Incentives for investors Hungary offers a number of advantages for companies and investors in life sciences, including a central location, highly trained human resources, a long history of innovative research and development, a number of investment incentives, and the presence of some of the world’s leading pharmaceuticals and biotech companies, including GlaxoSmithKline, Bristol Meyers Squibb, Sanofi-Aventis, Teva, ICN and others. Many have chosen Hungary as their base for R&D as well as for distribution throughout Central and Eastern Europe, the Balkans, Russia and Ukraine. ITD Hungary provides a range of one-stop-shop services for investments in new research and development facilities worth at least €10 million.

Focus on biotechnology Biotechnology is one of the government’s top five priority sectors; Hungary aims to become one of the top ten EU countries in biotechnology by 2010. The government’s strategy focuses on human resources, technology transfer and incubation, and financing for small and medium-sized biotechnology enterprises. The concrete targets of the national biotechnology strategy for 2005 - 2010 are to form 100 to 200 new biotech companies; to attract two to five new large foreign direct investments in R&D by multinational pharmaceutical or biotechnology companies; to create several thousand high value-added jobs; to ensure that life sciences companies have a positive impact on the Hungarian economy; and to achieve global recognition for Hungary as a life sciences hub. Hungary’s biotechnology sector offers growth potential in diverse fields, including human, industrial and ‘green’ biotechnology as well as nanotechnology, bioinformatics and medical imaging, among others.

Health

Expanding pharmaceuticals sector Hungary’s pharmaceuticals sector has already achieved global success. Hungary is one of the largest and most developed drug markets in Eastern Europe and exports significant amounts of pharmaceutical products and medical supplies internationally. In addition, the country has the best track record in the region of foreign direct investment in the pharmaceutical sector. The sector is expected to achieve an average 4% growth per year between 2007 and 2012, and a 30% growth in exports over the same period. Higher per capita domestic spending in Hungary is expected to increase by 20% over this period, further stimulating the domestic market for Hungarian pharmaceuticals.

Cluster developments involving renowned universities Hungary has adopted the cluster approach to developing its life sciences sector. One example is Budapest MediPólus Cluster, established in 2008 to serve as an umbrella organisation for healthcare innovation in Hungary and the region and to promote innovative companies and organisations in the life sciences field. Members include Semmelweis and Budapest Corvinus universities as well as leading research and innovation centres in the life sciences. The cluster welcomes new domestic and international members associated with the healthcare sector.

Pécs University, with 35,000 students, is well known for biotechnology research. The Medipolis Knowledge Centre, focusing on the development of medical polymers, and the new Healthcare Innovation Centre, designed to serve as a bridge between research and product development, are both based in Pécs.

Clinical trials and medical tourism Other targets for development in the life sciences sector are clinical trials and medical tourism. A number of pharmaceuticals and biotech companies have outsourced their clinical trials to Hungary to take advantage of attractive costs, highly skilled personnel, various investment incentives and comprehensive legislation. Many clinical research organisations based in Hungary have established international networks which allow them to participate effectively in global clinical trials. Concerning medical tourism, Hungary has long been known for its spas and is now developing a reputation for high-quality dental and medical treatments available at a fraction of the costs charged in other parts of Europe. Non-Hungarians can be treated at both public and private healthcare facilities in Hungary. The government welcomes partnerships with international organisations, suppliers and investors in Hungary’s high potential life sciences sector. © Franz Pfluegl | Dreamstime.com

Four knowledge centres in the life sciences have been established at four leading Hungarian life sciences universities serving a total 17,000 students. These universities have close ties with their international counterparts and have achieved impressive research results. Budapest’s Semmelweis University is widely recognised as a leading European centre for research in medicine and health sciences, while Szeged University has been ranked one of the top 100 universities in the world and is the centre for biotech research in Hungary; Szeged is the home of the Biopolisz Cluster Neurobiological Knowledge Centre. Debrecen University, recently the target of a €200 million renovation and expansion, includes the Research Centre for Molecular Medicine, recognised by the EU as a European Centre of Excellence, as well as a new Life Sciences Centre. The Pharmapolis Cluster Research Centre of Molecular Medicine has also been established in Debrecen.

• Exceptional Growth Potential for Tourism Sector • Unique World Heritage Sites throughout the Country • Health Tourism: Priority Investment Opportunity

Tourism

“There is no risk in investing in tourism in Hungary. In fact, tourism will bring the country out of the economic crisis,” he points out.” Dr. Miklós Kovacs, State Secretary for Tourism

Tourism

High Potential Tourism Industry Set to Boost Its Contribution to GDP With its natural beauty and rich cultural and architectural heritage – which includes several UNESCO World Heritage Sites as well as renowned spas – Hungary offers significant tourism attractions, and the government is betting on tourism as a key contributor to GDP as well as an industry which can help Hungary beat the current recession. The tourism industry employs some 400,000 people in Hungary and accounts for 8% of the country’s GDP. The Ministry of Tourism and the National Tourist Office are working hard to boost this percentage in years to come. In fact, Dr. Miklós Kovacs, State Secretary for Tourism, believes the percentage can grow to 10%.

High potential investment opportunities Accession to the European Union and the resulting EU funding has presented new opportunities for the country, especially for the Hungarian tourism industry. Investments in Hungarian tourism has benefited from around €450 million funding since 2007. The financial support is being used for planning, development and branding initiatives, according to Dr. Miklós Kovacs. He adds that several tourism related tenders are also currently available to investors.

joined the tourism administration as vice president of the Hungarian Tourist Authority in July 2005, after which he was appointed head of the tourism department of the Ministry of Local Government and Regional Development.

MICE and health tourism

Dr. Miklós Kovacs, State Secretary for Tourism

“There is no risk in investing in tourism in Hungary. In fact, tourism will bring the country out of the economic crisis,” he points out.

According to Dr. Miklós Kovacs, current priorities for Hungary’s tourism industry leaders are to develop and launch global marketing campaigns to promote Hungary’s attractions, to attract more Meetings, Incentives, Conferences and Events (MICE) visitors, to position Hungary as an attractive choice for major international events, and to strengthen the ties between Hungary’s tourism industry and its health sector, especially given the potential of the country’s many spas.

Around 30% to 50% of the funds needed for the development of Hungary’s tourism industry is expected to come from institutional investors, and potential government subsidies enhance the attractions of the tourism sector for investors.

Hungary welcomes investors who can join in the country’s effort to create innovative new solutions for the tourism industry.

Dr. Miklós Kovács, an economist, has worked in the tourism industry for decades. Formerly CEO of Siotour travel agency and later director of the Hungarian National Tourism Office’s Balaton Regional Project Office, among other positions, he also served as the president of the Association of Hungarian Tour Operators and Travel Agencies. He

State Secretariat for Tourism Ministry of Local Government Republic of Hungary 2-4. József Attila St. 1051 Budapest, Hungary POB 314, 1903 Budapest, Hungary Tel.: +36 1 225 6556 Fax: +36 1 225 6509 ugyfelszolgalat@otm.gov.hu www.otm.gov.hu

HUNGARY

Exceptional Growth Potential for Tourism Sector Hungary’s tourism sector is growing rapidly and is set for further rapid development thanks to considerable EU funding support for the tourism sector. Hungary’s First National Development Plan for 2004 to 2006 distributed €110 million in EU funding to tourism projects, while the New Hungary Development Plan for 2007 to 2013 will support tourism by ten times that amount, with some €107 in EU funding devoted to tourism. Along with private and government financing, total investment in Hungarian tourism is estimated at €180 million to €214 million.

Tourism accounts for 8.5% of Hungary’s GDP The tourism industry already accounts for 8.5% of Hungary’s GDP and almost 400,000 people are employed in the sector. Hungary attracted 7.6 million visitors in 2008 who spent a total 19.8 million guest nights; visitors from other EU countries accounted for 75% of these guest nights. Domestic hotel stays totalled 4.1 million in 2008, with 9.9 million guest nights. The government has targeted the tourism industry not only as a growth sector but also because it can provide new opportunities for employment and a means to develop a higher quality of life for Hungarian citizens, particularly in rural areas. The government’s strategy for tourism is long term, focusing on sustainable, competitive tourism projects. The government is promoting the creation of new tourism products and destinations, the development of tourism infrastructure, training for human resources in the tourism sector, and institutional structures which will support the tourism industry.

Health, cultural and conference tourism Hungary already has significant tourism attractions based on its rich cultural and natural heritage, and the

Heroes’ Square

country has become an important European destination for health, cultural and conference tourism. Domestic tourism also has potential through the development of golf courses and other sports facilities, hunting services, castle tours and theme parks. Concerning health tourism, Hungary has thermal springs over around 80% of its land area and has long been known for its spas, which form the basis of a fast-growing wellness tourism segment. As for cultural attractions, Hungary has picturesque villages, historic architecture, several UNESCO World Heritage sites, renowned wines and cuisine, and unspoiled natural areas ideal for eco-tourism projects.

Budapest among world’s top six conference destinations In the business travel segment, Budapest has been ranked sixth among the world’s top conference destinations and the meetings, incentives, conferences and events (MICE) tourism segment has particularly strong growth potential. Hungary also has a number of unique attractions suitable for tourism development, like its narrow-gauge railways, castles, national parks and lively urban centres.

National Theatre

Several hotel enterprises are investing in new properties in Hungary. Hungarian Hotels, for example, is investing some HUF900 million (€3.33 billion) in three hotels in northeast Hungary, using EU and federal funding. Hunguest Hotels will renovate the three-star Hotel Flora’s wellness centre in Egar and set up a 300-seat conference room in the four-star Grandhotel in Galyateto. It will also convert the three-star Hotel Palota in Litafured into a four-star hotel. Hunguest recently completed a new spa complex in Szeged. In mid 2009, Hoffmann Hotel began a HUF1.8 billion (€6.67 million) expansion of its Hotel Ozon in Matrahaza to add new guest rooms as well as a wellness centre and conference facilities. Investment promotion agency ITD Hungary supports high-value investments in the tourism sector to establish new tourism facilities. The Hungarian government offers a special incentive package for projects costing at least €50 million; incentives include direct subsidies, tax allowances, training subsidies and job creation subsidies. For projects valued at less than €50 million, financing from the EU may be available.

Strong growth potential The Hungarian tourism industry offers strong growth potential. Hungary’s strategic location, good infrastruc-

ture and security will bring more and more visitors, including from developing economies elsewhere in Central and Eastern Europe. Hungary’s cities are ideally suited for conference tourism thanks to the country’s role as a regional hub. Concerning the hotel sector, four-star properties are already achieving steady growth in occupancy rates and more luxury properties are needed to satisfy demand. Hungary has six UNESCO World Heritage cultural sites and two World Heritage natural sites, which include the Tokaj wine region, the city centres of Budapest and Pécs, Pannonhalma Abbey, Hollókó village, Hotobágy National Park, Fertó lake, and the stalactite caves of Aggtelek. In addition, 10% of Hungary’s land surface is designated as environmentally protected areas. Hungary has developed a long-term tourism development strategy and investors are supported by ITD Hungary and government bodies. Investment projects are currently available concerning theme parks, thermal spas, golf and casino tourism, and castle renovation. All tourism projects in Hungary can count on competitively priced human resources at rates less than half the Western European average. Hungary is well placed to become a top European tourism destination.

HUNGARY

Mellow Mood Group

Hotels with Unique Style and Investment Potential Mellow Mood Group has established a strong reputation for its unique hotel properties which offer outstanding facilities and services. Mellow Mood, with CEO’s Sameer Hamdan and Zuhair Awad, caters to all types of guests: it operates “Congress” hotels for business travellers attending professional events; unique “Fashion” hotels, each with its own special style; “City” hotels in the heart of urban areas; and hostels. All the hotels in the group focus on quality rather than size; most have only 30 to 80 rooms.

four-star design hotels, we are able to focus more on business travellers as our main target,” Judit Blandl explains. Mellow Mood aims for business travellers to make up 45% of its guests.

Sameer Hamdan and Zuhair Awad, CEOs

The group’s newest property, the four star Expo Congress Hotel, is ideally located for meetings, incentive travel, conferences and exhibitions (MICE) visitors. It towers over the main entrance of the Hungexpo Budapest Fair Centre, has 160 rooms and is a welcome addition to Budapest’s hotel scene. In spring 2010, Mellow Mood will open its first five-star property, the Buddha-Bar Hotel Budapest Klotild Palace within the 100-yearold Klotild Palace at the foot of the Erzsébet Bridge. The hotel, which will be the first lifestyle hotel in Hungary, will have 102 rooms, including a truly unique collection of suites, conference facilities, and a business centre. Mellow Mood plans to open another four-star

property, belonging to the Fashion brand, the Alta Moda, next year as well. General Director Judit Blandl explains, “We think it is important for our hotels to have their own special style, unlike the branded multinational hotelier groups. Our four-star Buda Castle Fashion Hotel, has only 25 rooms but all are big, stylish and very unique in design. In addition to a unique style, all our hotels enjoy excellent locations.”

Four-star hotels popular among executives Mellow Mood’s four-star hotel properties are especially popular among executive travellers. Judit Blandl says, “Now that we have our

Mellow Mood works closely with the tourism board and with other chains of hotels, particularly concerning hotel recommendations for MICE visitors. “Most of our hotels may not have large conference facilities (except Expo Congress Hotel and Europa Hotels & Congress Center), but business guests coming to Budapest for MICE events can get a good night’s rest in one of our luxurious, unique hotels away from their event,” Judit Blandl says. In the long term, Mellow Mood aims to extend its hotel concept of small, unique luxury hotels to other cities throughout Europe, including Vienna. Judit Blandl concludes, “We would like to serve both business and leisure travellers and we want potential investors to know that we are open to partnerships in hotel development ventures.”

Mellow Mood Ltd. Baross tér 15 H-1077 Budapest Tel.: +36 1 413 2062 Fax: +36 1 321 4851 info@mellowmood.hu www.mellowmood.hu

Buda Castle

Unique World Heritage Sites throughout the Country Hungary has been a major European cultural crossroads for centuries, and UNESCO, in its list of global World Heritage sites, has recognised several sites throughout the country as having unique cultural significance. At the top of the list for most visitors to Hungary is Budapest, the country’s capital city. UNESCO has ranked the banks of the Danube in Budapest, the Buda Castle Quarter, Andrassy Avenue, and the Millennium Underground as having “World Heritage” character. Beyond Budapest, visitors should not miss a visit to Holloko, a World Heritage site since 1987; it is the only village on the World Heritage list and gives visitors a chance to travel back to Hungary’s past. Located in the Cserhat mountains around 100 km north-west of Budapest, it is filled with traditional white houses with wooden balconies grouped around a medieval chapel. Other sites which give a picture of Hungary’s long history include the early Christian necropolis in Pécs, a World Heritage site since 2000, and the Pannonhalma Benedictine monastery and the natural area surrounding it. Hungary’s natural wonders singled out by UNESCO include the Aggetelek Karst caves, Hortobagy National

Park (the Puszta), Lake Ferto and its surrounding area – designated for its ‘cultural landscape’ – and the Tokaj wine region, source of one of the world’s most prized wines, whose ‘cultural landscape’ was recognised by UNESCO in 2002.

Pécs: European Capital of Culture 2010 A highlight of Hungary’s cultural attractions is the city of Pécs, chosen to be the “European Capital of Culture” for 2010. Pécs is the largest city in the Transdanubian region in South-West Hungary. It is a Catholic-Episcopal centre and university city where some 35,000 students from all over the world come to study. Pécs has a vibrant, youthful character and hosts a number of cultural events year-round, including International Cultural Week, organised annually in early July. Numerous travel books describe Pécs as the Hungarian city with a touch of Mediterranean atmosphere, even though it is far from the sea. Its picturesque city centre, a trade hub during the Roman Empire, was declared a World Heritage Site by UNESCO in 2000. It has early Roman burial chambers, medieval buildings, streets paved with stones several thousands of years old, and much more, yet Pécs is also a very modern city where new works of art and performances are constantly being created. This mix of old and new is a symbol of Hungary.

Balaton view

Exceptional Tourism Potential beyond Budapest Hungary offers diverse tourism attractions in its distinct regions, each with its own special character. From sophisticated Budapest with its varied cultural activities, visitors to Hungary can travel to the picturesque Tokaj region in Northern Hungary to taste some of the world’s most famous wines as well as sample local cuisine and visit charming villages. The Alföld region south and east of Budapest has three national parks, one of the Greek Catholic faith’s oldest sites, Central Europe’s biggest windmill, the plain’s only medieval stone castle, Hungary’s oldest railway station, and the world’s second largest panorama painting as well as Lake Tisza, known for eco-tourism attractions. It is also a source of the famous Hungarian spice, paprika. Lake Balaton, Central Europe’s largest freshwater lake, has long been a popular destination for water sports, cultural activities, bird watching and dining on fresh lake fish. The lake is at the centre of Pannonia (Trans-

danubia), a former stronghold of the Roman Empire. It is filled with unique architectural and natural wonders, including three UNESCO World Heritage Sites and the city of Pécs, chosen European Capital of Culture for 2010.

ITD Hungary singles out high potential projects Tourism has been selected as one of seven priority sectors for investment by ITD Hungary, the country’s investment promotion agency. ITD Hungary has singled out several high potential tourism projects which make the most of Hungary’s attractions. One project is to create Hungary’s first historical theme park. The initiative will recreate the atmosphere of a medieval Hungarian city and will include a medievalstyle hotel with 130 rooms and 60 adjacent bungalows. Within easy access of Budapest, the project will highlight a culturally rich period in Hungary’s past. The project owner is forecasting a return on the total investment of €38 million within seven years.

Tourism

Another project takes advantage of Hungary’s long spa tradition in a new way. The project is to create a five-star golf and hotel venue which includes an 18-hole golf course, a 208-unit luxury villa park, a thermal and wellness spa, and a five-star, 200-room wellness hotel. Covering 80 hectares, the development will meet the highest standards of luxury and will be the region’s first five-star golf and spa resort. The project owner expects the investment, whose total value is around €79.8 million, to yield ROI exceeding 12%. Another combination hotel and leisure centre targeted by ITD Hungary is Hotel Arboretum in Debrecen, in the Northern Great Plain. The hotel project will cover 28 hectares and comprise a 206-room, four-star hotel and an adjoining wellness centre and thermal spa. It will have a conference room capable of hosting 700 people and a 1,000 sq m casino. The project owner is forecasting a return on the total investment of €40 million within 19 years. ITD has also singled out a lakefront resort village project to build a 172-room, four-star hotel at Lake Balaton. The complex, the first four-star resort on the lake, will include a conference centre, a multipurpose hall, a swimming pool, a wellness and therapy wing, and high-quality apartments. The project will be located on the waterfront adjacent to a yacht harbour, within easy reach of Fly Balaton International Airport. The project owner expects the investment value of €100 million to yield IRR of 25% to 30%. Another project is to create a medical wellness hotel and spa on a 13.6 hectare site near a fishing lake in Western Hungary. Licenses are available and the site is ready for

construction. The project comprises a five-star hotel complex with access to wellness services. The project owner expects the investment value of €25 million to yield EBIT/revenue of 26% to 32%.

Sports, spas and luxury hotels ITD Hungary also recommends a project to build a premium health park and thermal hotel complex which will include a five-star hotel, a four-star hotel, a thermal bath, a medical bath with services, 100 apartment houses, and recreational areas with access to a golf course. The centre will offer therapies unique in Europe. The project owner expects returns on the €63 million investment in nine to ten years. ITD has also targeted a project to create Ródi Park Resort, a 200-room, four-star hotel in Central Hungary which will offer a range of sports and conference facilities as well as a fitness and wellness centre. The hotel will adjoin a water park and is near Budapest and the Hungaroring Formula 1 track. The project owner is forecasting a return on the total investment of €45 million within nine years. Finally, ITD Hungary recommends a €33.1 million thermal holiday centre project to build a four-star hotel with access to thermal baths, with conference, sports, entertainment, fitness and wellness facilities. The hotel will be powered by renewable energy. Projects like these illustrate the vast potential of Hungary’s tourism sector.

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Health Tourism: Priority Investment Opportunity Hungary has unique features to make it a top international destination for health tourism. The country’s thermal water reserve rivals those of Iceland, France, Italy and Japan, with thermal springs found on 80% of Hungary’s land area. Most of the springs are particularly rich in minerals and have been prized for their curative power for centuries. In fact, Hungary has around 1,300 thermal springs of which 36 are ranked as having unique medicinal properties. The country currently counts over 100 spas and wellness hotels which take advantage of this wealth of thermal waters, and a number of new properties are soon to open or are planned.

Medical tourism to boost tourism’s GDP contribution The Hungarian government expects medical tourism to play a key role in boosting the tourism sector’s GDP contribution from the current 8% on average to 10% or 10.5%. As tourism officials point out, health tourism is a profitable tourism segment since health tourists tend to stay longer and spend more than other visitors. The government is committed to giving health travellers even more reasons to choose Hungary.

In addition to its thermal springs, Hungary has other characteristics that make it an ideal choice for health tourism: it has a long tradition of know-how in thermal spa treatments, a well-developed system of training medical personnel, world-class medical treatments at a fraction of the costs usually charged elsewhere in the EU, a strategic location, and a number of incentives for investment in health tourism projects.

Spas and world-class medical procedures Along with thermal spa treatments, Hungary offers a wide range of healthcare treatments provided by highly qualified medical staff employing state-of-the-art technology and equipment. Popular procedures include laser eye treatment, hair replacement and hair transplant therapy, dentistry and all forms of cosmetic surgery. Investment promotion agency ITD Hungary has earmarked a number of health tourism initiatives as having particularly strong potential; these include a luxury lakefront resort village and wellness hotel in Keszthely, on Lake Balaton; a luxurious health park in the city of Kapuvár which will include health and wellness hotels and a wide range of thermal treatments; new hotels and an expanded spa in the city of Debrecen; and a new four-star hotel and other facilities in the spa town of Zalakaros. These are just a few of the projects designed to stimulate the growth of Hungary’s health tourism sector.

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