Doing Business in Hungary 2010 - International Franchise Association

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Return to table of contents Chapter 6: Investment Climate • Openness to Foreign Investment • Conversion and Transfer Policies • Expropriation and Compensation • Dispute Settlement • Performance Requirements and Incentives • Right to Private Ownership and Establishment • Protection of Property Rights • Transparency of Regulatory System • Efficient Capital Markets and Portfolio Investment • Political Violence • Corruption • Bilateral Investment Agreements • OPIC and Other Investment Insurance Programs • Labor • Foreign-Trade Zones/Free Ports • Foreign Direct Investment Statistics • Web Resources Openness to Foreign Investment Return to top Hungary maintains an open economy and attracting foreign investment remains a priority for the Hungarian government. According to the Hungarian Investment and Trade Development Agency (ITD), "foreign direct investment (FDI) has been crucial in boosting economic performance and remains the driving force behind Hungary's economic success, fueling its strong export growth and significantly increasing productivity." With more than $80 billion in FDI since 1989, Hungary has been a leading destination for FDI in Central and Eastern Europe, although this level is beginning to decline. The global financial crisis hit Hungary in late 2008, and the sharp economic downturn both globally and domestically negatively impacted investment flows into Hungary. Investment from American companies is estimated at more than $9 billion since 1989. There are approximately 2200 companies with partial U.S. ownership, and 128 wholly U.S. owned companies in Hungary. Hungary's high-quality infrastructure, its productive and highly skilled labor force, and its central geographic location are often cited as features that make Hungary an attractive destination for investment. Investment promotion agency ITDH views Hungary as a particularly well suited location for research and development centers; manufacturing facilities; and service centers, and believes that considerable opportunities exist in the biotechnology; information and communications technology; software development; renewable energy; automotive; and tourism sectors. ITDH reports that the agency brought in EUR 894 million worth of investments into Hungary in 2009, supporting 27 major investments that created nearly 5,500 jobs. Despite Hungary's advantages, some businesses complain that obstacles and disincentives to investment remain, including a lack of transparency and predictability; reports of corruption, particularly in the government procurement sector; and barriers related to excessive red tape. In late 2009, media sources reported several cases in which local and national authorities took 62
decisions that may have unfairly impacted foreign investors. These cases, which are currently being challenged in the courts, include a tender for national radio frequencies and the cancellation of a water services contract in a city in southern Hungary. This led nine Embassies to issue a statement of joint concern over the situation for foreign investors in Hungary (the nine Embassies were Belgium, France, Germany, Japan, Norway, Switzerland, The Netherlands, The United Kingdom and The United States). The November 2009 statement emphasized the need to promote transparency as a competitive advantage for Hungary as it seeks to attract further foreign investment. Officials of the current government as well as representatives of the major opposition party, however, insist that these cases do not reflect a trend and that foreign investors in Hungary are welcome and are treated fairly Index/Ranking Year Rank Hungary Result Transparency International Corruption Perception Index Heritage Economic Freedom World Bank Doing Business World Economic Forum Competitiveness Report IMD World Competitiveness Yearbook Economic Crisis and Recovery 2009 2009 2010 2009/10 2009 46 44 47 58 45 63 5.1 66.8 n/a 4.22 53.917 Scale From 1 to 10, most corrupt = 1 From 1 to 100, most free = 100 Out of 183 countries and territories The higher the score the more competitive From 1 to 100, most competitive = 100 The global financial crisis hit Hungary with particular severity. Despite declining budget deficits beginning in 2007, concerns about Hungary’s macroeconomic vulnerabilities – in particular its high debt-to-GDP ratio and external liability position – caused Hungary to become one of the first emerging markets to suffer from the fallout of the global financial crisis. Investor risk aversion and global deleveraging caused liquidity pressures in Hungary’s financial markets and created significant stress in the government securities market. The deleveraging contributed to a significant weakening of the forint, and on October 22, 2008, the Hungarian National Bank increased the policy rate by 300 basis points to fend off a potentially destabilizing swing in the exchange rate.
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Companies Doing Business in Hungary
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Page 101 and 102: E-mail: mailto:info@hungexpo.hu Web
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Doing Business in Hungary 2010 - International Franchise Association

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