Hungary, located in Central Eastern Europe with a population of
10 million, has nearly fully transitioned from a centrally
planned economy to a market-based one since the fall of communism
in 1989. It is a member of the OECD (1996), NATO (1999) and
the European Union (2004).
Per capita income is nearly two-thirds that of the EU-25 average
and total GDP (purchasing power parity) is US$182 billion.
The private sector accounts for more than 80 percent of
GDP.
Foreign direct investment (FDI) has helped modernize industries,
create jobs, boost exports and spur economic growth.
Cumulative FDI stock has totaled more than US$90 billion since
1989, the highest in the region on a per capita basis.
Among the important sectors: automotive, IT, logistics and, more
recently, shared services (e.g., back office and/or call center
operations).
Funding from the EU has also driven growth, and will continue to
do so. Since 2004, EU funds have been used to improve
telecommunications, energy and highway infrastructure. As
part of a second National Development Plan (2007-2013), Hungary
will allocate approximately €25 billion (US$36.8 billion) in
projects ranging from tourism and transportation to healthcare
and environment.
The Government of Hungary (GOH) introduced a series of austerity
measures in 2006 aimed at reducing the country’s budget deficit,
which slowed GDP growth to 1.5 percent in 2007 (from 3.9 percent
in 2006).
Analysts suggest 2008 will be better. While Hungary still
seeks to bring its budget deficit down to 3 percent of GDP,
required by the EU for Hungary to adopt the euro. But the
consensus view is that growth will recover and inflation will
wane in the coming year.
Market Challenges
Although Hungary can claim one of the lowest corporate tax rates
in the EU (16 percent), the GOH introduced in 2006 a 4 percent
“solidarity tax” as part of its austerity program. This,
together with the substantial healthcare and other social
benefits costs companies must bear, as well as local municipality
taxes, makes the total tax rate for businesses one of the highest
in Europe.
Public procurement and tendering can be difficult for U.S.
companies to negotiate. Some projects, such as those funded
by the EU, require participation by a European partner.
Often there is a preference for products from companies long
established in the market. The tendering process can be
complex, with final decision-making criteria often opaque.
Rule making and permitting, especially at the local level, can be
bureaucratic, inefficient and inconsistent.
Although Hungary adopted a market economy only 20 years ago,
competition is fierce in virtually every sector. Many of
the market leaders are from Western Europe (especially Germany,
Hungary’s leading trading partner), but increasingly Hungarian
and Asian (e.g., Chinese) firms also play a formidable role in
the economy.
All companies must comply with standards, regulations and
certification requirements of the EU, which Hungary joined in
2004. These may not be familiar to U.S. concerns. See
http://www.buyusa.gov/europeanunion/.
For more information on Hungary’s regulations, please refer to
Chapter 3, Selling U.S. Products and Services and Chapter 5,
Trade Regulations and Standards.
Market Opportunities
Hungary remains an attractive market for U.S. investment and
exports. Hungary’s strategic location in Europe, access to EU
markets, highly skilled and educated work-force, sound
infrastructure and other advantages have led companies such as
GE, Alcoa, AES, GM, IBM and many others to locate facilities
here, both in manufacturing and services.
All told, American companies have invested more than $9 billion
in Hungary since 1989, making the U.S. the 4th-largest foreign
investor behind Germany, Austria and the Netherlands.
Meanwhile, U.S. exports to Hungary have topped US$1 billion
dollars in each of the last four years, led by IT equipment,
automotive components, industrial engines and other manufacturing
supplies. (From January through November 2007, U.S. exports
to Hungary were US$1.18 billion, about on par with 2006 exports
of US$1.19 billion.)
For a complete listing of the most promising industries, please
see Chapter 4, Leading Sectors for U.S. Export and
Investment.
Market Entry Strategy
The U.S. Government – through Embassy Budapest and the
Departments of Commerce, State, and Agriculture – stands ready to
support U.S. firms, whether entering or already doing business in
Hungary.
The U.S. Embassy promotes a sound Hungarian business environment
and advocates on behalf of U.S. companies bidding on major
Hungarian Government tenders or facing business problems due to
government policies.
In addition, the staff of U.S. officers and Hungarian commercial
specialists at the Embassy’s U.S. Commercial Service (USCS) can
assist U.S. firms to access the Hungarian market and solve
commercial problems through USCS’s low-cost “Gold Key,” market
research, and other services.