Hungary- an ideal

location for Investors

Hungarian Aeronautical

Research Workshop

27 November 2006

General Economic Overview of Hungary

Education, Workforce and Wages

Logistics and Road Infrastructure

Innovation in Hungary

The Services of ITD Hungary

Agenda

General Economic Overview of Hungary

Hungary in Europe

Land: Land: 93,030 km²93,030 km²Population: 10,1 million Population: 10,1 million peoplepeople GDP/capita, at PPP GDP/capita, at PPP ((20020055)): : USUS$$ 1 166,,290290

HungaryHungary

High integration with the EU in respect of trade and investments

The legal framework corresponds to international standards

Heavy reliance on FDI as a driving force in the economy

Gross industrial output per worker grew three times since 1990

Sophisticated financial system

Experienced and educated labor force

Highly developed logistical and transport infrastructure,

179 industrial parks

Strong presence of foreign and multinational companies

over 30,000 companies with foreign owners

Source: WIIW

Main Characteristics ofHungary as EU-Member

Rate of growth reaches 4.0% in 2006

Industrial boom : 10% year-to-year growth by 2006 Export growth reaches 15% in 2006

Unemployment rate : 7.5% in 2006 Declining real wage growth -1% in 2007

Annual inflation forecast for 2006 is 3.9%

Volume of investments grew by 9,7% in Q12006

GDP

Output

Inflation

Employment and wages

Hungarian Macroeconomy

Investments

Cumulated FDI* in Hungaryin million euros

Source: National Bank of Hungary, Ministry of Economy and Transport

* Including reinvested earnings from 1995

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Q1

53 942

Hungary is Front-Runner as regards FDI Potential and Performance

Food: 5.2%

Chemical: 5.7%

Electronics: 8.8%

Automotive: 10.9%

Trade: 10.1%

Transport, telecom: 9.9%

Finance: 10.5%

Business services: 16.8%

Source: National Bank of Hungary

Manufacturing; 44%

Energy, water supply; 4%

Services; 49%

Other; 3%

FDI Stock in Hungary by Sectors

Education, Workforce and Wages

Number of higher education institutions: 69 Number of students in higher education: 421,500 Majoring in:

Engineering: 45,900 Business and Administration: 98,400 Informatics: 13,900

Number of graduates in 2005: 53,500

Budapest 164,105

Szeged 30,942Pécs

Pécs31,705

Veszprém 9,680

Miskolc 14,130 Debrece

n23,403

90% of the students speak English2nd most popular foreign language: Germanfollowed by French, Italian, Spanish

All diploma with foreign language certificate and computer skills!

High quality labour poolUniversity Towns

Sopron

14.1

Szombat-hely7.1

Veszprém

10.5

Sz.fehérvár8.1

Budapest

158.7

Gödöllő

11.1

Eger9.5

Miskolc

15.2 Nyíregyháza

12.8

Debrecen

27.4

Kecskemét

18.4

Szeged

31.5

Pécs33.6

Dunaújváros

4.8

Győr11.1

Kaposvár4.4

Number of students in thousands in academic year 2004/2005 excluding those in distance education

Source: Statistical Yearbook of Higher Education 2004/2005

Major Colleges and Universities

Real Wage Growth in Percentage

0,0

-1,0

3,4

5,0

-2

-1

0

1

2

3

4

5

6

2005 2006* 2007* 2008*

Slow-down in Real Wage Growth in Hungary

Source: Convergence Programme of Hungary, GKI

*forecast data

Hungary Ahead inLabour Productivity

GDP in Purchasing Power Standards per person employed relative to EU-25 (EU-25 = 100)

2530354045505560657075

2000 2001 2002 2003 2004 2005 2006 2007

Source: Eurostat, 2006

Hungary

Slovakia

Czech Rep.

Poland

Romania

Bulgaria

Logistics and Road Infrastructure

Hungary - The Natural Regional Logistic Centre

Central location in Europe

Border with 7 countries: 3 EU, 4 non-EU member states

Three international major road corridors and the Danube cross Hungary.

Innovation-logistic ring around Budapest

Záhony the Reloading centre between narrow and wide railway system

Easy access to the Balkans and Europe

The 11 logistic districts and the 13 logistic centres are located in the focal points of the international movement of goods.

Source: Ministry of Economy and Transport

Rábafüzes

Parassapuszta

Vác

Tornyosnémeti

Röszke

Ilocska

Letenye

Dunaújváros

Eger

Veszprém

Győr

Tatabánya

Kaposvár

Pécs

Lelle

Sopron

Székesfehérvár

Kecskemét

Békéscsaba

Nyíregyháza

Miskolc

Kiskunfélegyháza

Debrecen

Füzesabony

Emőd

Baja

Polgár

X/A

VIENNA

BRATISLAVA, PRAHA

GRAZ

LJUBLJANA, TRIESTE

ZAGREB

SARAJEVO

TIMISOARA,

BUCAREST

BELGRAD

CLUJ-NAPOCA,

ARAD

LVOV, KIEV

KOSICE

Szolnok

IV

V.

ARADSzege

dNagylak

Duna

Tisza

Zalaegerszeg

Tornyiszmiklós

Salgótarján

M30

M2

M3

M4

M4

M5

15

M9

M8 M8

M7

M70 M6

M56

BUDAPEST

V.

M25

M35

Bszgyörgy

Nagykanizsa

43

HR

RO

UA

SK

A

SL YU

Siófok

Szekszárd

Mohács

A

M86

Szombathely

M1

M0

M3

M44

MotorwayExpresswayMotorway under construction

Helsinki corridors

Road Network in 2015

M9

Airports in Hungary

Budapest – International airport

Pécs

Szeged

Debrecen – Intl airport

Nyíregyháza

Győr-Pér – Intl airport

Fertőszentmiklós

Siófok – Kiliti

Fly Balaton- Intl airport

Mezőkövesd

Békéscsaba

Kalocsa-Foktő

Taszár

Veszprém

Zalaegerszeg

Kunmadaras

Innovation in Hungary

Philipp E. A. von Lenard (1862-1947) 1905 Physics

Robert Bárány (1876-1936) 1914 Physiology

Richard A. Zsigmondy (1865-1929) 1925 Chemistry

Albert Szent-Györgyi (1893-1986) 1937 Physiology

George de Hevesy (1885-1966) 1943 Chemistry

Georg von Békésy (1899-1972) 1961 Physiology

Jenő Wigner (1902-1995) 1963 Physics

Dénes Gábor (1900-1979) 1971 Physics

John C. Polanyi (1930-) 1986 Chemistry

George A. Olah (1927-) 1994 Chemistry

John C. Harsanyi (1920-2000) 1994 Economics

Tradition in research: 11 Hungarian Nobel-Prizes

History and Tradition

Hungary has great tradition in the transportation industry.

Significant inventors and contributors:

Dávid SCHWARTZ first propeller made of thin metallic plates (1897)

János CSONKA first Hungarian gas combustion engine (1883), carburettor (1890)

József GALAMB organizer of Ford-T mass production (1905-15)

Tódor KÁRMÁN „Kármán” vortex line - streamlines (1911)

Béla BERÉNYI safety concept of vehicles (1939-1972)

Miklós HOFF Designer of airplanes and Apollo spacecraft

Ferenc PAVLOVICS first moonwalker (1961-88)

Gyula CSER combined engine charger system (1968)

Ferenc ANISITS development leader of BMW’s diesel engine (1981-99)

György SPRINGER Head of institute of Aeronautics and Astronautics at Stanford University

István UDVARHÁZY Space and Air Center at Dallas Airport

Elcoteq

Ericsson,Temic-Telefunken,

IBM, Simens PSE,GE Lighting, GE Health-care,

Nokia, Cisco, SAP,TATA Consulting, T-Systems,

Sanofi-Aventis, Servier, Astra-Zeneca,

Knorr-Bremse, Arvin Meritor

Bosch Power Tool

Continental Teves,Valeo Auto-Electric

Audi,Magna Steyr,

EDAGMichelin

Denso,Visteon

Knorr-Bremse

W.E.T.

Flextronics

Samsung SDI

Draixlmaier Electrolux

Teva-Biogal,National Instruments

Zenon

General Electric

Teva-Biogal

Corporate Research Centres

ZF Hungária

GM Powertrain

Destination countries by estimated job creation in R&D projects, H1 2005

Hungary attracts 15% of all new R&D jobs in Europe

Hungary15%

Belgium 1%

Spain1%

Ireland5%

Sweden1% Romania

3%

France3%

Other2%

UK32%

Poland13%

Czech Rep13%

Germany7%

Switzerland5%

Source: IBM Plant Location

Increasing number of R&D units with a massive number of researchers

0

500

1 000

1 500

2 000

2 500

3 000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

R&D Units

17 000

18 000

19 000

20 000

21 000

22 000

23 000

24 000

R&D FTEs

No. of full-time equivalents (FTEs) No. of R&D units

Hungarian R&D units and FTEs

Source: Hungarian Central Statistical Office

Goal: Double R&D expenditures in the next 5 years and triple in 10 years. 2/3 of expenditures from corporate

sector.

The new innovation systemof Hungary

Source: National Office for Research and Technology

1. Tender applications in the framework of the New Hungary

Development Plan ( II. National Development Plan) co-

financed by the EU VII. Framework Program 2007-2013

2. Special incentive package for strategic investors

The Hungarian Government prepares a tailor-made incentive package

3. Tax allowances in corporate income taxation

4. Development Tax Benefit

5. Other tax-related benefits (e.g. solidarity tax, personal

income tax)

6. Subsidy for employment creation and training

7. Special support programs for R&D activity:

National Office for Research and Technology (discussed

earlier)

Incentives for R&D Investments

I. Knowledge-based economy Promotion of innovation in the corporate sector

(Technological development, Education of researchers at corporations, Set up R&D units, Purchase and adapt competitive technologies, Establish innovation and R&D clusters)

Supporting new technology-intensive investments Promotion of corporations among universities, scientific research centres Supporting of setting up new research and development facilities

(e.g. Knowledge and incubation centres, Research infrastructure, Spin-offs) Promotion of international cooperation

(Technology transfer, Technology adaptation)II. Pole Program Seven regional centres

Debrecen, Győr, Miskolc, Pécs, Szeged and Székesfehérvár-Veszprém axisIII. Details of tender application to be announced in early 2007 Intensity ratio: 35-75%

Objectives of the II. National Development Plan

In the II. National Development Plan HUF 651 bn (app. EUR 2.5 bn) will be earmarked for R&D activities

Under the EU VII. Framework Program Hungary will receive another HUF 80-100 bn (app. EUR 0.4 bn)

The Hungarian Government may decide on granting a customized incentive package and

VIP treatment

In case of establishing regional corporate service centre and R&D centre if the investment volume reaches

EUR 10 million

Eligible costs include all wages and wage related costs in the first 24 months

Applicable types of incentives:- Direct aid- Development tax allowance- Training subsidy

Special Incentive Package for Strategic Investors

R&D costs or depreciation of activated/accounted R&D can be

100% deducted from corporate tax base

300% R&D direct expenses - maximum HUF 50 million (ca.

EUR 200 thousand) - if operation of the company R&D unit

located at university or public research institute (e.g.

Hungarian Academy of Sciences)

Special Intellectual Property Rights tax allowance for SMEs

(cost of patent applications)

Tax allowance for corporate donations to organisations of

public benefit supporting R&D activities

Tax free development reserve for five years – 25% of pre-tax

profit (max. HUF 500 million, ca. EUR 2 million)

Tax benefit on credit agreements

Tax related incentives for R&D investments

.

Tax allowances in corporate income taxation

Tax-related incentives forR&D investments

Development tax benefit

Applied for a period of 10 years

Rate: up to 80% of corporate income tax

Minimum investment value: HUF 100 million (app. EUR 380 th)

Company R&D unit is located at university or public research institute

Other tax-related benefitsR&D costs or depreciation of activated/accounted R&D can be

100% deducted from solidarity tax base (from 2007)

Tax free employment of PhD, MSc or MBA students (up to the official

minimum wage) in the field of educational and research activities

Tax credit of personal income tax for intellectual property creation

10% of R&D direct costs and wage costs of the employed software

developer can be deducted for a period of 3 years

SME’s pay innovation contribution in reduced rate

Measure of subsidy: HUF 30 million (EUR 120 000)+HUF 20 million (EUR 80 000) / project if the investment creates at least 80 jobs

2 Subsidy categories!1. Job creation investment aim (BAA) 2. Job creation (ADA)

Size of the subsidy

75% of the employee’s salary and its contributions for 12 months OR

65% of the employee’s salary and its contributions for 12 months

It can not exceed HUF 200 000 (EUR 800)/employee/month

Company profile: IT, finances -, accounting-, consulting, customer service,

etc.

Details of tender application to be announced in early 2007Please note: above numbers are not confirmed

High Value Added Job Creation

Aid intensity: the gross subsidy amount expressed as a

percentage of the project eligible costs

Specific training: maximum 25% for large enterprises and

35% for SMEs

General training: maximum 50% for large enterprises and

70% for SMEs

+ a maximum of 10% in case of disadvantaged workers,

proportionally with their number

Large amount of subsidy (EUR 1.000.000 or more) is

subject to an individual assessment by the Commission

Training subsidy

Intensity Ratios from 2007

25%* 30% 40% 50%

VasVeszprém Fejér

Somogy Tolna

Baranya

Pest

Budapest

Nógrád

Heves

Borsod-Abaúj-Zemplén

Szabolcs-Szatmár-Bereg

Hajdú-Bihar

Bács-KiskunBékés

Jász-Nagykun-Szolnok

Csongrád

Komárom-Esztergom

*as of 2011: 10%

Győr-Moson-Győr-Moson-SopronSopron

Zala

for medium enterprises + 10%

for small enterprises + 20%

Source: Ministry of Finance,17th Aug 2006

The services of the Hungarian Investment and Trade Development Agency

The Hungarian Investment and Trade Development Agency is the agency of the Hungarian Government for foreign investment promotion and trade development.

Central Office in Budapest

6 Regional Offices – 14 locations

56 Foreign Trade Offices

8 Representative Offices in the border regions of neighbouring

countries

Network:

ITD Support

BudapestDebrecen

Eger

Szeged

Pécs

Veszprém

Győr

ITDH Support for the Hungarian Aviation Industry

I. Events for HAIF members FP-6 Aeronautical R&D Workshop, Budapest Hungary, 2003 Aerospace Quality Workshop, Budapest Hungary, 2004 Aeromart Exhibition, Toulouse France, 2004 Hungarian Aviation Industry Event, Hamburg Germany, 2004 Aerosolutions Exhibition, Bordeaux France, 2005 Cabin Systems Holding: Information Day, Budapes Hungary, 2005 Airshow Exhibtion, Berlin Germany, 2006 Aeromart Exhibition, Toulouse France, 2006 FP-7 Aeronautical Research Workshop, Budapest Hungary, 2006 Aircraft Interior Expo, Hamburg Germany, 2007 (plan)

II. Development of industry integration Hungarian Aerospace cluster, 2006 HAIF-PANAC cluster cooperation, 2006 Recommending Hungarian producers/exporters/subcontractors to

foreign customers

III. Foreign direct investment projects in Hungary Project management

Thank you for your attention!

Hungarian Investment and Trade Development Agency (ITDH)H-1061 Budapest, 12 Andrassy ut, Hungary

Phone: (36 1) 472-8178, Fax: (36 1) 472-8180E-mail: investment@itd.hu

Internet: www.itd.hu

György Rétfalvi, CEO ITDH