The European Times - Hungary

HUNGARYOPEN FOR BUSINESS

33

INTRODUCTION • Ancient Nation with Very Modern Outlook 4• Hungary’s Fact File 8• British Embassy 10• British Chamber of Commerce in Hungary 11• Benefi ts of EU Membership 12

BUSINESS & INVESTMENT OPPORTUNITIES• Economic Success Story 15• ITD Hungary 17• Investment Opportunties from Auto Parts to Tourism 18• Doing Business in Hungary 20• Highly Favourable Tax Incentives 22

FINANCE & BANKING • Financial Sector Strengthened by Stabilisation Programme 24• Hungarian Banking Association 26• Volksbank Hungary 27• Banking and Capital Markets Meeting EU Standards 28

ENERGY & GAS • Liberalised Energy Sector with a Focus on Boosting Effi ciency 31• The Hungarian Energy Offi ce 33• Budapest Gas Works 34• Genesis Energy Investment Company 35• Energy Market Offi cially Open 36• Emfesz 38• European Leader in Renewable Energy 40

HEALTH • Health Care Sector Building on History of Innovation 42• Renewal of and Moving Forward in the Health Care Sector 44

• Health Care Sector Reforms in Progress 45• Pfi zer 46• Novartis 48• Biotechnology Targeted As One of Top Five Sectors 49• Teva Pharmaceuticals 50

TRANSPORT & LOGISTICS • EU’s Transport and Logistics Hub 52• Strategic Location and Much More Keep Hungary Competitive 54• An increasingly International Economy 56• Raabersped 57

AGRICULTURE & FOOD INDUSTRY • Modernised Agriculture Sector Focuses on Exports 59• Agriculture Minister Highlights Sector’s Growth Potential 61• KITE 62• The Federation of Hungarian Food Industries 63• Food Sector Meeting High Standards 64• Sio-Eckes 65• Hungerit 66

RESEARCH & CONSULTING• Business Consulting Meets the Challenge of Expanding Economy 69• TESK Tanácsadó Kft. 70

TOURISM • Wealth of Attractions for Business and Leisure Travellers 72• Ambitious Goals Outlined in New Tourism Strategy 74• City Home Residency 75• Places of Interest in Budapest 76

Regional Manager: Lieve Luyten

Business Analyst: Aukje Oostendorp

Project Coordinator: Khayla Banks

Editorial: Emily Emerson-Le Moing

Production Coordinators:Katrien Henkens, Katrien Delamotte, Heleen Castro

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

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Content

4

Ancient Nation with Very Modern Outlook

HUNGARY

Saint Stephen’s Statue

5

Hungary, a landlocked state in the heart of Europe, borders Slovakia, Ukraine, Romania, Serbia, Croatia, Slovenia and Austria, and has long been a European crossroads for trade and cultural exchange. Its capital city, Budapest (originally two sepa-rate cities, Buda and Pest), a sophis-ticated international urban hub, lies on either side of the Danube and is known for its architectural monu-ments and lively intellectual and cultural scene. Hungary’s culture is rich and varied. The country is particularly known for its folk mu-sic, which inspired Liszt, Bartók and Kodály, among others, and for its advanced research institutions, highly ranked universities, colour-ful handicrafts, unique cuisine and fi ne wines.

IntroductionIntroduction

HUNGARY

New EU member has long history

Formerly communist Hungary is one of the ten Eastern European coun-tries which acceded to the European Union in May 2004. This new EU member has a very long history.

Hungary’s origins date back to the pre-historic era along the central Vol-ga, believed to be the ancient home-land of the Magyars, as Hungarians are known. Sometime in the middle of the fi rst millennium BC, the ances-tors of modern Hungarians settled in the Carpathian Basin and quickly dominated Slavic tribes living there. Their leader was Árpád, the found-er of the realm that would become Hungary. For many centuries, the Magyars’ territory was a crossroads for trade and migration.

The Carpathian Basin was eventually invaded by Roman legions and de-

clared a Roman province, Pannonia. The four centuries of Roman rule which followed created an advanced and fl ourishing civilisation in what is now Hungary. Both Sopron and Szombathely (formerly Scarbantia and Savaria), near the Austro-Hun-garian border, developed into impor-tant settlements along the ‘Amber Route’ which extended from the Bal-tic countries to Italy; the predeces-sor of Pécs in southern Hungary was the Roman town of Sopianae; and Aquincum, the Roman predecessor of today’s Budapest, was a large town along the river Danube.

As Roman fell, Huns drove Roman rulers out of what is now Hungary, and when the Hun empire itself fell, Slavic people established new settlements in the Carpathian Basin. Their advanced culture infl uenced the Magyars. Several words related to agriculture and handicrafts in the Hungarian language were borrowed from Slavic languages.

King Stephen, Hungary’s fi rst king

In the fi rst half of the tenth century, Magyar mounted warriors invaded

areas throughout Europe and were greatly feared, but were soundly de-feated in 955 at Lechfeld (Bavaria) by Otto the Great.

The Magyars were forced to trans-form their nomadic, war oriented lifestyle. Under the rule of Géza (972-997) and particularly during the reign of his son King Stephen I, considered Hungary’s fi rst king, Magyar society was transformed into a culture based on agriculture and handicrafts, and in which a pagan religion was replaced by Christianity. Stephen was declared a saint by the Pope. One of Hungary’s great trea-sures is a sculpted head, believed to be of King Stephen, dating from the Romanesque period. The crowning of King Stephen on December 25, 1000, is still celebrated as the date Hungary truly began.

Romanesque art found fertile ground in Hungary, not only in the design of churches but also in jewellery and other creations by Hungarian goldsmiths, metallurgists and stone-masons. King Stephen instituted a sound system of government and de-fended his country’s independence from Rome and Byzantium

Budapest

6


HUNGARY

Defeat by Mongol forces

Mongol forces invaded what is now Hungary in 1241, and defeated Magyar troops led by Béla IV. As one German chronicler put it, “Af-ter three hundred years, Hungaria was no more.” In-fi ghting among the Mongol invaders weakened their hold on the country, however, and Béla IV began Hungary’s re-construction, building castles and fortifi ed towns. He invited Ger-man, Walloon and Italian settlers and promoted urban development. Known as “the second founder of the state”, Béla IV planned the con-struction of Buda Castle, and raised the settlements of Buda and Pest to the rank of towns.

Béla IV’s reign (1235-1270) was fol-lowed by struggles over succession, but in the 14th and 15th centuries, Buda Castle became a meeting point for Europe’s elite, and was fi lled with works of art. Charles Robert, the de-scendant of the Naples branch of the Angevin rulers and of the House of Árpád, became Hungary’s king and brought prosperity to feudal Hungary, as well as an international perspective, with particularly strong links to Italy.

International trade and expansion

Charles Robert introduced Hunga-ry’s currency, the gold forint, mod-elled on a Florentine design, and promoted trade between Hungary, Poland and Bohemia. His son, Louis I (1342-1382), known as Louis the Great, extended Hungary’s borders and acquired the Polish throne. He was succeeded by his son in law, Si-gismund of Luxemburg, who over-saw signifi cant building programmes and a fl ourishing artistic scene as well as the decline of Hungary’s mili-tary strength against the Ottoman empire.

János Hunyadi, the outstanding military leader of the age, eventual-ly defeated Ottoman forces at Bel-grade and thus preserved what is now Hungary. His son Matthias was later named king of Hungary at the age of 15. King Matthias’ image as the defender of the common peo-ple against arrogant barons whose power had been achieved in the feudal era is central to Hungarian folklore. Matthias roams the coun-try in disguise, unveils injustice, rewards virtue, and conquers the hearts of young girls and beautiful

women, who never suspect that the clever, handsome traveller is the king himself.

Hungary’s golden age

In fact, the reign of King Matthias (1458-1490) was the golden age of medieval Hungary. The young king created a highly disciplined mer-cenary army supplied with mod-ern weapons, reformed the justice system, a stable centralised gov-ernment and public security, and provided a solid basis for the devel-opment of industry and commerce as well as the arts. Buda Castle, his royal residence, became one of the most beautiful castles in Europe, and the fi rst printing press was es-tablished in Buda in 1473. There was also an outburst of scientifi c research, and scholars and artists from all over Europe fl ocked to Hungary, establishing the reputa-tion Hungary still enjoys as a centre for intellectual activity.

In 1541, Buda was besieged by both Ferdinand of Habsburg and Turkish ruler Sultan Suleiman. They eventu-ally defeated Hungarian forces and claimed different parts of the Hun-garian empire.

Buda Castle

7


HUNGARY

After many battles against many ad-versaries, Hungary was reconstitut-ed as part of the Hapsburg empire. In 1825, Hungarian count István Széchenyi founded the Hungarian Academy of Sciences, beginning the so-called Hungarian Reform Movement.

Struggle for independence

In 1848, revolution swept through Europe, and in 1849, Hungarian forces under Kossuth defeated the Hapsburgs and proclaimed the inde-pendence of Hungary on April 14, 1849, with Kossuth the country’s fi rst elected president. Hapsburgs assisted by Russian troops defeated Hungar-ian forces later that year, but reforms and industrialisation continued.

In the First World War, the Austro-Hungarian Empire aligned itself with Germany and eventually lost three million soldiers in battle, a million of whom were Hungarian. The Russian revolution further threatened the Austro-Hungarian Empire. Finally, in November 1918, Hungary was pro-claimed an independent republic.

Between the two world wars Hungary achieved a measure of economic de-velopment, but 500,000 Hungarians

died in the Second World War, and 40% of the country’s resources were destroyed. The German army was driven out of Hungary by the Soviet army in April 1945, and after a brief period of democracy, Hungary came under communist rule. An uprising led by Imre Nagy in 1956 was crushed by Soviet troops.

Return of democracy

After a period of oppression, the re-gime of János Kádár tried to intro-duce a “softer” brand of communism, known as “goulash communism”, in Hungary, but the economy declined and resistance grew. In 1989, a new Hungarian government opened the country’s frontiers to citizens of So-viet-occupied East Germany, launch-ing a wave of anti-Soviet activity in the region. Following general elections in April 1990, the independent Hun-garian republic, with an elected par-liament, was born, and in September that year, parliamentary democracy in Hungary offi cially began.

Since 1990, Hungary has been re-building its economy and gradually instituting free market principles. The transition has been diffi cult, but Hungary has managed to turn itself into a thriving modern nation

with global economic perspectives, as its accession to the EU in 2004 demonstrates.

Hungary is now a parliamentary de-mocracy with a president (Laszlo Solyom, elected in 2005) and a prime minister (Ferenc Gyurcsany, elected in 2004). The government includes a Council of Ministers elected by the National Assembly on the recommen-dation of the president. The National Assembly, or Orszaggyules, has 386 members elected by popular vote for four-year terms. Hungary’s constitu-tion was fi rst established in 1949, re-vised in 1972 and reinstated in 1989.

Sound economy with investment appeal

Hungary has made signifi cant prog-ress in liberalising and strengthen-ing its economy. In 2007, the govern-ment eliminated a trade defi cit that had plagued Hungary for several years, and infl ation dropped from 14% in 1998 to 7.8% in 2007, follow-ing a low of 3.6% in 2006. Germany is by far Hungary’s most important trading partner, but trade with other countries is increasing. Through an austerity programme of tax hikes and subsidy cuts, the government has re-duced the public sector defi cit to 4% of GDP this year, but the programme has slowed GDP growth. The govern-ment plans to eventually lower the public sector defi cit to below 3% of GDP and to adopt the euro.

Hungary has some limited natural resources (bauxite, coal, and natural gas), as well as fertile soils and arable land. It has developed a wide range of thriving sectors, including phar-maceuticals, machinery and trans-port equipment manufacturing, pro-cessed foods, transport and logistics, tourism, agriculture, renewable en-ergy, and chemicals, among others.

Hungary’s private sector now leads the economy and new investment incentives are attracting increasing FDI in this ancient nation with a very modern outlook.

Buda Castle

8

Introduction

Area: 93,000 km2

Population: 10.06 million in 2006

Capital city: Budapest

Currency: forint

National holidays: March 15, August 20, October 23

EU membership: May 2004

Head of State: President László Sólyom

Head of Government: Prime Minister Ferenc Gyurcsány

Foreign Minister: Kinga Göncz

Government: Governing parties:

MSzP (Socialist Party), Chairman: István Hiller; 186

deputies in the parliamentary group SzDSz (Alli-

ance of Free Democrats) Chairman: Gábor Kuncze;

18 deputies in the parliamentary group

Parliament: 386 members, last elected in April 2006 for four

years

Introduction

HUNGARY

Economy at a Glance

GDP: €142 billion in 2007

GDP growth: 1.4% in 2007

GDP per capita: €14,456 (IMF estimate, 2008)

GDP contribution by sector: agriculture 3%, industry 32%, services 64%

Gross external debt: €105 billion in June 2007

Infl ation: 8% in 2007

Unemployment: 7% in 2007

Public debt: 70% of GDP

Public revenues: €45 billion

Public expenses: €51 billion

Economic aid: EU funds, €220 million in 2004

Leading industries: mining, metallurgy, construction materials, pro-

cessed foods, textiles, chemicals (especially phar-

maceuticals) and motor vehicles

Exports: €63 billion in 2007

Main exports: machinery and equipment (61%), other manufac-

tured goods (29%), food products (7%), raw ma-

terials (2%), fuels and electricity (2%)

Imports: €63 billion in 2007

Main imports: machinery and equipment (52%), other manu-

factured goods (36%), fuels and electricity (8%),

food products (3%), raw materials (2%)

Main sources of imports: Germany (27%), Russia (8%), China (7%), Aus-

tria (6%), France (5%), Italy (5%), Netherlands

(4%), Poland (4%)

Hungary’s Fact File

9


HUNGARY

Fulfi lling Maastricht CriteriaAs an EU member state, Hungary must fulfi ll the Maastricht criteria in order to adopt the euro as its currency.

These criteria include reducing the rate of infl ation to maximum 3% (Hungary’s is currently 8%), reduc-

ing the percentage of the annual public sector defi cit to GDP

to a maximum of 3% (Hungary’s is currently 4.9%), reduc-

ing the percentage of gross public sector debt to GDP to 60%

(Hungary’s is currently 66%), and keeping the interest rate to

a maximum of 6.4% (Hungary’s is currently 7.5%). Hungary

has set 2014 as the deadline for reaching these goals.

With the collapse of the Soviet Union, Eastern Bloc coun-tries suffered a signifi cant loss in subsidies and markets for goods. Almost overnight, Hungary lost nearly 70% of its ex-port markets in Eastern and Central Europe and 800,000 jobs. Elimination of social services formerly provided by the communist government also created great problems for the Hungarian people and for the economy.

In the early 1990s, the Antall government began market reforms, but high government spending and slow privati-sation efforts hampered economic recovery. Meanwhile, the abolishment of subsidies led to dramatic increases in the prices of food, medicine, transportation services, and energy. GDP slumped and unemployment grew, reaching 12% in 1993. Hungary’s external debt was one of the high-est in Europe, rising to 250% of the country’s export earn-ings in 1994.

Austerity programme

In March 1995, the government of Prime Minister Gyula Horn implemented an austerity programme, along with aggressive privatisation of state-owned enterprises and a strong export promotion campaign. By the end of 1997, consolidated public sector defi cit had declined to 4.6% of GDP and the current account defi cit had been reduced to 2% of GDP, while government debt was paid down to 94% of annual export earnings.

Hungary has gradually stabilised the economy, reduced unemployment, created new social services programmes, and attracted signifi cant foreign direct investment of more than €44 billion between 1989 and 2007, more than

one-third of all FDI in Central and Eastern Europe over that period. EU accession in 2004 further boosted foreign investment and trade.

Dominance of private sector

Today, around 80% of GDP is from the private sector, and foreign interests control 70% of the country’s fi nancial in-stitutions, 66% of its industrial activities, 90% of its telecom-munications, and 50% of its trade activities.

Hungary no longer requires IMF fi nancial assistance and has repaid all of its debt to the fund. Hungary now has invest-ment grade ratings from all major credit rating agencies, although the country was recently downgraded by Moody’s and S&P and remains under observation with a negative out-look at Fitch following a decline in GDP related to the aus-terity programme.

Free fl oating currency

Hungary’s currency, the forint (HUF), became convertible for all current account transactions in 1995, and in 1996, after Hungary became a member of the OECD, it became convertible for almost all capital account transactions. The forint has been pegged to a basket of currencies since 1995 and is entirely free-fl oating. Hungary hopes to adopt the euro by 2014.

Remaining economic challenges include reducing fi scal def-icits and infl ation, maintaining stable external balances, and completing structural reforms of the tax system, health care, and local government fi nancing.

From Communism to a Free Market Economy

1010

Introduction

British Embassy

Your Business Partner in Hungary

H.E. Greg Dorey, UK Ambassador to Hungary

Greg Dorey points out that commer-cial ventures in Hungary continue to offer growth potential. But the diffi cult political and economic pe-riod the country is going through, means that the British Embassy has recently spent much time and ef-fort promoting transparency and consistency in the business environ-ment. He adds that such problems are not surprising in a transitional period.

In the long term, Hungary could still offer excellent investment pros-pects. As Greg Dorey explains, “Hun-gary is in the heart of Europe, and has a well-educated labour force. Although this labour is not as cheap as in some neighbouring countries, the overall human resource pack-age is excellent. British companies which are interested in establish-ing a regional presence or expand-ing into an upcoming country in Europe should take a close look at Hungary.”

Strong trade ties between UK and Hungary

Hungary, a member of the EU and of NATO, is already the UK’s third larg-est export market in Central and East-ern Europe and the UK is the fourth largest foreign investor in Hungary. “Hungary is looking for long term in-vestments and know-how, and British business people are looking for local knowledge. The UK is an important

H.E. Greg Dorey, UK Ambassador to Hungary since December 2007, explains that the British Embassy in Hungary “is here to help Britons who want to do business in Hunga-ry and Hungarians who want to in-vest in the UK. We provide examples of best practice and expert advice to save investors from making mistakes as well as let them know where others have been successful.”

British Embassy, BudapestHarmincad u. 6

H-1051 BudapestTel.: +36 1 266 2888Fax: +36 1 266 0907

E-mail: [email protected]://ukinhungary.fco.gov.uk

trade partner for Hungary and vice versa,” Greg Dorey points out.

Challenges facing Hungary include the perception that the business sec-tor is not transparent, a perception which needs to be addressed or Hun-gary might lose out against compet-ing countries in the race to attract investors. “It is important to ensure that all parts of Hungary’s society are involved in resolving the situation Hungary is in,” the ambassador says, noting that progress on fi nding solu-tions to problematic issues like party fi nancing and public procurement would go a long way towards reassur-ing international investors.

As for the future, Greg Dorey says, “I would like to see a more transparent and predictable business environ-ment and even better direct commu-nication between the UK and Hun-gary.” To those in the UK, he adds, “Come and visit Hungary, enjoy what it has to offer, and judge for yourself the business opportunities here.”

Introduction

HUNGARY

11

Introduction

British Chamber of Commerce in Hungary

British Chamber Promoting Bilateral Ties

The BCCH regularly organises net-working events for British investors in Hungary and local enterprises, includ-ing Hungarian companies wishing to invest in the UK. The BCCH has proved instrumental in helping to reinforce the British presence in Hungary, where more than 500 UK companies are now operating. In fact, the UK is one of the largest European investors in Hungary after Germany, The Netherlands, Aus-tria and France; these countries com-bined have invested some €50 billion in Hungary to date.

Total direct investment by British com-panies in Hungary from 1990 through 2007 totalled approximately €3.5 billion, and British enterprises are already oper-ating in Hungary’s retail, pharmaceuti-cals, telecommunications, and machin-ery sectors. According to a spokesman of the BCCH, around 25% of total British investment in Hungary is in manufactur-ing and some 45% in trade. Investors include UK-based international groups BT, Tesco, Vodafone, BAT, GlaxoSmith-Kline, Unilever, Diageo and Bernard Matthews as well as many SMEs. Voda-fone opened a new support center in Budapest last year, BT started up a new customer service center in Debrecen in 2008, Unilever has opened a new manufacturing center in Hungary, and Tesco continued its program to expand throughout the country.

The BCCH welcomes both large and small British companies and aims to help British fi rms take advantage of the many opportunities Hungary’s economy offers. According to a spokes-man of the BCCH, the government is currently particularly interested in at-tracting companies active in the en-

vironmental technology, water treat-ment and infrastructure development sectors, all of which are set to benefi t from substantial EU funding.

Hungary offers a highly trained, mul-tilingual workforce, a modern tele-communications infrastructure, and sophisticated business services, includ-ing high quality banking services. In addition, Hungary’s strategic location in the heart of Europe and its easy ac-cess to markets throughout the region make it an ideal hub for a wide range of activities. According to the BCCH, “The openness of the economy as well as the willingness and commitment of people to learn and develop are key strengths that will play a crucial part in Hungary’s future development.”

The BCCH will continue to expand its activities and services and is dedicated to promoting even closer business ties between Hungary and the UK in the future.

For this article we interviewed Mr. István Varga (former Chairman of the BCCH) and Mr. Gergely Mikola (recently elect-ed as new Chairman of the BCCH).

The British Chamber of Commerce in Hungary (BCCH), founded in 1991, aims to foster trade and in-vestment fl ows between the UK and Hungary and to reinforce business co-operation between the two coun-tries. Now with around 200 mem-bers, including both small and medi-um sized enterprises (SMEs) as well as major multinationals, both local and foreign, the BCCH works closely with other European chambers of commerce and with local government bodies, including the British Embas-sy in Budapest.

The 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

E-mail: [email protected]: www.bcch.com

Introduction

HUNGARY

12

Introduction

Benefi ts of EU Membership

Hungary became a full member of the European Union on May 1, 2004, and ever since its economy has been growing even more rapidly. Hunga-ry’s EU membership gives companies operating there a wide range of com-petitive advantages.

These include an economy which is even more stable, democratic, pros-perous, and secure, and which oper-ates according to EU standards. In addition, EU membership has stimu-lated Hungary’s GDP growth as well as its industrial output.

EU membership has also created more jobs and attracted more skilled professionals to the Hungarian mar-ket. Workers have more benefi ts now than in the past, as well as higher wages and pensions.

Access to growing domestic market and 450 million EU consumers

With EU membership, Hungary’s domestic market has been growing more rapidly, resulting in higher disposable income and greater do-

mestic demand. Trade oriented com-panies operating in the country can target not only regional markets but also Hungary’s own market.

Now that Hungary is an EU member, companies there have access to the EU’s 450 million consumers and can also count on free movement of la-bour, goods, services and capital.

The macroeconomic impact of Hun-gary’s EU membership also benefi ts companies based in the country. Foreign direct investment is in-creasing, with investors reassured by Hungary’s EU affi liation. In ad-dition, Hungary’s role as a regional hub has been enhanced now that the country can more easily serve as a gateway between the EU and mar-kets throughout Eastern Europe and the Balkans.

As it strives to make itself even more competitive as part of the EU family of nations, Hungary is emphasising innovation, research and develop-ment; this will create a strong foun-dation for future economic growth.

Financial benefi ts for investors

EU membership also brings a num-ber of fi nancial benefi ts for investors. The state subsidy system has been harmonised with EU regulations, and companies operating in Hun-gary – including small and medium sized companies – now have access to EU fi nancial institutions and funds. Now that Hungary’s regulatory en-vironment has been brought in line with EU standards, Hungary offers an even more transparent taxation sys-tem and business accounting rules. In addition, procedures for dealing with other EU member states have been simplifi ed.

Elimination of trade barriers

For trade oriented companies, the fact that Hungary is now an EU member opens up a range of new markets thanks to the elimination of trade barriers, mutual certifi cation of goods, harmonised value added tax payments, and the single standard certifi cation process for the entire re-gion. EU regulations also guarantee the rigorous enforcement of compe-tition policies and measures to pro-tect intellectual property rights.

When the European Monetary Union goes into effect in around 2012 or

Introduction

HUNGARY

Centre of Budapest

13


HUNGARY

2013, Hungary’s economy will of-fer even more benefi ts for investors and companies. As ITD Hungary points out, stability will be increased through the Maastricht convergence criteria. In addition, price stability will enhance economic transparen-cy and facilitate business planning, lower real interest rates will boost investments, exchange risks and con-version charges will be eliminated, economic growth will be stimulated, and an improved fi scal balance will bring Hungary an even higher rating from international ratings groups.

European Institute of Innovation and Technology

Hungary is positioning itself as a leader in the EU, and the country’s signifi cance in the wider EU family was emphasised recently when EU ministers announced that they had chosen the Hungarian capital, Buda-

pest, to be the location of the head-quarters of the planned European Institute of Innovation and Technol-ogy, or EIT.

Germany, Poland, Spain and a joint bid by the Austrian and Slovakian capitals Vienna and Bratislava had all competed to host the new institute, which “will become a symbol of the combination of European research and innovative capabilities,” accord-ing to Slovenian Higher Education Minister Mojca Kucler Dolinar.

The planned institute is meant to bridge the innovation gap between the EU and its major economic ri-vals, the US and Japan. The Ameri-can version of the new institute is the Massachusetts Institute of Technol-ogy (MIT).

The EIT, whose fi rst stage has been budgeted at 308.7 million, will be

designed to serve as a focal point for academic and industrial research be-ing undertaken throughout the 27-nation EU. Work on the project will begin later this year.

The fi rst stage in the project will be to establish the EIT’s governing structure and to set up the institute’s fi rst two or three research units. The total cost of the project will be much higher, with the balance of the fund-ing sought from national grants and industry.

The choice of Hungary as the lo-cation for this prestigious new institute refl ects Hungary’s solid reputation as a base for research, development and innovation as well as the country’s determination to be a leader in the EU. For inter-national companies looking to set up a base in the EU, Hungary is a top choice.

14

Business & Investment Opportunities

• Investment Opportunities from Auto Parts to Tourism

• Doing Business in Hungary

• Highly Favourable Tax Incentives

15


Economic Success StoryHungary, strategically located at the heart of Europe and now a member of the EU, has a history of foreign trade and of innovation in economic development.

By the late 1980s and early 1990s, Hungary had created fundamental laws governing the banking system, foreign investments, the foundation of companies, trade, competition, la-bour, intellectual property and bank-ruptcy. The government had also lib-eralised imports, prices and wages.

History of innovation

Hungary was the fi rst country in the region to launch market based privatisation, including of strategic sectors like energy and banking, and the fi rst to reform basic public sectors, including health and educa-tion. Thanks to these steps forward, Hungary has seen rising foreign di-rect investment.

Many very attractive incentives for foreign investors have been institut-ed, including signifi cant reductions in corporate taxes for particular types of investments and for invest-ments in regions the government wishes to promote. Key sectors for investors have included transport and logistics (building on Hungary’s central location and well-developed infrastructure), pharmaceuticals and other research oriented enterprises taking advantage of Hungary’s long history of excellence in research and its pool of highly skilled workers, and new sectors the government has tar-geted with special incentives, from environmental technologies to food processing.

Trade defi cit eliminated in 2007

By 2007, Hungary had eliminated a trade defi cit that had persisted for several years, and had reduced in-fl ation from 14% in 1998 to 7.8% in 2007, following a low of 3.7% in 2006. Infl ation is expected to decline fur-

ther this year. Wage growth, fuelled largely by government spending, has kept pace with that of other nations in the region. Unemployment, how-ever, remains at around 6%.

GDP growth remained below 4% in 2006 and less than 2% last year as a result of the government’s austerity programme aimed at reducing the budget defi cit, at which it has been successful. Fiscal consolidation is the focus of economic policy. The gov-ernment intends to introduce far reaching reforms in the social securi-ty and pension systems to ensure the long term stability of public fi nances and to keep the public sector defi cit below 3% of GDP.

Turnaround in fi rst quarter 2008

In the fi rst quarter of 2008, Hun-gary’s economy seemed to have reached a turnaround, growing by an annualised 1.6% over the quarter following four consecutive quarters of deceleration. Monthly indicators show that domestic demand has suf-fered from restrictive public spend-ing and ailing private consumption, while performance of the private sector has been improving, giving a boost to net export growth.

According to analysts, Hungary’s GDP is projected to continue to grow in 2008 and 2009 as domestic demand rebounds, although it is not expect-ed to rise above 4%. The Hungar-ian forint is expected to strengthen steadily against the euro, but will be increasingly affected by speculation about entry into the EU’s exchange-


HUNGARY

Hungary’s Economy at a Glance

Key indicators 2007 2008 2009 2010 2011 2012

Real GDP growth (%) 1.3 2.3 3.4 3.9 3.7 3.4

Consumer price infl ation (average %) 8.0 5.9 3.4 2.7 2.4 2.2

Consumer price infl ation (year-end %) 7.7 4.9 3.1 2.6 2.2 2.1

Budget balance (% of GDP) -5.6 -4.2 -3.6 -3.1 -2.8 -2.5

Current-account balance (% of GDP) -5.8 -5.9 -6.2 -6.5 -5.9 -5.5

Short-term deposit rate (average %) 7.2 6.8 6.5 6.7 6.2 5.7

Exchange rate Ft:US$ (average) 183.6 164.3 166.9 171.4 176.0 177.1

Exchange rate Ft: (average) 251.3 253.0 247.0 240.0 235.0 232.0

Source: The Economist Intelligence Unit

16

Business & Investment OpportunitiesBusiness & Investment Opportunities

HUNGARY

rate mechanism (ERM2) and Hunga-ry’s accession to European economic and monetary union (EMU), which is anticipated for around 2013.

The current account defi cit is expect-ed to rise in 2008-2010 as consumer and business confi dence recover, while it will begin to fall towards the end of the period as domestic de-mand is affected by efforts to meet Maastricht criteria for euro adoption.

Cautious approach to interest rates

Net external borrowing will remain high. The National Bank of Hungary (NBH, the country’s central bank) raised its main policy setting inter-est rate by 75 basis points, to reach a three year high of 8.25% in April 2008. The NBH may raise interest rates further in the short term to control infl ation, but could reduce them towards the end of 2008 if infl a-tion continues to decline. The NBH is expected to be cautious about cut-ting rates, as the forint is vulnerable to international changes.

To accelerate the country’s eco-nomic recovery, the government has launched a number of major develop-ment programmes, many of them with the support of EU funding; a €22.4 billion EU subsidy will be available to Hungary until 2013. As Hungary’s trade and development agency, ITD Hungary, points out, “The country has never before had an opportunity for targeted development on such a scale throughout its history.”

Given its track record for stable long term progress and a commitment to setting the foundations for sustain-able economic expansion, Hungary is well placed to achieve improved eco-nomic performance in the future.

ECONOMIC CHARACTERISTICS AND DATA

IMPORTANT ECONOMIC DATA

HUNGARY’S MEMBERSHIP OF IMPORTANT INTERNATIONAL ECONOMIC

ORGANISATIONS

- World Trade Organisation (WTO)

- Organisation for Economic Co-operation and Development (OECD)

- International Energy Agency (IEA)

- United Nations Economic Commission of Europe (UN ECE)

- United Nations Conference on Trade and Development (UNCTAD)

- United Nations Industrial Development Organisation (UNIDO)

- International Trade Center (ITC)

- European Energy Charter Convention (EECH)

- International Sugar Organisation (ISO)

- International Grain Council (IGC)

- International Cocoa and Chocolate Organisation (ICCO)

GROSS DOMESTIC PRODUCT (GDP)

GROWTH OF GDP: in 2005: 4.2%in 2006: 3.9 %

GDP VOLUME:(at current prices in 2006)

23.56 trillion forints

GDP PER CAPITA:2006

2.34 million forints(8,855 EUR)

GDP UTILISATION IN 2006(volumen index, prevrious year = 100 %)

Domestic consumption Ultimate consumptionGross accumulation

100.5100.4101.1

GROSS NATIONAL INCOME (GNI)

Growth of GNI in 2005: 3.3%

GNI volume in 2005: 20.76 trillion forints

IMPORTANT MACRO-ECONOMIC INDICATORS(Growth vis-à-vis previous year in %)

2005 2006

Industrial production 7.0 10.1

Consumer price index 3.6 3.9

Real earnings 6.3 3.5

Investments 6.4 -2.0

Exports 11.6 18.0

Imports 6.8 12.6

EVOLUTION OF THE CURRENT BALANCE OF PAYMENTS

(million Euro) 2005 2006

Commodity turnover -1,460 -417

Services and incomes -4,802 -5,064

Unbalanced current remit-tances

171 285

Current balance of payments -6,091 -5,197

17


ITD Hungary

Local Agency Serves as Essen-tial Partner for Foreign Investors

Csaba Kilian, Executive Director

ITD Hungary has already helped to attract more than 1.6 billion in foreign capital and to create al-most 10,000 new jobs, and is cur-rently providing assistance to more than 300 projects. As Csaba Kilian, Executive Director, explains, “We are helping to put Hungary on the map globally in the regional competition to attract the larg-est investment projects. Investors who are looking into Hungary are generally looking into 40 to 50 different kinds of economic and political indicators, so we prepare detailed information on these to help them make well-informed decisions.”

This dynamic organisation has created more than 100 investment promotion events as well as net-working events, seminars, trade shows and other activities. ITD Hungary also provides individual consulting services and serves as a liaison between investors and local, regional and federal gov-ernment offi ces. Csaba Kilian ex-plains, “We work with the govern-

ment to initiate changes and create a more competitive environment for investors here.” ITD Hungary also coordinates the Hungarian activities of the Enterprise Europe Network supported by the European Com-mission’s Enterprise and Industry Directorate.

ITD Hungary’s specifi c services for foreign investors include providing in depth, tailored information on the local economy, regulatory envi-ronment and business climate and on Hungary’s many investment in-centives. ITD Hungary teams also visit sites, introduce investors to lo-cal service providers, assist investors with site selection and licensing, help fi nalize incentive agreements, assist with recruitment and visa ap-plications, and offer extensive fol-low-up services.

The Hungarian Investment and Trade Development Agency (ITD Hungary), created in 1993, has positioned itself as the ideal partner for foreign investors in Hungary. With eight offi ces in Hungary as well as 55 international offi ces in 43 countries, ITD Hungary pro-vides a wide range of high quality support services.

Andrássy út 12H-1061 Budapest, Hungary

Tel: +36 1 472 8100Fax: +36 1 472 8101

Mail: [email protected]

Both SMEs and large enterprises are served by ITD Hungary. As Csaba Kil-ian points out, “For larger investors who want to invest over �10 million, we can provide an in depth analysis of the potential of their investment, give them a concrete offer concern-ing a cash incentive, and inform them about all incentives they can receive. We are currently focusing on the more technology-intensive industries and companies that can bring in more research and devel-opment, particularly in the fi eld of information and communications technology (ICT). Hungary has al-ready established itself as a regional ICT hub.”

Urging potential investors to con-tact ITD Hungary, Csaba Kilian concludes, “Investors who want to create a competitive business for the long term can trust in ITD at the beginning of their project and beyond.”


HUNGARY

18

Investment Opportunities from Auto Parts to Tourism

Hungary offers high potential invest-ment opportunities in an impressive range of sectors, many of which are set to receive substantial EU fund-ing. A growing local market as well as the potential for sales throughout the region and beyond make Hunga-ry a very attractive base for business. According to the UK Trade and In-vestment Team of the British Embas-sy in Budapest, certain sectors have particularly attractive prospects for UK investors.

Building on established competencies

The automotive industry is a top choice, since Hungary has carved out a niche for itself as a major supplier of auto parts for auto companies in Hungary and throughout the region. There are outstanding opportunities for joint production agreements with some of the 300 or so auto fi rms now operating in Hungary, and the gov-ernment has launched a suppliers’ development programme to stimu-late the growth of subcontractors of big foreign investors. There are also new opportunities in technology and know-how transfer. Hungary’s elec-tronics sector is also well developed and dominated by foreign compa-nies, many of which seek out UK technology.

Biotechnology is another key sector in which Hungary has a long tradi-tion. Most research is conducted by

affi liates of the Hungarian Academy of Sciences and by laboratories at pharmaceutical fi rms and universi-ties. Multinational biotech and phar-maceutical fi rms are very active, and smaller fi rms have been growing rap-idly over the past two years. The gov-ernment’s fi ve year biotech develop-ment programme launched in 2005 has given a strong boost to the sector overall.

The British Embassy has also target-ed construction in spite of fairly re-strictive local regulations and strong price competition. The production of construction materials as well as the emerging regeneration and property development sectors have excellent potential.

Demand for graduate education, particularly in business, is on the rise. A large number of new business schools have opened over the past 15 years, many of them offering courses

Parliament Building

19

solely in English. E-learning and dis-tance learning have also gained pop-ularity, particularly at the university level. Providing companies with spe-cially designed on-the-job training in partnership with a local educational institution is a key growth area.

The Hungarian health care market provides business opportunities for British companies in sales of medical equipment and consumables; know-how and expertise for investment proj-ects, including EU funded projects; and health care and hospital manage-ment services and consultancy.

Boosting logistics and meeting EU environmental standards

Hungary is a recognised logistics hub and the government is focusing on infrastructure development to keep the country competitive. The Hun-garian logistics market has grown by around 20% annually over the past fi ve years and accounts for around 20% of Hungary’s GDP. In fact, the government has designated logistics as one of seven strategic sectors to support with domestic and EU devel-opment funding.

Current priorities include the devel-opment of logistics centres and com-bined transport terminals to boost environment friendly transportation; basic infrastructure of public ports on the Danube; international air-ports with regional importance; and the use of an Intelligent Transport System to improve public transport and the transportation of goods.

Budapest’s Ferihegy International Airport is currently undergoing a €50-63 million upgrade, and the country’s railway infrastructure is set to be developed in a €3.6 billion pro-gramme (with substantial EU fund-ing) over the next few years. Foreign players are welcome in such projects. Hungary can also act as a hub for UK companies to bid jointly with Hun-


HUNGARY

garian companies for EU funded jobs in Romania, Ukraine, Bulgaria and Serbia.

EU accession requirements have tight-ened environmental standards in Hun-gary and created new opportunities for providers of environmental technology and services. Hungary’s environmen-tal and waste management market was worth about €787 million in 2005 and is set to grow by 15% over the next few years. EU funds are supporting environ-mental infrastructure projects. Around €867 million will be spent on drinking water quality improvements by 2015 and an additional €2.39 billion is required to meet EU waste water regulations.

Service centres, sports and tourism

Developing regional service centres with the help of foreign partners is another priority for the government, which is providing special incen-tives, for example for corporations

investing more than €10 million to establish a service centre in Hunga-ry. Around 30 such centres are cur-rently operating, including Diageo. Tax breaks of up to 80% of corporate taxes for 10 years require a minimum investment of €12.4 million (€4.1 million in less developed regions or for research and development proj-ects) and the creation of 100 jobs (50 in less developed regions).

Security equipment, sports and leisure centres, and travel and tourism facili-ties and services are other attractive investment possibilities in Hungary. In the tourism sector, for example, possi-bilities include upgrading and devel-oping tourism infrastructure and im-proving services, including building convention centres, reconstructing Hungary’s thermal baths and spas, and meeting increasing demand for golf parks and holiday villages.

Hungary is clearly a high potential European investment target.

Budapest

20

Doing Business in Hungary

HUNGARY

Doing Business 2008, a World Bank publication, ranks Hungary a respectable 45 out of 178 economies concerning the ease of doing business in the country. The ranking is based on starting a business, dealing with licenses, employing workers, register-ing property, getting credit, protec-tion for investors, taxes, trading across boarders, enforcing contracts, and closing a business. In all catego-ries, Hungary scores well.

21


HUNGARY

Only 16 days to start a business

Those wishing to launch a business in Hungary, for example, can do so in around 16 days by following only around six procedures. Hungary has reduced the business start up time to much less than that required in competing economies in the region. A registration application for the establishment of a Limited Liability Company (Kft) or Public or Private Companies Limited by Shares (NyRt. or ZRt.) must be fi led with the appro-priate Hungarian Court of Registra-tion, located in each county, within 30 days following the signing of the deed of foundation or the articles of association. The company is offi cially established when it is added to the Companies Register.

Hungary’s Foreign Investment Act of 1988 grants full protection of the in-vestments and businesses of non-Hun-garian resident investors and guaran-tees that investors will be treated in the same manner as national investors. The act also gives foreign investors the right to remit profi ts and investment capital to their home country. Incen-tives are available to all enterprises registered in Hungary, regardless of the nationality of owners or location of incorporation.

Privatisation projects and greenfi eld initiatives

The Hungarian Privatisation and State Holding Company (APV Rt.) manages and privatises state owned properties, with Ministry of Finance approval for the banking sector. Hungary actively seeks investors to purchase privatised fi rms and to implement greenfi eld in-vestment. Some projects, such as those funded by the EU, require participa-tion by a European partner. Tender announcements and decisions are published weekly in the Kozbeszerzesi Ertesito (Public Procurement Review, www.kozbeszerzes.gov.hu).

Partnering with a local business is the best idea for foreign fi rms entering the Hungarian market, at least in the initial stages. Joint ventures are a popular op-tion. For companies not planning to es-tablish their own production or direct sales subsidiary in the country, working with a local agent or distributor is highly recommended, especially since Hunga-ry has many independent distributors – many of them small to medium-sized enterprises – with solid expertise and capability. Local distributors typically help position brands for the local mar-ket through advertising and promotion, and assist with after-sales service. Some European fi rms have established their own subsidiaries in Hungary to handle distribution in the local market and be-yond.

Many Hungarian fi rms prefer to act as agents rather than distributors, work-ing on a commission basis, generally around 5% to 8%. The use of agents is common in sectors where capital and technical expertise is most important.

Foreign fi rms can establish a commer-cial representative offi ce, which is lim-ited to mediating and preparing trade contracts between foreign and Hungar-ian businesses or individuals, and pro-moting goods, services, and rights of the represented foreign company. Foreign investors can also enter the Hungarian market through franchising. There are now around 400 franchises operating in the country, around half of which are foreign owned.

Foreigners do not need government approval to establish bank subsidiaries or to establish more than a 10% stake in existing banks. Foreign or Hungar-ian credit institutions, insurance institu-tions, and investment companies may own up to 100% of a fi nancial institu-tion, and foreign banks can establish branches in Hungary offering cross-border fi nancial services.

For investors in the agriculture sector, according to the 1994 Land Law, non-

resident persons and legal entities may not acquire title of ownership of agri-cultural land, but they may conclude leasehold contracts of not more than 20 years (with certain exceptions, such as forests and vineyards) for not more than 300 hectares of land.

Trade promotion

Trade associations and business cham-bers (such as the British Chamber of Commerce in Hungary) offer high quality publicity and low cost web adver-tising. Partnering with Hungarian uni-versities also offers a vehicle for trade promotion, and sector specifi c trade shows have become increasingly com-mon.

Foreign direct investment in Hungary has increased rapidly. Currently, for-eign fi rms control two-thirds of Hun-gary’s manufacturing, 90% of telecom-munications and 60% of the energy sector. Direct investment in Hungary by British companies since 1990 totalled around €5.2 billion in 2007. Over 500 UK companies are represented in Hun-gary, and the UK is particularly strong in the services sector. The biggest UK investors include Tesco, Vodafone, BAT, GlaxoSmithKline, Unilever, Dia-geo and Bernard Matthews Ltd., but a growing number of small and medium sized UK companies have also entered the Hungarian market.

British companies enjoy a very positive reputation in Hungary, which is doing its best to make it easier and faster for investors to establish a business there.

22


Highly Favourable Tax Incentives

Hungary’s favourable tax regime is one of its most important incen-tives for foreign investors. Incentives awarded by the Ministry of Finance can decrease corporate taxes (now 16%) by up to 80% for ten years.

Eligible investments include those over HUF1 billion (€4 million), or €400,000 for investments in environ-mental protection, broadband Inter-net service, hygienic food processing, fi lm and video production, and basic or applied research or experimental development, with certain restric-tions.

Favoured regions are northern Hun-gary, the northern and southern Great Plains, the central and south-ern Transdanubian region, and the smaller regions of Celldömölk, Lete-nye, riszentpéter, Tét, Vasvár and Zalaszentgrót.

Over the fi rst fi ve years, the company must increase the number of its em-ployees by at least 100 (or 50 in un-derdeveloped regions), or increase wage costs by at least 600 times (or 300 times in underdeveloped re-gions) the annual minimum wage, or procure a minimum of 30% of its supplies from small- and medium-sized enterprises (SMEs).

For job creation investments, at least 300 new employees must be hired (150 at medium-sized enterprises, 30 at small enterprises), or 150 in underdeveloped regions (75 at me-dium-sized enterprises, 15 at small enterprises), and at least 20% of new jobs must be fi lled by school leavers.

Investment in assets reduces taxes

At least 25% of the investment must be fi nanced by the project, and at least 30% must be in new facilities

or assets, with no more than 20% in renovation. Taxable income may be reduced by investments in assets (up to €120,000) and 40% of the interest on an investment loan is deductible, up to €24,000 per year.

SMEs qualify for tax allowances if they employ no more than 250 people, their annual net sales revenue does not exceed HUF4 billion (€16 mil-lion) and/or the total balance does not exceed HUF2.7 billion (€11 mil-lion), and no more than 25% of the company’s shares are owned by the state, local government or a third party.

The rate of the tax benefi t is the maximum intensity ratio minus all direct subsidies. Maximum intensity ratios are 35% in Budapest, 40% in Pest County, 45% in Western Trans-danubia (excluding less developed areas), and 50% in all others. For investments of up to €50 mil-lion, no restriction in addition to regional preferences is applicable. For investments of €50 million-€100 million, 50% of the regionally allowed intensity ratio applies; for investments of over €100 million, 34% of the regionally allowed in-tensity ratio applies.


HUNGARY

23

Finance & Banking

• Financial Sector Strengthened by Stabilisation Programme

• Banking and Capital Markets Meeting EU Standards

24

Finance & Banking

Financial Sector Strengthened by Stabilisation Programme

Hungary’s fi nancial sector has seen dramatic changes over the last 15 years. The current post-EU accession environment and an increasingly com-petitive market continue to stimulate the development of the country’s fi nan-cial services. Hungary is playing an increasingly important role as a Euro-pean fi nancial services hub, thanks to its strategic location and to the signifi -cant presence of foreign fi nancial ser-vices institutions, which give the local fi nancial sector global reach.

Painful but productiveHungary’s fi nancial sector has been strengthened by the government’s efforts over the past two years to achieve economic stabilisation. As the Hungarian Banking Association puts it, “The process of returning to a sustainable growth path has been painful – GDP growth slowed, real wages declined, consumption dropped – but successful. The bud-

get defi cit has been reduced and the balance of trade closed at close to zero at the end of 2007.”

The International Monetary Fund, praising Hungary’s productive ef-forts to deal with its budget defi cit, says that the government’s 2008 fi s-

cal defi cit target of 4% of GDP is at-tainable, and that it should be possi-ble to continue to reduce the defi cit to 3.2% of GDP next year, provid-ing stringent controls are observed. The IMF says, “Achieving the target will require strict spending restraint (especially on wages and transfers, in line with the announced spend-ing ceilings) and continued strong revenue growth (in line with the

government’s forecast for real GDP growth). Consequently, there is no room for tax relief unless it is offset by spending cuts.”

A draft fi scal responsibility law, along with proposed amendments to the constitution and to the local gov-

ernment act, are initiatives under way that would further strengthen Hungary’s public fi nances. A parlia-mentary budget offi ce has been pro-posed; it would provide indepen-dent scrutiny of compliance with fi scal regulations. The new fi scal responsibility law would strength-en the medium-term expenditure framework by making spending ceil-ings binding.

Finance & Banking

HUNGARY

25

Financial Sector Strengthened by Stabilisation Programme

Finance & BankingFinance & Banking

HUNGARY

HFSA oversees fi nancial sector

Hungary’s fi nancial sector is overseen by the Hungarian Financial Services Authority (HFSA), established in 2000. While the Ministry of Finance is responsible for the legal framework governing the fi nancial sector, the HFSA has the power to issue guide-lines and recommendations, and it also has full autonomy in granting and withdrawing licenses for non banking fi nancial institutions.

The HFSA and the NBH have the joint responsibility for licensing banks. The HFSA works to promote world class standards and aims to bring Hungary’s fi nancial services sector in line with EU criteria.

Hungary’s fi nancial services sector is made up primarily of banks but also includes specialised credit insti-tutions and fi nancial services fi rms, investment enterprises, investment funds, insurance companies and pension funds. Most fi nancial insti-tutions are subsidiaries of major for-eign fi nancial services groups. The West European banks that dominate Hungary’s fi nancial sector are main-ly from Austria, Germany and the Netherlands.

Monetary policy focuses on infl ation control

Hungary’s monetary policy is now focused on controlling inflation. The government has set a target of 3% inflation by 2010, and the National Bank of Hungary (NBH), the country’s central bank, says that

this inflation target is achievable at an exchange rate of HUF250-255 to the euro. In early June this year, the forint reached 230 to the euro.

In fact, a new challenge for Hunga-ry is the rapidly growing strength of the forint over the past few weeks, according to a recent statement by Finance Minister Janos Veres. The government abolished the forint’s trading band in February and the value of the currency has been ris-ing ever since, more quickly than anticipated. Janos Veres explains that the abolition of the forint’s band was a credibility issue for the central bank as it boosted the bank’s options concerning mon-etary policy, but that the high ex-change rate is disadvantageous for many Hungarian companies.

The Minister of Finance says that he does not foresee an increase in Hungary’s interest rate, now at 8.5%, in spite of the current situ-ation, and adds that revising the government’s inflation targets up-ward is not an option either.

Strong performance in first half of 2008

In spite of these challenges, the Ministry of Finance reported strong results for the economy in the first half of 2008. In May, gen-eral government accounts showed a surplus of HUF97.5 billion, or 0.3% of GDP; this surplus is above the projected surplus of HUF88.6 billion.

The central government budget and social security funds showed a surplus of HUF76.2 billion and HUF24.0 billion respectively, while the deficit of extra-budgetary funds was HUF2.7 billion, according to the Ministry. In addition, receipts from personal income tax totalled slightly above projections in May, while contributions paid by em-ployers and employees were some-what below the anticipated total. Most promisingly, public sector spending was lower than projected over the first half of the year.

Hungary’s financial sector has many challenges to face but seems well prepared to meet them.

2626

Finance & Banking

Hungarian Banking Association

Banking Association Helps Banks Meet Challenges

Dr. Peter Felcsuti, President of Hungarian Banking Association

The HBA works to forge links between the local bank-ing sector and other banking organizations around the world, and has been working with the European Banking Federation since 1991. It has been cooper-ating with the European Mortgage Federation since 1993, and has also developed bilateral relations with banking associations in several countries.

Challenges for the banking sector

Concerning major issues for the banking sector to-day, Dr. Peter Felcsuti says, “I was elected at a time when the Hungarian economy is facing serious struc-tural problems and the banking sector is also expe-riencing difficulties, including a deterioration of its loan portfolio. In addition, there are growing Euro-pean demands for large service providers, among them banks, to improve the transparency and fair-ness of their services. The Hungarian banking indus-try needs to adjust its policies and practices to meet these challenges.”

Dr. Peter Felcsuti points out that the previous pres-ident and elected officers of the HBA had already recognised these problems and had initiated pro-grammes to help HBA members cope with them. He says, “My task is to help roll out these programmes to maximum effect.”

Competition increasing

In fact, a key goal of the HBA is to upgrade Hun-gary’s banking sector overall through promoting in-stitutions and programmes that will enhance local banks’ stability and efficiency. Dr. Peter Felcsuti says, “After a decade of fat years, the Hungarian banking industry is now experiencing a slowdown. In addi-tion, competition is increasing. Risk management, cost efficiency, and funding are important issues for us now.”

Enhancing communications is essential in meeting the challenges the sector faces. Dr. Peter Felcsuti ex-plains, “I believe in the power of communication and also believe it might be one of my strengths. Hence I have no problem working to promote better commu-nication between members of the banking sector and between the banking sector and the government.”

The Hungarian Banking Association (HBA), now with 38 members, promotes Hungary’s banking sector and serves as an advocate for the sector when the government makes decisions that will affect banking sector activities.Dr. Peter Felcsuti, General Manager of Raiffeisen Bank Hungary, was elected HBA president in April 2008. He describes his role as “coordinating the activities of our members and promoting a common ground concerning issues that affect all of us. In addition, I am expected to speak on behalf of the association to the media and the government.”

Finance & Banking

HUNGARY

27

Finance & Banking

Volksbank Hungary

Local Bank Excels at Providing Personalized Service

Balázs László, Chairman and CEO

Now with a staff of around 600 people, the bank operates 65 branches throughout Hungary and is ranked among the top ten banks in the country. “We pro-vide our customers with a broad product range and excellent retail banking services,” explains Balázs László, Chairman and CEO. He adds that the bank plans to reach a 3% market share by 2011 and eventually double the size of its branch network.

Balázs László says that personal banking is the bank’s focus. He ex-plains, “Consumers need personal banking services, and I believe that a large-scale global bank cannot provide true personalised products. Volksbank specialises in person-alised services. Concentrating on this niche has made us grow more rapidly than our competitors.” He adds that a focus on smaller and medium-sized companies is an ex-cellent strategy for Hungary, where such companies play a major role in the country’s GDP.

Volksbank has boosted its num-ber of customers to over 145,000 and has achieved a 35% rise in its net loan portfolio as well as a 47% growth in deposits. “Our balance sheet fi ve years ago was €500 mil-lion and now we have €1,7 billion,” Balázs László points out, adding,

Volksbank Hungary, which was launched in Hungary in 1993, was created in a joint venture between Österreichische Volksbanken (with a 51% share), Banque Fédérale des Banques Populaires (France), DZ-Bank/WGZ-Bank (Germany) and Italian and Turkish popular banks. Volksbank Hungary focuses on satisfying the needs of individu-al customers and small-to-medium-sized enterprises.

Volksbank MagyarországH-1088 Budapest, Rákóczi út 7

Tel. +36 1 326 6666www.volksbank.hu

“Volksbank has great knowledge of customers’ needs. If your customer portfolio is not developing, you cannot drive a successful strategy.”

The bank is particularly active in the export related sectors and in real estate and tourism. “We like to focus on sectors with great develop-ment potential,” Balázs László says. Volksbank also aims to respond to new trends, for example the cur-rent strong demand for modern residential property.

Volksbank serves foreign customers as well as Hungarians and has es-tablished an international depart-ment staffed by native speakers of German, English, Italian, French and Turkish. “If you come from a foreign country to live and work in Hungary, the fi rst diffi culty is the language and the second is learning about local regulations and practic-es, for example concerning loans. Volksbank Hungary provides these services. We also provide expert ad-vice on the Hungarian market,” Ba-lázs László explains. He concludes, “Volksbank offers universal bank-ing services employing the latest technologies, and we specialise in personalised service for our local and international customers.”

Finance & Banking

HUNGARY

2828

Finance & Banking

Banking and Capital Markets Meeting EU StandardsHungary’s banking and capital markets activities are fully libera-lised. The Hungarian forint (HUF) has been fully convertible since 2001, and the banking sector has been privatised since 1995. Today, more than 90% of the registered capital of Hungary’s banking sector is under foreign ownership. Only the Hungarian Development Bank and Eximbank, two banks with special governmental functions, remain un-der government control.

The banking sector includes 27 commercial banks, each of which has adapted its foreign parent in-stitution’s fi nancial know-how and banking technology to the particu-lar needs of the Hungarian market. Banking services available in Hun-gary are on par with those anywhere in Western Europe in both quality and technological advancement.

Hungary’s banks have been granted a universal license to engage in both fi nancial and capital markets trans-actions. The banking market is rela-tively concentrated, with 10 leading banks in keen competition.

Recent banking trends

While Hungarian banks’ rates of return signifi cantly exceeded the international average between 2001 and 2006, their real rates of return converged to the EU average in 2007. The stock of corporate loans in Hungary doubled between 2001 and 2007, and that of retail loans rose seven and a half times, although this growth slowed last year to 26%. Consumer loans increased by 40.5% in 2007, but home loans, making up more than half of all retail loans, grew by 17.1% in 2007, the lowest growth in six years.

Loans grew more than twice as fast as deposits between 2001 and 2007; last year loans grew by 22.1%, depos-its by 6.9%. Overall, Hungary’s loans to deposits ratio grew from 80% in 2001 to 153% in 2007. Central bank and inter-bank deposits dropped

signifi cantly last year, to 68% of the 2006 level, indicating diminishing li-quidity in the Hungarian market.

The share of foreign currency assets in total assets, totalling between 30% and 34% between 2000 and 2002, had risen to 49.5% by the end of 2007, and the share of foreign currency loans in total retail loans, only 3% in 2001, reached 59.5% by the end of 2007. In fact, net interest margins dropped last year partly due to borrowers’ pref-erence for low rate foreign currency loans. Recent trends include eased lending standards for households, in-cluding lengthened maturities, raised loan-to-value ratios, and new products with higher risk profi les (such as yen-based loans).

Finance & Banking

HUNGARY

Budapest Stock Exchange

29

Finance & BankingFinance & Banking

HUNGARY

The share of foreign currency loans in corporate loans reached 53.7% last year. Securities for trading were the only forint-denominated assets showing growth in 2007, reaching 1.8 times the 2006 value.

Classic commercial banking activi-ties in Hungary are supplemented by leasing, factoring, mortgage banking and other specialised fi-nancial services, usually offered by companies owned by major banks. Hungary also has around 30 in-surance companies offering a full range of products, and insurance firms, along with institutional pen-sion funds, are seeing particularly strong growth.

The Budapest Stock Exchange

Just as Hungary’s banking sector has evolved to match EU standards, the country’s stock exchange, Bu-dapest Stock Exchange (BÉT), is a dynamic exchange that has attract-ed significant interest from both local and foreign investors.

BÉT – the first post-Communist stock exchange when it re-opened in 1990 – has around 50 members, with around 40 domestic and for-eign broker companies trading se-curities on primary and secondary markets. In addition, the exchange includes more than 80 funds.

The four main activities of the stock exchange are listing com-panies, serving as a platform for trading financial instruments, communicating up-to-date market information in real time and on-

line, and supporting the develop-ment of new financial instruments and products, including on the futures and option markets. Inves-tors seeking hedging opportuni-ties, for example, can select from a wide choice of individual stocks and currency, interest rate and commodity derivatives.

Well-regulated capital markets

Hungary’s capital markets are gov-erned by the Capital Markets Act of 2001, which has been revised regularly, particularly following Hungary’s accession to the EU in 2004; new provisions in the act are designed to make sure Hungary’s capital markets comply with EU standards.

The Hungarian Financial Super-visory Authority (HFSA) oversees Hungary’s banking, insurance, other financial services and capital markets, and applies international

and EU criteria. Concerning capi-tal markets, the HFSA regulates se-curities offerings and investment service activities, and cooperates with other national supervisory authorities, especially with those of other EU member states. Under the framework of a developing su-pervision strategy set for comple-tion by 2010, the HFSA is gradually shifting to a more preventive, risk-oriented supervisory role.

Clearing and depositary activities are handled by a single organisa-tion, the Central Clearing House and Depository (KELER), a private company owned by the National Bank of Hungary and the BSE and operating under the supervision of HFSA.

Hungary’s banking services and capital markets meet EU standards of performance and protection for clients, and present interesting op-portunities for local and foreign investors.

30

Energy & Gas

• Energy Market Officially Open

• European Leader in Renewable Energy

31

Energy & Gas

Hungary’s energy sector has been de-veloping rapidly. The energy market was liberalised in 2004, the 2005 Electricity Act has further increased competition in both the electricity and gas markets, and in January 2006 Hungarian electricity grid company MAVIR was established as a true transmission system operator, with enhanced powers and responsi-bilities. Since July 2007, all electric-ity and gas customers have been able to freely select their suppliers.

Market reform in line with EU directives

In only a few years, Hungary has suc-cessfully introduced the legislation to build a foundation for market reform in line with the most recent EU gas and electricity market directives. The coun-try’s fi rst National Allocation Plan has been accepted by the European Com-mission (EC), and all of the institutions required for emissions trading under the European Union’s Emissions Trad-ing Scheme (EU-ETS) now exist in Hungary. Hungary aims to be a produc-tive international player in the energy sector, and contributed signifi cantly to the success of the International Energy Agency (IEA) relief programme follow-ing hurricane Katrina.

In spite of these very positive improve-ments, Hungary’s energy sector still fac-es a number of challenges. One is the government’s austerity programme to reduce the budget defi cit, which has re-sulted in signifi cant cutbacks in some of the country’s most effective energy sec-tor organisations, including the Energy Centre, which has been leading a drive to promote energy effi ciency.

Well-established players still dominate

In addition, in spite of market liberalisa-tion, the state owned Hungarian Elec-tricity Companies (MVM) in electricity an E.On-Ruhrgas in gas still dominate the local electricity and gas markets, and power purchase agreements (PPAs) in electricity and the Panruszgás import arrangements in gas are hampering the emergence of strong competitors to these key players. MVM, which owns the Paks nuclear power plant, is the sole

buyer and seller of electricity generated in Hungary under long-term PPAs, and is the unique supplier to the regulated market. Imports of electricity have nev-ertheless proved more competitive than those of gas.

A recent study by the OECD and the International Energy Agency (IEA) recommends that Hungary should de-velop “new market models that take EU legislation into account to create com-petitive electricity and gas markets in Hungary.” The report continues, “De-spite these concerns, the review fi nds that Hungary has made good progress over the past four years, and a solid un-derstanding of these energy challenges exists throughout the government and policy-making institutions.”

Strong dependence on gas

One challenge is signifi cant use of gas as an energy source. Hungary has one of the highest dependencies on gas of any IEA member country, which was emphasised by the disruptions caused by interrupted gas supplies in 2006, although the government dealt very effi ciently with the problem. Plans are in the works to develop a strategic gas storage facility with a capacity of 1.2 bil-lion cubic metres by 2010 as insurance against additional supply breakdowns.

Hungary provides gas subsidies to most households, which has put a heavy bur-den on the state and also pushes gas de-mand to a higher level. The gas subsidy system is currently under review by the government.

At the same time, the government is working to implement two new gas pipelines, Nabucco and a pipeline

Energy & Gas

HUNGARY

Liberalised Energy Sector with a Focus on Boosting Effi ciency

32

Energy & Gas

from the liquid natural gas terminal on Croatia’s Adriatic coast to Hungary. In June 2006, MOL and Gazprom signed the Bluestream gas pipeline contract to co-operate on the second stage of the Bluestream pipeline to Europe.

Paks nuclear plan supplies 33% of electricity

Nuclear energy plays a major role in Hungary’s energy sector. The Paks nucle-ar power plant, Hungary’s only nuclear plant, supplies 33% of Hungary’s electric-ity needs and helps the country provide low-cost electrical power. Owner MVM is currently expanding the plant to meet growing demand.

Several foreign private companies are already operating in Hungary’s electric-ity generation and distribution sector, and both generation and distribution ac-tivities are set to increase as the economy continues to develop.

Commitment to energy effi ciency

Hungary is committed to energy effi -ciency as a means of making its economy more globally competitive. Hungary’s en-ergy sector has already established a very strong track record in environmental pro-tection. The country’s per capita energy consumption and carbon dioxide (CO2) emissions are signifi cantly lower than the EU average, and overall energy effi -ciency has been improving at the impres-sive rate of around 3% per year for some time. Hungary signed the Kyoto Protocol in 2002 and appears to be on course to meet its commitments. EU funding is be-coming available to Hungary to support investment in energy effi ciency.

Hungary also has an ambitious renewable energy policy and has managed a rapid increase in the share of renewable energy in electricity generation to around 5%, above its 2010 target.

Overall, Hungary’s energy sector is well developed and regulated, and has excel-lent growth potential.

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33

Energy & Gas

The Hungarian Energy Offi ce

Assuring a Fair, Effi cient and Investment-Friendly Energy Sector

Ferenc J. Horvath, President

The HEO handles all matters related to electrical and gas energy supplies, including licenses for the generation, transport, trade, distribution and supply of electrical and gas energy, as well as overseeing the production of district heating by authorised power plants. Hungary’s energy sector now includes around 500 licensed compa-nies. In addition, the offi ce oversees that all license-holders comply with the regulatory environment of the Hungarian energy industry.

Current trends in Hungary’s energy sector, according to Ferenc J. Horvath, include a focus on energy conservation (energy effi ciency) which has resulted in a decline in specifi c energy use in recent years. “Energy use per capita in Hungary is approximately half the Eu-ropean average,” he says.

A key goal for the HEO is to promote the effi cient use of renewable energy sources, in line with Hungary’s Na-tional Development Plan for 2007 to 2020, which calls for a 15% share in the fuel mix. “The HEO has a lot to

do in this respect because the offi ce has to suggest the support scheme and license the establishment of renewable-energy projects. We are working with the Hungarian Energy Center to achieve this goal,” Ferenc J. Horvath points out.

The HEO is also involved in environ-mental protection and supplies the Ministry of the Environment and Wa-ter with technical data on power-plant emissions. “We plan to implement a re-duction of 20% of CO2 emissions until 2020,” Ferenc J. Horvath explains.

As Hungary’s economy continues to expand, more international energy companies are entering the Hun-garian market, and foreign investors now hold around 50% of the assets in Hungary’s electricity sector. “In the area of enlarging renewable en-ergy sources investors can be guaran-teed that they will have a return on investment because energy purchase prices are augmented based on the yearly rate of infl ation,” Ferenc J. Horvath explains. He concludes, “It is important that investors feel at home in this environment and that their long-term investments have an adequately safe and high return. We offer a reliable, transparent market and prices at the European level.”

The Hungarian Energy Offi ce (HEO), established in 1994, is un-der the supervision of the Ministry of Transport, Telecommunication and Energy but it operates indepen-dently. HEO makes sure Hungary’s energy sector performs effi ciently and that energy prices are fair for both consumers and the energy industry. “We have to take into consideration not only the interests of consumers but also that of all players in the industry, including producers, dis-tributors and traders,” says Ferenc J. Horvath, President.

CONTACT DETAILS:Hungarian Energy Offi ceH-1081 Budapest, Koztarsasag ter 7Phone: +36 1 459 7750Fax: +36 1 459 7702

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Energy & Gas

Budapest Gas Works

Gas Company Thriving in Liberalised Market

According to Dr. Tibor Bakonyi, CEO, Budapest Gas Works’ competi-tive edge is “professionalism and the ability to innovate thanks to our moti-vated, well-trained and creative work-force.” He added that Budapest Gas Works “serves as an example that a liberalised gas market, which the EU Commission mandated for Hungary, can operate successfully here.” Buda-pest Gas Works operates according to ISO 9001:2001 quality manage-ment standards and has proved it can meet the challenge of an open market. To remain competitive, the company plans to continue to offer new services.

Budapest Gas Works is considering its possibilities to make its purchases more competitive and to manage its

portfolio in a more effective manner. The gas market being under liberali-sation offers a great opportunity for revising our strategies, or even for expanding our range of activities. Dr. Tibor Bakonyi told that current leaders of the Hungarian natural-gas market have to look beyond natural-gas trade and also have to focus on al-ternative sources of energy and their potential application. “In the next 5 years Budapest Gas Works contin-ues to be one of the most signifi cant companies in the Hungarian natural-gas market,” he added. The company is contributing to the spread of CNG fuelled vehicles in Hungary, and pop-ularising other alternative methods of natural-gas use that help to reduce the level of air pollution.

The company is also involved in community-service and cultural proj-ects, including a subsidy program through which, since 2000, Budapest Gas Works has signifi cantly contrib-uted to the modernisation of the gas heating systems among the citizens of Budapest and to reconstruction programs in block of fl ats. The com-pany also supports the Budapest Au-tumn Festival, among other cultural initiatives.

Budapest Gas Works, with a 152-year history, is among the top fi ve, predominantly Hungarian-owned companies, and is a leader in Hun-gary’s newly liberalised natural-gas sector. The company supplies gas to more than 812,000 clients, both in-dividual and corporate.

Dr. Tibor Bakonyi, CEO

Budapest Gas WorksKoztarsasag ter 20

1081 BudapestTel.: + 36 1 477 1111

www.fogaz.hu

Energy & Gas

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35

Energy & Gas

Genesis Energy Investment Company

Innovative Solar Energy Project Seeks Equity Partner

Gábor Rényi, President and CEO

The Hungarian plant will produce a-Si thin-fi lm solar modules with an overall capacity of 98 MWp (mega-watts peak) per year. “The factory will be very high-tech, with an exception-al industrial standard. This technol-ogy has never been employed before in Hungary,” says Gábor Rényi, Gen-esis Energy’s President and CEO.

The new plant is a particularly inno-vative initiative in Hungary, where the use of solar energy is not popu-lar yet. As Gábor Rényi explains, “We are not counting on the Hungarian market for our solar modules yet; our main market is Spain. We have found an opportunity in this niche market, and Genesis Energy attract-ed the best people to implement this project.”

Genesis Energy is working with Ger-man engineers and shareholders to launch its projects, and aims to be-come one of the global leaders in the low-cost production of thin-fi lm solar panels. “We believe that this company will set new standards concerning so-lar-energy technology. We have excel-lent growth prospects since solar en-ergy will be needed more and more in the future,” Gábor Rényi believes.

The Hungarian government is a strong supporter of the new project, having allocated the company a sig-nifi cant cash subsidy and 10 years tax exempt. This will reduce Genesis En-ergy’s tax obligations representing a savings of around €50 million.

The new venture will bring signifi -cant benefi ts to the Hungarian econ-omy not only through launching a new type of energy sector but also through employing around 120 high-ly qualifi ed people. As Gábor Rényi points out, “Hungary needs not only investments in general but also high-quality investments with high added value for the long term.”

Genesis Energy is currently looking for a long-term equity partner to par-ticipate in this high-potential new project. “It is a major investment, but one with very attractive returns,” Gábor Rényi explains, adding that in fi ve years he expects Genesis En-ergy to be one of the biggest players in its market, if not the biggest. “The market is waiting for this project,” he concludes.

Genesis Energy Investment Compa-ny, founded in 1983, is bringing a new kind of energy to Hungary. Its daughter company, Genesis Solar Hungary, will build a solar-energy production facility around 60 km outside Budapest, after completing a similar facility in Spain by Gen-esis Solar Spain; Genesis Energy also has a branch in Singapore. Genesis Energy made headlines when it was recently recognised by the Budapest Stock Exchange as the issuer with the largest price increase in 2007.

Energy & Gas

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36

Energy Market Offi cially Open

As of July 2007, Hungary has of-fi cially opened around 70% of its energy market to foreign participa-tion, providing exceptional oppor-tunities for investment, particularly as the country’s energy needs rise as the economy continues to expand. The government has offi cially imple-mented all EU market directives for the energy sector, guaranteeing true market liberalisation and creating a level playing fi eld for foreign and do-mestic investors.

‘Legal’ versus ‘real’ market opening

At present, however, Hungary’s ener-gy sector is characterised by a gap be-tween legal market opening and real market opening, or the number of companies which are actually taking advantage of market liberalisation.

According to a 2007 study by the OECD and the IEA, legal market opening in Hungary’s energy sec-tor stands at 70%, while real mar-ket opening is signifi cantly lower, only about 7% in the gas sector and

30% in electricity. As the OECD/IEA study points out, “While some elements of market regulation are very well developed, such as the electricity network regulation, other aspects, such as the creation of fully functioning wholesale markets, are lagging behind. In the electricity sector, the government has not yet undertaken action to restructure purchase agreements, which are sig-nifi cant barriers to the development of a competitive electricity market. In the gas sector, the government and the regulator have not taken signifi cant action to enable compe-

HUNGARY

37

Energy & GasEnergy & Gas

HUNGARY

tition against the incumbent to im-port gas.”

More opportunities anticipated

In fact, Hungary’s energy sector is still dominated by well-established compa-nies which benefi t from long standing agreements that virtually guarantee their market dominance, particularly concerning gas imports. Given Hunga-ry’s commitment to abiding by EU cri-teria and its growing need for diversity in the energy sector, the government is certain to focus on closing the gap be-tween legal and real market opening in the future.

Reliance on imported oil and gas

Hungary has limited indigenous re-sources of oil, gas and coal, but analysts agree that domestic oil and gas produc-tion has peaked and is expected to grad-ually decline. Hungary imports around 80% of its oil requirements and 80% of its gas requirements, both from Russia (Gazprom is its sole source for gas).

For electricity generation, Hungary has focused on nuclear power produced by the Paks power plant, which provides 33% of the country’s energy needs. Paks is owned by state owned company MVM, the unique supplier to the regu-lated market.

Energy policy focuses on three ‘Es’

Hungary’s energy policy is aimed at balancing the three ‘Es’, namely energy security, economic growth, and environmental protection. Of the three, energy security is the gov-ernment’s top priority at present, particularly concerning natural gas. Hungary imports all its natural gas from one supplier, most Hungarian households use gas for heating, and gas is subsidised by the government. This situation makes the country par-ticularly vulnerable to problems like

the recent Russia-Ukraine gas dis-pute which left Hungary temporarily short of gas supplies.

To boost energy security, the govern-ment has opted for supply side mea-sures, including increased oil storage and more electricity interconnections, with a gas storage facility in the plan-ning stages. Hungary is also supporting the development of new gas pipelines. Greater market opening in the gas and electricity sectors would enhance Hun-gary’s energy security.

Well-established regulator

Hungary’s energy sector is regulated by the Hungarian Energy Offi ce (HEO), which oversees electricity, gas and also heat that is sold by power stations with a capacity above 50 megawatts (MW) to district heating facilities. The HEO is self-fi nancing through licensing fees on the industries it regulates. Its president and vice president are appointed to six

year terms by the Minister of Economy and Transport, and it reports to parlia-ment.

The HEO’s chief responsibilities are to issue and amend licences for the gen-eration, distribution, trade and public utility supply of electric energy, for the production of district heat in the au-thorised power plants, as well as for the distribution, supply, trade, and public utility supply of gas; and to issue opera-tion licences to power plants. The HEO also approves the terms of energy op-eration, trade and distribution; ensures that customers’ interests are protected; sets offi cial prices of natural gas, elec-tric energy and heat energy produced in the authorised power plants; sets the conditions of price application for deci-sion-making; and other tasks.

Overall, while true market opening is still in the future, Hungary has laid the foundations for a liberalised energy sec-tor with strong investment potential.

Buda Castle

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Energy & Gas

Emfesz

Energy-Sector Leader Successfully Enters Retail Market

2.6 billion cubic meters of natural gas supplied in 2007

Emfesz’s primary activity is to supply natural gas to its customers (like fac-tories, district heating companies, …), and in 2007 the company provided 2.3 billion cubic meters of natural gas. Emfesz transports to consumers around 80% of the natural gas sold in the open market in Hungary. As Ist-van Goczi, Managing Director, points out, “We entered the market in 2004, and we have already managed to have an 80% share on the deregulated gas market. We serve as an example of the successful liberalization of Hungary’s energy sector.”

Emfesz’s success story refl ects the company’s ability to adapt quickly to a newly liberalised market. As Istvan Goczi points out, “It is not easy for an entire country to switch from a regulated market to a non-regulated market from one day to the next, and Emfesz serves as an example of how this can be done well. We are acting as a model gas company to show others how to succeed in a free market.”

Foreign investors can count on reliable natural-gas supplies

Emfesz is enhancing Hungary’s ap-peal for international investors by guaranteeing reliable supplies of energy for new companies setting up operations. “Potential foreign in-vestors looking into Hungary should know that reliable supplies of natural gas are available all over the country. All the distribution networks are in place and ready to serve clients. We have available energy supplies, espe-cially natural gas, and the Hungarian government is committed to mak-ing sure that companies can always count on reliable energy,” Istvan Goczi points out.

Direct from production center to consumer

As for the added competition from international players that have en-tered Hungary’s energy market, Istvan Goczi is not worried about Emfesz’s ability to retain its leading position. He says, “We have ample resources compared to our competi-

Energy leader EMFESZ, Hungary’s biggest independent natural gas supplier, proved its spirit of innova-tion by entering the retail gas mar-ket in February this year. EMFESZ is providing residential gas supply under its brand name ‘gas.hu’, the very fi rst online gas supply service in Hungary and Central-Eastern Eu-rope. Target is 20% of the Hungari-an residential market, that is around 600,000 customers. This aim is ex-pected to be reached within a couple of years. Owned by Ukrainian busi-nessman Dmitry Firtash, Emfesz ac-counts for about 20% of Hungary’s natural gas imports, buying its gas from the fi rm RosUkrEnergo. Last year Emfesz had revenues of over US$1.09 billion, up 32% from the previous year.

Energy & Gas

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39

Emfesz

Energy-Sector Leader Successfully Enters Retail Market

Energy & Gas

tors; in fact, all our competitors are just re-sellers of gas. We are different because we are delivering natural gas in the shortest way possible, directly from production to the end con-sumer. Emfesz offers the most direct route between gas production facili-ties and our customers’ homes and businesses.”

Emfesz has also proved its ability to work quickly and effi ciently. Istvan Goczi explains, “We began negotia-tions for a new power plant only three years ago and it is well on track to open by the end of 2011, beginning of 2012. The plant will meet all the latest standards of effi ciency. Thanks to our ability to complete projects quickly, we will be competitive from the very beginning, this is also our huge advantage on the market.” The Emfesz plant will be Hungary’s big-gest gas-fuelled power plant, with a capacity of 2,400 megawatts.

Pioneered Internet gas sales in Hungary

Another reason for Emfesz competi-tive edge is that the company has invested in the latest technologies and in implementing up-to-date pro-cedures in order to boost effi ciency and keep costs down. For example, Emfesz pioneered sales of natural gas through the Internet in Hun-gary, and now 95% of the company’s customers purchase their natural-gas supplies in this way.

Emfesz is also well known for its personalised service for both indi-vidual and corporate clients. The

company has around 500 corporate customers, and each one can count on personalised support from ac-count managers and supervisors. A foreign company entering the Hun-garian market can be sure that Em-fesz will not only provide the natural gas the company needs but also that the company can count on Emfesz to provide the kind of individual service that will help the company succeed.

Foreign investors welcome

As for the future, Istvan Goczi would like to involve Emfesz more in gas trading, and he also envisions a growing presence for Emfesz in Po-land and Romania, where the com-pany already has subsidiaries.

Emfesz welcomes foreign investors to Hungary, and Istvan Goczi points out that the country especially needs

companies that manufacture high-added-value products. To conclude, he explains, “Emfesz is a modern company operating according to the latest EU regulatory criteria. We support the EU Commission’s requirements and we will continue to provide a secure supply of natural gas at competitive prices.”

Emfesz Bank CenterSzabadsag ter 7

H-1054 BudapestTel: +36 1 428 3080Fax: +36 1 354 1958

E-mail: [email protected]

Energy & Gas

HUNGARY

Istvan Goczi, Managing Director

40

Energy & Gas

European Leader in Renewable Energy

Between 2001 and 2006, Hungary’s production of renewable energy grew dynamically, increasing by almost six times regarding electricity production and by 1.5 times in energy used for heating. Biomass represents almost 90% of the renewable energy being used in Hungary, with geothermal energy accounting for 8.2%, hydro-power 1.7%, solar energy 3%, and wind energy 15%.

Hungary’s potential renewable ener-gy production has been estimated at more than 2,200 petajoules (PJ) per year, and the government is focusing on encouraging investment in the country’s renewable energy sector.

Outstanding potential for biomass energy

Biomass energy in particular has out-standing potential – around 350-360 million tonnes, of which 1.8 million tonnes (0.3%) are being used cur-

rently – and has attracted a number of international investors. Hungary transforms around 15 million cubic metres of manure and 300,000 cubic metres of organic waste into biogas every year, and six of the country’s power plants are now using biomass fuel.

Hungary’s bio-ethanol production capacity is now 80,000 tonnes per year, and its bio-diesel production ca-pacity has reached 10,000 tonnes per year. Bio-ethanol projects with total capacity of more than 300 tonnes per year have recently been launched by SEKAB (Sweden), United Biofu-els Holding (Switzerland), MABIO (Hungary), and DunaBio Energy Company (Switzerland).

New bio-diesel projects include ones by Rossi Biofuel Zrt. (Austria) in co-operation with MOL, Öko-Line Kft. (Hungary), Central EU Biofuels Hungary Kft. (Australia), and Tem-pora Bioenergia Zrt. (Switzerland).

A focus on renewable energy for ex-port as well as for domestic use is an excellent strategy for Hungary, given its central European location, highly developed infrastructure, advanced research activities and a history of commitment to environmental is-sues.

Strong government commitment

Hungary signed the Kyoto Protocol to reduce CO2 emissions by 6% be-tween 2008 and 2012, and has made impressive progress in reaching the

EU target of 20% of total energy production to be renewable energy by 2020. Hungary’s National Devel-opment Plan earmarks 380 mil-lion for renewable energy, and the government already spends around 100 million per year on subsidies for green energy used by electricity distributors.

Hungary is also working to meet the EU directive that 4% of all vehicle fuel used in the country by 2010 should be bio-fuels, and opened its fi rst E85 petrol station July 2007. The government gives tax allowances for bio-fuels and levies penalties on ve-hicle fuel sold that does not contain bio fuels.

Hungary is positioning itself as Eu-rope’s renewable energy hub.

Energy & Gas

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41

Health

• Health Care Sector Building on History of Innovation

• Health Care Sector Reforms in Progress

• Biotechnology Targeted As One of Top Five Sectors

“We always focus on providing quality

services for patients and on ensuring benefits for health care providers.”

Dr. Tamas Szekely, Minister of Health

42

Health

Health Care Sector Building on History of Innovation

Hungary has had a national health care system since the 19th century, when it organised health insurance on the German Bismarck model. Hunga-ry’s pharmaceuticals industry, in fact, is one of the oldest in Europe, tracing its history back to a drug company op-erating in the country in 1867.

In the 1920s, the government estab-lished a national health insurance in-stitute, and by the end of the 1930s, more than one third of Hungary’s pop-ulation had insurance coverage. While funding came from the public sector, health care was provided by private in-stitutions and municipal hospitals.

Decline under communist regime

After the Second World War, when Hungary came under a communist regime, the Semashko model of cen-tralised health care was introduced in which both fi nancing and provi-sion of health care came from the

public sector. While the introduction of universal health care had a very positive impact on public health ini-tially, by the 1970s Hungary’s health care system had begun to fall behind that of other European nations.

As in other CEE countries, in Hun-gary only a small proportion of GDP was dedicated to health care, resourc-es were unevenly allocated, primary care services were inadequate, in-patient hospital care was emphasised even though such care was generally sub standard, management of the system was poor and the workforce ill trained, and there were great varia-tions in the quality of care.

This negative experience over many years is still being felt in Hungary’s health care system today in some ways, but the government is strongly committed to bringing the system up to western European standards. Reforms have been in progress for more than a decade, and today Hun-gary offers universal free health care to every citizen.

Thriving pharmaceuticals industry

Hungary’s pharmaceuticals sector has long played a major role in the country’s economy and in the provi-sion of health care. “Hungary’s phar-

Health

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43

HealthHealth

HUNGARY

maceuticals industry is characterised by continuous innovation,” says Dr. László Buzás, director of the Hungar-ian Pharmaceuticals Manufacturers Association. Hungarian pharmaceu-ticals fi rms regularly cooperate with drug manufacturers in other coun-tries to develop original products. Hungary is respected for its research activities and highly educated profes-sionals in many fi elds, and it is build-ing on these competencies to create one of Europe’s leading pharmaceuticals industries.

Sales of pharmaceuticals products in Hungary totalled HUF595 billion in 2007, of which HUF99 billion was through hospitals, HUF496 bil-lion was through pharmacies, and HUF69 billion was in over the counter sales. While both hospital and pharmacy sales declined slightly compared to 2006, over the counter sales in-creased by HUF2 billion.

Top 15 pharmaceuticals companies

Hungary’s pharmaceuticals sector has attracted a num-ber of top international play-ers and is also marked by the outstanding performance of Hungarian fi rms. The top 15 pharma-ceuticals companies in Hungary last year were Sanofi -Aventis in the num-ber one spot (its Plavix and Clexane were the top two products in sales last year), followed by Servier, Novartis, TEVA, Gedeon Richter, Pfi zer, Roche, GSK, Bayer Schering Pharma, Astra-Zeneca, Eli Lilly, Janssen-Cilag, Merck Sharp and Dohme, Schering Plough, and Krka, in that order.

Leading Hungarian pharmaceuti-cals fi rms include Gedeon Richter, founded in 1901; Alka (now Chi-noin/Sanofi -Aventis), founded in 1910; Rex (now TEVA Pharmaceu-ticals, formerly Biogal), founded in

1912; Phylaxia (now Ceva-Phylaxia), also founded in 1912; Dr. Wander (now EGIS Pharmaceuticals), found-ed in 1913; and Alkaloida (now ICN Hungary), founded in 1927.

Hungary’s top four pharmaceuticals fi rms – Chinoin/Sanofi -Aventis, EGIS, Richter and TEVA – are now ranked among the top ten Central and East-ern European drug companies.

Liberalisation in the 1990s

Beginning in 1990, the pharmaceuti-cals sector was liberalised and foreign direct investment in the sector grew rapidly. Local fi rms began to focus on human medicines and to use western marketing and sales techniques. Pri-vate pharmacies, launched as a result of the Companies Act in 1988, have also seen signifi cant growth.

In 1994, Hungary passed from the process patent system to the product patent system, which signifi es a shift to the highest level of intellectual property rights. All pharmaceuticals products in Hungary undergo ex-

tensive testing and are controlled by state-of-the-art quality assurance sys-tems. Today, more than 40 companies are licensed to manufacture human medicinal products in Hungary, and pharmaceuticals exports have been growing by an average 16% per year.

As for the future, research and de-velopment will play an increasingly important role in Hungary’s health

care sector, for example concern-ing recombinant DNA technology, and contract research organisa-tions as well as in house research groups are expected to have an even greater impact on the phar-maceuticals industry. Production and sales of generic products and over the counter sales are also ex-pected to grow. In fact, Hungary’s pharmaceuticals sector is expected to continue to grow by around 10% per year.

For foreign companies and investors, Hungary’s health care and pharma-ceuticals sectors present outstanding opportunities.

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Health

Renewal of and Moving Forward in the Health Care Sector Hungary’s Minister of Health, Dr. Tamas Szekely, former Director Gen-eral of the National Health Insur-ance Fund, is dedicated to improv-ing the quality of Hungary’s health care. He attaches importance to re-storing confi dence in the health care sector, enhancing the prestige and income of health care professionals, and strengthening the cooperation with the private sector. Minister Sze-kely aims at creating a strong regula-tory environment for the health care sector and establishing a sustainable fi nancing system, including the re-form of the insurance system.

In Hungary, some 60,000 hospital beds are available. The country’s 6,500 general practitioners provide treatments for some 1,500 patients as an average per year, while nearly 2 million patients are treated in hospitals. Certifi ed physicians treat around 60 million patients per year. Hungary’s health care is fi nanced through the country’s social insur-ance system, which budgets around HUF1,4 billion for health care.

The health care sector is, also cur-rently, going through a signifi cant development. Dr. Tamas Szekely ex-plains, “We have created such a sys-tem in Hungary, through which we all bear the costs of health care. This solidarity-based national risk pooling generates the necessary resources for fi nancial management. A strict, and consequently fi nancially sustainable system for a long run, can guarantee that the Hungarian health care sys-

Dr. Tamas Szekely, Minister of Health

tem will continuously be able to pro-vide high quality medical care and health services, equal to European standards.”

Hungary has the same health chal-lenges as other European countries are facing: an ageing society, a de-clining rate of labour force (contri-bution payers), and rising costs of health care. In addition, Hungary has to cope with lower life expec-tancy than the EU average. Another serious problem is that many health professions rather choose to leave the country to seek higher paid posi-tions elsewhere.

The increasing role of the private sector

The private sector is playing a vital role in Hungary’s health care system. Almost the entire primary care is priva-tised, the majority of pharmacies, pa-tient transportation and dialysis cen-tres are also privately run. Moreover, more and more outpatient clinics and hospitals are getting to be managed by private professional investors. As Dr. Tamas Szekely points out, “The Min-istry of Health has already contacted leading pharmaceutical companies to set up a forum to work together concerning Hungary’s regulations af-fecting the health sector. The Minis-try of Health and the Prime Minister attach utmost importance to have a dialogue with key private sector play-ers.” As Minister Szekely concludes, “We always focus on providing quality services for patients and on ensuring benefi ts for health care providers. We are aiming at achieving a balance.”

Health

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45

Health

Health Care Sector Reforms in ProgressHungary’s health care sector has been developing rap-idly for many years thanks to new reform measures. In the thriving pharmaceuticals sector, for example, the Companies Act of 1988 allowed for the establishment of private pharmacies, and restrictions on imports of medi-cines were lifted in 1991. A number of major foreign investments have been made in Hungary’s pharmaceuti-cals sector, which continues to expand.

In 2006, the Hungarian gov-ernment began a very ambitious health care reform programme in response to relatively low life expectancy, poor general health, an aging population, and a critically high rate of health care utilisation compared to international averages.

Upgrading hospital care

The fi rst goal of the reform pro-gramme was to reduce acute demand for hospital care, limit consumption of medicines, and limit unnecessary contact between physicians and patients. To reach these goals, the government focused fi rst on hospital care. A system of high priority hospitals was created, along with increasing the number of hospital beds needed for chronic in-patient care. In addition, hospi-tals began to screen patients before hospital admission regarding their insurance coverage.

To deal with problems in the fairness of health care pro-vision (a legacy of the communist era), the government made waiting lists for treatment publicly accessible. The government also instituted a programme to ensure the safe and effi cient supply and distribution of medicines.

Coping with spiralling costs

As is every other developed country, Hungary is facing spiralling costs of health care. To cope with this, the for-mer government introduced a system of co-payments in which patients would share the cost of visits for primary care, outpatient specialist care and a per day fee for hos-pital in-patient care. This policy was revoked following a referendum in March this year in which voters rejected the new measures.

The former government also passed the Act on Health Insurance Management

Funds (February 2008) in which dif-ferent management funds would receive fi nancing from an over-all fund. This initiative has been revoked by the new Socialist gov-ernment because it was deemed unworkable. Hungary’s new Min-ister of Health, Dr. Tamás Székely,

former Director General of the Na-tional Health Insurance Fund, says that

a revised programme on health insur-ance will focus on increasing the effi ciency

of the system and fi nancing quality health care through eliminating current regional in-

equalities, creating conditions for fl exible and responsible fi nancing of service providers, and

strengthening the insurance sector.

Focus on quality of care

The new Minister of Health says that the emphasis in health care reform in Hungary will be shifted from the reform of insurance to the improvement of the quality of care and, by extension, the overall improvement of the health of Hungary’s population.

While reforming health care in Hungary as in other countries is fraught with political problems and the chal-lenge of rising costs, the government is making impres-sive progress in improving the system and in opening Hungary’s health care sector to foreign participation.

Health

HUNGARY

4646

Health

Pfi zer

Supporting the Need for True, Sustainable Health Care Reform in Hungary

Mario Gattino, General Manager

Pfi zer is present in 140 countries around the world pursuing its stated mission of applying innovative sci-ence to improve world health. In simple terms this translates to a few fundamental commitments to our partners and stakeholders:

• Discover, develop and ensure access to safe and effective medi-cines and health solutions

• Partner with key stakeholders and earn their trust

• Build productive and enduring relationships with governments and communities

Pfi zer has been active in Hungary since the early 1960s. “I am sure it surprises many people to learn that we have been here for nearly 50 years and this illustrates our ongoing com-mitment to Hungary. Today we are working very hard to ensure that

Pfi zer Hungary refl ects these global ambitions and commitments in ev-erything we do locally.”

“I sense that there is a strong con-sensus in Hungarian society that the health care system must be reformed, we cannot ignore, that despite the best intentions of suc-cessive governments, Hungarians are not getting the service levels they should be entitled to and life expectancy is way below the EU av-erage – that has to change.”

Pfi zer is actively seeking partner-ship with a number of health care stakeholders to combat Hungary’s pressing health care problems, which include low life expectancy and high levels of cardiovascular diseases, cancer and smoking re-lated illnesses. Pfi zer is considering a number of programmes that will start to address these priority health issues. For example setting up a smoking cessation centre as well as supporting prevention centres to help combat cardiovascular dis-eases and provide early screenings for cancer. We have just entered into a major collaboration with the National Ambulance service, where we will provide new uniforms to the dedicated ambulance offi cers.

“Pfi zer has a strong commitment to research and development and to bringing innovation to patients,” says Mario Gattino. “As the leading research based pharmaceutical com-pany in the world we spent more than eight billion dollars last year on R&D – the largest amount in the industry.”

Pfi zer, the world’s leading life-science company, is working to help bring better health care to Hungary in line with the company’s global vision of “working together for a healthier world,” according to General Man-ager Mario Gattino.

Health

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47

Pfi zer

Supporting the Need for True, Sustainable Health Care Reform in Hungary

Pfi zer HungaryAlkotas u. 53.

MOM Park “F” Building1123 Budapest, Hungary

Tel: +36 1 488 3711Fax: +36 1 488 3719

www.pfi zer.com

Medical advances – in biophar-maceuticals, diagnostics and de-veloping more targeted therapies – will sustain the transformation of health care. Pfizer is committed to being at the very heart of this progress, it is critical for patients as well as for the long-term sustain-ability of quality health care that innovation is recognised and en-couraged. We understand and sym-pathise with the very real challenge the Hungarian government is fac-ing to manage the demand of an ageing population and advances in medical science, which inevitably impacts health care spending.

Providing well-functioning, for-ward-looking health care systems may seem costly, but this is a re-sponsibility that any government should be happy to shoulder. Eco-nomically it makes sense too. How do we shift the paradigm so that spending on health care is seen as an investment – an investment in people’s productivity, economic wealth and prosperity? Helping people stay healthy is a moral ob-ligation, even as it reaps economic and social dividends far beyond the individual patient.

Mario Gattino explains “We are very much encouraged by the change in approach and early indications from the new Minister of Health, Tamás Székely and his team. True health care reform means involv-ing all stakeholders and market players, and establishing a con-sensus for a reform that can last beyond political cycles. I wish him

luck and strength to be able to pull together a political consensus, be-cause without it reforms cannot be completed, and on the other hand reforms are desperately needed and can no longer be postponed.” He also adds that Hungary’s Min-istry of Health is correctly trying to shift the focus away from costly secondary care to concentrate on promoting healthier lifestyles and prevention. The approximately 200 employees at Pfizer Hungary are dedicated to playing their part and supporting these important national health care reforms. “We are only too willing to bring our internal and external experts and knowledge to the table to assist the Hungarian government and society in true partnership with all stake-holders and market players for a sustainable solution that delivers a world class health care system.”

One reason Pfizer is confident about Hungary’s future in spite of the current challenges is the coun-try’s strong evolving biotechnology sector. There is an enviable history of research and scientific discovery in Hungary, reflected in the num-ber of Nobel Prize winners for sci-ence being the highest per capita for any country. “We see Hungary as a potential centre of excellencefor biotechnology. The recent de-cision by the EU to place the Euro-pean Innovation and Technology Institute (EIT) in Hungary only confirms the country’s long term commitment to innovation and Pfizer, with its strength in research and development, should be an

active partner in this. It could be a win-win situation for both the country and Pfizer. We offer enor-mous global resources and exper-tise, and if we combine that with positive local partnerships from stakeholders, we can bring that in-novation to Hungary. We simply ask that this innovation is recogn-ised and encouraged by appropri-ate economic and regulatory poli-cies.”

Pfizer opened a major distribution centre in Hungary last year that supplies the company’s products to 12 markets throughout Central and Eastern Europe, with a poten-tial second phase of development for late 2009. “Pfizer is working hard to establish itself as a trusted and valued partner in Hungary with a focus on the long term,” Ma-rio Gattino says.

HealthHealth

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4848

Health

Novartis

Pharmaceuticals Leader Innovates for Patients

Tamás Szolyák , CPO Head & Country President

The Novartis portfolio is the sec-ond largest of any pharmaceuticals company in Hungary with special focus on cardiovascular and cen-tral nervous system (CNS) diseas-es, oncology and ophtalmology. Novartis Hungary is particularly strong in over the counter (OTC) sales, and is also well known for its vaccines. Tamás Szolyák explains that reforms in the pharmaceuti-cals sector last year that affected sales of prescription medicines have had a negative impact on all

major pharmaceuticals companies in the country, but Novartis has offset this through increased OTC sales as well as more sales of generic medicines via its subsidiary Sandoz. In fact, Novartis had a very success-ful year last year in spite of chal-lenging conditions.

Focussed on innovation for patients

A focus on innovation is one reason Novartis continues to thrive in an increasingly competitive market, according to Tamás Szolyák, and the company continues to create exceptional new products. Novartis has been a leader in developing and marketing therapies for the treat-ment of hypertension – the compa-ny recently introduced a new class of novel hypertensive agents that may provide longer term protec-tion to patients. Also, Novartis mar-kets the only approved therapy that has demonstrated improvement in vision and vision-related function

Novartis, the global health care group with operations in 140 countries, has made a long term commitment to Hungary, where it supports a number of community service projects and has been instrumental in bringing world class standards to the local health care and pharmaceuticals sector.

As CPO Head & Country President Tamás Szolyák puts it, “The Novar-tis mission here in Hungary is to develop and successfully market in-novative products that will prevent and cure diseases, to ease suffering, and to enhance quality of life. No-vartis also wants to provide good returns for our shareholders and to reward those who invest ideas and work in our company.”

Novartis Hungary Ltd.Bartók Béla út 43-47

H-1114 BudapestHungary

Phone: +36 1 457 65 00www.novartis.hu

in a vast majority (70%) of patients with wet AMD.a treatment.

“With our therapies we always look to demonstrate the long term ben-efi ts for patients in preventing or slowing disease progression. We have developed expertise in devel-oping and demonstrating impactful health economic data, to show that early treatment interventions lead to better quality of life for patients as well as long term savings for the health systems,” Tamás Szolyák ex-plains. He adds that Novartis is also working with other pharmaceu-ticals fi rms in Hungary on issues of mutual interest, including the need to concentrate on preventa-tive medicine.

As for the future, Novartis aims to grow faster than the market and plans to continue to introduce in-novative new therapies and to at-tract the best people, according to Tamás Szolyák. He says, “Novartis is a profi table, innovative company which aims to have a good impact on the health status of the people in Hungary.”

Health

HUNGARY

49

Health

Biotechnology Targeted As One of Top Five SectorsBiotechnology has been chosen by the Hungarian gov-ernment as one of the top fi ve sectors in the country’s mid-term development plan for the period 2005 to 2010. The government’s strategy for the biotech sector focuses on developing Hungary’s biotech human resources; pro-moting foreign direct investment, technology transfer and research; and fi nancing small and medium sized biotech enterprises.

Specifi cally, the government hopes to attract two to three major biotech investors with projects worth more than €100 million; several medium-sized investment projects of €10-100 million; 15 to 20 smaller investment projects of €1 to 10 million; and two to fi ve new research and development projects in biotechnology and phar-maceuticals; as well as to create several thousand high value biotech jobs and to enhance global recognition of Hungary as a biotech hub.

Hungary’s approach to biotech development is reso-lutely international. Dr. János Kóka, a physician and Hungary’s former Minister of Economy and Transport, explains, “Our strategy is to compete on science and hu-man skills rather than cheap workforce. Our new mid-term biotechnology strategy is designed not only to ele-vate Hungary to be a clear biotechnology leader among

the EU accession coun-tries, but also to place Hungary among the top 10 EU states in bio-technology by 2010.”

Competitive advantages

Hungary’s competitive advantages for biotech investors include its strategic location; grow-ing domestic demand; high quality infrastruc-

ture to support export activities; well-trained, creative and fl exible human capital at competitive costs; a 30% to 50% cost saving compared to Western Europe; investment incentives; a large number of leading multinationals in high-tech sectors already present; and Hungary’s reputa-tion for outstanding research and development activities in the pharmaceuticals and biotech sectors.

Hungarian Investment and Trade Development (ITDH) states, “Hungarian biotechnology has developed dynam-ically in the last decade. The main fi elds of development and application of biotechnology are the following: soils, water pollution treatment, production and processing of biomass, recycling processes, genetic engineering, nanotechnology, molecular chemistry, agriculture and food processing.”

Hungary takes part in various international programmes on biotechnology development and is also an active par-ticipant in the negotiations on the planned bio-safety protocol to the Convention on Biological Diversity. Hungary now has the strongest biotech sector among the new EU member states, with 70 core biotech com-panies and 170 companies engaging in biotech related activities.

Hungary’s major goal is to be recognised as one of the EU’s top 10 biotech countries.

Health

HUNGARY

Hungary’s Health IndicatorsTotal population: 10,058,000Gross national income per capita (PPP): €18,290Life expectancy at birth m/f (years): 69/78Healthy life expectancy at birth m/f (years, 2003): 62/68Probability of dying under fi ve (per 1,000 live births): 7Probability of dying between 15 and 60 years m/f (per 1,000 population): 249/104Total expenditure on health per capita (2005): €1,329Total expenditure on health as % of GDP (2005): 7.8

Figures are for 2006 unless indicated

Source: World Health Statistics 2008

5050

Health

Teva Pharmaceuticals

Global Pharmaceuticals Group Betting on Hungary

The Teva Group, headquartered in Israel, achieved US$9.4 billion in global sales last year and has pro-duction facilities all over the world. It specialises in the development, production and marketing of propri-etary and generic pharmaceuticals products. With more than a century of experience in the health care in-dustry, Teva has 28,000 employees worldwide. Its shares are traded on the Tel Aviv stock exchange, NAS-DAQ, the Frankfurt stock exchange, and Seaq International in London.

In Hungary, Teva operates a produc-tion and research centre that sup-plies products to the European mar-ket. András Rózsa, General Manager for Teva Hungary, explains, “We have signifi cant exports and quite signifi -cant research and development ac-tivities, and we are deeply a part of Hungarian society.” Teva set up its own production in Hungary in 1995 through acquiring the public sector enterprise Biogal, which had already established a strong reputation for its expertise and had a facility that could be expanded. Teva’s operation in Hungary was its fi rst step into the European market.

Since its acquisition of Biogal, Teva has invested some US$500 million in expanding and upgrading the production centre and building new facilities. Between 2008 and 2010 Teva invests another US$100 million in further extending its production capacity. It has also acquired local fi rms Human, Humanpharma and

Humantrade to expand its portfolio and service offerings. After reorgani-sation of these entities, Teva Hunga-ry has become a thriving subsidiary of the global Teva group. Teva is now number one in the Hungarian mar-ket in the hospital segment and num-ber four in the whole market.

Defi ning the company’s competitive edge, András Rózsa says, “We have a wholesale operation here in Hungary that gives us exceptional diversity. We now have a portfolio of more than 300 products and an excellent mar-keting and sales team, which makes us unique.”

András Rózsa recommends Hungary as an investment target. He com-ments, “For long term investors in-terested in Hungary, the time is now, despite the economic and political challenges to be faced over the com-ing two to three years. Hungary will be the leading economy in Central and Eastern Europe fi ve years from now. Here at Teva, we are supporting Hungary’s continued growth.”

Teva Pharmaceuticals, one of the world’s top 20 pharmaceutical com-panies and a leading provider of generic pharmaceutical products, has been active in Hungary since 1993 when it introduced its then top selling Alpha D3 to the Hungarian market.

Teva Hungary Ltd.Rákóczi út 70-72, 1074 Budapest

tel.: +36 1 288 6400fax: +36 1 288 6410

www.teva.hu

Health

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51

Transport & Logistics

• EU’s Transport and Logistics Hub

• Strategic Location and Much More Keep Hungary Competitive

5252

EU’s Transport and Logistics HubFor investors in transport and logis-tics, Hungary offers a cost-effi cient and highly qualifi ed labour pool, high standard logistics services, mod-ern warehousing and industrial fa-cilities, and investment incentives. The government has long focussed on logistics development, and every year around 500 students specifi cally trained in logistics graduate from Hungarian universities, while nearly 5,000 students receive logistics train-ing in 10 higher education institutes annually.

New logistics projects in the works

The greater Budapest area has always been the primary focus for logistics activity in Hungary. To date, 26 mod-ern logistics and warehouse parks of approximately 930,000 square me-tres have been developed in a 24 km radius around the capital, primarily along the M0 ring road.

New development projects are now under way beyond Budapest, includ-

As the EU expands eastward, Hun-gary – at the intersection of four ma-jor European transport corridors – is becoming even more attractive as a hub for transport and logistics. It is already ranked a key distribution centre for Central and Eastern Eu-rope, and it provides effi cient access to the EU consumer market of some 493 million people as well as to the fast growing CIS market, the Bal-kans and Turkey.

53


ing a 25,000 sq m facility by ProLogis on the M1 motorway at the Hungari-an-Austrian border; new warehouses under construction at the Szeged Logistics Centre on the Hungarian-Romanian-Serbian border on the M5 motorway; and projected devel-opment projects around Gyôr and Székesfehérvár in western Hungary and near Miskolc, Debrecen and Nyíregyháza to the east.

Hungary now has 179 industrial parks offering greenfi eld oppor-tunities, and many global leaders have taken advantage of Hungary’s investment attractions. One is DHL Express, which opened a €17.8 mil-lion logistics centre in Budapest last

year. DHL Express Hungary’s rev-enues rose 25% to €36.8 million in 2006, and the new centre is expected to boost the company’s growth still further.

Global leaders praise Hungary’s logistics

Other international investors invest-ing in logistics and transport projects in Hungary include Audi, Suzuki and General Electric. “The good work-ing culture, effi ciency and fl exibility of Hungarian workers made rapid growth possible. Within 15 years, Audi in Gyôr became the world’s third largest engine manufacturer, and logistics had to keep pace with this expansion. Thanks to Gyôr’s good geographical location and ex-cellent rail connection with Ingol-stadt, this could be achieved com-fortably,” says Thomas Faustmann, Managing Director of Audi Hungary. Audi is now Hungary’s top exporter and one of its biggest revenue earn-ers. Audi has already invested some � 3 billion in Hungary, €360 million of that in 2006 alone.

General Electric (GE) has set up a Eu-ropean logistics centre in Hungary, and István Salekovics, SCM and Manu-facturing General Manager, GE Com-mercial and Industrial, explains, “I see great potential in Hungary as a distribu-tion centre. From GE Consumer and Industrial’s European Logistics Centre in Nagykanizsa, Hungary, we comfort-ably serve most markets within Europe, while the proximity of Port Koper of-fers good opportunities for worldwide distribution.”

Deputy Managing Director of Suzuki Hungary, Dr. István Fórián, adds, “Hun-gary is not just an ideal country to as-semble cars in; it is also a good place to distribute our products in the CEE re-gion and Europe. We use rail, road and waterways.” In 2007, the Japanese com-pany invested €190 million in its Hun-garian operation to expand its output capacity to 300,000 cars per year this year. It is also increasing its workforce to 5,800.

Infrastructure upgrades in progress

Hungary is continuing to upgrade its infrastructure to support the growth of its transport and logistics activities. All motorways and trunk roads will reach national borders by the end of 2008.

The country’s rail network is also being upgraded and restructured, and MAV Cargo, currently owned by Hungarian State Railways, is be-ing privatised. Over 20% of freight is transported by rail in Hungary, well above the EU average. Záho-ny is the key hub and reloading centre for European standard gauge railways and for the wide-gauge system of the CIS states and Asia. Several scheduled train lines connect Hungary with the sea ports of Hamburg, Bremen, Rot-terdam, Koper and Trieste, with connections to Constanza being developed.

Concerning air cargo services, Bu-dapest Airport has the highest air-freight traffic and best connections with South-East Asia of any city in Central and Eastern Europe. In ad-dition, airports in other Hungar-ian cities are being modernised, and military airports are being transformed into regional logisti-cal centres.

Hungary also has a well-developed water transport system through the Danube-Rhine-Main channel. The government is investing heavily in making the Danube more cost ef-fective as a transport link by keep-ing it open 300 days per year.

The government is also planning to expand intermodal logistics centres and container terminals at major ports, such as Budapest Freeport, Gyôr-Gönyû, Adony and Baja Proximity.

Hungary is clearly enhancing its at-tractions as a top EU logistics and transport hub.


HUNGARY

54


Strategic Location and Much More Keep Hungary CompetitiveHungary’s EU membership has

brought the country new competitive

advantages that will keep the econo-

my thriving for years to come. Hun-

gary has a workforce that is among

the most skilled in Europe and its

costs of doing business are still much

lower than the European average: op-

erating a business in Hungary costs

around 30% to 50% less than in

Western Europe. In addition, Hun-

gary’s productivity rate is the highest

in the region and grew by more than

11% last year alone.

Centre for R&D

While wages in Hungary and through-out Central and Eastern Europe (CEE) are rising, these increases are expected to deliver a shift in foreign direct investment (FDI) away from low cost, labour intensive production towards value added operations such as research and development. Hun-gary will remain the regional leader during this shift thanks to its interna-tionally recognised research institu-tions in many fi elds, combined with its educated population and open-ness to technology transfer.

As a 2003 report by the Ministry of Economy and Transport on the ef-

fects of EU membership points out, “In many EU candidate countries, technology driven industries already account for growing shares of ex-ports. Furthermore, there are en-couraging signs of the creation of EU-wide production networks that draw on complementary patterns of specialisation and go beyond low-cost delocalisation strategies.”

Hungary’s EU membership also pro-vides additional reassurance to investors that their businesses will be governed by EU regulations and will have stream-lined trade links to other EU markets.

Hungary is also appealing to inves-tors for its strong track record in suc-


HUNGARY

55

Strategic Location and Much More Keep Hungary Competitive

Transport & LogisticsTransport & Logistics

HUNGARY

cessfully shifting from a communist system to a stable free market econ-omy. Its private sector now accounts for more than 80% of GDP, and cu-mulative FDI in Hungary has totalled more than €50 billion since 1989.

Location, location, location

One of Hungary’s most powerful competitive advantages is that it has one of the most strategic locations in Europe, with easy access to the fast growing markets of the CEE, the former Soviet countries, the Balkan states and Turkey. While the CEE contains other new EU members with some of Hungary’s investment appeal, no other country in the re-

gion can match the draw of Hun-gary’s central position on the Euro-pean map.

Hungary sits at the intersection of the strategic trade route linking Western Europe and the Balkans as well as the route between the Ukraine and the Mediterranean basin. It is the hub of three major international road cor-ridors, and the Danube and Tisza rivers, both historic trade routes in themselves, add to Hungary’s ad-vantages. Nineteen countries can be reached within one day from anywhere in Hungary, and Hungary shares its borders with seven coun-tries, including three EU and four non EU member states.

To enhance the inherent advantages of Hungary’s location, the govern-ment continues to invest in infra-structure upgrades. Hungary has around 160,000 km of roads, around 70,000 km of which are paved, as well as a thriving rail network that is cur-rently being upgraded with many ser-vices privatised. Hungary’s rail links reach to some of Europe’s busiest business centres and ports. In addi-tion, Hungary is investing in expand-ing its air cargo services.

The government is also targeting in-vestment in logistics and distribution centres, both in the Budapest area and throughout the country. Hunga-ry’s 11 logistics districts and 13 logisti-cal centres are located at focal points for international trade. Hungary also has more than 190 well-equipped in-dustrial parks.

Thanks to its advantages of location and infrastructure, Hungary’s trade activities are increasing rapidly, with exports growing by around 16.6%

per year to total €71 billion last year compared to €26 billion in 2003. This year’s total is expected to reach €71 billion.

CEE’s highest rate of per capita FDI

With its many drawing cards, it is no surprise that Hungary has attracted the highest rate of FDI per capita (€6,300/ US$7,604) of any country CEE country, and this FDI covers a wide range of sectors, from the auto-motive industry to pharmaceuticals.

Increasingly Hungary is being cho-sen as a base for research and devel-opment centres for multinationals. Nokia, GE, Samsung, SDI, Bosch, Audi, ThyssenKrupp and Visteon have all based R&D centres in Hun-gary, as have many smaller fi rms, and many international enterprises have launched successful partnerships with Hungarian universities, research institutions and companies.

World class telecom services, investor friendly new tax regulations that of-fer a reduction in corporate taxes of up to 80%, and a strong commitment to developing renewable energy and to protecting the environment add to Hungary’s investment appeal.

Another advantage for investors is Hungary’s excellent quality of life. Budapest, for example, is a cosmopol-itan capital with several international schools and a lively cultural scene.

Hungary, already one of Europe’s most competitive economies, is set to become even more attractive for investors as the government’s devel-opment programmes and infrastruc-ture investment bear fruit.

5656


An Increasingly International Economy

Dr. Abel Garamhegyi, Government Commissioner

for International Economic Affairs

Hungary has already earned a strong reputation for its fast growing econ-omy and investor friendly policies as well as for its highly trained human resources and globally minded com-panies. Most Hungarian companies have already adopted international perspectives. As Dr. Abel Garamh-egyi points out, “Hungarian com-panies may operate in Hungary, but they are international, both inside and outside the country.”

Well-developed infrastructure a key advantage

Hungary offers signifi cant advan-tages for investment, including ex-cellent quality of life, high produc-tivity, highly trained and committed workers, and a very well developed infrastructure that includes more than 1,000 km of highways, half of which built in the last fi ve years – which is an outstanding achieve-ment in the region.

Hungary’s infrastructure, coupled with its strategic location in the heart of Europe, make it an ideal base for trade oriented companies. Hungary’s advantages have already attracted large numbers of multinationals to establish operations in the country.

Challenges Hungary faces, accord-ing to Dr. Abel Garamhegyi, are the need to promote individual respon-sibility and entrepreneurship, the need to make sure government ini-tiatives are implemented effectively, and the need to carve out a niche in the global economy.

As Hungary goes increasingly glob-al, it is working to strengthen its in-ternational image and its business links with other markets throughout the region and internationally. Dr. Abel Garamhegyi, Government Com-missioner for International Econom-ic Affairs, is charged with handling regional issues related to Hungary’s business sector, developing Hunga-ry’s trade activities, and promoting Hungary’s image throughout the world.

Focus on quality

To meet this third challenge, which Hungary shares with all countries, Hungary has been focusing on qual-ity, added value, and particularly on high technology initiatives. Here in Hungary, we are focusing on added value. It’s not the quantity; it’s the quality. If an investor’s competitive advantage is quality, Hungary can en-hance that.

“According to the latest Global Com-petitiveness report of the World Eco-nomic Forum on the quality of scien-tifi c research institutions, Hungary outruns the regional contestants, the Mediterranean countries and even China. The report ranks Hungary in 24th place from the examined 131 countries,” Dr. Abel Garamhegyi says. He adds that research and develop-ment, biotechnology, and information technology all have outstanding invest-ment potential in Hungary today.

Dr. Abel Garamhegyi welcomes con-tacts with potential investors in the UK who are interested in learning more about investing or setting up a business in Hungary. “I am here to solve any problems and to sell Hun-gary, which offers all kinds of advan-tages for foreign investors and com-panies,” he concludes.


HUNGARY

57


Raabersped

Rail Transport Leader Now Offer-ing Complete Logistics Services

Managing Director Jozsef Bor ex-plains that Raabersped is now part of a diversifi ed international group owned by Rail Cargo Austria, which has a 51% share in the company; Hungaro-Rail is also part of the Vienna based group. He says, “The diversity of the group’s companies creates synergy for us. We now offer the full logistics supply chain, including warehousing, tracking and tracing, and distribution throughout the group’s network, for example from Milan to Russia.”

Last year, 92% of Raabersped’s turn-over was from rail forwarding, 5% road transport and 3% related lo-gistics services. By 2009, Raabersped aims for the breakdown to be 80-85% rail forwarding and the remaining 15-20% in logistics, warehousing and distribution.

Jozsef Bor explains that this does not mean that the company will cut down its rail forwarding services but rather that it plans a 10% annual global growth in turnover. In fact, Raaber-sped will continue to focus on rail transport because it is both effi cient -- especially for large volumes -- and ecologically friendly.

Set to handle 10 million tons of goods in 2013

Raabersped’s turnover grew from €58 million in 2005 to 90 million last year. “In 2007, we forwarded fi ve million tons of goods of all types, including grains, LCD screens, construction ma-terials and more. By 2013, we will be handling 10 million tons of goods and

will continue to be the leaders in our sector,” Jozsef Bor says confi dently.

Raabersped has opened its fi rst dedi-cated logistics centre just outside Gyor, Hungary. “This location is important for Raabersped because several different multinational com-panies are located there or nearby,” Jozsef Bor explains.

The new logistics centre is “a fi rst step in our effort to provide extended busi-ness services like cross stocking, ware-housing, logistics, distribution and more, in order to create added value for our partners,” Jozsef Bor says. Raabersped aims to be the preferred provider of outsourced logistics ser-vices, and hopes to build another lo-gistics centre in Eastern Hungary.

Raabersped works with international and local companies, including Elec-trolux, Mol, and Dunaferr. Jozsef Bor concludes, “If clients are looking into Hungary, we urge them to sit down with us and our experts will organize value added services to fi t each client’s indi-vidual needs. Our services are quick, ef-fective, and competitively priced.”

Raabersped, a leader in Hungary’s forwarding sector, is branching out from providing rail forwarding ser-vices to offer road transport and other logistics support.

Raabersped Kft.Montevideo utca 4H- 1037 Budapest

Tel: +36 1 430 8500Fax: +36 1 430 8599www.raabersped.hu


HUNGARY

58

Agriculture & Food Industry

• Agriculture Minister Highlights Sector’s Growth Potential

• Federation Promotes Hungarian Agriculture and Food Production

• Food Sector Meeting High Standards

“Hungary is work-ing toward perfect quality and very

safe food.”József Gráf, Minister of Agriculture and Rural

Development

59


Modernised Agriculture Sector Focuses on ExportsWith a temperate climate, varied geography, abundant water, and around 85% of its land area suit-able for agriculture or forestry, Hun-gary’s agricultural sector and food industry have long been signifi cant to the country’s economy. Hungary produces a wide range of crops which include wheat, corn, sunfl ower seeds, sugar beets, potatoes and other vege-tables, fruits, and wine. The country is also known for its pork, beef and poultry production.

Agriculture and rural development

The agriculture sector has success-fully made the diffi cult transition to a free market economy and is being boosted by new development strate-gies. As Minister of Agriculture Jozsef Graf explained last year, “The system of agricultural subsidies is expected to change substantially under the New Hungary Regional Development Programme. Hungary’s agricultural potential should be developed to a higher extent than at present and its development will be implemented as a closely related part of rural and regional development. Improving farmers’ competitiveness is among our key goals, so that we can provide domestic consumers with safe food-stuffs and also increase exports. We also aim to improve the state of the environment and countryside.”

Signifi cant FDI in agribusiness

Agriculture now represents around 7% of Hungary’s GDP and employs around 5% of the working popula-tion, while agribusiness overall now accounts for around 12% to 13% of GDP, according to Jozsef Graf. Agri-culture employed more than 100,000 people in 2006 and total agricul-tural production that year exceeded HUF1.6 trillion, a 6% growth over the previous year. Hungary’s agricultural enterprises achieved HUF71 billion in pre tax revenues in 2006, an increase of more than 50% over 2005.

Animal husbandry accounted for 36% of total agricultural production in 2006. Hungary also had 2,741 compa-

nies producing food products, bever-ages and tobacco products that year.

Hungary’s agriculture and food sec-tors have attracted signifi cant foreign direct investment (FDI): around 30% of the country’s agribusiness industry has been acquired by foreign inter-ests, a total that has risen to 50% in the high potential food processing and beverages sector, which has been completely privatised.

Opportunities in domestic and export markets

A signifi cant raise in domestic con-sumption along with increasing dis-posable income has created inter-esting opportunities for local and foreign companies in Hungary’s do-mestic food market, and agriculture and the food industry both have sig-nifi cant export potential.

Hungary is a major regional exporter of corn, wheat, and sunfl owers. Total grain acreage in Hungary is about a third of the size of Poland’s grain cultivation area, although Hungary’s yields are higher, except for rye. Feed demand accounts for 80% of Hunga-ry’s corn crop and a third of its wheat crop. Net exports for both corn and wheat are positive, but vary from year to year, depending on weather and world market conditions.

Hungary is a net importer of protein feed material – primarily soybean meal – but is a net exporter of sunfl owers. Hungary appears to have a comparative advantage in sunfl ower production, rel-ative to major soybean-meal-producing countries such as Brazil and the US.


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While Hungary’s production of beef cattle, pork and chicken declined by around 40% after the fall of the communist regime, today the country is a net exporter of beef, chicken and pork products.

Hungary’s entry into the EU has resulted in higher costs for Hungarian products, and poultry, which is priced lower than beef and pork on the domestic market, is sell-ing better in Hungary than other meat products, par-ticularly given the global rise in food prices.

Growing demand for imported food products

Hungary also has a viable fi shing industry, with many fi sh farms providing freshwater fi sh for the domestic and export markets. Hungary also imports seafood, and while consumption of ocean fi sh and shellfi sh is still low (around three kilograms per capita per year), it is grow-ing and sales have reached around €15 million annu-ally.

Much of the imported seafood is distributed through the catering sector, which supplies hotels and restaurants. The expanding tourism sector coupled with a rise in the number of food distribution centres and hypermarkets is broadening demand for imported food products.

Geothermal energy

Hungary’s agriculture and food industries have been rapidly upgrading their technologies, and many of the

country’s farms have implemented automated systems that save energy and boost crop yields.

To keep Hungary’s agriculture sector competitive, the government is employing innovative strategies that in-clude the development of geothermal heating systems for greenhouses, tents and tunnels used in agriculture and horticulture. Cultivation of vegetables in green-houses is becoming increasingly common, with peppers, tomatoes and cucumbers the main crops, and geother-mal energy fulfi ls more than 80% of the energy demand by Hungary’s vegetable farms. Geothermal heating is also becoming more common for heating facilities in farms raising animals.

Hungary’s high potential, increasingly modern agricul-ture sector is sure to continue to attract local and for-eign investment.


HUNGARY

LAND PRICES BY REGION (2006)(thousand HUF/ha)

Region Arable land Grassland Vineyard Orchard

Middle-Hungary 434 327 446 673

Middle-Transdanubia 387 279 834 756

West-Transdanubia 370 257 735 1,437

South-Transdanubia 540 215 1,358 1,119

North-Hungary 329 107 1,453 964

Northern Plain 353 107 395 823

Southern Plain 326 192 416 468

Total 388 184 815 859

Source: Test operational system, Agricultural Research Institute

SHARE OF ARRICULTURE IN THE NATIONAL ECONOMY

Year

Share of agriculture

Balance of external trade turnover a),

Billion H

UF

In GD

P-production

In consumption a)

In exports a)

In investment

In employm

ent %

At current prices, %

1995 5.9 32.4 20.3 2.9 8.0 227.6

1998 4.9 30.3 10.5 3.6 7.5 314.8

2000 4.6 27.6 6.9 4.7 6.6 302.2

2004 4.1 26.1 6.0 4.3 5.3 223.1

2005 3.7 25.1 5.8 4.5 5.0 181.1

2006+ 3.7 25.1 5.5 4.2 4.9 214.5

a) agricultural and food industry products+) preliminary dataSource: Hungarian Central Statistical Offi ce

61


Agriculture Minister Highlights Sector’s Growth Potential

József Gráf, Minister of Agriculture and Rural DevelopmentHungary’s agriculture sector involves four different groups, according to the minister. These are small pri-vate gardens, private farms, family-owned businesses and large industrial producers. While the last two groups account for around 90% of the country’s agricultural production, “for the ministry, all these groups have the same importance,” József Gráf says.

In 2007, not a good year because of frost damage, Hunga-ry’s agricultural exports totalled €4.6 billion, with imports totalling €3.2 billion. The EU Agriculture and Rural De-velopment Operational Programme is allocating €317.2 million to Hungary’s agriculture sector, of which half is to go toward upgrading technology, machines and environ-mental protection. “Within three years, thanks to better technology, the sector will be more effi cient,” the minister says. He adds, “The fi rst priority is to increase the compet-itiveness of agricultural production, including fi sheries, through investments to reduce production costs, increase added value and quality, preserve the environment, and improve hygiene and animal welfare standards.”

The second priority for the ministry is to develop Hun-gary’s food processing sector through implementing new technologies and upgrading logistics and storage systems, information technology networks and warehousing. “In-vestments will also focus on consumer health protection and food safety and quality, as well as on the environment, treatment of by-products and waste, and on a better adap-tation to the sales channels,” the minister adds.

The ministry’s third priority for the agricultural sector is to improve infrastructure in rural areas, create more em-

ployment opportunities there, develop and implement regional pilot programmes, and in general help to make rural areas more attractive to live in. A fourth priority is providing technical assistance to help the sector imple-ment new programmes.

Potential investors should know that until 2011, foreign-ers cannot purchase agricultural land in Hungary but they can invest in food processing, which has excellent growth potential. There is one exception for foreign-ers who are producing for three years here in Hungary because they have totally integrated within the sector and Hungary. “The majority of foreign investors in Hun-gary’s agriculture sector are involved in trade activities,” the minister says. He adds that agriculture accounts for around 4% of Hungary’s GDP, but when food process-ing is included, the share is around 14%.

József Gráf believes that with the help of current funding programmes Hungary’s agriculture will soon be more modern, more productive, and more environmentally friendly. “Hungary is working toward perfect quality and very safe food,” he concludes.

With more than 1 million acres of farmland planted in crops -- two-thirds of the country’s land area -- Hungary is one of Europe’s most agricultural nations, and the govern-ment is committed to keeping it that way. “Hungary has excellent advantages for agricultural development, includ-ing a temperate climate, extensive agricultural land, and a well-trained, youthful agricultural workforce,” says József Gráf, Minister of Agriculture and Rural Development.


HUNGARY

6262


KITE

Agriculture Leader Focuses on Quality from A to Z

Csaba Balogh, President

Hungary’s agriculture sector has ex-cellent potential thanks to the coun-try’s temperate climate, signifi cant quantity of farmland and long farm-ing tradition. Hungary has 12.9 mil-lion acres of agricultural land and 192,459 registered farmers. Key crops are sunfl owers, rape, maize and corn.

“Hungary’s agriculture sector has a high level of quality and technology, and Hungarian agricultural products have a very good reputation,” Csaba Balogh says. KITE works with around 10,000 customers in the agriculture sec-tor, of which around 7,700 are farmers. Overall, KITE’s clients are farming 40% of Hungary’s total agricultural land.

Wide range of products and services

Csaba Balogh points out that KITE’s wide range of products and services include seeds, pesticides, fertilisers, horticulture, machinery, irrigation and other special equipment, parts and service, and consultation con-cerning farming practices, including environmental protection. Around 80% of the agricultural machinery

KITE sells is imported, and the com-pany has established strong partner-ships with international suppliers. KITE helps its customers with fi nanc-ing. The collateral is the produced rape, sunfl ower, wheat and maize. The KITE also buys up oilseeds, and they are sold to processors.

KITE has been growing dramatically in recent years because of a marked increase in Hungary’s agricultural production as well as a huge increase in the price of crops.

Funding will help farmers upgrade machinery

Increased funding of agricultural activities, for example by the gov-ernment and the EU, will increase agricultural production and help

KITE is helping Hungary’s agricul-ture sector fl ourish. The company spe-cialises in the wholesale trade of agri-cultural input materials, machinery, equipment, crops and also provides agricultural consultancy services. KITE works with Hungary’s Min-istry of Agriculture and with several associations and federations.

KITE zRt. Bem József u. 1

H-4181, Nádudvar Hungary

Tel.: +36 54 480-401

www.kite.hu

to spread the modern and environ-mental technologies. “Funding sup-port for agriculture will allow our customers to buy new machinery. We are also seeing tenders and funds re-lated to agriculture which are having a major impact on KITE’s business,” Csaba Balogh says.

KITE has a strong reputation in Hun-gary thanks to its focus on long term customer service. “We feel respon-sible for the machinery we have sold even if it is ten years old. We have an excellent warranty system,” Csaba Balogh says. He concludes, “KITE’s competitive edge is our high level of quality and service, our broad range of products, our well-trained staff, and our cutting-edge technologies. We operate according to EU stan-dards. From A to Z, we focus on qual-ity and food safety. People need to try the special taste of Hungarian food. Hungary has many producers using very modern technology to produce safe, high quality products.”


HUNGARY

63


The Federation of Hungarian Food Industries

Federation Promotes Hungarian Agriculture and Food Production

Attila Boródi, Executive Chairman

Member companies range from micro-enterprises to almost all of the signifi cant multinationals like Unilever, Nestlé, Mars or Coca-Cola. The member companies employ altogether a total of around 70,000 people, or 70% of Hungary’s total workforce in the food industry, and have a combined domestic market share of 70% as well as “a healthy for-eign trade balance, an unparalleled feature in the Hungarian manufac-turing sector,” according to Attila Boródi, Executive Chairman.

A key role for FHFI is to serve as a liaison between the EU, the govern-ment and individual companies con-cerning EU policies as well as fund-ing support for the agri-food sectors. Attila Boródi says, “The FHFI serves as a communication exchange, help-ing local companies understand EU policies, building up a widespread network for encouraging innovation

and international cooperation at the small- and medium-size companies and representing Hungary’s food in-dustry to the EU and to international organisations.”

The FHFI works closely with the agri-culture sector to help it reach the gov-ernment’s goal of a 30% increase in production over the next fi ve to seven years. “Achieving this means moderni-sation of techniques and logistics in the agriculture and food processing sectors as well,” Attila Boródi says.

Hungary’s agri-food sector has ex-cellent growth potential thanks to a temperate climate, low pollution, and abundant supplies of water. It includes many well-known compa-nies as well as prized wines, such as Tokaj, Hungarian specialities so called ‘Hungaricums’ such as Pick Salami or pálinkas and fi ne mineral waters. Corn is a major crop. In fact,

The Federation of Hungarian Food Industries (FHFI) has around 700 member companies and 13 branch associations who account for around 80% of Hungary’s total food pro-duction and who use around 70% of Hungary’s total agricultural pro-duction. The total turnover of FHFI member companies is around €8.8 billion, or around 80% of Hun-gary’s total turnover in the food in-dustry.

Federation of Hungarian Food Industries

Kuny Domokos u.13-15H-1012 Budapest

Tel: +36 1 375 3721Fax: +36 1 355 5057


Hungary is among the world’s top fi ve producers of sweet corn, and the industry is beginning to use biofuels to handle its corn production.

Hungary’s agriculture and food sec-tors offer outstanding investment opportunities. “Investments in ag-riculture and food production can be combined with other types of investments to spread the risk,” At-tila Boródi advises. Pointing out the advantages of Hungary’s central lo-cation in Europe, which gives inves-tors easy access to other markets, he adds, “If I were a foreign investor, I would capitalise on the plentiful raw materials here in Hungary and look into advancing the supply chain and getting involved in research and de-velopment. We have an ideal climate, we have creative, quickly acting, fl ex-ible and knowledgeable people, and we are able to produce competitive highly added value products.”


HUNGARY

64


Food Sector Meeting High Standards

Hungary’s food industry, one of the country’s most important sectors, achieved a gross production value of HUF1.9 trillion in 2006, a rise of HUF86 billion over 2005. This per-formance is particularly impressive since around 80% of Hungary’s food companies are small to medium sized enterprises.

Hungary’s food processing sector has been fully privatised and in-cludes thriving operations owned by both domestic and foreign interests. Foreign owned companies are par-ticularly dominant in vegetable oil and tobacco production (both 100% foreign owned), turkey production (90% foreign owned) and meat pro-cessing (50% foreign owned).

Hungary’s food processing sector has great investment appeal: it is among the most modern in the CEE region and has a strong focus on exports; EU membership has helped to boost standards and market opportunities; and the proliferation of hypermar-kets – where Hungarians purchased almost one-third of their food in 2005 – has increased sales opportuni-ties on the domestic market.

EU membership benefi ts food sector

Hungary’s EU membership has ben-efi ted the food industry. As Jozsef Graf, Minister of Agriculture, points out, “The Hungarian agri-economy has managed to integrate itself into the CAP framework and EU require-ments have been assimilated and implemented. At the same time, as a member of the EU, Hungary has participated in debates on further agricultural development and in the development of new regulations.”

Hungary places great emphasis on guaranteeing food safety, having put

in place its own regulations as well as those of the EU. Strict inspections have contributed to maintaining the safety of domestic food supplies as well as of Hungarian food products for export.

Trademark a guarantee of quality

Hungary’s Agricultural Marketing Centre (AMC), overseen by the Ministry of Agricultural and Rural Development, works to make Hun-garian food products better known in domestic and foreign markets. The AMC particularly focuses on the Russian and German markets, top markets for Hungarian food exports, as well as the British mar-

ket, a leading market for Hungar-ian wine.

The AMC has developed a trade-mark designed to recognise high standards of quality in Hungar-ian food products. The trademark, Kíváló Magyar Élelmiszer (‘Excel-lent Hungarian Food’), is a guar-antee of food safety and quality, especially since some of its quality criteria are even stricter than the EU standard. Food producers must apply to have the right to use the trademark, and their products are carefully inspected before receiving the AMC’s stamp of approval.

Hungary’s food sector refl ects the country’s focus on quality.


HUNGARY

65


Sio-Eckes

Healthful Drinks from Local Market Leader

Sio-Eckes has formed productive partnerships with local and interna-tional shops, from small cash and carry operations to huge hypermar-kets. Around a decade ago, the com-pany repositioned itself with a new look while retaining its core values of reliability and high quality. Since then it has been steadily expanding its portfolio of products.

One new product is Sio Lite, with fewer calories; this line accounts for 4% of the company’s sales so far but is expected to capture a larger share as Hungarian consumers’ awareness of the need to watch calories increas-es. Sio also produces a premium line of concentrated fruit juices and nec-tars as well. Sió is one of the biggest NCSD distributor in the country covering the Szentikiralyi brand min-eral water and the popular Bomba energy drink. Sio produces around 80 million litres of fruit juice, drinks and nectars each year.

In addition to its drinks, Sio pro-duces around 15,000 tonnes of pro-cessed fruits per year at its plant in Siofok, Hungary. “We are in line with EU commission mandates on pro-moting a healthy diet. Fruit and veg-

etable based products like compotes, smoothies are becoming increasingly popular,” Endre Fazekas says.

Thriving food and beverage sector

The food and beverage sector is thriving in Hungary, in spite of com-petition from imports and rising in-fl ation in prices of food products. Endre Fazekas is very hopeful about Sio’s future. He says, “There is in-creasing demand for varying food products on the Hungarian market and it is no surprise that Hungary is a preferred producer of quality food products, since Hungary has exten-sive experience in the sector.”

Sio-Eckes, a successful partnership, refl ects the potential of Hungarian business for foreign investors. Look-ing to the future, Endre Fazekas concludes, “We see ourselves in the next four to fi ve years with a strong market position in fruit juice and nectar. In addition, we see many new opportunities for future growth, since a lot of different products can be made from fruit. We are looking forward to taking advantage of these possibilities.”

Sio-Eckes, the Hungarian subsidiary of German professional investor Eckes granini, is Hungary’s market leader in sales of fruit juices, accounting for 20% of the volume of sales and 26% of the value. Around 95% of the company’s products are sold lo-cally. “Sio brand is a traditional brand which is very important for the Hungarian people as it has been on the market for 30 years. We are continuing to build a close link with our consumers,” says Endre Fazekas, CEO.

Sio- EckesMajus 1 ut. 61, 8600 Siofok, Tel.: +36 84 501 550

www.sioeckes.hu


HUNGARY

6666


Hungerit

Poultry Products Firm Concentrates on Added Value

József Magyar, General Director

József Magyar, General Director, ex-plains that Hungerit focuses on its three core activities, which are rais-ing and producing slaughtered and cut poultry, producing processed poultry products, and produc-ing high-quality “heat and serve” products featuring a breadcrumb coating. He says that the company raises around 65% of its poultry on its own farms and hopes to increase that percentage to 80% within two years. “People want to be able to trust food products, and raising our own poultry helps us to better con-trol quality,” he explains.

Hungerit has been growing steadi-ly and now employs 1,500 people. The company’s processing facili-ties include two European standard poultry slaughtering lines, two chopping lines, and advanced pro-

Hungerit Poultry Processing and Food Industrial Plc., headquar-tered in Szentes, was created in 1997 with the merger of three lo-cal companies, all of which had extensive experience in the food sector. Hungerit is founded on a long tradition of food production in Hungary; there has been a poul-try processing plant in Szentes since 1922. Today, Hungerit products are sold throughout Hungary and in 35 countries abroad.

duction lines for processing poultry, including specialised equipment for producing breadcrumb coat-ings. Hungerit has a production ca-pacity of around 45,000 to 47,000 tons of processed poultry per year. Its products include chicken, geese and ducks.

In its commitment to quality, Hun-gerit has implemented an Inte-grated Management System, the HACCP food-safety system, the ISO 9001:2000 quality management sys-tem, and the ISO 14001:2004 en-vironmental management system. The safety and high quality of Hun-gerit’s food products are also guar-anteed by the QS, EFSIS (BRC) and IFS certifi cation systems, which ensure customer confi dence. Hun-gerit was one of the fi rst Hungar-ian companies to receive EFSIS cer-tifi cation, which is recognised by the Tesco supermarket chain and which allows that retailer to market Hungerit’s products.

Hungerit is known for its focus on high quality. “For us, the customer is GOD. We do everything to pro-vide the best possible products for our customers,” József Magyar says. Consistency is another of Hunger-it’s guiding principles. If one of the company’s new products proves successful on the market, Hungerit will not change the recipe. “Hun-gerit’s customers can always count on Hungerit to produce reliable, consistent quality,” József Magyar explains.


HUNGARY

67


Around half of Hungerit’s products are sold in Hungary in shops and supermarkets, and the other half is exported to the company’s 35 for-eign markets. Hungerit works with more than 200 commercial partners around the world. Hungerit’s top ex-port markets are Austria, Germany, Belgium and France, although the company also exports to Switzerland, NATO services, China and Japan.

The UK has become one of Hun-gerit’s top six markets over the past four years, with Hungerit’s bread-crumb coated products selling par-ticularly well in the British market. József Magyar explains, “An English company tried and liked our prod-ucts, and came to visit our produc-tion facilities. We have been work-ing together ever since.”

Hungerit aims to continue to ex-pand and improve its product lines and to invest in new technologies in order to ensure the highest possible quality and effi ciency. “We want to make sure our customers receive customised products,” József Mag-yar explains, noting that providing customised products is a challenge

as the EU market works toward stan-dardisation. Hungerit vows to con-tinue to produce distinctive prod-ucts with high added value.

József Magyar adds that he wel-comes visitors to the Hungerit pro-cessing facility and that he would like to work with investors and partners in projects to implement new technologies, create new prod-ucts and expand the company. He would particularly like to develop a broader range of “heat and serve” products to fulfi ll growing demand. “We aim to focus on adding value,” he concludes.

Attila str. 3; P.O. Box 8 H-6600 Szentes

Tel: +36 63 510 510Fax: +36 63 510 640

E-mail: [email protected]: www.hungerit.hu


HUNGARY

68

Research & Consulting

69


Business Consulting Meets the Challenge of Expanding EconomyThe Hungarian services sector has attracted more than half of the total capital invested in Hungary since 2000, and much of this investment – both local and foreign – has gone toward establishing top quality busi-ness and human resources consult-ing fi rms, according to ITD Hun-gary. Hungary now has a number of dynamic fi rms specialising in providing the best human resources for local enterprises as well as in of-fering the kinds of business consult-ing services that can help companies boost effi ciency and revenues.

VTMSZ, the Hungarian Association of Management Consultants, says that Hungary’s management con-sultancy sector achieved turnover of €251 million in 2005, an 11% rise over the previous year, and that the average rate of growth for Hungary’s top 20 management consultancies in 2005 was an impressive 18%.

Budapest has been a top choice as a base for consulting and HR fi rms, but other locations are attracting investors as well. A recent study by Deloitte’s Global Location and Fa-cilities Services targeted Debrecen, Kecskemét, Pécs, Székesfehérvár and Szeged as having excellent potential for business services.

Recent investments in consulting centres

Major recent investments include Morgan Stanley’s new centre for busi-

ness solutions and IT in Budapest; the group chose Budapest from among 100 possible locations. Convergys, a global leader in HR and other business servic-es, has chosen Budapest as its base in the CEE region, while call centre spe-cialist Sykes has opened a second call centre in Miskolc and US technology enterprise Corning opened a services centre in Hungary in 2006.

The future looks bright for Hun-gary’s business consulting enter-prises. VTMSZ predicts that EU related consulting will achieve particularly strong growth over the next five to eight years, given cur-rent EU co-financing of Hungary’s business and technical infrastruc-ture, SMEs, business training, and other activities.

Consulting sector to grow by 10%-12% per yearOverall, turnover in Hungary’s con-sulting sector is expected to grow by around 10% to 12% per year be-tween 2006 and 2010, with the main drivers of growth expected to be EU related services, public administra-tion, and services for medium sized enterprises, according to VTMSZ.

Outsourcing, consumer relationship management, supply chain manage-ment, value chain engineering and human resources management are to see particularly strong growth over the next decade in Hungary. Demand is expected to come primarily from the public sector, fi nancial services, telecom and media, energy and utili-ties, health care and other services.


HUNGARY

View of Budapest City

7070


TESK Tanácsadó Kft.

Human Resources Specialist Serving Top Multinationals

The fast growing company was offi -cially founded in 2002 but grew out of an operating company. Sister com-pany ESTET Hungária HR Outsourc-ing extends TESK’s portfolio, while TESK specialises in human resources consulting.

By 2006, TESK had grown into a thriv-ing enterprise serving 300 business partners and was the fi rst human re-sources specialist to recruit personnel for the Hankook tire project, Hunga-ry’s biggest greenfi eld development to date.

Today, TESK serves leading multina-tionals operating in Hungary, includ-ing Bosch, Lear, Honeywell, IBM, ABB, Nestlé Purina, Masterplast, Sykes, Continental-Temic, Nav N Go, Ibiden, and many others. Péter Tokár, Managing Director, says, “The com-pany is changing very rapidly. We now have a team specialising in serving multinationals and another focusing on smaller local fi rms. We have al-ready doubled our operations in the fi rst quarter of 2008.”

Speciality is recruiting engineers and IT professionals

TESK is looking to specialise in the re-cruitment of engineers and informa-tion technology professionals, and it is open to partnering with a foreign fi rm to achieve this goal. Péter Tokár adds, “One of our clients required 50 engineers, and we successfully re-cruited them within the timeframe. We would like to focus on projects like this.”

The TESK team serving smaller com-panies excels in recruiting all types of employees and works directly with company managers. It also offers hu-man resources support for companies looking to outsource their human re-sources activities, and may eventually specialise in this.

Leading human resources specialist TESK Tanácsadó offers a full range of human resources support, particu-larly in the fi elds of engineering and high technology, and trade, sales and marketing.

TESK Tanácsadó Kft.Thaly Kálmán u. 39H-1096 Budapest

Tel: +36 1 279 0706Tel: +36 1 279 0707Fax: + 36 1 466 0549


TESK’s competitive edge is its focus on quality. Péter Tokár points out, “This business is about the quality of the recruited people. The winner is the company that can provide the best people, on time, and we can do that.” TESK fi nds the right people, en-sures that they are trained (including offering training programmes), and concentrates on matching the right employee to each available position. “Making sure that the position is ex-actly right for the employee is maybe the most important part of the job,” Péter Tokár explains.

UK or other foreign companies look-ing into the Hungarian market can contact TESK not only for their hu-man resources needs but also for assistance in exploring business op-portunities in Hungary. As for the future, Péter Tokár concludes, “We aim to be Eastern Europe’s – and on a longer term also Europe’s – biggest specialised human resources consult-ing fi rm.”


HUNGARY

71

Tourism

• Wealth of Attraction for Business and Leisure Travellers

• Ambitious Goals Outlined in New Tourism Strategy

• Places of Interest in Budapest

72

Tourism

Wealth of Attractions for Business and Leisure Travellers

Hungary, ideally located in the heart of Europe, offers a wealth of tour-ism attractions that begin for most visitors with the country’s beautiful capital, Budapest. The city, known as the Pearl of the Danube, has been ranked a UNESCO World Heritage Site for its well-preserved architectur-al treasures and for its magnifi cent perspectives on one of Europe’s great-est rivers, the Danube, which divides the city.

Today, Budapest is a vibrant, mod-ern urban centre with a dynamic business sector and a lively cultural scene. Its population is multilingual and multicultural, with a very inter-national perspective, and the city of-fers a wide range of accommodations for visitors, with a choice of four star and fi ve star luxury hotels.

Diverse attractions

But Hungary’s attractions go well be-yond Budapest. Travellers will fi nd Romanesque churches, 2000 year old Roman ruins, 400 year old Turk-ish monuments, spectacular castles (many of them converted into luxury hotels), and Central Europe’s big-gest lake, Lake Balaton, a natural paradise, among many other things to see and places to visit.

And that is just the beginning. Visi-tors in search of pampering can try

out some of Hungary’s many spas, most of which have been modernised and upgraded through signifi cant investment projects. Hungary has had spas for more than 1,000 years thanks to its many natural springs known for their therapeutic proper-ties. Health and wellness tourism, in fact, is a growing niche in Hungary’s tourism industry. Many visitors even come to the country to receive high quality dental or medical treatment at lower costs than back home.

Active travellers can explore Hun-gary’s great diversity of landscapes on horseback, by bicycle or by canoe. Sports lovers will fi nd world class golf courses, Formula One racing, eques-trian events (including the horse shows which introduce the lifestyle and traditions of the “puszta”, or Great Hungarian Plain), all kinds of water sports, fi shing and hiking, and much more.

Rich cultural scene

Hungary’s cultural scene is particu-larly rich, and includes colourful folk art, performances of dance and mu-sic, and all types of theatre. Galleries abound in Budapest and in other cit-ies, and shoppers will fi nd many un-usual items to bring back home.

Cuisine and wine

Visitors can also sample Hungary’s famous cuisine and its many fi ne wines, which are already well known in the UK, one of the country’s top

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73

TourismTourism

HUNGARY

markets for wine exports. Hungary has been producing wine for 1,000 years, and travellers can sample vintages in 22 offi cial wine regions.

Wherever visitors travel in Hungary and whatever they do, they are certain to receive a warm welcome, since Hungarians pride themselves on their legendary hos-pitality. In addition, travellers fi nd it easy to get to and from Hungary and to tour the country thanks to Hun-gary’s many international connections by air, road and rail and its highly developed domestic infrastructure.

More and more international travellers are discover-ing everything that Hungary has to offer. Internation-al arrivals grew from 40.9 million in 2006 to 42.4 mil-lion last year, an increase of 3.7%, and visitors stayed longer as well. Hungary’s hotels registered an average 6.1% increase in revenues in 2007 compared to 2006, reaching HUF105 billion. Over 95% of Hungary’s visi-tors last year were from Europe, including the UK. Business travel was the main reason European visitors came to Hungary last year, although the leisure travel segment is growing as well.

MICE tourism a growth niche

The meetings, incentive, conferences and events (MICE) tourism niche is expanding particularly rap-idly in Hungary. Budapest has been one of the world’s top ten destinations for MICE tourism for many years, and was named the sixth most popular MICE destina-tion in the world in 2006. Hungary’s appeal as a MICE tourism choice is based on its winning combination of a central location, excellent infrastructure, diverse tourism attractions, state-of-the-art business services, wide choice of hotel accommodations, effi cient events planning services, attractive costs, high profi le events

organised year round, and the government’s commit-ment to making sure MICE tourism continues to be a growth activity for the country.

Since January 2000, the Hungarian Convention Bu-reau (HCB), a division of the Hungarian National Tourist Offi ce, has been assisting foreign meeting planners to bring events to Hungary, and to provide free information on Hungary as a MICE tourism desti-nation. Budapest, for example, has several convention centres which can host up to 2,000 visitors each, while the city’s top hotels all offer their own high quality facilities for meetings.

The HCB’s suggestions for incentive travel to Hunga-ry include a boat tour of the Danube, a cooking class in Budapest’s Grand Market Hall, exclusive journeys by luxuriously appointed vintage trains powered by steam engines, fashion shows, a garden party in a pri-vate chateau, a tour of Buda Castle, and much, much more. This list is just a taste of what Hungary has to offer visitors.

Vajdahunyad Castle

Lake Balaton

74

Ambitious Goals Outlined in New Tourism Strategy

Hungary is making tourism a key fo-cus in its new National Development Strategy for 2007 to 2013. Miklos Kovacs, State Secretary for Tourism, says that just as Hungary is ambi-tious in developing other areas of its economy, it is setting challenging goals for itself in the tourism sector.

The National Tourism Commit-tee will develop an overall tourism strategy and regulations for the tourism sector that are coordinat-ed with EU criteria and global EU development strategies. As Miklos Kovacs points out, “We aim to har-monise our tourism strategies with those of the National Development Plan as well as with the social and the economic objectives of the EU. Our new strategy must serve as a foundation for the elaboration of the next National Development Plan and the Europe Plan.”

Guiding principles

The guiding principles behind the new tourism strategy, according to Miklos Kovacs, are innovation, sus-tainable and competitive economic growth, economic and social bal-ance, and the development of hu-man resources. “In fact, the main aim of our new tourism strategy will be to improve quality of life through tourism,” Miklos Kovacs points out. He adds that the needs and goals of local communities af-fected by tourism projects will be taken into account.

All new tourism developments will focus on adhering to the highest standards of quality and will apply the latest EU criteria in all aspects, in order to make sure that Hunga-ry’s tourism sector can compete ef-fectively with other European tour-ism destinations.

In addition, domestic tourism will be encouraged. “Local communi-ties will get more interested in tour-

ism and will utilise Hungary’s new tourism facilities and attractions,” Miklos Kovacs says.

Infrastructure development key to tourism projects

Infrastructure development will go hand in hand with Hungary’s tourism development. “Thanks to upgraded infrastructure, Hun-gary will be one of the most acces-sible countries in Central Europe. Our modern and environmentally friendly road and rail network will offer easy access to tourism orient-ed facilities. This will help boost the economies of outlying settle-ments in Hungary as well as the country’s overall economy,” Miklos Kovacs believes.

Hungary aims to promote its re-gional airports as part of its tour-ism drive and will also develop river tourism through the international Port of Budapest. “We will of course aim to increase high quality accom-modations, catering and other tour-ism services. Local communities will benefi t from all these develop-ments as well,” says Miklos Kovacs.

The government also hopes to de-velop special interest tourism offer-ings in Hungary, including medical tourism and heritage tours. In all its projects, the national tourism strat-egy aims to boost the knowledge and skills of the local workforce to create new job opportunities in the tourism sector.

Hungary already offers a wide choice of tourism attractions. Its new development plan aims to add to these, to boost the quality of Hungarian tourism, and to make it even easier for foreign visitors to travel to Hungary. Miklos Kovacs concludes, “I ask people to come to Hungary and see for themselves everything that this country has to offer.”

75

Tourism

City Home Residency

Luxurious Serviced Apart-ments in the Heart of the City

Luxurious amenities

The fi ve-star City Home Residency con-tains 96 spacious apartments, from stu-dios to two-bedroom units, all elegantly decorated in contemporary style and equipped with the latest amenities. Each apartment has a fully equipped kitchen, a plasma television and a DVD player, a personal safe, Internet access and much more. Some of the apartments have bal-conies with views of historic Buda castle. City Home’s managers anticipate that around 80% of the complex’s guests will be long-term residents.

City Home offers 24-hour concierge ser-vice, an underground parking garage, exceptional security, room service and housekeeping services. Within the com-plex is a state-of-the-art business centre that can accommodate conferences as well as smaller meetings and gatherings. Guests can also enjoy the 800 sq m Pure Wellness Club & Spa with its 17-m heated swimming pool, Jacuzzi, sauna, steam room, fi tness center, kinesis room, mas-sage services, Pilates, yoga classes, and even personal trainers.

Special services include event organis-ing, babysitting, airport shuttle, laundry service, medical care, DVD rental and more. City Home’s multilingual staff can be guaranteed to provide top-quality ser-vices and a warm welcome.

Ideal location

City Home is ideally located in the heart of Budapest’s business, commercial and cultural district, within easy reach of such landmarks as the Opera House, St. Stephen’s Basilica, historic Andrassy Ave-nue, the Music Academy, the picturesque

City Home, created by Dr. Josef Finta of Finta Architects and Associates, offers a luxurious home-away-from-home for visitors to Budapest. Dr. Finta is well known for his inno-vative designs for the city’s Hilton, Kempinski and Marriott hotels as well as for Budapest’s ambitious West End City Center development. Modelled on similar luxury serviced-apartment developments in New York City and London, City Home is designed to appeal to demanding international travellers. “Whether you stay for a night or a year, City Home takes care of you,” explains a City Home spokesman.

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HUNGARY

Chain Bridge over the Danube, museums and art galleries, various parks and gar-dens, and other attractions.

On the ground fl oor of City Home is the gourmet Segal Restaurant featuring inventive fusion cuisine by renowned chef Viktor Segal. A wide choice of other restaurants, bars and cafés can be found within steps of the apartment building, and a tramway stop is just outside City Home’s front door.

City Home is the best choice for visitors to Budapest who are seeking a luxurious home of their own in the city. “City Home is the place to stay, enjoy your break at your own pace, in your own way!” says a City Home spokesman.

City Home Residency43-49. Ó utca, 1066 Budapest

Tel: +36 1 354 7805Cell: +36 20 9104 188Fax: +36 1 354 7813

Ms. Rita Deé Director of Sales & MarketingE-mail: [email protected]

www.cityhome.hu

7676

Sector

Places of Interest in Budapest

Sector

HUNGARY

Budapest is Hungary’s most important, internationally recognised tourist destination. Millions visit the Hungar-

ian capital every year attracted by the unique geographic location, the historical buildings and monuments of the

city that embraces the Danube, its World Heritage Sites, its cultural vigour, its spas, the convention and exhibition

facilities and the favourable value for money ratio. The capital and its surroundings also feature as a popular stop-

over in tours of Central Europe.

The richness and variety of cultural entertainment, especially major annual events, such as the Budapest Spring

Festival, the Island Festival, the Budapest Opera and Ballet Festival and the Budapest International Wine Festival

attract multitudes to the capital of Hungary. Cultural programs, as well as gastronomic delights and world famous

Hungarian wines, are additional attractions for a lot of foreign visitors during their stay. The internationally ac-

claimed historical spas based on the unique resource of medicinal waters below the city are likely to enjoy even more

visibility and popularity in the years to come as a result of a series of reconstruction projects.

Heroes’ square in Budapest

77

The Parliament and its treasures

Built between 1885 and 1904 the Parliament building soon became the symbol of the Hungarian capi-tal. Not just because its sheer size – nearly 18,000 square metres – but because of its detailed decoration, in-side splendour and eclectic diversity. It is the most expensive building ever built in Hungary. It has 691 rooms, 10 courtyards, 27 gates and 29 stair-cases. It also houses a public library with 500,000 volumes. The walls from outside are decorated by the statues of the most important historical fi g-ures of Hungary.

The Heroes’ square

The Heroes’ square is one of the most visited sights of the Hungarian capital; it is situated in front of the City Park, at the end of the Andrássy Avenue,

one of the most important streets of Budapest, a World Heritage site. The millennial monument was built in 1896 to commemorate the 1,000th an-niversary of the arrival of Hungarians in the Carpathian Basin. The monu-ment consists of two semi-circles on the top of which the symbols of War and Peace, Work and Welfare, Knowl-edge and Glory can be seen.

The Opera

The opera-house was opened in 1884 among great splendour in the presence of King Franz Joseph. The building was planned and con-structed by Miklós Ybl, who won the tender among other famous contem-porary architects. It was built in neo-renaissance style along the famous Andrássy Avenue.

The Castle

After the Mongolian conquest in the 13th century, King Béla IV ordered fortresses from stone to be built. The

fortress of Buda was also founded at that time. The castle reached its gold-en age during the rule of the renais-sance king, Matthias. He had it en-larged and transformed to a palace. Later, during the Turkish occupation of Hungary, it was under Turkish rule for over 150 years. Not even the Habsburgs cared much about it, as the empire was ruled from Vienna. During the Second World War it was badly damaged.

The very downtown

The Váci utca is the heart of the down-town. It is an elegant shopping street with several restaurants, bank offi c-es, cafés, souvenir- and bookshops. The majority of the buildings were constructed at the turn of the 20th century but there are minor details that add to the special atmosphere. There are small hidden passages, cast iron balconies, art nouveau style decoration and Zsolnay ceramic tiles that make each building different and worth noting.

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Budapest Chain Bridge

7878

List of Banks

BNP ParibasHonvéd u. 20H-1055 Budapest Phone: +36 1 374 6300Fax: +36 1 269 3967E-mail: [email protected]

Citibank ZRT.Szabadság tér 7H-1051 BudapestPhone: +36 1 374 5000Fax: +36 1 374 5100www.citibank.hu

Unicredit Bank Hungary ZRT.Akadémia u. 17H-1054 BudapestPhone: +36 1 269 0812Fax: +36 1 353 4959www.unicreditbank.hu

Raiffeisen Bank ZRT.Akadémia u. 6H-1054 Budapest Phone: +36 1 484 4400Fax: +36 1 484 4444E-mail: [email protected]

K&H Bank NyRT.Vigado ter 1H-1051 Budapest E-mail: [email protected]

OTP Bank Ltd.Nádor u. 16H-1051 BudapestPhone: +36 1 473 5000Fax: +36 1 312 6858E-mail: [email protected]

ING Bank ZRT.Dózsa György út 84/bH-1068 BudapestPhone: +36 1 235 8800Fax: +36 1 268 01 59E-mail: [email protected]

Central-European International Bank Ltd. (CIB)Medve u. 4-14H-1027 BudapestPhone: +36 1 457 6800Fax: +36 1 489 6500E-mail: [email protected]

www.pfizer.com

Over the past 200 years European scientists have been at the forefront of medical progress. Today, that proud tradition is under pressure from policies that devalue the role of innovation.

Innovation takes many forms: from the ground-breaking treatments and cures that emerge from our laboratories, to new solutions for today’s and tomorrow’s major health challenges. An ageing population, access to the best treatments and the availability of credible health information are issues of concern for both policy makers and society as a whole.

We believe that partnerships between governments, public institutions and the research-based pharmaceutical industry are essential to meet public demand for medical excellence, while revitalizing Europe’s spirit of innovation and competitive position in the global marketplace.

Restoring the Tradition of European Medical Innovation

Edward Jenner, Vaccination 1749 - 1823

Francis Crick, DNA structure1916 - 2004

Louis Pasteur, Bacteriology 1822 - 1895

Joseph Lister, Antiseptics1827 - 1912

Paul Ehrlich, Chemotherapy 1854 - 1915

Wilhelm Röntgen, X-Rays1845 - 1923

Alexander Fleming, Penicillin 1881 - 1955

Marie Curie, Radioactive Metals 1867 - 1934

Who will carryon their legacy?

For more information:e-mail: [email protected]

The road to success

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HUNGERIT Poultry Processing andFood Industrial Joint Stock CompanyH-6600 Szentes, Attila Str. 3.www.hungerit.huPhone: +36-63/510-510*Fax: +36-63/510-520

Cryovac® and Darfresh® are registered trademarks of Cryovac Inc., a subsidiary of Sealed Air Corporation.

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The European Times - Hungary

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