Hungary reaches out to business community

As such, it chimes with much recent government communication. Having raised eyebrows in the business community with the level of bank levies and emergency taxes on certain sectors, the Fidesz-led administration is now being much more collegiate. It has not admitted it was wrong, far from it. Indeed, Cséfalvay, from the national economy ministry, quoted the late writer, professor, and management consultant Peter F. Drucker who said, “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”

But successive government figures have been reaching out to business leaders in recent months, most notably, of course, Deputy Prime Minister Tibor Navracsics, whose Ministry of Public Administration and Justice signed a landmark strategic partnership agreement with AmCham back in February.

The government had been forced to use “non-mainstream steps” to successfully stabilize the economy; “Hungary is now able to finance its debt on the bonds market, and the [number of] Credit Default Swaps are increasing”, Cséfalvay said. “But fiscal stability itself doesn’t create recovery and new jobs.” That would come from the business sector, he said, with a little help from the state, naturally. It would require three keys: A coherent and comprehensive framework within which to work; a reliable system of support; and a series of targeted policies.

The framework is largely laid out in the Széll Kálmán Plan (see Hungary tightening its belt in the March issue of Voice), reforms which aim to “create a more efficient state and more flexible labor market”. Taxes have been lowered, and their overall number reduced. Administrative burdens, such as compulsory auditing for SMEs, will be lifted. In order to be regionally competitive, the state will have to be less financially involved domestically. “State redistribution in Hungary is 60% higher than the V4 average.” (The V4 or Visegrád Four group of countries includes Hungary and its natural peers, Czech Republic, Poland and Slovakia.)

Cutting red tape is not a new promise in Hungary, of course, nor elsewhere in Europe. The UK, for example, has pledged the same, and instigated a “one-in, one-out rule”; no new regulations can be introduced without first removing something from the statute books. But Hungary has an even greater need, Cséfalvay said. “Administrative costs on businesses in the UK are less than 3% of GDP, in Hungary they are more than 10%. We must launch a relentless crusade against red tape.”

The aim is a smaller, smarter bureaucracy, with specific regulations for specific industries. Again, the hand was extended. “We need support and pressure from the business community. If you have recommendations and suggestions, we welcome them.” The result should be “clear and abiding rules for decision making; once abolished, an administrative burden must never come back”.

Entrepreneurs and small businesses also need institutional assistance. “How can we find a bridge between SMEs and foreign investors in Hungary? One point is crucial, innovation. In this field we have failed to connect these sectors.” Cséfalvay pointed out that manufacturers like automakers are given government support to invest which is conditional on supporting Hungarian component suppliers.

But developing innovations requires capital, something that has been lacking the world over. The government is working on a small business innovation and research initiative similar to schemes developed in the US and the UK. EU money will also be preferentially funneled towards SMEs, and venture capital will be targeted. “Banking sources have dried up, so we are looking for non-banking finance such as equity or venture capital…. VC figures in Hungary really aren’t just minor, they are non-existent; the possibilities are much higher. We have to identify the burdens. I think the crucial point is regulations to make a framework that makes VC more possible.” And again, there was an appeal to venture capital organizations to help the government “create an environment where we remove unnecessary restraints”.

This article was originally printed in the June issue of AmCham's membership magazine Voice under the title "Hungary's pro-business agenda"