IVSZ witnesses ’worried and insecure’ Hungarian ICT sector


Photo by Wright Studio/Shutterstock.com

The Hungarian information and communications technology (ICT) industry is “worried and insecure”, Attila Molnár, secretary-general of ICT association IVSZ, told the Budapest Business Journal. The ICT sector is present in the national economy with quite a spectacular weight, despite the digital transformation being slower than necessary.

Photo by Wright Studio/Shutterstock.com

A recent IVSZ survey showed that two-thirds of companies are facing delayed purchases and canceled orders, suffering to a great extent due to the COVID-19 pandemic’s knock-on effect on the economy. Meanwhile, some others are doing slightly better.

As people are working from home (WFH) and children are studying remotely, the need for ICT hardware and software (and related services) has grown. However, this boost will likely fall once the pandemic fades. “Areas that are now booming will slow over time, and orders in the coming quarters could likely come to a decline,” Molnár told the BBJ.

Before the outbreak, artificial intelligence, automation, and fifth-generation (5G) connectivity were the three technologies leaving the most significant impact on companies’ developments and markets. Now, industry players exhibit two major behavioral patterns. 

“One is the cautious attitude, when companies either stop or slow down their developments, trying to get through this unfavorable business period. The other one is the forward-fleeing type, utilizing these times to go through with improvements they have neglected for some reason,” Molnár said.

With such a strategy, the forward-fleeing will be able to return to business with new technologies, once the epidemic ebbs away.

Slower Transformation

Regardless of the pandemic, digital transformation in Hungary has flowed slower than it would be necessary. The slowest adopters are small and middle-sized enterprises (SMEs)—they are less willing to invest, and sport a lack of digital competences and the drive to change. 

“Unfortunately, our experience has shown that companies are more likely to have switched to digital platforms, introduced web pages, started using new software, or launched digital customer management only to comply with the regulatory environment. The coronavirus epidemic is now emerging as a similar coercive force. However, its lasting and profound effect could only be judged later on,” according to Molnár.

The ICT sector should not be taken lightly, though. A macroeconomic analysis commissioned by IVSZ and Microsoft Hungary showed the ICT sector’s produced gross value added (GVA) increased by over 20% to HUF 6 trillion, which means that the digital economy makes up at least 20% of Hungary’s overall GVA.

“If we also take into account the in-house digital developments of non-ICT companies (e.g., car manufacturers or financial service providers), the digital economy already accounts for at least 25% of the total GDP, even by a conservative estimate. One in five people in the Hungarian labor market owes their jobs to the digital economy, and digitalization has created more than half a million jobs in the past year; it has contributed to the creation or retention of an average of 550-660,000 new jobs in Hungary,” according to Molnár.

With such a weight, digital transformation has to be part of the curriculum. In 2016, IVSZ put forward a summarized strategy for digitalizing the Hungarian education, which the government adopted as the Digital Education Strategy (DOS). Nevertheless, its implementation only took place in some areas.

“The digital transformation of education is still to come, and the introduction of distance learning solutions caused by this epidemic will not fundamentally help either,” Molnár said. The current situation further widens the gap between schools with more resources and teachers and students with less.

After the epidemic, schools will need to put these months’ experience into practice, placing particular focus on shifting attitudes and methodologies to implement the educational strategy IVSZ has proposed.

Varying performance

In 2018, the ICT sector’s GVA was around EUR 720 billion in the European Union. The industry employed over six million people. “Hungary is around the EU average in terms of the share of the ICT sector in GVA, while it is at the forefront of the bloc in terms of the proportion of people employed in the sector, far outperforming its regional competitors,” Molnár said. “The domestic ICT sector also plays an outstanding role in terms of contribution to exports and investment. However, the level of research and development activity lags the EU average and neighboring countries.”

In terms of digital skills and competencies, Hungary also underperforms when compared to other members in the bloc, both considering the population and the SME sector. “In addition, the digital transformation of the government, and the level and use of digital public services are also far behind the EU average,” Molnár said.

On the EU’s latest 2019 Digital Economy and Society Index (DESI), Hungary only placed 23rd out of the EU28 (still including the United Kingdom).

Although IVSZ has no exact data or calculations for the other Visegrád Four countries (the Czech Republic, Slovakia, and Poland), the association believes the level of digital transformation should be similar.

“Here it is necessary to emphasize that based on the methodology developed by the IVSZ, our sister organizations operating in the V4 countries plan to assess the contribution and weight of the digital economy to the total added value produced by their national economies in 2020,” Molnár added. 

In 2019, the V4 countries established an organization called V4 Digital (including SP in the Czech Republic, ITAS in Slovakia, ZIPSEE in Poland and IVSZ in Hungary) to create a joint and wide-ranging professional cooperation for implementing regional projects, strengthening digital transformation and facilitating participation in local EU tenders.

No anti-virus for ICT

The COVID-19 outbreak has infected the ICT sector, too. Most of the large companies primarily affected by the epidemic have started to cut costs in response to lost turnover, which will unfurl in other sectors also.

“Businesses are primarily focusing on safe operations—only maintaining developments, not planning new investments. The domestic ICT SME market can also expect a difficult period in the future, especially whose activities focus on exports,” according to Molnár.

Incoming orders have not brought significant decline to companies focusing on development, yet. However, IVSZ expects the pandemic’s symptoms to spread to these businesses, too, forcing them to cut costs.

Although companies shifting to remote working have boosted demand for equipment, software, and services supporting WFH, on its own, this is insufficient for ICT companies to base their operations on this surge.

“Companies dealing with IT services and infrastructure can also expect serious difficulties in the long run. That is why the IVSZ considers it extremely important to ensure that the population and SMEs receive all the support and assistance needed for digital training and development during this period,” Molnár concluded.

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