The Hungarian Investment Promotion Agency (HIPA) works to increase foreign direct investment in Hungary. Szilárd Bolla, vice president of HIPA, discusses the work, which has already brought in €549 million this year and more than 5,000 new jobs.
What results has HIPA achieved in the course of this year and what are the organizationʼs goals for the future?
HIPA is a professional organization for the promotion of foreign direct investment, and there are three pieces of data which show the most important measure of its success: The number of investors opting for Hungary, the number of new jobs created by them, and the volume of investment. In relation to these, we can demonstrate outstanding performance achieved in the first five months of this year. With the support of HIPA, 27 investment projects have been approved. Due to these favorable decisions, 14 new investments will be implemented in Hungary in cooperation with our agency, while 13 companies will carry out re-investments. As a result of this yearʼs 27 investment decisions, as many as 5,597 new jobs will be created and €548.82 million in foreign capital will be invested in the country. I wish to emphasize that these results are for the first five months, but the prospects for later in the year are also good. Looking into the future, also in relation to the new foreign economic strategy, it is our specified objective to become, by the end of 2018, the Central and Eastern European regionʼs benchmark investment agency.
What are the new trends in the domestic investment environment?
In our experience, the value of our region is growing. Large companies are increasingly beginning to recognize the opportunities and potential of the countries in the region, among them, those of Hungary: The large number of available, well-trained and motivated workers, favorable wage levels and the advanced infrastructure combined with the recently approved favorable labor code. Very good examples of these are business service centers, as this sector typically requires a young and agile workforce of graduates who speak foreign languages. Therefore, HIPA pays special attention to attracting these investments. The results are well demonstrated by the fact that, in the first half of 2015, it was in this sector that nearly a quarter of the 27 domestic investments managed by HIPA were implemented. Today, nearly 100 SSC centers operate in Hungary, organizations such as IBM, GE, Eaton, Emirates, BT, Lufthansa, and UNICEF have placed confidence in the country.
In the international context, what is the position of the domestic suppliers?
The priority sectors for Hungarian suppliers are the automotive industry and electronics. Out of the worldʼs 20 largest (TIER-1) automotive suppliers, 15 are present in Hungary, and they also need suppliers. It is a key objective of the Hungarian government to enable the Hungarian small- and medium-sized companies to get involved into the supply chain of the large enterprises that have production capacity in our country.
To support this objective, the Hungarian Investment Promotion Agency launched the TIER UP! program in October 2014, which aims to strengthen cooperation between universities and the domestic SME sector in the field of professional apprenticeship programs and joint research and development projects. The most important goal of the program is to make sure that domestic SMEs can play an important role in the supply chain of integrators that were established in Hungary.
What efforts are made to bring the rural areas closer to the investors?
In order to put the more remote regions into a favorable position, the European Union has developed a support system that determines the extent of a maximum percentage of the eligibility of the investment in the region (50-35-25-20). It is partly due to this, and partly due to the changed needs of investors, that in Hungary, too, larger investments are becoming less concentrated in Budapest and its surroundings. Based on the data of the first half of this year, it can be concluded that, in terms of territorial distribution, the projects managed by HIPA have reached the capital and the countryside in almost the same proportion.
Based on this experience, we have launched our Investor Friendly Settlement Program aimed at preparing communities to ensure a professional reception of potential foreign and domestic investors, and through this, to improve the overall competitiveness of the domestic investment environment. The training available for each municipality is divided into 4+1 modules, following which the participants give an account of their knowledge by writing a project proposal. Those who submit the best proposals will be visited by a delegation of diplomats to enable the representatives of the municipalities to gain practical knowledge as well.
What are some of Hungaryʼs special advantages for investors?
Hungary provides an excellent value proposition for investors. The combination of a strategic geographical location in the heart of Europe with more than 200 industrial parks, superb transport infrastructure and a long-established logistics industry, globally acknowledged human capital at a reasonable cost, an investor-friendly legal environment and labor code combined with the highest labor productivity in Europe, and the government’s non-refundable subsidies and commitment to further improve the business climate makes Hungary a truly exceptional place for investments. In addition, you cannot disregard that HIPA will help you through the whole investment process, from start to finish, through a one-stop shop service model, free of charge. Through its work, HIPA contributes to the fact that FDI Magazine - belonging to the Financial Times Group - has chosen Budapest as the most attractive city in terms of capital investment in Eastern Europe in 2014-2015.
What steps does Hungary take to stay competitive? For example are there any initiatives to improve education here?
Over the past four years a great number of actions have been taken in Hungary in order to establish the most competitive investment environment of Europe. The government has completely reformed the tax system, created one of Europe’s most flexible labor codes and restructured the tertiary education system. Investments into Research & Development & Innovation hit a record high in 2013 (HUF 118 billion) and are set to grow in the next years as well. Furthermore, between 2014 and 2020, 60% of EU structural and cohesive funds will be invested in economic development. Improving education also plays a vital role in staying competitive, e.g. improving the dual education system. To guarantee the constant pool of world-class professionals, HUF 50 bln will be invested in the enhancement of dual vocational education and training in the next five years.
Mihály Varga, Minister for National Economy has suggested several times that Hungary needs to diversify from its heavy reliance on the automotive sector. What can HIPA do to help there?
The automotive sector truly plays a crucial role; since 2014 more than half of all investment deals signed with the cooperation of HIPA targeted the automotive industry. Besides this important industry, HIPA has six other key sectors to focus on: Electronics, shared service centers, information and communications, the food industry, life sciences, logistics, and renewable energy. HIPA offers tailored services to each of them. For instance, I would like to point out the progress we have made in the SSC sector. By now there are more than 100 service centers employing around 37,000 workers making a great contribution to the economic development of the country. But pharmaceutical, ICT and logistics sectors have strong roots in Hungary; they can also offer competitive advantages for investors.