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HIPA on FDI: ‘Quality is the new Quantity’

The Hungarian Investment Promotion Agency is tasked with attracting foreign direct investment (and reinvestment) to Hungary, and to ask as a go-between for industry and the government. Róbert Ésik, the president of HIPA, spoke to the Budapest Business Journal about another record-breaking year.

Róbert Ésik (right), president of HIPA explains the 2017 results with Péter Szijjártó, Minister of Foreign Affairs and Trade, looking on.

How much FDI did HIPA attract in 2017, and how does this compare to previous years? How many jobs will be created as a result of those deals?

Hungary’s popularity among foreign investors is on a continuous rise and the number of investment projects negotiated by HIPA has been increasing every year. We completed a busy but exceptionally successful year with a record number of 96 positive investment decisions for Hungary, supported by our agency. As a result of these projects, with a total investment volume of EUR 3.512 billion, 17,021 jobs will be created in Hungary.

Between 2014 and 2017, positive investment decisions for Hungary, supported by HIPA created almost 60,000 jobs in our country. That is the equivalent of creating a job for every person living in the city of Zalaegerszeg.

Is there a particular stand-out deal HIPA was involved with?

I cannot name an exact investment, because we had lots of projects to be proud of. Just to give you a few examples, we started last year with the announcement of Blackrock’s new innovation center in Budapest, Itron chose our capital for its new European knowledge center, Diehl Aircabin extended its activity in Hungary with a new engineering center in Debrecen. Hungary has become a hub for e-mobility and autonomous driving: Samsung SDI opened its factory in Göd, while GS Yuasa, a major Japanese lithium-ion battery manufacturer, will establish its first European facility in Miskolc.

Which countries are the biggest investors in Hungary?

With regards the relative distribution of our result in 2017, Germany dominates in every aspect. Twenty-nine positive decisions were made by German investors, having a share of almost 40% in our results in job creation. The United States kept its position as one of the top three most important partners of Hungary, with ten projects creating 1,616 jobs. A record number of 18 projects are related to Hungarian companies, which shows well how the Hungarian economy is developing.

Which are the most important industries? Are the numbers still dominated by automotive and SSCs, or are other industries coming to the fore?

Hungary further strengthened its position in the automotive industry. Altogether, 36 of our projects are related to the vehicle industry, with an investment volume of EUR 1.548 bln, creating 6,727 new jobs. Electrified and autonomous: Two words to describe the development of the sector in the last couple of years. The supplier base related to automotive has been expanding continuously. Ten Pao, the Hong Kong-based battery supplier of Bosch, has chosen Miskolc for its first overseas expansion. The investment, valued at more than EUR 14.3 mln is foreseen as leading to the creation of 300 jobs and could result in further expansion in the short-term. One of the world’s leading automotive suppliers, France’s Valeo, continues to expand its manufacturing and R&D complex in Veszprém. The projects will create a high level of automated production environment which provides an opportunity for increasing labor-intensive areas generating higher added value. Also, robots and cobots (cooperating robots) will be procured as part of the development.

Continental, the German automotive giant, is establishing a Deep Machine Learning Competence Center in Budapest, with a focus on autonomous driving. This project is an important milestone for the industry and shows that stepping up to “Invented in Hungary” is not just a strategic goal of ours; it is already happening now.

As for the service industry and R&D centers, we also moved up the value chain. In the SSC sector, the clear trend is that companies are increasing the number of high value add positions and implementing digitization. Moreover, 80% of Hungary-based SSCs plan to expand in the short-term in Budapest and also in countryside locations, so robotics does not result in downsizing.

There are a lot of companies who have decided to develop their production activities with R&D or shared services centers. FrieslandCampina voted for Budapest to set up its third services center after the Netherlands and Malaysia. The team of 150 professionals will provide financial services for the EMEA operations of the company. Viessmann, a leading manufacturer of heating, refrigeration and industrial heating systems, announced an investment in Pécs. The shared service center will be responsible for the technical services in after-sales activities.

The food industry held its strong position: seven projects with EUR 215.2 mln investments created 1,281 jobs. One of them is the HUNENT waterfowl processing company, one of the biggest waterfowl producers in Hungary. In recent years, the company had become a significant market player not only in the domestic market, but also in several member states of the EU and also in the Far East, which is mainly due to its high-quality products. The new facility will be unique in Europe, since there are only a few duck slaughterhouses and processing plants having a similar level of capacity and technological development.

In addition to the key industries, new sectors are developing rapidly, such as the aircraft industry. Diehl Aircabin is not only expanding in its Nyírbátor facility, but is to open an engineering center in Debrecen. The 150 Hungarian engineers will provide support primarily to the company’s internal departments. RUAG Aerostructures, a major player in the aerospace industry, opened a new factory in Eger. It will be the Swiss-based aircraft section producer’s third plant, complementing those in Germany and Switzerland. The investment is worth EUR 6.15 mln and creates 180 workplaces.

What is the percentage split in terms of FDI between Budapest and the rest of Hungary? Are there any regions which are beginning to attract more investments?

In terms of regional distribution, most projects (15) were implemented in Budapest. It is followed by Pest county (ten), Borsod-Abaúj-Zemplén, Hajdú-Bihar, Heves and Győr-Moson-Sopron counties (eight each). An increasing attention can be seen in the southern part of the country: for example, the investments of Magnus and Viessmann in Pécs, and BP’s new service center in Szeged.

We are committed, besides promoting Hungary as an investment location, to turn our country into an even more investor-friendly location. Last year, the management team of HIPA and I visited several cities which have increasingly become a subject of interest for investors. The trips - part of the after-care of HIPA’s Investor Friendly Location program - aimed to ensure that municipalities manage both already established and potential foreign investors even more professionally, and to discover new potential development sites.

What will be the priorities for HIPA in 2018? Are there any new incentives in the pipeline?

The incentive system has been modified in line with our strategy of attracting more high value-add investment projects: we have introduced two new forms of incentives from January 2017: the R&D cash subsidy system as well as the so-called technology intensive subsidy scheme, which focuses on the level of technology instead of the newly created jobs. We further updated the latter form of support in November 2017, making it even more attractive to companies seeking to improve their productivity in Hungary.

The Hungarian investment environment has also received prestigious international recognition: Based on the remarkable IBM Global Location Trends 2017 report, from among the three most important categories, Hungary ranked among the world’s top ten in two. According to the report, thanks to FDI, 18,900 new jobs are being created in Hungary based on 2016 investor decisions, which is the ninth best result in the world per inhabitants. However, what is even more important is that Hungary was ranked fifth based on the value of new jobs created, ahead of countries such as Switzerland, Japan and Sweden, in addition to the competitors in the region. 

We have a clear objective: further promoting “Invented in Hungary” type investments. This means quality is the new quantity. 

How does HIPA seek to help investors who might be worried by the labor shortage?

A lot of changes were introduced regarding taxation on labor last year. In terms of labor mobility, the tax-free amount of the commuting allowance has been significantly increased, and a new form of tax-free housing support has been introduced, parallel to the reduction of the overall social contribution tax from 27% to 22%. In 2018, additional steps were made such as the increase of the tax-free housing support to up to 60% of the minimum wage, and the opening up of possibilities for municipalities to apply for funds to offer housing solutions for employees of local companies.

In addition to tax changes, the dual educational training scheme has been further enhanced with a target to reach 70,000 students in the 2018/2019 school year.