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Hungary ‘Well Placed’ to Become an Automotive Innovation Hub

Automotive

Graphic by web_monster / Shutterstock.com

The Budapest Business Journal discusses the ongoing importance of the automotive sector to the local economy with the Hungarian Investment Promotion Agency. The future is increasingly tied to sustainability and digitalization, HIPA says.

BBJ: It is well known that automotive has been one of the motors (pun intended) of Hungary’s industry. What weight does it hold currently?

HIPA: The Hungarian automotive sector accounts for 4-5% of total GDP, and it is responsible for nearly one-third of the processing industry’s output value, with a EUR 26.2 billion production value. The industry’s relevance can also be measured by employment figures as, with almost 186,000 full-time employees, it accounts for 4.1% of the total employment. Ongoing and recently executed domestic investments by the industry are expected to contribute further to the sector’s importance.

BBJ: How much FDI has been invested over the years, from which countries, and how many jobs have been created?

HIPA: Between 2014-2020, the volume of automotive FDI amounted to EUR 8.965 billion via 160 automotive projects managed by HIPA. Considering the job-creation effect, 36,600 new jobs can be linked directly to such investments.

Looking at a breakdown based on the country of origin of the investments, Germany is the largest investor in that period in terms of FDI volume (EUR 5.6 bln) and newly created positions (19,300). Through FDI volume, South Korea (EUR 648 million) takes second place, followed by India (EUR 638 mln) and Japan (EUR 549 mln), and a significant stock is related to the United States (EUR 278 mln). It is notable that, in terms of newly created jobs, the ranking changes as the USA secures second place with 2,400 new positions, India becomes third with 2,100, closely followed by Japan (2,090).

BBJ: Recent years have seen significant investments in e-mobility. Is this trend continuing? Have other examples of future-proofing been seen in the automotive sector in Hungary?

HIPA: Hungary is in a beneficial place through taking advantage of two interacting processes. While tightening regulations, market demand, and environmental considerations are forcing the automotive sector into electromobility, the country targets climate neutrality by 2050 as one of the five EU countries that have set this ambition in law. As a result, we have seen a continuously growing investment volume in electromobility, leading to the situation that, in 2020, our country became the world’s 10th-largest battery exporter. As the automotive industry’s future is linked together with e-mobility and digitalization, we focus on related new trends, such as autonomous driving and further software-driven innovations.

BBJ: Are you working in any “unchartered waters” in trying to find countries or companies that have not previously invested in automotive in Hungary?

HIPA: We are working to create a complete and competitive value chain to secure the long-term success of the Hungarian automotive industry. On these grounds, HIPA may also proactively approach those corporates whose presence in Hungary could make the investment environment even more attractive and increase the proportion of “Invented in Hungary” type investments. For this reason, in the last three years, we gave special attention to the battery industry, resulting in 31 projects with a value of EUR 6.1 bln investment and creating more than 10,000 new jobs.

BBJ: Greenfield investments are important and eye-catching, but the involvement of local businesses is just as vital in the long term. What can HIPA do to help Hungarian SMEs move up the value supply chain?

HIPA: One of the main philosophies behind FDI promotion is to enable local SMEs to become competitive enough to join the supply chain of large international investors. HIPA supports this intention, and in the framework of our supplier service activities, we organize training and B2B events in close cooperation with large companies and professional associations. The capabilities of the local businesses can be equally important during the site selection process of prospective investors, as they analyze local value chains; for that reason, we continuously monitor Hungarian SMEs and involve them in development programs.

BBJ: Do you have any direct examples of the perceived need to shorten supply lines in the wake of the pandemic helping Hungarian SMEs?

HIPA: The evolution of current supply chains was mainly driven by financial considerations, as companies could assume a stable supply independently from geographical distances. The pandemic changed the evaluation of risk factors, pushing companies to re-consider their sourcing strategies. According to our experience, the idea of shortening current supply chains is being considered by most corporations sourcing inter-continentally. Hungarian SMEs may profit from this kind of change in the upcoming years. However, the conversion of supply chains will not happen from one day to the next. Even under normal circumstances, establishing a new collaboration with just one new supplier could take months.

BBJ: As the vaccine program rolls on and businesses begin to return to something like normal, do you have any concerns about maintaining labor supply once the “additional” workforce that appeared in the past year goes back abroad or returns to hospitality?

HIPA: As we see, there is still enough potential in the Hungarian labor market. We aim to reach five million employed people. Structurally, we have reserves in the inactive part of the population (the activity rate in Hungary is still 6-8 percentage points lower than in some of our regional peers), as well as among the unemployed. We also observe significant regional differences in the labor market, which means that we have the opportunity to guide investors and investments to those areas where we have considerable labor reserves. 

BBJ: Finally, what do you think will be the next great advance in the Hungarian automotive industry R&D. Hydrogen fuels, lighter batteries, truly autonomous autos, or something else?

HIPA: We live in one of the most exciting eras for the automotive sector as sustainability and digitalization became the driving forces of change. This means we are facing an incredible amount of innovations every year. But the automotive industry is demand-based; thus, it is hard to predict which promising endeavor will be the next big game-changer. Hungary is well placed to lead this new ecosystem and become an innovation hub alongside our investor-friendly business environment. We already have sector-specific fundamentals like ZalaZone, the region’s largest automotive proving ground, or the existing value chain for battery-related inventions.

This article was first published in the Budapest Business Journal print issue of  May 21, 2021.

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