MNB urges shift toward higher added-value production in industry

Automotive

The industrial competitiveness of Hungary may be strengthened by a shift towards higher added value production, the National Bank of Hungary (MNB) said today in its annual Growth Report, according to news agency MTI. Currently, the domestic contribution to the end-product for manufacturing exports is 42%, lagging behind both the CEE and German average, the report says.

Hungary’s industry expanded at a rate far exceeding the average of the European Union, as a result of which the share of the sector within GDP increased from 21.8% in 2013 to 23.3% in 2015.

The rise in industrial value added was primarily linked to the production capacities soaring as a result of large vehicle industry investments, as well as to a domestic supply chain being created.

The domestic engineering industry is playing a bigger part. The weight of the subsector accounted for 29% of industrial production at the millennium, but rose to more than 40% by 2015, mostly related to the vehicle industry.

The realignment within industry meant a shift towards lower value added production. In recent years, the value added per one unit of output was less than 20% in the vehicle manufacturing subsector, which fell significantly short of value added content of light industry and pharmaceuticals.

Hungarian industry typically produces for export, and the need for higher added value production is present in the export structure. For regional competitors, industrial products also have a dominant weight in exports, but the domestic production units make a higher contribution than in Hungary.

More advanced processes require Hungary to be prepared for the challenges in technology, labor market and the protection of intellectual property.

Upward progress in the production chain may be achieved by creating intellectual products or by participating in their creation. More marked participation in the early phases of a product’s life cycle (R&D, planning) may raise the value added of the given production phase.

The basis of the shift is the stimulation of research and development activities. Based on R&D expenditures, Hungary lags behind the level of developed countries in terms of major innovation capacity and is close to the regional average. In recent years, Hungary spent almost 1.5% of GDP on R&D, which is only half of the 3% target set in the innovation strategies for Austria and Germany.

Higher technological needs generate demand for advanced infrastructure and a qualified labor force. In Hungary there are shortfalls in broadband internet coverage, especially for SMEs, while the ratio of IT graduates in the total number of higher education students was around 2% in recent years, which is some way below most European countries.

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