BBJ: How do you see the current business sentiment of your member companies in Hungary?

Barbara Zollmann: German companies in Hungary have mixed feelings about the current market environment and their own business prospects. This is mainly due to the weakness of the German economy, Hungary’s most important trade partner. According to the latest signals (we have just launched our fall survey), this sentiment has not improved thus far. The critical concern of the firms is still the lack of demand in both domestic and export markets.

However, Hungary remains an attractive destination for German companies. In our daily consultancy business, we receive many inquiries from potential new investors, especially in the manufacturing sector but also from other industries and services sectors. For the near future and in the medium term, how the government will restart the domestic economy and how external markets, first and foremost the German one, will recover from its current weakness will be crucial.

BBJ: Do you see new trends in German-Hungarian Business?

BZ: A key trend is the continuing shift towards high-tech, value-added industries. German companies are moving beyond traditional manufacturing into the research and development and services sectors. For instance, automaker Audi has launched a business service center that serves the Volkswagen Group (now sourcing one-third of its product groups from the CEE region) globally. Retailer Aldi runs an IT service center in Debrecen which provides IT support to more than 8,000 outlets and 55 logistic centers in eight European countries, while automotive supplier Bosch operates the group’s largest European R&D center outside Germany in Budapest, with about 3,500 developers and engineers.

Another trend is the growing emphasis on sustainability. This is not only a question of social responsibility but also a decisive factor for future competitiveness. Since small- and medium-sized companies often lack the necessary know-how and resources, we partnered with the Budapest Stock Exchange last year to support SMEs in implementing measures to comply with ESG requirements, thus helping them to strengthen their long-term competitiveness. Our DUWZ Training Center offers ESG managers training that assists companies in fulfilling their ESG requirements.

BBJ: DUIHK is part of a global network of German chambers abroad. How does Hungary fare compared to other countries in the CEE region from the perspective of German business?

BZ: In Central and Eastern Europe, Hungary remains a key destination for German businesses, particularly in manufacturing but also in many other industries. German companies annually invest roughly EUR 15 billion in new assets in the Eastern EU member states, about EUR 2 bln-3 bln of which goes to Hungary, placing the country third after Poland and the Czech Republic in terms of German capital expenditure. Or look at the number of jobs created by Germany abroad: In the V4 countries plus Romania, German investors employ more than 1.4 million local workers, more than 220,000 in Hungary alone; this is more than in Italy or the Netherlands.

Although investment conditions are quite similar in the more advanced Eastern EU member states, Hungary features some competitive advantages that put it on the shortlist of international investors. One is the labor force, which has comparatively low costs, while skills levels and the higher education system are attractive to employers. Another advantage is the well-developed infrastructure, as transportation, logistics and telecommunications networks ensure smooth and efficient operations in Hungary. In the Hungarian Investment Promotion Agency, investors have an agile and supportive partner, which can make a huge difference when pitching countries in the CEE region.

On the other hand, Hungary ranks somewhat below the regional average in categories such as predictability or legal security, according to international surveys by German chambers in the CEE region. Any progress in these areas would be helpful as it could foster more corporate investments from foreign as well as from Hungarian companies.

BBJ: How do the various special or “extra profit taxes” and other regulatory measures affect German companies?

BZ: We believe in the mechanisms of a market economy and in free trade. In Hungary, in recent years, companies have faced direct state interventions into specific markets, such as the retail sector, the construction material industry or the import of agricultural products. Such interventions cause market distortions that, at the end of the day, result in higher price levels for consumers and extra costs for companies, which reduces the competitiveness of the economy as a whole.

Hungary’s general income and corporate tax rates are very low and competitive in European comparison. However, sector-specific special taxes put substantial burdens on companies and ultimately also exert upward pressure on overall price levels. Moreover, some tax rules affect only a very limited group of market players who, understandably, regard this as unfair or even as not compliant with EU law. This is not good marketing for Hungary from an investors’ perspective. We advocate phasing out all unnecessary special regulations and taxes because this would strengthen the competitiveness of the whole economy and leave more resources for companies to invest and for private households to consume.

BBJ: The chamber has recently intensified its activities outside Central Hungary. How do you reach out to the Hungarian countryside?

BZ: About one-third of our members are based outside of Budapest and Pest County. Many are important and well-respected industry players, exporters and employers. In cooperation with local chambers of commerce, we established “Info-Points” in Debrecen (231 km east of Budapest by road) and Székesfehérvár (64 km southwest) a few years ago, which serve as a point of first contact. Beyond this, we organize business meetings with and visits to regional companies across the country. In October, we will be in Debrecen with our “TechGirls” campaign, which aims to promote careers in technical and scientific professions for female students. Our company visits usually focus on industry-related or management topics. In Győr (120 km west of the capital), the Bavarian Büchl company’s local unit hosted an event on sustainable waste management; in Törökszentmiklós (122 km southeast), production managers met at agricultural machinery maker Claas, and in Gödöllő (30 km northeast), global market leader Trumpf gave insight into state-of-the-art laser and machine tool technologies. All these activities not only intensify the connections within the chamber network but also help share best practices and thus boost developments in SMEs across the country.

This article was first published in the Budapest Business Journal print issue of October 4, 2024.