HIPA: Good Relations Underpin German Investments

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BBJ: How important is German FDI to the Hungarian economy, where does it stand in the international table?   

HIPA: Historically, Germany is by far the largest investor in Hungary in terms of foreign direct investments. The stock of FDI from Germany amounts to approximately EUR 20 billion, which accounts for more than 25% of total FDI stock in Hungary.

Examining the job creation effect of FDI projects, we can conclude that Hungary continues to be one of the world leaders. Based on the IBM-PLI Global Location Trends 2019 report, our country is placed 16th globally based on the number of jobs created through FDI projects, with more than 19,000 new positions, and ranks fifth in the world based on newly created jobs per million inhabitants. On the basis of this report, Hungary has performed well in all primary categories. Among other things one, of our significant achievements is that Hungary has become the third largest target market of German investors.

BBJ: How many jobs have been created by German companies?

HIPA: The number of German-related FDI projects negotiated by HIPA between 2014 and H1 2020 was 123, representing an FDI volume of EUR 6.6 billion and creating almost 28,000 jobs. There are currently 6,000 German-owned enterprises in Hungary employing around 300,000 people.

BBJ: We all know about the importance of German automotive companies. What other sectors are represented?

HIPA: According to IBM-PLI data, in the automotive industry, Hungary is the fourth most important investment location of the world after the United States, Mexico, and China. Another important fact is that Hungary is the fifth most popular destination country in the electronics sector and, based on research & development projects, the ninth globally.

With regard to the sectoral distribution of those 123 German projects negotiated by HIPA, the automotive sector ranks first, while business services and machinery are also among the top sectors.

BBJ: How are the trends changing. Are you seeing more R&D jobs being created, for example?

HIPA: Analyzing the results of the previous years, we can see the most important trends are the strengthening of the electromobility sector, as well as the increasing number of high value-added projects in the services industry. Furthermore, the competitiveness of the Hungarian investment environment is well illustrated by the fact that the 101 investments of 2019 can be linked to 21 different countries and take place in 20 different sectors.

The proportion of projects of high added value continued to grow in 2020 among the projects managed by HIPA. This trend is further reinforced by the success of new incentive forms introduced from January 2017. As a result, the number of successful R&D-related projects has reached 39, creating 1,800 new jobs in the last three and a half year.

In its latest report, IBM-PLI also analyzed the national economic added value of the created jobs, where Hungary – stepping five places up from the previous survey –reached 11th place globally, getting ahead of inter alia Germany, the United States, and South Korea.  

BBJ: Do you see the likelihood of further German companies choosing Hungary? Which sectors are growing?

HIPA: Due to the existing good relationship between the two countries, Germany is the most important economic partner of Hungary, which is also reflected by the projects managed by HIPA. Our objective is to make the Hungarian investment environment even more attractive, and, in addition to the “Made in Hungary” projects, to increase the proportion of “Invented in Hungary” investments that generate higher added value, and to promote the investments of companies using modern industrial technologies. Modern technologies represented and established by German companies and their quality-oriented business policy are consistent with all these aspirations.

We see additional opportunities in the processing industry. The newest unit in BMW Group’s European production network is being built in Debrecen and the factory will be a benchmark in the automotive industry for digitalization, sustainability and adaptability. Top technologies will make it possible to flexibly manufacture premium cars with conventional combustion engines and electric motors on the same production line. It is unique in the CEE region, and even on a global level, that the three premium German car producers, Audi, BMW Group and Mercedes-Benz (which designate the path and raise the standards for other key automotive industry players) are at the same time represented in one country. This will stimulate further suppliers to locate their facilities close to these OEMs; in the meantime, these prestigious benchmarks might encourage other sectors to extend their presence to our region.

BBJ: Is there anything else to add?

HIPA: The key elements of Hungary’s value proposition are: a skilled labor force; competitive cost levels; highly developed infrastructure; and an investment-friendly tax environment. Hungary’s long-term economic strategy heavily builds on investment promotion be it by foreign or Hungarian companies, especially in the manufacturing sectors. The Government’s Competitiveness Council (where HIPA has a seat) is in a constant dialogue with the major stakeholders of the Hungarian economy with the aim of continuously improving the legislative background and also ensuring that the required labor force is available through the vocational school system.