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Will new Companies and Reinvestments Keep South Korea at the Top?

The Budapest Business Journal speaks with the Hungarian Investment Promotion Agency (HIPA) about the rise of South Korea, which for the first time became this country’s number one foreign direct investor in 2019.

Photo by esfera/Shutterstock

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

HIPA: In 2019, HIPA handled 101 positive investment decisions, out of which 11 projects arrived from Korea and 10 were automotive industry and/or electric mobility related investments. These 11 projects account for EUR 2.56 billion in FDI from the total of EUR 5.35 billion FDI of HIPA-related positive investment decisions last year. This, for the first time ever in a calendar year, ranks Korea as the number one foreign investor in Hungary.

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

HIPA: Looking at the numbers, we can state again that Korean investors have had a major contribution to job creation: 4,371 new jobs were created by Korean investors in 2019 alone. We are happy to say that HIPA has had a very active role in this by operating as a one-stop-shop and providing full support to Korean investors from the very first contact, throughout the implementation period and beyond. Last but not least, Korean companies are currently employing more than 15,000 people in Hungary.

BBJ: There seems to be a strong concentration around EV batteries. What other sectors are represented?

HIPA: The EV battery manufacturing industry has emerged rapidly throughout the globe, as the course is set by the booming e-mobility trend. Large Korean companies and their supply chain performed outstandingly in the last decade in this field, and we have put huge efforts into attracting not just the battery manufacturers, but their suppliers, too.

Apart from the e-mobility sector, we are happy to host investors from other industries as well, such as the automotive and the medical devices sector. To give a few examples, Hanon Systems started a comprehensive development program concerning three Hungarian locations, including a newly constructed plant in Pécs. And just recently Samyang Biopharm, specializing in medical devices, has selected Hungary for its first production unit in Europe, which will produce synthetic suture materials.

BBJ: South Korea is a relatively new arrival as a large investor. Do you see a likelihood of further companies choosing Hungary?

HIPA: As we witnessed lately, a large boom in e-mobility has restructured the automotive and electronics industry investments in Hungary. Korean companies have conducted numerous greenfield investments. Samsung SDI and SK Innovation indicated the path for their Tier-1 suppliers, who have also decided to establish manufacturing business here.

For further investments we see two main paths: on the one hand, HIPA’s services, the currently available industrial sites and the government’s incentive policy remain open to new Korean companies, that consider settling down in Hungary. On the other hand, we see an even more significant likelihood of reinvestment from the already established companies, which could result in a high value-added activity such as advanced manufacturing, engineering or R&D activities.

BBJ: Are you able to offer South Korean investors any special incentives, as they are not part of the EU?

HIPA: Investors from South Korea can profit from the same wide range of state incentives as any other country, be it EU member or not. The beneficiary is going to be a Hungarian legal entity of the Korean company which is carrying out the investment.

State subsidies can play an important role in the competition for investments. The system of incentives is quite structured in Hungary, the different state aid schemes must be in line with different levels of rules:

(i)    As an EU member country, Hungary, first and foremost, has to ensure compliance with EU state aid regulations.

(ii)    The domestic rules set the forms and detailed conditions on which the incentives for the companies can be granted.

In order for Hungary to achieve its main economic goals, namely to increase the value added of the economy and to increase the competitiveness of large enterprises and also SMEs, Hungary can offer various subsidy opportunities:

(i)    Regional Investment Aid: For investments in the less developed areas of the country. This can be provided in the form of non-refundable aid (such as a VIP cash subsidy, which is based on an individual government decision), tax benefits (such as a corporate tax allowance), and also loans with preferential interest rates.

(ii)    R&D Aid: since Hungary’s aim is to turn the country into an “innovation hub”, we are prepared to support R&D centers with cash incentive schemes for R&D projects, besides tax allowances.

(iii)    Training Subsidies: by providing non-refundable training incentives, Hungary is committed to helping new investors to create a workforce suitable for their needs.