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Cloud Could Boost the Economy, but Not Just Yet

Analysis

The rapid evolution of digital technology and services has seen many innovations hyped, then becoming rapidly obsolete, and disappearing. Cloud technology has been an exception, albeit one helped by other technologies.

With digital data growing exponentially, companies found that physical storage became insufficient. Meanwhile, internet connections became ever more reliable and capable of large data transfer, which paved the way for remote data storage. Thus, storage becomes less of a hardware issue and more of a service.

Where exactly the data was stored became less relevant, leading to the coining of the term “the cloud” as something hidden in a complicated mesh of electrons, bits and bytes, optical cables and server racks.

As with all other solutions, the cloud is not a magic wand, a universal tool for all companies and economic sectors. But for many, it gives a cost-effective and competitive advantage, one not fully harnessed by Hungarian companies, according to the “Cloud Technologies in Hungary: Economic Impact Study,” compiled by the ICT Association of Hungary (IVSz), Deloitte and Bell Research.

According to the “Digital Decade EU” report, published annually, 44.9% of Hungarian companies use cloud technologies, not far below the EU average of 45.2%. However, this does not imply a growing trend in Hungary; larger companies use cloud technologies more than smaller ones. Barely one-third of the companies with up to nine employees are “on the cloud,” while 81.9% of companies with 250 employees or more use cloud technologies.

In terms of use, transport and storage (55.1%) and financial and services (37.78%) are the most prominent sectors. Compare that with agriculture and mining, where only 28% use the cloud. The most significant inhibiting factors are lack of competence, gaps in understanding, data security concerns (a long-held worry), budget constraints, regulatory difficulties and contractual obligations.

Data security concerns are, indeed, often mentioned in relation to cloud technologies. During an event hosted by IVSz to present the “Cloud Technologies in Hungary” survey, Miklós Zaránd, a technology consulting partner at Deloitte Hungary, dismissed those fears.

Stronger Security

“Current cloud solutions allow a wide range of control and regulation of our data; also, their cybersecurity tools are significantly stronger than on-premises solutions,” Zaránd said.

According to the authors of the study, encouraging the use of the cloud is also of strategic importance from the point of view of the national economy: the specific annual revenue per employee of Hungarian companies using such services is almost HUF 2.4 million higher than that of their competitors who do not use such services.

Based on this, a further rise in cloud use in the next 10 years would contribute an average of 1.7-2.7% annually to the Hungarian GDP (compared to 2023), depending on whether the government’s attitude towards the cloud is neutral or supportive. The difference between the two values means a GDP surplus of about HUF 7 trillion over 10 years.

The perspectives are bright, but the ICT sector in the Central and Eastern European region still needs to catch up with the West. During the IVSz event, Csilla Stéger, senior partner at PwC, highlighted areas in which the CEE region is already ahead, such as the share of employment in the ICT sector.

In other, more significant areas, Western Europe leads: Productivity here is higher, at EUR 135,512 per person compared to EUR 45,351 in CEE.

“Furthermore, Central and Eastern European countries record weaker results in digitalization of enterprises and individuals and indicators such as e-commerce sales, cloud services and big data use, and e-government activities of individuals,” Stéger noted.

The research and development expenditure is also very weak in CEE countries, especially Bulgaria and Romania, but Hungary is not much better.

Eliminating Obstacles

“Activities in this area should also focus on supporting startups engaged in cutting-edge initiatives. This includes financing, incubators, hubs, accelerators, and mentorship programs, as well as eliminating regulatory obstacles so that innovative businesses can grow,” Stéger argued.

Returning to the “Cloud Technologies in Hungary” study, artificial intelligence cannot be avoided when discussing cloud technologies. The study states that the joint application of AI and cloud technology creates economic and business conditions that justify the coordination of their development: machine learning combined with cloud technology means rapid and large-scale innovation.

The cost implications of an average AI computing time requirement in the case of locally installed infrastructure investment is much higher than renting the same computing time in the cloud. In light of this, the widespread acceptance and routine use of cloud technology is an irreplaceable condition for the realization of the economic benefits expected from AI, the study states.

Having said all that, how can the state administration support the adoption of cloud technology in Hungary? According to IVSz, appropriate government regulations and investments can encourage the use of cloud technology. The transition of governments to cloud services not only fosters innovation but also establishes high security and regulatory standards that can promote trust and acceptance of cloud technology in the private sector.

“This study also clearly proves the economic benefits that can be achieved by introducing the cloud, so it is essential that we take quick steps to spread the technology for the sake of the entire national economy,” IVSz president Balázs Vinnai said.

“In our opinion, it is necessary to develop a national cloud strategy along the lines of the Cloud First directive, and it is also worth changing the attitude according to which, in terms of data security, data must be kept within the territory of the country. If we continue to do so, due to the size of our country, we will not be able to create a cloud that can be operated economically,” he said.

“Another important lesson from this research is how much support smaller domestic companies need to introduce technology. Here, in addition to ensuring the availability of resources, we must also pay attention to attitude formation and education so that we can achieve a real, long-lasting effect,” Vinnai concluded.

The study is available in full in Hungarian on the IVSz.hu website.

This article was first published in the Budapest Business Journal print issue of June 28, 2024.

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