Hungary Continues to Count on American Investor Activity

Analysis

Deputy Minister of Foreign Affairs and Trade Levente Magyar.

The main objective of Hungarian investment promotion is to secure future deals that help the economy step up the global value chain. U.S. companies can help accomplish that goal despite the challenging economic circumstances. That was the conclusion of the ninth edition of Business Meets Government, a flagship event jointly organized by the American Chamber of Commerce in Hungary and the Hungarian Investment Promotion Agency.

Although the volume of Asian investments has dominated Hungary’s FDI landscape in recent years, that does not mean Western partners get less attention. On the contrary, the Hungarian economy needs higher added value investments, and American companies can play a pivotal role in achieving that goal, insisted Deputy Minister of Foreign Affairs and Trade Levente Magyar in his keynote speech.

He emphasized that U.S. investors have been crucial to Hungary’s development since the fall of communism. They now account for 9% of the total FDI stock. Between 2014 and 2023 alone, 107 large FDI deals worth EUR 1.8 billion were closed with them, creating 18,000 jobs.

“We need to hold on to established relationships in politics and business, and we strive to create circumstances that help foreign investors thrive,” Magyar insisted. He acknowledged that it is becoming harder to find the appropriate workforce but said the country still has labor reserves of up to 300,000, even against the backdrop of record high employment of 4.7 million.

The deputy minister stressed that the government expects growth to bounce back to 4.6% in 2024. Hungary’s attractiveness as an investment location remains undeniable, given that it offers what he called the most investor-friendly business environment in the region: the lowest corporate tax, the most flexible labor code and a reorganized education system aligned with the needs of the business sector.

Magyar also noted that the government is working hard to undo the termination by the U.S. administration of the double taxation treaty between the two countries. That is taking some time, but he hoped it would be accomplished within a reasonable period.

Reaching New Heights

“As to the FDI volume, we are more than determined to reach new heights, and in that effort, the contribution of American businesses is vital. Therefore, we continue to be enthusiastic to see U.S. investments,” Magyar concluded.

Hipa deputy CEO Rita Szép-Tüske further highlighted the agency’s determination to support reinvestment efforts, improve the status of local suppliers and focus on investments that rely on highly skilled people.

“In the longer run, the idea is to primarily secure deals that help the economy step up the global value chain so that the local talent pool stays in the country and productivity surges,” she said. American companies, the third-largest investor community in Hungary, can and do help make this happen: in the past nine years, they launched the most FDI projects in the business services and ICT sectors. Last year alone, they announced the creation of more than 1,000 new jobs, many in high-added value segments.

The overall FDI landscape looks promising, which is key to boosting growth, Szép-Tüske added. Hipa has been breaking investment volume records year after year, and following the EUR 6.5 bln booked in 2022, deals worth EUR 8.1 bln had been closed by H1 2023.

In her opening remarks, Írisz Lippai-Nagy, the CEO of AmCham Hungary, underlined that the summit served as a highlight of AmCham’s continuous advocacy efforts, which have involved ongoing consultations throughout the year, including a unique collaboration of several international chambers, resulting in joint policy positions on Education and Healthcare, as well a Business Forum with Minister of Interior Sándor Pintér to address these strategic areas and initiate regular consultations.

Unique Challenges

The Hungarian economy faces a mixture of unique challenges, such as record high inflation, suspended EU funds, high energy prices and a labor shortage, not to mention the critical circumstances in healthcare and education. All these issues need to be addressed for long-term competitiveness, AmCham president Zoltán Szabó warned.

“We have voiced our concerns on various platforms that immediate measures are needed for that purpose, and this could be a great occasion to take the first step in that direction with the help of top-notch experts,” he said, referring to the breakout sessions in four vital fields that followed the morning section.

“We have a bumpy road ahead, but we are keen to work with the ministry and Hipa together for a more resilient, competitive and sustainable Hungary.”

Jeromin Zettelmeyer, the director of Bruegel, a renowned European think-tank specializing in economics, elaborated on why a higher priority is needed for policies promoting economic security in an era of uncertainty. On the other hand, we need to understand and manage trade-offs between security and other policy objectives, such as competitiveness or the protection of the single market. He highlighted that “exposure analysis is needed, and economic security risks need to be better identified, for example, by stress testing.”

He concluded that creating domestic capacities can help improve economic security, supported by subsidies and regulation. Still, competition rules must be observed, and state captured by special interests must be avoided.

Breakouts Sessions

Following the plenary section, several breakout sessions covered further ground. In Business Environment, experts shared their views on questions such as digitalization (AI), EU financial resources, the global minimum tax, the prospects of a new U.S.-Hungarian Double Taxation Treaty and the challenges of ESG from the aspect of investments and manufacturing.

Energy Security addressed the transition from fossil fuels, including Hungary’s short and mid-term energy strategy, the EU’s 2040 climate targets, and companies’ role in this transformative process.

The Healthcare session focused on the status of the ongoing transformation in healthcare, questions of supply security, hospital debts, patients’ access to innovation, and the legal and taxation environment for healthcare companies.

Labor and Employment discussed the main challenges of the current labor market: skills shortages, the general scarcity of hard-to-find professionals, and the employment of foreign (especially third-country) guest workers in blue- and white-collar jobs.

This article was first published in the Budapest Business Journal print issue of November 3, 2023.

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