The latest business forum hosted by the American Chamber of Commerce in Hungary at the Budapest Marriott Hotel on May 13 featured István Joó, the head of Hipa, who shared insights into Hungary’s investment promotion strategy and trends that are bound to impact the local business landscape.
Joó reflected on the close cooperation between the two organizations, highlighting the importance of the annual Business Meets Government Summit designed to discuss current challenges and solutions and compile proposals to improve Hungary’s competitiveness.
He also underlined that Hipa is dedicated to ensuring that AmCham’s most recently released recommendation package – focusing on the Business and Investment Environment, Human Capital and Smart Growth as critical pillars of competitiveness – is implemented to the highest possible degree
This year could trigger even more change than usual as it sees more general elections than ever before, with a potential of about two billion voters in more than 70 countries, including the United States, India, and Indonesia. Given the unpredictable outcome, foreign investors may study the progress and results of the elections before making decisions.
“This can, and probably will, slow down FDI flows, at least temporarily,” Joó said. “The most anticipated elections will take place in the United States, and we will do everything to ensure that American businesses [.…] continue to bring their investments here.”
The European Union elections of June 9 were also touched upon. Since Hungary will hold the six-month rotating presidency of the Council of the EU from July 1, the initial phase of the presidency will be linked to the transition while the new parliament and European Commission are formed.
“Although this narrows the time window to get things done, we will use this chance to advocate a strong agenda that possibly takes into consideration specific sectoral needs,” Joó stressed. He added that given political uncertainty and geopolitical tensions from Ukraine to the Gaza Strip, “diversifying the sources of inbound FDI is in Hungary’s best interest.”
Despite all-time highs delivered one year after another, or maybe because of them, Hipa is determined to aim higher. Critical ingredients for success include infrastructure upgrades, an attractive incentive and tax environment, productivity enhancement, and a skilled workforce. Of those, productivity probably takes the prize.
“The good news is that, according to the IMF’s definition, nearly 70% of Hipa-supported projects have a focus on R&D or the high-tech sector,” Joó said. He explained that the government wants to create a supportive environment here so that factories will take it for granted to launch massive R&D efforts.
A good example is the recently announced Evosoft development, which was recognized with this year’s Hipa Innovative Product Investment of the Year Award. The German company has software development centers in several locations, yet it chose Hungary to carry out its latest project.
Although capital from Eastern countries has dominated recently, the example of Evosoft shows that traditional Western investor relations remain strong. According to a recent survey, four out of five German companies said they would again choose Hungary as an investment location, Joó noted.
In terms of infrastructure, the government has provided more than HUF 1.2 trillion in funding for 14 priority industrial parks and economic zones, including the expansion of roads, network improvements to ensure secure electricity and gas supplies, investments in drinking water and industrial water supply, and the development of rail infrastructure.
Geographic distribution is achieved by shifting the focus to Hungary’s southern regions, also reflected in the incentive scheme. The first results of that strategy include the investments of BYD in Szeged, some 175 km southeast of Budapest by road, and CPMC in nearby Makó. In addition, introducing a so-called results-based VIP cash subsidy will help investors offset the effects of introducing the global minimum tax.
A promising sign is that the number of researchers in Hungary doubled between 2010 and 2021, making the country a regional power regarding these metrics. Companies are allocating ever more resources to R&D purposes, and partnerships with local universities further intensify their efforts. In the past two years alone, Hipa closed 18 R&D-focused deals to create nearly 1,400 new jobs.
Responding to criticism that Hungary focuses on re-industrialization instead of investing substantially in knowledge-intensive sectors, Joó drew attention to the long-term approach.
“A strong industry is the lifeblood of the economy. In the longer run, manufacturing activities are bound to trigger the need for research and development and productivity enhancement. It’s a natural process,” he concluded.
Consultations with AmCham bracketed Joó’s presentation. As a long-term advocate for an attractive tax and investment climate and a shift to a higher value-added economy, the chamber welcomed Hipa’s approach.
During the meetings, AmCham says it focused on the critical points of its new recommendations package (see separate interview on page 13), including strategies to avoid the middle-income trap, the overarching goal of the recommendations.
The two parties consulted on potential government support for promoting employees to higher positions or retraining them to support higher value-added jobs. They also touched upon the law on the general rules for third-country nationals to enter and stay in the country, which the chamber believes is one way to fulfill labor needs in sectors lacking a skilled workforce.
AmCham thanked Hipa for its continuous and longstanding support in maintaining an open and productive dialogue with the business community and expressed its commitment to further cooperation to promote competitiveness.
The 10th Business Meets Government Summit this October, which the chamber organizes jointly with Hipa, is expected to provide an optimal platform for this. The conference will host more than 150 leaders from the private and public sectors, think tanks, and academia.
This article was first published in the Budapest Business Journal print issue of May 31, 2024.
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