SME sector investment activity continues to grow

Analysis

Almost half of the larger companies have made significant investments worth at least HUF 10 million in the last two years, according to a study by Hungarian Bankholding examining small and medium-sized enterprises.

According to the survey, investment sentiment remains high, with more than a quarter of surveyed businesses planning to invest in the next year. The strategy of Ministry for Innovation and Technology (ITM) for strengthening Hungarian micro, small and medium-sized enterprises shows that the productivity of the Hungarian SME sector is improving rapidly, but is still significantly below the European average. 

The latest market research of Hungarian Bankholding and NMS Hungary examined the development of realized and planned investments of small and medium-sized enterprises with an annual turnover of at least HUF 300 mln. The pandemic situation has devastated the economy, but there is a rapid bounce-back thanks to, among other things, the investment willingness of domestic companies: the survey shows that companies have made significant improvements over the past two years.

Some 47% of the respondents implemented a larger investment worth at least HUF 10 mln, 60% of them kept the value of the development below HUF 100 mln; 14% had made several investments. Companies operating in the primary sectors were at the forefront of investments, with 66% implementing some form of modernization. The fact is also confirmed by the survey of the Agricultural Economy Index carried out in the spring of 2021 by Budapest Bank, a member of Hungarian Bankholding: approximately 60% of agricultural companies have implemented some kind of development in the past year.

Increasing competitiveness

The strategy of Ministry for Innovation and Technology (ITM) for strengthening Hungarian micro, small and medium-sized enterprises shows that the productivity of the Hungarian SME sector is improving rapidly, but it still does not reach half of the EU average. Business leaders are aware of the importance of increasing their competitiveness, so various technological developments have been a priority in recent years: the most popular business goals among respondents were capacity expansion, equipment and machine replacement, and building renovation and technology development.

They were not deterred by the pandemic situation either, with three-quarters of respondents saying that COVID had no effect on their investments and that 10% of them brought it forward, possibly at a higher value, and even developed more than previously planned.

Two-thirds of the implemented investments were below the HUF 100 mln limit, which in most cases (82%) were financed with equity, but also utilized state-subsidized loans (23%) and tender funds (22%). The most important factor in making a decision for borrowing was the interest rate of the loan, while the quality of service, personal contact and fees and costs were the most important aspects when choosing a bank.

“The hit product which has financed investments in recent years was the FGS Go! Program, but its budget is exhausted. However, a number of other supported products are now available to domestic SMEs, such as the Széchenyi GO! family or the EXIM and MFB programs, and there are also significant funding opportunities in the new seven-year cycle,” said Levente Szabó, deputy chief business officer of individual services of Hungarian Bankholding.

“As the ceilings for each of them were lower than for the FGS Go!, it is important to choose a financial partner to support a development who not only offers loans, but is also an expert in finding the best combinations,” he added.

Participants of agriculture also optimistic

The results of the research conducted in the spring of 2021 by the Agricultural Economy Index also support the tendency experienced by SMEs, according to which, despite the changed circumstances and difficulties of the recent period, the investment willingness of agricultural actors has not decreased. Some 60% of the farmers participating in the research of the member banks of Hungarian Bankholding implemented some kind of development in their businesses. In order to preserve their liquidity, the average investment amount somewhat decreased, but, similarly to SMEs, more than HUF 90 mln was spent on modernization on average.

As in the case of the small and medium-sized enterprise sector, improving the competitiveness of production was the primary goal of agricultural investments. Half of those surveyed would not cut spending, and 32% would spend more than they did last year. Two-thirds of them would finance investments from own resources and bank loans, while the use of state subsidies more than doubled to 15% and EU subsidies to 8%.

 

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