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Automotive FDI has Helped Build a Better Economy

Say what you will about the government, but it has pursued investment (and the jobs it brings) from the automotive industry with a dogged focus. At first, this may simply have been based on the idea that people who build a factory are less likely to move further east toward ever cheaper labor. The early days of the second Fidesz administration (2010-14) saw a lot of rhetoric about needing to reposition the country, that the financial crisis proved service industries could pull out or relocate when economic seas got choppy, and countries needed to make things, as Germany does, to stay strong.

A lot of people from the service industry told me privately how put out they felt by this. According to the CIA World Factbook for Hungary, the share services contributes to GDP is 64.7% (the figure is given as an estimate for 2016), with industry contributing 31.8% and agriculture just 3.5%. The feeling was that, in praising and pursuing manufacturing jobs, the service sector was somehow being denigrated, although the Hungarian Investment Promotion Agency (HIPA) has long boasted about the number of SSCs in this country. And as I argued in our last issue, high skilled service jobs are pretty much all we will have in the relatively near future. (Last year HIPA said more than 90 companies had established more than 100 SSCs in Hungary, employing some 40,000 people. Look out for our Special Report on the sector at the end of June.)  

Given that, the odd bus maker aside, there are no domestic automotive producers in Hungary, the normally proudly nationalistic government was quite happy to continuing courting the foreign nationals. GM and Suzuki had long been here, Audi and Mercedes were happy to join them. And they have brought TIER One suppliers with them, and opened up their so-called value chains to local component suppliers.

Perhaps listening to the softly spoken complaints from the service sector, there was a time when critics of the government warned of too much exposure to car makers. They pointed to the Czech example of overreliance on the car industry. A headline from the Prague Daily Monitor for February 19 this year (Czech economy relies on car production too much) suggests that fear is still strong in Hungary’s Visegrad Four peer. And it is certainly true that when Audi ratchets back on it production here, as tends to happen around the August holiday month or ahead of the introduction of new models, the difference can clearly be seen in Hungary’s output figures.

But Hungary seems to be alive to these problems, and it is noticeable this year how many times various government representatives have spoken of the need for a change in mindset, a switch from “Made in Hungary” to “Invented in Hungary”. The talk now is not so much about jobs (though no government anywhere in the world would not celebrate new jobs), as it is about the added value of jobs. The new philosophy seems to be that a factory with a R&D unit is even less likely to leave, because it is the people and their brains and creativity that keep businesses here.

In a sense, the government is following a direction industry is already taking. As reported in this issue, the likes of ThyssenKrupp and Bosch are pushing forward the future of autonomous driving here precisely because of the quality of engineers at their disposal.

 Education and skills shortages continue to be a concern, but that dogged support of automotive FDI has brought clear benefits for Hungary.