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Old Ally Remains key Economic Player

Government

Róbert Ésik

For historical reasons, including geography and the role played in bringing down the Iron Curtain and the reunification of East and West Germany, the Federal Republic has long been one of Hungary’s most significant trade partners. It still is, and not just for misty-eyed nostalgia, the Hungarian Investment Promotion Agency (HIPA) CEO insists.

“Germany remains the largest foreign investor in Hungary today, and German companies remain the largest investors: in terms of FDI stock, their share is approximately 23%, based on 2019 data published by the central bank of Hungary,” Róbert Ésik, CEO of HIPA, tells the Budapest Business Journal in an exclusive interview.

“Indeed, they have a relatively big margin over the second- and third-placed countries. So, I think we can say that in the foreseeable future, most probably Germany will remain the largest foreign direct investor in the country.”

The interconnection of the two economies is there to see the data. Of the top 10 Hungarian companies by revenue, five firms have a German background: Audi, Mercedes Benz, Magyar Telekom (Deutsche Telekom is the majority owner), Lidl, and Bosch.

“In terms of trade, Germany is our number one partner: in 2020, the share of trade volume was approximately 26% for Hungary. This year could see a record trade volume in excess of EUR 60 billion with Germany,” Ésik explains.

“So, in terms of the stock data, of FDI and trade, Germany clearly remains the number one.”

HIPA managed an overall investment volume of EUR 4.1 bln last year, split among 97 large projects. Of those, 20 came from Germany. That made Germany number one for large projects, number two in terms of investment volume, and number three for new jobs.

(As an aside, Ésik points out that 2020 results show a balanced FDI portfolio: Most projects came from Germany, the highest investment volume from China, and most new jobs from the United States.)

Driving Force

The main driver of German investments into Hungary has been the automotive sector if you will pardon the pun. But that has long since moved on from a simple workbench operation, bringing jobs here for cheaper manufacturing labor.

Ésik identifies two significant trends in the industry. The first is e-mobility, where he lists four examples. Firstly, in December of last year, Mercedes Benz announced it would invest more than EUR 100 mln to bring the serial production of its fully electric EQB compact to the country. That is now about to launch and will be the first serial production of an electric vehicle in Hungary.

On the other hand, Audi Hungaria produced some 90,000 electric motors last year in Győr (120 km west of Budapest). Bringing things right up to date, in late September, Schaeffler inaugurated its new EUR 70 mln greenfield development on a 30-hectare site in Szombathely (222 km west of the capital). The factory is the Schaeffler Group’s first pure e-mobility plant worldwide and is also a center of excellence for producing components and systems for electrified drives.

The fourth example is the long-awaited BMW factory in Debrecen (232 km to the east of Budapest), due to open in 2025, and in which the manufacturer will produce the latest so-called third-generation of electric vehicles.

“The second trend I would highlight is the increased significance of sustainability and carbon neutrality,” Ésik explains. This is more of a push-pull effect, in that companies are expected to build carbon-neutral production into new developments, but they are also “investing in renewable energy solutions actively.”

Underscoring that point, Ésik says, “The most prominent example is the solar park on top of one Audi’s buildings, which is Europe’s largest rooftop solar park, which has a surface of 160,000 sqm in Győr.”

Beyond automotive, other popular sectors for German investment in Hungary include electronics, machinery, telecommunications, and retail.

“For us, from an FDI point of view, the business services sector is also relevant,” Ésik notes. Recent examples include TK Elevator and Bosch, which has decided to set up a EUR 16.8 mln regional HR services center in Vecsés, on the outskirts of Budapest, near the international airport.

Future-proofing

Between 2014 and H1 2021, HIPA handled 143 German investments worth just shy of EUR 7 bln, creating a bit more than 29,000 jobs. (For a sector breakdown, see infographic.) Evidence of Hungary’s conscious move away from a cheap-labor manufacturing hub towards an economy capable of providing future-proof jobs can also be found in that data.

“Within those 143 projects, we have 10 which are exclusively related to research and development, which I would consider quite a high share. Those 10 projects created at least 600 new R&D positions. We do see this area as one of future growth,” Ésik says.

Right now, HIPA is working on 15 large deals with potential German investors. If all came to fruition, they could create more than 4,300 jobs and represent an investment value of EUR 1 bln. They represent all the sectors we have already spoken about, but Ésik will not be drawn on whether there are any as yet not present marquee brands among them.

“We keep an eye out for opportunities; whenever companies announce they are expanding, we get in touch with them. But any German investor that could fit into our vision of moving up the value chain and increasing productivity would be welcome,” the HIPA CEO says.

Not least among the reasons for such a welcome in the level of local engagement. “German companies have also played an important role in protecting the national economy during the pandemic and in relaunching it nowadays,” Ésik acknowledges.

In 2020 alone, 90 German-owned companies took up COVID-specific subsidy schemes, carrying out investments worth a combined EUR 405 mln, committing to keep more than 50,000 jobs, a receiving a total of EUR 136 mln in subsidies.

“German companies have also been helping us get back to economic growth, and we have good hopes of closing the year with strong growth in terms of GDP,” he adds.

This article was first published in the Budapest Business Journal print issue of October 8, 2021.

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