Dirk Wölfer, head of communications at the German-Hungarian Chamber of Commerce and Industry (DUIHK), talks with the Budapest Business Journal about the nature of German Investments in Hungary, the challenges faced and the level of government support.
BBJ: How has the flow of German investment into Hungary changed in the past years?
Dirk Wölfer: During the past few years there has been a constant flow of German investment into Hungary. It is noteworthy to mention that the majority of this stems from reinvested earnings (i.e. companies that are already here are expanding their existing capacities), while a less significant part comes from completely new investors. Many companies are inquiring with our chamber about investment opportunities but they are, of course, also looking at other countries.
BBJ: Is this a unique phenomenon compared to other countries in the region?
DW: The biggest economies, including Poland, Czech Republic, Slovakia, and Romania, they are also under strong influence from German capital. As in Hungary, in the majority of them reinvested earnings account for the bulk of German FDI. It is a general trend in the region and it also proves that the companies operating here are quite happy with the overall conditions.
Our annual surveys on the business outlook and the overall investment climate also reflect that confidence has improved in the last few years. The general feeling is that this is a good place to invest. However, there is difference between the manufacturing industry, mainly producing here for exports on the one hand, and services, retail, trade, etc. on the other. More than half of total German investments in Hungary went into the manufacturing sector – this ratio is higher compared to other countries in Hungary, where the share of the manufacturing sector is just about one third, while two thirds are directed into services. Within the German FDI, the dominating industry is the automotive sector.
BBJ: Do you think this is going to change? Will we see more growth, say, in the automotive sector?
DW: In general the conditions for automakers are very favorable here, and also in the region. But the automotive industry, especially the German, is facing huge challenges, which could be a risk for the region as well. If you look at e-mobility, the recent diesel scandals or autonomous driving, German carmakers face several issues that pose certain risks to the industry in Germany, and this potentially could negatively impact the region, and thus Hungary as well.
BBJ: You mentioned expansion: do companies here simply expand their existing industries or they are entering new fields as well?
DW: Besides expanding their existing capacities, companies are bringing in new functions to Hungary. The Hungarian government is much interested in promoting higher-value aditions to operations – e.g. research and development – and not only assembly lines.
We already see German companies bringing some strategic parts of the supply chain here. If you look at the automotive industry, some of the outlets are quite important elements of the group-level supply chain. This gives the country a certain level of safety as German carmakers probably won’t simply take subsidiaries from here to somewhere else.
Also, many of the factories here are state of the art, even within the group, and therefore, the CEE-region could weather potential reshuffles in the industry probably better than other locations.
BBJ: They may be bringing more functions here, yet at the same time, isn’t it true that German companies have been dissatisfied with the shortage of proper workforce in Hungary?
RW: The shortage of skilled labor is indeed a problem. It [the problem] has been increasing dramatically in the last two-to-three years. But this is not unique: in Czech Republic or Slovakia the situation is similar or even worse, as our surveys show. The problem is partly a quantitative (i.e. demographic) one, as people leave for the West and less children are born. It is also a question of quality (i.e. of the educational system). Since little can be done about the demographic reasons in the short-term, the state and companies are focusing on education. In the medium- and long-term, automation and robotization could reduce the labor demand, which could in return also help raise the competitiveness of these companies.
BBJ: What is the Chamber doing to try and help improve the situation?
DW: We dedicated the entirety of last year to this problem. We always try and help companies with practical solutions, rather than writing academic studies. We have an educational center that is heavily involved in improving education/training system in Hungary, and also provides special training for member companies based on German standards. This is important for German companies if they want to keep up German standards of their products. Besides this, we also cooperate with the Hungarian authorities and chambers regarding legislation of education.
For example, we are organizing tailormade multiannual training courses for automotive companies, or courses for the middle management of retail companies. This training and even the exams are based on German curricula, which is a key benefit for the students as well as for the companies.
We also launched a campaign called “Tech Girls”, supported by our members, aimed at young girls to make technical studies and careers more attractive for them. This year, we have already made the second road show across the country, with great success. Furthermore, we provide platforms for the companies to exchange best practices in the field of HR, and we launched a “Reliable Employer” quality label, which helps companies’ recruiting efforts.
BBJ: You also have discussions with the government. What is your impression: are German companies satisfied? Does the government address their issues suitable?
DW: We have a joint committee with the (former) Ministry of National Economy. Our experience is that many authorities really try to address the specific problems of the corporate sector, starting from permits to subsidies to education and labor market matters. We see a quite constructive approach from our partners. We are not dealing with politics, and focus on the day-to-day operation of the companies instead. Not surprisingly, they are happy as long as the numbers and the economic environment is fine.
BBJ: The organization turned 25-years-old this year. How do you celebrate the anniversary?
DW: When we started to prepare for this anniversary, our board suggested that we shouldn’t just party and look back, but also should look forward. Therefore we organized various professional events related to this anniversary including a CEE-conference in May (see photos) and other, smaller events focusing on members’ future needs.
Since we are a member of the global network of German chambers in more than 90 countries, we constantly cooperate with them, but would like to intensify cooperation with regional German chambers even more. We will obviously have a celebratory gala in the autumn, but beyond that we are already preparing for the next year, which most likely will address infrastructure issues as a competitiveness factor for Hungary and the region.