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Good Business Climate, but With Room for Improvement

Overall conditions to do business in Hungary could hardly be better for North American companies, but, according to the two relevant chambers of commerce in Hungary, further success requires closer cooperation between business, as well as well-crafted trade promotion. The opportunities presented by the new EU-Canada trade agreement, CETA, should not be missed, either.

Nick Sarvari (right), president of the Canadian Chamber of Commerce.

AmCham CEO Írisz Lippai-Nagy.

The picture looks pretty good for both American and Canadian companies present in Hungary, albeit some concerns do exist, as the Budapest Business Journal found out from senior executives of the respective chambers of commerce of the United States and Canada in Hungary. 

As AmCham CEO Írisz Lippai-Nagy stressed, the Hungarian investment environment is increasingly recognized abroad, and the reduction of the corporate tax, which AmCham lobbied for, plays a huge part in that. “We must emphasize that the majority of the overall FDI projects were reinvestments and those who invest in Hungary are satisfied and here to stay for the long run,” she said.

Nick Sarvari, president of the Canadian Chamber of Commerce in Hungary highlighted the excellent bilateral economic relations that have evolved in the past three decades. However, he also drew attention to an unfortunate turn in sentiments of late as the Hungarian government’s rhetoric against the EU, its apparent moves towards control the media and, more recently, the position on civil associations or the Central European University have all produced negative news that overall harms the image of the business environment.

“Our concern is wholly around the fact that the government took a decision which can be translated as a disadvantageous effect for any private business in Hungary,” Sarvari said in relation to the CEU affair. “The big question for business is if this could happen to companies in other industries? Unfortunately, we see this as threatening to the security of the business environment – something which took Hungary the better part of three decades to build.”

More Bottlenecks

Sarvari identified two more key challenges. First, the business environment needs to be addressed. Hungary is open for business, but that is something that needs to be underpinned by facts and actions. The government needs to be a predictable and reliable partner – it cannot appear to be anything different because that will simply scare business away.

The second is about trade promotion. Inward investment promotion seems to have been significantly revamped, but the communication towards businesses about export readiness is in need of serious reconsideration, he says. Trade representatives need to know what the image of Hungary is internationally and need to be ready to address the questions being raised about this country abroad. “Business needs to be enticed to consider trade abroad beyond the normal channels as a part of an overall plan badly needed to turn Hungary into an innovative society,” Sarvari said.

According to AmCham, labor shortage in quality and quantity causes major problems for businesses in Hungary. That is why it is essential to support the launch of efficient training programs and measures which remove barriers to the entrance or reentrance of the younger generations, women, the 50-plus generation and the physically challenged into the labor market.

“We also advocate the transformation of the education system by putting the emphasis on key digital and language competencies and skills,” Lippai-Nagy said. “The market changes faster than our education system can adapt; therefore, a stronger relationship between businesses and educational institutions is fundamental for success.”

AmCham’s advocacy work aimed at improving the competitiveness of the country focuses on four strategic areas: Competitive Workforce, Digitalization, Investment, and Innovation. “We agree with the government that time has come to move from the ‘Made in Hungary’ approach towards the ‘Invented in Hungary’ paradigm to bring high value-added activities and technology intensive investments,” the AmCham CEO said. In order to make R&D&I Hungary’s competitive edge in the region, tight knit cooperation between large enterprises, SMEs, startups and the academic sector is essential.

CETA, a Game Changer?

Sarvari agrees that Hungary’s small- and medium-sized businesses could see the most benefit from bilateral trade with prospect of export oriented growth. But it will take a strategy for awareness and trade promotion on the part of the government to take advantage of this. The biggest promise is held by the new EU-Canada trade deal, CETA, that will come into effect soon and could potentially have huge economic impact.

“CETA is becoming one of the most important developments in the life of the Canadian Chamber of Commerce in Hungary,” the president said. “We are devising a program currently around CETA and finding ways to fill the gaps in communication so that companies can find the information they need faster and as accurately as possible through information sessions we are organizing.”

CETA is a massive agreement in many ways, so complex that it has the potential of being a new standard for global trade. This type of agreement is important to Canada as it is expected to diversify trade – something that the EU needs also to consider. “For all the negativity around the deal, I see this is an exceptionally important beginning to a new level of dialogue; and, where there is dialogue, there is a way to address the most complex challenges and find solutions to the most convoluted dilemmas,” the president added.

But he also stressed that it will all come down to how well Hungary takes advantage of the environment CETA creates. “I suppose I would equate the challenge to a situation where a highly positioned university opens in your city and offers your citizens the chance to attend for free; it’s meaningless if you don’t send your students to attend, whereas it could have an immense impact upon their future if they attend and use it to its maximum advantage,” Sarvari said.