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U.S. Companies Boost FDI in Market with High Potential

Foreign direct investment figures have been rising quickly in Hungary for the past few years, much of which is down to the work of the Hungarian Investment Promotion Agency. While the United States does its fair share in contributing to the country’s well-being in terms of FDI, there is still room for improvement. The Budapest Business Journal talked to AmCham CEO Írisz-Lippai Nagy about U.S. investments.

The country’s popularity has been on a steep rise among foreign investors, according to Róbert Ésik, the president of HIPA, which has been voted the “Top Investment Promotion Agency, Eastern Europe & Central Asia” according to the Site Selection “Global Best to Invest 2018” report.  

In fact, according to the latest figures, last year a record number of 96 positive investment decisions were made for Hungary with a total investment volume of EUR 3.512 billion, leading to the creation of 17,021 jobs here, Ésik told the BBJ earlier. He also underlined that between 2014 and 2017, HIPA-assisted investment decisions created almost 60,000 jobs.

U.S.-based companies have a significant weight in the Hungarian economy, and the past few years have seen huge investments in the country. In fact, many U.S. firms are represented among the Top 200 companies in Hungary (ranked according to revenue) as listed in the annual Book of Lists, a Budapest Business Journal publication. According to the 2017-18 list, compiled from data collected by Coface Hungary Kft., the top U.S.-based companies were GE (in fifth place), Flex (12th) and Lear (46th).

In late March, General Electric announced plans to boost the value of its supplier purchases made in Hungary. The current level is already USD 900 million a year from 1,300 certified Hungarian suppliers, GE Europe chairman-CEO Peter Stracar said at a supplier forum initiated by GE and held in Budapest. State secretary of the Ministry of Foreign Affairs and Trade Levente Magyar underlined that GE has been active in Hungary for almost 30 years, and the cooperation with the company has been successful.

At the end of May, contract electronics manufacturer Flex — formerly called Flextronics — inaugurated a HUF 3 billion factory in Hungary’s Zalaegerszeg (227 km southwest of Budapest), which aims to supply the automotive industry from its base in the town. The investment, which was supported with an EUR 2.5 mln grant by the HIPA, lead to 100 new hires in the recently added 2,600 sqm production hall. Flex has been in the country for 25 years, and its production base here is its largest in Europe, supplying jobs to more than 3,000 people.

Holistic View

Given that the American Chamber of Commerce in Hungary represents companies not only from the United States, but also many other international businesses in the country — altogether 360 firms from more than 20 countries — the chamber has a rather holistic view of the investment and reinvestment climate in here.

“In general terms, there is a willingness from corporations to make a shift to more added value investments in the country in a wide range of sectors,” AmCham CEO, Írisz Lippai-Nagy told the BBJ.  

“This means moving up the global value chain, and elevating Hungary from a production site to a value creator, and a research, development and innovation hub. We can see the drive to elevate operations in a number of sectors from the automotive industry, through pharmaceutical and electronics manufacturing or shared service centers,” Lippai-Nagy says.

In order to motivate foreign companies to invest or reinvest in the country, a pro-business taxation and regulatory environment is a prerequisite, Lippai-Nagy says, underlining that such promising changes have taken place already. She mentions the 9% corporate income tax level (the lowest in Europe), the pre-agreed, gradual reduction of the labor tax burden, and the non-refundable cash incentive system with the purpose of supporting R&D activities as examples.  

Serious Bottleneck

Still, there appears to be a serious bottleneck according to the chamber: namely the lack of skilled workforce and the efficiency of the existing one.

“We need to focus on education in the schooling system, as well as adult education and re-skilling. With a plethora of new jobs being created in the new economy, training must be our number one priority in order to remain competitive and to attract further investment. Job orientation and competency-based education are the keywords we emphasize to decision-makers, and we also have a number of tangible recommendations and programs to enable positive change,” Lippai-Nagy says.

Even given its holistic approach, AmCham nonetheless notes that there is an “impressive number of prestigious U.S. companies” operating in Hungary at the moment. The number of such companies has been on the increase in the past few years, because businesses see a great location, close to key markets, where there still is an impressive pool of skilled talent.  

“Hungary has the potential to be a regional center – in part due to the favorable taxation and regulatory environment, which could attract further increases of foreign FDI,” Lippai-Nagy emphasizes.

Speeding up changes in the overhaul of the education system in the country is key, but there are further gains to be made from becoming ever more competitive and attracting new and keeping existing international and U.S. investors in the future, Lippai-Nagy says.