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Country Profile: Hungary
Hungary’s economy faces difficulties due to the present economic crisis. But it remains eager to develop its own industry, join European research projects and attract inward investment as it moves towards meeting the Maastricht criteria for full membership of the Euro zone.
Hungary's economy is facing difficulties because of the worldwide economic crisis. Its inability to service its short-term debt led the government to seek financial assistance from the International Monetary Fund worth more than $25 billion.
Since Hungary joined the EU in 2004, the government has been trying to ensure the country meets all the Maastricht criteria so it can join the Euro zone. The Hungarian currency, the forint, has been hit by the credit crunch and its volatility poses a real threat to the economy (the HUF/€ exchange rate's all-time low was 317 HUF/€ in March 2009; at the beginning of 2008 the exchange rate was 253 HUF/€). The budget deficit has been reduced from more than 9% of GDP to 3.3% in 2008, although the target for 2009 has been eased, to 3.9%, from the previously targeted 2.9%.
Unemployment was around 8% in 2008 and is currently 9.1%, the highest since 1997. Inflation stood at 6.1% in 2008, and real wage growth was 0.7%. Estimated public debt was 73.8% of the GDP in 2008. Hungary's GDP has been growing healthily since 1993 but in 2008 there was a 1.5% decline, with a further 6.7% decline forecast for this year. Hungary's GDP per capita is nearly two-thirds of the EU25 average.
Hungary's R&D intensity (proportion of GDP spent on R&D) was around 1% in 2006, compared to an EU25 average of 1.84%, and hasn’t increased since 2000. This is far from the Lisbon target to spend 3% of the GDP on R&D. In 2000 only €375 million was spent on R&D, rising to almost €875 million in 2007. The R&D sector employed a total of 49,615 people in 2004, which is equivalent to 25,954 full-time employees. Most of them were researchers (67%), in the higher education (29,282), government (11,483) and business (8,870) sectors. (Data available at Central Statistical Office of Hungary).
Hungary's key industries in 2008 were: motor vehicles (representing 19.3% of GDP); IT, electronics and optical products (17.5 %); processed food (10 %); metal processing (7.9 %); coke and oil processing (7.2 %); and rubber, plastic and nonmetallic mineral products (7.2 %).
Attitudes to foreign direct investment and European funds
FDI growth has been encouraged since 1989, and foreign ownership of, and investment in, Hungarian firms are now widespread. The private sector accounts for more than 80% of GDP.
Hungary has the second largest FDI per capita in the region after the Czech Republic. At the end of 2006 the amount of FDI in Hungary was €49 billion, which was 17% more than in 2005. In 2008 Germany (25%) was the largest foreign direct investor in Hungary but its share has decreased for several years. The four largest investors accounted for 58% of total FDI at the end of 2006. Germany, the Netherlands and Austria have been the three largest investors since 1998. France was the fourth until 2004, when it was displaced by the United Kingdom. The United States has also increased its FDI significantly.
In 2008, 56% of FDI was in the service sector and 36% in manufacturing. The real estate and business services sector received 20% of FDI, transportation equipment 11%, financial services 12.3%, electronics 6% and energy and water 5%.
The current government favours foreign investors. There are several direct state incentives to attract FDI. The Economic Development Operational Programme (called GOP in Hungarian), which is financed by the EU Structural Funds, is making €10 billion available between 2007 and 2013. GOP directly supports three objectives of the Lisbon Strategy, namely R&D, innovation, and SMEs. Because of the economic crisis, two supplementary grants have recently been announced: a grant of €5 billion for domestic entrepreneurs and of €6.4 billion to the building industry.
Enterprises can also get funds from the European Territory Cooperation (ETC) Community Initiative. Hungary participates in cross-border initiatives and the Central Europe and South-East Europe Transnational Programmes, as well as the EEA Financing Mechanism and the Norwegian Fund.
There are seven regions in Hungary, and each has a Regional Operational Programme drawing from the EU Structural Funds. Regional R&D incentives are available through the Gabor Baross programme, which is run by the Regional innovation agencies.
Specific R&D grants can be obtained in 10 thematic priority fields under the EU 7th Framework Programme and in the other instruments of the European Research Area, such as the Joint Technology Initiatives (where Hungary participates in the ENIAC, Artemis, AAL initiatives); new forms of public-private partnership; and the main ERA-NET projects, EUREKA and Eurostars. The Hungarian government's most relevant direct R&D incentive is the National Technology Programme.
In cases where no EU co-financed subsidy is available, the Hungarian government offers tailor-made incentive packages for projects with eligible costs exceeding €10 million (or €50 million for tourist projects).
The incentive package can include cash subsidies from the Hungarian government. Inward investors may also benefit from a development tax allowance, which exempts them from 80% of corporate tax for 10 years. Investors can also benefit from direct cash training subsidies and a job creation subsidy. The Hungarian government also provides further tax allowances and regional subsidies.
Government agencies
A National Development Agency is responsible for the GOP and the Regional OPs, ETC, EEA and Norway grants. For specific information about each programme’s open calls, each programme’s Contributing Organisation must be contacted direct). The list also includes the seven Regional Operational Programmes, and the Regional Development Agencies. The National Office for Research and Technology (NKTH) is responsible for the specific Hungarian and international R&D programmes. NKTH also operates seven regional agencies, which are known as the Regional Innovation Agencies.
ITD Hungarian Investment and Trade Development Agency is the most significant government agency which helps foreign investors moving into the country by providing high-quality support for key decision-making processes and a variety of other services.
ICC Hungary is the Hungarian national committee of the International Chamber of Commerce. It helps articulate Hungarian business interests.
Intellectual resources
Hungary has a rich history of innovation, which continues to this day in its universities and public research organisations.
The key universities of Hungary are centred around seven regional knowledge clusters that are in close cooperation with business and academia. Each centre has a speciality.
In Central Hungary the Budapest University of Technology and Economics (BME) focuses on information technology and vehicle control; Semmelweis University on infobionics; ELTE on infosciences; and Szent István University on energy management.
In Western Transdanubia, Széchenyi István University focuses on vehicle engineering, and the University of Western Hungary on wood exploitation
In Central Transdanubia, Pannon University focuses on ICT security and waste management. In Southern Transdanubia, the University of Pécs focuses on medicines. In Northern Hungary, the University of Miskolc focuses on mechanotrics and Eszterházy College on food safety. In the Northern Great Plain, the University of Debrecen focuses on genomics, and in the Southern Great Plain, the University of Szeged focuses on neurobiology, environment and nanotechnology.
There are 2,840 Hungarian research organisations, 1,496 in higher education and 1,125 in business. There are 219 R&D institutes (21 technological, 26 medical, 42 agrarian, 2 psychological, 13 economic, 11 for other social sciences). The most productive are the medical R&D institutes, which filed 3,650 patents in 2007. Machine parts research produced more than 1000 patents, while chemistry and metal products produced more than 500 patents.
Partnerships between universities, R&D institutes and industry aren’t common in Hungary. But there are some success stories, for example the MEDIPOLIS project between the University of Pecs and pharmaceutical companies; DNT, the Southern Great Plain Neurobiological Knowledge Project; and the IT2 project, between BME and leading IT companies.
Hungarian SMEs and R&D institutes participate strongly in the EUREKA and Eurostars programmes. It's therefore seen as important for Hungarian science and R&D that the European Institute for Innovation and Technology will have its seat in Budapest.
The most innovative companies often settle in an industrial park in Hungary. All industrial parks have a unique R&D profile. The biggest spenders on R&D are software, automotive and pharmaceutical multinationals, which together account for 65 % of total R&D investments. The leading and most recent investors include: GM Opel, Suzuki, Audi, Mercedes, Daewoo, Knorr-Bremse, Schefanacker, ZF Friedrichshafen, Bosch (for the automotive industry); SAP, Oracle (software); Servier-EGIS, Synexus Clinical Research (clinical research); Chinoin-Sanofi (pharmaceutical); GE, Philips, Flextronics, Samsung, Sony, TDK, Nokia, SANYO, Siemens, Ericsson, Videoton, Payer, Valeo (electronics); Codexis (biotechnology); and Pioneer (renewable energy).
Multinationals undertake various forms of work in Hungary. Bosch, Zenon, Electrolux, IBM, Novartis, Astra Zeneca, Siemens, Nokia, Philips, and Ericsson all have R&D centres. GE Hungary, ING, Hewlett Packard, General Motors run regional call centres from the country. Renault-Nissan, Porsche have logistics centres, while Alcoa, BAT, Avis, Exxon Mobil, IBM, General Electric, and Diageo have financial centres. EDS has an outsourcing centre.
Knowledge transfer activities are less strong in Hungary than the EU25 average. Businesses spend very little on R&D (Business Enterprise Rate on R&D is 0.48%, the fourth lowest in the EU) and the majority of their product innovations are done in-house. Universities struggle with lack of funds, overburdened researchers, and an inability to do more applied research.
One problem is that many Hungarian research institutes, universities and enterprises have yet to start taking the same steps to protect their intellectual property and exploit its value as some Western universities , although since 2004 the country has come under the EU’s IP protection system.
To tackle this problem an IPR Program was introduced that aims to support obtaining foreign industrial protection for Hungarian inventions and patents filed by the Hungarian Patent Office to enable them to be commercialised.