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:: Business environment in Hungary
>> General information about
Hungary
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Hungary is a democratic republic. The government lead by the Prime Minister has the
real political power, the President has limited political power but represents the country. The parliament
has the legislative power, the government is the executive power.
Administratively Hungary is divided into 19 counties + Budapest the capital.
There are 3.154 settlements (towns, villages, etc) in the country, 19 districts in Budapest with local
governments.
The River Danube (Duna)
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Hungary is a middle-income country with a developed and export-oriented food processing
industry. Hungary’s GDP growth was 3.6% for 2002 and GDP is now back above the 1989 real GDP level. Hungary is
expected to show strong growth again in 2004. High export growth and large privatization receipts
in the last three years have allowed Hungary to rapidly reduce its foreign debt load. Hungary is expected
to continue its careful handling of its now manageable debt burden in order to maintain a favorable credit rating
and borrowing terms. The inflation rate continued to fall in 2002 (5.3%) and the 12-month inflation rate to May
of 2002 was 5.9 percent.
Since 1990 wave upon wave of foreign companies have come into Hungary and invested more
than $25 Billion into production and service facilities throughout the country. From the American side,
for example, Fortune 500 companies first arrived in the early 1990’s like General Electric, Alcoa,
IBM, Ford, Dow, Citibank, Ernst & Young, AES, Coca-Cola,
Pepsi-Cola, Proctor & Gamble, Sara Lee etc. In the late 1990’s and the new millennium,
the second wave of companies coming to Hungary consisted of subcontracts to the Fortune 500. Then a third wave of
suppliers to the subcontractors have been making their way to Hungary selling their products through agents and
distributors. Due to Hungary’s geographic location in the center of Europe, all three waves of companies are
looking to do business not only with Hungary, but also with the rest of the European Union and the frontier
markets of Eastern Europe (e.g. Romania, Ukraine and former Yugoslavia).
>> Privatisation and
markets
Privatisation, which had been completed at large in 1997, received a new impetus as
proceedings for the sale of 19 remaining larger corporations have started in 2003. In September 2003, the large
retail bank Postabank was successfully sold to a foreign banking group (ERSTE Bank). The telecom market
was liberalised in 2002. Gradual liberalisation of the electricity market started in 2003, while finally
also the legal basis was set for the liberalisation of the gas market starting in 2004. As of 1 January 2003,
further steps to complete the quite advanced pension reform were taken. New labour market entrants
automatically join the system’s (private) second pillar, and the transfer rate from the social security budget
to the second pillar was increased from 6 to 7% of the wage bill, improving the system’s long-term
sustainability.
>> Finance and 'hot money'
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With regard to foreign holdings in government paper, in the aftermath of the currency
turbulence of the past 10 months, some important investors like large foreign pension funds
have started to leave the market, while short-term speculative capital (‘hot money’) is being attracted
by large spreads as compared to the eurozone’s. |
>> Health care reforms by
2004
Health care sector reform is being addressed in the framework of a ten years’ programme,
which received a boost through the admission of private general practitioners’ practices in 2002, and a
new law adopted in 2003 opening the way for large-scale privatisation of healthcare assets, including hospitals.
Despite considerable opposition to the new law, the government appears determined to go ahead with health care
reform, given the low average life expectancy in Hungary. Strong emphasis is being put on the development of home
care and outpatient care facilities, along with the promotion of private health care insurance and nursing
schemes, as an alternative to the present inefficient and over-hospitalised health care system. As a first step
towards implementation of the new law, 30 hospitals have been flagged by the government for debt relief
programmes as a pre-condition for subsequent privatisation. A pilot project aiming at a step-wise modernisation
of services, replacement of outdated technology, and an improvement of incentives and management
systems has been launched.
>> Anti corruption measures
According to independent assessments, Hungary ranks among the less corrupt of the
post-communist countries, but corruption still continues to represent a serious problem. Corruption is perceived
by the Hungarian population as a relatively widespread phenomenon, with low-paid government officials,
particularly from among the police, tax and customs authorities, being considered as particularly vulnerable
to bribes. Another main area associated with corruption is the health care system, where the practice of
“gratuities” is so common that many Hungarian citizens consider it as a cultural phenomenon rather than hard
corruption. Recent surveys on corruption indicate that suspected cases of extra payments and of requesting
gratuities have actually increased over the last three years in the health care sector, the private business
sector, the customs area and among Members of Parliament and ministry officials.
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The number of persons convicted for corruption has been relatively stable during
the last few years. According to data of the Supreme Court, in 2002 some 739 cases of corruption were
revealed, and accusations were brought forward in 415 cases. |
>> Foreign Direct
Investment (FDI) in Hungary
Hungary has seen a huge amount of FDI coming in the past 10 years. The following sectors
received major sums of capital:
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