INVESTMENT IN HUNGARY - FOREIGN DIRECT INVESTMENT

Hungary: The Logical Choice 

Since the beginning of the transition to democratic market economy at the end of the 1980s, Hungary has attracted a steady stream of foreign capital, well-balanced across the various sectors of the economy. Hungary, a country of 10 million inhabitants, can currently boast of having attracted Foreign Direct Investment (FDI) of more than 60 billion Euros to date which represents the highest per capita rate in the Central-Eastern European region. FDI nflow data in 2008 do not show the effect of the global economic crisis yet.

In the early 1990s, market-based privatization, a unique phenomenon in the region at that time, was the main incentive for foreign investment - although even then investments in new industrial facilities were becoming increasingly frequent. Foreign direct investment (FDI) has been crucial in boosting economic performance and remains the driving force behind Hungary's economic success, fuelling its strong export growth and significantly increasing productivity. 

Source: wiiw, Analysis and forecasts, 2009

A new structure for Foreign Direct Investment (FDI) 

While privatisation is still in progress in other central European countries, Hungary has been focusing more intensively on the introduction of advanced technologies and innovation into production of goods representing higher added value. Investment in the automotive sector, research and development, ICT, biotechnology, shared services operations and logistics has become especially important. Today, not only have a number of the largest multinational manufacturers and service providers established their facilities in Hungary, their major international suppliers have also come and brought along their subcontractors with them. Currently there are more than 30,000 companies operating with foreign participation in Hungary.

FDI Stock in Hungary by Sectors

Nearly half of foreign investments in Hungary have been cumulated in the manufacturing sector. At the beginning of the 1990's manufacturing was the main target of all investments. Since 1995, however, services have gained grounds as well, partly because privatization in the services sector started later than in the manufacturing sector. Also, in the late 1990s, as other Visegrád countries opened up their markets and started privatisation Hungary had to face more competition in the manufacturing sector.  Today FDI spreads more evenly among sectors in Hungary than in other countries in the region. 

Source: Hungarian National Bank, 2009

Distribution of FDI by the most important sectors

Real estate and business services:    20%

Transportation equipment:                11%

Financial services:                            12.3%

Electronics:                                       6%

Energy and water:                             5%

Food:                                                3%

Metals                                               3%

Chemicals and pharmaceuticals           2%

Machinery                                         2%

Plastic and rubber                              1%

FDI Stock by Countries of Origin

Like in other CEE countries, foreign investors from the EU-15 countries have accounted for the majority of investments (79%) in Hungary (Hungarian National Bank, 2009). Geographical proximity and historical links explain the dominance of the European investors.

Germany is by far the most important country of origin with 25% of all FDI, followed by the Netherlands (14%) and Austria (13%). The United States has been the largest non-European investor (5%) and in many cases the investments going through the Netherlands and other European countries also originate from the US. Among the Asian countries Japan and South-Korea have played an increasing role in FDI.

Forecast

Contrary to expectations, in 2008, FDI inflow to Hungary did not decrease compared to 2007, and reached EUR 4.4 billion (Hungarian National Bank, 2009). In line with global trends, however, in 2009 and 2010 FDI inflow is expected to fall to EUR 1.5-2.5 billion in Hungary (EIU, 2008;  wiiw, 2009). However, experts forecast a recovery in 2011.

The new EU-12 region is likely to keep its favourable position as an investment destination and Hungary may again receive an annual average of EUR 3.5-4 billion FDI in the medium term. 

PRIORITY SECTORS - AUTOMOTIVE

The number of first- and second-tier equipment manufacturers is continually rising. Since the early 1990s, several foreign car manufacturers, such as Suzuki, Audi and General Motors, as well as 14 of the top 20 Tier 1 suppliers, have set up production facilities in Hungary. 

Five key arguments to invest in the Hungarian automotive sector

• Tradition of innovation
• Access to a talented, creative, flexible and qualified labour pool at competitive costs
• Central location - a possible hub for Europe
• Excellent local supplier network
• Major automotive suppliers in Hungary

Tradition of innovation

• the Hungarian automotive industry celebrated its centennial in 2006
• Major Hungarian scientific and technical contributions include:
  • electrical engine (1828) - Dr. Ányos Jedlik
  • carburettor (1890)  -  János Csonka and Donát Bánki
  • NASA's Moon Rover and Mars vehicles (1961–1988) -  Ferenc Pavlics
  • BMW diesel engine development (1981–1999) - Ferenc Anisits
  • safety concept of vehicles (1939-1972) - Béla Barényi
  • combined engine charger system (1968) - Gyula Cser
  • organizer of Ford-T's mass production (1905-15) - József Galamb
    
    

Access to a talented, creative, flexible and qualified labour pool at competitive costs

• 100,000 employees in the automotive industry
• World-class training and education of engineers in major cities
• Over 50% are mechanical engineers, 11% information-systems engineers, 10% electrical engineers, 9% automotive engineers and 39 % quality-assurance engineers and chemical engineers
• Nearly 20% of engineers are engaged in product-improvement, while the rest are active in technological development, production, quality assurance and sales
• Essentially lower  wages compared to Western Europe combined with the highest productivity rates in the region.
  
  

Central location - an optional hub for Europe

• Hungary is a potential logistics and production base thanks to its favourable geographical position in Europe
• Direct access to the Balkans and Eastern Europe
• Renault and Porsche have chosen Hungary for their part centres from which they can supply not only the Central and Eastern European markets but countries further to the East and South including the Ukraine, Russia and  the Balkan region.
• Four Helsinki-corridors running through the country

          Click here and learn more about Infrastructure & transportation…

Excellent local supplier network

• Hungary - as one of the “Detroit East” countries - can supply manufacturers and customers in the whole of Europe
• The number of orders are on an increasing scale due to heavy investments by CBU manufacturers to expand capacities
• Click here to contact ITD Hungary’s subcontractor advisers

  Click here to see a selected list of Hungarian automotive suppliers.
  
  

   
  

  Major automotive suppliers in Hungary

  • Prior to the global crisis manufacturers, such as Suzuki and Audi were steadily expanding capacities and workforce to meet growing demand
  • 14 of the world’s top 20 TIER-1s have already established operations in Hungary
  • Several multinationals have set up R&D centres in Hungary including Audi, Bosch, Knorr-Bremse, Magna-Steyr, ThyssenKrupp, Arvin Meritor, Denso, Continental, Visteon, WET,Draxlmaier, Edag,Temic Telefunken, DENSO and ZF.
  • In 2007/2008 two of the top awards presented by the Minister of National Development and Economy to most outstanding foreign investors was received by Daimler AG for its new investment in Kecskemét.
    
    

  Recent investments

  Daimler has decided to assemble its A and B class Mercedes Benz cars in Kecskemét, Central Hungary. The 800 million investment will create 2,500 jobs and production is to start in 2012. The Hungarian Government supports the investment of Daimler with a package of measures giving the project a clear prioritization.
  
  

  Bosch Budapest Development Centre has been expanded by 120 new engineers in 2008.  Research activities in Budapest have started in 1999 with a few engineers, and by now already 430 engineers work in the development centre. Bosch has spent 36 million EUR on R&D in Hungary last year, which means a one and a half growth within one year. The company is cooperating with several education institutes like the Budapest Technical College with whom the development of an intelligent small car is underway.
  
  

  Spanish Grupo F.Segura has chosen the city of Szolnok to establish a new facility to design and manufacture metal components for the automotive industry. Initially the factory will be 11,000 sqm large, over a total area of 10 hectares. The overall cost of investment will reach EUR 11 million.

  From this privileged position in the centre of Europe and bordering on seven countries, F.Segura Hungaria KFT wants to obtain a major presence in the current and future European context. With this strategic decision F.Segura establishes itself in a multi-customer environment where privileged logistics conditions and additional benefits take profit of the new emergence markets in the region.
  
  

  Knorr-Bremse Brake Systems Kft. announced that it will invest more than EUR 10 million in a research and development (R&D) project in Hungary which will employ 60 engineers.

  The Knorr-Bremse Group is the world's leading manufacturer of braking systems for rail and commercial vehicles. The Hungarian branch has the most employees among the European factories. Knorr Bremse has established its development centre in 1999 in Hungary.
  
  The GEDIA Group - GEDIA Gebrüder Dingerkus GmbH develops and manufactures pressings and welded assemblies for the automotive industry, technical products and fastening systems for the household goods industry. The company announced that it will create 103 new jobs and an investment of EUR 21 million in Tata, Hungary to manufacture body parts for the vehicle industry.
  
  

  Audi Hungaria has long been a significant automotive company in Hungary and it is one of the largest exporters. In the last 15 years more than fifteen million engines have been manufactured. Audi TT sportcars and Audi A3 Cabriolets are only assembled in Gyor.

  AUDI HUNGARIA MOTOR Kft. has closed a successful year in 2008, too. Last year more than  1.900.333 engines have been manufactured in Gyor. As for vehicle assembly, production volume has grown by 6% last year, alltogether 60 thousand cars have been assembled. The Hungarian branch has invested EUR 309 million in 2008.

   
  

  If you wish to learn more about investment opportunities in the Hungarian automotive sector, please send us a query by clicking here .

  We shall be pleased to provide you with comprehensive information including

  • Production & sales statistics
  • Automotive directory
  • Wages in the industry
  • Clusters, associations, corporate research centres, centres of excellence
  • Relevant secondary and tertiary education statistics
  • Site locations in Hungary where you can make your own success story.