By: Eugene Megysey, Honorary Consul General of Hungary Issue: Global Trade Section: Collaborator Profile

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Hungary Hungary’s investment promotion and trade development agency, ITD Hungary, has a difficult task in 2009, to maintain and expand foreign direct investment in Hungary, while helping local firms build up their international exports. It is a challenging task at any time.

According to Gyorgy Retfalvi, CEO of ITD Hungary, the promotion of foreign direct investments into Hungary remains focused on the technology-intensive sector, and in particular on those investments producing higher added value using Hungarian research and development capacities, establishing regional trade, finance, service and research and development centers. A customized one-stop shop service is provided by the dedicated teams of ITD Hungary in over 53 trade offices in 45 countries, 4 offices in the U.S., managed from ITD Hungary’s Budapest headquarters. Through its “global network, the agency can offer investors and trading partners a total service package - free of charge and with full confidentiality,” says Retfalvi. “ITD Hungary now participates in some 30% to 40% of all new investment projects realized in Hungary,” he adds.

An excellent example of providing services and working with the local government is the investment of Daimler AG last year. From 2012, the automotive giant will assemble 100,000 A-Class and B-Class Mercedes cars annually in Kecskemét, Hungary. The total value of the investment is above $1 billion (USD), with the new plant directly responsible for 2,500 new jobs and a further 10,000 through local suppliers. The municipality also worked creatively with the company in providing attractive incentives. Mayor Dr. Gabor Zombor and Deputy Mayor Klaudia Pataky Szemereyné also played a critical positive role in making the investment possible. Hungary Not surprisingly, the geographic profile of Hungary’s inward investment reflects both history and new market preferences. Germany accounts for some 30% of inward investment, while approximately 15% of the total comes from the U.S. and Austria. The UK and France account for about 10% each, with Italy and Japan round out the top 7 investing countries. The top inward investors should not be a surprise, acknowledges Retfalvi, as Hungary’s exports make up 70% of GDP of which the largest export segment is automotives.

Hungary’s exports make up 70% of GDP

For now the work of the ITD Hungary is in flux, with “changing priorities under pressure of the current crisis,” explains Retfalvi. However, he maintains that in the medium term, if Hungary and ITD Hungary focus the message that the country can provide cost effective manufacturing facilities, then the country can regain its crown as a prime location for new inward investment. Short term difficulties aside, Retfalvi believes the country is a natural magnet for new investment going forward. “The macro-economic situation will focus everyone on cost issues. Moreover, increased regulation of the global financial markets will have an impact on globalization and the flow of goods and services.” Retfalvi thinks that this will benefit Hungary as investors look closer to home for new opportunities.

Network Guy Nonetheless, he is pragmatic. “In this regard, we also have to note that we face competition from rising markets such as Ukraine and Georgia, which are cheaper. However, Hungarian production remains half the price of Germany and the country offers a highly educated and technologically literate population that is able to leverage growing opportunities in high-value manufacturing, technology and pharmaceuticals, for instance. Added to this is the fact that Hungarian salaries are still at 65% of the EU average, I think it is clear that we remain a competitive investment prospect,” stresses Retfalvi. He went on, “This is also proved by the fact that in the first five months of this year, ITD Hungary-Investment Promotion and Trade Development Agency announced investments worth $272 million (USD) in Hungary, creating 3,099 new jobs. Companies like Vodafone, IBM and Infineon have decided to expand in Hungary and new investors like British Petrol showed confidence in Hungary with an investment creating 1,100 new jobs.”

According to the recent survey of World Bank’s Global Investment Promotion Benchmarking 2009, out of more than 200 investment promotion agencies globally, ITD Hungary ranked 14th. “We are very proud of the result we have achieved. This provides feedback to us on our competitive strengths and competitive position amongst other agencies. This way we can work on the identified action points to improve our promotional strategies. Above all it strengthens our belief in the success and usefulness of our work and gives impetus to our further efforts and development,” said Retfalvi.

Eugene F. Megyesy, Jr. is Honorary Consul General of Hungary and an Attorney at Dufford & Brown, P.C., Denver, Colorado.