Foreign Direct Investment in Hungary
FDI in Figures
Hungary has the highest stock of foreign direct investments (FDI) in Central and Eastern Europe. The country was severely hit by the financial crisis and the FDI fluxes, which have very much decreased, have only been recovering slowly.
During the recent years, Hungary benefitted from a change in the direction of the FDIs, which went from low value textile and food industry sectors to the production of luxury vehicles, renewable energy systems, luxury tourism and information technologies.
The country’s strengths include: a tax system favorable to businesses, its geographic location as a bridgehead between Eastern and Western Europe.
Country Comparison For the Protection of Investors
|Hungary||Eastern Europe & Central Asia||United States||Germany|
|Index of Transaction Transparency*||2.0||6.3||7.0||5.0|
|Index of Manager’s Responsibility**||4.0||4.0||9.0||5.0|
|Index of Shareholders’ Power***||7.0||6.2||9.0||5.0|
|Index of Investor Protection****||4.3||5.5||8.3||5.0|
Source: Doing Business
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
|Foreign Direct Investment||2007||2008||2009|
|FDI Inward Flow (million USD)||71,485||61,993||-5,575|
|FDI Stock (million USD)||198,731||251,952||248,681|
|Performance Index*, Ranking on 141 Economies||1||1||141|
|Potential Index**, Ranking on 141 Economies||40||40||-|
|Number of Greenfield Investments***||218||146||106|
|FDI Inwards (in % of GFCF****)||319.4||258.9||32.1|
|FDI Stock (in % of GDP)||143.6||163.8||194.3|
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
Why You Should Choose to Invest in Hungary
- Strong Points
- - Hungary is the most advanced country in Central Europe in terms of reforms;
- Its financial system is one of the most well developed in the region;
- Its infrastructures, its work force and the framework of its regulations are of high quality;
- Integration in the EU, reinforces its political and economic stability and the support of large international organisations reduces the effects of the crisis.
- Weak Points
- - The situation of public finances is still in decline and the state debt is at a high level;
- Foreign accounts are largely and persistently unbalanced;
- If we are to consider its openness, the country is dependent on the economic situation of its main EU trade partners;
- The covering of financing needs depends partly on a volatile capital. Level of currency reserves is relatively low;
- The population has called for loans in foreign currency and the inflation which has followed the crisis has made these loans difficult to repay for the Hungarian borrowers;
- Banks have suffered great losses from the financial crisis due to debt repurchase and speculative investments;
- The currency has lost its value since the financial crisis.
- Government Measures to Motivate or Restrict FDI
- Attracting foreign investment is a priority for the Hungarian government. The Ministry of Economic Affairs established the
Hungarian Investment and Trade Development Agency (ITDH) in 1993, and this agency continues to help companies looking to make major investments in the country. ITDH has set up a “one-stop-shop” service for potential large investors to maintain a competitive environment and attract multinational companies.
In the context of the international crisis, the state has implemented measures to maintain the country's appeal: special loans and guarantees programs to compensate for the difficulties of banks in granting loans, the improvement of the administrative situation and the reduction of formalities and the facititated acquisition of building permits. Additionally, the exchange rate has made Hungary less expensive than before, whereas productivity which was already high, has remained at the same level. Because of this, a number of international companies have maintained their investments in the country and have outsourced entire departments such as accounting or call centres.
- Bilateral Investment Conventions Signed By Hungary
- Consult the website of the European Union.
Procedures Relative to Foreign Investment
- Freedom of Establishment
- Acquisition of Holdings
- Up to 100 percent foreign ownership is permitted with the exception of designated "strategic" holdings in some defense-related industries. The current government’s renewed privatization concept is opening some of the strategic holdings to private participation. Foreigners investing in financial institutions and insurance must officially notify the government but do not need advance authorization. Foreign financial institutions may operate branches and conduct cross-border financial services in Hungary, in keeping with OECD commitments. Currently, foreign firms control 2/3 of manufacturing, 90% of telecommunications and 60% of the energy sector.
- Obligation to Declare
- For contact information at national customs authorities, please visit the European Union website or the Hungarian Customs Office.
- Competent Organization For the Declaration
Hungarian Customs and Finance Guard
- Requests For Specific Authorizations
- To determine if a license is required for a particular product, check the
Hungary, like many EU Member States, maintains its own list of goods subject to import licensing (arms, precious metals etc.)
- Investment Aid Agency
Hungarian Investment and Trade Development Agency
- Tenders, Projects and Public Procurement
Ted - Tenders Electronic daily, Business opportunities in EU 27
Tenders Info, Tenders in Hungary
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