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ungarian Minister of Economy and Transport János Kóka is injecting a large dose of private-sector thinking into his nation's government.
   Kóka knows a lot about the private sector. Though only 32 years old, he assumed his position in 2004 already equipped with a distinguished entrepreneurial resumé, including serving as PSINet's European vice president.
   Site Selection caught up with the kinetic Hungarian in early October 2005 in a phone interview from New York. Kóka, along with Prime Minister Ferenc Gyurcsany, was in the midst of a U.S. tour to tout Hungary's strengths as a business location.
   Japan's Hankook Tire underscored those strengths in late October, announcing that it will open a US$634-million, 1,500-employee plant in Dunaujavaros, south of Budapest. That facility will supply automakers throughout the 25-nation European Union, the world's second-largest vehicle market.

   Site Selection: Hungary has enjoyed great success in attracting foreign investment. What factors have been most important in attracting so much foreign investment?
   János Kóka: We are looking at both the "hard" and "soft" indicators on that issue. And we find that Hungary has really been the winner of a competition amongst the Central European nations.
   If you are looking at the FDI influx, it exceeds $60 billion through the last 15 years. We are by far the No. 1 Central European nation in terms of FDI absorption per-capita. But if you are looking at the more soft indicators of our national health, you can really see that Hungary, from all of the reports of the auditor companies [consulting groups] and the opinion leaders, is the No. 1 choice among these nations.
   An Ernst and Young report came out that was on 40 countries around the world, including China, the U.S. and other Central European countries. In that report, Hungary was the fifth most popular investment location. In addition, Hungary was ranked in fourth place as the country with the best investment perspective for the future.
   If you asked me what are the decisive factors in attracting FDI, then I would nominate three factors. First is the preparedness in infrastructure. We are by far the best among the Central European countries, which enables us to leverage on the fact that we are located very centrally, in between Western Europe and the Balkans, between the Adriatic Coast and Ukraine.
   The second factor is the quality of human infrastructure. This is the efficiency and productivity of manpower. We have quality manpower, with substantial output from highly qualified individuals. We also have the multilingual environment in Hungary — not only English- and German-speaking individuals, but also all those who are speaking languages of neighboring countries. This is of paramount importance whenever you not only think about Hungary's 10 million people, but all the other people in the region, because typically investors are coming to Hungary to set up regional operations, rather than ones that are focused on Hungary only.
   The third factor is Hungary's regulatory environment, including taxation, including less bureaucracy than any other nation in the region, including subsidy packages that are focusing on high value-added investments.

   SS: What are some of your organization's other incentives and strategies to aid foreign investors?
   JK: Hungary is very definitely on a track whereby we want to have as much investment in Hungary as possible. This is our main mission. We would like to focus on competitiveness, on investment, on higher employment. But we also want to involve our small and medium-sized Hungarian businesses to become the contractors and suppliers for such multinational companies.
   You've got not only direct incentives — cool, hard cash — whenever you make an investment, but you may also be interested in building a road to your factory. You may also be interested in getting further subsidies for training your people according to your special needs. You may also be eligible for other kinds of investment, such as if you are doing research and development.

János Kóka, Hungarian Minister of Economy and Transport

   SS: Are there any factors that have particularly attracted U.S. companies to Hungary?
   JK: Traditionally, Hungary has had very good relations with the U.S. Some observers say that there were times when the second-largest concentration of Hungarians in the world was actually located in Cleveland. And that was because of Hungarian immigration to the U.S. So we are culturally very close to the competitive way of thinking that is prevalent in the U.S.
   The U.S. is the No. 3 investor in Hungary, having invested some $9 billion as a total. We have General Motors, we have Opel, IBM, Coca-Cola, Sara Lee, Selectronics, Pepsi-Cola, Phillip Morris, Delphi, Bristol-Myers and all of the large international pharmaceutical providers.
   The interesting thing is that all of these companies generally started in Hungary with only commercial activities. And then came the second wave, when the companies also turned to production with greenfield investments in Hungary.
   That second wave also included privatization, whereby General Electric bought one of the largest Hungarian banks. Other Hungarian banks were also bought by other American companies.
   But now there is a third wave of investment. American companies now typically select Hungary for research and development and service centers — shared service centers, co-centers, help-desk centers — that are not only for serving Hungary but also for serving all of Europe.

   SS: Hungary joined the European Union in May of 2004. How has membership in the EU affected Hungary's attractiveness for foreign investors?
   JK: European Union membership has significantly improved Hungary's attractiveness for foreign investors. It has significantly improved our ability to build infrastructure faster than before. EU membership also serves the long-term predictability of Hungary. Now, you can find a politically and financially predictable environment similar to the other countries of the Euro Zone of the European Union.
   But, as well, you can find faster growth in Hungary. The growth rate in Hungary is 4.1 percent for the last quarter. By comparison, in the Euro Zone, the corresponding growth rate was 1.2 percent. So Hungary is growing significantly faster.
   Hungary, during the next 10-year period of time, will absorb some $80 billion as a total, including European Union funding, Hungarian state funding and private funding. So $80 billion will flow into Hungarian infrastructure and competitiveness.
   So Hungary in these years will be a construction area. Everything is being developed. We are doubling the total length of our highways; we are building regional airports; we are renewing our railway system; we are building industrial parks and logistical centers; we are privatizing and developing our central airport.

   SS: How does that work in terms of incentives?
   JK: This is an open market. Anyone can compete for these national and EU incentives, whether they are incorporated in Hungary or not. If you want to invest in Hungarian infrastructure, then we are there. But if you want to invest in the Balkan market, which is a huge market and of extreme development potential, then you can target these countries by gaining a foothold in Hungary.
   Whatever happened in Hungary during the last 5-10 years, not only in roads, but also in utilities or telecommunication, the same will happen in Romania, in Bulgaria, in Serbia-Montenegro. We are culturally and physically very close to these countries.

   SS: Foreign investors have also seemed to like Hungary as a location for IT and R&D operations, as well as a location for auto-industry investments. Are there particular aspects of Hungary that are attractive to those business sectors?
   JK: I could give you a list of seven industries that are of particular importance nowadays in Hungary: the auto industry, IT, telecommunications, bio-technology, environmental technology, tourism and the audio-visual industry.
   For the automotive industry, this is because Central/Eastern Europe is becoming a regional superpower in automotive production — not only in production but also in all those operations for supplies for car parts, which are typically located in Hungary.
   We are not the No. 1 choice for auto assembly. Slovakia and Poland are better choices for pure assembly-type operations; they have a larger unemployment rate, 16 and 18 percent unemployment, while we have only 7 percent. So Hungary is usually not looked at for low value-added production. But all the suppliers, whenever you want to produce fuel injectors or APS or high-quality car parts, then they generally select Hungary.
   This leads me to the rest of the industries I mentioned earlier in this answer. The common denominator of the industries that I mentioned is that these are higher value-added activities. Research and development services and all those higher value production sectors require not the lowest wages but the best productivity. This is where Hungary is very competitive.
   We are not the cheapest producing country anymore, and we do not want to be.