Hungary’s 9% corporate income tax rate is part of this Eastern Europe economy’s economic development story, and recent inward investment numbers suggest a best seller is in the works. The past five years have seen 392 successfully negotiated projects, more than €14 billion in capital investment and more than 75,000 new jobs.
What’s more, 2018 was the fifth consecutive year to break all previous investment promotion records in Hungary. The 98 positive decisions for Hungary represent €4.3 billion of investment — a 23% increase over the previous year — and more than 17,000 new jobs were created. Moreover, the ratio of projects representing a high local value add has increased significantly, in line with the FDI strategy of (1) focusing on quality instead of quantity of investment projects and (2) transitioning from the “Made in Hungary” era to the “Invented in Hungary” period.
In R&D, software development, engineering and business services, the Hungarian Investment Promotion Agency (HIPA) has seen a 60% growth in the number of successfully negotiated projects, to 29, creating close to 5,000 new jobs in these high-value-added service areas. Also on the rise is the number of technology-intensive projects that do not necessarily create new jobs, but bring new technologies and increase productivity.
The Proving Ground
The fact that Hungary is the only country in Europe outside of Germany where all three premium German OEMs — Audi, BMW and Mercedes-Benz — are present underlines the importance of the automotive industry to Hungary today. Hungary now has eight OEMs on board. Five of them (Audi, BMW, Mercedes-Benz, Opel, Suzuki) are engaged in manufacturing activities, and three (Ford, Jaguar Land Rover, Nissan) are active in engineering or business services.
By sectors, the automotive industry is leading the project counts: 36 investor decisions imply a capital investment of €2,660 million that created nearly 11,000 new jobs for the Hungarian economy. This sector is trending to higher-value-add projects. Ten of the 36 different automotive projects focus exclusively on research and development and engineering services. Audi, AVL, Bosch, Continental, Jaguar Land Rover (JLR) and thyssenkrupp all have significant R&D operations in Hungary, where engineers develop the software and hardware components of future technologies. Speaking of which, the future of mobility can be glimpsed today in Hungary, specifically at the 250-acre proving ground in Zalaegerszeg, which will open soon for testing conventional and driverless cars.
Meanwhile, electric drivetrains and e-mobility technologies are on the rise, and Hungary is partnering with three important Asian battery manufacturers. Samsung SDI, SK Innovation and GS Yuasa have chosen Hungary as their European manufacturing center to supply EV batteries to their European partners. These investments represent almost €500 million in 2018 alone. The biggest engine production factory of the world, the Audi Hungaria plant in Győr, has started production of the drivetrain for the first purely electric Audi model, the E-tron SUV. Capital investment into the Hungarian electronics sector reached a high of 10 projects in 2018, driven by e-mobility related deals.
The business services sector (BSC) won 10 projects. Hungary has one of the most advanced BSC markets in the Central Eastern European region, and its dynamic development characteristic of the past two decades has not lost momentum. Currently there are about 110 business service centers operating in Hungary, employing approximately 50,000 typically Gen Y workers with a degree and foreign language skills. Centers can provide their services in five languages on average, contributing to a great extent to the fact that professionals can find international career development opportunities in Hungary. High salaries, rapid advancement, promotion opportunities and broad use of foreign languages offer an attractive alternative for young people today, including in the long term.
About 80% of 2018 investments went to countryside locations. This shows that the different regions in Hungary are prepared to host significant investments. The well-developed motorway and telecoms network, the business-oriented local municipalities, the dual education system based on the German model and the creative and qualified labor force will continue to drive investors’ interest in Hungary.
This Investment Profile was prepared under the auspices of HIPA, the Hungarian Investment Promotion Agency. For more information, please visit www.hipa.hu.
Mark Arend has been editor in chief of Site Selection magazine since 2001. Prior to joining the editorial staff in 1997, he worked for 10 years in New York City at Wall Street Computer Review, ABA Banking Journal and Global Investment Technology. Mark graduated from the University of Hartford (Conn.) in 1985 and lives near Atlanta, Georgia.