Hungary, located in Central Eastern Europe with a population of 10 million, has nearly fully transitioned from a centrally planned economy to a market-based one since the fall of communism in 1989.  It is a member of the OECD (1996), NATO (1999) and the European Union (2004).

Per capita income is nearly two-thirds that of the EU-25 average and total GDP (purchasing power parity) is US$182 billion.  The private sector accounts for more than 80 percent of GDP.

Foreign direct investment (FDI) has helped modernize industries, create jobs, boost exports and spur economic growth.  Cumulative FDI stock has totaled more than US$90 billion since 1989, the highest in the region on a per capita basis.  Among the important sectors: automotive, IT, logistics and, more recently, shared services (e.g., back office and/or call center operations).

Funding from the EU has also driven growth, and will continue to do so.  Since 2004, EU funds have been used to improve telecommunications, energy and highway infrastructure.  As part of a second National Development Plan (2007-2013), Hungary will allocate approximately €25 billion (US$36.8 billion) in projects ranging from tourism and transportation to healthcare and environment.

The Government of Hungary (GOH) introduced a series of austerity measures in 2006 aimed at reducing the country’s budget deficit, which slowed GDP growth to 1.5 percent in 2007 (from 3.9 percent in 2006).

Analysts suggest 2008 will be better.  While Hungary still seeks to bring its budget deficit down to 3 percent of GDP, required by the EU for Hungary to adopt the euro.  But the consensus view is that growth will recover and inflation will wane in the coming year.

Market Challenges                        

Although Hungary can claim one of the lowest corporate tax rates in the EU (16 percent), the GOH introduced in 2006 a 4 percent “solidarity tax” as part of its austerity program.  This, together with the substantial healthcare and other social benefits costs companies must bear, as well as local municipality taxes, makes the total tax rate for businesses one of the highest in Europe.

Public procurement and tendering can be difficult for U.S. companies to negotiate.  Some projects, such as those funded by the EU, require participation by a European partner.  Often there is a preference for products from companies long established in the market.  The tendering process can be complex, with final decision-making criteria often opaque.

Rule making and permitting, especially at the local level, can be bureaucratic, inefficient and inconsistent.

Although Hungary adopted a market economy only 20 years ago, competition is fierce in virtually every sector.  Many of the market leaders are from Western Europe (especially Germany, Hungary’s leading trading partner), but increasingly Hungarian and Asian (e.g., Chinese) firms also play a formidable role in the economy.

All companies must comply with standards, regulations and certification requirements of the EU, which Hungary joined in 2004.  These may not be familiar to U.S. concerns.  See http://www.buyusa.gov/europeanunion/.
 
For more information on Hungary’s regulations, please refer to Chapter 3, Selling U.S. Products and Services and Chapter 5, Trade Regulations and Standards.

Market Opportunities                    
    
Hungary remains an attractive market for U.S. investment and exports. Hungary’s strategic location in Europe, access to EU markets, highly skilled and educated work-force, sound infrastructure and other advantages have led companies such as GE, Alcoa, AES, GM, IBM and many others to locate facilities here, both in manufacturing and services.

All told, American companies have invested more than $9 billion in Hungary since 1989, making the U.S. the 4th-largest foreign investor behind Germany, Austria and the Netherlands.

Meanwhile, U.S. exports to Hungary have topped US$1 billion dollars in each of the last four years, led by IT equipment, automotive components, industrial engines and other manufacturing supplies.  (From January through November 2007, U.S. exports to Hungary were US$1.18 billion, about on par with 2006 exports of US$1.19 billion.)

For a complete listing of the most promising industries, please see Chapter 4, Leading Sectors for U.S. Export and Investment.

Market Entry Strategy                        

The U.S. Government – through Embassy Budapest and the Departments of Commerce, State, and Agriculture – stands ready to support U.S. firms, whether entering or already doing business in Hungary.

The U.S. Embassy promotes a sound Hungarian business environment and advocates on behalf of U.S. companies bidding on major Hungarian Government tenders or facing business problems due to government policies.

In addition, the staff of U.S. officers and Hungarian commercial specialists at the Embassy’s U.S. Commercial Service (USCS) can assist U.S. firms to access the Hungarian market and solve commercial problems through USCS’s low-cost “Gold Key,” market research, and other services.