Germany is Hungary’s most important economic partner, the Hungarian economy highly relies on the ‘well-being’ of the German one. The CEO of the Hungarian Investment Promotion Agency (HIPA), Róbert Ésik explains to Diplomacy&Trade his agency’s role in attracting and maintaining German investment in this country.
“From the foreign direct investment (FDI) point of view, Germany is our number one trading partner: over 27% of Hungary’s foreign trade is with Germany and close to a quarter of all FDI in Hungary is from Germany. In 2020, HIPA successfully closed 907 projects that represent a total of EUR 4.1 billion of capital expenditure, creating more than 12,900 jobs in the coming years. 2020 was also a special year because, in addition to the normal large scale FDI projects that we usually deal with, we were also mandated with taking part in the government’s pandemic economic action plan aimed at preserving as many jobs as possible and relaunching the economy as early as possible. Within the framework of this plan, we launched several new subsidy programs and 810 out of the 907 programs mentioned were closed successfully. The remaining ones, that is, the large scale FDI projects, were the ‘business as usual' for us.”
He adds that within these 97 deals, German investors represented the highest share in terms of the number of projects: twenty of them altogether in a total value of EUR 438 million, creating some 1,500 new jobs. In terms of volume, Asian dominance continued from 2019-20: China, the Republic of Korea, Japan and India represented about half of all of the investment volume here in the last year. Another important business and investment community was that of the Americans who came up with the highest number of new jobs.
“As for improvements, we already have great cooperation with the large multinationals and we are able to welcome new investments from large German companies, but of course, as the German economy is strong, there is a wide network of family businesses there. They are mid-size firms according to German standards, but these are large-scale companies in Hungary. These are the businesses where we expect further investments from. Also, typically, when an investor decides on a new location, then, sooner or later, the optimization of the value chain starts. This opens up opportunities for Hungarian mid-size enterprises to enter these value chains as suppliers,” Róbert Ésik points out.
German automotive presence
Hungary is the only country in Europe outside Germany where the three German premium automotive OEMS (Audi, BMW, Mercedes-Benz) are, or will soon be, present with manufacturing capabilities – as a result of site selection. According to the CEO, “all three of these manufacturers have stepped on the road of electro-mobility. In case of Audi, it has already started the serial production of electric engines and made substantial investments in e-mobility. As for Mercedes-Benz, even during the pandemic year, they decided to build a new press shop. Before the end of the year, we could
also announce that a fully electric SUV, the EQB, would be manufactured in Kecskemét – the first fully electric vehicle to go into serial production in this country. With regard to BMW, the company’s management announced that their plant to be built would be an important part of their production network with the allocation of their battery electric vehicle platform there. As I said, we had twenty large deals from Germany in the past year alone. In addition, German companies have been very active in taking part in COVID-19 specific subsidy programs that we launched in 2020. In fact, German firms were applying in the highest number (67), after Hungarian companies, for funding from these programs. Altogether, they undertook to carry out investments in EUR 373 million, committing to preserving close to 46,000 jobs while receiving financial support from the Hungarian government. So, all in all, I believe that German companies have been among our partners in relaunching the economy in these pandemic times,” he summarizes.
Competitiveness and compensation schemes
He is of the view that these COVID-19 schemes have been an important element of the government strategy to relaunch the economy. “Basically, we introduced two new schemes of different legal titles. The first one based on the temporary framework of the European Commission announced at the end of March 2020. Then, in April, we were able to launch a subsidy program to help competitiveness with a maximum financial support of EUR 800,000. This amount was available to large and mid-size enterprises that committed to maintaining headcount and carrying out investment at least in half the amount they received as support. The second program was introduced in July after necessary approvals from the Commission. It was a compensation scheme, applicable to large enterprises with no upper limit of compensation, aimed to compensate companies with financial losses that occurred because of the pandemic. Again, the requirements were retaining jobs and carry out investments up to 50% of the support they get. All in all, we received 1,338 applications for these two programs combined. In 2020, we closed 810 cases, which means that many companies have already received financial support and we are currently working on the remaining few hundred applications and hope to conclude those in the first quarter of 2021.”
2021: challenges and opportunities
Regarding the new year, the CEO says HIPA carries on with its ambition to continue to successfully position Hungary as an ideal location to invest in and in that, they also count on the German investment community. “If I look at the current portfolio, we have 78 large deals under negotiation, they are either in excess of EUR 50 million or 250 jobs. These projects represent a total capital expenditure of EUR 13.3 billion and close to 32,000 new jobs. It means that there is a continued interest by foreigners to invest in Hungary.
E-mobility related projects are the most popular, representing 80% of the investment volume and 45% of new jobs. We have 23 projects related to the automotive sector while the medical sphere is a new element as the healthcare industry represents some EUR 250 million of potential investments – partly due to the pandemic –, possibly with close to 5,000 new jobs. Last but not least, in the service sector, there is continued interest towards Hungary and we are currently talking to a dozen potential investors who are thinking about setting up expanding business service centers in the region. Another aspect of the opportunities is the country of origin of the investments. As I said the Asian dominance continued in 2020 and we expect something similar in 2021, too. Despite facing the challenges of the pandemic, we have good chances of concluding significant deals in 2021 as well,” Róbert Ésik concludes.