Last year, the Republic of Korea was the largest source of foreign direct investments in Hungary. The Hungarian Investment Promotion Agency (HIPA) played a pivotal role in many of these investment projects as its CEO, Róbert Ésik explains to Diplomacy&Trade.
He points out that 2019 was another successful year for Hungary in terms of foreign direct investments. “Altogether, agreements were made with 101 companies that committed themselves to investments in the value of EUR 5.35 billion and to the creation of about 13,500 new jobs. What made 2019 a particularly interesting year was that it was the first year in HIPA’s history that Germany did not top the list of foreign investors: approximately 50% of the investment value and one third of all newly created jobs were Korean. There were 11 Korean investment projects in a value of EUR 2.6 billion, creating about 4,400 jobs.”
Future proof industrial segment
The HIPA CEO is of the view that the Republic of Korea becoming the largest source country of foreign direct investments is the result of a process that actually began in 2016, the year when Samsung SDI made a decision to bring the production of electric vehicle (EV) batteries to Göd, north of Budapest. “From 2017 onwards, we had an ever increasing share of investment coming from Korea. If we look at the composition of the Korean investments, we can identify that most of these are related to electric mobility. If you look at the structure of the Hungarian economy, you can see that the automotive sector plays a very important role not only in terms of industrial output and exports, but also in terms of foreign direct investment. Since the automotive industry is a strategic one, it was very important for us to make sure that this industrial segment remains future proof. That is why in 2014, we decided to focus on two megatrends of that industrial sector: electric mobility and autonomous driving.”
“I remember that it was in 2014 when I had the opportunity to talk in person with Samsung SDI representatives about a potential EV battery investment in Hungary. I believe, that we have been successful first and foremost, because we had a good strategy in place which put these two automotive segments in the forefront. Secondly, which automatically generated interest among other potential investors, we have been able to establish a critical mass in these segments in the past few years. Altogether, 23 major investments have gone into electric mobility related fields in the past 3.5-4 years. The majority of these were Korean companies with some other Asian players like Japanese investors, but we also have a few other ones like Germans or Americans,” Róbert Ésik highlights.
Of course, investors are also checking the local business environment: regulations, taxation and the labor market. “I think we have been successful in presenting a skilled labor pool and a developed infrastructure as well as a competitive tax environment. On top of that, of course, we try to deliver a One Stop Shop management consultancy service to support our clients” he adds.
When considering a long-term commitment, investors would like to ensure that they have a stable environment in the given country from the economic and political perspective as well. The HIPA CEO is of the view that “independent of whether you are investing in manufacturing, software development or any other activity, stability and predictability play a very important role." Also, since 2014, the Hungarian government has been conducting a foreign trade focused foreign policy. "Thus we have a lot of focus foreign direct investments in our day-to-day activities. In fact, it is the role of HIPA as a professional organization to facilitate foreign direct investments into the country. Taking a Korean example, we have managed to develop a mutually beneficial partnership with SK innovation. We were in discussion with this company from the first day and were in touch
with them during the first site selection process."
By now, this company is building its second facility near the town of Komárom. ”We had an active role here but we could not have done this alone, without having fruitful cooperation with KOTRA and the Korean Embassy. We have been trying to make sure is that we deliver tailor-made information packages and provide a tailor-made consultancy ervices to prospective investors that are looking at Hungary as a potential location of investment.”
On top of that, there certain incentive tools and offers that make Hungary attractive. Since Hungary is a member of the European Union, it is clear that EU guidelines must be followed and local regulations must also be respected. The HIPA CEO believes incentives are important but, of course, they carry different weight in the different projects. “In certain cases, they could be the final push before making a positive decision in favor of a given country. So, I think it is worth having a good set of incentives but it is also important to be able to use them in a wise manner.”
In Hungary, there are three different legal titles to provide financial assistance. The first one is regional aid. According to EU regulations if an investor decides to invest in an underdeveloped region, underdeveloped by European standards, member states have the possibility to provide regional aid, which can be in the form of cash incentive or tax allowance, and they can be financed from the national budget or they can potentially come from EU-funded programs.
“The Hungarian Investment Promotion Agency is the managing body for the state funded VIP cash subsidy system which is a form of regional aid and, among others, Korean investors have been taking advantage of this opportunity. Another legal title and possibility for financial support is one related to the training of new employees. This training subsidy is available for companies that commit to creating a certain number of new jobs and wish to offer training to the new employees. In such cases, the state can cover potentially up to 50% of the training costs, up to EUR 4,000 per person. Last but not least, a few years ago we introduced a third element of the incentive portfolio where incentives are related to research and development. The important thing here is that this type of incentive is available throughout Hungary, including the capital city of Budapest. This is a tool that helps us transform the economy and attract more high value-add investments to the country. With this incentive portfolio, we are competitive in the central and eastern European region,” he explains.
The Hungarian government has three strategic partners that are Korean enterprises: Hankook, KDB Bank and Samsung SDI. From this portfolio it is clear that automotive related activities and electronics or e-mobility plays a very important role. In terms of medical devices, we have recently been able to conclude an agreement with Samyang to establish a new site in Hungary. We are trying to expand the scope of cooperation beyond automotive and electric mobility, and we are looking at the Korean medical, healthcare and cosmetics industry, which can be an area of future growth.