Companies and brands like Tungsram, MOL or OTP have long been known internationally. As to how much these and other similar firms have enhanced the image of the ‘Hungarian’ brand, Diplomacy&Trade talks to the State Secretary for Financial Affairs at the Hungarian Ministry of Finance, Gábor Gion who also shares his thoughts on the Hungarian economy’s recovery from the crisis caused by the new coronavirus epidemic.
The State Secretary highlights that these companies and brands listed do enhance Hungary’s image and ‘Hungarian’ as a brand and he would welcome more such brands emerging in Hungary, brands that are first known in this East Central European region and then perhaps globally. He adds that he usually looks at brands in broader terms, pointing out that the Hungarian business environment, Hungary, and including Budapest, as a destination for international tourism is a brand. Of course, this has changed with the pandemic but he hopes that things will change for the better in a couple of months. He believes that when talking about brands, it is particularly important that one looks at them in a broader scale – not just as a product but also as a place to live, as a place to visit, as a place to do business in, as a place to invest in. He is of the view that in the past couple of years or decade, Hungary has further emerged as a brand in these areas.
Regarding Hungarian intellectual potential and how much this contributes to the country’s economic development internationally, Gábor Gion stresses that when talking about Hungarian intellectual achievements, there are these usual and true mantras about Hungarian Nobel Prize winners, Hungarian inventions. Hungarian intellectual potential is well-known and is important. If translated into modern economic terms, the Hungarian intellectual potential is being discovered by foreign investors as well. In the 1990s, Hungary was kind of a place or destination for investments built on cheap labor, intense manufacturing. Now, this has gradually shifted to higher value-added segments of the economy such as professional services. Regarding the number of shared service centers that operate in Hungary, they are well over a hundred and still expanding.
Also, there are more and more domestic and foreign companies investing in research and development, establishing R&D centers in this country, harvesting specifically on the Hungarian intellectual potential, which is wellknown to Hungarians but it looks like it is becoming more of a common knowledge globally also, turning gradually into a Hungarian brand, which is good news for the country and good news for its economy.
The COVID-19 pandemic struck economies worldwide, prompting different responses in different countries. When touching on the policy of the Hungarian government in tackling this economic, social and health crisis, the State Secretary stresses that Hungary, just like the rest of the world, faces an economic and social crisis that is actually caused by a health issue, the root cause of the current problems. He underlines that first and foremost, the Hungarian government’s aim is to address this healthcare issue, combatting the pandemic and saving lives. That is the No. 1 priority.
Another priority is to mitigate the negative effects of the economic downturn and work heavily on maintaining the output level of the economy. Also, it is to protect jobs, and even creating new ones.
As regards successful measures by the Hungarian government in the past 10-12 months to help people and companies, Gábor Gion is of the view that it is a bit premature to actually rank the various measures by their success because the downturn and the crisis is not yet over. One has to take an inventory of the effectiveness of these steps after the crisis. The Hungarian measures taken include tax reliefs, direct subsidies, monetary stimulus – all adding up to 30% of the GDP, one of the highest levels of response in Europe. As for the unemployment figure, which was 3.5% before the pandemic, it went up to 4.7% by December 2020, which is an increase but at the beginning of the crisis, everybody expected a much worse situation and a much higher level of unemployment. When it comes to actually protecting jobs, the State Secretary believes that the country has been very successful, so far, and hopefully, this will last.
Two major aims appearing in government declarations is the protection of jobs and the maintenance of competitiveness. At the conference of the Hungarian Business Leaders Forum (HBLF) last October, the Minister of Finance, Mihály Varga stated that “it is up to the jobs to maintain economic performance, to which the government must contribute by improving competitiveness.”
As the State Secretary puts it, competitiveness domestically and internationally is a complex issue, stating that improving competitiveness is a never-ending job because there is always room
for improvement. When it comes to Hungary and being competitive in terms of attracting businesses and investments, he is of the view that the country is very successful in that. When considering the amount of new foreign direct investments, the amount private investors have been committing to new production capacities since the start of the pandemic is HUF 2,500 billion. At the moment, investments in progress in manufacturing capacities amount to HUF 6,500 billion.
When these investment projects will be up and running and actually in operation, that could add 20-25% points to the GDP. This shows that when it comes to measuring competitiveness from the angle of attractiveness, Hungary is doing really well. It is also beneficial to the competitiveness of Hungarian companies, especially in the SME sector.
To complement investment dynamics, targeted policy support is provided to strategic sectors, most notably the health industry. An ambitious Egészségipari Támogatási Program (ETP/Health Industry Funding Scheme) has been designed to address some vulnerabilities identified during the COVID-19 crisis, Gábor Gion adds. It provides for HUF 68.0 billion to be allocated to domestic healthcare manufacturers to ensure that the procurement and manufacturing of sanitizers, masks, surgical gloves and ventilators among others can be carried out through Hungarian investments.
Minister Varga also mentioned at that conference that the majority of EU aid had already been committed by the government. Speaking about the main considerations when allocating European
Union funds in Hungary, the State Secretary mentions as the largest and more imminent funding the recovery and resilience facility where Hungary is entitled to about EUR 6 million of non-refundable grants and EUR 9-10 billion of preferential loans. In order to actually access these funds, the Hungarian government has submitted what is called a national reform program that the European Commission needs to approve – this is a work in progress. Once the Commission’s guidance is received on how to use these funds, green and digital elements of this program will be applied and more can be said about this probably in a month or two.
Continued recovery expected
When asked about the recovery chances of the Hungarian economy from the crisis caused by the pandemic, Gábor Gion says it is very hard to provide any prediction concerning this new coronavirus pandemic as there is great uncertainty about the situation and it is all subject to the behavior of the virus. If one looks at the country’s economic performance in 2020, the Hungarian economy contracted by 5.1%, which is clearly better than had been expected. The Finance Ministry actually foresaw a decline of over 6%, so, this is clearly good news, which indicates that the economy was resilient and strong and it recovered at least in most of the segments. There are, of course, segments that have not recovered and they will not recover as long as the healthcare situation is not settled reassuringly. Industry has recovered, consumption has recovered, some of the service sectors have recovered. That is the good news, Gábor Gion says.
For this year, the Ministry expects to achieve economic growth. As the State Secretary mentioned earlier, all this very much depends on the behavior of the virus, which is an issue of great uncertainty, so, the estimate might change as the situation evolves. For the first quarter of this year, they still estimate a slightly worse performance than what was recorded in the first quarter of last year – that of the first three months of 2020 could still be considered to be a good performance. As for this year, a significant additional rebound is expected and return to the previous levels of economic performance, Gábor Gion concludes, striking an optimistic note.