Economic perspectives on hungary (ppt)
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Economic perspectives on hungary (ppt)



An overview on Hungary's economy and business structures and international relations - Regional Studies with Mr. Zschiedrich

An overview on Hungary's economy and business structures and international relations - Regional Studies with Mr. Zschiedrich



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    Economic perspectives on hungary (ppt) Economic perspectives on hungary (ppt) Presentation Transcript

    • Regional StudiesProf. Dr. Zschiedrich HTW-Berlin 8 February 2012 Michael Gross Philipp Hennig Philipp Christians Kasey Navita Phifer
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 2
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 3
    • Country Overview – Republic ofHungary Population: 9,979,000 Capital: Budapest Political System: Parliamentary Republic Geography: ½ flat to rolling plains of the Pannonian Basin, highest elevation 183 m Religion: mostly catholics 55% protestants 20% Member of NATO, OECD, EU and IMF EU member since 2004 but no Euro yet (Forint)
    • Country Overview – Republic ofHungary Was integrated in Habsburg Monarchy 15 March 1848 Hungarian Revolution  Austria- Hungarian dual monarchy (1867 – 1918) 1914 – 1918 WW1 attacked by Germany unsuccessfully 1918 Aster Revolution in Budapest  Mihály Károlyi first prime minister  Disarmament led to falling appart 1919 Communists took power  Hungarian Soviet Republic 1920 Treaty of Trianon  losing 71% terretories, 66% population and seperating sources of raw material from factories and the only port
    • Country Overview – Republic ofHungary WW2  1941 decleration of war to soviet union  1943 negotiations to surrender  1944 occupation by germans Communist era 1947 – 1989  Communist satelite state  Militaristic, industrial, compansating policies Hungarian Revolution 1956  Withdrawl from Warsaw Pact
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 7
    • Transition Process in Hungary Political Transition  The third Hungarian Republic 1989 – present  Causes:  Demonstrations, riots with more than 75,000 people  Opposition Round Table Consultations for introducing  Multi-party democracy  Market economy  Change of power  Take down of barbed wire fence to Austria  Even more than 250,000 people asking soviets to leave  September 1989 East German refugees could go to west which brought Berliner Wall down  October 23ed Hungary became Republic  Firs free elections march 1990 (centre- right won)
    • Transition Process in Hungary  Hungarian Democratic Forum (MDF) provided sound government to transition to market economy  Declining living standards  Removal of subsidies  recession  Fiscal austerities to reduce inflation  May 1994 Hungarian Socialist Party majority  1998 EU negotiations  2003 national referendum with 85% favouring EU  May 1st 2004 member EU
    • Transition Process in Hungary Economic Transition 1. The Way Out (1989 – 1996)  Significant steps towards macroeconimic stabilisation  Creation of workplaces  Reducing corruption level  Attract FDI  Privatisation cheap but obligation to modernise/add investment  Tax reduction for greenfield investments and reinvestments  High level of infrastructure investment  Cut social spendings and pensions  Still negative economic growth
    • Transition Process in Hungary 2. Development (1996 – 2002)  Tax reductions for advanced workplaces/research institutes  Accumulation of capital  multinational  Economic growth was 2xEU avarege 3. Stagnation (2003 – 2004)  Compansation to workers and pensioners (public sector)  inflation, declining FDI, less competitiveness/effectivenes
    • Transition Process in Hungary EU Access  Joined May 2004  Required democratic, economic and institutional reforms have resulted in the creation of a market economy  EU-Membership should facilitate access to EU-Funds  2005/06 budget deficit (10% of GDP)  Fiscal consolidation by tax increase, decreasing subsidies, streamlining public sector  2008 deficit at 3.4% of GDP  Domestic consumption & GDP growth declined
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 13
    • Current Economy Cost-efficient transport infrastructure – optimal connection to Western and Eastern Europe (rail- and highway) Traditional supplier of Western Europe Developed social infrastructure (health, education, culture, leisure) Developed network of industrial parks Highly-skilled labour force Highly-qualified labour force with good foreign language skills 8 Feb 2012 Gross - Hennig - Christians - Phifer 14
    • Current Economy8 Feb 2012 Gross - Hennig - Christians - Phifer 15
    • 8 Feb 2012 Gross - Hennig - Christians - Phifer 16
    • 8 Feb 2012 Gross - Hennig - Christians - Phifer 17
    • 8 Feb 2012 Gross - Hennig - Christians - Phifer 18
    • 8 Feb 2012 Gross - Hennig - Christians - Phifer 19
    • Graph inflation  inflation rate at 4.1 percent in Dec 2011  1992 until 2010, the average inflation rate 12.01 %  reaching an historical high of 31 % (June 1995)  record low of 2.3 % (March 2006)8 Feb 2012 Gross - Hennig - Christians - Phifer 20
    • Government debt  2010: State debt over 80% of GDP (67,1% in foreign currencies)  1,5 Million foreign currency private debtors in Hungary • 2014: Public deficit under 2% of GDP • 2014: State debt under 65-70% of GDP • Relieving the credit burden of the populationHungary is paying back its debts towards the EU and the IMF byNovember 2011 without contracting new ones.8 Feb 2012 Gross - Hennig - Christians - Phifer 21
    • Challenges- Employment Employment rate: 55% of 15-64-year-olds (only every second)  EU-average: 64,6% 1 million people work illegally Objectives • Converting illegal employment into legal one • Creation of one million tax-paying new jobs • Tax and social system encouraging working • flexible working regulations and competitive business environment8 Feb 2012 Gross - Hennig - Christians - Phifer 22
    • Hungarian- German Economic Relations  Germany is Hungary’s most important economic partner  Turnover about 35 bn EUR  Germany’s export to Hungary 16.8 Mrd EUR  Germany’s share in Hungarian exports over 25%: 18 Mrd EUR8 Feb 2012 Gross - Hennig - Christians - Phifer 23
    • Hungarian- German economic relations  Main industries: automobile, renewable energy, logistics, aerospace  German Investments: Audi 900 Mio. €, Daimler 800 Mio. €, Opel 500 Mio. €  Relatively low production costs  Highly-qualified work force  Special taxes for automotive industry  Government measures:  reduction of burdens of companies,  dual vocational training,  cutting red-tape and corruption8 Feb 2012 Gross - Hennig - Christians - Phifer 24
    • Foreign trade  Vital foreign trade due to:  Very open economy  Central location in Europe (East-West bridge)  Settlement of big multinational companies top customers of Hungary:  top suppliers:  Germany (26%),  Germany (25%),  Italy (5.3 %),  Russian Federation (9%),  Austria (5 %),  Austria (6%),  France (4.7 %),  China (5.7%)  United Kingdom (4.5%)8 Feb 2012 Gross - Hennig - Christians - Phifer 25
    • Foreign Direct Investment  German FDI in Hungary: 15 billion EUR8 Feb 2012 Gross - Hennig - Christians - Phifer 26
    • Direct Foreign Investment Reinvestments Green-field Investments Privatisation 1990 20108 Feb 2012 Gross - Hennig - Christians - Phifer 27
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 28
    • Analysis of Investment Opportunities and Tax System
    • Agenda  Challenging situation in Hungary  Facts about Hungary  Main Advantages for Foreign Business  Foreign Direct Investment (FDI)  Investment Opportunities  Investors‘ Testimonial  Business Relations to Germany  Legal Framework for Investments  Tax System of Hungary  Recap & Outlook Sources: 1) ITD Hungary: „Hungary: The added value“, 2007 2) BrückeBulletin: „Ungarn“, 2008 3) Wirtschaftsministerium und ITDH: „Das ungarische Steuersystem“, 2002
    • Challenges for HungaryHungary experienced difficult periods of economic developmentdespite being frontrunner in change processes: Decrasing economic growth and income per capita, growing inflation, higher expenses of public capital than income Need for short-term financial restructuring, further reforms in health-, education and social sector as well as a new definition of the government‘s role Increase of income but also a radical cut of public expenses strongly affected public sector, private business and people. Yet leaded to the recovery of the household deficit and further consolidation processes. Improved international business relations and attractiveness for foreign investments boosted production of manufacturing and export.
    • Facts about HungaryA great place to live and A great place for foreign investors:work with a high quality oflife and expat satisfaction.
    • Main Advantages for Foreign Business (1)Strategic location to seek new markets: • Ideal base for investors eyeing more distant markets or planning further expansion within central Europe or the European Union • Ideal bridgehead to access Eastern European markets due to adequate relations and experiences of Hungarian companies • Strong bond of Hungarian economy towards Europe and EU and integration in the domestic market of the EU • Closeness to four countries poised to join the EU • A single market of 500 million consumers due to EU accession
    • Main Advantages for Foreign Business (2)Solid and effective economy:  Stable political and macro economical framework: successful foreign trade relations, double-digit export growth, improved balance of trade  Steady stream of foreign capital across the various sectors of the economy (2.5-3 billion Euros per year / 90 billions US Dollar in 1990-2007)  Settlement of the biggest multinational manufacturers and service providers, yet also their suppliers and subcontractors  Highest Foreign Direct Investment (FDI) in this region: 47 billion Euros to date  Based on privatisation (starting in the early 1990s) and investments in new • Innovation power and high quality products to date industry facilities and establishment of R&D centers and business services • Common technological principals and high quality of manpower (advanced professional education and inventive people) • Excellent and continuously improving infrastructure
    • Main Advantages for Foreign Business (3)Investment support by the Hungarian government:  Interested in further establishing a business- and investment friendly environment and in adapting to the market demands  More cost efficiency through EU-conform policy of investment stimulation  Effective public services and decreasing administration charges for companies  Low labor costs and company friendly tax concessions  A subvention package for investments of minimum 10 million Euro including: • Direct subventions: based on individual analysis and decision, not to reimburse • Tax remission: exemption from 80% of business taxes for 10 years • Subvention of employment generation: for particular weak regions, not to reimburse • Subvention of education: 25-90% of costs, not to reimburse  Amount of subvention depends on investment value, 100% for 50 million Euro investments
    • Land of Welcome for Foreign Investors:Hundred of foreign companies have located in Hungary and thenumbers continue to increase. 18.000 100% foreign-ownedcompanies and 27.000 companies with foreign participation.
    • New Structure for Foreign Direct Investment Advanced technology and innovation: • Shift to advanced production technology of goods with higher added value and establishment of high class services • Biggest export volume with hightech goods (12 billion Euros) • Establishment of R&D centers, regional centers for business services, software evolution, biotechnology etc.• Presence of the largest multinational car manufactuers:  Investment in the automotive sector (11% of FDI stock) • Growth in the associated service sectors (regional service and R&D centers) • Establishment of production and assembly facilities as well as their major international suppliers and their subcontractors
    • Most Attractive Investment Opportunities (1) Automotive Industry: Longstanding tradition in Hungary; Suzuki, Audi, GM, etc. and their suppliers; 100s of Hungarian equipment manufacturers• Electronics: Innovation in information technology, consumer electronics, communications, auto eletronics; Nokia, Philips, Siemens etc.• Information technology: 10% growth rate in IT; ever-increasing role of outsourcing; relocation R&D activities (Nokia, Siemens, Motorola, etc.)
    • Most Attractive Investment Opportunities (2)• R&D and Innovation: Many cultural achievements were invented by Hungarian scientists, e.g. radio, electric train; conduction at universities• Biotechnology: Tradition in life sciences; concentration of highly qualified specialists and reseachers in synthetic chemistry and biotech• Logistics: Several hundred high-quality logistical service providers for easy access of each center; role as a transit country; industrial parks
    • Investors‘s Testimonial Accor• Audi• AVIS• Bosch• Diageo• Duolog• Getronics• Le Bélier• Nief Plastic• The Michelin Group
    • Business Relations with Germany Specific advantages of Hungary with regard to Germany  Inbetween the 1000 km wide radius of small and middle class companies  Similarities in culture, values, mentality, creativity and motivation alleviate the collaboration of business men  Close political relations with Germany, but also with Austria and Switzerland and cooperation with several governments Germany is trade partner No. 1 • Increasing export from Hungary to Germany (+20% in 2008) and vice versa (+12%) with a focus on machines, means of transport, consumer goods • Vivid exchange particulary with Bavaria, Baden-Württemberg, Hamburg, NRW and Hessen • German affiliates in Hungary as relevant part of its economy (e.g. Audi, Robert Bosch, Kirchhoff-Group, ThyssenKrupp Steel AG) • High satisfaction with qualification of manpower in Hungary, yet crucial about business chances, economic policy and tax system
    • Legal Framework for Investments Business foundation: Decision for an appropriate legal form: GmbH, AG, branch Estate acqusition: considering planning- and environmental law as well as regulations of local administration departments (e.g. coverage with buildings) Archeological evaluation of the building ground Building license and construction contract: „Grundsatzbau- genehmigung“ to clarify planned building and technical feasability and to fix conditions Licence to bring into service: approval of operation (retail, host industry) or a licence for location (production including certain dangers for environment or people)
    • Tax System of Hungary (1)A complex tax system which refines continuously to serve theeconomic demands and fits into the EU standards • Tax agreements (OECD) with more than 50 countries which invalidate the Hungarian tax system if it is less beneficial • Appliance and interpretation of tax agreements mainly influence the decisions about foreign investments • Demanding registration period for data with a limited amount of details yet extensive fines for incomplete and delayed tax paymentsCurrent taxes: corporate- and bonus tax, personal income taxand purchase tax, local business tax, social security tax, etc. • Corporate (18%) and bonus tax (20%): governmental companies, Ags, GmbHs, KG, OHG etc.; based on the untaxed results (incl. amortisation)
    • Tax System of Hungary (2)Financial incentives and tax concessions due to creation ofproduction and employment, e.g. • Minimum 12 million Euro investment: 100% for 10 years • Investment located in a certain business region: 100% for 5 years • Minimum 4 million Euro investment: 50% for 5 yearsTax concessions for investments with development intent  Premise: highly relevant for national economy  Minimum 40 million Euros in any region or 20 million Euro in particular weak regions
    • Recap & Outlook„When business men asking for most attractive industriesand most adequate investment goals, Hugary can offer all that.“(Ábel Garamgegyi, Hungarian Secretary for international business relations) It says, that 7% of the FDI stream to East Europe until 2011. Hungary should rank on the 2nd position and keeps frontrunning in FDI per capita in the next years.
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 46
    • Automotive Industry in Hungary Car manufacturers (and suppliers, parts manufacturers, etc.) thrive in Hungary  Central location (within EU) & skilled workforce  Tax incentives & financial subsidies  Suzuki and Opel began producing automobiles in Hungary in 1992 (the first produced there since before World War II !!)  Today, 17% of total Hungarian exports come from Audi, Opel and Suzuki  Automotive sector employs ca. 90,000 people in more than 350 car component manufacturing companies8 Feb 2012 Gross - Hennig - Christians - Phifer 47
    • Automotive Industry in Hungary  Approx. 90% of manufactured vehicles are exported  + 80% of engines and components are exported  Around 86% of exports are to countries of the EU. Hungary has a particularly strong export relation with Germany, and among countries outside the EU with Russia. Source: de29c6a838758 Feb 2012 Gross - Hennig - Christians - Phifer 48
    • Automotive Industry in Hungary Key Export Products Key Export Products Source: www.hita.hu8 Feb 2012 Gross - Hennig - Christians - Phifer 49
    • Case Study: Audi Audi is positioned as the premium brand of VW The four rings of its logo each represent individual car companies that banded together to create the union Audi founder: August Horch (1868–1951) - established the company A. Horch & Cie. in Cologne - soon left the company and started Horch Automobil-Werke GmbH a few years later in 1909 Audi is Hungary’s largest exporter Total investments in Hungary are over € 3,300 million (until 2007) Audi built EU’s largest engine manufacturing plant (3rd largest in the world) in Györ8 Feb 2012 Gross - Hennig - Christians - Phifer 50
    • Case Study: Audi Audi assembles the Audi TT, Audi TT Roadster & A3 Cabriolet in Hungary. The plant also delivers engines to carmakers Volkswagen, Skoda, Seat & Lamborghini8 Feb 2012 Gross - Hennig - Christians - Phifer 51
    • Audi‘s Competitors in Hungary  Daimler-Benz invested €800 million in building a plant in Kecskemét - creating ca. 2,500 jobs - w/ capacity for producing 100,000 compact cars per year  Opel produced 80,000 Astra & 4,000 Vectra cars between 1992 – ‘98 in Szentgotthárd Today, the Opal plant produces about half million engines and cylinder heads a year.8 Feb 2012 Gross - Hennig - Christians - Phifer 52
    • Audi‘s Support in Hungary  The automotive industry also ensures that it has a well- qualified and highly skilled labor force to hire from by working closely with universities  Audi can essentially be certain that it will find workers for specific jobs / needs it requires  Different universities & colleges have different specialties and areas of expertise  Pooling together resources and knowledge creates more demand from auto manufacturers for research and co-operation8 Feb 2012 Gross - Hennig - Christians - Phifer 53
    • Different regions in Hungary focus on different competencies in order to align their academic and industrial priorities8 Feb 2012 Gross - Hennig - Christians - Phifer 54
    • Goals of Academic & Regional Co-operation  To form horizontal co-operation among the universities involved in research and education in automotive engineering, thus:  Creating a higher level of networking in order to better utilize the research & education infrastruccture  Unifying the education curricula (same understanding and content of educational disciplines)  Sharing the main competency fields depending on demand of local industry (shown in next slide)  Forming enough support for international R&D projects8 Feb 2012 Gross - Hennig - Christians - Phifer 55
    • University Primary competence Secondary competence Source: Prof. Dr. Károly Belina, Kecskemet College • Vehicle technology • Mechatronics Budapest University of • Auto-electronics • Production Technology and Economics • Material technology • Vehicle technology Kecskemét College • Production • Drive systems • Production Miskolc University • Mechatronics technology • Materials • Vehicle engineering Óbuda University • Mechatronics • Mechatronics • Informatics Pannon University • Fuels and lubricants • Engine and driveline • Mechatronics Széchenyi Egyetem • Production and manufacturing8 Feb 2012 Gross - Hennig - Christians - Phifer 56
    • Audi‘s Support in Hungary Cooperation with universities can have some disadvantages:  Time lag from creation of new study program to when the students graduate & enter the work force  Demand for skilled workers can be higher than supply  Automotive industry requires not only engineers, but also marketing, sales, translators, etc. which may be difficult to find8 Feb 2012 Gross - Hennig - Christians - Phifer 57
    • Outline  Country Overview  Transition Process  Current Economy  Financial incentives  Case Study of Automotive Industry: Audi  Conclusion: Hungary’s Economic Outlook8 Feb 2012 Gross - Hennig - Christians - Phifer 58
    • Conclusion: Hungary‘s Economic Outlook  Generally positive if they can minimize gov. spending  Should try to protect itself from macro economic vulnerability (auto industry suffering in recessions, for example)  Best to consolidate loans, minimize debt & be more self-standing (protectionist but still open)  Hungary‘s future looks to be full of positive economic growth and prosperity, heavily fueled by industry8 Feb 2012 Gross - Hennig - Christians - Phifer 59
    • Thank You for Your Attention8 Feb 2012 Gross - Hennig - Christians - Phifer 60
    • References     http://wikipedia.org8 Feb 2012 Gross - Hennig - Christians - Phifer 61