Hungary:

1

• Hungary
• An Investment Opportunity!

Suzanne DERKSEN Soukkasem LOMATHMANYVONG Christia
n MUNZ
2
Analysis Framework

• I. Country overview
• II. Macro-economic analysis
• III. Balance of payments analysis
• IV. Debt flows and stocks analysis
• V. Legal and regulatory framework
• VI. Rankings and ratings
• VII. Comparison with Poland and the Czech
  Republic
• VIII. Conclusion

3
I. Country Overview
4
Magyar Köztársaság
back
5
Natural resources
I. Country overview

• One of the worlds most important bauxite
  producers, brown coal, lignite and natural gas
  reserves, fertile soils providing grains, sugar
  beet and potatoes, wine production
• Due to insufficient mineral and energy resources
  heavily depending on imports
• Diversification from heavy reliance on Russia for
  its oil and gas needs is a stated policy
  objective

Source Countrywatch, PWC, CIA
6
I. Country overview

• The people of Hungary
• Population 10.106.017 million (as of 07/01)
• Growth rate -0,32
• Labor force 4,2 million (1997)
• Urban/rural population split about 1/5 living in
  Budapest
• Life expectancy 71,63 years male 67,28
  female 76,30
• Population density, rural (people per km²) 63,8
  (1999)
• Literacy rate 99

Source Countrywatch, CIA
7
The people of Hungary
I. Country overview

• Ethnically homogeneous
• Although there are 13 officially recognized
  minorities, these are protected by the
  constitution and the 1993 Minority Act, having a
  right of representation in Parliament
• Little ethnic tension, although there is
  considerable concern about the treatment of
  Hungarian minorities in neighboring states

Languages Hungarian 98,2, others 1,8
Source World desk reference, CIA
8
The people of Hungary
I. Country overview

• Culture
• Unlike most Europeans, Hungarians trace their
  lineage to the Finno-Ugric people, an Asian
  tribe. For this reason, Hungarians have long felt
  themselves to be distinct from the other peoples
  who live in their midst
• The country has one of the finest folk traditions
  in Europe
• Hungary is a highly musical country its musical
  contributions are rich, and range from the
  rhapsodies of Franz Liszt and the operas of
  Ferenc Erkel to Gypsy and folk music
• After four decades of Socialist influence,
  Hungary has been striving to regain its long
  established European identity, in terms of both
  politics and culture

Source Lonely Planet, EU
9
History
I. Country overview

• 750 Carpathian Basin populated by nomadic
  Magyars
• 1000 The coronation of prince Stephan I gave
  birth to the independent unified nation of
  Hungary
• 1699 Part of the polyglot Austro-Hungarian Empire
  after the expulsion of the Turks
• 1867 Part of the Austro-Hungarian Dual Monarchy
• 1918 After WW I establishment of a republic,
  followed by a 25-year regency under Admiral
  Miklos Horthy
• 1944 Although Hungary fought as a German ally in
  WW II, it unsuccessfully tried to switch sides
  and fell under German military occupation

Source CIA
10
History during socialist era
I. Country overview

• 1945 Majority control of a coalition government
  to the Independent Party of Smallholders
• 1947 With Soviet support, Matvas Rakosi began
  to establish a socialist dictatorship
• 1956 An anti-Soviet revolution was brought
  down violently, after Hungary had announced
  its withdrawal from the Warsaw Pact
• 1956 4 Nov., János Kádár announced the
  formation of a new government

11
History during Socialist era
I. Country overview

• 1960 Kádár introduced milder form of communist
  rule, so-called goulash (consumer-oriented)
  communism
• 1980s Kádárs reforms made it the most
  developed, most liberal and the richest nation
  in the region
• In the more open Gorbachev years, Hungary led
  the movement to dissolve the Warsaw Pact and
  steadily shifted toward multiparty democracy and
  a market-oriented economy
• 1989 Soviet Union signed an agreement in April to
  withdraw forces by June 1991, the nation became
  The Republic of Hungary
• 1990 Hungarys first free, multi-party elections
  won by MDF

Source CIA, Countrywatch
12
Political and economic transition
I. Country overview

• Hungary in the last decade has experienced a
  series of sweeping changes, which have
  transformed it from a socialist (centrally
  planned economy) to a capitalist country
  (thriving market-based economy)
• Hungary developed close political and economic
  ties to Western Europe
• Result
• a stable democracy with high international
  prestige
• Hungary is accepted and appreciated among
  international organizations such as the NATO,
  OECD, WTO, UN, WB, CEFTA

Source CIA, KPMG, American Memory
13
Political history
I. Country overview

• - Hungarian Democratic Forum wins founding
  elections
• - Jozsef Antall Prime Minister
• - Begins significant economic reforms,
  particularly in trade and FDI, but does not
  complete social welfare and external debt
  rationalization
• - Elections focused largely on economic issues
  and the substantial decline in living standards
  since 1990
• - Hungarian Socialist Party formed coalition
  with Alliance of Free Democrats
• - Gyula Horn Prime Minister
• 1998 The current government

Source Country Watch
14
Political Main Actors
I. Country overview

• Viktor Orban (38 yrs old)
• Prime Minister since 6 July 1998
• Party leader of Fidesz
• Under his command economy has grown
  significantly, unemployment has dipped as well as
  inflation
• Leaders of Hungarys neighbors dislike him due to
  nationalism

• Ferenc Madl (69 yrs old)
• Law professor
• President since August 2000
• Little executive power
• Intends to draw attention to major social
  problems such as poverty and the disadvantaged
  situation of the Gypsy population
• Is on record as stressing the importance of
  Hungary finding its place in the European context

Source Hungarian government
15
Political parties
I. Country overview

• Federation of Young Democrats
• 148 seats
• Mainstream conservative, right wing party
• Party leader Viktor Orbán

• Independent
• Smallholders Party
• 48 seats
• Agrarian conservative, nationalistic, centric
• Party leader Jozsef Torgyán

• Hungarian Socialist Party
• 134 seats
• Direct successor of the Hungarian communist
  party, now social democratic
• Party leader László Kovács

Source Hungarian government
16
Current government policies
I. Country overview

• The Szechenyi plan Hungarys national economic
  development plan that lists the priorities for
  government policies and establishes the direction
  for medium term economic development
• Seven primary areas covered by the plan
• Offer support to set up companies
• Build homes
• Develop tourism
• Research and development
• Create an information society
• Construct roads
• Boost economic development in the regions

Source EBRD
17
Power structure
I. Country overview
Positive Influence
EU
Legal System
Orbán
Foreign Investors
Corruption
Negative Influence
18
EBRDs commitments
I. Country overview

• Over 90 of EBRD's commitments have been targeted
  at private enterprises or the privatization of
  state-owned companies
• As at 30 June 2001, the Bank had signed 64
  projects in Hungary for a total of 1.2 billion,
  with a total value of 4.9 billion
• A total of 58 operations (974.3 million) were
  implemented in the private sector, and six in the
  public sector (200.3 million)
• ? In future EBRDs commitments are expected to
  decrease

Source EBRD
19
Outlook for becoming an EU member Progress yet
to be made
I. Country overview

• Funding for underdeveloped regions should be
  increased
• Progress towards price stability should be
  strengthened
• Need for financial consolidation
• Financial sector supervision needs to be improved
• Progress on fighting the grey economy in order to
  enhance the sustainability of its public finances
• Program to assist the integration of the Roma
  population
• Government intervention in the media should be
  curtailed
• Need to reinforce recent efforts on fighting
  corruption
• Recent disagreements on agricultural reform and
  economic assistance to the accession countries
  following entry have slowed negotiations
• Very good outlook but not likely before 1 January
  2004

Source EBRD, EU progress report, IIF
20
Corruption
I. Country overview

• Hungarys CPI rate for 2001 is 5.3
• Hungary signed the OECD Convention on December
  17, 1997
• Recently, Hungary was added to the Financial
  Action Task Forces list of money-laundering
  countries due to regulations that permit the
  opening of an unlimited amount of anonymous
  deposits accounts
• Hungary plans to repeal this legislation next
  year
• BUT
• Hungarian political life seems to be partners in
  crime
• Mistrust in politics by Hungarian people

Source Transparancy International, Central
Europe Review, OECD
21
Political outlook after the elections
I. Country overview

• The first round of the parliamentary elections
  was held on 7 April 2002
• The Federation of Young Democrats (Fidesz-HCP)
  suffered a narrow defeat from the opposition, the
  Hungarian Socialist Party (HSP), led by Peter
  Medgyessy
• HSP obtained 93 parliamentary seats while Fidesz
  booked only 87
• The second round is scheduled for 21 April
• ? Immediately after the result was announced the
  BUX leaped to an 18 months high!

Source Reuters
22
II. Macro-economic analysis
23
II. Macro-economic analysis

• Economic development
• As early as the 1960s, commercial relationships
  and familiarity with Western practices began to
  develop
• Since the shift in 1989, governments have pursued
  an open and liberalized market economy
• During the early 1990s, the transition faced high
  external debt, soaring unemployment and
  inflation, and a decrease in industrial output
• ? GDP plunged by nearly 20 from 1990 to 1993
• Hungarys current economic expansion began in
  1994, fueled by growing FDI inflows and the
  restructuring and stabilization programs
• Between 1997 and 2000, the economy had been on an
  impressive growth path, expanding at around 5
  each year, while the fiscal and current account
  balances have remained stable
• The impressive economic performance in recent
  years and especially in 2000 is largely export
  driven, whereby Hungary benefited from strong EU
  growth

Source EBRD, statistical report 10/2001,
Countrywatch, Euromoney
24
II. Macro-economic analysis
source EBRD, WB, CW, IIF, PWC, BIS, Index of
economic freedom, Euromoney, Central Bank
25
II. Macro-economic analysis

• Economic development
• In 1999, the economy finally recovered to a level
  equal to the 1989 peak performance of its
  communist-era predecessor
• In 2001, Hungarys economy was also affected by
  stagnation in the world economy growth rates of
  GDP, exports and investment slowed down
• The country is still in a favorable situation
  with all indicators remaining below the level of
  those in the developed regions of the world
  double-digit growth in trade turnover, tourism
  and industrial production continued into 2001
• Inflation - a top economic concern (only 1995
  28) - is still high at almost 10, pushed upward
  by higher imported oil and gas costs and rising
  domestic food prices last year
• Unemployment steadily declined but regional
  disparities exist the Budapest area enjoys a
  rate of only 3 compared to more than 10 in the
  northern regions of the country

Source EBRD, Countrywatch
26
II. Macro-economic analysis

• Evolution of savings and investment ratios

• Capital formation has increased for the last
  years and nearly reached 25 of GDP in 2000
• Investments reached the 30 threshold in 2000
  where they were in 1990 for the last time

Source World Bank
27
II. Macro-economic analysis

• GDP composition by sector Private
  versus Public sector

The country has further shifted to a
service-based economy within the last 12 years
The size of the private sector is higher than in
many EU states due to enormous privatization
efforts
Source WB, EBRD, CIA
28
II. Macro-economic analysis

• Hungarian trade characteristics
• Founding member of WTO and CEFTA
• EU accounts for around ¾ of exports and 2/3 of
  imports
• Germany most important trading partner, followed
  by Austria and Italy Russia is still a provider
  of a large part of energy resources
• Tariffs for industrial products imported from the
  EU have been eliminated by the end of 2001
• within CEFTA, about 90 of all industrial
  products are being traded free of duty two new
  free trade agreements with Latvia and Lithuania
  have been concluded in 2000
• Trade has been diversifying over the last few
  years

Source EBRD
29
II. Macro-economic analysis

• Trade evolution (bn ) Exports by group of
  countries in 2000

Imports by group of countries in 2000
Source EBRD, WB
back
30
II. Macro-economic analysis
Trade composition 2000
Source CIA
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II. Macro-economic analysis

• Trade strengths
• Strong and continuing influx of foreign
  investment in the 1990s
• Strong export-led growth in late 1990s
• High industrial production, especially at new,
  state-of-the-art factories
• Favorable tax regime
• Streamlined bureaucracy documentation procedures
  do not present a major problem to the exporter
• No permanent local representation has to be
  established in Hungary
• Possibility of fully-owned subsidiaries
• Good relations with EU, WB and other
  international organizations
• As a member of WTO, adoption of the Brussels
  tariff nomenclature
• A number of institutions offer business advice
  and practical help (Ministry of the Economy,
  Hungarian Customs Administration, National Bank,
  Chamber of Commerce, embassies)

Source PWC, World Desk Reference
32
II. Macro-economic analysis

• Trade weaknesses
• The Hungarian economy is highly dependent on its
  relationships with foreign businesses and
  investors
• ? without them it could not continue to exist
• Low level of protectionism (average tariff rate
  2,48), but non-tariff barriers relative lack of
  transparency with respect to the creation and
  application of laws and regulations
• MSZP government's revival of privatization
  program in 1995 marred by the enforced
  resignation of entire management board of state
  privatization agency in 1996 over illegal
  payments
• East-west split as development bypasses rural
  eastern areas
• Widening income differentials

Source PWC, Countrywatch, World Desk Reference
33
II. Macro-economic analysis

• Banking and finance Regulatory authorities
• The National Bank of Hungary (NBH) regained its
  independence and its original set of duties in
  accordance with the 1991 Act on the NBH
• NBH acts as lender of last resort, manages the
  national gold and foreign currency reserves and
  is responsible for protecting the forint
• Together with The Financial Supervising Authority
  (FSA), the NBH is responsible for the overall
  supervision and control of the banking system
• ? NBH is concerned with the overall economic and
  monetary effects of the business operations of
  banks
• ? the FSA is mainly responsible for ensuring
  that individual banks adhere to the legal
  requirements
• It also acts as supervisor of the stock exchanges
  and capital market activities, thus contributing
  to a lessening of the bureaucratic burden on
  financial service providers
• The Hungarian Ministry of Finance drafts
  financial proposals for the government and also
  regulates customs laws

Source PWC, EBRD, Euromoney
34
II. Macro-economic analysis

• Previously, average monthly devaluation of the
  Hungarian forint (HUF) by 0,6 against a currency
  basket
• Since 1 January 2000, the forint is entirely
  pegged to the euro
• The crawling peg is set at 0,3 per month, with a
  fluctuation band of /- 15 from May 2001
• If inflation continues its downward trend, the
  band is expected to be widened further and the
  peg to be dismantled

Source Central Bank, IIF, PWC, EBRD, Euromoney,
IIF
35
II. Macro-economic analysis

• Capital markets stocks
• The country has one of the most stable and mature
  financial markets, with the banking sector
  predominantly in foreign hands
• The principal statute is the 1996 Act on the
  Offering of Securities, Investment Services and
  on the Stock Exchange
• The Budapest Stock Exchange (BUX) was reopened in
  1990 after having been closed for 42 years
• Although it has grown significantly since it
  remains small (BUX market capitalization as of
  year-end 1999 28,9 bn)
• Equity prices fell 9 in 2001, but jumped 16
  during the last quarter
• Net purchases by foreign investors amounted to
  218 mn ( 615 mn in 2000)
• 85 of last years equity turnover reflected
  trading in only 4 companies that account for ¾ of
  market capitalization

Source PWC, EBRD, IIF
36
II. Macro-economic analysis

• Capital markets bonds
• Interest rates on government securities have
  steadily shifted downwards in line with lower
  inflation and cuts in official interest rates
• Yield curves remain inverted in line with
  expectations of slowing inflation
• Hungarys emerging market bonds (maturity 02/09,
  coupon 4,375) were traded at a bid yield of
  5,30 and a price of 94,7282, reflecting a spread
  of 0,54 versus US
• The bonds are rated A- by SP and A3 by Moodys,
  respectively, thus being considered investment
  grade

Source IIF, FT
37
II. Macro-economic analysis

• Capital markets Stocks

Source IIF
back
38
II. Macro-economic analysis

• Capital markets Bonds

Source IIF
39
III. Balance of payments
40
III. Balance of Payments
BOP evolution

• Since economic transition started, the Hungarian
  economy has achieved an impressive overall
  economic perfomance
• Volume of foreign trade has increased
  dramatically, export and import doubled in 4
  years from 1993 - 1997. Trade volume of the year
  2000 is about 6 times of that of the year 1990
• Export becomes a highly competitive, dynamic,
  sophisticated sector
• Trade balance deficit leveled as the growth rates
  of export and import are in harmony
• Service income has also grown rapidly and has
  become the major source of revenues
• FDI and Service income have financed Hungarys
  current account deficits and reduced the external
  debt to export ratio to an acceptable level (less
  than 100 in 2000/2001)

Source National Bank of Hungary, BIS
41
III. Balance of Payments
Trade balances (1990 - 2001)

• MGS in absolute numbers exceeding XGS, the
  balances have been negative since 1993
• However, as the growth rate of XGS is higher than
  that of MGS the deficit is likely to shrink in
  the medium term

Source National Bank of Hungary, BIS
42
III. Balance of Payments
Growth rates of GDP, trade and investment
back
Source World Bank
43
III. Balance of Payments

• Service balances (1990 - 2001)

Source National Bank of Hungary, BIS
back
44
III. Balance of Payments

• Current account balances (1990 - 2001)

• Improving service and factor income helped reduce
  the current account deficit by more than half
  between 1994 and 2001
• In 1993, exports declined while imports heavily
  increased owing to the transition process needs

Source National Bank of Hungary, BIS
45
IV. Debt flows and stock analysis
46
IV. Debt flows and stock analysis
Evolution of external indebtedness
Source Central Bank, IIF
47
IV. Debt flows and stock analysis
Debt Structure
No outstanding IMF purchases and loans
Source WB, IMF
48
IV. Debt flows and stock analysis
Liquidity ratios

• From 1997, the ratios have improved significantly
• ? the increase in XGS overcompensated the rise
  in external debt servicing

Source National Bank of Hungary, BIS
49
IV. Debt flows and stock analysis
Import coverage indicator
Source National Bank of Hungary, BIS
50
IV. Debt flows and stock analysis
Growth rate of XGS over average interest payments
Source National Bank of Hungary, BIS
51
IV. Debt flows and stock analysis
Solvency ratios
Since 1997, 1 year of export proceeds have
usually sufficed to cover all external debt
payments
Source National Bank of Hungary, BIS
52
IV. Debt flows and stock analysis
Short-term debt/reserves

• Although short-term debt has risen in recent
  years and reserves have shrunk, Hungary is able
  to cover the debt by half of its reserves

Source National Bank of Hungary, BIS
53
IV. Debt flows and stock analysis
SourceNational Bank of Hungary, IIF
54
IV. Debt flows and stock analysis
SourceNational Bank of Hungary, IIF
55
V. Legal and regulatory framework
56
Regulatory environment
V. Legal and regulatory framework

• a) Regulation of business
• All businesses must register with the county
  Trade Registry (Court of Registration)
• Specific permits or licences are needed only for
  certain activities (banking, insurance, stock
  brokering and similar financial services,
  operation of gambling and lotteries, property
  agencies)
• Degree of government control over activities
  where protection of the public interest requires
  guarantees of minimum standards
• ? Established and reputable foreign investors
  have no problems in
• obtaining the appropriate authorization

Source PWC
57
V. Legal and regulatory framework

• b) Competition policy
• One of the prime aims of government policies is
  to maintain and stimulate competition
• Earlier combination of deregulation, incentives
  for new businesses to start up, and the
  deliberate breaking up of very large state
  enterprises into smaller units, furthermore
  removal of bureaucratic obstacles, introduction
  or adjustment of legislation and regulations to
  attract capital, technology and management
  know-how
• Today prevent new monopolies from arising and
  hinder unfair competitive practices (1996 Act on
  Unfair Marketing Practice and Restriction of
  Competition)
• Application of this Act is supervised by the
  Office for Economic Competition and the Office
  for Consumer Protection

Source PWC, EBRD
58
V. Legal and regulatory framework

• c) Additional issues
• Very few price controls remain in force
• Regulations on exports and imports are the quotas
  and other restrictions on foreign trade set by
  the Ministry of the Economy for specified list of
  products items not on these lists are completely
  liberalized
• The antidumping legislation in force is a
  simplified model on EU rules, designed to
  discourage aggressive foreign suppliers from
  undercutting their domestic competitors
• Quality control standards are continually rising,
  applying to domestic manufactures and imports
  alike
• The countrys skilled, educated labor force is
  competitively priced compared to Western European
  pay levels

Source PWC, EBRD
59
Legal framework
V. Legal and regulatory framework

• Strengths
• Favorable policies towards FDI
• removal of bureaucratic obstacles
• introduction and adjustment of legislation and
  regulations to attract capital, technology and
  management know-how
• Transparent and commercially viable method of
  privatization

• Weaknesses
• During past 10 years the system of tax incentives
  frequently changed
• Still no specific detailed legislation for
  software
• Anti-bribery law leaves some gaps

Source EBRD, KPMG
60
Privatization process
V. Legal and regulatory framework

• In Hungary, the role of private investment is
  considered paramount
• Since 1990 1000 state-owned companies fully
  privatised (proceeds 10 bn), almost 90 of
  SME
• 1000 of revenue per capita Hungary ahead of
  other EMC and on par with the UK!
• Pursuant to a law of 1997, just under 100
  utilities of basic national importance will
  remain at least partially in state ownership
• ? Few investor opportunities are left in this
  respect, with the exception of a few large
  diversified companies and remaining sales of
  shares in utilities

Source PWC
61
V. Legal and regulatory framework

• Foreign Direct Investments (1990 - 2001)

• FDI inflows dramatically increased since 1990
• The dramatic leap from 1994 to 1995 can be traced
  back to the introduction of economic reforms and
  privatization efforts
• In spite of the economic stagnation last year,
  FDI could be more than doubled ? largely
  explained by the upgrading of Hungarys ratings
  in 2000 and the positive impact of the Syechenyi
  plan

Source National Bank of Hungary, BIS
62
V. Legal and regulatory framework
Some FDI characteristics

• About 2/3 of total FDI stems from
• EU countries

• FDI has increasingly flown into capital and
  skill-intensive sectors

Source EBRD, PWC
63
V. Legal and regulatory framework

• Result
• The stable and favorable business environment and
  the large skilled workforce continued to attract
  a robust flow of FDI
• FDI inflows helped create the most modern and
  deregulated economy with strong industrial and
  financial sectors among the transition countries
• Foreign investment is crucial to the Hungarian
  economy ? MNCs are present in
  most sectors of the economy
  ? Foreign-owned companies generate about 77 of
  exports, 33 of GDP, and 25 of private sector
  employment
• In recent years, most of the inflows have been
  greenfield investments, as the privatization
  process has neared completion, and only a very
  few large enterprises are left for sale
• The government is trying to engineer the process
  by offering special incentives for investments in
  less developed regions

Source PWC, EBRD
64
VI. Rankings and ratings
65
VI. Rankings and ratings

• Corruption Perception Index
• Czech Republic 3.9
• Poland 4.1
• Bulgaria 3.9
• Romania 2.8
• Ukraine 2.1
• Hungary 5.3
• Moderate level of corruption
• Stable for several years
• OECD Convention

• Human Development Index
• Hungary 0,829
• Improvements to be made
• Reducing inequalities in education
• Improving health care policy

Source Transparancy International, World Desk
Reference OECD
66
VI. Rankings and ratings

• SPs
• foreign currency Long Term/Outlook/Short Term
  Sovereign Credit Ratings A/Stable/A-1
• local currency A-/Stable/A-2, respectively
• Moodys A3
• Fitch A
• Coface A2
• ? All agencies agree on a stable outlook and
  classify Hungary as an investment grade country

67
VII. Comparison with Poland and the Czech
Republic
68
VII. Comparison with Poland and the Czech Republic

• Recent economic and political developments
• Successful economic transition in all 3 countries
• In Hungary, successive governments have shown a
  greater readiness to privatize and accomodate the
  need of foreign investors than most others in the
  region
• Hungary has led the region of central and eastern
  Europe ? absorption of almost 1/3
  of all FDI in the region
• In terms of EU accession, Hungary currently leads
  the other candidates, having completed
  negotiations on 23 of the 31 policy chapters that
  must be closed beforehand
• Poland and Hungary are now regarded as having
  reached a level of performance in the securities
  markets that is not too dissimilar from the level
  of more mature emerging markets

Source BIS, PWC, EBRD, IIF
69
VII. Comparison with Poland and the Czech Republic
Source BIS
70
VII. Comparison with Poland and the Czech Republic
FDI inflows
Emerging market bonds as of 15 February 2002
Source BIS, FT
71
VII. Comparison with Poland and the Czech Republic
GDP and FDI per capita
Cumulative FDI inflows 1989-2000 (mn )
Source BIS
72
VIII. Conclusion
73
Hungarys strengths
V. Conclusion

• Hungary has successfully initiated structural
  market-oriented reforms
• Favorable investment climate
• Further liberalization in the energy,
  telecommunications and health care sectors
  expected soon
• Strong macro-economic performance with favorable
  prospects
• Leading applicant for EU accession supports
  further FDI inflows
• Well-developed financial and commercial
  infrastructure
• The current account deficit is likely to reverse
  in the medium term
• Positive evolution of liquidity and solvency
  ratios
• Well-managed debt, serious efforts to further
  shrink it
• Well-educated, and low-cost labor pool
• Central geographic location bridge between EU
  and ex-Soviet Union
• Social stability

74
Hungarys weaknesses
V. Conclusion

• Only economic reforms have successfully been
  implemented ? still outstanding
  reforms in the health care, education,
  transportation and administrative sectors
• Structural reforms have slowed down as state
  intervention in the economy has been increased
• Political uncertainties might adversely affect
  relations with EU ? this in turn might
  slow down the FDI pace
• Inflation is still high
• Relatively low per capita income, high fiscal
  deficit
• Lack of transparency as to some laws and
  regulations
• Grey economy and corruption are still critical
  issues
• Highly dependent on major trade partners

75
V. Conclusion

• Investment recommendations due to hugh growth
• opportunities in the following sectors
• Energy insufficient domestic supply critizised
  by EU
• Health care outstanding reform
• Internet still underdeveloped
• Telcom infrastructure in the countryside lower
  than western standards
• IT and software one of the strongest industries
  in the region
• ? skilled labor and all solutions available
• Banking most advanced sector in the region
• Tourism many attractions beside the Balaton and
  Budapest
• BUT Use knowledge of local people in order to
  hedge uncertainties as far as possible!