Competitiveness and investment promotion

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Competitiveness and investment promotion in
Hungary
Ministry of Economy and Transport
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Hungarian GDP growth follows the trend of the EU
Source Central Statistical Office, Eurostat
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Real convergence has been unbroken since the
mid-1990s
Assuming a constant 2.5-percentage-point
growth-rate differential, catching up with the
EU-15 would require approximately 25 years.
Source Eurostat
4
Foreign capitals role in the successful economic
transition has been decisive
Source Hungarian Tax Authority
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Hungary has been attracting a continuously high
inflow of foreign direct investment
Source Hungarian National Bank
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FDI influx has been arriving mainly from EU
countries and directed to competitive industries

FDI by Sectors
FDI by Countries of Origin
Cumulative FDI inflows to Hungary reached EUR 31
billion (more than 40 of GDP) by end-2003.
Source National Bank of Hungary
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Net foreign direct investments in Central and
Eastern Europe (excluding other capital)
Source National Bank of Hungary
Hungary is the only country among the Visegrad
countries where the trend of FDI influx
(excluding other capital) has been improving
since 2000.
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Hungary the attractive investment location in
the heart of Europe
Harmonised economic development
programs Compliance with EU regulations Transparen
cy Efficiency Predictability
Direct incentives EU co-financed and national
grants
Tax-related incentives one of the lowest
corporate tax rate (16) in Europe
Hungary 53 subsidiary companies of the World TOP
100 General Motors, Accor, Oracle, General
Electric, Electrolux, Henkel, Akzo-Nobel,
Alcatel, Nokia, British American Tobacco,
Philips, Samsung ...
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Investment and general business conditions are
improving
Enhancing competitiveness is a top priority of
the current economic policy
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Further changes considered in taxation
Decreasing and simplifying business taxation
Promoting investment and employment
Corporate tax and local business tax

• possible 100 deduction of the local business
  tax from the corporate income tax base
• possible further reduction of corporate tax rate
• expanding availability of accelerated
  depreciation

• moving towards a simpler tax system

Personal income tax

• simplified tax procedures (after joining the EU)
  e.g. in order to foster the process of becoming
  regional centre in the service sector

VAT
Health contribution

• gradual phasing-out of the lump-sum health
  contribution

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EU co-financed economic development
programs (Fully or partly under the supervision
of the Ministry of Economy and Transport)
Economic Competitiveness Operative Program
Regional Development Operative Program
1. Priority Subsidies in order to improve
tourism potential 6.5 billion HUF
Environment and Infrastructure Operative Program
Energy saving 1.2 billion HUF
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One stop shop system in investment promotion
One of the major goals of investment promotion
policy decreasing complexity and duration of
administrative procedure.
Investments over 50 million euros

• The promotion procedure of large investments is
  managed by the Directorate-General Investments
  and Economics of the Ministry of Economy and
  Transport

Investments over 500 million forints

• According to the plans, investments over 500
  million forints will be managed by the Hungarian
  Investment and Trade Development Agency (ITDH)

Introduction of one stop shop system at ITDH
In the short run - being the source of
information - subsidy management In the long
run - administrative one stop
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Rapid development of transport infrastructure
KASSA felé

• By 2006
• 431 km of expressway
• to be completed
• 425 km under
• construction
• Further 803 km in
• preparatory phase

• By 2015
• Network density to
• reach EU average
• (20-25 km/1000 km2)

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Short term economic effects of the EU accession
Growth rate

• an 0.8 percentage point increase in the GDP
  growth rate (between 2004-2006)

Foreign direct investments

• phasing out of tariff free zones
• state subsidy system in line with EU regulations
• increased business confidence
• regional hub role (the bridge between the EU and
  Eastern Europe)

Industrial production

• a 1.0 percentage point increase the rate of
  industrial output growth due to higher export
  sales dynamics
• stronger competition and drive for innovation
  increase competitiveness
• use of EU funds will boost the construction
  industry

Infrastructural investments

• transport infrastructural investments may reach
  EUR 10-11 billion until 2010
• investments in the telecommunication sector will
  approximate EUR 1 billion per annum

based on a joint study of three economic
research institutes
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Outlook for EMU membership

• Date of possible entry between 2009-2010
• Official target date to be announced by mid-May
  (in line with the Convergence Programme)

Target date

• Lower real interest rates boost investment
• Fixed exchange rate risk eliminates conversion
  costs and exchange rate risk
• Expanding foreign trade supports economic growth
• The single currency could increase the rate of
  economic growth
• by 0.6-0.9 percentage points annually.

Advantages
Possible disadvantage

• Giving up independent monetary and exchange rate
  policy as an instrument for managing asymmetric
  shocks

Challenges to face

• Government deficit (appr. 4.6 in 2004) and
  inflation (appr. 6.5 in 2004) significantly
  exceed the Maastricht threshold
• Meeting the Maastricht convergence criteria has a
  short-run cost

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