HUNGARY AFTER THE EU ACCESSION

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HUNGARY AFTER THE EU ACCESSION
Péter Erdosi Director General for Investments
and Economics Ministry of Economy and Transport
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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 in the rate of
  industrial output growth due to higher export
  sales dynamics
• stronger competition and drive for innovation
  shall increase competitiveness
• use of EU funds will boost the construction
  industry

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

Infrastructural investments
based on a joint study of three economic
research institutes
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Figures and structure of economy improving

• Improving rate of growth reached 3,6 in Q4 2003
• Consumption dynamics high but on a declining
  trend
• Investments grew by 3,1 in 2003
• Volume of machinery and equipment investments
  grew by 12,3!
• Annual industrial output growth exceeded 6 in
  2003
• Industrial boom in Q4 2003 and Q1 2004 (10 and
  10,8 y-o-y growth)
• Low unemployment (5,5) in Q4, increasing
  employment rate and moderating wage dynamics
• Annual inflation at 4,7 in 2003, speeding up in
  2004

GDP
Consumption
Investments
Output
Employment and wages
Inflation
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Outlook for EMU membership
Target date
Advantages
Possible disadvantage
Challenges to face
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Convergence Programme
Return to sustainable, investment and export
driven economic growth path

• enhancing competitiveness
• improve the ability of attracting foreign
  capital
• creating the infrastructure background of the
  sustainable development
• modernising the education system to be adaptive
  to the economic structure
• stimulating RD activities
• continuing privatisation
• improving the environmental conditions of the
  country

Main targets
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Convergence Programme
Fiscal policy

• Gradual reduction of the fiscal deficit and the
  level of redistribution (3 of the GDP in 2007)
• Moderation of public dept (54 in terms of the
  GDP in 2008)

• Wage convergence in line with productivity growth
  and competitiveness
• 2-3 real wage increase can fulfil both
  requirements

Income policy
Monetary and anti-inflation policy

• Main goal achieve and maintain price stability
• At ERM II-accession exchange rate has to in an
  equilibrium position and thought to be
  sustainable by the market
• Anti-inflation should not endanger economic
  growth (equilibrium inflation is about 3)
• Restricting fiscal policy moderate income
  policy reducing inflation expectations

Competitiveness

• Preferential corporate tax and development
  allowances
• Subsidising RD activities
• One stop shop administrative system
• Infrastructure investments
• Modernisation of education
• Modifying income redistribution

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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

M6 PPP project

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

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PPP Project managed by GKM
Motorway project (Design Build Finance Operate)
Estimated total value (NPV) 360 M EUR
M6 motorway between Budapest and Dunaújváros (54
km section)
Two-round international tender (including
pre-qualification) was started in February 2004,
shortlisted bidders selected 3rd May
Construction to be finished in the first half of
2006
Envisaged payment system availability payment
with a safety payment and heavy vehicle traffic
bonus

• Section to be integrated to the national vignette
  system

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PPP Projects supervised by GKM
Student hostel projects (Design Build Finance
Operate)
First (model) project submitted by the Ministry
of Education won support of Economic Cabinet
Estimated total value (NPV) 20 M EUR
Publication of the first tender December 2003,
planned construction time 2004 - 2005
Construction, performance and demand risks borne
by private partner

• Further 4 projects submitted to the
  Interdepartmental Committee with an estimated
  total value of 66.5 M EUR
• altogether 11 similar projects planned

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PPP Project supervised by GKM
Penitentiary project (Design Build Finance
Operate)
Estimated total value (NPV) 190 M EUR
Support from the Interdepartmental Committee
Submitted by the Ministry of Justice, government
approval took place at the beginning of May
Construction and performance risks borne by
private partner, demand risk borne by state
Private partner provides operation, maintenance
and catering State is responsible for
administrating duties, security and healthcare
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Net foreign direct investments in Central and
Eastern Europe (excluding other capital)
Source national banks
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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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 EUR 50 million (25 M for
services)

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

Investments over EUR 2 million

• From 2005, investments over HUF 500 million (EUR
  2 M) 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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In 2004 EUR 2,400 million total planned
FDI 13,500 new workplaces created
A special treatment for supporting strategic
investments
Manufacturing Industry total investment costs in
assets gt 50 Million EUR Regional Corporate
Center total investment costs in first 24 months
wage costs gt 25 Million EUR
INDIVIDUAL GOVERNMENT DECISION
Incentive packages for strategic investments
The process has begun Recently published
investments Robert Bosch/ Electrolux/
Nokia/Suzuki/ Michelin
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Offset as an investment promotion tool -
New General Rules for Offset (from 1st May 2004)
The main goals of the economic policy will be
reflected in the offset practice
To enhance knowledge-based economic growth
through FDI, technology transfer and
innovation, RD
To include subcontracting Hungarian SMEs in the
main supply and distribution channels
To create new jobs and sustaine employment, to
support training of human resources
To help regional development
To reach new markets

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New priorities of the offset policy

• Electronics
• IT
• Telecommunications
• Biotechnology
• Environment Protection Technologies
• Renewable Energies
• Defence Industry

High Priority Sectores
Project-based fulfilment approache

• Project data bases to be elaborated
• by professional organizations and
• chambers
• The fulfilment will be evaluated with
• multipliers 3-5

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EU co-financed SME support programmes first
results to be announced soon
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THANK YOU FOR YOUR KIND ATTENTION!