Return to: Index of "1996 Country Commercial Guides" ||
Index of "Economic and Business Issues" ||
Electronic Research Collections Index ||
ERC Homepage
U.S. Department of State
Hungary Country Commercial Guide
Office of the Coordinator for Business Affairs
COUNTRY COMMERCIAL GUIDE (CCG)
FOR
HUNGARY
FISCAL YEAR 1996
PRODUCED BY:
THE COMMERCIAL SECTION,
THE FOREIGN AGRICULTURAL SERVICE
AND THE ECONOMIC SECTION OF
THE U.S. EMBASSY, BUDAPEST
This Country Commercial Guide (CCG) presents a comprehensive look at
Hungary's commercial environment through economic, political and market
analyses.
The CCGs were established by recommendation of the Trade Promotion
Coordinating Committee (TPCC), a multi-agency task force, to consolidate
various reporting documents prepared for the U.S. business community.
Country Commercial Guides are prepared annualy at U.S. Embassies through
the combined efforts of several U.S. governement agencies.
Table of Contents
I. Executive Summary
II. Economic Trends and Outlook
A. Major Trends and Outlook
B. Principal Growth Sectors
C. Government Role in the Economy
D. Balance of Payments Situation
E. Infrastructure Situation
III. Political Environment
A. Bilateral Relationship with the United States
B. Major Political Issues Affecting Business Climate
C. Brief Synopsis of Political System
IV. Marketing U.S. Products and Services
A. Distribution and Sales Channels
B. Use of Agents and Distributors, Finding a Partner
C. Franchising
D. Direct Marketing
F. Joint Ventures/Licensing
G. Steps to Establishing an Office
H. Selling Factors/Techniques
I. Advertising and Trade Promotion
J. Pricing Product
K. Sales Service/Customer Support
L. Selling to the Government
M. Protection Your Product from IPR Infringement
N. Need For Local Attorney
V. Leading Trade Prospects For U.S. Business
A. Best Trade Prospects: Industry Sectors
B. Best Trade Prospects: Agricultural Sectors
VI. Trade Regulations and Standards
A. Tariffs and Import Taxes
B. Customs Valuation
C. Import Licenses
D. Export Controls
E. Import/Export Documentation
F. Temporary Entry
G. Labeling and Marking Requirements
H. Prohibited Imports
I. Standards
J. Free Trade Zones
K. Special Import Provisions
L. Membership in Free Trade Arrangements
V. Leading Sectors for U.S. Exports and Investment
A. Best Prospects for Non-Agricultural Goods and Services
B. Best Prospects for Agricultural Products
C. Significant Investment Opportunities
VI. Trade Regulations and Standards
A. Trade Barriers
B. Customs Valuation
C. Import Licenses
D. Export Controls
E. Import/Export Documentation
F. Temporary Entry
G. Labeling, Marking Requirements
H. Prohibited Imports
I. Standards
J. Free Trade Zones/Warehouses
K. Special Import Provisions
L. Membership in Free Trade Arrangements
VII. Investment Climate
A. Openness to Foreign Investment
B. Conversion and Transfer Policies
C. Expropriation and Compensation
D. Dispute Settlement
E. Political Violence
F. Performance Requirements/Incentives
G. Right to Private Ownership and Establishment
H. Protection of Property Rights
I. Regulatory System: Laws and Procedures
J. Bilateral Investment Agreements
K. OPIC and Other Investment Insurance Programs
L. Labor
M. Foreign Trade Zones/Free Ports
N. Capital Outflow Policy
O. Foreign Investment Statistics
P. Major Foreign Investors
VIII. Trade and Project Financing
A. Description of Banking System
B. Foreign Exchange Controls Affecting Trading
C. General Financing Availability
D. Export Financing (Methods of Payment)
E. Available Export Financing and Insurance
F. Available Project Financing
G. List of Banks with Correspondent U.S. Bank
IX. Business Travel
A. Business Customs
B. Travel Advisory and Visas
C. Holidays
D. Business Infrastructure
X. Appendices
Appendix A: Country Data
Appendix B: Domestic Economy
Appendix C: Trade
Appendix D: Investment Statistics
Appendix E: U.S. and Country Contacts
Appendix F: Market Research
Appendix G: Trade Event Schedule
I. EXECUTIVE SUMMARY
With over $ 8 billion invested over the past five years, Hungary is
Central Europe's leader in attracting foreign investment. This amount
is nearly double that invested in any other Central European country.
Moreover, nearly half of all U.S. investment in the region has gone to
Hungary. A major reason why Hungary has achieved such a record despite
being a small land-locked country the size of Indiana and with a
population close to that of Ohio is that Hungary's economic changeover
started decades ago, as one of the pathbreakers to market reform under
the communist system. While many of her sister COMECON states were
increasing their integration eastward, Hungary sought and succeeded in
many respects to open its trade and markets to the West. General
Motors, Rockwell, John Deere and others were already doing business in
Hungary in the mid-seventies. Hungary was well-positioned to intensify
its many relationships with Western and American firms as the major
changes of the late eighties and nineties took place.
A second aspect in Hungary's favor, one that is applicable to the rest
of Central Europe, is the region's long-term growth prospects. While
some estimates project a tripling of imports by the year 2000, a
conservative estimate would be a doubling of import demand over the
next five years. Many American firms recognize the strategy of
establishing presence and being poised to take advantage of this long-
term growth. Over 400 U.S. firms are actively doing business in Hungary
and the American Chamber of Commerce in Hungary is one of the largest in
Europe. As a Central European base, Hungary's advantages are location
and skilled labor. Budapest is two hours away from the Austrian border
while labor costs in Hungary are one-seventh of that in Austria (this
figure refers to a sample labor cost provided by one of the U.S.'s Big
Three automakers).
For 1995, Hungary has major economic tasks ahead which have significant
commercial consequences. First and foremost is the next phase of
privatizations of the state sector. Such major industries as oil, gas,
and energy production are all scheduled to be relinquished from state
hands. A second and related task is to address the serious state debt
levels. Unpopular but necessary measures are being taken by the
government to rationalize prices especially in the energy sector, raise
revenues through an import surcharge, introduce user fees such as
university tuition as well as confront costs in such sacred areas as
social services. The government has taken such difficult steps with the
understanding that a trim and balanced economy will reap long-term
benefits toward lowering inflation, keeping unemployment within
manageable limits, and in strengthening trade and stimulating foreign
investment.
Hungary development into a full market economy is fueling industrial
demand for new technologies as well as releasing pent-up consumer
appetites. Sectors such as telecommunications, energy, transport and
the environment continue to grow. Over the past five years, Hungary has
also developed industry strengths in the automotive field (with major
investments by GM, Ford, Audi, Suzuki) and with an expanding automotive
sourcing industry in plastics and electronics. In other areas,
chemicals, food processing, construction, and especially services such
as banking, tourism, franchising, and services related to information
management hold very attractive business prospects.
Country Commercial Guides are available on the National Trade Data Bank
on CD-ROM or through the Internet. Please contact 1-800-STAT-USA for
more information. To locate country commercial guides via the Internet,
please use the following world wide web address: WWW.STAT-USA.GOV.
CCGs can also be order in hard copy or on diskette from the National
Technical Information Service (NTIS) at 1-800-553-NTIS.
II. ECONOMIC TRENDS AND OUTLOOK
A. Major Trends and Outlook
Hungary's economic reform process received a big boost in March, 1995
with the announcement of a stabilization program designed to decrease
the budget deficit by 170 billion Forints (3-4 percent of the GDP) and
decrease the current account deficit to USD 2.5 billion from 1994's
record high of about USD 4 billion. The program cut government
expenditures; increased revenues; devalued the forint by 9 percent;
introduced a crawling peg exchange rate policy; added an 8 percent
surcharge on imports; and called for wage controls at state-owned
companies.
As of mid-1995, the Hungarian economy is characterized by the following
combination of macro and micro indicators:
o Real GDP increased by 2-3 percent in 1994 for the first time in
four years and is expected to increase by 0-2 percent in 1995.
o Hungary continues to have the highest per capita debt burden in
Europe: USD 31.6 billion in mid-1995. Rising interest payments on the
debt place an extremely heavy burden on the economy.
o The current account deficit reached a record high of USD 4.0
billion in 1994. If the measures introduced in March, 1995 have the
desired effect, the current account deficit could decrease to USD 2.5
billion in 1995. This figure, however, counts on foreign direct
investment of approximately USD 1.5 billion in 1995.
o Unemployment has leveled off at about 10 percent in mid 1995, but
is expected to rise slightly as a result of privatization and
restructuring at large state-owned companies. This is a decrease from
the peak of 13.6 percent reached in March 1993. It should be noted,
however, that unemployment is approximately 20 percent in some eastern
counties and is as high as 75 percent among certain minority groups such
as gypsies, while in Budapest the unemployment levels are significantly
lower than the 10 percent average.
o As a result of the March 12 program, inflation is expected to peak
around 30-32 percent in June/July, 1995 but average in the mid-to-high
twenties for the whole year. This is up from 18.8 percent average
annual inflation in 1994.
o Trade has been successfully reoriented from East to West.
Approximately 70 percent of Hungary's total trade is with OECD
countries; nearly 50 percent is with the EU. Hungary is also trying to
stimulate trade with neighboring countries in the region, but with
limited success so far.
o Although there was relatively little privatization in late 1994 and
early 1995, the government promises that it will be sped up as the
result of the passage of the privatization law in May 1995. The new law
hopes to make the entire process more transparent and allows for
"simplified" privatization of smaller companies. Some large utilities
are expected to be privatized in 1995.
First quarter 1995 data provides some optimism. Industrial production
was higher than in 1994, growing by 11 percent. Industrial exports grew
by 34 percent and investment increased by 10-11 percent over 1994
figures. The construction industry experienced growth in the first
quarter of 1995, continuing a trend that started in 1994 after a decade
of stagnation or decline.
B. Principal Growth Sectors
Hungary is just beginning to experience economic growth after a five
year hiatus. The government believes that Hungary could become a
regional transportation, infrastructure, informatics, and financial hub
and sets this out as one of its main goals in early drafts of its
Modernization Program.
The following sectors are considered to have substantial growth
prospects in the coming years:
o Telecommunications: Approximately one third of the Hungarian
telephone company (MATAV) has been privatized and further privatization
(up to 51 percent) is expected to begin in 1995. Ameritech and Deutsche
Telecom are the major shareholders. Two competing cellular companies,
Westel 900 and Pannon GSM, have cellular services in 80 percent of the
country. Although the telecom sector in Hungary was long
underdeveloped, recent privatization efforts and foreign investment will
significantly improve telecom services.
o Services: Services, including financial services and advertising
represent a growing industry in Hungary. Since this sector is relatively
new, it is difficult to collect data on the number of service firms
entering the economy. It is clear, however, that this sector is one of
the primary growth sectors.
o Construction: In 1994, construction has picked up for the first
time in approximately 10 years. Observers in Hungary believe this could
well be a growth sector over the next couple years. In particular,
construction is expected to pick up considerably when the war in the
former Yugoslavia reaches its end.
o Food Processing: Hungary has an outstanding agricultural base but
significant modernization is required in all fields including the food
processing sector. Formerly, food processing was functional and
minimal, with little value-added. Today, much state of the art food
processing technology is available though not widespread. Tetra paks,
for example are common for most juices sold. Given traditional
strengths of Hungary in this field, an infusion of new technology could
have very significant results.
o Automotive Industry: Major companies, including Ford, General
Motors, Audi, and Suzuki have established multi--million dollar
investments for auto-assembly and/or engine component manufacture.
Hungary has targeted increased investment in this sector as a primary
goal. While domestic demand for cars is one consideration, the basic
rationale for automotive production in Hungary continues: skilled
workers; a broadening automotive supplier network; a stable economy; and
a highly advantageous location.
C. Government Role in the Economy
Since 1989, the private sector in Hungary has grown from approximately
20 percent to over 60 percent of GDP. The socialist-led government
elected in 1994 stated its commitment to accelerate the privatization
program, but to date the process has been slow. Since the collapse of
communism, the state has liquidated or privatized 50 percent of its
holdings and aims to increase this figure to 75 percent. Government
spending in 1994 equaled 59.5 percent of gross domestic product, with
cash social benefits accounting for the largest segment. This
percentage puts Hungary behind the Czech Republic and Poland in reducing
the role of government in the economy.
D. Balance of Payments Situation
Hungary continues to face a very serious balance of payments situation.
The current account deficit in 1994 reached $3.8 billion and without
corrective measures could have reached $4 billion by year-end 1995. As
a result of the belt-tightening fiscal and restrictive monetary policies
announced in March, the government originally estimated that the current
account deficit would be under $3 billion in 1995; however reliable
sources have become less optimistic, forecasting a current account
deficit exceeding $3 billion. Exports increased in the first quarter of
1995 and are expected to continue to do so in the rest of the year. The
combination of the 9 percent March devaluation, the move to a pre-
announced crawling peg exchange rate regime, and the introduction of an
8 percent surcharge on imports are expected to help decrease the current
account deficit.
E. Infrastructure Situation
Motorways: Hungary's transportation infrastructure is good compared to
other countries in the region. While Hungary is just now expanding to
multi-lane limited access highways, the country does have a good network
of high grade two-lane highways. Paved roads connect all major cities
and most rural towns, although one may encounter dirt roads in smaller
villages in eastern Hungary.
Railways: Hungary has an extensive railway system which links large
and medium size cities. Approximately 158 million passengers and 43
million tons of goods are transported annually across 7,600 kilometers
of tracks (of this 2,184 kilometers is electrified).
Air: Hungary's major airport, Ferihegy, is located in Budapest. The
airport operates from two terminal; a brand new terminal was completed
in 1993. Further expansions and additions are underway. There is
virtually no domestic air service in Hungary except a few services
during the summer months. Some larger cities maintain airports for
private aircraft and there are plans to transform former Soviet air-
bases into domestic passenger and cargo airfields.
Telecom: Hungary had one of Europe's least developed telecommunications
systems with an installed base of 1.5 million lines (about 39 percent
accounted for by Budapest) and with a penetration rate of 15 lines per
100 persons resulting in a call completion rate of only 40 percent.
Major investments by the Hungarian Telephone Company's two foreign
minority owners (Ameritech and Deutsche Telecom) has resulted in
substantial improvements. Moreover, recent new technologies such as
Motorola's Wireless Local Loop, are expected to rapidly bring phone
service to many parts of Hungary within a matter of months.
Utilities: Nearly 50 percent of Hungary's electricity is generated by
the Paks nuclear facility; the remainder is generated by coal-, lignite-
or petroleum-fired power plants. Gas usage is growing and will likely
expand as this sector comes under privatization. The privatization of
the power generating system in Hungary is also expected to boost
efficiencies as well as inject modern technology into the system, both
for production as well as address environmental concerns.
CHAPTER III. POLITICAL ENVIRONMENT
A. Bilateral Relationship with the United States
Bilateral relations between the United States and Hungary continue to
expand and strengthen. As early as 1989, the U.S. Government designated
Hungary as eligible for various economic assistance programs as well as
a recipient of trade preferences. The United States supports Hungary's
desire to integrate itself into Western political, economic and security
institutions. For example, the United States strongly encourages
Hungary's entry into the OECD, and into the European Union. The United
States has been a major proponent of Partnership For Peace (PFP) which
establishes a relationship between countries in the region and NATO.
Hungary in turn has endorsed PFP.
B. Major Political Issues Affecting the Business Climate
Average Hungarians, who in general are internationally-minded and well-
educated, are ambivalent at best to the role of foreign business in
their country. Political concerns do arise over bread-and-butter issues
such as unemployment, inflation, crime, or declines in living
standards. There is also a related debate over what is perceived as the
sell-off of national treasures into foreign hands. Often such arguments
are used as political footballs against the opposition group.
The current leadership has been supportive of foreign and U.S. trade
interests. Prime Minister Horn has made privatization, particularly in
the energy sector, one of his top priorities. The recent dismissal of a
cabinet member was due reportedly to foot-dragging on privatization.
The U.S. business community continues to enjoy access to decision-makers
in the Hungarian Government and in general, U.S. business
representatives consider their concerns to be largely taken into
account. The recent five city visit to the United States by Prime
Minister Horn (June 1995) further enhanced commercial contacts and
provided the Prime Minister with an even broader understanding of the
U.S. free enterprise system.
C. Brief Synopsis of the Political System
Hungary is a parliamentary democracy with a freely elected legislative
assembly. Prime Minister Gyula Horn, the leader of the Hungarian
Socialist Party, heads a coalition Government which was formed after the
1994 national elections. The Socialist Party won with a plurality of
54% of the votes, based on an election campaign focused largely on
economic issues and the substantial decline in living standards since
1990. A heavy turnout of voters swept away the right-of-center
coalition but soundly rejected the extremists on the right and left side
of the political spectrum. The new Socialist-led Government remains
committed to a market economy, to preserve political rights, and to seek
a historical reconciliation with Hungary's neighbors.
CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES
o Distribution and Sales Channels
Hungary's distribution system is slowly being overhauled.
Traditionally, the service-oriented supply chain had been rigidly
segmented: production; intermediate services (i.e., transport, finance,
insurance); wholesaling; and retailing. In changing to a new market
environment, the lines of demarcation between these sectors is blurring.
This is especially true in the food and non-food (consumer goods) market
segments. For industrial products and raw material markets, progress
toward a Western-style distribution system is moving at a slower pace.
Hungary's wholesale consumer products sector was controlled by several
state-owned companies which operated regionally across Hungary with
marginal consideration for consumer needs. In a reversal of those
times, private competition has intensified with many smaller/medium
sized companies filling market niches and offering integrated services.
Hungary's retail sector now consist of largely privately-owned
corporations in contrast to the smaller-family-run stores of earlier
times. In general, department stores, supermarkets and larger specialty
stores are also much more prominent than a few years ago. Examples
include Metro (Germany), Michelfeit (Austria), Ikea (Sweden), Baumax
(Germany), Humanic (Austria) and Julius Meinl (Austria). Moreover, many
Hungarian firms such as the Fotex Holding Co., are well diversified and
integrated. Fotex is involved in such diversified market segments as
optical/film developing, records/CDs/tapes), household appliances/
consumer electronics, cosmetics/household cleaning products and
furniture. Another trend in Hungarian marketing is a new-found
responsiveness to consumer demands in such areas as quality, price
consciousness, as well as environmentally-safe products. Consumer-
campaigns, special offers, discounts are becoming more common marketing
practices in Hungary today.
A major drawback to doing business in Hungary for local entrepreneurs is
the difficulty of obtaining business loans. Interest rates are
approaching 40% and collateral requirements are onerous. As a result,
smaller start-up businesses are capitalized by family savings. Another
issue for local entrepreneurs is the lack of reasonably-priced
commercial space. Much commercial real estate is still owned by
municipal district councils, with renters taking full advantage to
sublet at exorbitant rates.
On March 12th, the Hungarian Government introduced measures to curb the
growing state budget deficit. Among the measures taken were curtailing
maternity support, instituting a token tuition system for universities,
and an import surcharge. The net effect may mean a dampening of
consumer spending in some segments of the population. Consumer spending
is also being pinched by price rationalizations in electricity (up 71%),
natural gas (up 56%), gasoline (up 30%), as well as higher telephone
rates (increased 10.2%).
o Use of Agents and Distributors; Finding a Partner
The use of agents and distributors is a basic method of market entry for
foreign firms. In some instances, American or West European managers
spearhead the entry and later turn management over to local staff. In
other instances, operations may not require the transplanting of foreign
managers and instead hire the initial management team locally. On the
latter, common wisdom prescribes that despite a Hungarian workforce that
is on the whole quite competent and skilled, the greater the training
invested in staff, the greater the chances for successful operations.
The Commercial Service of the U.S. Embassy can provide a head-start to
firms seeking an agent or distributor in Hungary through the ADS service
or Gold Key program. Further information can be obtained by contacting
the local ITA District Office or CS/Budapest (see contact numbers at
end). Hungary has benefitted from a steady stream of newly trained
business graduates, taught at schools modeled on U.S. MBA programs. In
addition, Hungary has drawn many Americans with MBA backgrounds seeking
challenging positions; some are coming to Hungary with substantial work
experience. The supply of top-quality managerial talent is still
modest, but in comparison to the rest of Central Europe, Hungary has
more than its share of successful business talent.
o Franchising
Franchising has been very popular and successful in Hungary though
concentrated in the food service sector. Budapest, for that matter,
exhibits a more American appearance than most Central European capitals
with the prevalence of "fast-food" restaurants such as Burger King,
McDonalds, Wendy's, Pizza Hut, Kentucky Fried Chicken etc. Outside of
this market segment, franchising for other services such as dry cleaning
and car washing has been limited. One prime exception is the Fotex
photo/optics chain noted earlier. Franchising is still under-utilized,
when one considers such needs as automotive parts/repair, hardware
stores, fabric shops, children's toys etc. Further opportunities are
noted in the best prospects section of this report.
o Direct Marketing
Direct marketing is still in its initial stages. Telephone and direct
mail solicitation are only now being exploited, due in part to past poor
telephone access (including frequently changing numbers) and in part
because of the lack of familiarity with such marketing techniques.
Alternate forms of marketing such as personal presentation marketing
have been successfully employed by such firms as Avon, Amway, Oriflame
(Sweden) and Tupperware. With the increasing penetration of cable TV,
home shopping channels are available to a growing number of the
population.
o Joint Ventures/Licensing
The term "joint venture" is used in Hungary to refer to any venture
which involves foreign participation. In the broadest sense, American
business strengths combined with Hungarian assets (not the least of
which is a reputation for ingenuity) can create a powerful business
operation. However, U.S. partners need to gauge all aspects of such a
business relationship such as a lingering legacy of inefficiencies.
Some ventures can become mired in the partner's old-style management or
in a passive resignation to bureaucracy. Where the operation is still
in state hands, a forthcoming privatization may pose concerns or
disruptions for the JV. Promoting an efficient workforce, or taking
hard decisions on employment levels requires continuity and shared goals
on behalf of all parties in management. The time and effort in
achieving these goals can be substantial and should be weighed against
such alternative business options as a contractual relationship, the
privatization of the target partner, or a greenfield operation.
Needless to say a good working relationship with the local partner prior
to moving into a joint-venture, along with a strong local legal counsel
(representing the U.S. partner), are keys to a successful joint-
venture.
In establishing a joint venture, the following information must be
submitted to the local Court of Registration: name, headquarters,
initial capitalization, members and shares, and the articles of
association (deed of foundation for single person companies). The
articles of association must be countersigned by a Hungarian attorney.
The founding of the company must be reported to the court within 30
days. Following submission of the information, the court will act on
the submission within 60 days. If this period has expired without the
foundation being challenged by the court, registration of the company is
assumed approved. The registration fee charged is 2 percent of initial
capital or a maximum HuF 90,000. Pursuant to the law, the company is
required to announce its creation in an official gazette.
o Steps to Establishing an Office
A commercial office must be registered with the local Court of
Registration (see previous section) and with the Ministry of Industry &
Trade prior to the start-up of activities. There are two basic forms
that a commercial office can assume in Hungary: 1) a representative
office or, 2) an information and service office. Based on the form
chosen, there are certain restrictions.
Representative offices do not provide legal protection to foreign
companies. Activities may include: negotiation of commercial contracts;
maintenance of consignment stocks and customer service related to these
products; informational and promotional activities.
An information and service office is not permitted to engage in trade,
but is allowed to disseminate information about the firm's products and
service, provide technical support and advertise. The words "trade" or
"trading" cannot appear in the company's name.
All businesses in Hungary must obtain a tax number from the National
Bank.
Foreign business representatives in Hungary should be advised that
establishing personal residency is becoming increasingly onerous as the
government attempts to crack down on illegal residents.
o Selling Factors/Techniques
Brand awareness is not equal to Western European levels, though
purchasing decisions are increasingly subject to sophisticated print and
electronic media techniques. Billboards and kiosks are layered with the
latest ads, skewed to young people and the rising middle class, with
promotions of "trendy" Western life-styles. For the majority of
Hungarian consumers, price and traditional habits (i.e. frequenting the
local shopkeeper) still largely govern purchasing habits.
o Advertising and Trade Promotion
Most Hungarian firms engage in some form of advertising. The leading
users of advertisements are subsidiaries of international corporations,
especially in the consumer product sector. The most popular media (in
order of preference) are television, radio, press, and outdoor
billboards/signs.
The Domestic Trade Law prohibits all forms of advertisement (except
point-of-sale) for tobacco products, alcoholic beverages and
pharmaceuticals. The Competition Law prohibits advertisements which
mislead consumers or endanger the reputation of competitors.
LIST OF NEWSPAPERS, PERIODICALS
Major dailies:
Napi Gazdasag (Daily Economics)
1135 Budapest
Csata u. 32.
Tel: 270-4349, 149-0305
Fax: 140-8111
Mr. Adam Danko - chief editor
Vilaggazdasag (World Economics)
1016 Budapest
Naphegy ter 8.
Tel: 175-6722/1130, 202-4962
Fax: 175-4191
Mr. Andras Varga - chief editor
Nepszabadsag (People's Freedom)
1034 Budapest
Becsi Ut 122-124
Tel: 250-1680
Fax: 168-9098
Mr. Pal Eotvos - chief editor
Major Weeklies and Periodicals:
Budapest Business Journal (English language)
1053 Budapest
Ferenciek tere 7-8.
Tel: 261-6088
Fax: 118-0215
Budapest Week (English language)
1067 Budapest
Eotvos u. 12.
Tel: 268-1450
Mr. Tibor Szendr_ - chief editor
Figyel_ (Observer)
1054 Budapest
Alkotmany u. 10.
Tel: 112-7664
Fax: 111-7891
Dr. Gyorgy Varga - chief editor
Heti Privinfo (Weekly Privatization Information Bulletin)
1016 Budapest
Naphegy ter 8.
Tel: 175-6722/1798, 2050 Extension.
Fax: 155-5451
Mrs. Gizella Mez_ - chief editor
Heti Vilaggazdasag (Weekly Economics)
1124 Budapest
Nemetvolgyi u. 64.
Tel: 155-5411
Fax: 155-5693
Mr. Ivan Lipovecz - chief editor
Privat Profit
1051 Budapest
Nador u. 32.
Tel: 111-2895
Fax: 112-0829
Mr. Tamas Forro - chief editor
The Budapest Sun (English Language)
1068 Budapest
Dozsa Gyorgy u. 84/a.
Tel: 268-1101
Fax: 268-1103
Mr. Jim Michaels - chief editor
o Pricing Product
For the large part, state subsidies and price supports for consumable
products have been eliminated; the state does support basic services
such as utilities however, recent price increases are bringing rates in
line with costs; subsidies do still exist in a few other areas such as
pharmaceuticals. Otherwise, prices are determined by market forces.
Other factors affecting pricing are duty surcharges for imported
products (the March 12th decree increased tariffs by 8%) and
inflationary pressures. Finally, increases in petroleum may also be
felt as increased transport charges ripple through the economy.
o Sales Service/Customer Support
In general, sales service and customer support is not a strong suite of
the consumer trades. However, with increasing penetration by Western
firms and stiffer competition for value-added services, responsiveness
to customer needs and demands is growing. Operations that deal with the
professional business public are forging ahead with many new customer-
oriented techniques.
o Selling to the Government
Pursuant to Hungarian law, government procurements must be competitively
bid upon. A new procurement law was recently passed which should
introduce more transparency and reduce inequities in government
purchasing.
o Protecting Your Product from IPR Infringement
In September 1993, Hungary signed a comprehensive intellectual property
rights agreement with the United States. The agreement addresses such
issues as copyright, trademarks and patent protection. The U.S.
Government tracks the Hungarian government's enforcement on a regular
basis to ensure compliance with the agreement.
Hungarian legislation provides protection for a twenty year period under
condition that the patent be used within four years of the date of
application or three years from the date of issue.
Regarding copyrights, protection is extended to literary, scientific,
and artistic creations. "Computer programs and the related
documentation" (software) are expressly included in the list of
protected works. A major complaint over copyrights in Hungary has been
the lack of vigorous enforcement especially in the area of pirated and
counterfeit software, sound recordings, etc.
Trademarks can be registered in Hungary; however, the process can take
from six months to a year. Foreigners are required to appoint a local
attorney to represent them. Registrations are valid for ten years and
can be renewed.
o Need For a Local Attorney
As a standard practice, local legal counsel should be retained when
firms are contemplating an investment, joint-venture or other complex
business arrangement. Other forms of business may not expressly require
local counsel, but such services are in general always advisable. All
legal work in Hungary must be conducted by an attorney accredited to
work as a lawyer in Hungary. Many contracts require notarization as
well. Several leading U.S. and international law firms maintain
representational offices in Hungary and provide a wide range of services
for their clients.
CHAPTER V. Leading Sectors for U.S. Exports and Investment
o Best Prospects for Non-Agricultural Goods and Services
1 - TELECOMMUNICATIONS EQUIPMENT. (TEL)
Bringing Hungary's telecommunications into the 21st century is the
government's number one investment priority. During 1995-96, MATAV, the
Hungarian Telecommunications Co., which is 1/3 owned by a consortium of
Ameritech and Deutsche Telecom, will invest about $250 million annually
to upgrade services and reduce the waiting time for new telephone
service. This will lead to many opportunities for telecommunications
equipment exports, including Integrated Services Digital Networks (ISDN)
and Synchronous Digital Hierarchy (SDH) systems. In addition to MATAV,
several local telephone operators, which won concessions in early 1994,
are expected to make procurement decisions as they upgrade their
operations.
Hungary has the highest proportion of cellular telephone users in
Central/Eastern Europe. The two digital cellular operators, Westel 900
(a MATAV-U.S. West joint venture) and Pannon GSM (a Scandinavian
consortium), will likely purchase equipment as they expand their
service.
Figures are in U.S.$ millions. Exchange rate: $1=HUF105.
1994 1995 1996
TOTAL MARKET SIZE 290 322 358
TOTAL LOCAL PRODUCTION 120 138 159
TOTAL EXPORTS 60 69 79
TOTAL IMPORTS 230 253 278
IMPORTS FROM THE U.S. 80 88 97
The above statistics are unofficial estimates.
2 - ELECTRIC POWER GENERATION EQUIPMENT (ELP)
The Hungarian electric system is an aging system consisting of eight
independent power plants and six regional electric utility companies.
Total capacity of the system is 7200 MW. Much of the outdated
equipment, including electrical power generation and power transmission
equipment will need to be replaced or upgraded by the year 2000. Major
investments and expansions to the system can be expected as significant
portions of the Hungarian electric system become privatized. Official
announcements for opening privatization are expected in the Fall of
1995. Foreign competition in this sector comes from Germany, Italy,
Great Britain and France. Major U.S. firms are present on the market.
(in millions of $)
1994 1995 1996
A. TOTAL MARKET SIZE: 234.5 231.3 288.2
B. TOTAL LOCAL PRODUCTION: 137.6 133.3 159.1
C. TOTAL EXPORT: N/A N/A N/A
D. TOTAL IMPORTS: 96.9 97.9 129.1
E. IMPORTS FROM THE U.S. N/A N/A N/A
The above statistics are unofficial estimates.
3 - COMPUTERS & PERIPHERALS (CPT)
In 1994 sales of PCs increased in quantity as well as value by 10%. In
1994, 116,860 PCs were sold, with sales totalling $218 million. For
1995, sales of PCS are expected to surpass 120,000 units. Intel-based
486X/DX PCs are the most popular versions. Although PCs constitute the
majority of computer hardware sold in 1994, other types of equipment
included main frame systems ($23.32 million); mid-range systems ($29.49
million); micro-systems ($34.03 million); and workstations ($12.25).
Albacomp (a Hungarian computer assembler) is the largest PC supplier,
with a 14.2% market share in 1994, followed by Compaq, IBM, Apple,
Packard Bull and NEC. Mainframe systems are increasingly being replaced
by UNIX-based open systems. Leading suppliers are IBM, HP, Sun, and
DEC. The systems & server market is a dynamic growth sector; Hungarian
banks are expected to be major customers. Peripheral equipment
including printers, generated $69 million in sales in 1994, with HP
leading the market, followed by Epson.
Major market sectors for computer hardware include banking/financial
services, government, telecommunications and industry.
Figures are in U.S.$ millions. Exchange rate: $1=HUF105.
1994 1995 1996
TOTAL MARKET SIZE 317.0 350.8 386.6
TOTAL LOCAL PRODUCTION 34.0 37.0 41.0
TOTAL EXPORTS 2.0 2.2 2.4
TOTAL IMPORTS 287.0 316.0 348.0
IMPORTS FROM THE U.S. 46.0 51.0 56.0
The above statistics are unofficial estimates.
4 - OIL/GAS FIELD MACHINERY (OGM)
Hungary is diversifying its gas and oil pipeline network in order to
integrate with West European distribution systems. The construction of
a gas pipeline between Gyor (West Hungary) and Baumgarten (Austria) has
already started and will be completed in 1996. The country's largest
energy company, the Hungarian Oil and Gas Company Ltd. (MOL Rt.) as well
as major regional gas distribution companies are slated for
privatization as well in 1995. These energy sectors are expected to
draw significant international oil & gas interest and in turn stimulate
foreign investment and exploration, thereby triggering significant
growth in this industry. Finally, exploration is on-going for new oil
fields led by international and American interests.
The market's receptivity towards U.S. products is good, although tough
competition can be expected from German, French and Italian companies.
(in millions)
1994 1995 1996
A. TOTAL MARKET SIZE: 31.1 33.1 25.7
B. TOTAL LOCAL PRODUCTION 8.5 8.9 6.8
C. TOTAL EXPORT: N/A N/A N/A
D. TOTAL IMPORTS: 22.6 24.2 18.9
E. IMPORTS FROM THE U.S. N/A N/A N/A
Figures are in U.S.$ millions. Exchange rate: $1=HUF105.
5 - POLLUTION CONTROL EQUIPMENT (POL)
As do many Central/Eastern Europe countries, Hungary has needs in
virtually all areas of the environment. New technologies and
environmental controls are in high demand, however as is frequently the
case, the cost burden often falls on the local municipalities, who are
in a poor financial position to adequately respond. Creative venturing
and/or concessions are paving the way in selected areas for
municipalities to work with the private sector to jointly solve
environmental challenges. In other projects, the World Bank and EBRD
have been involved in such projects as wastewater treatment plants.
With the planned privatizations in the energy sector, new technologies
can be brought to bear on some of the primary sources of air pollution.
Figures are in U.S.$ millions. Exchange rate: $1=HUF105
1994 1995 1996
A. TOTAL MARKET SIZE 68.5 70.2 73.0
B. TOTAL LOCAL PRODUCTION 26.2 27.9 29.3
C. TOTAL EXPORTS 23.6 24.5 26.1
D. TOTAL IMPORTS 44.9 45.7 46.9
E. IMPORTS FROM THE U.S. 2.5 2.8 2.9
The above statistics are unofficial estimates.
6 - FRANCHISING (FRA)
Compared with Western Europe and the U.S., franchising is a new form of
doing business in Hungary. Although fast-food franchises are well-
represented, there is great potential for service franchises of all
types, particularly those which might appeal to the rising middle class.
Difficulty with obtaining business start-up capital could affect
franchise development in the short-run. However, given the increasing
popularity of current franchises, this sector has strong potential for
further growth.
Figures are in U.S.$ millions. Exchange rate: $1=HUF105.
1994 1995 1996
TOTAL MARKET SIZE: 505 550 600
TOTAL LOCAL PRODUCTION: 298 330 350
TOTAL EXPORTS: 298 330 350
TOTAL IMPORTS: 207 220 250
IMPORTS FROM THE U.S.: 103* 110* 120*
*represents estimated capital investments
The above statistics are unofficial estimates.
7 - TRAVEL/TOURISM SERVICES (TRA)
Tourism is Hungary's second-largest industry, after agriculture. After
a few years of stagnation in the Hungarian tourist trade, the first
quarter of 1995 showed a 4.8% increase in the number of visitors. This
translated to a 17-22% increase in the number of guests at four and
five-star hotels. To accommodate expected growth, related
infrastructure will be developed: Budapest's Ferihegy International
Airport is being expanded to handle increased passenger loads. Further
motorway construction (M1 Budapest-Vienna, M3 Budapest-North-East
Hungary, M5 Budapest-South Hungary) and modernization of railways and
railway services are underway to facilitate travel around the country.
Major hotel privatization programs are anticipated during 1995-96. The
above investments should provide opportunities for travel/tourism
services of all types, including hotel management, food service and tour
operation.
Figures are in U.S.$ millions. Exchange rate: $1=HUF105.
1994 1995 1996
TOTAL SALES: 1428 1600 1800
TOTAL LOCAL PRODUCTION: 1100 1200 1300
TOTAL EXPORTS: 1100 1200 1300
TOTAL IMPORTS: 328 400 500
IMPORTS FROM THE U.S.: 28 33 38
The above statistics are unofficial estimates.
8 - FILMS/VIDEOS/OTHER REC (FLM)
Imports of audio-visual products continue to increase. American-made
films, videos have wide popularity especially among the younger
generation in Hungary. Liberalization of the market enabled companies
to undermine the monopoly position of a few Hungarian companies.
Increasing attention is being devoted to solving video piracy, which
according to some estimates is creating an annual loss of $22 million.
Figures are in U.S. millions/dollars. Exchange rate: $1=HUF105.
1994 1995 1996
TOTAL MARKET SIZE: 42.8 41.0 43.2
TOTAL LOCAL PRODUCTION: 9.2 6.9 7.5
TOTAL EXPORTS: 2.9 1.9 2.1
TOTAL IMPORTS: 34.5 36.0 37.8
IMPORTS FROM THE U.S. 31.5 33.6 34.6
The above statistics are unofficial estimates.
Best Prospects for Agricultural Products
1. SEED
Planting seed: Hungary imports high quality planting seed for
prorogation and production. Moreover, U.S. exports of vegetable, grass,
forage and, in particular, field corn seed have been traditionally
strong in this market. New products of higher quality or better price
will have opportunities in Hungary.
1,000 metric tons
1994 1995 1996
TOTAL MARKET SIZE 290 270 280
TOTAL LOCAL PRODUCTION 380 400 400
TOTAL EXPORTS 100 105 105
TOTAL IMPORTS 11 11 11
IMPORTS FROM THE U.S. 1 1 2
The above statistics include unofficial estimates.
2. SOYBEAN MEAL
Soybean meal: Hungary is a large producer and exporter of
livestock and products and therefore has significant needs for soybean
meal (approx. 440,000 metric tons per annum). The Hungarian soy bean
market is price sensitive and will purchase U.S. products if
competitive.
1,000 metric tons
1994 1995 1996
TOTAL MARKET SIZE 358 442 450
TOTAL LOCAL PRODUCTION 8 12 10
TOTAL EXPORTS 0 0 0
TOTAL IMPORTS 350 430 440
IMPORTS FROM THE U.S. 10 15 25
The above statistics include unofficial estimates.
3. BOVINE SEMEN
Bovine semen: Hungary's dairy industry is based on U.S.
breeds. Demand for high quality bovine semen for dairy cows
is strong and U.S. exports in this area are significant.
U.S.$ millions. Exchange rate: $1=HUF 105.
1994 1995 1996
TOTAL MARKET SIZE 10.00 10.00 10.00
TOTAL LOCAL PRODUCTION 8.80 8.80 8.80
TOTAL EXPORTS 0.45 0.50 0.50
TOTAL IMPORTS 1.20 1.20 1.20
IMPORTS FROM THE U.S. 0.88 0.88 0.88
The above statistics include unofficial estimates.
4. POULTRY BREEDING STOCK
Hungary is a major producer and exporter of poultry breeding stock and
poultry. U.S. exports of poultry breeding stock, particularly baby
chicks for chicken broiler and layer production, are strong and expect
to remain in that position for the foreseeable future.
U.S.$ millions. Exchange rate: $1=HUF 105.
1994 1995 1996
TOTAL MARKET SIZE 79.06 79.80 80.20
TOTAL LOCAL PRODUCTION 78.54 79.00 79.50
TOTAL EXPORTS 10.33 10.45 10.70
TOTAL IMPORTS 10.85 11.25 11.40
IMPORTS FROM THE U.S. 2.55 2.70 2.90
The above statistics include unofficial estimates.
o SIGNIFICANT INVESTMENT OPPORTUNITIES
Privatization in the energy sector offers the most significant
investment opportunities for 1995. Hungary's major oil company, MOL,
will be open for financial and strategic investors. Among its assets
are significant oil reserves, pipeline facilities, a major oil refinery
(one of the largest in Central Europe), and a downstream service
network.
A second major energy sector open for privatization is in gas
distribution. Hungary is divided into six gas networks, of which five
will be privatized. The distribution assets are lines leading from the
main high pressure line into and throughout the designated territory,
including direct service to customers. The last energy privatization
sector is in the power generation and power distribution sectors, with
5-6 plants in each field up for privatization. In some instances, local
soft-coal mines are the primary fuel suppliers and can be negotiated in
a combined package.
In greenfield or other privatization strategies, investment in Hungary's
hotel-tourism sector has high prospects. Food processing is another key
area of interest - ranging from juice production to pastas. Selected
Hungarian chemical and pharmaceutical operations have strong reputations
and provide investors with existing assets and local skills. Finally in
the high technology field, Hungarian electronics and software
capabilities are internationally known.
The government of the United States acknowledges the contribution that
outward foreign direct investment makes to the economy. U.S. Foreign
direct investment is increasingly viewed as a complement or even a
necessary component of trade. For example, roughly 60 percent of U.S.
exports are sold by American firms that have operations abroad.
Recognizing the benefits that U.S. outward investment brings to the U.S.
economy, the government of the United States undertakes initiatives,
such as the Overseas Private Investment Corporation (OPIC) programs,
investment treaty negotiations and business facilitation programs, that
support U.S. investors.
CHAPTER VI. TRADE REGULATIONS AND STANDARDS
o Trade Barriers
- Tariffs
In general, Hungarian import policies have progressively liberalized in
an effort to encourage competition and to allow imports of materials
necessary for Hungary's economic transformation. As part of its
Uruguay Round implementation on January 1, 1995, Hungary raised tariffs
on other agricultural products to WTO levels. Many of the increases
affect U.S. exporters and investors on such products as sugar, rice,
peanuts, confectionery products, chocolate, and soft drink concentrates.
At the same time, the Hungarian Government established minimum access
quotas which allow certain volumes of goods to enter the country at a
lower tariff rate.
In an effort to fight a high and growing current account deficit, the
Government of Hungary introduced an 8 percent import surcharge in March
of 1995 on all imports except energy and inputs for investments. This
surcharge is expected to stay in place until mid-1997, with the rate
being gradually decreased beginning in early 1997. While Hungary's
average tariff rates are decreasing, there are particular peak rates
which are unduly high (e.g., coffee).
As part of Hungary's Association Agreement with the EU, import duties on
EU products are being phased out. The USTR as well as other USG
agencies are continuing to review the impact of these actions on U.S.
exports with respect to a reverse preference for EU products. If an
adverse impact is found, USTR will seek to eliminate such preferences
through bilateral negotiations.
- Non-Tariff Barriers
Hungary imposes a $750 million global quota on imports of consumer
goods. American companies have complained that they have been unable to
obtain sufficient quotas to properly supply the market. Additionally,
by the terms of its Association Agreement with the EU, Hungary has
reserved quota allotments for imports from the European Union.
Foreign companies complain that the implementation of new regulations
with no advance notice disrupts trade. For example, in October 1993 the
Government passed new regulations mandating that quality control
certificates were required for consumer goods imports to be custom-
cleared. There was no advance notice of the implementation of the new
regulation. Consequently, neither the importers nor the
testing/certification agencies were prepared for the regulatory change.
To protect domestic car makers, the Hungarian government granted import
licenses for 68,000 new cars and 60,000 used cars in 1994. Half of each
category was reserved for imports from the EU. As of January 1, 1995,
Hungary banned imports of used cars (over four years old) for commercial
use. Specialized older vehicles may still be imported after passing
special technical tests.
- Import Taxes
Hungary charges a 5% ad valorem fee, comprised of a 3% statistical fee
and a 2% customs clearance fee. This is incompatible with WTO/GATT
requirements, which call for administrative fees to be based on the
actual cost of customs services, not the value of the imported goods.
o Customs Valuation
Customs Valuation is on an ad valorem basis.
o Import Licenses
An estimated 90% of imported products no longer require an import
license, however licenses are still required for some consumer goods
(those subject to quota) and products which are typically controlled in
the United States and other Western countries such as arms/ammunition,
military equipment, hazardous materials, materials for biological
weapons, psychotropic products, nuclear products and uranium ore are
similarly controlled in Hungary.
o Export Controls
In May 1992, Hungary was removed from COCOM's list of proscribed
countries. Most technology can flow to Hungary without export licenses.
However, some equipment (e.g., dual-use technology) still requires
export licenses from the Bureau of Export Administration (U.S.
Department of Commerce) and Department of State.
o Import/Export Documentation
All importers and exporters must file a VAM 91 document which can be
obtained from Hungarian Customs. Essentially, this document serves as a
declaration for the type and number of goods being imported or exported.
This document must contain the Product Code Number which identifies the
classification of the goods. The Product Code Number can be obtained
from the Central Statistical Office.
For consumer distribution goods, the importer must have a certification
document from the Commercial Quality Control Institute (KERMI); goods
cannot be custom-cleared without the KERMI permits. Other products
destined for industrial production, such as raw materials, will need a
waiver of certification. With reference to certain consumer products,
KERMI may permit documentation from other testing and certification
agencies such as the National Institute for Drugs and the Quality
Control Office of the Building Industry.
Finally, those products whose trade is still controlled by the
government (see above) require the appropriate license from the Ministry
of Industry & Trade.
o Temporary Entry
Products may be brought into Hungary on a temporary basis for exhibition
in trade fairs or as samples. U.S. exporters can obtain a carnet from
their local Chamber of Commerce (the carnet is good for 1 year). The
carnet lists the products and provides duty-free entry. An alternative
method is to post a bond with Hungarian Customs equivalent to the duties
to be paid on the product. The amount is then refunded once the product
has been validated as having left the country.
Goods -- typically materials or parts/accessories -- which are brought
into Hungary for re-export after additional processing may enter duty-
free. The Hungarian company must demonstrate that it has a contract
with a foreign company that commissions the work. Customs will issue a
temporary import permit. In some cases, Customs may request a deposit
for customs duties. There are procedures for duty refunds on re-exports
but these can be complicated.
o Labeling, Marking Requirements
Strict rules apply to labeling and marking of food, cosmetic and
household products. The rules apply to both domestic and imported
products. The primary requirement for food is that labelling
information must be in Hungarian. The label must give the following
information: net quantity, name/address of producer (or importer),
consumption expiration date, recommended storage temperature, listing of
ingredients/additives, energy content and approval symbols from the
National Institute of Food Hygiene and Nutrition (OETI) and the
Commercial Quality Testing Institute (KERMI).
Cosmetics, which are regulated by OETI, should indicate: product
denomination, function, handling (precautionary) instructions,
production date, utilization expiration date, quantity of product,
producer/importer information. There are specific marking and labelling
requirements for human and animal pharmaceuticals.
Some American firms have complained about high fees and slow processing
to obtain approvals from OETI and KERMI.
o Prohibited Imports
According to section 186/a 1994 of the Hungarian Gazette, Hungary does
not prohibit the importation of any products, however special permits
are required for the importation of such items as endangered species,
plants, environmentally hazardous products, and certain drugs.
o Standards
There are currently two types of standards: national and sectoral.
National standards are issued by the HSO and conform to international
norms. Hungary is a signatory to the GATT Agreement on Technical
Barriers to Trade (Standards Code). Hungary is also a participant in the
International Standardization Organization (ISO) and the International
Electro-technical Commission (IEC). Sectoral standards are issued by
individual ministries and other central government agencies.
As noted above, goods for consumer distribution are subject to an
approval process by the Commercial Quality Control Institute (KERMI)
and/or the Hungarian Electro-technical Control Institute (MEEI) which is
responsible for electronic/technical goods. In order to import or
market such electronic consumer products, samples must be submitted to
these control institutes for testing and certification. Without
appropriate certification, imported products will not be custom cleared.
o Free Trade Zones/Warehouses
Companies operating in one of Hungary's free trade zones are exempt from
customs and foreign-exchange requirements of the country as well as from
indirect taxation tied to the turnover of goods. With respect to direct
taxes (profit taxes, company taxes, etc.,) the companies enjoy
transitory preferences.
Customs-free zones may be established anywhere in the country provided
requirements of the Customs authorities are met (e.g. perimeter
control.)
o Special Import Provisions
Equipment and other goods which are deemed capital in kind for joint
ventures may enter duty-free.
o Membership in Free Trade Arrangements
In December 1991, Hungary signed an Association Agreement with the
European Union which will phase out tariffs over an extended period of
time. The agreement immediately removed EU duties on 70 percent of
Hungary's industrial exports to the EU, and lifted quotas on 60 percent
of its total exports. Trade in textiles, steel, coal and farm products
will be eased over several years. In June 1993, the EU agreed to
accelerate the agreement's provisions and reaffirmed its commitment to
Hungary's full-membership, which is expected by the year 2000.
In December 1992, the Czech Republic, Hungary and Poland negotiated a
Central European Free Trade Area. Modeled after the structure of the EU
association accords, this agreement reduces trade barriers over an 8
year period; duties on 15-30 percent of mutual trade were eliminated
immediately upon implementation of the Agreement in March 1993. A
supplementary agreement, signed on June 18, 1994, accelerates the
agreement's provisions.
Finally, Hungary concluded a free trade agreement with the European Free
Trade Association (EFTA) countries in July 1993. Again, this agreement
was modelled after the EU accords and will eliminate trade barriers for
Hungarian goods entering the EFTA countries by 1997 and for EFTA imports
by 2001. EFTA accounts for nearly 15 percent of Hungary's total trade.
Hungary is negotiating with the EU to ensure that Hungary does not lose
any benefits as a result of EFTA countries joining the EU.
In April 1994, Hungary and Slovenia signed a Free Trade Agreement which
calls for a phased elimination of duty on industrial goods by 2001 and
an immediate 50 percent reduction of duty on certain categories of
agricultural products.
VII. INVESTMENT CLIMATE
A. Openness to Foreign Investment
Hungary has attracted over $8 billion in foreign direct investment,
which is more than half of all foreign investment in Central and Eastern
Europe. American investment leads the way in Hungary with nearly $4
billion. The current environment in Hungary encourages foreign
investment and participation in virtually all aspects of the Hungarian
economy.
Foreign investment may take any one of four forms: setting up a joint
venture in existing businesses, obtaining equity in a state enterprise
through privatization, establishing a new (greenfield) business venture,
and making a portfolio investment. Parliament has passed a number of
laws intended to facilitate foreign investment. Four laws are of
particular importance: the Companies Act, the Investment Act, the 1995
Law on Privatization, and the Concessions Act.
Foreign investment in Hungary most often takes the form of a limited
liability company. Other commonly used forms are companies limited by
shares (joint stock companies), joint enterprises, business
associations, general partnerships, limited partnerships, and sole
proprietorships. Current Hungarian legislation makes no provision for
branch operations. However, Hungary's agreement with the EU calls for
legal regulations permitting such operations to be in place in five
years.
Act XXIV of 1988 (as amended) on Investments of Foreigners in Hungary
(the "Investment Act"), which sets forth the rules on the establishment
and operations of companies with foreign participation, grants
significant rights and benefits to foreign investors. It guarantees
national treatment for foreign investments and abolishes the old
requirement for government approval of majority or 100 percent foreign-
owned investments as well as providing protection against losses
resulting from nationalization, expropriation, or similar measures. The
Investment Act guarantees free repatriation of invested capital and
dividends.
The new Privatization law (June 1995) is designed to make the
privatization process more transparent. In addition, the State Asset
Management Company and the State Property Agency are merged to become
the State Privatization and Asset Management Company. Under the new
law, the state will retain partial ownership in 156 companies, farms,
and research institutes, including complete ownership of about 36 others
(primarily defense-related industries or those connected with
correctional institutions). The new State Privatization and Asset
Management Company (APV Rt) is responsible for the management and sale
of all of these assets.
Act XVI of 1991 on Concessions authorizes the state to provide investors
with concessions in return for their investment in infrastructure
development and certain other sectors. Under the provisions of this
act, private investors may have a partial monopoly in activities
normally reserved for the central and/or local governments such as the
construction of roads, railways and airports, power generation and
transmission, mining, and operating games of chance. Concessions are
normally awarded on the basis of a tender and include a time limit and a
renewal limit (generally, 50 percent of the original period).
100 percent foreign ownership is permitted in sectors open to private
investment. The exceptions to foreign investment are in defense-related
industries, the media, and on foreigners' acquisition of land. Under
the Land Law (Act I of 1989) and related regulations, foreigners may
acquire agricultural land in some instances, such as in compensation for
a prior expropriation. Foreign owned companies that are Hungarian legal
entities may acquire real estate (with the exception of agricultural
land) without restrictions. Foreigners must make payments in hard
currency, however. Under the Investment Act, these requirements do not
apply to companies incorporated in Hungary, even if 100 percent foreign-
owned. Such companies, however, may only acquire real estate "required
for its economic activities." The new Land Law (Act LV of 1994) deals
primarily with agricultural land, restricting the purchase of land by
foreigners to 6,000 square meters, but allows for leases up to ten years
for up to 300 hectares. Act LV prohibits businesses from purchasing
arable land, though they may lease specified amounts. The land-
ownership prohibitions on foreigners and businesses are seen as
temporary and may be lifted when the real estate market reflects
accurate land values.
As noted earlier, the Investment Act abolished the old requirement for
government approval of majority foreign-owned investments. There remain
two instances where screening is required: investments in financial
institutions and insurance. Acts LXIX of 1991 and CXII of 1993 on
Financial Institutions stipulate that government approval must be
obtained for "the establishment of a financial institution owned fully
or partly by foreigners as well as for participation by foreigners in a
financial institution registered in Hungary." Such approval is not
needed if total foreign participation in an institution will be less
than ten percent of its registered capital. The law sets out the
necessary criteria, which include whether the applicant has the
necessary capital, its business reputation and five-year track record,
plans for training employees, and contribution to competition among
similar institutions. Similarly, government approval is also required
for foreign investments in insurance companies if the foreign share
exceeds ten percent of the company's capital.
The Corporate Tax Act was amended by Act IC of 1993 which withdrew
automatic tax holidays for new investments as of January 1, 1994.
However, companies that qualified for tax abatements prior to the
deadline retain some of these benefits. In place of the tax holidays,
Parliament introduced a discretionary new general tax reduction,
effective January 1, 1994. The new incentive is available in the form
of a tax reduction based on a percentage of future taxes to be paid.
Other conditions which determine eligibility are the amount of share
capital, production if any, of environmentally-friendly products,
anticipated exports etc.
The Act on Separate State Funds (Act LXXXIII of 1992) established an
Investment Promotion Fund to encourage foreign investment in
infrastructure, new technologies and public utilities. To qualify for
subsidies from this fund, a company must have more than HUF 50 million
($500,000) in registered capital or capital stock, not less than 30
percent foreign ownership, and the foreign contribution must be in
convertible currency and not less than 50 percent of the foreign
partner's share. The third criterion may be waived if the technology is
considered "environmentally superior" or "of technical excellence."
This Act was modified on March 1995 at which time its name was changed
to Economic Development Fund. It is now available for all investors,
foreign or Hungarian.
Two import policies/practices that affect foreign investors exclusively
are the Investment Law's provision for the duty-free import of capital
goods by joint ventures. The second policy is the establishment of
semiannual quotas for automobile imports. For 1994, the number of
automobile import licenses was limited to 96,000 (51,000 new, 30,000
used; with 53 percent of each category imported from the EU and the
remainder from outside the EU).
These quotas are meant to protect the markets of domestic automobile
manufacturers, all of which are foreign-owned companies. Imports used
for investment purposes are not subject to the 8 percent import
surcharge introduced in March 1995.
B. Conversion and Transfer Policies
The Investment Act guarantees foreigners the right to repatriate "in the
currency of the investment" any dividends, after-tax profits, royalties,
fees, or other income deriving from the operation or sale of the
investment. The Act also grants foreign employees of a foreign
investment the right to transfer abroad fifty percent of their after-tax
salaries. There is no queuing for foreign exchange, and there are no
known instances of delay in repatriations.
Foreign investors are allowed to keep any cash contributions made in a
convertible currency to a foreign exchange account. The company may use
these funds to import, duty-free, goods considered as part of the
investment. Alternatively, it may import goods using foreign exchange
bought for forints. In April 1995, the Government of Hungary eliminated
the requirement that all companies registered in Hungary, including
those with foreign participation, sell foreign exchange receipts from
exports to the National Bank within eight days of receipt unless an
exemption had been granted by the National Bank. Companies are now
allowed to maintain foreign currency accounts at Hungarian banks where
they can keep their export receipts. Companies must receive permission
from the National Bank before taking out a hard currency loan.
C. Expropriation and Compensation
There have been no cases of expropriation of foreign-owned assets since
the early 1950's. Foreign investors are afforded protection under
Article 13(2) of Hungary's constitution, (as amended until December
1994) that in cases, "Expropriation of property shall be allowed only
exceptionally and for public interests, in cases and ways determined by
law and with full, unconditional and immediate indemnification." The
Investment Act further states that the foreign investor shall be
promptly indemnified for any damage arising from any possible measure
affecting his property.
Following the change of regime in 1990, the government began a program,
now approaching conclusion, intended to compensate those who lost
property under the communist and fascist regimes. Hungarians and foreign
citizens are equally eligible to receive compensation. Victims or their
heirs receive compensation vouchers, which may be sold or exchanged for
stocks, real estate or annuities. There will be no "reprivatization" or
restitution of lost properties.
D. Dispute Settlement
If efforts at conciliation and negotiation fail to resolve an investment
dispute between foreign investors and the state, Hungary will accept
binding international arbitration. Hungary is a member of the
International Center for the Settlement of Investment Disputes (ICSID),
also known as the Washington Convention, and a signatory of the 1958 New
York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards.
E. Political Violence
Violence is not part of the traditional political landscape in Hungary.
There were, however, in 1994 three bombings directed at sites of
cultural value (including the Parliament building) resulting in minor
damage to property and only one personal injury. No group claimed
responsibility nor have the police identified potential perpetrators.
There has been no violence directed at foreign-owned companies.
Disturbances in the former Yugoslavia have not spilled into Hungary.
F. Performance Requirements/Incentives
Hungary does not impose performance requirements as a condition for
establishing, maintaining, or expanding an investment. In the case of
foreign investments, there is no requirement that nationals own shares,
that the share of foreign equity be reduced over time, or that
technology be transferred on given terms.
G. Right to Private Ownership and Establishment
Foreign and domestic private entities may establish and own business
enterprises and engage in all forms of remunerative activity, save for
those prohibited by law. The Companies Act guarantees the right of
private entities to freely establish, acquire, and dispose of interests
in business enterprises.
H. Protection of Property Rights
The Hungarian legal system protects and facilitates the acquisition and
disposition of property rights.
I. Regulatory System: Laws and Procedures
The Hungarian Competition Office administers controlled prices which are
set by government decree. The Economic Competition Office investigates
unfair market practices. The ECO also reviews cases where an
acquisition will result in a single entity having more than 30 percent
market share. Finally, the Competition Act forbids consumer fraud,
restriction of competition, abuse of a dominant market position, and
unfair competition.
Hungary overhauled its tax system in the late 1980s, instituting a
western-style system. The most important taxes for a foreign investor
are: company tax (18% of corporate profits and a 23% supplementary tax
- if dividends are paid); a general turnover tax (VAT, which varies from
12-25%); and personal income tax (progressive tax assessed on total
income). In addition, the employer is responsible for contributions to
Social Security and Solidarity (unemployment) funds. The avoidance of
double taxation treaty with the U.S. minimizes some of the above tax
obligations.
J. Bilateral Investment Agreements
Hungary and the United States have been in negotiations for a business
and economic treaty but have not yet concluded one.
Hungary has concluded a treaty for the avoidance of double taxation with
the United States.
K. OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation (OPIC) has been
operational in Hungary since October 1989. OPIC offers American
investors insurance against political risk, expropriation of assets,
damages due to political violence, and currency inconvertibility. OPIC
can also provide specialized insurance coverage for certain contracting,
exporting, licensing, and leasing transactions undertaken by U.S.
investors in Hungary. Political risk insurance is also available for
foreign-owned companies in Hungary from several private carriers in the
United States and Western Europe, and from the Multilateral Investment
Guarantee Agency (MIGA), which is a World Bank affiliate. In addition,
the National Bank of Hungary, for a fee, will issue to a foreign-owned
company its guaranty of the Investment Act's commitments regarding
expropriation and profit repatriation.
In January, 1995, President Clinton announced U.S. Government support
for two private equity funds set up by OPIC that could leverage a
significant amount of capital investment for business ventures in
Central Europe. OPIC signed commitment letters to provide loan
guaranties to the $100 million Bancroft Eastern Europe Fund and to the
$240 million Auburndale Central and Eastern European Property Fund. The
Bancroft Fund will make direct equity investments in private or
privatizing companies in Central Europe, including Hungary. The
Auburndale Fund will develop industrial parks, particularly sites for
light manufacturing, warehouses, and distribution centers.
L. Labor
Hungary's civilian labor force of 4.5 million women and men is highly
educated and highly skilled. The literacy rate in Hungary tops 98
percent. About two-thirds of the workforce has completed some form of
secondary, technical, or vocational education. Hungary is particularly
strong in engineering, medicine, economics, and the sciences. Many
foreign investors have praised the productivity, motivation and
adaptability of Hungarian workers, however there are some chronic issues
having to do with a liberal view on sick leave and absenteeism, in
general. Another remnant of past practices is overstaffing. New
management can overcome these problems through worker retraining
programs or early retirement. New management also has discouraged the
Hungarian practice of holding down two or three jobs simultaneously and
by paying higher wages.
The recent boom in foreign investment in Hungary has resulted in
shortages of employees with western-style management skills. The lack
of foreign language skills, formerly a major problem, is becoming less
so, especially among younger Hungarians. Labor factors have not
significantly affected investors' choice of technology.
Unemployment now stands at around 10 percent, however there are wide
regional discrepancies. In the Northeastern counties unemployment
exceeds 20 percent, while in Budapest and the western portion of the
country, unemployment is closer to 6 percent. Unions in Hungary are
relatively weak and divided, however. Less than half the workforce is
unionized (down from 90 percent under communism). Labor-management
relations tend to be collegial, with both sides negotiating labor issues
at the company level, as well as the national level (within the sphere
of the Interest Reconciliation Council, made up of government, employer,
and organized labor representatives).
The Hungarian Labor Code guarantees employees the right to form or join
trade unions and gives unions the right to operate inside a company.
Unions are entitled to conclude collective bargains. Employees may
elect factory councils, which the employer is obliged to consult on a
number of questions, such as the privatization of the company or plans
for worker retraining. The
Labor Code limits the work day (to 12 hours) and overtime, guaranteed
maternity leave, at least 20 days of annual leave, at least 30 days
notice, and severance pay for those employed at least three years. The
law also forbids discrimination based on sex, age, or nationality. The
minimum employment age is 16 years, except that apprentice programs may
begin at 15.
Hungary adheres to the ILO Convention Protecting Worker Rights. The ILO
opened an Eastern European Office in Budapest in 1992.
M. Foreign Trade Zones/Free Ports
Foreign investors may set up operations or acquire interest in companies
within a duty-free zone. The FTZ is considered foreign territory from
the aspect of the customs, foreign exchange, and foreign trade
regulations and companies within are legally considered to be foreign
companies. They are required to keep their accounts and make most of
their transactions in hard currency and establish a forint account at a
Hungarian bank to meet any expenses (such as taxes and wages) that the
Act specifies must be paid in local currency.
N. Capital Outflow Policy
Capital export and outward direct investment has been allowed since
1974, but requires the prior permission of the Hungarian government.
The Ministry of Finance, and the Ministry of Industry and Trade (MIT)
review license applications. According to government statistics,
Hungarian entrepreneurs invested abroad HUF 11.4 billion ($95 million)
in 1,298 joint ventures by the end of 1993. In 1995, the Hungarian
National Bank recorded $44 million of capital outflow, an average of
less than $4 million a month. The total stock is over $250 million.
Two-thirds of the registered new joint ventures are located in
neighboring countries. However, Hungarian ventures may be found in
Western Europe (mainly Germany and Austria), the United States and in
countries with favorable taxation laws such as Cyprus and Liechtenstein.
The sectors targeted for investment abroad are trade, tourism, and
service sectors.
O. Major Foreign Investors
Foreign concerns have invested over $8 billion in Hungary, more than
half of all foreign investment in Central and Eastern Europe. The
United States is the largest investor, with about $4 billion invested by
mid-1995. The list below details major investments in Hungary, to the
present.
COMPANY INDUSTRY INVESTOR
($ mil) (Country)
-------- -------- ---------
MATAV
($875) telecom Ameritech (US)
Deutsche Telecom (GER)
Tungsram
($550) light bulb General Electric (US)
Audi Hungary
($420) car engines Volkswagen/Audi (GER)
Westel
($330) telecom US West Int'l (US)
Opel Hungary
($300) autos, parts General Motors (US)
Magyar Suzuki
($250) finished autos Suzuki (JPN)
Pannon GSM
($250) telecom Scandinavian PTTs
Hungaria Biztosito
($220) insurance Allianz (GER)
Hungarian Euro-Expwy.
($200) construction Various (FR - AUS)
KOFEM
($165) aluminum Alcoa (US)
NMV
($160) food/soap Feruzzi (IT)
Dunapack/Halaspack
($160) paper Prinzhorn (Aus)
Ford Hungaria
($120) automotive parts Ford (US)
Chinoin
($120) pharmaceuticals Sanofi (FRA)
Fovarosi
Asvanyviz
($115) soft drinks/snacks Pepsi International (US)
Hunguard
($110) glass Guardian Glass (US)
Compack
($100) food processing Sara Lee/Douwe Egbert
(US/NETH)
Unilever
($100) food/soap (HOL/UK)
NIKEX
($100) investment Hungarian Inv. (UK)
MALEV
($100) airline Alitalia/Simest (IT)
Coca-Cola
($100) beverages Amatil (AUSTRL)
First Hungary Fund
($80) diverse investments First Hungary
VIII. TRADE AND PROJECT FINANCE
A. Description of Banking System
The Hungarian banking system has developed rapidly and currently
consists of: the National Bank of Hungary (HNB); 37 commercial banks (17
are fully or partially foreign-owned); 6 specialized financial
institutions; 1 off-shore bank; 260 saving cooperatives.
Comprehensive banking reform removed credit and service functions from
the MNB. Enterprises can maintain commercial accounts with more than
one bank. Except for the ceilings on household deposits, commercial
banks are free to set terms for deposits and loans.
Hungary's banking system is not considered nearly as "user-friendly" as
American or for that matter West European banks. Hungarian banks have
failed to develop and to promote retail instruments to service the
client base. Checking accounts number less than 50,000. For example,
many branches are not electronically interconnected, though recent
efforts are being directed to bring contemporary technology into the
banking system. As a consequence, it is not possible to cash checks
other than in the branch in which the account was opened. Bank
transfers are time-consuming, with transfers lost in processing for
extended periods of time. Depositors are often skeptical of new
instruments and the introduction of direct-deposit and debit cards may
require time and confidence. Hungary is still largely a cash-based
economy.
In terms of corporate services, banks are not eager to lend on a long-
term basis. Moreover, the cost of borrowing is prohibitively high for
companies. The current nominal interest rate is nearly 40 percent.
Bank privatization is proceeding slowly given the bad loan portfolios of
the banks. The government has developed a "credit consolidation" scheme
to clean the banks' credit portfolios.
In July 1994, the first Hungarian bank was privatized. Shares of the
Foreign Trade Bank (MKB) were sold-off to the German bank Bayerische
Landesbank. The European Bank for Reconstruction & Development also
took a stake in MKB. While Budapest Bank was slated for privatization,
prospective buyers chose at the last minute to decline the opportunity.
The privatization of Hungary's largest savings bank, OTP (The National
Savings Bank) is scheduled for privatization by the end of 1995. The
share issue will be offered to both institutional and small investors.
B. Foreign Exchange Controls Affecting Trading
The Hungarian forint is almost fully convertible for current account
transactions, but not for capital account movements. Currently, the
forint is pegged to a currency basket consisting of the U.S. dollar (30
percent) and the ECU (70 percent). The worsening current account
fuelled anticipation that a sizeable devaluation would take place to
correct the situation. In August 1994, the government devalued the
forint by 8 percent -- the largest devaluation since 1991. In
conjunction with the austerity measures introduced in March 1995, the
government of Hungary devalued the forint by 9% and moved to a crawling
peg exchange rate policy.
Although the forint continues to be a managed currency, it is in essence
fully convertible for business purposes. Foreigners may freely
repatriate profits and dividends in hard currency (note: MNB requires
that an equivalent amount in forints be on deposit with a Hungarian
bank). Steady progress has been achieved in the liberalization of
foreign exchange controls. Foreigners are now permitted to maintain
forint accounts which can be used to purchase goods domestically.
Parliament is expected to pass a new foreign exchange law, drafted in
conformity with IMF requirements, sometime in the fall of 1995.
C. General Financing Availability
The cost of borrowing locally is prohibitively high. The current
average nominal interest rate is nearly 40 percent. Local banks are
often resistant to lending on a long-term basis. Close ties to old
(usually state-owned) clients, the larger and safer profits available
from investing in state securities, unfamiliarity with loan application
evaluations, and inadequate bank reserves have acted to constrain
commercial bank credit to the private sector.
D. Export Financing (Method of Payment)
All import contracts exceeding 2 million forints must be secured by a
letter of credit (LC) bank guarantee or by advance payments/deposits
with commercial banks. The advanced payments/deposits must be put on
deposit with the Hungarian National Bank. Importers are restricted from
making foreign currency cash payments abroad exceeding a quarter million
forints. Enterprises are permitted to enter into deferred payment
arrangements for imports, with the LC and advance payment/deposit
requirement for contracts exceeding 10 million forints waived if the
deferred payment is for a period exceeding 60 days.
E. Available Export Financing and Insurance
The U.S. Export-Import Bank has provided financing and insurance for
transactions in Hungary. The largest deal to date involved the
Hungarian Airlines (MALEV) procurement of two Boeing 767s. Currently,
only the Foreign Trade Bank is approved by EXIM in Hungary, however
ExImBank is exploring correspondent relationships with other Hungarian
banks.
F. Available Project Financing
Many U.S. commercial banks will provide financial services in Hungary,
however the cost of financing tends to be high. Among the major
international financial institutions, the European Bank for
Reconstruction and Development (EBRD), the International Finance
Corporation (IFC), and the European Investment Bank (EIB) have various
project financing programs. Other sources of credit for private
investors include Citibank, Bankers Trust, the Hungarian-American
Enterprise Fund, and the First Hungary Fund. Among the European banks,
the following banks do business in Hungary: Giro Bank (Austria),
Creditanstalt (Austria), ING (The Netherlands), ABN Amro and several of
the major German banks.
G. List of Banks with Correspondent U.S. Bank
All major Hungarian banks -- Budapest Bank, Hungarian Foreign Trade Bank
(MKB), Hungarian Credit Bank (MHB), K&H (Trade and Credit Bank), Posta
Bank (Post Bank), OTP (National Savings Bank) -- have correspondent
banks in the United States. Additionally, there are a number of
international banks that maintain representational offices in Budapest
(most with offices in the United States): ABN Amro, Creditanstalt,
Credit Lyonnais, and Giro Bank. For contact information, see Appendix B
(section D).
IX. BUSINESS TRAVEL
A. Business Customs
Business customs are similar to those in the United States and Western
Europe. Typically, Hungarian business people prefer to develop a
relationship on which to base a business connection. Some day-long
meetings may involve extended luncheons sponsored with reputed Hungarian
hospitality. Hungary's working hours are 8am to 4pm. During the summer
months, business typically stops by mid-afternoon, and even earlier on
Fridays.
B. Travel Advisory and Visas
There are no travel advisories issued for Hungary. American citizens
travelling to Hungary do not require visas. Those intending to stay for
longer than 90 days, will require residency permits. Americans must
obtain work permits if they are employed in Hungary. To obtain a work
permit, a visa for work purposes must be obtained from the Hungarian
Embassy in the United States prior to arrival in Hungary. Recent
crackdowns on work visa abuses has caught legitimate requests in
frequently time consuming and sometimes onerous application procedures.
C. Holidays
Hungary recognizes the following holidays: New Year's (January 2);
Revolution Day (March 15); Easter Monday; Labor Day (May 1); Whit
Monday (May 27th); National Day (August 20); Republic Day (October 23);
Christmas (December 25); and Boxing Day (December 26).
D. Business Infrastructure
Hungary is serviced by most of the major international airlines: Delta,
KLM, Lufthansa, British Airways, SAS, Air France, Sabena, Swiss Air.
United Airlines and American Airlines have travel agent offices in
Budapest, as well. The Hungarian Airlines (MALEV) provides direct non-
stop service between New York and Budapest as well as services all the
major European cities. Travel into the countryside will require either
a rental car or a railroad trip. Hungary is crisscrossed by railway
lines which connect most cities. A hydrofoil can be taken to Vienna.
In Budapest, there is a well-planned underground metro (3 lines) which
is supplemented by a comprehensive bus, tram and trolley system. Taxis
are also available; however, drivers often take advantage of foreign
guests arriving at the airport or at major hotels by charging 2 to 3
times the normal rate. It is wise to ask the price in advance to a
destination (airport to downtown is approx. $20); or seek the advice of
a local attendant.
Budapest has three 5-star (Hilton, Marriott, Kempinsky) and 3 4-star
(Forum, Hyatt, Korona) hotels located in the center of town. Other
comfortable but lower-priced accommodations can be obtained at the
Aquincum, Hotel Helia, Thermal Hotel, and the Ramada (downtown and
Margaret Island locations). Hotel facilities vary in quality outside of
Budapest.
Telephone service is steadily improving in Hungary. Long distance
calling is fairly reliable, however, calls to the countryside or within
certain locales in Budapest can be poor in quality or be disconnected.
Budapest is serviced by two GSM cellular phone systems as well as by
several paging services.
The cellular systems cover the primary corridors across Hungary
permitting travelers to maintain phone contact. Calling card services
such as AT&T's "USA Direct" and Sprint can be accessed within Hungary by
dialling special access code numbers.
English is regularly used in business contexts, with German coming in a
close second. There are of course many firms, especially smaller, new
firms whose principals do not speak English. In these instances, a
translator is normally available. It is nonetheless prudent to ask in
advance what translation provisions have been made for a meeting.
Hungarians address each other by their family names first, followed by
their first names (e.g., Smith John). Business cards are presented in
this manner unless printed in English. It is always advantageous to
learn basic greetings in Hungarian. Even the most minimal efforts will
impress Hungarian business partners.
CHAPTER X. APPENDICES
APPENDIX A
COUNTRY DATA
1. Profile
Population: 10.3 million
Population Growth Rate: -0.1
Religions: Catholic - 69 percent
Calvinist - 20 percent
Lutheran - 5 percent
Other - 8 percent
Government System: Multi-parti Parliamentary Democracy
Languages: Hungarian, German/English
for business
Work Weeks: 40 hours, Monday-Friday
APPENDIX B
2. Domestic Economy
(Current $ million) 1994(a) 1995(b) 1996(c)
GDP (nominal) 41,000 42,000(a) n/a
GDP growth rate (percent) 2(a) 3-5(b) n/a
Nominal GDP per capita (USD)* 4,000 4,000 n/a
GOH spending as % of GDP 59 n/a n/a
Rate of Inflation (percent) 18.5 28(a) 24(c)
Rate of Unemployment (percent) 10.9 12 10
Foreign Exchange Reserves 6,800 7,200 7,200
Average Exchange Rate 105 130 n/a
Foreign Debt 28,500 31,600 n/a
Debt Service Ratio (d) 48.7 n/a n/a
US Economic and Military 950 3,100 9,000
Assistance (obligated) (e) 36.1 19.0 15.0
-----------------------------
(a) Official government data, unless otherwise noted
(b) Government estimate, before July 7, unless otherwise noted
(c) private research institute estimate, unless otherwise noted
(d) medium term credit amortization and gross interest payments, as a
percentage of export of goods and services
(e) 1995 and 1996 figures are estimates, budget is under review
APPENDIX C
TRADE
1994 1995 1996
(in Million USD)
Total Country Exports 8,100 9,450 11,500
Total Country Imports 11,600 14,560 15,500
U.S. Exports to Hungary 309 340 490
U.S. Imports from Hungary 470 490 590
APPENDIX D
INVESTMENT STATISTICS
Foreign Direct Investment Statistics
Hungary has attracted over $8 billion in foreign direct investment since
1989. There are over 30,000 joint ventures registered in Hungary, up
from 13,000 two years ago.
Investment began pouring into Hungary with the liberalization of the
investment regime, even before the transition to democratic rule. The
dollar amounts represent actual inflows and do not include investment
commitments.
FDI in Hungary
($ mil)
Year Value
---- -----
1972-88 250
1989 300
1990 900
1991 1,700
1992 1,471
1993 2,328
1994 1,887
------- -----
Total 8,736
More than one-third of the joint ventures operating at the end of 1991
were established with one million forints (the minimum required to
establish a limited liability company), while the founding capital of
543 (6 percent) exceeded 100 million forints. Of the companies with
foreign participation set up in the first half of 1992, however,
approximately two-thirds were established with the minimum one million
forints capital. Only 45 companies (2.2 percent) had founding capital
greater than 100 million forints -- though their founding capital
represented 82.5 percent of the total for the JV's set up in the first
half of 1992. For investments made though 1991, 57 percent of foreign
capital was invested in industry, 16 percent in trade, 16 percent in
services, and 6 percent in construction. For investments made in the
first half of 1992, 60.6 percent of foreign capital was invested in
industry, 10.4 percent in trade, and 8.7 percent in services.
According to the Ministry of Industry & Trade, as of January 1995, the
leading foreign investors are:
United States $3.8-4.0 billion
Germany $2.5-3.0 billion
Austria $1.3 billion
France $0.8 billion
Other major investors are Great Britain, Japan, Switzerland, Sweden,
Canada, and Italy.
Appendix E
U.S. AND COUNTRY CONTACTS
A. U.S. Embassy Trade Personnel
American Embassy Budapest
Ambassador: Donald M. Blinken
Deputy Chief of Mission: James I. Gadsden
Economics Counselor: John Moran
Commercial Attache: John Fogarasi (see below)
Szabadsag ter 12
H-1055 Budapest
Tel: (36)(1) 267-4400
Fax: (36)(1) 132-8934
U.S. Agency For International Development (USAID)
USAID Representative: Thomas Cornell
Europa Centre
Karoly Korut 11
H-1075 Budapest
Tel: (36)(1) 269-7860
Fax: (36)(1) 251-1981
U.S. Commercial Service
Senior Commercial Officer: Mr. John J. Fogarasi
Assistant Commercial Attache: Mr. Jonathan L. Marks
Bajza utca 31
H-1062 Budapest
Tel: (36)(1) 322-1217
Fax: (36)(13 342-2529
U.S. Information Service
Public Affairs Officer: Ms. Donna Culpepper
Bajza utca 31
H-1062 Budapest
Tel: (36)(1) 342-4122
Fax: (36)(1) 153-4274
B. AmCham and Bilateral Business Councils
American Chamber of Commerce in Hungary
Executive Director: Peter Fath
Dozsa Gyorgy ut 84/A, Room 405
H-1068 Budapest
Tel: 269-6016
Fax: 122-8890
Chamber of Commerce of the United States
International Division --
Hungarian-U.S. Business Council
Chamber of Commerce of the United States
Michaela D. Platzer - Director
P.O. Box 1200
Washington, D.C. 20013-1200
Tel: 202 463-5480
Fax: 202 463-3114
C. Trade and Industry Associations
Hungarian Chamber of Commerce
U.S. Desk Officer: Helembaine Remenyi Zsuzsanna
Kossuth Lajos ter 6-8
H-1055 Budapest
Tel: 153-0835, 153-3333
Fax: 153-1285
National Association of Entrepreneurs (VOSZ)
President: Janos Palotas
Konyves Kalman krt. 44.
H-1087 Budapest
Tel: 269-9224
Fax: 269-9226
Hungarian Banking Association
Secretary General: Miklos Pulay
Roosevelt ter 7-8
Budapest
Tel: (36 1) 112 5826
Fax: (36 1) 111 6037
Association of Computer Software and Organizational Enterprises
President: Mr. Tibor Gyuros
Vaci ut 168/A
H-1138 Budapest
Tel: (36 1) 270 5120
Fax: (36 1) 270 5132
Hungarian Chamber of Database Suppliers
Secretary: Mr. Andras Felegyhazi
Kuny Domokos u. 13-15.
H-1012 Budapest
Tel: (36 1) 202 2998 and 175 9722
Fax: 202 2894
Association of Hungarian Building Materials Industry
President: Dr Miklos Szabo
F_ utca 68.
H-1027 Budapest
Tel: (36) (1) 201-2011/Ext. 479 or 201-6682
Fax: (36) (1) 156-1215
Association of the Hungarian Chemical Industries
Secretary General: Dr. Lajos Csurgai
Hungaria krt 178.
H-1146 Budapest
Tel:(36 1) 343 8920
Fax:(36 1) 343 0980
Association of the Hungarian Electronic and Informatics Industries
Secretary General: Mr. Istvan Basa
Szemere u. 17.
H-1054 Budapest
Postal address: POB 33,
1525 Budapest
Tel: (36 1) 131 8986 and 111 6271
Fax: (36 1) 131 6320
National Professional Association of the Environment
Protection Industry
Secretary General: Ms. Anna Szekely
Angol u. 12.
H-1149 Budapest
Tel: (36 1) 164 0026
Fax: (36 1) 163 2874
National Association of Trading Companies
Secretary General: Mr. Gyorgy Vamos
Kuny D. u. 13-15.
1012 Budapest
Tel: (36 1) 155 9689 and 202 6574
Fax: (36 1) 155 9689
Hungarian Franchise Association
President: Ms. Gabriella Szemere
Margit krt. 15-17.
H-1024 Budapest
Tel: (36 1) 212 4124
Fax: (36 1) 212 5712
Association of Hungarian Insurance Companies
President: Mr. Gabor Kepes
Deak F. u. 10.
H-1052 Budapest
Tel: (36 1) 118 3473
Fax: (36 1) 137 5394
Association of the Hungarian Light Industries
Secretary General: Dr. Jozsef Cseh
Address: Rozsa Ferenc u. 55
H-1064 Budapest
P O B 329
H-1390 Budapest
Tel: (36 1) 341 4793
Fax: (36 1) 341 4790
Association of the Hungarian Pharmaceutical Industries
Secretary General: Dr. Laszlo Buzas
Amerikai ut 96.
H-1145 Budapest
Tel: (36 1) 251 3677
Fax: (36 1) 251 3337
Chamber of Public Road Transport Companies
Secretary General: Mr. Andras Denes
Terez krt. 38., II. 228.
H-1066 Budapest
Tel: (36 1) 132 9939
Fax: (36 1) 132 9939
Hungarian Chamber of Customs Agents
President: Mr. Gyorgy Lerant
Hermina út 17.
1146 Budapest
Tel: (36 1) 343 8306
Fax: (36 1) 343 8908
Hungarian Chamber of Real-Estate Dealers
President: Mr. Lajos Szabo
Deak Ferenc u. 10. III.305.
H-1052 Budapest
H-1365 Budapest, POB 688.
Tel/Fax: (36) (1) 118-9857
Tel: (36 1) 266 2076
Joint Venture Association
Secretary General: Dr. Ivan Toldy-Osz
Kuny D. u. 13-15.
H-1012 Budapest
Tel: (36 1) 156 0040
Fax: (36 1) 156 0728
National Association of Building Contractors
Secretary General: Mr. Laszlo Koji
Dobrentei ter 1.
H-1013 Budapest
Tel: (36 1) 201 3850
Fax: (36 1) 201 3840
National Association of Food Processing Companies
Secretary General: Dr. Laszlo Piros
Kuny Domokos u. 13-15.
H-1012 Budapest
Tel: (36 1) 202 5586
Fax: (36 1) 155 5057
National Association of Packaging and Material Handling
Secretary General: Mr. Gyorgy Viszkei
Rigo u. 3. 1st floor
H-1085 Budapest
Tel: (36 1) 210 0101
Fax: (36 1) 133 8170
Association of the Plastics Industry
Director: Dr. Andras Muzsay
Erzsebet kiralyne u. 1/c.
1146 Budapest
Tel: (36 1) 343 0759
Fax: (36 1) 343 0980
D. Government Offices
Ministry of Industry & Trade
International Relations/USA Desk: Mr. Erik Szarvas
Honved u. 13-15.
H-1055 Budapest
Tel: 156-5566
Fax: 175-0219
Ministry of Finance
Jozsef Nador ter 2/4.
H-1051 Budapest
Tel: 118-2066
Fax: 118-2570
Ministry of Environment and Regional Policy
International Relations: Ms. Eszter Szovenyi
Fo u. 44-50.
H-1011 Budapest
Tel: 201-4133
Fax: 201-2846
National Bank of Hungary
President: Dr. Gyorgy Suranyi
Szabadsag ter 8-9
H-1054 Budapest
Tel: (36 1) 153 2600
Fax: 132 3913
State Privatization and Holding Co. (APV Rt.)
Managing Director: Mr. Janos Hatvani-Szabo
Chaiman: Mr. Imre Szokai
Pozsonyi utca 56
H-1133 Budapest
Tel: 269-8600
Fax: 149-5745
E. Market Research Firms
Arthur Andersen & Co.
Managing Director: Hans Jurgen Fortsch
East West Business Center
Rakoczi ut 1-3. Hungary
H-1088 Budapest
Tel: (36) (1) 266-9744
Fax: (36) (1) 266-9661
Price Waterhouse
Managing Director: Mr. Gusztav Bienerth
Rumbach S. u. 21.
H-1075 Budapest
Tel: (36) (1) 269-6910
Fax: 269-6936
Coopers & Lybrand Consulting Group
Managing Director: Bernard Delomenie
Lov_haz u 30.
H-1024 Budapest
Tel: (36) (1) 212 4720
Fax: 156 4895
Deloitte and Touche
Managing Director: Mr. Didier Taupin
Varmegye u. 3-5.
1052 Budapest
Tel: (36) (1) 267-2062
Fax: 267-4182
Ernst & Young Ltd
Director: Mr. Adam Tertak
Hermina ut 17.
H-1146 Budapest
Tel: (36) (1) 252 8333 or 252 8231
Fax: 251 8778
F. Commercial Banks
Budapest Bank
CEO: Mr. Bela Singlovics
Honved utca 10
H-1054 Budapest, Hungary
Tel: (36 1) 269 2397 and 269 2358
Fax: (36 1) 269 2400
Commercial and Credit (K&H) Bank
President & General Manager: Mr. Janos Eros
Arany Janos u. 24.
H-1051 Budapest
Tel: (36 1) 112 5200
Fax: 111 1825
Hungarian Credit Bank (Magyar Hitel Bank)
General Manager: Mr. Zsigmond Jarai
Szabadsag ter 5-6
H-1054 Budapest
Tel: (36 1) 269 2122
Fax: 269 2245 and 252 1220
Hungarian Foreign Trade Bank (MKB)
CEO: Mr. Gabor Erdei
Szent Istvan ter 11
H-1051 Budapest
Tel: (36 1) 269 0922 and 153 4211
Fax: 269 0959
Citibank Budapest
General Manager: Mr. John McGloughlin
Vaci utca 19-21
1052 Budapest
Tel: (36 1) 138 2666
Fax: 118 9694
Central European International Bank (CIB)
President & CEO: Mr. Gyorgy Zdeborszky
Intl'l Banking Rel.: Gyorgy Szekely Director
Vaci u 16/B
H-1052 Budapest
Tel: (36 1) 212 1330
Fax: 212 4200
ABN Amro Bank Magyaroszag Rt.
Chairman & Managing Director: Mr. Peter Bakos
Nagy Jeno u. 12.
H-1126 Budapest
Tel: (36 1) 202 2722
Fax: 201 3685
Creditanstalt
General Director: Dr. Matthias Kunsch
Akademia utca 17
H-1054 Budapest
Tel: (36 1) 269 0812
Fax: 153 4959
Credit Lyonnais
Managing Director: Mr. Michel Canny
Jozsef nador ter 7
H-1051 Budapest
Tel: (36 1) 266 1578, 266 9000
Fax: 266 9950
Internationale Nederlanden (ING) Bank
General Manager: Mr. Tibor Rejto
Andrassy u 9.
H-1061 Budapest
Tel: (36 1) 268 0140
Fax: 322 2288
G. Multilateral Development Banks
Washington-based USG Country Contacts
The Multilateral Development Bank Office
Mrs. Brenda Ebeling, director
14th and Constitution Ave.
NW, Washington, DC 20007
Tel: (202) 482-3399
Fax: (202) 482-5179
Office of the U.S. Trade Representative
Deputy U.S. Trade Representative: Cathy Novelli
Executive Office of the President
Washington, DC 20506
Overseas Private Investment Corporation (OPIC)
Insurance: Ms. Meryl Burpoe
Finance: Mr. Brian W. Treadwell
Investment Promotion: Ms. Barbara Brereton
1100 New York Avenue, NW
Washington, DC 20572
U.S. Department of Commerce
14th & Constitution Ave, NW
Washington, DC 20230
Hungary Desk Officer: Mr. Brian Toohey
Tel: (202) 482-4915
Fax: (202) 482-4505
USCS Regional Director: Mr. George Knowles
Tel: (202) 482-1599
Fax: (202) 482-3159
Central European Business Information Center
Mr. Jay Burgess, Director
Tel: (202) 482-2645
Fax: (202) 482-4473
U.S. Department of State
Regional Economic Officer: Mr. Richard Driscoll
Hungary Desk Officer: Bob Norman
EUR/EE 5220
2201 C Street, NW
Washington, DC 20520
Tel: (202) 647-3191
U.S. Trade & Development Agency
Hungary Project Manager: Ms. Ann Lien
Room 309 SA-16
Washington, DC 20523-1602
Tel: (703) 875-4357
Fax: (703) 875-4009
TPCC Trade Information Center in Washington:
Tel: 1-800-USA-Trade
U.S. Department of Agriculture,
Foreign Agricultural Service
Trade Assistance and Promotion Office
Tel: (202) 720-7420
APPENDIX F
MARKET RESEARCH
List of Available ISAs/IMIs
Pharmaceutical Industry ISA Jan 1995
Cosmetics ISA Dec 1994
New Cellular Phone Frequency IMI Jun 1995
Privatization of Antenna Hungaria IMI Jun 1995
Budapest International Motor Show IMI May 1995
Coke, Pepsi fight for Key Market IMI May 1995
Enterprise equity in Bekot Knitwear IMI Apr 1995
Franchise Market in Hungary IMI Apr 1995
Top Advertisers in Hungary in 1994 IMI Apr 1995
Privatization of Energy Sector IMI Mar 1995
Regulation of Import duty surcharge IMI Mar 1995
Citibanks eyes retail customers IMI Feb 1995
New Regulations on car imports IMI Feb 1995
Pioneer in Industrial Parks IMI Jan 1995
Life Insurance Policies Boom IMI Jan 1995
East Europe Drug Market for Hungary IMI Dec 1994
List of Upcoming ISAs/IMIs
Financial Services ISA in process
Transport Sector ISA in process
Textiles/Apparel ISA in process
Processed Food ISA in process
APPENDIX G
Trade Event Schedule
Oct 1995 Compass Executive Delegation
Oct 1995 Council of American States Trade Mission
Oct 1995 Consumer Goods Matchmaker (USDOC Approved)
Nov/Dec 1995 U.S. Ambassadors' Trade/Investment Tour of
Western Europe
Jan/Feb 1995 Environment Matchmaker
March 1995 Utazas(Travel) '96
Because trade event schedules may change, firms should consult the
export promotion calendar on the NTDB or contact CS Budapest for the
latest information.
To the top of this page