Hungary’s recent economic performance indicates a strong future for the open country

06 Nov Hungary’s recent economic performance indicates a strong future for the open country

Dr. Zoltán Kovács, Secretary of State for International Communication and Relations, and International Spokesman of the Government, explains how Hungary continues to invigorate its economy

Six months have passed since lockdowns began in Europe. Globally, COVID-19 is still very relevant; just last week a new high was recorded for daily infections worldwide. From your perspective, what has Hungary’s experience been over these six months and what lessons have been learned?

We believe that the first wave of the pandemic was handled very effectively by Hungary, together with the other Visegrád 4 (V4) countries, whose collective performance in terms of controlling the spread of infection, the number of people infected and hospitalized, and fatality rates stands out as a positive example by global comparison. Now the second wave is different, with a different pandemic situation.

During the first wave, the decisions we made were assisted not only by the healthcare system itself, but also by our taking the opportunity to initiate a special legal order. Many believe that this is controversial, but I think that in comparison with, say, Italy or France, what we did in Hungary isn’t unlike what you’ve seen in Western Europe. It was needed in order to create the ability to enact effective measures on the ground. I believe we have been proven right in our introduction of this extraordinary legal environment and measures.

During the pandemic back in the spring, the Hungarian parliament continued in session, and so we were able to take through parliament all those amendments in the legal environment that were required to handle the situation. This also has prepared the ground for effective protective measures during this second wave. The same is true for the economic package we have introduced: we believe that compared to intervention by governments in Western Europe and across the world, the Hungarian package is also a positive example.

Our primary goal continues to be to protect, save or create as many jobs as possible. The philosophy through which we have addressed economic problems over the past 10 years has been a new one. The principle behind this is that we need as many jobs as possible to be able to support all the other elements of the economy: growth, investment, monetary issues and so on. In August, Hungary recorded higher employment numbers than in January, probably because of the effectiveness and the nature of the Hungarian government’s intervention. We are proud of it and that remains in the focus of economic job creation intervention by the Hungarian state.

Again, as a matter of principle we believe that the market—which is robust—is the primary field where things should happen. But since the 2008-2009 financial and economic crisis, things have changed and we believe that states play an increasing role in trying to reinvigorate economies. State intervention is needed, because without it the markets would recover a lot more slowly. This philosophy remains and the state has started—and intends to continue—to play an active role in promoting and helping market mechanisms to strengthen and help the economy to return to normal.

As a member of the European Union (EU), Hungary was not able to separate itself from the hit the European economy has taken. But we also see the beneficial effects of our opening up toward the global markets: for the past three years, as a justification of our new “Eastward Opening” philosophy, investment has increasingly started to come from the East—from Asian markets. This is also helping to reinvigorate the investment environment and the economic situation of the country.

When it comes to attracting foreign direct investment (FDI), Hungary has recently stood out as a country to watch. In 2019, FDI grew by 24 percent in comparison to the previous year, with 101 investments in 21 different sectors coming from 20 separate source countries. Can you tell us more about Hungary’s past success in clinching this much investment and what you think are the exciting sectors for investors to look at today?

Back in the 1990s, investment came to Hungary in very large numbers and proportions. Hungary was a favorite destination for investors, mostly attracted by our cheap labor and the comparatively cheap economic environment in which investment and entrepreneurs can flourish. Our efforts over the past 10 years come with a change in philosophy. We believe that in Hungary the era of cheap labor is over. We are much more interested in high value-added industries and investments that not only help investors from the perspective of high-quality competitive Hungarian labor, but also help the economic environment of Hungarian small- and medium-sized enterprises (SMEs).

Last year was an absolute record in Hungary’s economic history of the past 30 years. Our target of attracting as many investors to Hungary as possible comes with a second goal: to reinforce Hungarian SMEs. These are businesses that stay and work in Hungary while being able to participate in particular investments. Meanwhile, they form something like a very flexible branch of the economy that can easily transform or adjust to changing economic environmental circumstances through the knowledge that they acquire.

The new industries we are focusing on—apart from traditional car manufacturing, which also comes with lots of benefits for Hungarian SMEs—are information technology and renewable energy. There is a very conscious government effort behind this: our base is nuclear energy. We are extending the lifespan of our existing nuclear plant and we are building two new reactors in Hungary to provide the basic energy that we need. In addition to this, however, solar technology is going to be the second leg of Hungarian energy security. This also reinforces our sovereignty. The necessary economic investment environment is being created accordingly.

With regard to information technology, I need to mention the new automotive test track in Hungary, which we believe is a good example of how these kinds of new knowledge bases can be established. It’s not simply a test track, but also a new investment opportunity in the region, attracting investors in the field of innovation. Incidentally, we have a new ministry, the Ministry of Innovation and Technology, to reflect our focus on innovation itself—both in terms of technological innovation and knowledge-based innovation, which is a primary target not only for the economy, but also for the higher educational field. In line with this we are unrolling our reforms in higher education as well. Traditional players, like pharmaceutical companies are also playing a major role in innovation, as is the oil and gas company MOL in the traditional energy sector; and there are also a couple of other active fields of innovation in Hungary. We are open to bringing in new knowledge-based innovation and technologies in the field of information technology.

How sustainable is Hungary’s economy?

In terms of sustainability—which comes together with the European policy for carbon emission reductions—we believe that Hungary is performing well. We have even described ourselves as “champions” among high-performing European countries. Hungary is performing well when it comes to carbon-dioxide emissions. As a matter of fact, we don’t emit our full quota. Our decisions in the field of energy will contribute toward that goal. We are aiming to attract high value-added industries, innovation and investment, and the new factories and new industries coming to Hungary will contribute to meeting the requirements of the EU. In this respect, nuclear power plays a major role and we believe that the goals of the EU cannot be met without nuclear energy. Our decisions, which were taken before the very ambitious new goals of the EU were set, are also proving to be right from that perspective.

I believe our decisions with regard to the reform and renewal of our economic environment go hand in hand with sustainability, because the new high value-added industries we are attracting and that are investing are a guarantee that sustainability will always be present. Looking at agriculture, Hungarian agricultural production and efficiency has posted double-digit growth for the past 10 years. That’s a sign of innovation and new technologies coming from the Hungarian agricultural sector.

Much of the international investments coming into Hungary last year came from the Far East. Do you think this trend will continue in the future?

We are doing what many European countries have already started doing, including France, Germany, the Netherlands and Italy—apart from relying on the European market we are also welcoming external investors. The European market remains central in our industry and trade strategy, but we believe it is good to have more pillars on which your economy can stand. This provides the flexibility that is required in times of a crisis such as COVID-19, for instance. Standing on many legs instead of one is a benefit.

We are interested in attracting as many non-European investors as possible; that’s a trend that will continue and which I think is also good for Europe. It helps the member states and the EU to remain flexible and competitive, because the kind of competition that is arriving is a good stimulus for European competitiveness.

The Hungarian tourism and travel sector is a mainstay of the economy, currently contributing over 10 percent of gross domestic product. Pre-COVID, Hungary planned to become the leading tourist destination in Central Europe by 2030. These plans are still ambitious, but they are achievable under the right conditions. As one of the most battered industries at the global level, how would you say your tourism priorities have been shifted or refocused in these last few months?

I feel that our goals and ambitions remain in the long run because there are lots of reserves in Hungarian tourism—both domestically and internationally. Obviously, we have had to adjust to the changing environment because of the pandemic. In that respect, the sector is hit hard by the fact that foreign tourists can’t really come here at the moment. That can be felt most acutely in Budapest, where in the past over 80 percent of guests have come from abroad. But this also highlights a problem that we have to work on: in Paris or in Rome, the number of domestic guests traditionally form up to 50-60 percent of the total; in Hungary it’s a different picture. We started to encourage domestic tourism after the first wave of the pandemic, thinking ahead.

All crises also bring opportunities. If you use a crisis intelligently and think ahead, you can also make decisions that will help the economy recover swiftly and faster than expected. And you can also address pre-existing problems and issues—in tourism, say. We can take this opportunity to work on our domestic tourism, for instance, to look at our infrastructure, which needed intervention—especially in the countryside. We have launched a program to help smaller members in the industry to renew and refurbish the small hotels and apartments that exist all around the country

For almost 10 years now, in addition to our jobs policy and wage policy, which have led to more jobs and higher wages over the past couple of years, we have introduced a system of benefits in kind alongside salaries. Part of employees’ salaries are paid in vouchers that can be used in tourism, recreation and hospitality outlets, thus boosting consumption in those places. This program works, which is why we’re investing heavily in it. For example, July and August this year were the all-time record high months for domestic tourism in Hungary. We still have work to do, but we’re taking this opportunity to improve the framework and circumstances for domestic tourism. This will also help to improve the quality and framework for international tourism when it can come back, hopefully next year.

What is the government’s strategy for protecting and continuing to build Hungary’s brand, despite the current conditions?

Apart from advertisements about Hungary as a brand and Budapest as a brand, we’re working intensively in the background, trying to figure out which are the best destinations to promote—both in terms of advertising and promotion, and infrastructural development. At the end of last month, we identified nine areas in Hungary that we intend to improve and work on.

Budapest is an unavoidable and central attraction, especially for foreign tourists. In addition to the organic development of services Budapest can offer, we’re also making major efforts to upgrade the physical environment, including renovation of the classical city center—the historical city. New investments are also coming: as we speak, HungExpo, which is the biggest Hungarian and Central European exhibition site, is being renewed. It’s a major refurbishment project, which is going to provide us with the best-equipped expo site built to standards that are not only the highest in Hungary but in Central Europe as a whole. This incorporates a large congress center. The venue will be the stage for world-class events, such as the 2021 International Eucharistic Congress that was postponed from this year and the “One With Nature” World of Hunting and Nature Exhibition in September-October next year. HungExpo will remain a favorite exhibition site for all kinds of industries and our intention is to establish Budapest as an expo hub in the region.

Investment in infrastructure renewal comes together with these country promotion elements. Obviously we have some physical and tourism attractions we focus on in addition to the historical attractions. One major theme and topic is water, especially our world-famous thermal baths that are not only in Budapest but are around the country.

Regional integration is a concept of utmost relevance today and is highly embraced by Hungary, Poland, Czechia and Slovakia since the foundation of the V4 nearly three decades ago. Aside from COVID discussions, what are some of the other priority issues currently on the V4’s agenda?

The V4 formation didn’t come about by accident but has historical roots. The initiative goes back to immediately after the fall of communism but has only fully blossomed in the past couple of years. The reason for this has been the discovery that the historical roots of cooperation are deep enough to provide the basis for our cooperation within the EU. It has now become obvious that the Central European region’s historical, sociological and economic foundations and legacies are strong enough to define it as a separate region within the EU, like Scandinavia, the Benelux states, or the Franco-German axis. As an illustration, the volume of trade between the V4 and Germany is over 50 percent higher than the volume of trade between Germany and France. So the economic potential of the V4 is itself a reason for that kind of recognition and cooperation.

We have very good cooperation across broad areas, such as healthcare measures against the COVID crisis, as we’ve been working together during the first wave and are working together closely during the second wave. We are focusing on infrastructure, including energy infrastructure—gas, oil and electricity lines—where the integration of our systems is still lagging behind. Interconnecting Poland, Slovakia, Czechia and Hungary with gas and oil pipelines can bring in energy from sources other than, say, Russia. We are also looking at improving transport and commuting in the region, and developing motorways and railways, because in this we are still lagging behind Western Europe. These are the focal points. Our tourism campaign is also very much geared toward the V4 countries and trying to reach out to the immediate vicinity of Hungary—especially during the summer and with regard to our thermal bath facilities.

What can you tell us about the commitment of Hungarians to come together and work with its wider network of international partners to take on the challenges of today?

Hungary has always been a full partner in the EU as well as other international organizations. Hungary is an open economy, with over 80 percent of our goods being produced for foreign consumers. We have one of the highest export ratios in the EU, reaching record levels in the past couple of years.

Hungary has a history of cooperation in the Central European region, as a country that used to be bigger that embraces many nationalities and ethnic minorities. Apart from being members of the EU and fulfilling our obligations, we’ve started to invent new forms of cooperation. The V4 is a good example, but also the V4+ formations, including Slovenia, Croatia, Romania and Bulgaria in the EU, as well as Serbia. Cooperation with the latter non-EU country is now coming of age. The Hungarian commissioner on the European Commission is responsible for enlargement and neighborhood policy, and this fact is a recognition of Hungary’s efforts in the Western Balkans, for example. The Western Balkans have always been a focal point for Hungarian foreign policy, investment policy and economic policies. Successfully nominating a European Commissioner for that region and improving and increasing the ties with it also provide proof of our international cooperation capabilities and aspirations.

We are very active in new forms of aid policy, which we are trying to introduce. We were not very satisfied with the big programs run by the EU and other international agencies, and so we have established Hungary Helps, which is a program that aims to bring help directly to those in need, without intermediaries and on the spot. This is an alternative to inviting problems into Europe and into the EU. We are reaching out to the Near East—Syria, Iraq, Lebanon lately, but also to African countries—bringing aid to them, helping those economies to be reinvigorated and function and thus helping those people to stay in their own countries.

To conclude this interview, what would be your final message to the readers of Newsweek about Hungary?

I’d like to highlight Hungary’s performance over the past 10 years. Looking at the facts and figures, looking at the rising investment figures, looking at the number of foreign investors coming not only from Europe and the Western world but also from the East, one can conclude that Hungary is a great place to come to with a good outlook for the future as well. It’s a safe place, with a sound legal environment, good physical infrastructure and we are very proud that so many tourists came to Hungary in the recent past, resulting in double-digit growth for the past couple of years. This is testimony to the qualities of the country, which we should be very proud of.