Hungarian Investment Policy

and Business Environment

Mrs. Agnes Henter Director, Investment

Projects

June 16, 2008

ITDH: YOUR NATURAL PARTNER

Founded by the Hungarian Government to provide its services free of charge

• promote and facilitate foreign investments

• develop international relations

• promote Hungarian capital investments

• EU integration-oriented SME development

ITD HUNGARY: Your Natural Partner

Central Office in Budapest 55 Foreign Trade

Offices

Detailed tailor-made information package about economy, politics, financial incentives, business environment, tax system, sectors incl. electronics, etc.Site visits, meeting with local, regional and government bodies, experts, service providers, consultants, potential suppliers, etc.Tailor-made incentive solutions

Accelerating permitting procedures, evaluation of potential investments.Assistance in incentive applicationVIP treatment for expatriates (visa, working permits etc.)

Special follow-up contact servicesAssistance in further investments, expansions

Decision

Implementation

Aftercare

Efficient services by ITD Hungary

HungaryHungary

Land: Land: 93,030 km²93,030 km²Population: 10,1 millionPopulation: 10,1 millionGDP/capita, at PPP: EUR GDP/capita, at PPP: EUR 1166,,000 (2007 forecast)000 (2007 forecast)

Hungary in Europe

Sustainable macroeconomic growth, EU-member since 2004

Average GDP growth in the past 5 years: 3.6%GDP growth of 2.7% is expected this year with a 3.3% improvement of the manufacturing and business services sector

Industrial production growth is estimated to keep its pace at around 6% Export growth of 10% is forecast

Unemployment rate is expected at 7.7% Average gross wage: € 750

Average inflation rate will be around 6%

GDP

Output

Inflation

Employment and wages

Economy

Sustainable economic growth

in 2008

Source: National Bank of Hungary, Ministry of Economy and Transport* Including reinvested earnings from 1995

97,396

Hungary is front-runner as regards

FDI Influx

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

70 000

75 000

80 000

85 000

90 000

95 000

100 000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Cumulated FDI* in Hungary

in million USD

Hungary’s position in FDI

21%

2%

2%

2%2%

4%

4%5%

6% 11%

13%

28%Germany

Netherlands

Austria

UK

France

USA

Luxembourg

Norway

Belgium

Switzerland

Italy

Other

•Significant FDI/capita in the region

•Growing proportion of

reinvestments

•Growing importance of high value

added investments

•Major investors: Germany, the

Netherlands, Austria, UK

(Europe: 81%)

FDI Stock per capita in EUR

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

Poland Slovakia Slovenia CzechRepublic

Hungary

(Poland and Slovenia: 2006, Slovakia: 2007 Sept., Czech Republic and Hungary: 2007)

Large investments announced in 2007

Automotive Denso (2. stage): Automotive electonics, 110 jobsSzékesfehérvár

Magyar Suzuki: Automotive manufacturing, 690 jobs, Esztergom

F. Segura: Automotive manufacturing, 79 jobs, Szolnok

ElectronicsSamsung Electronics: Elektronics, 1000 jobs, Jászfényszaru

Heliogrid:Solar panel manufacturing, 810 jobsRétság

Genesis Energy: Solar panel manufacturing, 190 jobsTatabánya

SSCVodafone: Financial service centre, 750 jobsBudapest

IT Services (Deutsche Telekom): SSC, 1745 jobs, Budapest Debrecen

British Telecom: SSC, 220 jobs, Debrecen

ICTLufthansa Systems: expansion, 150 new software development positions

Neusoft: software development centre of the leading Chinese software technology company

BiotechnologyBeike Biotechnology: Chinese stem cell research project

St James: hospital project from Malta

AAI Pharma: Representative office of the American pharma company

OthersAHI Roofing:Construction, 106 jobs, Várpalota

DAF Trucks – PACCAR:Regional disrtibution centre, 49 jobs, Zsámbék

Bank of China: Unique example of Chinese capital in the CEE banking sectorHisense: LCD manufacturingHuawei: ICTLenovo: Desktop computer manufacturingZTE: ICTHainan Airlines: Direct flights between Beijing and BudapestShanghai Construction Group: Construction projects Asia Centre – China/ Brand Trade Centre : Greatest wholesale trade and logistics distribution centre in Central EuropeNeusoft: Software developmentBeike: Stem cell researchLivan: Biodegradable food packaging production Byd: Electronic manufacturing

Value of total Chinese investments: approx. USD 250 million

Budapest/Hungary is the 4th best location for Chinese Investments according to China International Institute of Multinational Corporations.

Source: International and Chinese CEOs roundtable in Nov. 2007

Major Chinese Investments in

Hungary

Hungary’s position in logistics

•Hungary is situated at the cross roads of four main European transportation corridors•The road and railway transportation network is extensive and it is under continuous development

1. Singapore

2. The Netherlands

…

6. Japan

….

35. Hungary

...

38. Czech Republic

40. Poland

50. Slovak Republic

•Hungary is ahead in the World Banks Logistics Performance Index (2007) considering the speed of customs clearance, the average timing of export and import transactions and the transport costs

Hungary: logistics centre

•An EU member country, Hungary has direct access to the EU market of nearly 500 million customers;

•After the most recent expansion of the EU, Hungary became the geographical centre in the CEE.

Sca

ndin

avia

/Nor

dic

UK/Ireland

North W

est

Europe

IberiaEastern

Mediterranean

Centra

l Easte

rn

Euro

pe

Central Souther

n Europe

NIS and Asia

Number of institutions in higher education: 71

Number of students in higher education: 416.4 thousand

Majoring in: Business and Administration: 105 th Informatics: 17.7 th

Number of graduates in 2007: 57.7 th

University Towns

Budapest 161,300

Szeged 30,00Pécs

Pécs33,100

Veszprém 10,600

Miskolc 13,600 Debrece

n25,200

90% of students speak English2nd most popular foreign language: GermanFollowed by: French, Italian, Spanish

All diploma with foreign language certificate and computer skills!

Well trained, creative and flexible

human capital

Priority sectors in Hungary

Recycling Biotechnology

Renewable energy

ICT, SSC

Automotive

Electronics

Aviation and Aerospace

Digital media and creative industries

Dynamics of the sector

Existing presence

Growth

Stability

Decline

Low Average Strong

Hungarian performance

Very strong

Strong

Medium

Low

Very low Source: Deloitte, Project Astra

High-performing sectors: strong position in

Central-Eastern-Europe

Hungary is the largest electronics producer in CEE providing 40% of the

regional output and nearly 50% of the exports major hardware producer in the region, representing 5.5% of

Europe’s output

Hungary has a high proportion (5.4%) of the labour force in high tech

manufacturing, ranking 6th in the EU (Eurostat, 2007) the strongest pharmaceutical and biotechnology sector in

CEE the highest number of shared service investments between

2002-2006 in Europe (Ernst&Young, 2007)) strong R&D in the automotive sector

Strong innovation capacity

The World Economic Forum ranks Hungary 24 among 131 countries in terms of the quality of scientific research institutions

Hungary is ahead of its regional competitors, and the Mediterranean countries

Ranking Country

Switzerland 1

USA 2

Germany 5

France 19

Norway 21

Hungary 24

CzechRepublic

30

Slovenia 33

Spain 49

China 56

Poland 64

Greece 76

Source: Global Competitiveness Report, World Economic Forum, 2006/2007

The sector’s share in the national economy:

19.4% of total industrial production

20% of total exports

Total number of companies: 630

Total number of employees: 110,000

Export ratio: 90%

Car manufacturing, assembly

Suzuki: 300,000 pcs planned for 2008

Audi Motor: TT coupés and roadsters, A3 cabriolet,

379 variants of 24 different types of

powertrain

Engine manufacturing

Audi Hungary: 1.913 million engines in 2007

GM Opel: 434 thousand engines

Automotive

World’s 3rd largest powertrain plant in Hungary by Audi!

High Performing Sectors

Automotive engineering

Győr

Miskolc

VeszprémSzékesfehérvár

Érd

Pilisszentiván

Budapest

• In the past couple of years 15 automotive manufacturers started research and development including Audi, Knorr- Bremse, Continental, ZF Friedrichshafen, Schefenacker, Bosch, Denso and Hankook.

Major companies conducting R&D, centres

of excellence

•Major R&D research include highly complicated, high-quality vehicle parts and components, advanced vehicle control, laser machining, metal foams, nano-composites

Production Value: USD 19 billion

29% of total manufacturing production

29.4% of total exports

Total number of companies: 9,000

Total number of employees: 135,000

Export ratio: 87%

.

Electronics Hungary is the largest electronics producer and exporter in theCEE region by providing 40% of the regional output and nearly 50% ofthe exports.

High Performing Sectors

Hungary has the second highest share of ICT goods in the country’s export in the OECD

Hungary has the highest per capita ICT expenditure in the CEE region

ICT

High Performing Sectors

Debrecen

Szeged

Szombathely

•All major well known software developers are all present in the country including IBM, HP, Siemens, SAP, Oracle, Getronics, EDS, CISCO, TATA, Microsoft, Sun. •Several IT companies such as British Telecom, EDS and Getronics opened their technology service centres in Hungary.•Strong cooperation between business and academia in R&D, like Nokia, Ericsson, IBM, CISCO, SAP, Oracle, SUN

•Hungary is the fifth largest medicine producer in Europe

•Largest biotechnology innovation and spin-off sector in CEE

•Extensive R+D cooperation

•University biotechnology

centres

clustered in four academic

towns

Life sciences

High Performing Sectors

Genomnanotech Knowledge Centre

Neurobiological Knowledge Centre

Cell Communication Knowledge CentreInfobionics Knowledge Centre

Medipolis Knowledge Centre

Debrecen

Szeged

Budapest

Pécs

Four life science clusters

•Budapest, Szeged, Debrecen, Pécs: strong presence of large international pharmaceutical and biotechnology companies clustered around universities.

Kyoto protocol – reduce CO2 emission with 6% betw. 2008-2012 compared to reference period 1985-1987

EU target: 20% share of RES in total energy production compared to 4.2% at present

Hungary plans to reach 15% by 2020,

Major areas of growth: biomass, biogas, wind

Investments into biofuel and biomass production has already increased

The Energetics and Environment Operative Program earmarked USD 500 million to support renewable energy related investments

Compulsory feed-in tariff (between 5-13 cents) is differentiated by the size of the plant

Renewable energy

High Performing Sectors

SANYO Production of 50 MW capacity started in 2005

Expanding solar panel manufacturing factory to 150 MW

HelioGrid 50 MW planned capacity of thin film solar cell manufacturing in Rétság. Operation started in 2007 Q3Cooperation with the Research Institute for Technical Physics and Materials Science in solar cell technology

Genesis Announced to start large scale thin film cell manufacturing in Tatabánya with an investment value of EUR 100 M

Semilab Leading supplier of state-of-the-art metrology systems for the semiconductor and photovoltaic industry as well as for scientific investigation

Energosolar Develops and manufactures complete, turn-key production lines for thin film micromorph PV modules in Budapest Products: solar electric power systems, photovoltaic cell manufacturing equipment, photovoltaic module manufacturing equipment, photovoltaic systems

Increasing activity in solar panel

technologyRenewable

energy

Modernization of the Rail Infrastructure (15 billion HUF) Reconstruction of the existing road infrastructure (4 billion

HUF) Development of an Industrial and Logistics Park in Fényeslitke

– 120-150 ha (5 billion HUF) Building of the container transshipment station and Ro-La

terminal on 100 km2 (2 billion HUF) Development of the secondary and higher education in the

region Promotion of the cluster of the logistics service providers Marketing Construction planning of the Debrecen-Záhony Railway line

and of the M300 Highway between Motorway M3 (Vásárosnamény) and Záhony

Complex development program of the Záhony Area

in the 2nd National Development Plan (2007-2013): app.150 million USD

Záhony Logistics Centre

Taszár airport development

• Former US military base under development • Favourable location in South-Western Hungary• Can become a connecting link between the Far East and the European Union • Auxiliary and warehouse buildings • Fuel filling and repair facilities • Public road and railway links • Separate civil aviation sector and passenger terminal • Suitable for the establishment of a logistical centre and merchandise distribution base • The proximity of an industrial park and of a higher education and research centre • A large number of local experts experienced in air traffic control and in the operation of airports

POLUS KINCS ZRT. offers to investors:

The ownership of mining properties at Rudabánya and its surroundingsThe sole rights to the mining of BariteThe sole right to sell, the Mining rights of the reserve, of the Iron-ore, Copper-ore and the Poly-metallic metals

Project Rudabánya

The mine(s) and its reserve are ready to be introduced to the

Chicago and London Commodity Exchange.

Tax-related benefits

•Tax deductible items•Development tax benefit

Direct Incentives

•Special Incentive Package for large investments •EU co-financed grants•Incentives above intensity ratio

Intensity ratios

*from 2011: 10%

Investment Incentive system

Győr-Moson-SopronVas

Zala

Szabolcs-Szatmár-

BeregHajdú-Bihar

Jász-Nagykun-Szolnok

HevesKomárom-Esztergom

FejérVeszprém

Nógrád

BudapestPest

SomogyTolnaBács-

Kiskun

Csongrád

Békés

Baranya

25%*

30%

40%

50%

Open atmosphere, advanced business administrative system

Harmonious relationship with China’s central government

Largest Chinese community in Central and Eastern Europe

Chinese schools, newspapers and restaurants

Rich entertainment facilities

Unique benefits

Thank you for your kind attention!

Mrs. Agnes Henter, Director, Investment ProjectsITD Hungary Hungarian Investment and Trade Development AgencyH-1061 Budapest, 12 Andrassy ut, HungaryPhone: (36 1) 472-8181, Fax: (36 1) 472-8180agnes.henter@itd.huwww.itdh.com