Hungary –

the added value

Budapest, 6 June 2006

Presentation by Ildikó KUKUCSKASenior ConsultantITD Hungary

1. About ITD Hungary, what can we offer?1. About ITD Hungary, what can we offer?

2. Hungarian Economy, Foreign Direct 2. Hungarian Economy, Foreign Direct Investments in HungaryInvestments in Hungary

33. . Is Hungary still competitive?Is Hungary still competitive?

4. Which sectors are perspective?4. Which sectors are perspective?

5. New Economic Policy in Hungary5. New Economic Policy in Hungary

AgendaAgenda

• Central Office in Budapest

• 6 Regional Offices

• 54 Foreign Trade Offices

• 8 Representative Offices in the border regions of neighbouring

countries

Network:Network:

The Hungarian Investment and Trade Development Agency is the agency of the Hungarian Government for foreign investment promotion and trade

development.

ITD Hungary

1. 1. Investment promotionInvestment promotion

2. 2. Trade developmentTrade development

3. 3. EU integration-oriented SME EU integration-oriented SME developmentdevelopment

4. Hungarian capital export promotion4. Hungarian capital export promotion

Main Tasks of Main Tasks of ITDHITDH

In the preparatory phase: General and detailed information Tailor-made site proposals Organizing detailed program for the investors’ visits in Hungary

– site visits– meetings– reference visits– introducing potential Hungarian suppliers

In the realization phase of the project: Accelerating permitting procedures Assistance in incentive applications Organizing press conferences, ground breaking ceremonies

Follow-up services

Complimentary services for foreign investors:

Heavy reliance on FDI as a driving force in the economy

High integration with the EU in terms of trade

Gross output per worker grew 2.4 times since 1989

Hungarian financial system is one of the most developed ones in Central Europe

Legal framework conforms to international standards

Well-prepared and motivated labour force provides a strong base for foreign business operations

Source: WIIW

Some important features of Hungarian economy

20012001 20022002 20032003 20042004 20020055

Gross domestic product (%) 3.83.8 3.53.5 3.43.4 4.64.6 4.14.1

Industrial production (%) 3.63.6 2.82.8 6.46.4 7.47.4 7.37.3

Exports (% - volume) 7.77.7 5.95.9 9.19.1 18.418.4 10.810.8

Imports (% - volume) 4.04.0 5.15.1 10.110.1 15.215.2 5.35.3

Consumer prices (%) 9.29.2 5.35.3 4.74.7 6.86.8 3.63.6

Balance of foreign trade* -2.5-2.5 -3.4-3.4 -4.2-4.2 --33..99 -2.8-2.8

Current account balance* -2.0-2.0 -5.0-5.0 -6.4-6.4 --77..11 -5.1-5.1

Unemployment rate 5.75.7 5.95.9 5.85.8 6.6.11 7.27.2

* in billion Euro Source: Hungarian Central Statistical Office

Dynamic Macroeconomic Growth

Commodity pattern of external trade

export import

Agricultural products 6,1 % 4,0 %

Raw materials 2,1 % 1,7 %

Energy 2,7 % 10,3 %

Manufactured goods 28,0 % 33,4 %

Machinery, equipment 61,1 % 50,6 %

Foreign trade turnover by trading Foreign trade turnover by trading partnerspartners

9,2%

11,5%

62,5%

14,5%

2,2%

EU-15New EU-MembersExtra-EU (Europe)AsiaAmericaOthers

3,6%

0,7%

8,7%

11,9%

70,8%

4,4%

EU-15New EU-MembersExtra-EU (Europe)AsiaAmericaOthers

Exports

Imports

Cumulated FDI* in Hungary

1990-2005, in million euros

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

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

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

51525

Source: National Bank of Hungary

Annual FDI inflow to Hungary, in million euros

-500

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

5500

6000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

reinvested earnings total FDI inflow

FDI Stock in Hungary by Sectors

Source: National Bank of Hungary

Other3%

Services49%, out of

which:

Energy, water supply

4%

Manufacturing, 44%, out of

which: Food: 5.2%

Chemical: 5.7%

Electronics: 8.8%

Automotive: 10.9%

Trade: 10.1%

Transport, telecom: 9.9%

Finance: 10.5%

Business services: 16.8%

FDI stock in Hungary

FDI stock

0

50

100

150

200

1998 1999 2000 2001 2002 2003 2004 2005

year

mil

lio

n e

uro

Denmark

Major Danish investors in HungaryMajor Danish investors in Hungary

• Velux – sky-lights• Grundfos – electric engines• Coloplast – plastic health care products• Nordisk-Wavin – rubber and plastic products• SOS/Falck – ambulance service• Inreco – road construction• Rockwool – insulation material• Danaeg Products – pasteurised liquid eggs• Novo-Nordisk – pharmaceutical products

Central Hungary Wins Award for Second Best Location in Europe

• Economic potentialEconomic potentialGDPLevel of inward investment

• Cost effectivenessOffice & Industrial rentSalariesManual labour availability

• Human resourcesUniversitiesPercentage of the population with a degree

• Telecommunications and IT infrastructureTelecommunication chargesTelephone and broadband internet usage

• Quality of life for expatriatesNatural & cultural heritageEntertainment & Leisure FacilitiesEducational, healthcare & accommodations services for expatriates

• Transport• Security• Best FDI promotion strategy

Promotion strategyFDI deals Infrastructure and urban planning projects Source: fDi Magazine

CATEGORIES & CRITERIA:

58 (57)

56 (53)

45 (52)

43 (45)

41 (37)

39 (40)

36 (38)

35 (30)

31 (36)

13 (17)

10 (6)

1 (1)

0 20 40 60 80 100

USA

Finland

Austria

Czech Republic

France

Spain

Slovakia

Hungary

Portugal

Slovenia

Italy

Poland

Source: IMD

Overall Competitiveness, 2006

(2005 rankings are in brackets)

14 (6)

12 (14)

11 (19)

3 (2)

1 (1)

0 0,5 1 1,5 2 2,5

China

United States

Hungary

Czech Republic

France

Source: AT Kearney

FDI Confidence Index, 2005

(2004 rankings are in brackets)

Ease of Doing Business

4.52

6.00

6.08

6.14

0 1 2 3 4 5 6 7

Hungary

Austria

Slovakia

Czech Republic

Source: IMD

Business legislation evaluated by 4,000 senior executives in 60 countries and regional economies worldwide

Major Electronics Parts Manufacturers

Source: Hungarian Central Statistical Office, 2005

Serbia & MontenegroSerbia & Montenegro

Nearly 500 foreign electronic and optical equipment producers are present in

Hungary, employing more than 100,000 people.

Cca. 42% of total Hungarian export in 2005Production value: 18.8 billion EUR (28% of the total)

Major Automotive Manufacturers in Hungary

Le Bélier

BPW-RábaDelphi-Packard

EyblLuK Savaria

GM Opel

Autoliv

SAPU/Schefenacker

BentelerHammerstein

MichelsSEWS

Vogel&Noot

Bakony Rt.Continental

TevesValeo

Autoelectric

AlcoaDenso

LorangerVideotonVisteon

OrtechSEWS

Diamond Elec.Suzuki

Delphi-Calsonic

Mitsuba, Salgglass

Vogel-Sitze

Pemü,Johnson Controls

Daewoo Ballbearing

s

Schwarzmüller

EMTLear

Zollner

BoschFirth Rixton

LeoniZF Hung.

BoschSaia-

Burgess

Delco-Remy, ExirZeuna Starker

Eagle OttawaIsringhausen

Le Bélier

Knorr-BremseThyssenKrupp

Prec-Cast

EismannHübnerMichelinPhoenix

Vibroacustic

Hokushin

Akzo-Nobel Coating

Saia-Burgess

Mezőgép-Linamar

Clarion

Eybl

Emika

Eybl

Lear,Stanley Electric

Musashi

Ibiden

Bombardier

FAG

Asahi GlassBridgestoneEuro Exedy

Souftec

Bosch

AudiErbslöh

Magna SteyrPhilips APM

Rába

Borg WarnerWescast

Eckerle

Semperform

Alu-Öntő Kft.Autokut

AvvcBeroha

Excel CsepelFémalk

GEIkarusPerionTauril

Temic TelefunkenUBP Csepel

Webasto

Major Shared Service Centers in Hungary

Hungary has a solid record of attracting and conducting international clinical trials, with over 250 clinical trials performed each year – an outstanding number compared to Hungary’s population.Reasons for conducting clinical trials in Hungary:

• Rapid and reliable recruitment of study population• Investigators are motivated and qualified• High Quality of Data• Reasonable price advantage• Qualification of local study monitors is above international average

Hungary is an ideal site for conducting

clinical research

Clinical Research CEE Center of AstraZeneca Hungary co-ordinating the work of 160 well-trained AstraZeneca experts located in seven countries of the region.

AstraZeneca spends approx. € 6 million on clinical research in Hungary alone,

which also covers the work of 1,000-1,200 colleagues.

Hungary an ideal location for biopharmaceutical manufacturing

Sanofi-Aventis

The Hungarian research unit is currently involved,

in 45 Sanofi-Aventis development projects,

Including initial research and clinical testing,

The company employs 2,300 people in Hungary,

invested more than €400 million in its Hungarian subsidiary since 1991.

Teva Hungary, a subsidiary of number two generic company Teva Pharmaceuticals,

is to build a €75 million factory for the production of active pharmaceutical ingredients

(APIs) in Sajobabony, Hungary,

60-100 people will be employed at the facility,

and its production will be mostly exported,

Teva started manufacturing in Hungary in 1995 and now employs 2,300 people there.

• Astra-Zeneca• GE Medicor• Novartis-Sandoz• Sanofi-Aventis

(Chinoin)• Servier (Egis)• Teva-Biogal

• Audi• Continental

Teves• Denso• Draxlmaier • EDAG• General Motors• Knorr – Bremse• Magna Steyr • Michelin • Remy

Automotive• Temic-

Telefunken• ThyssenKrupp• Valeo Auto-

Electric• Visteon• W.E.T.• Zeuna Stärker• ZF Hungária

• Elcoteq• Electrolux• Flextronics• GE Lighting • Philips• Samsung• Solectron

Automotive

ICT

Electronics Life science

Machinery

• AFT • Bosch Power Tool• Zenon

• Cisco• Ericsson• IBM• Nokia• SAP • Siemens/

Sysdata• TATA-Consulting• T-Systems

Multinational Companiesconducting R&D in

Hungary

Logistic Centres in Hungary

I. Direct Subsidies for Investments

1. Tender applications in the framework of the

Economic Competitiveness Operative Program (ECOP)

2. Special incentive package for strategic investors

3. Subsidy for employment creation and training

(in the responsibility of the Ministry of Employment and Labour)

II. Tax-related Incentives

(in the responsibility of the Ministry of Finance)

III. Supplier Development Program

Investment Incentive System I.

Extent of Government Support by Hungarian RegionsExtent of Government Support by Hungarian Regions

Special Incentive Package for Strategic Investments

If the investment volume reaches

• EUR 10 millions of projects of the manufacturing industry, logistics and

in case of establishing regional corporate service centers

The Hungarian Government may decide on granting a customized incentive package and VIP treatment

Within the customized incentive package more favourable and significant subsidy is available than through ECOP tender applications.

Important condition: in the field of LOGISTICS at least 10 persons should be employed

Investment Incentive System II.

PROGRAM of the NEW GOVERNMENT

Investment Promotion Remains one of the Main Goals of the Economic Policy

- Infrastructure Development - Labour Force Development Meeting Requirements of

Companies - Incentives, concentrating on priority sectors

New Government in June 2006

● Electronics● Automotive industry● Pharmaceautical industry● Biotechnology● Bioenergy● ICT● Finacial and Logistical Services● Tourism

Priority Sectors

There are 13 points for the cleaner and healthier environment in the new Program . Among others:

● Increase of share of renewable energy sources● Development of

- drinking water’s quality in different regions- Sewage water treatment- Solid waste treatment - safety from floods and inland waters

● Elimination of remains of old pollutions etc.

Environmental protection in the Program of the New Government

Contact:

ITD Hungary

1061 Budapest, Andrássy út 12.

Mrs. Ildikó KUKUCSKA

Senior Consultant

Phone: 473-82-14

E-mail: kukucska@itd.hu