Hungary: The Ideal Location for

Investors

Miklós MerényiState Secretary for International Economic Relations

April 2007

Agenda• Hungary in Europe

• Factors of the favorable business climate

• Incentives

• Bilateral economic relations

• Opportunities for Canadian companies

Hungary in Europe

• Dynamic macroeconomic growth, favorable real exchange rate

• Highest FDI stock per capita in the region

• Hungary: a bridge between East and West,4 Pan-European Corridors

• Well developed telecommunication and highway infrastructure

• The highest labor productivity in the region, motivated and qualified workforce is available

Productive, qualified, Productive, qualified, available workforceavailable workforce

LocationLocation

InfrastructureInfrastructure

Factors of the Favorable Business Climate

Capital attractionCapital attraction

EconomyEconomy

Economic policy1. Austerity package

Tight fiscal policy

Convergence plan € introduction 2010-2014

2. Deep structural reformsHealthcare, public administration, education, public transport

3. Effective use of EU funds

New Hungary Development Plan€ 23 BILLION EUROPEAN UNION DEVELOPMENT FUNDS

FOR 2007-2013

MAIN OBJECTIVES PRIORITIES Sustained growth:

Increasing competitiveness

Extending economic base

Developing business environment

Expanding employment With the incentives of

creating more and better workplaces

Economic development Infrastructure

development Social reform Environment and

energy development Regional development State reform

• Av. growth rate over 4.0% in the last 10 years

• Industrial boom: 10% y/y growth by 2006 • Export growth reached 16.6% in 2006

• Unemployment rate : 7.5% in 2006• Unit labor cost decreased over 10% in

2006

• Stock of FDI grew by 19% in 2006

GDPGDP

OutputOutput

Employment Employment and wagesand wages

Hungarian Macroeconomy

InvestmentsInvestments

62 236

FDIFDI Inflows to Inflows to HungaryHungary

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

US

D m

illi

on

-2 500

-1 500

-500

500

1 500

2 500

3 500

4 500

5 50019

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

H1

2004

H1

2005

US

D m

illio

n

Equity capital Reinvested earnings Other capital

Source: National Bank of Hungary

Stock of FDI in Hungary

Hungary - The Natural Regional Logistic CentreCentral location in Europe

Border with 7 countries and 4 EU, 3 non-EU member states

Three international major road corridors and the Danube cross Hungary

Innovation-logistic ring around Budapest

Zahony the Reloading centre between narrow and wide railway system

Easy access to the Balkans and Europe

13 logistic centres are located in the focal points of the international movement of goods.

High Labor Productivity

GDP per person employed (in purchasing power standards)

40

50

60

70

80

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

EU

-25

= 1

00

Hungary

Czech Republic

Slovakia

Poland

Productivity

• Number of higher education institutions: 69• Number of students in higher education:

424160 – Faculty of Natural Sciences: 21 524– Faculty of Medicine: 9 836 – Faculty of Pharmacy 1 436– Faculty of Health Care 12 085

• Number of graduates in 2006: 57 162

High Quality Labor Pool

University Towns

Budapest 164,105

Szeged 30,942Pécs

Pécs31,705

Veszprém 9,680

Miskolc 14,130 Debrece

n23,403

90% of the students speak EnglishAll diploma with foreign language certificate

and computer skills!

Source: Ministry of Education and Culture, 2005/ 2006

Source: Calculation of Ministry of Economy and Transport

Czech Republi

c

Germany

Hungary Austria Poland Slovenia

0,500,54

0,45

0,61

0,500,56

Labor costs of the production of one unit of GDP, 2005*

* Approximate values, in case of Austria indicator is originated from 2004 figure

Competitive Labor CostsThe labor costs of the output lags behind that of other CEE countries

1. Tender applications in the framework of the New Hungary

Development Plan ( II. National Development Plan) co-financed

by the EU VII. Framework Program 2007-2013

2. Special incentive package for strategic investors

The Hungarian Government prepares a tailor-made incentive package

3. Development Tax Benefit

4. R&D expenditures deductible from solidarity tax base

5. Subsidy for employment creation and training

6. Special support programs for R&D activity: National Office for

Research and Technology

Incentives

Hungarian-Canadian Bilateral Trade

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

2 0 0 4 2 0 0 5 2 0 0 6

E x p o r t

I m p o r t

T u r n o v e r

Million USD.

Canadian Investors in Hungary

Priority Sectors of Our Investment Policy

• Biotechnology

• ICT sector

• Automotive industry

• Shared service centers

• Logistics

• Specialized tourism

•R&D

• Innovation

•High added

value

•Knowledge

based economy

Main sectors for investments»Automotive »Electronics » ICT»Service sector (SSC, call center)»Biotechnology, life sciences»Logistics»Construction sector (PPP)»Real estate development

Opportunities for Canadian Companies

HUNGARY’S NO1. FREIGHT FORWARDING PARTNER

MÁV Cargo is a modern company with a decisive role in Hungary, providing the basic rail transport services flavoured with variety of value-added services and operating in a strategic network in Central Eastern Europe.

modern services

13,000 wagons

46.8 million tonnage

3,170 employees

Revenue: HUF 93 billion

EBIDTA: HUF 6.1 billion Pre-taxation profit:

HUF 2.8 billion

The MÁV Cargo group assets owned by MÁV Cargo subsidiaries of MÁV Cargo business opportunity

Buying MÁV Cargo, the investor obtains the dominant market share, client relationships and the know-how of the company

– approximately 90% market share in the Hungarian rail freight business

– approximately 700 clients– access to the broad-gauge network of the CIS countries– qualified professionals

Subject of the privatisation

MÁV Cargo’s development and ability to provide high-level transportation services in Hungary are key factors for the current shareholdersThere are no investor preferences by the seller, all kinds of investors are invited to the bidding:

– both financial and professional investors

– both rail and road haulage companies

– both Hungarian and international investors

– both EU and non-EU investors

Two round processConsortiums are acceptedThe owner wants to take both professional and financial considerations in to accountThe winner will be the applicant giving the best proposal over all conditionsThe transaction should be closed by the end of 2007

Thank you for your kind attention!

Miklós MerényiState Secretary for International Economic Relations H-1055 Budapest, Szemere utca 6.Phone: (36 1) 374-2824 Fax: (36 1) 312-3268E-mail: merenyim@gkm.gov.hu Internet: www.gkm.gov.hu