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The Hungarian Investment Environment and Incentive System. Ministry of Economy and Transport Republic of Hungary. December 2004. Hungary: a New Member of the European Union Land: 93,030 km² Population: 10,1 16 ,000 people GDP ( 2003 ) : USD 82,757million. YES. to Investments. - PowerPoint PPT Presentation
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The Hungarian Investment Environment and The Hungarian Investment Environment and Incentive SystemIncentive System
December 2004
Ministry of Economy and Transport
Republic of Hungary
Hungary: a New Member of the European Union
Land: 93,030 km²
Population: 10,116,000 people
GDP (2003): USD 82,757million
HUNGARY: the Reliable Partner
No political riskNo strikes
No social conflicts
No institutional riskEarly deregulation
EU compatible institutionsCreditworthiness
No financial riskModerate income policy
Sound & transparent fiscal policyStable monetary policy
… 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 ..
On an investment and export driven growth path together with the EU since the 1990s
YES to Investments
The New Vision of HUNGARY
Ideal geographic location
Modern economic structure
Connecting the most developed and the fastest developing countries
Rapid liberalisation
Sound stabilisation
Radical privatisation
A BRIDGE binding West with East, North with South
in Europe
4 Pan-European Corridors
Gate to South East Europe
Direct access to the EU
• Rate of growth reached 4,1% in H1 2004
• Consumption dynamics high but on a declining trend
• Volume of investments grew by 13,5% in H1 2004• • Investments in manufacturing grew by 25,3%!
• Industrial boom since Q4 2003; 10.4% y-to-y growth in H1 2004
• Industrial export growth exceeded 20% in H1 2004
• Low unemployment (5,9%) compared to EU-average in H1 2004, and moderating wage dynamics
• Annual inflation at 4,7% in 2003, speeding temporary up in 2004 due to VAT-regulation
Hungarian Economy: Improving Macroeconomic Figures
Investments
GDP
Output
Inflation
Consumption
Employment and wages
Hungarian GDP Growth Follows the Trend of the EU
Source: Central Statistical Office, Eurostat
Quarterly GDP growth rates
0
1
2
3
4
5
6
7
Q12000
Q2 Q3 Q4 Q12001
Q2 Q3 Q4 Q12002
Q2 Q3 Q4 Q12003
Q2 Q3 Q4 Q12004
Q2
chan
ge
on
th
e s
am
e q
uar
ter
of
pre
vio
us
year
, p
er c
en
t
Hungary EU-15
Short Term Economic Effects of the EU Accession*
Industrial
production
Growth rate
Infrastructural investments
Foreign direct
investments
• an 0.8 percentage point increase in the GDP growth rate
• phasing out of tariff free zones• state subsidy system in line with EU regulations• increased business confidence• regional hub role (the bridge between the EU and Eastern Europe)
• a 1.0 percentage point increase in the rate of industrial output growth due to higher export sales dynamics
• stronger competition and drive for innovation increase competitiveness
• use of EU funds will boost the construction industry
• transport infrastructural investments may reach EUR 10-11 billion until 2010
* based on a joint study of three economic research institutes
Outlook for EMU Membership
Possible
disadvantage
Target date
Challenges to face
Advantages
• Date of possible entry in 2010
• Lower real interest rates boost investment • Fixed exchange rate risk eliminates conversion costs and
exchange rate risk• Expanding foreign trade supports economic growth• The single currency could increase the rate of economic
growth by 0.6-0.9 percentage points annually.
• Giving up independent monetary and exchange rate policy as an instrument for managing asymmetric shocks
• Government deficit (appr. 5.1-5.3% in 2004) and inflation (appr. 6.7-6.8% in 2004) significantly exceed the Maastricht threshold
• Meeting the Maastricht convergence criteria has a short-run cost
Hungary has been attracting a continuously high inflow of foreign direct investment
Source: National Bank of Hungary
Annual FDI inflow* to Hungary
3 068
2 5752 4892 381
2 143
3 1653 439
924
2 645
0
300
600
900
1 200
1 500
1 800
2 100
2 400
2 700
3 000
3 300
3 600
3 900
1996 1997 1998 1999 2000 2001 2002 2003 2004
*Excluding other capital, including reinvested earnings
euro
mil
lio
njan-apr
GK
M-projection
3 500
Cumulative FDI inflows to Hungary reached EUR 45 billion (more than 40% of GDP) from 1989 by June 2004.
Other34,8%
The Netherlands14,7%
United Kingdom
4,4%
Germany18,0%
USA10,8%
Japan6,2%
Austria11,1%
FDI Inflow by Countries1989-2004 June
• Direct Incentive for Investments
1. Economic Competitiveness Operative Program (ECOP)2. Special incentive package for strategic investors3. Subsidy for employment creation and training
• Indirect Incentives
1. Tax-related Incentives2. Offset programs
From 1st January, 2003 EU-conform regulation in force
Implementation
EU Conform Regulation on FDI
The ECOP is one of the five operative programmes through which the National Development Plan (NDP) 2004-2006 will be implemented in Hungary. The overall objective of the NDP is to reduce the income gap relative to the EU average.
Within ECOP non-refundable grants are available for investors up to HUF 25-150 million (USD 125-750 thousand) per project through the following investment promotion tender applications:
Technological modernisation (ECOP 1.1.1.) Establishment of regional corporate centres (ECOP 1.1.2.) Strengthening of first tier suppliers (ECOP 1.1.3.) Development of industrial and innovation infrastructure (ECOP 1.2.1.) Development of logistic centres and their services (ECOP 1.2.2.)
Access to EU Structural Funds: Tender applications co-financed by the European Union I.
Economic Competitiveness Operative Program
Non-refundable grants are available for small and medium enterprises upto HUF 1.4-25 million (USD 7-125 thousand) through the following tender
applications:
• Support for the development of technical and technological background of SMEs (GVOP 2.1.1.)
• Support for modern management systems and techniques for SMEs (GVOP 2.1.2.)
• Support for advanced level technical consultancy (GVOP 2.2.2.)
• Support for the organisation of co-operation between SMEs (GVOP 2.3.1.)
Access to EU Structural Funds:Tender applications co-financed by the European Union II.
Economic Competitiveness Operative Program
Special Incentive Package for Strategic Investments
If the investment volume reaches
• EUR 50 million by projects of the manufacturing industry or
• EUR 25 million by establishing regional corporate service centres
The Hungarian Government decides on granting a customized incentive package
Within the customized incentive package more favorable and significant subsidy is available than through ECOP and SMART tender applications.
• Corporate-tax decreased down to 16 % (from 18%),
one of the lowest rates in continental Europe
• For major investors, 10-year-long development tax benefit
up to 80% of the due corporate tax
• Corporate tax benefit up to 25% of local tax (50% from 2005)
• Tax-free investment reserve
• Tax allowances for corporate R&D and innovation
Indirect Incentives
Tax-related incentives
KASSA felé
SKSK
AA
SLOSLO
HRHRYUYU
RORO
UAUA
RábafüzesRábafüzes
ParassapusztaParassapuszta
VácVác
TornyosnémetiTornyosnémeti
RöszkeRöszke
IlocskaIlocska
LetenyeLetenye
DunaújvárosDunaújváros
EgerEger
VeszprémVeszprém
GyőrGyőr
TatabányaTatabánya
KaposvárKaposvár
PécsPécs
LelleLelle
SzekszárdSzekszárd
SopronSopron
MohácsMohács
SzékesfehérvárSzékesfehérvár
KecskemétKecskemét
BékéscsabaBékéscsaba
NyíregyházaNyíregyháza
MiskolcMiskolc
KiskunfélegyházaKiskunfélegyháza
DebrecenDebrecen
FüzesabonyFüzesabony
EmődEmőd
BajaBaja
PolgárPolgár
V
V/C
X/A
BÉCSBÉCSfeléfelé
V
V/A
POZSONY,POZSONY,PRÁGAPRÁGA
feléfelé IV
GRÁCGRÁCfeléfelé
LJUBJANA,LJUBJANA,TRIESZTTRIESZT
feléfelé
ZÁGRÁBZÁGRÁBfeléfelé
SZARAJEVÓSZARAJEVÓfeléfelé
TEMESVÁR,TEMESVÁR,BUKARESTBUKAREST
feléfeléBELGRÁDBELGRÁD
feléfelé
ARAD,ARAD,KKOOLLOOZZSSVVÁÁRR
feléfelé
LVOV, KIJEVLVOV, KIJEVfeléfelé
SzolnokSzolnok
IV
V
ARADARADfeléfeléSzegedSzeged
NagylakNagylak
DunaDuna
TiszaTisza
ZalaegerszegZalaegerszeg
TornyiszmiklósTornyiszmiklós
IV
SalgótarjánSalgótarján
M0M0
M30M30
M3M3
M2M2
M3M3
M4M4
M4M4
M5M5
M44M44
M43M43
M15M15
M9M9
M8M8 M8M8
M1M1
M7M7
M7M7 0
M9M9
M6M6
M56M56
BUDAPESTBUDAPEST
M25M25
M35M35
SzombathelySzombathely
BszgyörgyBszgyörgy
NagykanizsaNagykanizsa
Rapid Development of Transport Infrastructure
Helsinki corridorsHelsinki corridorsmotorway network in 2002motorway network in 2002Network expansion in 2003-2006:Network expansion in 2003-2006:highwayhighwaymotorway motorway highway under connstructionhighway under connstructionmotorway under constructionmmotorway under constructionmhighway under preparationhighway under preparationmotorway under preparationmotorway under preparation
V
By 2006• 431 km of expressway to be completed• 425 km under construction• Further 803 km in preparatory phase
By 2015• Network density to reach EU average
Development of Road Infrastructure - Utilising the Transit and Logistics Centre Roles
Act on development
of motorway network
• By 2015: motorway network density reaches EU average
• By 2006: - 431 km of motorway to be completed
- Another 425 km will be under construction
- Further 803 km in preparatory phase
European Initiative
for Growth
• Expected North-Southern Pan-European transport corridor
along M2 and M6 motorways• M5 and M43 motorways
Local developments
• By-pass roads
• road- and bridge reconstruction (widening to 4 lanes,
strengthening the road surface, bridge modernisation,
reconstructing intersections)• 13 logistics service centres are planned connecting to
European networks
Development of Railway and Air Transport Infrastructure
Air transport
• Airports of Debrecen and Sármellék becoming open for regular international transport • Infrastructure developments at the airports of Győr-Pér, Taszár, Pécs-Pogány, Zalaegerszeg-Andráshida and Jakabszállás
Development of railway
lines along IV. and V.
pan-European
corridors
• IV. corridor: Hegyeshalom –Tatabánya - Bp. – Szolnok – Békéscsaba - Lőkösháza• V. corridor: Bajánsenye - Zalaegerszeg – Veszprém – Székesfehérvár – Bp. – Szolnok – Debrecen – Nyíregyháza – Záhony• Investments with subsidies from ISPA and Cohesion Funds
Contacts
Ádám Terták, Chief Executive OfficerH-1061 Budapest, Andrássy út 12.Phone: (36 1) 472-8100 Fax: (36 1) 472-8101E-mail: [email protected] Internet: www.itdh.hu
Ábel Garamhegyi, Director-General for Investments and EconomicsH-1055 Budapest, Honvéd utca 13-15.Phone: (36 1) 374-2746 Fax: (36 1) 374-2726E-mail: [email protected] Internet: www.gkm.hu
Ministry of Economy and Transport
The Hungarian Investment and Trade Development Agency (ITDH):“One-stop-shop” for investors