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The Hungarian Investment Environment and Incentive System December 2004 Ministry of Economy and Transport Republic of Hungary.

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Presentation on theme: "The Hungarian Investment Environment and Incentive System December 2004 Ministry of Economy and Transport Republic of Hungary."— Presentation transcript:

1 The Hungarian Investment Environment and Incentive System December 2004 Ministry of Economy and Transport Republic of Hungary

2 Hungary: a New Member of the European Union Land: 93,030 km² Population: 10,116,000 people GDP (2003): USD 82,757million

3 HUNGARY: the Reliable Partner No political risk No strikes No social conflicts No institutional risk Early deregulation EU compatible institutions Creditworthiness No financial risk Moderate income policy Sound & transparent fiscal policy Stable 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

4 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

5 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

6 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 Q1 2000 Q2Q3Q4Q1 2001 Q2Q3Q4Q1 2002 Q2Q3Q4Q1 2003 Q2Q3Q4Q1 2004 Q2 change on the same quarter of previous year, per cent HungaryEU-15

7 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

8 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

9 Hungary has been attracting a continuously high inflow of foreign direct investment Source: National Bank of Hungary

10 Cumulative FDI inflows to Hungary reached EUR 45 billion (more than 40% of GDP) from 1989 by June 2004. Other 34,8% The Netherlands 14,7% United Kingdom 4,4% Germany 18,0% USA 10,8% Japan 6,2% Austria 11,1% FDI Inflow by Countries 1989-2004 June

11 Direct Incentive for Investments 1. Economic Competitiveness Operative Program (ECOP) 2. Special incentive package for strategic investors 3. Subsidy for employment creation and training Indirect Incentives 1. Tax-related Incentives 2. Offset programs From 1st January, 2003 EU-conform regulation in force Implementation EU Conform Regulation on FDI

12 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

13 Non-refundable grants are available for small and medium enterprises up to 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

14 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.

15 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

16 KASSA felé Rapid Development of Transport Infrastructure Helsinki corridors motorway network in 2002 Network expansion in 2003-2006: highway motorway highway under connstruction motorway under constructionm highway under preparation motorway 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

17 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

18 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

19 Contacts Ádám Terták, Chief Executive Officer H-1061 Budapest, Andrássy út 12. Phone: (36 1) 472-8100 Fax: (36 1) 472-8101 E-mail: Internet: Ábel Garamhegyi, Director-General for Investments and Economics H-1055 Budapest, Honvéd utca 13-15. Phone: (36 1) 374-2746 Fax: (36 1) 374-2726 E-mail: Internet: Ministry of Economy and Transport The Hungarian Investment and Trade Development Agency (ITDH): “One-stop-shop” for investors

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