Hungary: Back on Track - your partner for business and investment in Central Europe

Zoltan MesterState Secretary for Competitiveness

19th November 2009, Triest

• Land: 93,030 km²

• Population: 10,1 million people

• GDP/capita, at PPP (2008 estimate): EUR 15,800

Hungary at a Hungary at a GlanceGlance

   SERBIA

SERBIA

Hungarian economyHungarian economy

FDI per capita

-30369

12151821242730

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

%

Production

Export sales

• FDI per capita second largest in region

• Open economy - Industrial production is driven by export sales

4 711

7 849

5 6836 253

3 004

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

Po

lan

d

Slo

ven

ia

Slo

vaki

a

Cze

chR

epu

bli

c

Hu

ng

ary

EU

R

*For Hungary, Poland and the Czech Republic end-2008 data, for Slovakia 30 Sept. data and for Slovenia end-2007 data

Structural problemsStructural problems

• High rate of redistribution – 50% of GDP*

• High foreign indebtness – 72,9% of GDP*

• Low rate of employment – 57%*

Imbalance + Global Crisis

*in 2008

Slow growth▪ Economic output▪ Employment

Lack of confidence▪ Communication▪ Implementation

Restoring equilibrium

Stimulating economic growth

Restoring confidence

Global economic

crisis

Tackling the impacts of the global economic crisis

Imbalance▪ State

household deficit

▪ Current account deficit

Tackling the Tackling the impactsimpacts of the global economic of the global economic crisiscrisis

• Stabilization of the financial system

• Facilitating the financing of SMEs

• Retaining jobs and helping those who loose their jobs

• Speeding up the use of EU funds

Restoring equilibriumRestoring equilibrium

• More efficient public sector

• Strengthening the sustainability of the pension system

• Developing a more targeted social system

• Cutting subsidies

SStimulattimulatinging eeconomconomic growthic growth

• Strengthening market acquisition

• Strategies for selected sectors

• Simplification of administration – 25% reduction of red tape

• Structural tax reform

Tax reformTax reform

Introduction of general real property tax,

elimination of current taxes

Reducing the burdens on labour

Fighting tax evasion

Securing funding and taxes on consumption

20092009 20102010

• Cutting employer contributions by 5% up to 2× the amount of the minimum wage Raising lower PIT band to 7116 Euro

• Cutting employer contributions after the entire income from 32% to 27%• Total grossing-up: Tax base is the gross wage plus social contributions• Rates will reduce: to 17% and to 32%• Lower band limit: 18 727 Euro (grossed up)

• Extending taxes to income and wealth kept in tax havens• Adjusting the contribution base to the real value of the activity

• Increasing VAT to 25%,• Preferred rate: 18% milk, dairy products, bread, bakery pr., district heating• Increase of excise tax by 5-6% on average

Simplification

• Unified corporate income taxation, elimination of surtax• Limitation of tax allowances and tax exemptions• Simplification of duties etc.

48,1

51,6

43,0

51,054,0

60,6 61,2 61,0 60,8 60,6

59,8 60,6 60,5 60,4

39,8

44,7 45,7

56,858,8 58,9 58,9 59,0

35

40

45

50

55

60

65

2009 2009. II. félév 2010

Change of tax wedge

average wage

half

Cushman&Wakefield has Cushman&Wakefield has published a study on published a study on

the european industrial the european industrial and logistic property and logistic property

marketmarket::

According to this classification Hungary ranks at the 3th place

CEE is a much sought after logistics and distribution location

Hungary offers high quality industrial locations and plentiful land supply at a competitive price

Source: Cushman&Wakefield; European Distribution Report, 2008

Hungary Hungary - The - The NaturalNatural Regional Logistic CentreRegional Logistic Centre

• Central location in Europe• Border with 7 countries:• 4 EU, 3 non-EU member states • Three international major road corridors and the

Danube cross Hungary.• Innovation-logistic ring around Budapest• Záhony the Reloading centre between European

standard and broad gauge railway system along the corridor Nr. V.

• Easy access to the Balkans and Europe• The 11 logistic districts and the 13 logistic centres

are located in the focal points of the international movement of goods.

Hungary: junction of main European transport Hungary: junction of main European transport corridorscorridors

ZáhonyZáhony

Changes in freight transportation in Hungary by modality (1980-2007Changes in freight transportation in Hungary by modality (1980-2007))))

Source: KSH 2008

public road**the method was changed in 2002

railway

pipeline

inland navigation

in bn. tkm

Expanding motorway and highway networkExpanding motorway and highway network

Budapest Airport: air cargo traffic centreBudapest Airport: air cargo traffic centre

• Direct cargo flight connections to the Far-East

• Excellent Road Feeder Service (RFS) into all European countries

• The fist phase of the new cargo terminal will be began in 2009, next to Terminal 2

Continuous modernization Continuous modernization of the railway systemof the railway system

Záhony

Regular scheduled block train connections from/to Regular scheduled block train connections from/to Northern and Adriatic Sea PortsNorthern and Adriatic Sea Ports

Source: BILK Kombiterminal Zrt.

Logistics Centres andLogistics Centres and Logistics Logistics Development Areas in HungaryDevelopment Areas in Hungary

Railway connection

Airport with public, international, commercial, permanent border crossing Airport with public, international, commercial, temporary border crossing Airport development opportunities

Logistics centres

3x

Western Europe, ARA –

Ports, Hamburg,

Bremerhaven

Koper, Triest

Ukraine, CIS

Constanza

Ports

Container terminal

Constanza

MEZŐKÖVESD

TASZÁR

Slovakia, Czech

Republic

Slovakia, Poland

Existing motorway

Motorway to be completed until the end of 2015

Motorway to be completed until the end of 2007

CROATIA SERBIA

ROMANIA

UKRAINESLOVAKIA

AUSTRIA

SLOVENIA

Záhony

Logistic parks – WarehousingLogistic parks – Warehousing• More than 1,51 million sqm of modern

warehousing facilities in Budapest and surroundings

• Average quoting rents between 3,0–4,5 EUR/sqm/month (in Budapest and surroundings)

• Growing interest on developments further away from the capital; (ProLogis Park Hegyeshalom, Szeged Logistics Center, Kühne&Nagel-Polgár, etc.)

Greenfield investmentsGreenfield investments• Well developed industrial parks for greenfield

investments countrywide• Installed infrastructure of public utilities • Support of the park owners for building new

facilities

Modern warehouse facilities and industrial parksModern warehouse facilities and industrial parks

• Productive Hungarian labour force rates highly for innovation and efficiency in international comparisons

• Logistics faculties in tertiary education countrywide - specialised knowledge and foreign language skills

• Universities cooperate with several companies to establish teaching curricula and provide hands-on experience to students

• Competitive wages in the service sector

Cost-efficient and highly qualified labour poolCost-efficient and highly qualified labour pool

Hungary Slovakia Czech RepublicCarrier, Forwarder 792 790 1026Driver 550 640 743Forklift Truck Operator 510 590 684General Labourer 482 570 617Logistics Manager 1425 1310 1623Lorry Driver 762 890 873Purchasing Officer 572 620 778Warehouse Manager 874 820 967Warehouseman 548 570 680

Source: Merces Professional Salary Monitor; 2009. 1 EUR = 268.14 HUF

• 17th June 2009. Government approves Logistics action plan, which contains:

• Mid-term road charging strategy

• Development of customs services

• Transport infrastructure development programmes

• Logistics subsidies

• Education-training programme

• SME logistics programme

• Logistic country-marketing

• Logistic relations-development

Logistic action planLogistic action plan

1.) Direct Cash Subsidy

• option 1: Cash subsidy based on the decision of the

Hungarian Government

• option 2: EU co-financed cash grants

2.) Development tax allowance

3.) Tender supporting job creation

4.) Training subsidy

TThe Hungarian Government he Hungarian Government isis ready to ready to provideprovide

the following incentives for logistic investment the following incentives for logistic investment projectsprojects

Záhony and its regionZáhony and its regionlogistics center with growing potentiallogistics center with growing potential

Location:

at Eastern border of the EU

V. Pan-European road and rail transport corridor: Trieste- Koper -Budapest- Kiev- Moscow line

Linking of the European standard and the Eastern broad gauge railway along the corridor Nr. V. at the North-Eastern border of Hungary to Ukraine

close to the Hungarian – Slovakian border

Thank you for your Thank you for your attention!attention!

Zoltan Mester

Ministry for National Development and Economy

State Secretary for Competitiveness

Phone: +36 1 374-2820

E-mail: Zoltan.Mester@nfgm.gov.hu