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VOL. 21. NUMBER 01 JAN 11, 2013 – JAN 24, 2013

Budapest Business Journal

10.6%

HUNGARY’S JOBLESS RATE IN SEPT-NOV

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

BBJ ANALYSIS SIX KEY ISSUES TO KEEP YOUR EYE ON IN THE NATIONAL ECONOMY 〉03 THIS YEAR Q&A

2013 A LOOK AHEAD

Acting as a family doctor

ING’s new CEO wants the company to become the preferred life insurance and pension company in Hungary.  17

BUSINESS

Discovering a new path for research & development While the National Innovation Strategy is being discussed, professionals at Ernst & Young studied the state of the R&D sector across the EU. They found that EU governments have a lot to do to stay competitive on a global scale.  16

TRENDS

Economic expectations

What will the year 2013 bring? The Budapest Business Journal looks into the near future of seven of the most important sectors in the Hungarian economy.  10-12

“I expect the economic situation in Hungary to improve in 2013”  13


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Growth driven by wishful thinking The year starts off with lackluster macroeconomic releases that essentially confirm Hungary’s economy ended 2012 in recession, and also casts considerable doubts over the government’s ambitious expectations for the rate of growth in 2013. The latest industrial output figures for November show a whopping 6.9% lapse on the year, meaning the industrial sector’s plummet continued, the latest purchasing manager’s index slipped into negative territory, while unemployment still refuses to budge below 10.6%. The tidings for this year aren’t rosy at all considering that industrial output came in so low, despite high expectations that new automotive capacities coming online in 2012 would prove sufficient to offset setbacks in other producing industries. This has obviously not been the case. The economy ministry’s 0.9% of GDP annual growth projection for 2013 is highly reliant on the output of the automotive

industry. Minister György Matolcsy actually said that this year will prove the government’s growth forecast from October was a cautious estimate, with auto producers taking growth to levels well above those projected, which may also allow the country to repay its maturing debts from its own resources instead of issuing foreign currency bonds. The November figures, which only underline the trend of contraction in year-on-year terms following the stagnation of the summer months, indicate that the capacity of automakers to pull the country out of its troubles may have been overestimated. And without the auto sector to pull more than its share of the weight in the overall economy, despite being spared the blunt of new taxes across the board that are seriously hurting other segments, the government is set to start reevaluating its growth targets for this year, which observers say were ambitious to start with.

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The playing field is once more set to be rearranged among the political opposition parties that can now see a boost to their bid to oust the Fidesz government in 2014 after constitutional jurors struck down voter registration. The planned pre-registration of voters was a completely new and rather alien element to the Hungarian voting system, which has traditionally given voting rights to all who have a registered residence and meet eligibility criteria. The changes that Fidesz planned to introduce could essentially have solidified its position in power and the governing party has provided little by way of argument to suggest that its intentions were anything to the contrary. When it looked like registration was to become a reality, the optimism voiced by the likes of MSzP chairman Attila Mesterházy or Együtt 2014 leader Gordon Bajnai seemed to be on a shaky footing. Although the elections are still far away, the unwavering support of staunch Fidesz voters – who would surely have been eager to add themselves to the voter list – still seems an almost insurmountable force.

Now, though, there seems to be a fighting chance that the potential involvement of the nearly 50% of Hungarian voters claiming to have no party preference and who risked being excluded from the process through registration will play a far bigger role in the spring of 2014. Prime Minister Orbán still doesn’t have much to worry about looking at the polls, with a near 10% lead over second-spot MSzP. Such ratings are unprecedented in the history of democratic Hungary at this point in a government cycle, with Fidesz now well past the halfway mark of its term. Still, with the safeguard of registration now out of the picture for the time being, Fidesz must reassess its approach and keep a more watchful eye on the political opposition. Should MSzP and Együtt sort themselves out, and if LMP finally gives up on its perpetual fence sitting, supported by many of those undecided voters, the creation of a viable political alternative is indeed a realistic prospect. The protest votes that led to a supermajority in parliament in 2010 may well have the contrary effect in 2014.


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BI-WEEKLY NEWS

Gov’t taps last of 2012 budget reserves

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Cheaper energy with strings attached

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macroscope

Six business stories to keep your eye on in 2013 “There, you see gentlemen, it was worth it, we had to do it, we made the right call.” This is the sentence that Prime Minister Viktor Orbán wants to be able to say for the first time in 2013 to anyone who doubted Hungary’s somewhat hectic policymaking of the past years as well as its tendency towards fundamentally reshaping the regulatory environment out of the blue. Whether his wish comes true will very much depend on the following key issues to keep your eye on in the national economy this year.

1

THE CENTRAL BANK

The government’s impatient wait finally ends in March when the mandate of National Bank of Hungary governor András Simor comes to an end, shortly followed by his two deputies from the old guard, Ferenc Karvalits and Júlia Király. The name most widely circulating in the public domain as Simor’s successor is economy minister György Matolcsy, someone market participants wouldn’t embrace given his ministry’s track record of changing taxes and laws left and right. With Simor’s cautious and inf lation-focused approach out of the way and the Monetary Policy Council fully populated with members from an economic school closer to the government’s liking, the central bank’s role in the economy is bound to change. Simor has been criticized since the government expected a more hands-on approach from rate-setters, going beyond their primary mandate of keeping inf lation in check and assuring price stability, and also taking part in supporting economic growth.

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EXCESSIVE DEFICIT PROCEDURE

The government expressed confidence that it has taken sufficient steps to convince Brussels to end the ongoing excessive deficit procedure that has been effect in Hungary since it joined the

European Union in 2004. The Economy Ministry hastily complied a set of corrections early October amounting to some 2.5% of gross domestic product that it says will keep the budget deficit at 2.7%. This would mean the country met the requirement of a gap smaller than 3% in three consecutive years, which is the prerequisite of ending the scrutiny. This could come in the spring the soonest, but seeing the latest EU report on the outlook for the economy, the outcome anticipated by the government is doubtful. While Brussels acknowledged that the measures taken are sufficient to keep the gap below the 3% threshold, it has doubts about the ability to collect revenues the government has already penciled in and projects the gap will widen to 3.5% in 2014. The continuation of the EDP would mean that the threat of losing some HUF 1 trillion in sorely needed EU development funds would still be on the table as a penalty.

3

THE IMF

Having been the story for most of 2012, credit line talks with the European Union and the International Monetary Fund have slowly slipped out of the spotlight and the prospect of an agreement is rapidly fading. The sides haven’t yet set a date for the continuation of formal talks following an arduously orchestrated fact-finding mission to Budapest in July. It is also quite apparent that the government is in no hurry whatsoever

to change the f low of events, with senior officials, including top IMF negotiator Mihály Varga, openly discussing the possibility of no deal being reached at the end. This marks a sharp turn from the dominant rhetoric of the past year. Analysts said earlier that it would take a dire turn of events on international markets, perhaps an economic calamity in the euro zone, to threaten Hungary’s vulnerable economy to a degree that would compel the government to change its approach.

4

DEBT SERVICING

A large part of late 2012 was about whether the state debt management agency ÁKK would announce the issuance of foreign currency debt to cover the country’s financing needs that are not denominated in forints. The agency and the economy ministry constantly put off any specifics regarding the issuance, saying they would wait for the conclusion of an IMF agreement since that would provide for more favorable terms and lower yields. However, there was no IMF deal and consequently, no forex issuance. In the meantime ÁKK kept on pushing forint-based paper and exceed its annual issuance target by HUF 995 bln. For 2013, ÁKK plans to issue bonds worth a total of nearly HUF 5.9 tln (1.3 tln in forints and 4-4.5 bln in euros), meaning a foreign currency issuance is on the agenda. Apart from the fact that the global investor sentiment is generally favorable for the time being and demand at ÁKK’s regular auctions remains solid, the agency has little information to rely on when trying to probe the potential success of an issuance. It can look to state-owned

Eximbank, which raised $500 mln in late 2012. Yields were at 5.75%, slightly lower than expected and the offer was heavily oversubscribed.

5

EXPANDING STATE

Orbán has made no secret of the fact that he wants the state to be far more involved in sectors of key economic importance. As such, it became the biggest owner of energy group MOL Nyrt, bought machinery maker Rába, the natural gas interests of German energy group E.ON and remains open to entering further deals should the opportunity arise. It is still aiming to shake up the telecommunications market by introducing a fourth, state-owned mobile provider to the scene after the first attempt failed last year upon challenges to the related frequency tender from competitors. Similar ambitions apply to the banking sector, where the state has acquired a stake in savings bank Takarékbank and is now looking to boost the role of Webbank, which is meant to serve as a low-cost solution to those with unbearable expenses stemming from foreign currency loans.

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PREDICTABILITY

If there’s one piece of criticism the Orbán government receives from businesses on a regular basis, it is the lack of predictability in how the economy works. This element has been cited as the primary cause for the low level of investor confidence towards Hungary, as companies in the country are unable to plan ahead –even for shorter time spans – since the tax and regulatory environment that is so important to their activities can change from one day to the next. Those hoping this would change in 2013 have received little encouragement from Orbán. “If you tell a captain commanding a ship when waves are crashing all around and there are reefs everywhere to handle the wheel a bit more gently, he can do nothing but laugh,” he said in an interview. GR


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Budapest Business Journal | Jan 11 – Jan 24

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QUOTE OF THE WEEK

And the facts are: the majority of Roma are not suitable for coexistence. They are not suitable to live among people. These gypsies are animals and they behave like animals. JOURNALIST AND FOUNDING MEMBER OF THE GOVERNING FIDESZ PARTY (ALSO A CLOSE FRIEND OF PM VIKTOR ORBÁN) ZSOLT BAYER IN AN ESSAY IN RIGHTIST DAILY MAGYAR HÍRLAP. THE ARTICLE WAS FOLLOWED BY A GENERAL UPROAR, AND THE PAPER FIRST APOLOGIZED FOR PUBLISHING IT, THEN LATER DECIDED TO ASK ITS READERS TO SUPPORT BAYER.

NEWS FOR THESE PAGES IS TAKEN FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, HUNGARY A.M.

A public forum of the Student Network (Hallgatói Hálózat) took place at the Eötvös Loránd Science University on January 7. The discussion was an organic follow up of the student protests in December, and a warm-up ahead of the organization’s next meeting with the government on January 11. “I hear that they are encouraging each other, but it is not clear what they want exactly, and what is it that they are dissatisfied with,” state secretary of education Rózsa Hoffmann told news station InfoRádió in an interview at the time of the forum.

ECONOMY GEN GOV’T DEFICIT 90.4% OF MODIFIED FULL-YEAR TARGET IN 2012 Hungary had a cash flowbased general government deficit, excluding local councils, of HUF 607.5 billion or 90.4% of the modified full-year target in 2012, the National Economy Ministry said in a first reading. The preliminary cash flow deficit, at 2.1% of GDP, gives a good base for meeting the 2.7%-of-GDP EU-conform accrual-based deficit target, even without taking into account the additional HUF 50.9 billion revenue arising from those transferring from the private pension funds to the state pension system last year, the ministry said. The government raised the EU-conform ESA95 deficit target for 2012 from 2.5% to 2.7% in October. The ministry noted that precise figures on the accrual-based deficit would be published in Hungary’s excessive deficit procedure report to be officially sent to the European Commission by the Central Statistics Office at the end of March.

CENTRAL GOV’T REPAYS HUF 76 BLN OF MUNICIPALITY DEBT IN 2012 Hungary’s central government repaid HUF 76 billion of the municipal debt of communities with fewer than 5,000 inhabitants last year, well under the HUF 96 bln allocated for the purpose, a fresh report on general government expenditures by the National Economy Ministry shows. Hungary’s central government announced in October that it would take over the debt of local councils in communities with fewer than 5,000 residents by the end of 2012 and 40-70% of the debt of bigger cities and towns in 2013. An amendment to the 2012 budget act allocated HUF 96 bln for the debt takeover among communities with fewer than 5,000 inhabitants, and the cash flow-based deficit target for the full year was raised from HUF 576.2 bln to HUF 671.9 bln.

HUNGARY INDUSTRIAL OUTPUT FALLS 6.9% IN NOVEMBER Output of Hungary’s industrial sector was down 6.9% in November from the same month a year earlier, data published by the Central Statistics Office (KSH) shows.

The decline accelerated from a 1.7% drop in October. The workday-adjusted decline was also 1.7% in November, following a 3.8% fall in October. Adjusted output fell yr./yr. in six of the first 11 months and rose in five. Output slipped 0.1% month-onmonth after a 3.8% monthly drop in October and rises in August and September, according to seasonally- and workday-adjusted data. Output slipped 1.5% in JanuaryNovember from the same period a year earlier. After a 17.8% contraction in 2009, Hungary’s industrial output rose 10.6% in 2010 and 5.6% in 2011. KSH will publish a second reading of the data on January 16.

HUNGARY INT’L RESERVES EDGE UP TO €33.881 BLN IN NOVEMBER Hungary’s international reserves stood at €33.881 billion at the end of December, edging up from €33.865 bln a month earlier, preliminary data published by the National Bank of Hungary shows. The international reserves were down from €37.774 bln at the end of 2011. Hungary was scheduled to make about €500 million in repayments to

the International Monetary Fund in the last half of December.

HUNGARY PPI FALLS 2.9% IN NOVEMBER Industrial producer prices in Hungary dropped 2.9% yearon-year in November, falling for the first time in more than a year on a decline in export prices. Hungary’s PPI last fell in August 2011, edging down 0.1%. Prices in the manufacturing sector were down 3.4%. Within manufacturing, prices in the computer, electronic and optical products segment, which carries the biggest weight, dropped 5.3%. Prices in the transport equipment segment plunged 9.8%, but prices in the food, beverages and tobacco segment rose 4.8%. Prices for electricity, gas and heat supply decreased 0.7%. Overall prices for domestic sale increased 0.6% but prices for export sale fell 5.2%. In a month-on-month comparison, industrial prices slipped 0.7% in November. In January-November, factory gate prices rose 4.8% from the same period a year earlier.

GOV’T TAPS LAST OF 2012 BUDGET RESERVES

Some HUF 16.9 billion was spent from 2012 budget reserves in the last days of December, exhausting the HUF 100 bln set aside at the beginning of the year, business daily Napi Gazdaság said. The biggest recipient of the freed up reserves was the National Economy Ministry, which got HUF 6 bln under a government decision dated December 21. The police and anti-terrorism units got HUF 3.9 bln from the reserves at the end of December. Earlier in the year, the police received a combined HUF 19.8 bln from the reserves. The judiciary got HUF 1.1 bln, the National Ambulance Service got HUF 1 bln and almost HUF 1 bln was allocated for two new border crossings. The National Economy Ministry will publish preliminary data on central budget spending in December on January 8.

HUNGARY JOBLESS RATE FLAT AT 10.6% IN SEPT-NOV The average unemployment rate in Hungary was 10.6% in the 15-74 age group in September-November, up 0.1-percentage point from August-October, but unchanged from the same

period a year earlier, data published by the Central Statistics Office shows. The employment rate in the age group was 51.3% in September-November, down 0.1-percentage point from AugustOctober, but 0.9 percentage points higher than in the same period a year earlier..

BUSINESS TLC UNDERTAKES CAPACITY EXPANSION German-owned TLC, which makes and assembles steel structures, is undertaking a HUF 1.1 billion expansion, the company told MTI. TLC is building a 3,400sqm production hall at its base in Balatonfüred (western Hungary). TLC won more than HUF 300 million in grant money from the New Széchenyi Plan for the investment, which will create 60 jobs. The company expects to complete another, 2,500sqm production hall by the spring of 2014. Almost 300 people work for TLC, making it one of the biggest employers in Balatonfüred. The company is a unit of Sennebogen Maschinenfabrik.

Photo: MTI / Zsolt Szigetváry

Students getting prepared for meeting with government


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SMTXTRA TO TAKE OVER ELCOTEQ ASSETS IN HUNGARY

HUNGARIAN FILM INDUSTRY IN FREE-FALL

UK-based electronics maker SmtXtra has completed a deal to buy the assets of Finnish peer Elcoteq in Hungary in a transaction valued at more than £6 million (€7.4 mln), UK business news site insidermedia.com wrote. Elcoteq announced the shutdown of its plant in Pécs (southwestern Hungary) in 2011. SmtXtra, which provides services to the surface mount technology (SMT) sector, said the asset purchase would better support its customers with nearly new SMT machines and test equipment, according to the insidermedia. com report.

Some HUF 17 billion was spent on film production in Hungary in 2012, down from HUF 31.5 bln in 2011, business daily Napi Gazdaság reported. According to the paper the background of the decline is the volatility of the subsidy scheme. Productions are allegedly “waiting in line” until the new scheme becomes more predictable, the paper wrote. The trend in 2013 will greatly depend on whether the tax benefits of certain productions remain intact, as there is a significant regional competition to win international productions, Napi Gazdaság added.

CONSTRUCTION OF EUROVEGAS COULD BEGIN WITH ADDITION OF NEW INVESTORS

STADLER SOLE BIDDER IN MÁV-GYSEV TRAIN TENDER

The long-delayed construction of the €300 million Eurovegas casino and hotel in Bezenye (northwestern Hungary) could begin after the recent addition of two new investors to the project, the communications agency representing the development said. The agency said that the Kimberly Group and a Spanish investment group had recently signed contracts to help finance construction of Eurovegas, thus increasing the funds investors have for the project to 60% of its total cost and making “financing the remaining sum possible”. In October, the agency told state news agency MTI that investors Hans Asamer and Alfred Supersberger, in partnership with Hard Rock International, were “ready for construction” and were working to ensure sufficient funding for the project. About half of the project’s costs are to be financed from loans. The casino and hotel located near Hungary’s borders with Austria and Slovakia are scheduled to open early in 2014, the agency told MTI in October.

Swiss rolling stock maker Stadler was the sole bidder in a tender to supply state-owned railway company MÁVSTART and regional railway GySEV with 48 trains, the rail companies said in a joint statement. Eight potential suppliers purchased the tender documentation. Delivery of the electric multiple units – 42 for MÁV-START and six for GySEV – is to take place by the end of September 2015. The purchase will be supported with European Union funding.

CBA TO CONTEST GVH DECISION IN COURT Hungarian-owned supermarket franchisor CBA will contest in court a decision by the Competition Office (GVH) to fine it HUF 30 million, communications director Attila Fodor told MTI. GVH said it levied the fine on CBA for unfair business practices. Advertised prices of products in CBA stores in a countrywide flyer were, in reality, different from shop to shop, GVH said. Some of the advertised products were also not available at all stores, it added. Fodor said CBA

believes the decision is unfounded in view of the facts and will turn to the court.

AUSTRIAN POST UNIT FIRST TO APPLY TO ENTER LIBERALIZED HUNGARIAN MARKET Feibra, a unit of the Austrian post, has filed an application to enter the Hungarian market, becoming the first postal company to do so since the market was liberalized at the start of 2013, business daily Világgazdaság wrote. Applications for entry must be submitted to the National Media and Infocommunications Authority 45 days before new players may start activities.

SHAREHOLDERS AUTHORIZE BOARD OF BANKRUPT E-STAR TO RAISE CAPITAL BY HUF 50 MLN Shareholders of Hungarian energy-services company EStar Alternative, which fi led for bankruptcy protection in early December, authorized the company’s board at its EGM to raise registered capital by HUF 50 million through the public or private placement of a maximum of five million shares over the next five years, EStar reported. Shareholders rejected a proposal to authorize the board to raise registered capital by HUF 500 mln. E-Star reported that the company had current liabilities of HUF 8.01 billion and current assets of HUF 5.16 billion on November 30 2012. E-Star had total assets of HUF 21.1 bln and total liabilities of HUF 18.69 bln on that date.

DOMESTIC GOV’T TO DECIDE ON WATER, SEWAGE AND RUBBISH DISPOSAL PRICE CUTS IN SPRING The government expects to take a decision on reducing water, sewage and rubbish disposal fees in the spring, Antal Rogán, par-

ESTERHÁZY CENSORED AT PUBLIC RADIO Internationally renowned Hungarian author Péter Esterházy said editors at a state-run Hungarian radio station censored him on a recent program. Writing in the weekly newspaper Élet és Irodalom (Life and Literature), Esterházy said two sentences containing criticism of government cultural policy were edited out of the December 25 broadcast of his monthly cultural segment on the Kossuth radio station. “The last time I was censored was in 1981,” when Hungary was a communist country, said Esterházy, whose work has been published in more than 20 languages and who is widely considered one of Hungary’s greatest living authors. The writer said he recommended listeners see performances at Hungary’s National Theater before its director, Róbert Alföldi, is replaced in July with Attila Vidnyánszky, a conservative government-friendly appointee. liamentary group leader of Fidesz, said on public television. Rogán said a review of the fees was in order, noting an increase “on an energetic scale” between 2002 and 2010, similar to the increase of electricity or gas prices. An earlier government initiative cut household gas, electricity and district heating costs by 10% from January 1.

VOUCHER ISSUER TO LAUNCH NEW PRODUCTS Hungary’s National Recreation Service Company (NÜSz) will launch three more Erzsébet-series vouchers in January, managing director Kornél Kocsmár said at a professional forum. NÜSz will start offering the new vouchers for school supplies, for tickets to sporting and cultural

events, and for gifts, such as electronics, household furnishings, clothes and books, Kocsmár said.

STATE LOTTERY SPORTS WEBSITE STARTS TEST OPERATION The sports betting website of Hungary’s state lottery company, Szerencsejáték, started test operation at the beginning of January, behind schedule, business daily Világgazdaság wrote. The website, set up and operated by GTECH G2, a unit of Italy’s Lottomatica, was originally supposed to have started operating last June, but a modification to the contract pushed back the start-up date to December 17. GTECH G2 has already paid a HUF 106 million indemnity for the delay. A launch date for the site is not yet known.

HUF 268 BLN EARMARKED FOR UPGRADING HOSPITALS, CLINICS Hungary has earmarked HUF 268 billion for upgrading and extending regional hospitals and outpatient clinics this year, the National Development Agency (NFÜ) said. Of this amount, HUF 223 bln worth of investment is already covered by contracts while HUF 45 bln will be open to bids. Of the latter amount, HUF 10 bln will be ploughed into developing oncological centers, with the aim of reducing mortality caused by malignant tumors, a priority in Hungary, NFÜ said. HUF 35 bln will go towards restructuring outpatient and hospital care, it said. In line with the EU directive for supporting less developed areas, all regions except for Budapest and Pest County will have access to these funds, the agency said. ■


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GAS EXCHANGE CEEGEX STARTS OPERATING IN HUNGARY The Central Eastern European Gas Exchange (CEEGEX), a unit of Hungarian Power Exchange operator HUPX Zrt, has started operating in Hungary, with spot orders appearing immediately after market opening, CEEGEX said on January 3. The launch of the organized natural gas market provides compliance with European regulatory requirements, and the trading platform has been established in line with international practices, CEO Roland Lajtai said. Member tests had been completed successfully with the participation of 13 companies, CEEGEX said in the statement. It is the exclusive right and obligation of CEEGEX to operate the organized natural gas market in Hungary, with the license issued by the Hungarian Energy Office in October 2011, news agency MTI reported. CARBON MARKET VALUE DROPS IN 2012 The value of global carbon market transactions plunged 36% last year as European Union permit prices fell and

regional PUTIN SIGNS LAW ON 5-YEAR VISAS FOR FOREIGN BUSINESSMEN Russian President Vladimir Putin has signed a law on issuing visas for foreign businessmen valid for up to five years, RIA Novosti reported January 2, citing the Kremlin website. The law was adopted by Russia’s lower house of Parliament, the State Duma, on December 19 and later approved by the upper house, the Federation Council, on December 26. Under the law, representatives or employees of foreign companies investing in Russia or participating in the projects of the Skolkovo Innovation Center and the International Financial Center may be issued with a regular business visa valid for five years instead of just 12 months. HIGHER TAX RATES COME INTO EFFECT IN SLOVAKIA Changes to the income tax law, introducing higher tax rates for entrepreneurs and individuals with exceptionally high incomes, came into ef-

United Nations emission credits dropped to record lows, according to Bloomberg New Energy Finance. The market’s value declined to €61 billion ($80 billion) from €95 billion in 2011, BNEF said January 3 in a statement. The value of UN offset trading decreased 64% to €6 billion. ENBW LOOKS TO OFFLOAD STAKES IN HUNGARIAN POWER COMPANIES German utilities company, Energie Baden-Wurttenberg (EnBW), wants to part with its minority stakes in Hungarian electricity distributors Elmű and Émász, daily Népszabadság said on December 19. The utilities company has started to make preparations to sell non-controlling stakes in Hungary and Austria to raise money to invest in renewable energy as Germany phases out nuclear power, the paper said. EnBW owns a little more than 27% of Elmű, which distributes electricity in the capital, and a little less than 27% in Émász, a distributor for the north of Hungary. EnBW also owns 21.7% of Mátrai Erőmű, a power plant in northeast Hungary. Its

German partner in all three companies is RWE. CZECH REPUBLIC, HUNGARY GET EU APPROVAL FOR CARBON SCHEMES The European Commission has approved state aid of €1.88 billion for Czech Republic and €56 million for Hungary in the form of free carbon allowances, it said on December 19. Stating that the grants were within EU state aid rules, the Commission said the money would be used to modernize energy installations and infrastructure and promote competition. Electricity generators and other industrial operators must submit carbon allowances to cover their annual emissions in the EU’s Emissions Trading Scheme (ETS). Under EU rules, a portion of these allowances can be allocated for free by governments. AZERI GAS GROUP IN TALKS TO BUY NABUCCO PIPELINE STAKE Azerbaijan’s Shah Deniz II gas group could agree to take over a 50% stake in the Nabucco pipeline consortium by January, boosting Nabucco’s prospects in a competition

HUNGARY’S ATOMIC ENERGY OFFICE CLEARS PAKS BLOCK LIFESPAN EXTENSION Hungary’s National Atomic Energy Office on December 18 said it had issued a permit to extend the lifespan of a block at the country’s sole nuclear power plant in Paks. Paksi Atomerőmű, the plant’s operator, wanted to extend the block’s lifespan by another 20 years past the original 30-year mark. It submitted the application for the extension a year earlier. Parliament voted to support the extension of the lifespan of the plant in 2005. Paks’ four existing blocks account for about 40% of electricity generated in Hungary. between projects that aim to pipe Azeri gas into Europe. Nabucco stakeholder Bulgarian Energy Holding (BEH) said on December 20, that talks were advanced and it hoped a deal could be sealed on January 10 at a Nabucco shareholders meeting in So-

fia. The Shah Deniz II consortium has already signed a funding deal with Nabucco’s rival, the Trans-Adriatic pipeline (TAP) pipeline, which aims to pump the gas to Italy. Shah Deniz II has said that Nabucco would have to hand over a significant stake

in the project in order to stay in the race. The Nabucco gas pipeline project was initially designed to transport an annual capacity of 32 billion cubic meters of Azeri and other central Asian gas through Turkey and southeastern Europe into Austria. ■

it, according to final results. The Social Democrats and the Liberals, with the help of minorities and independents, back the cabinet, which Ponta has pledged will create jobs, support foreign and domestic investors and respect the judiciary and the rule of law. Ponta told Parliament he would now focus on negotiating a renewal to the financial support package, which expires in 2013 and is vital to maintain investor confidence in the EU’s second poorest member. The government plans to introduce a progressive tax system, seeks to cut some social contributions paid by employers as well as to bring a value added tax back to 19% from the current 24%.

those who see a bleak future ahead has increased by 10%. Some 67% now believe that the economic situation is going downhill, compared to 57% in November, while only 24% are optimistic, compared to 26% a month earlier. The most optimistic are those who have monthly revenues above PLN 1,500 (€368) (42% with an optimistic outlook), those in a good material situation (35%) and university graduates (34%).

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fect in Slovakia on January 1, local media reported. Corporate tax has gone up from 19% to 23%, while people earning more than €3,246 per month will now see their income tax rate rise to 25%. An additional tax rate (an extra 5%) applies to selected constitutional officials, including the president and members of parliament and the government. The rate will remain at 19% for everyone else, the TASR newswire reported. A limit to the 40%, lump sum, tax-deductible expenditures was also introduced, with the upper limit projected to stand at €5,040 per year, or €420 per month. SLOVENIA INTRODUCES LOWER CORPORATE TAX The corporate income tax rate was reduced by three percentage points to 17% on January 1 as part of a government change to the corporate income tax act passed by parliament in April, the Slovenia Times reported. The rate will dropp by 1 percentage point a year until it reaches 15% in 2015. The

government has argued the cut in the rate will help business create jobs, which will in turn help restart the country’s economy. In line with the changes, companies with revenues below €50,000 ($65,200) will be able to introduce standardized expenses of 70% in place of accounting. Moreover, companies will be able to claim donations as tax breaks. NEW VAT RULES IN EUROPE TO MAKE LIFE EASIER FOR BUSINESSES From January 1, new EU VAT rules entered into effect that will make life much simpler for businesses across Europe, according to a press release by the European Commission. There are two main features of the new rules: first, electronic invoicing will be treated the same as paper invoicing, enabling companies to choose the VAT invoicing solution that works best for them. According to the EU, this has the potential to save businesses up to €18 billion a year in reduced administration costs. Second,

member states will be allowed to offer a cash accounting option to small businesses with a turnover of less than €2 million a year. This means that these SMEs will not have to pay the VAT until it has been received by the customer, thereby avoiding cash-flow problems. According to Algirdas Semeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, “These new VAT rules reflect what businesses in Europe need today: simpler procedures, reduced costs and support in applying solutions that best meet their needs.” ROMANIAN LAWMAKERS APPROVE PONTA’S CABINET Romanian Prime Minister Victor Ponta’s government has won parliamentary approval, allowing the new cabinet to push through a 2013 budget and start talks for a new international precautionary credit. Ponta got 402 votes from the country’s newly elected lawmakers, with 120 lawmakers voting against

MAJORITY OF POLES SAYS ECONOMIC SITUATION WORSENS More Poles feel their country’s economic situation is getting worse, the Warsaw Business Journal reported, citing a fresh poll by CBOS. According to the report, within one month the percentage of

UKRAINE PARLIAMENT APPROVES AZAROV AS PRIME MINISTER Ukraine’s Parliament has approved Mykola Azarov, President Viktor Yanukovich’s long-time ally, as prime minister, after the ruling Party of the Regions and its allies mustered a comfortable majority in the chamber. He was voted in for a second term in office by 252 votes from the 450-seat chamber. Azarov has served as prime minister since Yanukovich became president in February 2010. ■


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Top court strikes down voter registration A ruling by the Constitutional Court has forced the government to give up on one most widely criticized efforts to bind eligibility to vote in elections to prior registration. It is the second serious concession forced on the government in the period of just a few weeks, after previously backtracking on its revisions to the education system. BBJ GERGŐ RÁCZ

Political opponents and civil liberties groups unanimously applauded a verdict by the Constitutional Court striking down voter registration, saying it violates citizens’ fundamental right to participate in elections and exercise their democratic rights. In the wake of the ruling, the governing Fidesz party announced that it would abandon the measure, at least for now.

“After consulting with the prime minister and the executive of Fidesz, I can say one thing with certainty: there will be no registration in 2014,” Fidesz caucus leader Antal Rogán told reporters. The political opposition was unanimous in its appreciation of the decision, citing the “wisdom” that the constitutional jurors had showed while also expressing hope that the events will usher in a new phase in the government’s policies. CONSOLIDATION DRIVE Voter registration has been under assault since the notion was first raised; it was perceived as a blatant attempt by the government to cement its position in power by revising the standing voting regulations in such a way to favor the habits of its still substantial and highly active base. Government officials have consistently failed to come up with any arguments to convinced critics otherwise. Reasons cited by Fidesz representatives – including Prime Minister Viktor Orbán – included the need to introduce a uniform administrative procedure, since ethnic Hungarians who have received voting rights under the Orbán government are not properly registered. The over-

haul of the system would have included domestic voters as well to make the process “fair” for all involved. Other arguments highlighted the need to ensure general election results are based on the decision of people who are involved in the everyday happenings of the country and not the “illiterates” – as Fidesz deputy chairman Lajos Kósa said at one point – who can easily be convinced to vote one way through pandering and various small gestures at the last minute. The Constitutional Court actually struck down the registration scheme twice: first on a technical basis, saying that the legal standing of registration – categorized as a temporary constitutional provision – was unacceptable, since it is in actuality a provision that has permanent implications. Evaluating the contents of the law itself, the court found it to be a violation of fundamental rights. SUBMITTING TO REASON While still insisting that the drive to introduce registration in the first place was to make the system fairer and more democratic, Rogán said Fidesz would accept the Constitutional Court’s ruling and show restraint, even though it doesn’t necessarily have to.

“Of course, even after the decision of the Constitutional Court, we have the means of modifying the constitution and assuring the constitutional protection of registration within the basic document,” he said, stressing that his party and its super majority possesses the political strength needed. “However, strength is not everything,” he said, adding that, “words of reason and the sense of political responsibility demand that we take a different course.” ANOTHER BLOW The start of 2013 thus brings another politically unpleasant development for the government in a matter of weeks, having just backtracked on another aspect of its plans to revise the overall operation of the country: it was forced into making serious concessions in its plans to reform the upper education system as result of extensive student protests and related media attention. Circumstances, public outcry and objections from the country’s top legal body – even after the Fidesz government went out of its way to curb the panel’s jurisdiction – have now turned two key aspects of the cabinet’s fundamental drives into sizeable and highly publicized defeats. ■

Cheaper energy with strings attached Households may rejoice at a government decision to reduce utility costs through central regulation starting in 2013. The government insists that the providers will shoulder all costs stemming from the move, but indirectly, the amount households pay won’t fundamentally change. BBJ GERGŐ RÁCZ

Prime Minister Viktor Orbán announced late 2012 that the government would be enacting its previously declared goal of reducing household burdens by first freezing utility costs then mandating a 10% reduction of natural gas and electricity prices. The measure, which will directly appear first in the providing firm’s bookkeeping, comes after the launch of a new tax on energy transmission systems, needed to help keep the budget deficit under control. “We’ll learn how to get along, even at such price levels,” Orbán told public radio late December, responding to the outcry from the energy industry. He stressed that the government will keep a watchful eye on any company that attempts to pass the costs on to household users. According to political daily Magyar Hírlap, the government is planning further reductions throughout the year, with another 10% cut scheduled for the spring. The cabinet is looking

László Varró: The Hungarian transmission system is already in a deplorable state

to announce yet another “significant” reduction later in 2013, the paper said citing unnamed government sources.

ducing staple foodstuffs, like meat and dairy processors or bakeries, which will ultimately result in retail prices surging. The political opposition criticized the move since it is targeted at a general reduction of prices instead of differentiating between consumers based on their social status. “It is unfair because low-earners will benefit far less than high-earning, affluent households,” István Józsa, a representative of the socialist MSzP, said. The green LMP labeled the mandatory price reduction pointless and called instead for an extensive plan to revamp residential insulation that could lead to far bigger savings. The radical far right Jobbik said the actual impact would be closer to 3%, which households already lose thanks to the 5.2% consumer price inflation level.

WHO’LL END UP PAYING?

SUPPLY ISSUES

Despite rhetoric that the price cuts can have only a beneficial affect on the general public, the effects of the measures will inadvertently seep into facets of the economy that households directly interact with. A newly published study from think-tank Policy Agenda stresses that, thanks to how the changes impact the operation of the business, their customers – i.e. the public – will have to fork out to bridge the gap in the end, leaving little to no difference between what they pay now and after the cut. The study states that the Hungarian Energy Office has increased fees collected for using the energy transmission system by an average of 12% for a broad range of corporate users. This increases the operating expenses of firms pro-

Central regulation of prices and the inclination of the government to support the general public at the expense of the business sector are also set to hinder any new investments in the energy grid, which may consequently decay and endanger supplies. As the division head at the International Energy Agency (IEA) László Varró told news portal Index.hu in January, the Hungarian transmission system is already in a deplorable state and the volume of investments into upkeep are down 40% from 2010. “Looking at data from 2011, a typical network component in Hungary is replaced every 150 years,” he said, stressing that the new adversities in the operating environment could only make the situation worse.

He envisioned that results would manifest themselves in the near future in the form of supply outages. STATE INVOLVEMENT

The cost-control scheme fits in well with the government’s long-held desire to significantly increase state involvement in the energy sector so that it could have a decisive say in how much households have to pay for electricity and natural gas. The Prime Minister said the decision to take over the natural gas interests of German energy company E.ON at the end of last year was made for this exact purpose, not to mention the fact that the government is now in a position to negotiate prices with Gazprom; the Russian state-owned energy giant provides some 80% of all Hungary’s annual natural gas needs. He has repeatedly stressed that the state becoming a more active player on the market is a necessity since providers are claiming unwarrantedly high profits from their Hungarian operations compared to other countries. Varró rejected that notion, saying that Hungarian energy price levels are by no means outstanding in international comparison. He conceded that there is a difference in the degree of difficulty families from various countries face when paying their bills, but this stems from the low salaries and high unemployment in Hungary rather than the private sector’s money-grubbing practices. “Gazprom or Siemens doesn’t take into consideration how much a nurse or a teacher makes in Hungary, so there’s not much you can do about this gap,” he said. ■


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Investment is a key to growth While the Hungarian government is trying hard to keep the deficit-to-GDP ratio under the 3% cap the European Union demands of its members, investment level fell to practically zero due to the lack of capital. BBJ KRISZTIÁN KUMMER

According to official data, there were very few foreign direct investments in Hungary in 2011 or 2012. “The investment rate is so low that it doesn’t even cover depreciation; in other words, the country is growing obsolete,” Róbert Huszár, head of corporate business at K&H Bank said at its annual two-day year-summarizing event in December. However, the decrease in the level of investments started in 2007, well before the financial crisis. “The credit to deposit ratio – strongly

related to investment envy – was over 170% when the consolidation started, and had declined to under 120% by the end of 2012,” Mihály Varga, minister responsible for negotiations with the IMF and the European Union said at a separate business breakfast organized by the Joint Venture Association at the Corinthia Hotel Budapest. Due to high levels of indebtedness amongst households and municipalities, credit downsizing started years ago (which affects not only Hungary, but also many other developed countries). But that suggests that economic agents do not have funds to invest, save and consume, implying serious side effects including limited economic growth and job creation. According to market precedents and forecasts, “when this ratio falls to 80%, a massive investment process would start, however, it could take three more years to reach that level,” K&H treasurer Mihály Országh told the annual K&H year-end review. But, as many market players have already emphasized, the biggest problem in Hungary is still unpredictable economy policy. That under-

mines the country’s reliability, resulting in low levels of foreign investments. “A predictable economy policy is more important than a low taxation level to lure in investors. Having a taxation system that doesn’t change for a few years is more important for enterprises than the level of taxation itself,” Erste Bank’s macroeconomist specialist Zoltán Árokszállási said. To speed up the economy, the next logical step would be a reduction of taxes for the biggest corporations and banks. But while energy prices are being forcibly lowered 10% as a result of a political decision, rather than a market one, the Robin Hood tax aimed at energy suppliers, first introduced by the Ferenc Gyurcsány government in 2008 at 8%, was raised to 31% from this year. Add in corporate tax, and the total tax burden on energy companies is 50% of the profit. (It should be noted, however, that through investment activities the Robin Hood tax rate could be halved.) The financial sector’s burden is the highest in the region. According to the latest austerity mea-

sures, also known as the “Matolcsy package” – named after the economic minister known for his ‘unorthodox’ methods – the bank tax will remain in place. (According to the original plans, it was to have been halved from 2013 and ruled out in 2014. Now there are no plans to rule it out in the near future.) That means a lot of loss for banks: OTP, the country’s largest financial institution, is preparing to pay HUF 34 billion gross more in taxes. Without the capital necessary for investments, Hungary’s investment-to-GDP ratio fell from a regional average of 20% in 2011 to below 17% in 2012. “Increasing employment among the active population is a good goal, however, it is not necessarily the first step. If there are no investments to create new jobs, the employment rate won’t grow. The public employment program cannot create as many workplaces as are needed,” Árokszállási said. “In addition, to create jobs for the unskilled and unqualified on a competitive market is very hard to achieve. Investment is the key to future growth,” he added. ■

All mortgage contracts may be invalid Thousands of foreign currency household mortgage contracts may turn out to be invalid following a Budapest Court decision on December 7, 2012 cancelling an OTP Bank contract. BBJ KRISZTIÁN KUMMER

The Budapest Metropolitan Court’s decision pointed out that the bank had taken into account exchange rate spread costs when calculating the APR, but that the value was not reflected in the contract. Therefore, not all the costs are shown. The exchange rate spread is the difference between the bid and ask prices for foreign currency. Foreign currency denominated mortgage contracts are lent on bid price, but holders pay back on the asking price. In a terse statement issued after the ruling, OTP said the bank does not agree with the judgment and is looking into further legal options. “In recent years, we asked banks several times to explain how the APR was calculated for the contracts. No bank was willing to reveal the calculation method, all the banks were saying was that that their practice was in order and regularly checked by financial watchdog PSzÁF,” said Dénes Lázár, a founder of consumer protection organization PITEE. It released an analysis on mortgage contract irregularities in the fall of 2011. “Since the publication, we have seen approximately 50-100 foreign currency credit agreements. Car loan contracts included the exchange rate spread and mortgage loans didn’t. So probably all the mortgage loans are defective from this point of view,’ Lázár said.

The organization initiated the lawsuit in a case where missing data was found in 2011. According to the analysis of PITEE, financial service providers didn’t follow the rules or take them seriously, feeling they weren’t accountable for violations of the law. “Courts are slow and ineffective and a lot of people think that to seek help in the courts is hopeless,” Lázár added. “PSzÁF and the Financial Mediation Board has tacitly approved these violations for many years. First of all, basic information should have been given, based on which the client could summarize in five sentences the risks taken. However, banks were only interested in complying formally with the rules. The lending

practices were irregular overall,” he continued. “Personally, I am convinced that many more irregularities could be found in the credit agreements than just this one the Court just criticized,” said Lázár, pointing out the tons of credit agreements given to people who are unable to repay their bank loans. These banks hadn’t complied with the regulation on checking the credit worthiness of the clients. In PITEE’s opinion, the situation is mostly the responsibility of PSzÁF, because banks – like any profit-oriented enterprise – are always trying to push the limits of a country’s legal framework. “Each entrepreneur tries to circumvent rules and if the state is stupid enough to allow com-

panies to play with the legal system, then it will results in practices like the banks used in Hungary: giving credit to people who shouldn’t be given it, and under conditions that are not in line with the rules. If PSzÁF had adequate capacity and determination to control the situation, it could have prevented it,” Lázár added. Also in December, the Kúria, Hungary’s Supreme Court, published guidance on how the courts should handle various nullifying claims. This states that a court cannot make a ruling on the whole credit contract, only points within it that may be unfair. The Hungarian Banking Association has not yet finalized its position on the guidance, but has promised a statement later. ■


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Headed for recovery? Ireland is taking a “glass half full, not half empty” approach to its presidency, which begins on the 40th anniversary of the country’s accession to the European Union.

ment, the new president of the council has a busy year ahead. It is a “lucky break” for Ireland that its issues mirror those of the EU, so it can push them forward all the more willingly. (As a rule, the country holding the presidency is expected to put its own interests on the back burner, and focus rather on common benefits.)

BBJ ZSÓFIA VÉGH

LESSONS LEARNT Comparing Ireland’s national and presidential agendas, there truly are many similarities. When Ireland’s banks stood on the verge of collapse, the government used taxpayers’ money to cover losses over bank capital. This led to a surge of gross public debt from €46.3 billion to €60 bln, or from 30% to 40% of GDP between 2010 and 2011. However, lending from the European Central Bank at very low interest rates supported Irish banks greatly. The interconnectedness of the country’s banks with cross-border institutions and their exposure to Irish banks’ losses was one of the factors why Ireland could not allow its banks to fail, and it also helped make the case for a unified banking system throughout Europe. Pushing through the SSM (single supervisory mechanism) legislation now awaits the Irish. Another tool the Irish government tried to deal with the crisis was internal devaluation (cutting wages and prices). However, the overall effect (and the impact of debt socialization) was that it led to a 13%-drop in employment. In the eurozone, the jobless rate hit a record high of 11.7% in October – with Spain and Greece leading the way with more than 25%. Just as in Spain, Latvia and other member states, many of Ireland’s jobless come from a construction sector that has contracted radically since the property bubble burst. So if anyone has an insight into unemployment and idle work sites, it is the Irish. Unemployment is also a setback to boosting growth, the most important task ahead of Ireland and Europe.

Would you hand over the steering wheel to someone who has already driven his or her car over a cliff? Probably not. Yet this is exactly what happened on January 1 when Ireland took over the presidency of the Council of the European Union for the next half year. That Ireland would be the country fifth hardest hit by the crisis in the world (in terms of GDP between 2007 and 2010, according to data by Bruegel, a Brussels-based think tank) was probably not foreseen in 2007 when the current rotation for countries holding the presidency was set. (Greece was put in the same trio.) Indeed, some rough times are behind Ireland, but that is precisely why the country is well placed to take on the work of the presidency, says Irish Minister for Foreign Affairs & Trade, Tánaiste Eamon Gilmore. With six summits and heavyweight topics like the implementation of the banking union and getting a grip on soaring youth unemploy-

WHAT’S AHEAD OF IRELAND’S EU PRESIDENCY IN THE FIRST HALF OF 2013? NEW DEALS As 90% of global growth in 2020 is expected to take place outside the EU, the need to complete fresh trade deals is high, Ireland’s Minister for Foreign Affairs & Trade Eamon Gilmore has said. He added that the sealing all free trade deals currently on its table could enhance the EU’s GDP by 2%. One especially appealing potential deal is the EU-U.S. trade agreement, which the Irish government will try to broker using its strong traditional ties with the United States. The U.S.EU trade partnership already exceeds $500 billion annually; the removal of trade barriers could increase annual trade volume by up to $120 bln, according to estimates by the U.S. Chamber of Commerce. THE DIGITAL AGENDA FOR EUROPE The digital economy has been growing seven times faster than the rest of the economy. This is why Neelie Kroes, EU Commissioner for the Digital Agenda, has decided to reshuffle earlier priorities. In late December, Kroes announced she was putting the finalizing of a new and stable broadband regulatory environment on the top of her to-do list. She also moved up the list the rollout of digital services such as eIDs and eSignatures, business mobility, eJustice, electronic health records and cultural platforms such as Europeana. The commission calculates that the introduc-

tion of eProcurement alone could save €100 billion per year, and that eGovernment could reduce administrative costs by 15-20%. If the current program is carried through, the EU’s GDP could benefit from a 5% rise in the next eight years. SSM (A.K.A. BANKING SUPERVISION) Beyond the added benefits of forcing countries not to deviate from a healthy fiscal course, the main aim of a single monetary mechanism (SSM) is to enable the EU to recapitalize troubled banks directly through the European Central Bank (ECB). The SSM will be made up of the ECB and national authorities and will oversee the whole system. If implemented, something that will also be very much down to the brokering skills of the Irish, the ECB will supervise eurozone banks directly (in cooperation with national supervisory authorities). EU leaders gave the green light to the setting up of the SSM in December, but the details of putting the system into practice are still to be decided. UNEMPLOYMENT – FOCUS ON THE YOUNG “With 26 million unemployed across the Union, there can be no greater priority,” said Irish Taoiseach (Prime Minister) Enda Kenny. Little wonder, as eurozone governments spend less than 0.5% of their budget on pro-

grams to help young people find a job, according to an International Labor Organization report issued in last July. During its presidency, Ireland wishes to curb surging youth unemployment by adopting practices from the Nordic countries. Youth guarantee programs in Finland or Sweden include mandatory offers of work, academic or vocational education for the young, job search coaching or start-up grants – and work at an 80% or higher success rate. Aside from pushing the Youth Employment and Youth Guarantee proposals, Ireland also plans to promote proposals for free movement across the EU and to protect workers’ rights. MULTIANNUAL EU BUDGET The extraordinary EU Council meeting chaired by the Cypriot presidency last November didn’t meet its aim; heads of state were not able to reach an agreement on the next seven years’ budget. Now it is Ireland’s job to complete the talks – a thankless task from which it will gain many plaudits if it can handle them speedily and fairly, according to the Irish Times. Conflicts about what to do about agricultural funds, over which France and Germany are split, or the utilization of cohesion funds, predict long discussions. The Europeans Parliament has also objected to several parts of the negotiation.

A RECOVERY COUNTRY WITH A RECOVERY AGENDA It may offer some hope that Ireland is already on the road of recovery and aims to be the first country to emerge from an EU/IMF bailout program. The market is cautiously optimistic; Ireland will see above 1% growth in 2013, which may be modest but is still higher than that of Germany or the eurozone (0%). The ten-year government bond spread is below 4.5% (Germany: 1.5%). Once growth is restored to an annual 2-3% rate, as predicted for 2014%, Ireland will have a better chance of fighting unemployment, which now stands at 15%. All the above figures are a cause for optimism, yet it is too early to say if Ireland can leave the bailout program this year, says Zsolt Darvas, a research fellow at Bruegel. Many Irish claim that holding the presidency (and incurring roughly €60 bln in associated costs) is an unnecessary distraction from national problems. The question is whether rectifying problems at an international level can be an asset when discussing country adjustment deals with the European Commission. They are likely not. “The current program is evaluated based on how well the country meets the conditions set earlier,” Darvas says. “I don’t think that a good presidency could change that. Surely, the country can build an image with its performance, but markets watch if the economy is stable enough. If it is, not even a bad presidency could shake their confidence.” ■


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InSight

A farewell to late payment?

 14-15

Hungarian politics in 2012

 18-19

2013: A look ahead Predictability probably tops every decision maker’s wish list these days, yet the economic and business environment in Hungary (and elsewhere in the world, for that matter), is less predictable than ever. The Budapest Business Journal attempts to give a helping hand by featuring snapshot forecasts of seven of the most important sectors of the Hungarian economy.

100=same period of 2011, Source: Central Statistics Office

100=same period of 2011, Source: Central Statistics Office

Construction industry output in 2012

Retail turnover in 2012

RETAIL

REAL ESTATE

The economic recession of 2012 weighed heavily on households and, consequently, the retail industry with all signs pointing to the situation getting worse in 2013 before it could get any better. The latest figures from the Central Statistics Office (KSH) show that the sector’s turnover slumped 3.7% in annual terms in October along with an aggregated 1.8% year-onyear drop from the first 10 months of 2012. Households are facing increasing difficulties in shopping, especially when it comes to staple products like food, with some product groups drifting into unaffordable regions for a growing number of people. While the government previously voiced high hopes that the overall stabilization of the economy would lead to the reappearance of household spending as they go ahead with previously postponed purchases, any such expectations may well be swept away by the costs of basic goods. A poor 2012 harvest and rising import costs could boost the price of potatoes by around 150% compared to early 2011, and dairy goods are also set to increase by up to 20%, producers said. Changes to the regulatory environment, such as the monopolization of selling tobacco products or the mandatory installation of modern cash registers so the tax authorities can fully monitor commerce are all aspects that are set to have adverse effects on the industry, not to mention the 5.2% consumer price inflation registered in November. The overall situation has already prompted large players like Cora and DIY chain Bricostore to give up on Hungary. GR

Participants of Hungary’s real estate market are tentatively optimistic but don’t realistically see a major upswing for the industry this year following the standstill of 2012. The records of the Budapest Research Forum show there were no new completions in either the office or industrial segments in the first three quarters of 2012 and only one newcomer late December. Vacancy in both segments continues to hover around 20%, largely unchanged since early 2010. The residential sector is likewise in hibernation, with the overall market edging lower if going anywhere at all. Housing broker Otthon Centrum expects that 2012 will have seen around 90,000 residential transactions, the same as in 2011, with newly built properties accounting for a mere 5% of the overall turnover. OC is hopeful that changes in duties and other forms of central incentives will lead to a small boost this year. Given the lack of new developments, the construction industry is in free fall, though plunging somewhat slower than in 2011. The latest figures from the KSH show that in the period between January and October, the construction sector’s output dropped 4.2% in annual terms, with some individual months in 2012 seeing slumps of around 15% compared to the corresponding month of 2011. The stasis of the property industry is, ironically, also the main basis for any optimism: this is a low that is holding, meaning (theoretically) it can only get better from here. Still, the real estate business is highly susceptible to changes in overall market confidence. The prolonged crisis of the euro zone, compounded by the often-haphazard policymaking practices of the government, isn’t conducive to large improvements. GR


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BBJ

BANKING SECTOR

Source: KEKKH

Source: PSzÁF Golden Book

Profits of the Hungarian banking sector (HUF billion)

2009

2010

2011

211,3

-17.3

-282.4

Hungary’s banking sector faces another challenging year in 2013 due to increasing economic risks and deteriorating portfolios. Both Fitch Ratings and Standard and Poor’s expect the Hungarian banking sector to post its third consecutive annual loss in 2012 and remain in the red this year. Hungarian banks reported combined after tax losses of HUF 282.4 billion in 2011 compared to HUF 17.3 billion losses in the previous year, according to the so-called “Golden Book” published by financial authority PSzÁF in September 2012. In 2009, the banking sector was still profitable with after tax profits of HUF 211.3 billion. Equilor analyst Ákos Kuti does not expect the government to add further burdens on the banking sector, which is already struggling with the effects of the early repayment scheme for FX mortgage loans and the no longer extraordinary banking tax, as well as the introduction of the financial transaction tax as of January 2013. He believes that a lot will depend on any new measures to be implemented by the new head of the National Bank of Hungary, due to be appointed in March. Kuti does not foresee any exits, at least by Hungary’s biggest banks, this year, but does not expect new entries, either. Corporate and retail lending is expected to further decline in 2013. The deterioration of the lending portfolios is likely to continue in 2013, although at a slower pace. One of the most important tasks in the new year will be restoring confidence between the banking sector and the government, as well as between Hungarian banks and clients, because these are prerequisites for normal business in the sector, acting chairman of the Hungarian Banking Association Dániel Gyuris told state news agency MTI. GL

New car sales in Hungary by brands

2010

2011

2012

OPEL

4707

5327

7160

SKODA

4339

4593

5340

FORD

5157

4953

5106

VOLKSWAGEN

4298

4871

4546

RENAULT

3547

3704

3431

SUZUKI

2262

1598

3300

FIAT

1674

1283

2512

CAR INDUSTRY The worst years of the crisis might well be over for the auto industry, but there is still a long way to go until full recovery, the latest sales and production figures would suggest. But while market growth may be slow, car manufacturing has been an esteemed and privileged area of the Hungarian industry, and these tendencies are likely to continue over the course of the upcoming years. As professionals often highlight, in an environment where major market players are forced to contribute to the state’s efforts aimed at mitigating the impact of the crisis (with an extra tax levied on the bank and telco sectors, as well as mandatory price cuts in the energy industry), the auto sector has remained completely isolated from all such burdens. The completion of Daimler AG’s Kecskemét factory in March 2012 was an important milestone not only for the car industry but for the entire Hungarian economy as well. Unsurprisingly, Daimler AG was among the first companies to be offered a “strategic partnership” by the government. The agreement, signed in November 2012, is expected to be a foundation of a “broader industrial cooperation”, according to the government, but no specific details were revealed. Daimler AG was also named “workplace-creator of the year” by renowned business weekly Figyelő in its yearly TOP 200 list. Another strategic partnership agreement was signed with Suzuki’s Hungarian branch, Magyar Suzuki Zrt, acknowledging the importance of the Esztergom factory, and according to government-friendly sources, negotiations are also well underway between the government and Győr-based Audi. The company had an eventful 2012: on top of finishing a record year with 1.9 million manufactured engines and recruiting 1,500 additional people on top of its then headcount of 7,500, it agreed with the municipality of Győr to take on a strategic role in the renewal of the city’s airport. The company was also busy constructing its new factory unit, an investment of some €900 million. Due to be completed in 2013, the unit will start production of hatchback A3 models later this year. ZsB Continues on next page >


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Insurance market revenues

source: KSH

Source: MABISz

Energy balance (petajoule)

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Budapest Business Journal | Jan 11 – Jan 24

ENERGY

INSURANCE

In 2013, the country’s energy outlook will be characterized by stagnation and declines, reflecting the shape of the economy. The crisis tax, the windfall tax, and strict price regulation all hinder activity in the sector; there are no new investments and developments except beyond the existing ones, says a survey by GKI Energiakutató Kft (GKI) conducted in 2012. Though there have been several policy changes in legislation, no sign of steps towards the goals outlined can be observed. In 2012, energy demand in all sectors stagnated: a trend not expected to alter this year. In the energy portfolio/mix, the share of hydrocarbons will continue to decrease. As for the origin of resources, domestically produced energy will keep on decreasing while imports will rise. The downward trend in electricity consumption that started in 2012 may stop this year, leading to an average 0-0.5% growth (or rather stagnation) for the two years, said Miklós Hegedűs, analyst of GKI. The volume and share of imported electricity (20% in 2012), which increased considerably last year as a result of more favorable prices available in some neighboring countries, will likely stop. Natural gas consumption is expected to stagnate or slightly decline in 2012-2013. With no savings possible, household consumption will probably not change; the demand for gas for electricity will decrease, though demand in other sectors (industry, chemicals) will rise. On the oil and oil products market GKI has only indirect information. Demand for fuels will continue to decrease further in 2013. In 2012, a stronger decline took place: around 5% in petrol consumption and 3% for gasoil. Renewable energy based electricity generation in 2012-13 is expected to decline further. Investors are thought to be waiting for the new feed-in tariffs (METÁR). ZsV

Lean years didn’t come to an end for the insurance industry in 2012: both the life and non-life insurance sectors had to face decreasing sales, according to the latest figures from insurers’ association MABISz from Q3 2012. The early repayment scheme for mortgage loans caused heavy losses for the sector, as a lot of people had cashed in their life insurance to pay back their mortgages under very favorable conditions. And this year is not expected to be any better, with the introduction of an insurance tax in from the January 1. The increased expenses related to the new burden will be passed over to customers; however, insurers might not be able to do so in some segments due to the fierce competition. The new tax could thus contribute to the already visible trend of consolidation on the insurers’ market and to the exit of some market players. New cars sales fell to a quarter of recent years, having a huge negative impact on Casco insurance revenues. In parallel, tough competition has driven profit margins down on the third party insurance market. As the real estate market stagnates in the country, growth on the home insurance market has lost momentum. At the end of last year, the new “Gender-directive” passed by the European Union requires the dropping of all pricing differences between insurance for men and women. That heavily affects the life and accident insurance market, as up to now women could get better insurance fees than men, based on their more advantageous statistical indicators, not least on life expectancy. KK

Source: NMHH

Number of active landlines and SIM cards in Hungary (mln)

IT/TELCO While experts on world wide IT markets are foreseeing huge clouds, myriads of mobile devices, a tablet revolution and the slow demise of personal computers, the Hungarian market started the year with a much more pragmatic problem. Getronics, the winner of the e-toll tender, the biggest IT public procurement in recent years, didn’t sign the contract with the state on the appointed date. The e-toll – proportional to traveled distance – should start on July 1 2013, the budget estimates HUF 75 billion in revenue from the road toll in Q2 2013. T-Systems, the other valid bidder, publicly doubts that Getronics can comply with the required deadlines and implement the system with the necessary technical content from its winning bid of HUF 34.89 billion. Regarding the telco sector, the tax burden of telecom operators on fixed and mobile telephone conversations grows by around 80%. However, double taxation came to an end, as sectoral players are no longer required to pay the special “crisis tax”. This had been estimated at HUF 61 billion for 2012. The tax rate of HUF 2 per call and SMS/ MMS hasn’t changed, however, but the upper limit has increased to HUF 700 from HUF 400 in the case of retail clients, and to HUF 2,500 from HUF 1,400 for corporate clients. KK


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Budapest Business Journal | Jan 11 – Jan 24

With reservation

Not so happy new year

Tuned up

Improving hotel industry data but few new projects

The majority of Hungarians do not expect wage rise this year

BMW is the best-known car brand among young people

8%

78%

YR/YR INCREASE IN HOTEL GUEST NIGHTS IN JAN-OCT

Although last year saw increases both in the number of guest nights and revenues in the Hungarian hotel industry – 8% and 13.7% year on year increase, respectively – hotel developers are still cautious. The main risk factor is profitability, says Attila Hegedűs, managing director of BDO Hotel és Ingatlan. “The gross average room prices were only 3.5% higher in the first 10 months of 2012 than a year before. Prices are at their 2007 level, and long-term sustainability of demand is jeopardized by the uncertainty of the international markets,” he explained. The near future of the hotel industry depends – in addition to the general economic processes – on several factors, a recent report released by BDO Magyarország says. One of the main questions is when will the long-awaited conference center – with a capacity of several thousand visitors – be constructed. The appearance of new airlines (Malév went bust a year ago) will also have a great effect on the hotel industry. Effective tourism marketing is also essential for future development, the BDO report states. The report notes that although new hotels have opened in the past three years, these were mostly projects kicked off before the crisis, and with a great amount of EU funding. And while 2012 saw the opening of four or five hotels in the capital, countryside developments were scarce. Forecasts are not optimistic for the new year either: BDO doesn’t expect any significant enlivening of the market, mainly because of lower demand. The lack of bank financing doesn’t help either. However, the market is not all frozen, the report says. Good location and high quality can still lead to success. Also, the capital’s popularity with foreigners and the increased domestic demand for wellness services might be the accelerator of development in the segment. BBJ

Number of guest nights (thousand)

66%

OF HUNGARIANS THINK THE ECONOMIC RECESSION WILL CONTINUE IN 2013

Hungarians are often criticized for their pessimism, but now it’s official: they are among the most pessimistic people in the world, according to a survey recently conducted by Randstad. Ranstad Workmonitor, published every quarter and featuring the participation of 32 countries worldwide, reveals that only the Greeks precede Hungarians when it comes to predictions about the future. According to the survey, 78% of Hungarian employees expect that the economy will continue to deteriorate in 2013. Some 84% of Greeks, who top the list of the most pessimistic nations, think that the recession will continue into the new year as well. Hungarians’ mood has certainly worsened in the past two years: In a similar survey at the end of 2010, more than 80% of the respondents said that their income would increase in the coming year – in the current survey, only 45% think so. Nearly all (94%) of those queried described the state of the Hungarian economy as “bad”. More than half said they didn’t expect a wage rise this year. Interestingly, men are slightly more optimistic than women: 48% of the latter group expects a wage rise, while only 42% of women said the same. “This is probably in connection of what employees think about the economic situation of their employers,” Randstad Hungary managing director Sándor Baja said of the results. “The majority, 60%, of the respondents said that they didn’t expect any improvement in the economic situation of their employer in 2013, therefore they didn’t see a chance for a wage rise.” Economic growth was predicted by only 13% of Hungarians compared to 22% of Slovaks, and 28% of Poles. Nearly half, 48%, of Germans forecast economic growth in 2013. BBJ

BMW, Audi and Opel – these are the top three brands that come into young people’s mind when asked about the best-known types. The most popular cars are Opel and Suzuki, but when it comes to top quality brands, the participants of a representative study conducted by Ipsos named BMW, Audi and Mercedes. The poll focused on young people’s brand knowledge and targeted people between the ages of 15 and 25. One quarter of the respondents named Opel as a brand they are the most comfortable with, and Peugeot is thought to be the brand fits best with young people. Less than half of those queried said their parents owned a car – the majority drive Opel, Suzuki and Ford models. Only 5% said they had their own cars, and 77% don’t even have a driver’s license. More than half of those sporting a license received it at the age of 17-18, and 20% of them started to learn driving after they turned 20. Two-thirds of the youngsters who own a car bought it from their own resources and only one-third received financial support from their parents. Car loans are rather rare among young people, the study shows: 80% of young owners paid for their cars by cash. This generation will hardly have a great influence on the new car market, as the vast majority of the vehicles bought are used cars and only 7% buy a new one. Those with a driver’s license use their cars mostly for family visits, shopping, going to work or school. One-quarter of license owners drive every day, one-third of them only two or three times a week, and 15% said they use their cars only once in every three months. Half of those without a driver’s license do not plan to buy a car at all. However, onetenth of them said they might invest in a vehicle in the coming one or two years. BBJ

The most known car brands among young people

Economic expectations “I expect the economic situation in Hungary to improve in 2013”

Source: Central Statistics Office

Source: Randstad Workmonitor

OF YOUNG CAR OWNERS BOUGHT THEIR CARS FROM OWN RESOURCES

Source: Ipsos


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Budapest Business Journal | Jan 11 – Jan 24

A farewell to late The practice of crediting is the most important indicator of the state of the economy. And while bank credits are usually seen as acknowledging this importance, credit granted by suppliers and clients in the form of long payment deadlines is a frequently overlooked subject. To offset this imbalance, a new bi-weekly section of the Budapest Business Journal will focus on credit management, publishing sector analyses and other articles that will cover the area of company credit from various angles. The goal of tackling issues related to late payments is important, but results will only follow if the new regulation is backed with appropriate law enforcement techniques, states a recent analysis commissioned by the Hungarian Credit Management Association. Late payments are responsible for serious damage, both in the private and state sectors,

There are multiple reasons behind late payments, including changes in the macro-economic environment, the accessibility and pricing of financial resources, the credit management practice of suppliers, and most importantly, the structure of the market. Competition and the relative weight of the parties in a specific deal and

supplier and a major customer (such as in the case of retail chains), it is unlikely that competing suppliers will be able to charge these extra fees; they are more likely to show “f lexibility” in order to save their businesses. On the other hand, in the case of a big supplier with many smaller clients (such as a telco), these companies will automatically include these charges in their service fees, and a f lat €40 fee, that can be charged one day after the payment deadline, will definitely be painful for many in the SME sector, industry experts say. According to the new regulation, the certificate of completion must be signed within a 30-day deadline, but professionals doubt that this rule will radically change current practice (particularly

SUBJECT

CURRENT REGULATION

NEW DIRECTIVE

PAYMENT DEADLINE

The general payment deadline is 30 days, which can be overwritten with the agreement of both parties.

In b2b relationships, the general deadline is 30 days, which can be increased to a maximum of 60 days with the agreement of both parties. In business to state relationships, the deadline must remain at 30 days, except for certain, listed cases.

DEFAULT INTEREST

The creditor is entitled to charge default interest after late payments at a rate of the base interest plus 7%. This can be overwritten in a contract by mutually agreed terms.

The rate of default interest is the base interest rate plus 8%. If the creditor is a state-run company, default interest is mandatory.

COSTS OF DEBT COLLECTION

The creditor is entitled to charge for its debt collection costs.

The creditor is entitled to charge the default interest plus a flat EUR 40 fee for debt collection without further warning. On top of this flat fee, the creditor is entitled to charge for extra costs (legal expenses etc.)

THE DEFINITION OF “HIGHLY DISADVANTAGEOUS” CONTRACTS

no definition

Anything that is different from usual or bona fide business practices qualifies as “highly disadvantageous”. This is particularly true of any conditions excluding default interests or the creditor’s rights to charge for the costs of debt collection.

OTHER REGULATIONS

and the EU has recently introduced a new directive to ease the situation. This directive is due to be implemented by local legal regulations by March of this year. While the targets are clear and beneficial, professionals are dubious concerning the actual results of the new regulations, one study concludes. The new directive is a clear sign that the problem of late payments is acknowledged in the highest circles of decision makers, a study by the Hungarian Credit Management Association says. The directive was a result of lasting debates and negotiations, and given critically different traditions among various EU member states (from the easy-going southern nations to the rigorous punctuality of the northern, Scandinavian states) a compromise was not, by any means, easy to find. But the new legal tools in the hands of creditors is likely to remain insufficient without an improvement in the ability to enforce their rights, industry experts agree.

In the case of state run – private business deals, the delivery date of the invoice cannot be a subject of negotiation.

their ability to enforce their interests are of primary importance, when it comes to late payments and the reactions they trigger. In a highly competitive environment, suppliers are more likely to tolerate long payment terms and late payments, fearing that their business relationship is at risk with the customer. Most companies, therefore, hesitate before warning their clients about payment deadlines, written warnings are sent late, if at all, and any further steps to collect disbursements are rare. More often than not, these companies will not charge any default interest after late payments. REALITY CHECK Under the current circumstances, the directive’s regulation concerning default interest and the costs of debt recovery (a f lat €40 fee in the case of late payments) is expected to further polarize the situation. In a relationship between a small

widespread in the construction industry) of customers “blackmailing” suppliers by withholding this document, forcing them into further investments despite previous, unpaid work. Another chapter of the directive uses the term “highly disadvantageous” to exclude situations where extreme payment terms might be agreed, but the phrase lacks accuracy, meaning that in certain cases it will not be applied to situations where suppliers are forced to nod on long payment terms due to the balance of business power. In the case of procurements, and generally speaking in the relationships between state run and privately owned companies, the directive allows no exceptions from the 30-day deadline rules, so it is fair to assume that this regulation will be part of future contracts, although there are various reasons not to expect drastic changes in late payments by state-run companies. Due to the EU’s exces-

sive deficit procedure against Hungary, the state’s primary goal is to meet its deficit targets by any and all means, which will allow no room for easing off in its current practice of payments. Similarly, the default interest and the flat fee of debt collection will likely be put in every contract, but actually charging these amounts is not expected to become a broadly employed procedure. Financial experts expect little to no change from the current directive, although they acknowledge the efforts the EU has made in order to tackle the important, but frequently overlooked challenges concerning late payments and long payment deadlines. Instead of direct and immediate changes, however, they also expect that a continuous improvement in the area may result more from companies looking at their payment practices as a question of their good business reputation or image. ZsB


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payment?

TO THE EU’S › DUE EXCESSIVE DEFICIT PROCEDURE AGAINST HUNGARY, THE STATE’S PRIMARY GOAL IS TO MEET ITS DEFICIT TARGETS BY ANY AND ALL MEANS, WHICH WILL ALLOW NO ROOM FOR EASING OFF ITS CURRENT PRACTICE OF PAYMENTS.


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Discovering new paths for R&D The direction might be clear for the R&D sector, but it is also obvious that there is a long way to go until the Hungary’s level of R&D investment reaches, and possibly overtakes, the EU-average – a goal originally set for completion by 2013. The government published its National R&D and Innovation Strategy in late November, and while professional debate of the ambitious document is underway, the harsh reality is that Hungary currently ranks 23rd among EU-states in terms of R&D spending.

TRANSPARENT FINANCING The three pillars of the Hungarian R&Dfinancing scheme (or rather, the three separate ways an R&D project can be subsidized), is a good example of a barely transparent system that is difficult to maintain, and that is far from optimal from an efficiency point of view. Although two of the three pillars have now been merged in terms of operation, there is still a long way to go in order to reach a manageable state of financing. w“Harmony needs to be reached in the EU-level financing as well as on national levels,” confirms Bindics. “The introduction and debate of the National Innovation Strategy launched by the government last autumn is a step in a good direction and works towards a more transparent scheme, but it is clear that there is still a lot to do in this area,” she admits. The strategic document aside, the Hungarian government has seized other opportunities as well to indicate that R&D is high up its list of priorities. While the signing of some 10 so-called strategic partnership agreements with major multinational companies since last August has consisted of few specific details, it is fair to say that, wherever there were concrete points in these documents, R&D was likely to be one of them.

BBJ ZSOLT BALLA

Hungary’s spending on R&D investments, 1.2% of GDP, is extremely low, even compared to the EU average of 1.9%, but the Union itself is facing serious issues in the area of innovation, a recent study by Ernst & Young revealed. According to the report, many companies in the European Union are not familiar with EU efforts to enhance innovation, and the vast majority of market players think that both the R&D regulations and accessibility to available funding needs to be re-thought in order to become real competitors of the world’s leading innovators, most importantly, Japan, South Korea and the United States. “While the study refers to the entire EU, most of its statements apply to Hungary just as well as to other member states,” says Judit Bindics, director of public sector services at Ernst & Young Hungary. “In fact, most of our highlighted examples are true to Hungary, and in some cases, the issues are more tangible even compared to the EU average,” she adds. According to the first, robust finding of Ernst & Young’s report, the ratio of privately founded R&D activities is extremely low in the EU, compared to that of Japan or the United States. Between 2005 and 2009, sources of R&D funding in the EU27 shifted toward a greater preponderance of public funding with a reduction, in percentage terms, of private R&D. This contrasts with the U.S., South Korea and Japan where private R&D spending has been on the increase in recent years. The only European countries where private R&D spending is above 2% of GDP are those leading in innovation performance — Sweden, Finland and Denmark. In addition, the fragmentation of innovation levels, already systemic before the economic crisis, seems to have widened in the past months, the study found. PRIVATE R&D While private R&D must take on a critical role in order to be able to compete on a global scene, the governments (both national governments and the EU itself as a higher regulator) will also have to meet certain, important requirements to help and encourage this to happen. According to industry

WHILE THE SIGNING OF SOME 10 STRATEGIC AGREEMENTS WITH MAJOR MULTINATIONAL COMPANIES SINCE LAST AUGUST HAS CONSISTED OF FEW SPECIFIC DETAILS, IT IS FAIR TO SAY THAT, WHEREVER THERE WERE CONCRETE POINTS IN THESE DOCUMENTS, R&D WAS LIKELY TO BE ONE OF THEM

professionals, governments should act as leaders and investors by creating the main building blocks of an innovative environment including world-class infrastructure, a highperforming education system and researchand innovation-friendly legal regulations. “An innovation-friendly legal environment is of foremost importance,” confirms Bindics. According to her, national regulations and EU laws need to be harmonized in order to create a less fragmented and more transparent structure both for innovators and for investors. “Education is also of primary importance,” she adds. “Not only does it have to be top class in terms of quality, but the management of the education system also needs to be professional, reflecting up to date structures and management schemes.” It is worth highlighting at this point that the proposed changes to the Hungarian education system (including the centralization of elementary and secondary schools under a government-run umbrella organization, the Klebelsberg Institution Maintenance Center, and a proposal to introduce a mandatory Latin education in high schools) are harshly criticized by some for being anachronistic and out of touch.

Creating and managing a cutting edge digital infrastructure is also a critical area, although Hungary, in this field, is doing far better than some other EU-member states, particularly in the south, like Spain or Portugal. On top of broadband Internet connectivity there is a need to create cloud-based solutions to make information accessible to innovators, and make the exchange of information and data as easy as possible. Another important issue to address is fragmented innovation policy. Spread across countless programs, actions and strategies, innovation has, for years, been pursued via intricate decision chains, objectives and proposals. This has resulted in an enormous chunk of public money being deployed by an unprecedented number of decision-makers, agencies and ad hoc institutions within the EU. The desire to become more innovative and competitive has led to the creation of new programs that often overlap pre-existing ones, the study states, suggesting that harmonizing these programs would lead to a much more streamlined and efficient way of decision-making and financing. It would also result in more focus on the effective part of R&D activities.

Richter, for one had its eyes on exactly this prize when negotiating the details of its agreement. “What were of highest priority for Richter were the details on research and development funds,” the company’s PR chief, Zsuzsanna Beke, told the Budapest Business Journal in an interview last year. According to the treaty, Richter Gedeon will be able to subtract the cost of R&D investments from regular corporate tax. In return, the company undertook to invest at least 8% of its revenues in Hungary-based R&D projects, to employ at least 800 full time equivalents in its R&D department, and to involve as many Hungarian universities and research centers in these projects as possible. But other strategic partnership agreements, like that with Suzuki or the one with Hankook Tire, also treated R&D as a matter of primary importance. “We are approaching a new programming cycle with the European Union, so investigating into the issues and obstacles of the R&D area are very timely and important,” Bindics concludes. “What appears clear now is that all parties are open and supportive towards initiatives to boost innovation, including those drawn up by Ernst & Young. This attitude is great, but knowing the pace of EU procedures, specific steps to improve the current situation will still take years to be made.” ■


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Acting as a family doctor Cornelia Coman was appointed CEO of ING Insurance and Pensions Hungary in June 2012. In this very little time frame, she not only had to become familiar with Hungarian issues, but also create a mid-term plan that approaches consumers from a different angle to previously. Q: You have been in charge of ING’s Hungarian branch for seven months now. How many urgent tasks have you had to deal with to date? A: It is interesting because I have worked for the same company for last 14 years, but you start to see things differently when you’re in charge. Even if the situation is very harsh, not just in Hungary, but in the region and all of Europe, the problems were very familiar to me. My first and most important task was to create a mid-term strategy for the company during the summer. To achieve this, I had to learn very quickly our company’s position here in Hungary: where we are, where we are heading, what are our strengths and weaknesses etc. Q: Many companies and decision-makers complain that the Hungarian business environment is not predictable enough. Do you feel this jeopardizes the accuracy of the data your strategy is based on? A: It is not a specifically Hungarian problem; it’s quite the same in the whole of Europe. If we look at the whole picture from an external point of view, the European Union crisis has a much bigger impact on countries than local problems. Of course, every country has its own local crisis, but – as is the case in Hungary – there is nothing new, as we have had to work in similar environment for the last 2-3 years. Yes, it’s hard to make

a five-year strategy in these conditions, but I think every company has to improve and learn flexibility to adapt to its business environment. Actually, this mid-term strategy fits more into the current environment than short-term goals. If you look to the short-term, say 2-3 years, you have to change more quickly. But if you have a longer-term view, maybe not focusing on short-term profit, but on long-term goals, it is easier to make plans. For example, if you look at the life insurance market, growth was very limited in 2012 and we don’t expect anything significant this year. But instead of focusing on pushing forward insurance products, we started to think about what we should do or change in the way we treat customers, so that we can grow and create value in the long-term. Q: What are the novelties of your mid-term strategy compared to previous practice or other market players? A: In the last few years, customers’ perceptions have been changing. They do not necessary want what a company says, but have their own ideas, based on information collected from the internet, family, friends, etc. So the winning strategy seems to be to fully comprehend and answer in depth all the questions and needs of the customer. In order to do so, we developed this five-year strategy. We want to be the preferred life insurance and pension company in the country and our strategy is to grow by improving the customer experience. Instead of forcing prompt sales, we would like to have a lifelong partnership with our clients, based on strong customer value propositions, professional financial advice and creating a community of clients based on shared values. We want to be there for our clients, providing answers and solutions for their evolving financial needs throughout their lives. We would like to see our consultants and agents like some kind of ‘family doctor’ in the financial field, whom cli-

CURRICULUM VITAE Cornelia Coman graduated from the Academy of Economic Studies in Bucharest in 1998. She has worked for ING ever since. Before joining ING’s Hungarian branch, she was the CEO and President of the Board of Administration of ING Life Insurance Romania. She was also president of the Romanian Pension Funds’ Association, vice president of Romanian National Association of Insurance and Reinsurance Companies, and is a founding member of the Romanian Actuary Association.

ents could call at any time an issue arises. We will improve further our product range with features and benefits that create even more flexibility and adjustability according to customers’ needs. Client preferences change with age, wealth and several other factors, and we would like to take that into account when building up a portfolio. Regarding the schedule, we have the first concept design more or less ready and throughout the coming months we will go into detail. The launch of our new services will be in June 2013 at latest. I believe that actually the two main needs in Hungary that ING can successfully fulfill are health insurance and retirement savings. Q: Let’s talk about the former first. What plans do

you have for the health insurance product line? A: ING has been on the health services’ market for about 10 years now, providing health insurance financing services for our clients, as well. In this field, legislative changes last year marked the first step. Fuelled primarily by company cafeteria systems, interest in these services is expected to rise further in 2013. We cover many services like hospitalization or paying for surgery in a private clinic. However, we see that there are many more possibilities still to cover in this particular area, so we are working on improving our service portfolio further. Q: You also mentioned retirement savings as having a significant role in the strategy of ING. But mandatory pension

funds have been made virtually redundant by the nationalization of mandatory pensions in 2010. OTP announced it was leaving the market at the end of last year. What are your plans for surviving on this market? A: The mandatory pension system is in a very strange situation. On one hand, we have very good customers who decided to stay in the system. On the other hand it is not clear what’s going to happen. In my opinion, clients should be allowed to move their assets from the mandatory to the voluntary system. In this way, clients will have enough trust to start contributing to the system and service providers will have a reason and a method to keep these clients and their assets. Now the voluntary pension market is a very inter-

esting one. More and more people feel that the state pension won’t be enough after retirement, they feel that something more is needed, but still they don’t initiate it. When you take a look at the voluntary pension market, you see that 15 years after the establishment of the system, there are only around 1.2 million clients. It’s a very small proportion of the whole working population. Moreover, there are people who are already in the system but don’t make payments, even if the minimal contribution is only comparable to a cinema ticket or a dinner. If you compare the potential of the market with the real – very limited – growth, you can see that there is plenty of room for improvement. KK


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Hungarian politics in 2012: 2012 did not bring a massive shift in the political fortunes of the key Hungarian political players, but even the slight changes revealed a dynamic that will cause the governing party, Fidesz, some headaches. But despite significant troubles, Fidesz remains in a far stronger position for 2014 than MSzP was during the same period of its most recent term. However, there are still realistic prospects for a united left in 2014. Though it has not actually brought the end of the world, 2012 has not been kind to Fidesz. The governing party has sunk to ever-new lows in the polls as its early hopes that 2012 would be a year of economic reversal were dashed. A hostile international environment, lack of reforms, persistently oppressive debt and the impact of associated austerity measures have all combined to plunge Hungary back into recession after years of low growth. Moreover, there is no sign that 2013 will be much better, leaving the government with little hope that the early months

of 2014 can provide sufficient good news to counter the sacrifices of the preceding years. Still, what appears most extraordinary about these developments is not Fidesz’ massive drop from favor since its overwhelming victory in 2010, but the impressive resilience of its core support and how the ruling party successfully exploits opposition divisions to maintain a commanding lead among likely voters. If Fidesz has hit rock bottom – which remains beyond our power to predict – it remains favored to retain power in 2014. Of course, there is a huge elephant in the room

where such calculations are made: roughly half of all voters have no preferences, and there are not many among those whose apparent lack of interest stems from an overall sense of satisfaction with the way things are going. ENTER THE LOW PARTICIPATION DEMOCRACY In a low turnout election, such as 1998 or 2010 – the two years when Fidesz won since 2010 – the hardcore Fidesz base would be likely to put the governing party over the

FIDESZ

top. If the election will rile voters like it did in 2002, for instance, when Fidesz’ polarizing politics brought out more than 70% to the polls, then that would mean that many of the currently uninterested voters will have cast a ballot, which would augur ill for Orbán’s “15-20 years” power perspective. As we have often pointed out before, for Orbán to stay in office many voters need to stay at home. Previously, Fidesz’ slogan used to be “everyone bring another person along” – to the polls, that is. The new slogan will be for everyone to leave another person at home and a whole array of instruments, starting with voter registration, the shortened campaign period, parties’ reduced access to media for campaign purposes, etc., will be there to help Fidesz realize its ambition of a low participation democracy. Combined with a glimmer of good news next year and in 2014, an opposition that fails to coalesce behind joint candidates, the institutional barriers would make Viktor Orbán a shooin for PM again.

MSZP


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Fidesz and its opposition ipate, for now the trend is towards greater cooperation. As the election approaches and Fidesz’ ousting will appear an increasingly tangible hope, the pressure to cooperate will increase dramatically.

JOBBIK

LMP

DEMOKRATIKUS KOALÍCIÓ

OTHER PARTIES

UNDECIDED/ NON-VOTER

Among all voters, source: Szonda-Ipsos

THE LEFT IS NOT BACK YET In contrast to Fidesz, the left-wing opposition is finally faring better, but it must fervently pray that it has not peaked. Impressively, in its most recent survey Szonda-Ipsos – certainly not a pollster with a pro-Fidesz bias – has MSzP and LMP at a combined 38% (32% and 6%, respectively) among likely voters, trailing Fidesz by 2%. While there were months when some pollsters saw the combined numbers of the two left-wing opposition parties ahead of Fidesz, their lead was never near enough for an outright victory. This is despite the fact that the left had its best year since, well, 2006. Though the good year primarily manifests itself in the form of bad news for the government, the left has shown some signs of resurgence, too. For one, MSzP’s polling numbers inched slowly but continuously upwards. Outside the non-establishment left, LMP is still failing to make headway, but there

are increasing signs of activism that contrast strongly with the image of dejected passivity that the left exuded after Fidesz’ crushing victory in 2010. Rallies organized by Milla have been well attended, especially by historical standards of the left, and the plethora of new movements and parties illustrates not only new ideological needs, but also a sense that there is political capital to be won and support to be gathered by engaging in left-wing politics. THE CANDIDATES Former Prime Minister Gordon Bajnai’s return into politics is also an indicator that the prospects of the left seem much improved. For almost two and a half years Bajnai ignored the increasingly feverpitched pleas for his return. His sudden public appearance in October, coupled with intense organizational activity by his Haza és Haladás Foundation, signaled that he is aware that leading the left may be an attractive (read: winning) proposition from here

on out. That, too, is something not seen in years. The MSzP and its leader, Attila Mesterházy, appear reluctant to cede the PM candidacy at a time when they have grounds to believe they may be able to capture the position themselves. As long as the opposition parties manage to agree on joint candidates in the parliamentary districts, competition between them until the election is not necessary harmful for their joint prospects. In fact, the most promising development for the left over the past year has been the improved capability of the parties on the left to talk with one another. Though the issue of alliances tears at the LMP, much of the histrionics about its decision to reject the advances of the Bajnai-Milla-Solidarity partnership fails to take into account that there is plenty of time to reverse an internal vote that was this close. That is not to say that the rivalry between the left-wing organizations could not lead to suicidal games of chicken, but merely to observe that, as one would antic-

Voters’ participation at general elections since the change of regime in Hungary (first round, %)

1990

65.11

1994

68.92

1998

56.26

2002

70.53

2006

67.83

2010

64.2

Source: Vokscentrum.hu

P

GETTING CROWDED ON THE FAR-RIGHT Unlike the left, Jobbik has thus far failed to capitalize on Fidesz’ troubles. In fact, arguably Fidesz’ more difficult position is squeezing Jobbik, as through its rhetoric (e.g. the talk about foreign domination and efforts at colonizing Hungary) and symbolic actions (the Horthy and Nyirő rehabilitations), the ruling right-wing party is fishing for support on the far right. While there are segments of the Jobbik electorate that would be easier for the left to capture than for Fidesz, Jobbik may well have to vie with Fidesz for some of the most committed radical voters. That said, Jobbik’s position is still strong. The new electoral system is likely to significantly slash its parliamentary representation, but as the French example shows a far-right party can survive and do well even under such circumstances, though the Hungarian context may make Jobbik’s fate more difficult. For the time being, the party retains significant support in the polls, it has a robust organization and impressive amounts of money, most recently manifested by the mass distribution of its new tabloid-style weekly print magazine, which supplements an already impressive media empire. For demographic reasons, the key to Jobbik’s short-term survival is obviously in eastern and northeastern Hungary, though in the long run it will have to develop strategies that appeal to all of the country. Since the northeast is also crucial for the left’s hopes of regaining power, the region will most likely see intense battles in 2014, and much unofficial campaigning until then. ■


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Speed and power for swift results (and returns) Revolutionizing training methods to meet the needs of today’s busy office workers is one thing, but re-shaping the business of the fitness industry itself, in order to make people slimmer and wallets fatter at the same time is a whole different story. Today’s popular fitness methods seem to comply with both requirements: they offer easy to use, foolproof methods for people who don’t actually want to work out while working out, and foolproof models for business owners to see solid returns on their investments. BBJ ZSOLT BALLA

“The number of our clients a month roughly equals to the population of a small Hungarian town,” says Mariann Várdai, founder and managing director of Speedfitness Kft, the exclusive reseller of miha bodytec fitness equipment in Hungary and the region. Speedfitness has become excessively popular all across the country, despite the fact that the internationally acknowledged method was completely new and unknown in Hungary back at its 2010 launch. “We have opened around 350 studios to date, and sold many machines to hotels and fitness salons,” says Várdai, adding that Speedfitness is a premium service with a relatively high price, targeted at people who tend to value time over money. “Our fitness method is able to provide a solution to numerous problems, regardless of age, strength or level of fitness,” she says, highlighting that the primary target group consists of managers and their wives, who are short on time, live in major cities and are mostly focused on their careers. “Our most important goal is to provide a premium service, which delivers visible results under safe conditions in a very short time,” the managing director explains. SPECTACULAR RESULTS Another fitness method, somewhat different in philosophy, but very similar in style and business potential is Power Plate. The vibra-

tion-based training method is currently operating in around 60 studios across the country, with approximately 100-150 guests per location. Like Speedfitness, Power Plate also offers short training cycles that deliver swift and spectacular results. “We have been present on the Hungarian market for two years, but our technology has been successful on the international scene for more than 10 years now,” says Krisztina Kovács, the owner of Power Plate Hungary. “Our unique selling point is a perfect technology that has been developed and supported with scientific research, and a business model that adds a professional background to this sophisticated technology,” she explains. Power Plate’s target group mostly consists of women between 25 and 50 years of age, but due to the scientific background of the methodology it can also be used as a medication (Pető Institute, for one, uses Power Plate machines as part of its conductive education), and even by professional sport teams. “Just like everywhere else in the world, Power Plate business is focused on individual studios, that receive full support from us,” Kovács says. Due to the size of the market, most Hungarian studios have two or three machines, and more often than not they are focus solely on Power Plate training. “We find that studios that have opened purchasing one machine almost always buy a second, while two-machine studios also usually expand, buying a third, to be able to serve their clients in busy time slots as well,” she adds. These studios obviously have changing rooms and bathrooms, although the “lunch time training” method will not necessarily result in blushed, sweaty faces, and the need to take a shower immediately after a session. PACKAGE OFFER “Our relationships with our partners is unlike those between a franchisor and a license owner, but we definitely have a very close relationships with Power Plate studios across the country,” Kovács says. “We provide them with continuous support, education, marketing and graphic materials – basically everything they may need to run a successful business,” she adds. While Speedfitness as a concept has also been around for 10 years, and is also supported with scientific research, its business model is as well founded as the method itself. Although not a

traditional franchise scheme, Speedfitness Kft is an exclusive reseller of the equipment, as well as the proprietor of the brand name. A potential partner who intends to open a Speedfitness business can expect to receive a fully-fledged package for the investment. The machines aside, he or she will get proper business consulting and education and marketing materials. Even when the business is up and running, a studio can rely on support and maintenance from the Hungarian ‘headquarters’. “At first we tried to control just about everything, like a franchise owner would, but beyond a certain size it didn’t prove to be manageable,” Várdai admits. “Now we value the freedom of enterprise, while helping our partners wherever we can or wherever they need it. Our experience is that Hungarian entrepreneurs are very intuitive, and at times they have difficulties with mathematics.” A professional attitude is necessary to run a successful business, but based on the experience of the recent years, the model is still very low-risk from a business point of view. After a boom in 2011, only a few outlets had to close down in 2012. In another few cases the license owner revoked the brand name due to quality assurance issues. But the vast majority of businesses are still doing very well. “Return on investment is a complex question, and obviously the results are affected by multiple factors, but as a rule of thumb we can say that the initial investments (a machine with accesories for business use costs roughly HUF

5 million) will come back in not more than six to nine months,” Várdai concludes.Similar returns can be expected with Power Plate. Launching a business in a 60 square meter studio with two machines would cost a business owner some HUF 7-8 million (the cost of the machines themselves is HUF 5.5 million), but there is a way to get EU-subsidies to cover in excess of 40-50% of the cost of the machines. According to Kovács, the investment normally breaks even in 6-12 months, depending on location and marketing. Although the business hasn’t become quite as popular as Speedfitness, the model seems to be almost completely foolproof. Of the 50 studios that have been operating for more than a year, only one went bankrupt due to unprofessional management practices. “ “We started as a family business, and we built the business carefully, but we have already passed that point,” Kovács says. “We are positive that Power Plate is not just another trend in the fitness industry. Since the international market is some eight years ahead of us, we clearly see where we are heading. In Western Europe, doctors and physiotherapists have already acknowledged the results we deliver, opening up a huge, new market on top of the traditional fitness industry. Hotels also offer great potential, and so do fitness studios, which will start purchasing machines as supplementary services. We plan long-term, but as far as we can see, the upcoming two or three years will definitely see a dynamic increase in our business,” she concludes. ■


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Even better than the real thing? While going to a fitness club offers obvious advantages, it has its downsides, too. For a start, gyms aren’t cheap, and it requires yet more time when you are away from home and family. Not least, it can be a little intimidating if you find yourself next to a guy who is pumped up like Daniel Craig in the latest James Bond movie. What if you’d rather exercise at your own pace? That’s where the latest gaming consoles, with movement recognition technology, come in. Although there are several gaming consoles already using this kind of technology, the basic idea behind each of them is the same: while a camera is watching you, the console is analyzing your movements in real time, and either though, because some of these games are pretty bad, and your enthusiasm can quickly lead to frustration if you have bad Kinect recognition software.

corrects you, or congratulates you if you are doing well. On the TV screen you can see yourself and your virtual trainer beside you, and thus you can adjust your movements. But how do the various consoles differ? WILL WII SLENDER U? The first gym software to use movement recognition technology appeared on the older Nintendo Wii in 2010. Your Shape was sold with a camera that mirrored you on the TV with a virtual trainer alongside your image. While the limited technology could only follow your movements in two dimensions, a bigger problem lay in the range of exercises, which weren’t specific enough and included an enormous number of jumping sessions. If you ignore the sore knee joints, there is still the problem of the angry neighbor living under your flat. If you want to stick to Nintendo, try out its latest Wii U console, with the now well “matured” Your Shape software: it is a lot more advanced, with tons of specific exercises, a touchscreen controller and easy-to-use interface. The only problem now is that you have to exercise with a small controller in hand, which can be bothersome for some people.

GET YOURSELF KINECTED In winter 2010 the Kinect for Xbox 360 was touted as a revolutionary technology, destined to conquer the hearts of all gamers; in fact, it failed utterly as a serious gaming device. The basic idea behind Kinect technology is that it can track and recognize your whole body, your movements, your voice, and even your face, but it was hardly ever used in real hardcore games. In fact, while we struggle to name any really good game for Kinect, it does have tons of excellent gym or virtual sport software. The best of them are still from the Your Shape software series: Your Shape Fitness Evolved (YSFE) and YSFE 2012. The Kinect camera tracks your movements in real 3D, you can specifically work on any area of your body that you want to strengthen, and you don’t need to keep a controller in hand. YSFE 2012 is also pretty fun, with several games, martial arts, yoga, and dance programs. In fact, if you like to have fun while still moving and strengthening your body, there are several other virtual sport programs for Kinect out there as well, with which you

can try your hand at the Olympic games, tennis, skiing, boxing or even dancing. Check out the reviews about them

MOVE YOUR BODY! Naturally, Sony also jumped on the movement recognition bandwagon with the PlayStation Move for PS3, which requires you have to use at least one, or sometimes even two – rather funny looking – controlling devices. Is this worth the effort and your money? Well, while unfortunately there isn’t any Your Shape software on PS3, there are other similar gym programs, and the virtual sport software for PS3 is especially good. With Sport Champions 2 you can immerse yourself in the best boxing, skiing or tennis simulations for consoles, and while having a big amount of fun, you will quickly lose weight without noticing, that you actually did some pretty solid exercises. GH


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WHO'S NEWS

Name Szabolcs Kordos Current company/position Red Lemon Media/ group head

Name Bence Vécsey Current company/position Colliers International/ head of investment services

Kordos joined media agency Red Lemon Media at the beginning of January 2013. Responsibilities include the development of the agency’s social media and B2B activities. After graduating from the Eötvös Loránd University, Kordos worked, among others, at Mai Nap, Színes Bulvár Lap and Magyar Hírlap. He also worked at the PR department of Budapest Airport. Before joining the agency, he was senior editor of Vasárnapi Blikk. He is the author of several best sellers.

Vécsey started his professional career at Quaestor Investment Management in 2002 and held various positions during his four years there. The last six years were spent at DTZ, based in Budapest and Warsaw. He gained crossborder commercial real estate experience during a four-year period with the company’s CEE Investment team, advising institutional investors on high value commercial investments and developments.

Do you know someone on the move? Send information to research@bbj.hu

Name Agostino Renna Current company/position GE Lighting/chairmanCEO for EMEA

Name Philippe Van der Beken Current company/position Goodman Group/ European managing director

Renna has been named as chairman-CEO responsible for the EMEA region at GE Lighting. He succeeds Phil Marshall, who will continue his career outside the company. Renna was previously vice president at GE Canada and in charge of growth and market strategies.

Van der Beken has been named managing director at Goodman Group and will be in charge of its European activities. From 2005 until 2008 he worked as head of corporate transactions and was a board member of logistics real estate fund GELF. Between 2008 and 2010, he managed his own real estate management company. Before joining Goodman, he was CEO at Brussels-based Inter Real Estate Trusty.

Name Diederik Pen Current company/position Wizz Air/ chief operating officer

Name Péter Radnai Current company/position Chello Central Europe/ production director

Pen has been appointed as the new COO of Wizz Air. Previously, he worked for Martinair, which he joined in 2006. For ten years prior to that, he worked in Australia for Virgin Blue and Brisbane Airport. He started his career at the Schiphol Group.

As of January 2 2013, Radnai holds the position of production director at Chello International Europe. Previously, he was responsible for preparing the television content production strategy for Ringier. He created the publisher’s independent web television editorial team in the past year, and was also heading the launch of Hungary’s first online tabloid video magazine, Blikk Mixer.

JAN 15

JAN 29

JAN 31

FEB 5

2013 tax law changes LOCATION Deloitte offices, 1068, Budapest, Dózsa Gy. út 84/c REGISTRATION 5:30-6 PM TIME 6-8 PM ORGANIZER British Chamber of Commerce in Hungary FEE BCCH members free; non-members HUF 5,000 + VAT CONTACT www.bcch.com

Business Forum with Gordon Bajnai, former Prime Minister LOCATION Budapest Marriott Hotel, 1051 Budapest, Apáczai Csere János u. 4. REGISTRATION 12-12:30 PM TIME 12:30-2:15 PM ORGANIZER American Chamber of Commerce in Hungary Fee AmCham members in good standing HUF 12,700/person; non-members HUF 31,750/person Price includes VAT and the cost of lunch. CONTACT www.amcham.hu

Business Lunch with guest speaker György Barcza, Senior Analyst of Századvég Economic Research Ltd. LOCATION Palace Restaurant, Novotel Budapest Centrum, 1088, Budapest, Rákóczi út 43-45. REGISTRATION 11:30 AM - noon TIME Noon-2 PM ORGANIZER British Chamber of Commerce in Hungary Fee BCCH members HUF 8,900 + VAT, HABA members HUF 10,500 + VAT; non-members HUF 12,000 + VAT CONTACT www.bcch.com

Speed business meeting LOCATION Ballroom, Sofitel Budapest Chain Bridge, 1051 Budapest, Széchenyi tér 2 REGISTRATION 5:30-6 PM TIME 6-9 PM ORGANIZER British Chamber of Commerce in Hungary Participation Fee BCCH members HUF 5,000 + VAT CONTACT www.bcch.com


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The Price of Civilization by Jeffrey Sachs Jeffrey Sachs is one of the world’s most brilliant economists and the bestselling author of The End of Poverty. With his new book, The Price of Civilization, Sachs sets out a bold yet achievable plan to show how we can – and why we must – change our economic culture in this time of crisis. Sachs’ title comes from a quote by Oliver Wendell Holmes, Jr., Associate Justice of the United States Supreme Court from 1902 to 1932. Holmes said, “I like to pay taxes. With them I buy civilization.” Therein lies the key theme of this book, and although it is primarily con-

cerned with America, many of its criticisms and conclusions are relevant throughout the developed world. Sachs argues that the United States is a nation “dangerously out of balance”. He examines numerous cases where the ruling elite of both parties, whose priority is to keep its funding base happy and appease voters in the short-term, and not to maintain or enhance the underlying ‘fabric’ of society in the longer-term, has ignored obvious, democratic choices. Extreme free market libertarianism has lead to a small group holding all the wealth and power. On the other hand, too much state control can stifle individual creativity. A middle way – or a sense of balance – must be found. With this underlying principle of balance in mind, Sachs proposes concrete actions to get America, and much of

the rest of the world, off the course to self-destruction. He cites Denmark, Norway and Sweden as examples of countries where citizens accept that higher taxes and government involvement in the day-to-day running of society is indeed the ‘price of civilization’. Sachs believes that there is backing for such an approach in the United States, and and cites statistics to support this. The Price of Civilization takes a holistic view of the economic crisis, looking at macroeconomics, globalization, politics, social psychology and the natural environment. Sachs shows how government, business and citizens alike can find common ground on ways to achieve shared goals of efficiency, equity and sustainability. He bids each of us to accept the price of civilization, so that together we can solve the pressing global challenges we face.

THE PRICE OF CIVILIZATION by Jeffrey Sachs Vintage Publishing ISBN 9780099535768 Available to order through www.hungaropress.hu



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