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Antal Nikoletti, deputy state secretary at the Ministry of National Economy, tells us what the government is doing to encourage FDI, and explains why businesses want to come here in the first place. 06

Fishing on Lake Orfű is more than just a way to catch a fogás, it’s also a quirky music festival. As soon as schools close down, the business of festivals ramps up, and our reporter is on the scene. 20

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Legislate in Haste, Rewrite at Leisure Attorneys are a conservative bunch, by and large, who don’t like creating a stir. They will rarely go on the record about anything other than the case they are defending or prosecuting, or how good their law firm is. But there was a noticeable thread of comments during the term of the last Fidesz government all off the record, of course, that lawmaking was being done in such a hurry that poorly drafted laws were rushed through, only to need rewriting weeks or months later. Lawyers were also uncomfortable with the number of retrospective laws, particularly in the area of taxation, that were introduced. It has long been a wide−held assumption in law that you do not legislate retrospectively, as it goes against natural justice; it unilaterally changes the rules of the game, quite literally. The hope was that the new term would see less haste, and better laws. To be fair, attorneys were not critical of every law passed. The new Civil Code, in particular, is talked of as a coherent body of law and a long overdue revision; but then again, it was a long time in the preparing. The traditional Fidesz defense is that it had no choice but to make laws in a hurry. The country was in a sorry state in 2010 and much needed doing. And in the name of burden sharing, those who had made very large profits had to do more to support the state. Even retrospectively. The suggestion, though often hinted at rather than openly spoken, was that it would be different this time round. And then came the advertising tax law. When it was introduced on June 2, virtually out of the blue (there had been some discussion during the previous government term, but then

the idea was dropped, and it was not trailed this time at all until the draft law was introduced), the party’s parliamentary leader, Antal Rogán, said it would need minor amendments only. On June 11, it was passed. It is now being rewritten, after it emerged RTL Klub, the most successful commercial channel, would legitimately be able to make use of loopholes to greatly reduce its tax liability. Some say the law was written with RTL, which has been noticeably more hostile to the government, in mind, and the channel certainly thinks so, having announced it will sue Hungary in the International Court of Justice in The Hague. We won’t comment on that, other to note that if it was targeted legislation, it wasn’t done with any great accuracy. Either way, if the law is being rewritten now, it wasn’t written well in the first place. And that’s the rub. When a party doesn’t have a supermajority, it has to work with opposition MPs to get laws passed. The process takes longer, but in the meanwhile new ideas, perhaps even better ideas emerge. No government has a monopoly on being right; the opposition, not just here, but anywhere, is also allowed to have good ideas, and frequently does. Sure, the government has to make compromises, but the legislation is tested, debated, kicked around and amended before it is enacted. That could still happen, to an extent, with a supermajority, if individual lawmakers felt able to act independently. But very few Fidesz MPs do anything other than follow the party whip. They are told to vote a certain way, and that is exactly what they do. The results are there for all to see.

One of our Ambassadors is Missing U.S. Embassy Independence Day celebrations in Budapest ollow a tried and tested path. The day itself is a federal holiday, meaning the embassy is closed, but a garden party is usually held the day before in the Ambassador’s Residence. A U.S. Marine detail escorts the flag. The National Anthems of Hungary and the Unites States are played. An all American buffet is provided for guests (sometimes they even invite Brits along), and the Ambassador gives an address. Except that this year the address will most likely (the event happens after we go to press) have been given by M. André Goodfriend, Deputy Chief of Mission, who is serving as Chargé d’Affaires, ad interim in the absence of an ambassador. It is not, of course, unusual to have an interregnum between one ambassador leaving a post and a new one arriving. But it is unusual to have an interregnum that has thus far lasted almost a year since Eleni Tsakopoulos Kounalakis’ mission ended on July 20. There is, of course, a process to go through. To recap, President Barack Obama named Colleen Bradley Bell his ambassador designate back in November 6, 2013. On January 16, 2014 Bell attended the U.S. Senate Committee on Foreign Relations for a confirmation hearing, and on February 4 the committee voted to send her nomination to the full Senate for a final vote. So far, so normal. But Bell’s nomination then got swept up into a senatorial turf war between the Republican and Democrat parties, and there it remains. None of this has anything to do with Bell’s credentials to be ambassador. It is well known that the Hungary posting is one of a number reserved for political appointees, a way for incoming Presidents to distribute patronage to loyal, fund−raising supporters. The American Foreign Service Association, effectively the union for state department employees, has raised questions about the number of political appointees; there are only so many ambassadorial postings,

after all, and every time one of those goes to a presidential supporter, it means a career diplomat is held back. But Bell’s nomination was passed to full senate for final voting. (Along the way she was given something of a grilling by former Republican presidential candidate and foreign affairs expert Senator John McCain, but that was nothing compared to his withering response to George Tsunis, Obama’s nominee for ambassador to Norway, video coverage of which went viral.) Nor is Bell the only ambassadorial designate being held in diplomatic limbo. On March 6, Anne Gearan, The Washington Post’s diplomatic correspondent, wrote that about 50 ambassadorial nominees are awaiting votes by the Senate, including career diplomats. Other appointments such as for federal judges, are also affected. The impasse leaves the embassy in a difficult protocol position. Until and unless Bell is appointed, she does not “belong” to the embassy and staff there cannot officially comment on her status (Bell herself is not even allowed to visit the country). Some sections of the Hungarian media have tried to see a conspiracy story here, or a personal slight towards the country. But the reality is even sadder than that. The Democrats believed the Republicans were deliberately holding up Presidential nominations, and last year took the so−called “nuclear option” of banning the use of filibusters in the Senate to stall appointments. Republicans maintain the process was actually faster prior to the Democrat−inspired changes, which have skewed the system too far in favor of the President. In response, Republicans are refusing to agree to use the old system of batch nominations; each candidate must be voted on individually, slowing the process greatly. So Hungary is left minus one Ambassador, all because of a proxy fight for control of the Senate 4,500 miles away. And no one seems to have any idea when that situation might end. It’s all a little embarrassing, to be honest.

Some sections of the Hungarian media have tried to see a conspiracy story here, or a personal slight towards the country. But the reality is even sadder than that.

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Banks talk of leaving, and the forint lost 1% of its value in a day, but the long−term impact of the law on FX loans will be mild, and probably positive, analysts say.

Speaking X of ﬁgures The Budapest Business Journal presents some of the most important macro data of the past fortnight.

TOM POPPER, CHRISTIAN KESZHELYI

3.1% Projected GDP growth for this year according to forecasts by Hungarian economic and political think tank Századvég and Takarékbank. The former is considered pro−government, the later is 19.35% owned by the state via Magyar Posta. Százedvég put 2015 growth at 2.7%, Takarékbank at 2.4%

banks take most of the pain of the forint’s decline by forcing them to pay back borrowers much of what they lost due to exchange fluctuations. BANKS EXPECTED TO STAY PUT The proposal deals yet another blow to the banking system, which is already suffering some of the highest bank taxes in Europe. In 2011, Hungarian banks also had to suffer losses due to a measure that made them eat some of the losses borrowers incurred through FX loans. The government does not seem too worried about making banks suffer. Prime Minister Viktor Orbán, along with other members of his government, has repeatedly said that the presence of foreign banks in this country should be reduced so that they have no more than 50% of the market. Currently, foreign banks make up about 60% of the market. György Matolcsy, the Governor of the MNB said in May that he expected the elimination of FX loans would force the consolidation of the banking sector and the exodus of several foreign lenders. “I do not mean the banks – I mean the owners. The banks will stay here in Hungary. A sort of restructuring will happen to the Hungarian banking system in two years’

time,” Matolcsy was quoted as saying. Indeed, banks have been rethinking their position here: Sberbank, Russia’s biggest lender was quoted as calling Hungary “a very difficult market” on June 30. And while Raiffeisen Bank was said to be considering a local suitor recently, no appropriate offer emerged. In fact, it is very unlikely the banks will walk away from their business here, analysts said. Tóth from Buda−Cash maintained that the measures taken against the banks in 2011, as well as the high bank−sector taxes, had already taught banks to expect pain when doing business in Hungary. By comparison, the FX loan law is a lighter burden than some had been anticipating, he said. Gyurcsik concurred, saying there might be some consolidation, with foreign banks leaving, but not very much and not for a while. He explained that nothing will happen for a few months, until the real cost of the new law can be accurately assessed. “At the most, some banks could be sold, but even that is impossible until the market stabilizes after the latest shakeup caused by the new law,” he said. “Right now we cannot tell the realistic value of the banks.”

69% Hungary posted a cashflow budget surplus of HUF 269.4 bln in May, bringing the deficit, excluding local councils, to HUF 681.7 bln (€2.23 bln) in the first five months, or just over 69% of the full−year target, the economy ministry said, releasing final data. The EU−conform ESA deficit target for the year is unchanged at 2.9% of GDP, the ministry said. May spending was lessened by the payment of family support and wages due early May at the end of April because of the May 1 holidays, the ministry added.

2.3% The Hungarian National Bank’s Monetary Council cut the base rate by 10 bp to yet another all time low of 2.3% on June 24, as analysts expected. It continued an easing cycle that started in August 2012 and followed a 10 bp cut on 27 May.

Source: KSH, MTI

Viktor Orbán talks to the press in Brussels on June 27, just before the release of the proposed law on FX loans. Speaking from Brussels, the Prime Minister said that the new law would bring in the era of “fair” banks, and end the abusive practice of banks. Orbán has said repeatedly that he would like to see more Hungarian-owned banks, and an end to the market domination by foreign banks here.

Photo: Prime Minister’s Press Office / Barna Burger

The proposed law on FX loans was meant to compensate borrowers for the pain caused by the declining value of the forint. But before the law was even passed, it was apparently inflicting more of the same kind of pain: the forint lost about 1% of its value on July 1, weakening to about HUF 312 to the euro. But while some called the drop a harsh market judgment on the new law, local analysts said they expect the damage to be temporary. In the long run, they say, the forint, the banks and the economy will probably be better off. “The insecurity in the market right now, caused by uncertainty over the final impact of the law, is hurting the value of the forint. But once the effects are clear, things should stabilize,” said Attila Gyurcsik, head of the research division at Concorde Hungary. Gergely Tóth, an analyst for Buda Cash, added: “The FX loan law is not good in the short−term, but in the long run, it means more money in consumers’ pockets which leads to greater expenditure throughout the economy.” Under the proposal approved on June 27, not only so−called FX loans would be affected, but banks would also have to repay customers for any unilateral changes in contracts to forint−based loans. Eventually, FX−based loans are to be phased out. The proposal, which was expected to be passed in Parliament on July 4, would be followed this autumn by a companion law, detailing how much banks must repay borrowers, officials said. The inclusion of forint based loans in the proposal caught many by surprise, and the day after the proposal was unveiled, the Hungarian National Bank (MNB) said the whole thing could end up costing the banking system HUF 900 billion. Other analysts have suggested the damage could be lower, while some say it may even go as high as HUF 1 trillion. FX loans are denominated in a foreign currency, usually Swiss francs or euros, which has meant that local borrowers who earn in forints have seen the cost of their loan repayments skyrocket as the value of the forint fell. Since the global financial meltdown of 2008 first sent the forint plummeting, mortgage holders around Hungary have found themselves forced to pay exorbitant amounts or default on their loans. The proposed law would make

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Budapest Business Journal | July 04 – July 17, 2014

Conversion of existing foreign currency debt at the current market rates should not even be considered as an option. It would not be fair on the people affected. [‥.] Banks now have to face the fact that they were not playing it fair with clients. Antal Rogán, head of the Fidesz parliamentary group, explains the government’s position on the banks and FX loans to public TV.

Looking to the Future The American Chamber of Commerce in Hungary kicked off its “Visionary Series” of events marking its 25th anniversary by taking a look at the future with a talk and roundtable discussion called “Dawn of the Second Machine Age: Technological Revolution and its Effects on Human Capital” on Monday, June 30. The keynote address was made by acclaimed Canadian futurist Riel Miller, Head of Foresight at the Bureau of Strategic Planning, UNESCO, who discussed how societies must becomes much more flexible and much less afraid of risk to overcome what he called the “poverty of the imagination that stands in the way of grasping the creativity of the present”. In a nutshell, we cannot achieve the best possible future, particularly one that values human worth, if we constrain ourselves by only thinking in current terms. Riel Miller, Head of Foresight at the Bureau of Strategic Planning, UNESCO Miller’s speech was followed by a roundtable conversation moderated by Márk Hetényi, European Finance VP at Flextronics and AmCham board member, in which the futurist was joined by: Joerg Bauer, President of GE Hungary; Ferenc Friedler, rector at the University of Pannonia; Ferenc Pongrácz, of IBM Hungary; and László Turóczy, deputy state secretary for competitiveness at the Ministry of National Economy. Three other talks will feature in the Visionary Series this fall: beforeAmCham’s anniversary celebrations will conclude on Friday, November 14 with a gala event in the Upper Chamber of the Houses of Parliament.

Boldog Birthday, America! Since this year an issue of the Budapest Business Journal is actually published on July Fourth, we thought we would take the opportunity to wish America a happy 238th birthday. The U.S. Embassy observes a federal holiday on July 4 and is closed, but traditionally celebrates with a garden party in the American Ambassador’s Residence, which this year was due to be held on Thursday, July 3, after we went to press. The American Chamber of Commerce in Hungary also marks the occasion with its already fully booked annual “Independence Day Family Celebration” on Sunday, July 6. Attractions include an extensive “All American BBQ Buffet” and live music from the Budapest Ragtime Band, followed by a tour of the neighboring Budapest Zoo. “Along with the Thanksgiving Dinner in November, the July 4 celebration is probably our biggest family day event of the year,” says AmCham CEO Irisz Lippai−Nagy. “Every year it is oversubscribed and this year has been no different. It gives AmCham members – of all nationalities – a chance to come together and celebrate values we all hold dear, liberty, transparency, free enterprise and that can−do attitude, in a fun, family atmosphere.” On the same day, from 2−6 pm, Democrats Abroad and Republicans Abroad will hold their annual joint “All American Independence Day Picnic in the Park”, event in City Park. Doubtless, American expats will also be having their own celebrations across the country and raising a glass or two to mark the day. Egészségedre, America!

ECONOMY Average Gross Monthly pay Rises to HUF 232,300 The average Hungarian was earning HUF 232,300 before taxes in April, according to the Hungarian Statistics Office (KSH), which meant their buying power has increased an estimated 4.2% compared to a year earlier. Although the year−on−year income increase in nominal terms was 2.4%, a drop in prices in April meant that the increase in real terms was higher, according to calculations by Portfolio.hu. Financial and insurance workers did best, with an average gross wage of HUF 504,700. The poorest paid were healthcare workers, who brought home an average of HUF 136,800 per month after taxes in April. Industrial Producer Prices Drop 0.8% in May Industrial producer prices fell by 0.8% on average in May 2014 as compared to the figures of the previous month, the KSH revealed. Producer prices dropped 2.4% year−on−year. All of the major manufacturing sectors experienced decreases in their costs between May and April – except for food and pharmaceutical producers, which saw cost increases of 0.3% and 0.2% respectively. The most significant drops were experienced in the area of coke and refined petroleum production (2.4%), electronics and optics production (1.6%), and vehicle production. Prices were 0.9% lower in April in the significant sector of electricity, gas, steam and air−conditioning supply.

DOMESTIC Budapest to Upgrade Metro Line 3 Budapest’s City Council has approved a development agreement on the preliminary planning phase of reconstruction works on the Metro 3 subway line; 29 out of 30 local representatives backed the proposal to sign a

Numbers in the news

8% Hungary’s unemployment rate between March and May 2014, a slight improvement on the previous three−month period, when the rate was 8.1%, according to figures released by the Hungarian Central Statistics Office on June 27. Observers

said that the slight improvement could probably be attributed to seasonal factors. The ﬁgure represents a larger improvement from a year ago, when unemployment was 10.5%, according to KSH. According to estimates, about half of those added to the employment roles are working for government programs.

development agreement to prepare an upgrade of the M3 subway line as well as its extension northwards. The agreement is necessary to gain access to a HUF 1.2 bln fund earmarked for this purpose. Of this amount, HUF 361 mln is budgeted for the year 2014. Hungary Approves Multi−billion Nuclear Loan Hungarian lawmakers approved a multi−billion− euro loan from Russia on June 23 for an upgrade of the country’s only nuclear power plant, a deal critics say increases Hungary’s dependence on Moscow. In January, Prime Minister Viktor Orbán struck an agreement with Russian President Vladimir Putin for Russia’s atomic energy corporation Rosatom to build two new reactors at the Paks plant, located about 100 kilometers south of Budapest. The loan agreement, which was signed in March but required approval from Hungary’s Parliament, stipulated that Moscow would lend Budapest up to €10 bln ($13.7 bln) – around 80% of the estimated cost. Hungary will be required to repay its debt in euros at variable rates of 3.95−4.95% interest – over a term of 21 years, starting after the new blocks are commissioned. Opposition leaders say the deal was signed without proper transparent consultations and ties Hungary closer to Russia

POLITICS Jobbik Re−elects Vona as Party Leader The radical nationalist Jobbik party has re−elected Gábor Vona as leader at a party congress held in Budapest. Vona won support from 95% of the more than 500 delegates, was the only candidate for the post. Jobbik aims to win the general election in 2018 and come in second at local elections this fall, Vona told delegates. He said the next two years would see ground laying work in the party; Jobbik needs a national TV or radio channel, it must prepare a government strategy and structure, and strengthen foreign relations. He said Jobbik had been able to unite its forces and become a people’s party while fully adhering to its values and program. Jobbik must give up radicalism in its style but not in content, Vona said.

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Promoting Brand Tokaj 9

bpv JÁDI NÉMETH Scoops 2nd Euromoney Law Award bpv JÁDI NÉMETH has, for the second year running, been named the Hungarian winner of the annual Euromoney “European Women in Business Law Award”. The results were announced at an award ceremony in London on June 18. “The award is a tremendous achievement for our team and provides external validation of our expertise with focus on innovative legal solutions and business-minded approach,” said managing partner, Dr. Andrea Jádi Németh, LL.M, who is pictured at right. In its submission for the award the law firm focused on its “Labor Law E-Training Program for Executives”. bpv JÁDI NÉMETH says the innovative product, developed jointly with Innotica Group, is the first of its kind in the field of law in Hungary. More than 50 multinationals have already tested the interactive online tool. The program, available in English and Hungarian, offers training to managers via multimedia presentation tools. It processes the new Labor Code through interactive exercises, practical questions and business case studies that enable the users to acquire active and in-depth legal knowledge within a short time. The number of users with access to the e-training site has already exceeded 3,000 and the law firm and developer have been adding extra company-, sector- and topic-specific modules for clients. “Managers are highly motivated to participate in our training program, since they are able to acquire within a couple of hours the basics of labor law that is essential for their day-to-day decision-making,” explained Dr. Zoltán Csedő, managing partner of Innotica Group. “Our case studies focusing on typical management mistakes can effectively prevent significant legal and compliance risks.”

COMPANY NEWS

Colliers acquires Property Partners Global real estate ﬁrm Colliers International has acquired Hungarian property and facility management company Property Partners, establishing a new company with immediate effect. Property Partners was founded and run by Balázs Györke and József Mózes, each with more than 15 years of experience in the business, which they will bring to the new company, together with 16 colleagues. As a result Colliers International Property and Facility Management Ltd. will become a major player in the market, with Györke and Mózes at the helm. The new company will have approximately 145,000 sqm under management with clients like Skanska, Deka, Peakside, Erste Bank and Immoﬁnanz, providing services for Class A office buildings like Green House, Atrinova and Obuda Gate, for an industrial/logistic portfolio including Pharma Park, and a retail portfolio with 15 shops in Budapest. Tim Hulzebos, Managing Director at Colliers International Hungary said: “In acquiring Property Partners we will be able to grow our property management and facilities management businesses and immediately triple our instructions. We are experiencing increasing client demand for these services in Hungary, and acquiring Property Partners will help us to increase our market share.” Györke and Mózes said in a joint statement: “We are glad that Colliers with its strong regional presence has chosen us as their partners to jointly build up a strong and successful property and facility management team. We believe that combining forces with Colliers will create new opportunities in the market, as well as, enabling us to increase and improve the service level to our existing clients.”

Polish aluminum casting alloys manufacturer Alumetal plans to build a €32.5 mln ($44.5 mln/HUF 10 bln) plant in Hungary, Alumetal CEO Szymon Adamczyk announced. Adamczyk said that he expects the first production line at the new plant in Hungary to begin operating in the first half of 2016 and the second production line to begin operating in 2018 Q1. The CEO added that Alumetal plans to pay for construction of the plant using the company’s own resources, though also hopes to receive financing from the European Union and the government of Hungary. Hungarian steelmaker ISD Dunaferr is planning to make further investments at its plant located in Dunaújváros at the beginning of the next year, ISD Dunaferr Corporate Manager Evgeny Tankhilevich announced on June 21. The objective of the investment is to strengthen the production of higher value−added products at both its hot− and cold−rolling mills. Though the precise amount of the investment is not fi xed yet, it would likely reach several billion forints, according to Tankhilevich. The investments will specifically serve the development of manufacturing galvanized steel and other coated products, the corporate manager added. The previously suspended €20 mln ($27.3 mln/HUF 6.2 bln) upgrade of Dunaferr’s hot−rolling plant is expected to be finished by the end of the year, and the €10 mln ($13.6mln/HUF 3.1 bln) renovation of the blast furnace is set for completion by August 20, the company said. ISD Dunaferr, based in Dunaújváros, is one of the largest industrial

producers in Hungary. A significant part of their sales goes to foreign markets, especially in Germany, Poland, Austria, Czech Republic, Slovakia and Italy. Chinese IT company Pactera is opening its Central European headquarters in Budapest, following the announcement of an €11 mln (€15 mln/HUF 3.4 bln) investment in the country, part of an expansion that is to create 100 jobs in the first phase. The company is opening a 600 sqm HQ as a first step in its local expansion. The Chinese−based company employs approximately 22,000 workers around the world and has been offering IT counseling for almost 20 years. Pactera is opening its offices in Dorottya Udvar, a new office complex in Buda, which recently received a certificate for its environmental aspects. The Teva Pharmaceutical Industries factory in the city of Debrecen will complete a HUF 3 bln ($13.2 mln/€9.6 mln) generic−drug development project this year, Mihály Kaszás CEO of Teva Gyógyszergyár, the company unit that operates the plant, told MTI on June 22. Kaszás said that the unit won a HUF 842 mln grant through the government’s New Széchenyi Plan for the development. Teva has increased annual production capacity at the factory from 500 million tablets and capsules per year to 10 billion per year over the past 20 years, Kaszás said. Teva Gyógyszergyár had revenue of more than HUF 150 bln last year, down from HUF 188 bln in 2012, the electronic company files of the justice ministry show. Net profit dropped to HUF 21 bln from HUF 22 bln.

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Budapest Business Journal | July 04 – July 17, 2014

‘Not Everyone can be an Artist’ Antal Nikoletti, deputy state secretary responsible for external economic relations at the Ministry of National Economy, talks to the Budapest Business Journal about FDI flows, the future shape of Hungary’s economy, and the need for banking reform ROBIN MARSHALL

Where is most foreign direct investment targeted? A: Most, more than 20%, is in the processing industry, next comes computing and electrical, electronic manufacturing, then optical products, pharmaceuticals and then the food industry.

Where does that money come from? A: The biggest part is from Germany, and it will likely long remain so, but thereafter it becomes less obvious. Luxemburg and the Netherlands are next on the list, but that is because so many companies are headquartered there. There are a lot of mid−size and perhaps in Hungarian terms large− sized companies are producing in “silence”, without big publicity and exporting back to Germany. We have become a strong component production center for Germany, just like the Czechs. We are very much part of the German industrial engine. BMW has no factory here, but 10% of their components are produced here in Hungary, and the same is true for other makers in many sectors. We are almost an empire of car component manufacturing in the region. Of course the Poles, Czechs and Slovaks have huge investments too.

And from the government’s perspective, manufacturing remains the priority? A: It is clear that it is not the service sector that is the target but rather production. You can see what happened to those countries like the UK or France that decided 20− 30 years ago to invest more into services, compared to Germany which put more into production, given its engineering mindset. We believe this is the right path to follow. Not everybody can be an artist or a chef.

How do shared service centers fit into that, given it is a booming sector for Hungary? A: We need to serve the interests of those who go beyond the borders of Hungary and set up regional centers; they are a different story, and that can be a focus for us. If someone like Vodafone or Shell, as has already happened, wants to plant something in Hungary to serve the rest of the world

Antal Nikoletti was appointed a deputy state secretary at the Ministry of National Economy in July 2013. From July 2014 he is responsible for tourism and international economic relations at the ministry. Despite his current role, most of his career has been spent outside public service, much of it in banking, in senior management positions both at home and abroad. He was also deputy CEO and CFO of Budapest Airport. He speaks English, Russian, Hungarian, and basic German.

that is administrative or logistical, they will be more than welcomed.

There is a preponderance of SSCs in Budapest, relatively few in the countryside. Is that a concern? A: Language skills are getting to be a bottleneck, but there will be action to remedy that; language skills need to be kept up if finding suitable staff is not to become more difficult. Costs are actually lower by 30% or more in the provincial cities and towns. We have universities producing a workforce with language skills and the labor costs are still lower, and the local business tax is usually lower than in Budapest. Also, the real estate prices are much lower. We know of cases where the local government will help make a move more attractive, help find an appropriate site.

What are Hungary’s strengths in attracting FDI? A: The workforce is well educated and remains relatively cheap; you still get value for money. The logistics of the country are good: industrial parks, road density, rail tracks and the incentives system, and there is a good living environment to attract expats to live and work here.

And what criticisms do you hear from investors here? A: The investors are satisfied. What the media usually picks up on is the predictability of economic policy. But, frankly, for the last five or six years, ever since the crisis erupted, nowhere in the globe has been stable. The whole world changed, it is not only Hungary; the global banking system, for example, has been completely restructured. In the last four years in Hungary measures had to be taken to stabilize the country.

And now? Will the government slow the pace and talk more? A: The country was in a very difficult situation; there was no time to talk. The country’s financial indebtedness was growing, there had been no structural changes, and if these actions had not been fast enough the last moment to act would have been lost. These steps had to be very radical. The new media tax is a similar situation as with the banks; there has to be social justice overall. Structural corporate taxes here are very low, compared with Italy at 60% or Sweden, but we have to take the money from somewhere. Of course there will be complaints, but banks generated huge profits; the media still generates huge profits. Compare it to agriculture where

people work night and day at certain points of the season, but they are living below what their efforts deserve and they can achieve. And let’s not forget that the market defines the opportunities. Look at banking: special taxes were introduced and that has forced banks to think about the services they offer. Banking will be different. What we expect is that they create value for their customers: those banks that do that will be profitable.

How many banks do you think will leave Hungary? A: I was saying six years ago that there would be two or three banks that will close and leave the country. Today I say the same. Two will definitely go, probably a third and possibly a fourth.

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Budapest Business Journal | July 04 – July 17, 2014

is no question that “B” is a healthier place in which to be than “A”.

FDI FLOW, MILLIONS OF EUROS Country

Year

2005

2006

2007

2008

2009

2010

2011

2012

2013

Hungary

6,172

5,454

2,852

4,191

1,476

1,675

4,131

10,851

2,316

Czech Rep

9,354

4,363

7,668

4,467

2,082

4,646

1,632

6,212

3,783

Poland

8,330

15,741

17,242

10,128

9,343

10,507

14,896

4,763

−4,574

Romania

5,213

9,061

7,249

9,495

3,487

2,220

1,814

2,139

2,725

Slovakia

1,955

3,735

2,617

3,207

−4

1,336

2,512

2199

445

Slovenia

473

513

1,106

1,330

−474

272

718

−46

−511

NOTE: FDI flows with a negative sign indicate that at least one of the three components of FDI (equity capital, reinvested earnings or intra-company loans) is negative and not offset by positive amounts of the remaining components.

FDI AS A PERCENTAGE OF GDP Country

Year

2005

2006

2007

2008

2009

2010

2011

2012

2013

Hungary

58.2%

67.9%

65.4%

59.2%

75.1%

70.5%

66.1%

80.9%

82.2%

Czech Rep

49.1%

51.2%

57.9%

52.7%

61.4%

64.1%

59.9%

67.7%

66%

Poland

31.4%

35.1%

39%

32.1%

41.4%

45.5%

42.4%

46.7%

47%

Romania

27.4%

35.3%

34.3%

34.9%

42.3%

41.9%

44.9%

43.1%

Slovakia

51.9%

57.3%

53%

56.2%

58.1%

57.1%

58.2%

59.5%

59.4%

Slovenia

21.3%

22%

28.2%

30.4%

30%

30.8%

32.4%

33.2%

31.3%

FDI STOCK PER CAPITA, THOUSANDS OF EUROS Country

Year

2005

2006

2007

2008

2009

2010

2011

2012

2013

Hungary

5,125

6,048

6,475

6,226

6,851

6,794

6,562

7,923

8,163

Czech Rep

5,016

5,893

7,354

7,767

8,312

9,169

8,870

9,838

9,383

Poland

2,012

2,506

3,182

3,058

3,367

4,189

4,078

4,626

4,754

Romania

1,013

1,600

1,987

2,270

2,329

2,456

2,582

2,775

2,879

Slovakia

3,705

4,731

5,380

6,693

6,722

6,979

7,433

7,818

7,886

Slovenia

3,062

3,394

4,858

5,573

5,191

5,329

5,699

5,695

5,366

Source: Central Statistical Office (KSH)

When you say that, do you have actual banks in mind? A: Of course, though I won’t name them. For the fourth and maybe the third the question will really be if they can come up with something new. But they will have to downscale and create strategies that utilize their advantage. A foreign bank cannot add too much value when it comes to financing state−owned companies or municipalities, but they can be useful for multinational companies, especially those from the same country. There was an illusion – and I know it well because I worked in banks – that the trees would keep growing and touch the skies, that annual growth rates of 30−40% were sustainable. The future is in finding the right market; for foreign bank it is the segment in which they are better

than the others. The future also lies in digitalization and pushing down prices, in closing branches and downscaling, in developing new solutions that add value. The banks were not looking ahead. But then this applies to the whole global banking industry: new regulations alone are not enough, nor even additional capital;, good old prudency is still missing, and caring banking.

The government seems keen to have more Hungarian− owned banks. A: I think if you were in Austria, or Germany, or the UK and you woke up one day and realized 80% of your banking market was in foreign hands, nobody would say it is normal. Usually the majority is in domestic hands because local bankers understand what is happening in the

country. Hungarian bankers are very good, they are full of ideas and the latest know−how can easily be customized; the technical level of Hungarian banking is already there, but we have to rely more on local management. There needs to be more Hungarian ownership in the banking industry to make sure decisions that impact Hungary are made here and not somewhere else. Local knowledge, understanding of the customers, this is what the market, the customer, needs, not only government; cooperatives that are in the villages and know the customers and the level of risk involved in making a loan. I believe global models have their place on the market, but there has to be more room for cooperatives and local banks. The question is how you get from the current point A to point B. The path can be painful, it will not be linear, but there

In the run up to the election, opposition leader and former PM Gordon Bajnai said on several occasions that FDI levels were basically only at depreciation levels. How do you counter that? A: Before the crisis, we were in different times. In the early and late ’90s FDI inflow was much higher because there was a vacuum. Those times will not come back in the same form, but we now have an even better platform with growing pools of technicians, engineers and economists who are hungry to innovate. Immediately prior to the crisis the FDI flow was around €3−4 bln per annum, then the crisis came and in 2009 it dropped dramatically – you saw the same across the region. Now everybody thinks three times about where to invest, what to outsource. Everybody is macro cycle driven, but investment levels are starting to come back and we hope it will be more productive, innovative capital rather than speculation driven.

The government has been accused of being anti− multinational. Do you recognize that criticism? A: No, not at all! No other country pays so much attention to multinationals who target sustainable value creation. Companies that have already invested in this country are satisfied. When we talk with investors they are positive, but I do not doubt that the media influenced many who were thinking about coming to one of the Central European countries. Three years ago these people were predicting that Hungary would collapse. Today, those voices have just disappeared. Even the IMF has had to recognize, as everybody does, that for the numbers in every single one of the indices there is an improvement. Both in macro and in micro terms there is perceptible improvement. The question is how we build the future and which sectors will be the leading factors in defining the future for this country?

With some of the functions of this ministry transferring to an expanded foreign affairs ministry, what does the future hold for you? A: The changes will shift some activities from here to the Ministry of Foreign Affairs and Trade but it will finally be in one hand and will remain a team−work. It does not matter where those activities are based, what matters is that it is managed professionally. And it will be. Our ministry will still have an important role to play; we still have competency for national economic strategy, which forms part of our international plans. We hand over functions in better shape than they were a year ago. We have refreshed economic diplomacy and have new people from the younger generation in place who will come into power in time. In the last year there has been a lot of development of the methodology of how you manage these people working abroad in the framework of our embassies. If all the little parts are working well, the whole will work well; this is a simple rule to follow.

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Budapest Business Journal | July 04 – July 17, 2014

Wine: the Undercapitalized Miracle St. Andrea winemaker György Lőrincz Talks to the Budapest Business Journal about the progress made by Hungarian wine industry and the challenges it still faces. ROBERT SMYTH

György Lőrincz, the Hungarian Wine Academy’s Winemaker of the Year 2009, strongly believes that the domestic market remains the most important for Hungarian wineries. Nevertheless, he is keen for the country to take more of its “unique and special” wines to European markets. However, further export success calls for the kind of marketing engine and resources that Hungarian wine has so far been lacking. Eger winemaker Lőrincz commends the huge strides made by Hungarian wine in the face of ongoing undercapitalization. While wine is something of a success story within the Hungarian agricultural sphere, he feels that Hungarian winemakers have to work hard to find “the authentic way that leads to the creation of unique wines”.

Can it be said that winemaking is a relatively prosperous business within the struggling Hungarian agricultural sector?

A: It is often said. My opinion is that the wine sector has indeed gone through great developments in the last 25 years. There has been a shift of approach, great improvements in terms of quality regarding grape growing and winemaking, while wine−consuming culture has also changed significantly for the better. Naturally, as for every sector, winemaking has its own set of challenges and difficulties, especially these days. Considering the undercapitalization the sector faces, it’s truly a miracle what has happened so far in Hungary. The question is how efficiently producers can operate in the current economic climate concerning both the production and sale of wine.

Do you think it’s possible for Hungarian wineries to thrive by selling only on the domestic market? Are Hungarians ready to pay more for better quality? A: I’m convinced that the most important market is the domestic one for Hungarian producers. Hungarian consumers tend to like buying Hungarian wines. On the one hand, this is because really exciting wines are being made in Hungary. On the other hand, this is due to the fact that affordable, good value wines dominate the quality wine market. Certainly, we should not give up on trying to convince Europe that Hungary can offer unique and special wine experiences.

György Lőrincz, winemaker for the St. Andrea Winery.

This, however, requires a far−reaching and extensive export program and considerable marketing effort, the like of which have so far been beyond the sector’s capability.

So, you feel that Hungarian wines have what it takes to compete on the international market? A: In my view, we can only be truly competitive above the mid−level category. Cheap wines are not our style and in fact Hungary’s wine regions have been primarily predestined for unique and special qualities. We have to find our place on the international market as well, and we have to convey what we are worth. For me this is one of the biggest tasks, besides having to make the message of Hungarian wine more evident. Sometimes, it comes to my mind that Hungary was once a major “wine empire” of Europe. And this didn’t come about by accident.

What percentage of your wines are exported? Which are the most successful countries for you? Which markets and in which segments do you see the best prospects for Hungarian wines abroad? A: Our winery currently exports 12% of its annual sales. Belgium and Poland constitute our biggest markets at the moment, although we also export to the UK, the Netherlands, Denmark, Slovakia and Germany. I think besides the Scandinavian countries, Poland and countries in northeastern Europe could be important export destinations for Hungarian wines. In some markets, our presence could be increased even in the medium−term with determined effort and the concentrated, well− targeted use of our financial sources.

St. Andrea has regularly been successful at international wine competitions. Why is it important for your wines, the wine region or for yourself to be present at international competitions? Can you draw conclusions from them?

A: For one thing, feedback on the quality of one’s wines is important for the producer, and a wine competition can help with this. Also, we try to enter wine competitions that can also assist in communicating Hungarian wines to a certain degree, or whereby a possible favorable result can also support our presence in the wine market of the given country or region in question. Even though it’s important to treat these results in their place, we can definitely reach some conclusions about the wine styles appreciated and acknowledged around the world. Even more, we can also realize that we still have a long road ahead of us before we are entirely convinced of our ability to produce outstanding quality wine.

It’s an emerging trend that more producers try to practice organic, biodynamic or other forms of natural grape growing and winemaking. What made you to start out on this road and how do you see its future, whether for St. Andrea winery or for Hungarian wine in general? A: It’s true that more wine producers are opening up towards organic grape growing. What makes organic or environmentally friendly grape cultivation exciting for me is primarily to do with the high quality of wine that can be made. Even though we have been doing this for six years, we unfortunately still don’t feel that we have enough experience to spread it across our whole estate.

What is the greatest challenge a Hungarian winemaker has to face these days? A: To find the authentic way that leads to the creation of unique wines that can’t be made elsewhere and articulate the characteristics of the wine region in question, which can provide the foundation of our sustainable development. And, at the same time, to live through the daily struggles of our lives in love and happiness!

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// Agriculture 09

Tokaj Kereskedőház Hires Branding Big Shot to Reposition ‘King of Wines’ Internationally State−owned Tokaj Kereskedőház Zrt., by far the largest producer in Hungary’s most prestigious wine region, has hired acclaimed brand consultancy Claessens International Ltd to promote the region internationally. The related two−year campaign worth €10 million is also actively involving other key Tokaj players and seeks an eight− to ten− fold increase in the region’s revenue from the current estimated HUF 20 billion. ROBERT SMYTH

R&D and innovation, as well as engineering “The Tokaji brand is well− known all over Hungary. We aim to achieve this brand awareness in the global market and to help the Tokaj wine region join the exclusive club of the world’s premium wine regions,” says András Tombor, Chairman of the Supervisory Board of Tokaj Kereskedőház. Accordingly, a new consultancy organization is being set up on the initiative of Tokaj Kereskedőház and the Tokaji Borvidék Hegyközség, which aims to make Tokaji the number one national brand, and well known in all target markets within five to seven years. At the same time, it believes the area actually used for viticulture in the region could grow from 5,500 to 7,500 hectares by the end of this decade, and the sector could provide 8–10,000 jobs compared to the current 5,000. Presenting the Tokaji brand as the number one national

icon would also help exports from other Hungarian wine regions, added Tombor. This could multiply the volume of Hungarian wine export from the current government estimates of $75 mln per year, having a positive effect on the entire national economy. As an example of export success he refers to New Zealand, where the wine industry has only seen really rapid expansion in the last 20 years, but the success of Sauvignon Blanc, the country’s flagship wine, raised wine exports to $1.2 bln in 2013. Tokaj Kereskedőház itself is undergoing restructuring with a new management team having been in place for the past year. In June, it took the bold step of withholding the delivery of up to almost €10 mln worth of stock until it could vouch for its legitimacy by carrying out a detailed review. László Mészáros, estate manager of Disznókő, and a member of the consultancy organization, commends the choice of such a professional agency as Claessens International to carry out the branding. “We have every confidence in them, they have a thorough way of working, and we are convinced that everything will be strictly controlled,” he says. “This is a great opportunity for Tokaj and Disznókő. The region has never received this much money and it should be used in an intelligent way,” he adds. He also mentions that members of the Claessens team have already visited Tokaj and gained a good understanding of the region. “Rather than using classical advertisement tools, we try to approach consumers by placing the given brand’s strengths in the limelight,” said Francis Michael Claessens, chairman of Claessens International. The firm has worked extensively with producers from Spain’s Rioja region, repositioned and helped increase sales of California’s Gallo, the biggest wine producing company in North America, and Antinori, one of the most

Promising growth at Disznókő.

prestigious Italian wineries. Other top end wineries it has worked with include Bordeaux’s Petrus and Champagne producers Mumm and Perrier Jouet, and spirits brands Chivas Regal, Bombay Sapphire, Bacardi and Johnnie Walker. The new organization will also include: János Winkler, supervisory board member of Tokaj Kereskedőház; Péter Molnár, estate manager of Patrícius Winery; László Kalocsai, estate manager of Dereszla Winery; and István Szepsy, owner of Szepsy Winery. The organization is planning to

A vineyard in Tokaji.

involve other experts from Hungary and abroad at later stages. “The composition of this body reflects the common realization in the Tokaj wine region that the real success of Tokaji beyond Hungary is subject to two basic criteria,” said Tombor. “Firstly, all producers must switch to quality production. Secondly, Tokaji wines must be presented to the consumers as a uniform brand, a product that represents the number one Hungarian national brand.” Charlie Mount, CEO of Amand Wine Exports Kft., which distributes Royal Tokaji wines internationally, welcomes the news. “I genuinely think this is exactly the kind of initiative that should have been carried out a long time ago. It seems the political will is now there,” he says. Mount believes that everything presented thus far is promising, with all the right steps being taken, such as detailed research into competitors and pricing, improving the average quality of the wines and giving the region a clear brand identity. “They are answering a wish−list, now we eagerly await the delivery. The people and resources are in place to get things done,” says Mount. He also mentions that it is critical that the quality bar is raised across the region so that low quality wines are stamped out, which is also in the interest of high− end producers like Royal Tokaji. “We are experiencing phenomenal growth in exports and we want everyone else to join in. If someone’s first experience of Tokaji is bad from another company, then they won’t come to us either in the future,” says Mount. “Tokaji’s reputation was built on super−premium wines, and every bottle should make the country proud,” he said.

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Budapest Business Journal | July 04 – July 17, 2014

GSI Opens 1st European Manufacturing Plant GSI Group, LLC has opened its first European manufacturing plant, a €2.2 million investment, in Biatorbágy, just 20 km west of Budapest, on June 24. The Hungarian plant will cover the design, manufacturing and distribution of grain handling equipment; its 8,000 sqm plant will create 125 jobs and export to Europe, Africa and the Middle East. BBJ STAFF

The investment aims to benefit from dynamic growth in the agriculture industry in the EAME region. “Opening our first manufacturing plant in Europe is a key step to increasing our international presence and delivering quality products and dependable solutions,” explained Thomas F. Welke, senior vice president of GSI’s Global Grain and Protein division. Jason Colwell, director of business operations at GSI Hungary Ltd., added “Central location played an important role in

Left-to-right: Alexander Ivannikov, vice president and managing director of GSI EAME, Jason Colwell, director of business operations at GSI Hungary Ltd, Zoltán Németh, plant manager, and Thomas F. Welke, senior vice president of GSI’s Global Grain and Protein division, cut a ceremonial ribbon to open the new plant.

deciding to open the plant in Biatorbágy, as our main export markets in the region are Russia, Ukraine as well as Hungary and the neighboring countries. Now we can deliver tailor−made material handling equipment – different types of conveyors and elevators – designed and manufactured locally.” In addition to making equipment, the factory also functions as a training and

distribution center for GSI’s complete portfolio of grain, poultry and swine equipment. Together with the additional 2,000 sqm office and warehouse building, GSI Hungary Ltd. will create 125 jobs by hiring design engineers, quality engineers and logistics and purchasing department support, as well as several skilled blue collar workers. The number

of employees is expected to grow based on the performance of the first two years. GSI says its aim is to work with as many local suppliers as possible; the current rate for direct local suppliers is 76%. It plans to triple the production of the Hungarian plant in the next two years. Key export markets are EU and CIS countries, but Africa and the Middle East are also very promising markets in the grain, poultry and swine industry. Katalin Németh head of department at the Hungarian Investment and Trade Agency (HITA) welcomed the investment as another sign of strengthening economic relations between Hungary and the United States. Also at the opening ceremony Irisz Lippai−Nagy, CEO of the American Chamber of Commerce in Hungary, expressed the chamber’s support, noting that the goal of cooperation is not only boosting the local economy by investing and creating new jobs, but also enhancing the overall competitiveness of the country. GSI is headquartered in Assumption, IL, USA. It opened its Hungarian office in October 2013 as a supporting unit of the EAME regional headquarters based in Switzerland. It is owned by agricultural machinery maker AGCO, headquartered in Duluth, GA, USA, probably most famous for its Massey Ferguson brand. It has been present in Hungary since 2011, when it opened a shared service center.

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// Agriculture 11

At One With the Land Hungary is a country seemingly obsessed with its land, possibly as a result of the number of occupiers it has endured, and – for many Hungarians – the still traumatic loss of two−thirds of its territory suffered under the Trianon Peace Treaty after World War One. But while the land holds undoubted symbolic importance, Hungary has long since stopped being the agricultural powerhouse it sometimes still seems to think it is. ROBIN MARSHALL

According to CIA World Factbook figures for 2011, 47.24% of Hungary’s territory is arable land, with 1.97% given over to permanent crops. Agriculture contributes just 3.4% of GDP (it has seen a huge drop in the relatively brief period since the immediate postwar period, when the Encyclopedia Britannica says it contributed half of the country’s GDP), and employs 7.1% of the country’s total workforce. Typical farming products include wheat, corn, sunflower seed, potatoes, sugar beets; pigs, cattle, poultry, and dairy products. ADVERTISEMENT

According to official data for 2011 from the Food and Agriculture Organization of the United Nations, Hungary had 5,337 hectares (one hectare contains about 2.47 acres) of agricultural land, and 2,038.2 hectares of forests. From May of this year, a moratorium on foreigners (including EU citizens) buying and owning Hungarian farmland has been lifted, although critics of the new law, passed in 2013, say it is so convoluted, most won’t bother. Nonetheless the government proudly proclaimed, “From May 1, 2014, the farmland market is liberalized in Hungary and the purchase of land will be possible for citizens of member countries of the EU.” According to Landportal.hu, while any EU citizen can now buy farmland in Hungary, if the area exceeds one hectare, the buyer must prove he or she is a farmer, with a degree in forestry or agriculture, or able to prove he or she has pursued a legal agrarian activity in Hungary for at least three years. It quoted Prime Minister Viktor Orbán as saying the new law reconciles “the defense of Hungarian land with Community law” and defends the interests of small− and medium− sized farm holders. The law has created tensions with neighboring Austria in particular; at one point the latter threatened Hungary with legal action through the European Commission, although that seems to have been dropped for

BBJ Graphic. Source: CIA World Book / Encyclopedia Britannica

now. Given the proximity of the two countries, it is no surprise that Austrian farmers sought to acquire land in Hungary. While the old system made that illegal, a type of gentlemen’s agreement developed known as “pocket contracts”. The new law does not recognize those, leaving an estimated 200 Austrian farmers out of pocket and off the land. INTERNATIONAL ROLE For all its diminished agriculture, Hungary still plays an active role internationally. The 13th European Society for Agronomy Congress will be hosted by the Center for Agricultural and Applied Economic Sciences of the University of Debrecen, from August 25−28. The ESA is an open forum for agronomists, researchers, teachers and students who are concerned with basic and applied science in agronomy: the relationships between crops, soils, climates

and agricultural practices, and between agriculture and the environment. According to Prof. Dr. Péter Pepó, vice president of the Center for Agricultural and Applied Economic Sciences at the University of Debrecen, and ESA President, the congress will identify new scientific trends and put forward recommendations to political decision− makers, promote scientific collaboration and improve cooperation activities, give an overall picture of Hungarian plant cultivation and present the research activities in that and other fields carried out at the University of Debrecen, and facilitate the integration of researchers from Central and Eastern European countries into the ESA. Back in March, Budapest also played host to the Global Forum and Expo on Family Farming (the UN has declared 2014 the “International Year of Family Farming”).

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Budapest Business Journal | July 04 – July 17, 2014

Agrarian Land – Investors’ Agrarian integrators as a topic did not use to arouse too much interest in the media until last year. In 2013, however, the field produced the biggest acquisition of the year in Hungary. Sándor Csányi, Hungary’s number one financial mogul gained a 47% share in KITE, the market− leading company, paying HUF 21 billion for the stake. It took a great deal of legal maneuvering, as László Bige, a fertilizer manufacturer and the second richest person in Hungary, had for a long time seemed likely to be KITE’s winning suitor. And while all of that was going on, a new regional challenger has showed up as well: the Czech billionaire entrepreneur of Slovak origin Andrej Babiš, who in 2012 bought out Hungary’s second largest agrarian integrator firm IKR.

a time−tested formation,” Hazafi points out. Time−tested or not, the crisis shook this market as well. Agrarian integrator firms with high reputations, for example the Szolnok−based GITR, have gone bankrupt by the dozen since 2008. Others, like the Bábolna−based IKR, have been forced to close down entire branches; some companies with larger capital resources had to sell off part of the company. IKR has first lost its exclusive right to sell New Holland combines in Hungary, and on top of that was forced to pay a more than HUF 1 bln fine charged by the Hungarian national revenue authority. IKR had no choice but to sell one of its branches called IKR Agrár to the Czech giant Agrotech Holding. KITE remained the only Hungarian integrator firm that survived the crisis intact and had even strengthened its position by the end. In 2010, KITE’s turnover has almost doubled and reached HUF 205 bln in 2013. That year, the company’s income after taxes was HUF 3.7 bln. THE DOER, THE CHALLENGER AND THE WANNABE “It is obvious that an enormous degree of concentration has taken place in the Hungarian plant cultivation sector, the apparent beneficiary of which

ANDRÁS ZSÁMBOKI

How come the agrarian integrators’ sector suddenly became so sexy? According to textbook definition, agrarian integrators are firms that organize production and provide financial infrastructure to farmers. “In reality, they provide capital and expertise in countries where farmers lack those assets,” László Hazafi, an agrarian expert who writes for Portfolio explains to the Budapest Business Journal. Such integrators give credit to farmers, the collateral for which is the agrarian produce itself. At the end of the production process, the integrators receive their down payment by buying up the produce at a pre−agreed price. Part of the credit is paid in kind. The integrators provide input materials such as fertilizers, seeds, and pesticides to the farmers; furthermore, they take part in the purchasing of agricultural machinery as well. “In Central and Eastern Europe, the integrator system is

has become KITE,” Hazafi sums up. Everybody tried to take advantage of this situation in a different way: one firm wanted to acquire KITE; another wanted to enlarge its input material production network into an integrator−type of enterprise; a third wished to secure its position as a single brand retailer; and there was one that wanted to expand its integrative activities in Slovakia and the Czech Republic into Hungary. “In order to enter the market at all, one needs to possess HUF 10 bln as a minimum capital; and if one wishes to buy a decisive market stake one needs to have even more than that,” Hazafi remarks. Given these conditions, it is not surprising that only billionaires play this game. The first suitor was László Bige, who as owner of the Várpalota−based

Nitrogénművek Zrt. is the second richest person in Hungary. Importantly, as a manufacturer of fertilizers, he has a 75% market share in that field. He made his bid for KITE early in 2012. “By wishing to buy out KITE, Bige obviously wanted to build up a vertical industry. Out of an input material manufacturer, he wished to become the protagonist of the agrarian integrators’ sector,” Hazafi suggests. Another suitor showed up in 2013, but did not reveal his identity at first: Sándor Csányi, Hungary’s richest person, who is known to have interests in agriculture as well. He owns Bonafarm Holding,

Market distribution of so−called input materials in Hungary (HUF millions) 2008

2009

2010

2011

2012

2013

Fertilizers

107.1

83.4

75.5

105.9

123.1

136.2

Pesticides

81.9

79.3

74.1

79.8

86.9

90.7

Machinery

113.3

136.3

42.9

78.6

93.9

104.8

Source: Statistics Department of the Istitute for Agricultural Research

an enterprise that ranges from animal farming to corn growing and supports the meat processing industry. The two flagship companies of his holding are the Herz and Pick Salami Factories. “Sándor Csányi’s concerns are strongest in animal farming. In acquiring KITE, his aim was to strengthen his position in other fields of plant cultivation, namely in horticulture and corn producing,” Hazafi explains. Csányi had good reasons to be secretive about his acquisition plans: he wanted to avoid creating a bidding war between Bige and himself. An extreme price hike was likely to occur, since both men are known to have ample resources. KITE initially agreed with Nitrogénművek Zrt. that it would buy a 52% stake owned by the company’s employees and management for 18 times its book value – which was indeed a lucrative offer. At the last moment, however, Csányi offered a price 20 times the book value. That was the reason why Csányi kept his identity secret and made his offer through a figurehead. “Had he revealed his identity and the names of both competing bidders had leaked out, the price competition would have got way out of hand,” Hazafi notes. Csányi may have had another reason not to reveal his name as a suitor. He may

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’ Battlefields

have been worried about the Hungarian state interfering with the process in order to stop him from gaining ground in plant cultivation. “As soon as Csányi’s bid was disclosed the agrarian platform of Fidesz raised the idea that the whole agrarian integrators’ market should be nationalized,” a source wishing to remain anonymous told the BBJ. Rumor says that one leading agricultural politician commented on the events by saying that agrarian integration is too much of good a business for the Hungarian state to be left out of it. However, that idea went through a great deal of refinement before it landed with the relevant parliamentary committee, potentially waiting to become a bill. In October last year, Sándor Font, the governing Fidesz party chairman of Parliament’s Agricultural Committee announced that the state wished to create non−profit agrarian integrator centers in order to contribute to the improvement of farmers’ situation. “Farmers could then decide whether they wish to rely on non−profit, state−owned integrators’ services, or stick to today’s for−profit agrarian integrator firms, the activities of which would not be abolished,” Font told online news magazine Agrárszektor.hu. Later, however, the planned bill on agrarian integration was taken off of Parliament’s agenda because of the

2 Business

// Agriculture 13

RANKING BY MARKET SHARE

When Sándor Csányi paid nearly HUF 21 bln for a 47% stake in KITE, László Bige said he was not going to raise the stakes any further because KITE is not worth that much. There may be some truth in that: the company produced a HUF 3.7 bln net profit after HUF 205 bln in revenues last year. “If the customer took out a loan on a market basis for the acquisition of KITE he would have no chance to pay it back at that profit rate,” Bige remarked sarcastically. Bige originally offered HUF 18 bln for the same stake, and is now trying to build up “a new KITE” for around HUF 10 bln. That means he is planning to augment Nitrogénművek with profiles including input materials trade and farming credit. “Experienced experts are needed to fill about 60 positions; potentially, even KITE’s professionals may be seduced away. In Szolnok, a new plant breeding factory is going to be created, offering jobs to about 800 employees,” Bige boasted to economic daily Világgazdaság. Competitors usually have doubts about the ability of the new enterprise to provide credit to farmers. “At the moment, even the trade branch of Nitrogénművek functions in a way that pre-ordered fertilizers must be paid for three months in advance. That is very far from credit based on the assessment of estimated risks,” a source unwilling to be identified told the BBJ. Everybody regards IKR Agrár/Agrotech Hungary as the most serious challenger on the market. Besides that firm, Cargill is quoted as the only other agrarian integrator company which is able to compete with KITE: it has a multinational company behind it, with a multitude of food processing plants all over Central Europe. All the other actors in the sector are significantly smaller, not only in terms of their capital but also in terms of volume and diversity of traded goods.

forthcoming elections, and Csányi’s way was cleared to become KITE’s owner in his full right. THE BATTLE IS OVER, THE WAR GOES ON In the meantime, rejected suitor László Bige has not given up his market ambitions. Nitrogénművek’s management is working hard on intensely developing its input material production alongside its original fertilizer manufacturing profile; in addition, it may even become retailer of various agricultural machinery brands. The apparent ambition is still to enter the agrarian integrators’ market eventually. “For the sake of the complex marketing of input materials, this year and next year we are going to invest €300 mln into that field. We wish to extend our Genezis Partner Network, which at this point distributes only fertilizers, into a chain that offers a broader selection of goods,” Péter Suba, deputy managing director of Nitrogénművek told the BBJ. The company already has a three− quarter share in the fertilizer market, and within two years it would like to achieve a 25% share in the seeds market. Bige wishes to reach this aim by limiting his sales to agrarian integrators, and selling fertilizers directly to farmers on his

own. Sándor Buvár, managing director of KITE, has confirmed this news. “The relationship between László Bige and KITE was already tense at the time of KITE’s planned sale. Since the acquisition was completed, László Bige has sold only a minimal amount of fertilizers to KITE,” Sándor Búvár told the BBJ. It would be a mistake, however, to believe that KITE is Bige’s main enemy, experts point out. Nitrogénművek’s natural competitor is actually the Czech company Agrotech. “Both companies possess substantial capacities in fertilizer production and, based on that, are striving to market other input materials, and offer financial services to farmers,” Hazafi explains. In the past 20 years, most of the fertilizer factories have closed down in the Central European

region, and only a few large ones remain. Of those, the only Hungarian producer is Nitrogénművek; another factory called DUSLO operates at Sala (Vágsellye) in Slovakia. DUSLO is owned by Andrej Babiš, and his firm routinely plucks customers from Nitrogénművek. The two firm’s combined capacity practically covers regional demand; between March and June, when seasonal demand is high, even shortages may occur. This is a situation in which it is rather easy to motivate farmers to join the partner networks of large fertilizer producers. “The market status quo is dissolving at the moment, and we would like to take advantage of the financial opportunities offered by our mother company Agrotech,” says Lajos Nagy, managing director of IKR Agrár.

BBJ

3Special Report Clouds Portend a Sunny Future 16

Local Service Offers 17

Cutting the ‘Nine−to−Five’ Chord

Silver Linings

Mobile office possibilities go hand−in−hand with the cloud, and while the servers that power this environment can be anywhere, many Hungarian businesses are opting for local providers, and not just because of the language benefits.

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Budapest Business Journal | July 04 – July 17, 2014

Mobile market While Hungarian software development has always been keen on innovation, it has never found a profitable market in Hungary. Let’s face it: this is a small country with a big taste for torrent servers. Piracy was always especially high in Hungary, as we don’t like to pay for software. Still, foreign companies are finding fertile ground here for outsourcing software and this is especially true for mobile development. The Budapest Business Journal spoke to some of the mobile software development gurus in Hungary. GERGELY HARPAI

As smartphones and tablets have increasingly become everyday accessories, the need for mobile software has grown ever stronger. The iOS and Android operating systems dominate the market, although Windows phones are getting stronger. Since for the Hungarian developers it is the global market that counts anyway, many concentrate on iOS rather than Android, even though the latter is more common in this country. “People tend to spend more for software on iOS platforms,” said Tamás Terray, the founder of iMind, one of the biggest

STORY HIGHLIGHTS ■

Hungarian market too small a target for most developers ■ Local companies often work to order for foreign ﬁrms outsourcing their development work

transport is heavily used a in Budapest and the traffic schedules can sometimes be confusing. Still, the problem remains that, useful as it is, Hungarians are not really willing to pay for it. “To use some kind of a software trial model, only letting the user try out some features wouldn’t be a wise choice, since there is similar free software out there, so we rather offer premium possibilities to those who are willing to spend money on Bpmenetrend,” added Terray. “14! apps” is an even more interesting kind of software; it’s actually a journalism app, which iMind has developed from scratch with 444.hu, one of Hungary’s biggest online news magazines with very strong political opinion articles. The software allows users to send in news, pictures, and videos, and even log in with Facebook and Google+ while staying anonymous. Of course, these kinds of software are rather the exception than the rule for locally used mobile software. Hungarians buy lots of smartphones, but surprisingly few people using mobile software on them on an everyday basis. Hence iMind is focusing on outsourced software development for foreign companies like “Ready for school” for smaller children and “Wineamore” for an Italian company that specializes in an application about wine production in Italy. Budapest also boasts a large subsidiary

Tibor Tóth (sitting in the front row in the blue hoodie), with colleagues from Finnish company Supercell.

creativity−wise it’s different from developing PC or videogames. While the Hungarian made “Van Helsing II” PC action game is oozing with creative ideas, making game software for Gameloft requires much less creativity. “Your job as a game designer would be to develop different levels and costumes for “Iron Man 2”, which is an endless runner type of game,” Razvan Dinita, a designer at Gameloft, told me when I once went for an interview there. “Endless runner means that the game never changes, so creativity is not the main ability we require from you.” We

of web solutions abroad rather than in Hungary is well known. György Gattyán, the businessman and owner of Docler Holding Enterprise, was the creator of the webcam sex site Livejasmin.com. You won’t find his mobile application either on the App Store or the Google Play Store, but his member−only webpage works perfectly and is still the most lucrative Hungarian web solution yet made; no wonder that Gattyán was the third richest man in Hungary in 2013. If lack of serious demand for local software and lack of Hungarian paying customers are the reasons for iMind to

György Gattyán, creator of webcam sex site Livejasmin.com.

Tamás Terray, founder of iMind, one of the biggest Hungarian companies specializing in mobile software development.

Hungarian companies specializing in mobile software development. “Of course we also develop for Android and Windows mobile, and even desktop PC.” iMind’s financially most successful software were all made to order of foreign companies, so the Hungarian firm is concentrating on this area, although it does still develop some locally used software such as “Bpmenetrend”, which is a traffic schedule for Hungarian public transport, available both for iOS and Google Android. It’s actually a very useful piece of software, since public

of the biggest mobile game company, Gameloft. Game development itself is one of the hardest areas of the whole mobile software development business. There are tons of similar games out there, and it’s extremely hard to stay on top, or at least near the top on both Android Play Store and the iOS App Store. That’s why there are almost no serious mobile game development firms left in the country; most of the software developers are working at Gameloft Hungary. Developing mobile games for Gameloft may sound exciting, but

both agreed that this was not, therefore, the job for me. Many successful Hungarian mobile game software developers are working abroad for a better pay and better living conditions. Tibor Tóth, Senior Quality Assurance tester is one of them. He first worked at Crytek Budapest where he took part in the development of big budget video games like “Crysis: Warhead” and “Ryse: Son of Rome”. After taking part in another mobile game development at Crytek, he was hired by Supercell, a Finnish mobile software developer firm that produced the extremely successful “Clash of Clans”, which is dominating the App Store and Google Play sales charts. “Our team became well known in a short time, and we made it in Finnish newspapers before the success of “Hay Day”, than after the enormous triumph of “Clash of Titans” we won several startup of the year awards and Supercell made it in television and other magazines.” The success of Hungarian software experts, and, indeed, different kinds

produce outsourced mobile solutions for foreign companies, while better working opportunities, better payment and better standard of living were the motives for Tóth to leave his country and work for Supercell in Finland, for multibillionaire Gattyán it was an entirely different reason why he and his whole software company left Hungary and was established in Luxemburg. He was that Hungarian rarity, a proud taxpaying citizen who actually “bragged” about paying his taxes honestly. In fact, he was so honest and loud about his tax paying habits, that NAV, the Hungarian Tax and Financial Control Administration, found it too “suspicious” and made several “visits” to his company, which was then Budapest, based. After a while he had enough of the constant harassment and simply relocated his company, along with its tax revenues and contributions to the local economy, in Luxembourg. Sometimes being “mobile” in the Hungarian software industry means a totally different thing.

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Clouds Portend a Sunny Future Corporate networks have gone up in the air, allowing companies to outsource more of their IT needs and workers to set up their offices at home. While the physical servers that hold up the cloud can be located anywhere, there are advantages to using a service provider right here in Hungary. The Budapest Business Journal looks at why many firms that compute globally buy service locally. TOM POPPER

The clouds have settled over the Internet, bringing changes in the way we use computers. It is now possible to treat PCs as mere shells, and access storage, processing power and applications from remote hard drives. For a fee, anyone can immediately lease a server, a bank of servers, or even “big data” processing power from a cloud provider. With providers offering the flexibility to buy more computer services when they are needed, and save money on computers when they are not in use, many companies have chosen to rely on the cloud instead of buying their own expensive servers and hiring a staff of techies to run them. The computer servers that do all the work can technically be located anywhere, but there are many reasons why businesses choose to work with a local cloud service provider. “The cloud is a totally international solution for local IT problems, but local partners can

help users to tailor the service based on local needs,” says Zoltán Takács, Chief Digital Services Officer at Telenor Hungary. “Choosing a local partner with a large global cloud provider in the background gives an additional level of flexibility and services that global players without a foot on the ground locally cannot achieve,” adds András Radványi, product manager at Humansoft in Budapest. “Aside from providing Hungarian language support, there is a need for local expertise in how an ERP (enterprise resource planning) system should be customized according to local law, how billing should be compliant to local bookkeeping requirements, and so on.” Touting his own firm’s locally based cloud services, László Márton, director of ICT business development at Invitel− Budapest, notes: “It is important to highlight that Invitel is a domestic operator, working with Hungarian engineers, specialists and, what’s perhaps the most important, also with Hungarian language customer services.” Gábor Szabó, the Leader of the Managed Solutions Competency Center at T−Systems in Budapest, adds: “Amazon offers the most standard, ‘boxed’ products on the market. In contrast, we mainly focus on the needs of corporate clients, which are unique and often extremely complex, so we are not in competition with Amazon infrastructure services.” THE BIG, GLOBAL CLOUDS Globally, Amazon is the market leader in providing cloud services. Google has found itself in the unusual position of being number two, and trying to use lower prices as a way to catch up. Back in 2006, Amazon started to seek revenue from its spare servers, using untapped capacity to create a cloud that other

businesses could rent whenever they needed. Google showed it is serious in its efforts to get a hefty share of the market in March, when it slashed prices for most of its cloud services. The company used to charge $49.99 for one terabyte of storage but now the same plan costs $9.99. Also as of March, Google’s database for big data analysis, called BigQuery, saw storage prices drop from $0.08 to $0.026 per gigabyte, while interactive queries were cut from $35 per to $5 per. For now, we can expect prices to continue dropping, thanks to competition between Amazon, Google – and also Microsoft, which entered the cloud market in a big way in 2008 with Microsoft Azure. That solution works in conjunction with Office 365, which provides popular software like MS Word and Excel. Cloud watchers say the trend in dropping prices was overdue. In fact, according to many reports, businesses were finding that it was often still cheaper to buy and maintain their own servers than to rely on the cloud. GOING HYBRID Many firms have now opted for so−called “hybrid cloud” solutions, in which part of a company’s IT network is handled by cloud services and part of it lives on the firms’ own hardware. “Initially, some operators took the approach that the full existing infrastructure had to be shifted to the cloud, at any price. However, this was too risky, and, as it turned out later, not necessarily the most cost−effective solution,” says Invitel’s Márton. “Invitel has a different approach to this process. It is the commercial needs of companies that determine IT requirements, and not the other way around. If, for example, the customer needs a CRM or mailing system, we first look at these components to determine whether it’s worth considering a cloud−based solution

for these, and as soon as the individual components work, the whole environment can be gradually converted.” Humansoft in Budapest makes an effort to ensure that their customers know beforehand what the right mix is for a hybrid system, according to Radványi. “We can provide detailed ROI (return on investment) and TCO (total cost of ownership) calculations before any project is chosen to be run on−premise or in the cloud,” he said. According to Szabó of T−Systems, the flexibility of the cloud is an economic benefit that should be included in any cost considerations. “There is no need to invest heavily in infrastructure: IT spending is calculated on the basis of the resources used, and it can be figured as an operating cost,” he said. “In addition, with cloud−based infrastructure services, the infrastructure is already available, so you can configure the system to your specific business needs, without lengthy procurement procedures.” Takács from Telenor emphasized that it is not just the companies who benefit from the cloud’s flexibility; their workers do too. “Cloud services bring flexibility to all customers, which is very important for business people,” she says. “Definitely top beneficiaries are those customers who frequently work remotely from their office, travelling a lot. As they can access all of their emails and documents from anywhere, they can easily work on the road without any hassle.” Perhaps quality of life should also be considered in calculating how deeply to enter the clouds. But as the cloud cover grows thicker over the Internet, and services grow better while prices continue to drop, companies may stop asking whether they can afford to be in the cloud and instead consider whether they can afford to ignore it.

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Local Services Promote Offers

HUMANSOFT

András Radványi, Humansoft Product Manager: “We can provide almost any business application and infrastructure services from our cloud services, either migrating customer’s existing systems, or designing completely new ones. There are no hardware requirements from the customer side: any traditional desktops/notebooks, mobile devices (phones, tablets, hybrids) can be utilized for accessing the system. “The other main difference is that a customer using our Microsoft−based cloud services does not have to abandon their on−premise IT, and instead of creating silos of isolated systems, we provide an overall integrated IT management system covering both on−premise and cloud computers. Furthermore, you don’t have re−train your IT personnel, their existing knowledge can be utilized. “We offer security, data privacy, compliance and the capability to integrate existing on−premise IT in hybrid scenarios. Flexibility in billing, integration and outsourcing capabilities are considerable factors too. “We also offer customization, which is the main point of providing services from the Microsoft Cloud. Even the pre− configured SaaS (software as a service) like Office 365 has very high customization capabilities. And then there are the infrastructure and application capabilities of Microsoft Azure, with its Infrastructure as a Service (IaaS) and Platform as a Service capabilities (PaaS). “We like challenges, complex tasks. No two customers are alike. Microsoft Cloud has already multiple enterprise−level success stories in Hungary in almost all verticals, including the financial sector and public sector. Our customers include global organizations like Easyjet, 3M, Lufthansa Systems, Tesco. “No−risk trials are available, as well as introductory workshops and free consultations. Take the opportunity and let us calculate your savings benefits and provide instant on−demand IT capacity for any business goal or project that you require. “Resources consumed (such as storage utilized or computing resources) are billed based on actual usage: if your developers turn off their servers during the night/ weekend, you can actually halve your related costs!”

INVITEL

TELENOR

T-SYSTEM HUNGARY

László Márton, Director of ICT Business Development at Invitel:

Zoltán Takács, Chief Digital Services Officer at Telenor:

Gábor Szabó, Leader of the Managed Services Competence Center. T−Systems Hungary:

“We offer not only infrastructure or capacity rental to customers, but also software or application based services, where businesses can purchase everything via a single contact point, without investment costs, under a rental scheme. If the customer chooses monthly payments, they can increase or decrease the volume of resources at any time. “At Invitel we primarily believe in hybrid solutions, and offer three different options to customers, depending on the size of the operation and the sector involved. Solutions include capacity options running on our own servers; but, as key Microsoft Azure Partners, we can also offer Microsoft Azure services. The third option is InviCloud, a service specifically developed for micro businesses, which can be independently configured, meaning customers can set everything for themselves. “We thoroughly assess a company’s business requirements and jointly choose the optimum IT solution in response. Every customer has IT components that could work more efficiently in a cloud. It is, however, important to emphasize that this is not true for the full IT environment, only certain parts of it. It is these components that we have to identify for each customer, and convert them into a cloud service, gradually extending this solution to the full environment. “Invitel’s customers appreciate that all they see is that the system is working, and they simply pay a monthly fee for it. It is a unique model on the Hungarian market, where customers sign a contract with Invitel, but are unaware of the components and technology behind the requested cloud service; or whether the capacities used are our own or our partners’. The only thing that matters to them is to make sure that the chosen IT solution supports the business as efficiently as possible. “At present only 3% of domestic small and medium−size enterprises use cloud− based services. “In this sense, Invitel is in a unique situation, as we are experiencing the opposite of usual market trends: Approximately 15% of our SME customers and close to 2% of our corporate customers use cloud−based services.”

“A hybrid notebook or tablet is the best choice when you work from home, on the road, or while using Wi−Fi at a cafe. It combines the advantages of both devices, the power of a PC and the touch screen of a tablet with an easy to use interface. The keyboard makes it perfect for work, while the separate screen makes it also ideal for content consumption and the built−in 4G modem enables the user to be always connected without the need to use additional equipment. Consumers can purchase the device for HUF 99,890, with a monthly fee of HUF 27,000, which includes both the installment for the device and the monthly fee of Hipernet Premium, which is a practically unlimited mobile broadband subscription, offering 100 GB of data. Cloud services offered by Telenor perfectly complement this offering so that customers can work anywhere, anytime in a worry−free way. “Office 365 is the absolute best solution for home workers. Users can access their emails, documents, charts and other files wherever they are. With a mobile internet connection users are able to work remotely anywhere, anytime. This was only a dream due to the price of mobile internet several years ago. But dreams may come true: we provide 100GB mobile internet data allowance to all of our hybrid notebook clients for a very discounted price on Hipernet, the fastest 4G network in the country! “Recently more and more companies face security threats. That’s why we came up with a security solution, which is a cooperation with F−Secure, one of the best−known companies in the IT security sector. It provides a perfect defense for every hybrid notebook user against viruses, malware and other threats. “While Amazon’s cloud service targets mainly large enterprises, our cloud solution is ideal for smaller companies, SMEs as well. Amazon mostly focuses on storage and IaaS (infrastructure as a service), while Telenor’s cloud services aim to satisfy the needs of end users who are looking for productivity or security services to solve their everyday IT needs. Telenor also offers a device, which is a perfect tool to work anytime, anywhere, with practically unlimited mobile internet.”

“Hungary’s T−Systems customer base predominantly consists of large and medium−sized enterprises and public sector institutions. We are unique in that we can offer these kinds of customers our cloud−based solutions as part of a complete package that includes all telecommunications and IT services. “Our managed and cloud−based service portfolio covers three broad areas: infrastructure, applications and communication. “IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) solutions provide a complete framework of ICT services, hosting and collocation services, and IT−security solutions. We offer customized arrangements that fit clients’ needs. “SaaS (Service as a Service) solutions provide our clients solutions for critical business processes. Just some examples of our full range of customizable solutions include sales support (CRM), enterprise management (ERP), banking solutions and document management processes. “Our Communications and Collaboration as a Service (CCaaS) solutions provide our partners a single interface, which is available for all types of communication – whether it is a corporate phone book search, chat, email, phone, video communications, or web conferencing. Our main cloud− based telecommunication solution (instantPhone) is a corporate telephone PBX and a consistent communication service offered to our customers in a highly predictable and flexible financial scheme without the need to install any technical device other than the terminal equipment at the company’s site. “Cost savings can be achieved through cloud−based services, which require no initial investment. But for the large corporate customers who make up the client base of T−Systems Hungary, cost is only one consideration. They are also interested in the outstanding quality of our services and security. T−Systems Hungary builds upon decades of professional experience to offer a higher quality of IT service than the customers themselves can achieve – usually for less than the price of an in−house system.”

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Budapest Business Journal | July 04 – July 17, 2014

Cutting the ‘Nine-to-Five’ Chord Information technology allows ever more flexibility for workers to choose where they carry out their duties. Even though it’s hard to keep track of those involved in remote work schemes, the number of people opting for and interested in telecommuting is rising fast. LEVENTE HÖRÖMPÖLI-TÓTH

In the movie “Horrible Bosses”, a remote person – not a computer – assists the main characters as they drive around by providing real−time navigation. They are curious about the true name of the guide who calls himself Gregory, but has a distinct Indian accent. It turns out “Gregory” was assigned to help Americans at pronunciation. One of the protagonists insists on calling him by his birth name, “Atmamand”. After five ill−fated attempts, he gives up, saying “I’m gonna call you Gregory, ’cause your real name is a nightmare!” Like many of his country mates, Atmamand was most probably a teleworker. For, according an Ipsos survey, 82% of the work force in India qualifies as such. Workers in unprecedented numbers are

STORY HIGHLIGHTS ■

Telecommuting is spreading due to ﬂexible arrangements and cutting-edge IT solutions ■ The scheme is promoted by the Slow Movement

enabled by cutting−edge technology to do their job from wherever technical conditions allow – basically a computer, an Internet connection and a phone, and the latter is not totally necessary if you have email –, regardless of the location of their center office or clients. But it is not just a way of work driven by digital technology. The crisis also gave a boost to the phenomenon. Slashing office rents and maintenance costs was all of a sudden a priority, and instead of laying−off staff, another option became keeping people away from the central work premises. YOU MAY EVEN GET INSPIRED Carrying out duties from a remote location is ideal for the disabled or moms on maternity leave, and in general productivity is also affected positively. “We have introduced among our colleagues that they may work one working day away from the office, typically from home. This flexibility is appreciated not only by those with

A Matter of Trust and Risk Allowing workers to do their job from another place than their major work premises has a lot to do with trust. But more is needed in order to make the scheme function. According to Péter Béres, Senior IT Consultant of Sicontact Kft. it needs to be clarified who will provide the tools necessary for performing duties and complying with health protection and security requirements. It is also subject to agreement what resources can be accessible, and in what form. “The employee concerned in telecommuting needs to be trained about data protection rules and security issues as well,” Béres told the BBJ. “It must be clearly specified what data on a USB key may be copied or sent to a private e-mail account. Should they bring a flash drive of their own, it must also be determined to what extent it should be checked.” Another issue arises with theft of data storage units containing sensitive company data. “An action plan is needed for such a scenario. Prevention is of key importance in this regard; whereby theft protection and the definition of the scope of company details allowed to be saved locally on the hard drive are priorities,” Béres said.

In the Jungle of Definitions Telework: any form of substitution of information technologies (telecommunications and computers) for work-related travel Examples of different types of teleworking Home/flexible working - whereby work hours are adjustable and/or working from home is encouraged a few days a week Remote working - working in an office base that is not the employee’s usual work location Virtual meetings - using modern technology to conduct a meeting instead of traveling to be face-to-face Telecommuting: that portion of teleworking that applies to the daily commute to and from work. By definition, telecommuting is one kind of teleworking. However, “telework” is mostly used outside the United States, while the more popular term in America is “telecommuting”; therefore the boundaries of the definition differ geographically.

creative tasks, but it also raises the morale of workers who need to stay at home on a particular day for some reason,” Telenor Hungary told the Budapest Business Journal. Telenor promotes teleworking by backing the Hungarian Home Office Day, together with Microsoft, with the participation of more than 100 companies. Telecommuting is clearly heading towards massive expansion regardless of geography. Data by the American Statistics Survey shows that around 3.2 million workers work from a place other than their work premises at least half the time. However, the number of those doing so at least one day per month accounts for ten times as many, making up 25% of the work force in the United States. Hungary seems very far from such a ratio. A proportion of 2.8% according to the European Working Conditions Survey in 2005 had gone up to 8% by the end of 2011, as stated in an Ipsos study, but even so the country lags behind its developed counterparts and the European average of 15%. Or does it? According to the Hungarian Telework Association (MTMSZ), precise measuring is not easy. “In many companies there is a chance to work from home many days a week, but when asked about it few confirm the existence of telework as the employment contracts have not been modified accordingly,” chairman Tamás Forgács said. “It is questionable too how freelance colleagues or the self−employed working directly for a company or workers doing telework only once a month are accounted for.” There are key sectors that are more suitable for telecommuting; companies specializing in ICT or finance top the charts, but it is the service industry that has the biggest potential. No matter what the exact numbers are, people are clearly interested. Some 52% would be interested in using such a scheme in Hungary. Not all, though, are so keen. Many fear that cutting off social ties with colleagues could backfire in the long run, not to mention running the risk of getting overlooked for

Telework growth in the US (2005−2012) For proﬁt companies

70.4%

Non proﬁt organizations

87.6%

Local government

62.3%

State government

122.1%

Fed government

421%

Total Telework Growth

79.7%

Source: GlobalWorkPlaceAnalytics.com

Companies (staff of at least 10 persons, excluding ﬁnancial institutions and health care) in the EU employing teleworkers, 2012 Spain

54. 1%

France

55.2%

Netherlands

58.8%

EU27

59.9%

Germany

64.9%

Denmark

73%

Poland

78.6%

Finnland

79.3%

Source: Eurostat

promotion due to less face−to−face contact with superiors. Another concern is losing the job for the same reason. JUST TAKE IT SLOW Yet fans rather see the freedom to arrange work more flexibly, and so reconcile it better with their private lives. The Slow Budapest Movement aims to promote this value. As Györgyi Sudár pointed out to the BBJ, it supports any initiative that helps achieve a slower−paced life with more quality. “The main advantage of telecommuting is that people can adjust their work to their own natural rhythm and can work in an environment they find more comfortable. Their lives can be controlled better, and stress goes down,” Sudár said.

The ‘Telehouse’ Concept in Operation You can work while on a plane, in a park or in an attendance room, and variations for an ad-hoc work place other than the official one are impossible to list. An unusual type of telework is the so-called ‘telehouses’ that offer a workspace for people that can be employed by any remote company to carry out tasks via ICT tools. The concept is in operation in several countries in Europe. Spain has as many as 30 of such units, but Scandinavia has also embraced the concept, as its climate makes it difficult for people living in certain regions to commute. In Hungary, the Hungarian Telework Association (MTMSZ) started the program. So far two premises have been set up: one in Tárkony, the other in Nagykőrös, but the latter was established together with a nearby center in Szőgyén, Slovakia, under the framework an EU-backed cross-border project. Apart from EU money, the Hungarian government and the municipalities concerned have contributed to the implementation. All together 300 workers could be employed as of now. Employers willing to sign up can look forward to annual savings of up to HUF 10-20 million per year should they hire 5-10 people each. This should be only a beginning. MTMSZ says that 2-3 such entities should be set up in each of the seven regions in Hungary. They know what they are talking about. For many living in the countryside this scheme is the ultimate solution to finding a job without having to move.

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Budapest Business Journal | July 04 â€“ July 17, 2014

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4 Socialite

SOCIALITE

Unwitting Spy Pawn

SOCIALITE

Fine Restaurants

FOO: A Refreshingly Unique Alternative In unique fashion, the Fishing On Orfű Festival capitalizes on the personal magic of iconic musician András Lovasi. The comeback of his cult band, Kispál és a Borz strengthens the program, but the aim remains to be a chilled− out gathering celebrating Hungarian alternative music against a backdrop of leafy hills and a cool lake. BOB COHEN

“Did so many of you really believe that this was gonna be our last show?” singer and bassist András Lovasi joked with the 45,000 strong crowd back in 2010 in the “farewell” concert of Kispál és a Borz, an iconic Hungarian alternative rock band. Not a single soul bought the tale of a final good−bye, of course. The idols were

András Lovasi, Kispál és a Borz frontman

back on stage after a pause of mere four years. “When we came up with the idea to resume performing I said right away that our role models are the Sex Pistols and we’d claim just like them ‘we’ve run out of money’!” Lovasi said. The return has been orchestrated in a smart manner. The band will play one gig per year from now to 2016. A few extra shows are being put on especially for the Hungarian diaspora from Slovakia to London.

STORY HIGHLIGHTS ■

The festival aims to differentiate itself from competition by offering unique programs ■ Priority is to keep the image of an affordable, cozy and friendly event not least by capping attendance

HOME GROWN FESTIFAL The Fishing On Orfű Festival, also know as FOO or Fishing, was picked as the venue for the exclusive annual performances as it was co−founded by Lovasi. FOO was launched in 2008 to provide the Hungarian underground scene with a festival of its own. The sweeping popularity of Kispál és a Borz and its front man was used as a catalyst to make a name in the festival arms race. The plan worked. By 2010 the festival was making a profit, and in 2012 it was sold out on site for the first time. By last year a “Day 0” had been added to its standard three−day schedule, the additional day entirely a Kispál Tribute Show. And the current yearly Kispál Specials are meant to further solidify FOO’s image. As a result, this June all tickets sold out in pre−sale for the first time ever. PERSONAL BRANDING Fishing is also peculiar in the sense that it is used to promote brands Lovasi is associated with. His active projects, bands Kiscsillag and Budapest Bár are an inseparable part of the line−up. Another item, his biography, was released in his personal brand shop right before Kispál’s official comeback. “If you get the Kossuth award [the highest− ranked state recognition] that others normally don’t, a product becomes more interesting and sellable. And this is sellable now and not ten years from now,” Lovasi explained in an interview. Accordingly, an autograph signing session was coupled with a special 20% discount to boost book sales at Fishing. Only 10% of FOO revenues stem from sponsorship, but for the first time an official sponsor has been found. OTP Bank weighed in as it saw strong potential in advertising its “Simple” bank account package. “We wanted to support a smaller, livable festival where not brands, but Hungarian music and natural beauty are in the spot light,” Gergely Dolezsai, head of OTP Bank’s Department of Brand Management and Marketing Communication told the Budapest Business Journal. “On top of our financial support, our 300 ‘Simple’ customers could buy passes at 50% off.” Other sponsors contribute to building the FOO brand further. One new strategic partner is MR2, a popular public radio channel. “This was the

VeszprémFest packs in the music July 15-20 A beautiful, rustic location in Veszprém will be taken over by bands and music lovers July 15-20, for the annual VeszprémFest. Every summer, VeszprémFest offers the most accomplished, world-class performers from various musical genres, be it classical music, world music, opera, jazz or pop music. The stunning Baroque building of the Archbishop’s Palace in Veszprém Castle serves as the background and natural setting for the concerts. This year on stage: July 15: A transatlantic meeting between Malian singer Fatoumata Diawara and Cuban pianist Roberto Fonseca. July 18: Pioneers of the London Acid Jazz scene, The Brand New Heavies (pictured), are a British music institution whose unique mix of jazz, funk and soul has lit up the UK music scene for well over two decades. July 19: Youssou Ndour, whose bedrock in Senegalese music and storytelling remains the hallmark of his artistic personality. July 20: Hungarian Jazz Day with Hungarian jazz stars and international soloists. For the program and tickets, see: www.veszpremfest.hu first year it covered the event live and set up a studio here,” FOO spokesman Péter Egyedi told the BBJ. By playing emerging Hungarian alternative groups’ music, MR2 also helps underground formations with one−time summer hits gain popularity and be successful at Fishing On Orfű. DON’T KILL THE CHILL Being sold out means 6,500 visitors a day at Fishing. The biggest domestic rivals host between five to ten times more people, but the organizers don’t mind at all. Vacation spot Orfű offers a laid−back country side environment with its leafy hills and neat lake. All agree that too large a crowd would kill the chilled−out atmosphere so cherished. Although ticket sales make

up 80% of total revenues, no major cover charge increases are planned. Prices are down−to−earth, a refreshing difference to other festivals. One reason is that almost exclusively it is domestic artists who are invited, and they don’t charge astronomic fees. “We would rather aim for an ‘elite festival status’ where tickets sell out well in advance,” Egyedi added. “In the past years we were promoted mainly by regional media partners, leading online music portals and program booklets. Our marketing budget has always been modest, Fishing’s reputation has been spread by word−of−mouth.” Considering this year’s success, more won’t be needed to produce more sold− out events full of euphoric fans again and again.

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4 Socialite

Budapest Business Journal | July 04 – July 17, 2014

Hungarian Chronic: Four Tigers Farewell The Four Tigers Chinese market – the sprawling open−air shack complex on the outskirts of Budapest’s perennially blighted eighth district – has finally been shuttered. We all knew it was coming. For years the Chinese Market faced being shut down by local politicians, particularly Máté Kocsis, the district mayor who previously made international headlines by redefining homelessness as a criminal act. Kocsis announced plans to redevelop the area as a sports complex including leisure parks, hotels, and an underground parking garage costing an estimated HUF 9 billion. Although no timetable has yet been set, this ambitious project is expected to see completion on the day when monkeys fly out of my ass. BOB COHEN

The Four Tigers was the last survivor of the KGSZT (Comecom) open markets that popped up around the time of the collapse of Communism. Once the Iron Curtain borders opened, the eager proletarian classes of Romania, Poland, and the former USSR as far as Mongolia set up shop in markets around Budapest to unload suitcases full of illicit cigarettes, untaxed vodka, fluorescent hair ornaments, plastic shoes and industrial tools. The Chinese soon caught on, and by the mid 1990s they dominated the trade.

The former home of the Dang Muoi Vietnamese Buffet, this columnist’s bet for best restaurant in Budapest. Budapest

A train ticket from Budapest to Beijing cost $16 in 1990. All you needed was a folding table and a cardboard carton of plastic shoes and crap fishing equipment and you were in business. Sure it was dodgy, operating as if it were some urban way station on the Silk Road of capitalism. Sales receipts were unheard of. The mere idea of restaurant inspectors visiting the ethnic lunch shacks was laughable. Signs at the gate set down the rules: no entry allowed for guns, cameras or dogs. Beyond that stood a welcome committee of Arabs selling free−range cell phones, artisanal tax receipts, and pocket−based FOREX banking services. A warren of tin shacks offered Uzbek underwear, sequined T−shirts, Chinese hardware and tool kits, and bulk DVDs. There

The Four Tigers: the passing of an institution, and a small piece of 20th century Hungarian history.

were almost daily raids by the customs police commandos, nattily done up in their camouflage and flak jackets like extras in a Steven Segal movie. Branded in the Hungarian press as a hotbed of crime and mafia, a magnet for smuggling and stolen goods, and even for making less than exemplary tofu in illegal factories, The Four Tigers Market was all of that and much, much less. To put it bluntly: if you are Hungarian (or Slovak, or Serb, or Romanian) and you wear socks and underwear, or pop Viagra, shoot off fireworks, or fish for carp with cheap fishing gear then you can thank the Chinese market for providing these to you at a price you could afford. No Chinese market will mean a lot of sockless, shit−stained, limp, quiet and fish−less East Europeans. A lot of Hungarians were afraid to even enter the market, a scary multilingual zone full of Romanians and Arabs and Gypsies and Chinese, Vietnamese, and even Mongols all chatting away in distinctly non−Hungarian languages and snacking on really good things with no name in Hungarian. I saw Transylvanian Gypsies speaking Vietnamese, and Hungarians happily chatting in regional Chinese dialects. Not many of them, mind you, but apart from its evil reputation it was actually one of the safer areas of the eighth district if you knew the rules (no photographs! no samurai swords!) The first sign that the market would disappear was when I saw the empty shell of the once glorious Dang Muoi Vietnamese Buffet, which was – and I am not exaggerating – the best restaurant in Budapest. Sure, we now have a Nobu, and there is a Michelin Star tossed here and there, but Dang Muoi was the place I would go to eat. It was three picnic tables set inside a grocery shack, and you ate seated next to strangers with Chinese cabbage and bunches of lemon grass and cases of noodles stacked beside you, but it

was as authentic as dining on the streets of Hanoi. I once took one of President Obama’s Human Rights advisors to eat there. She had the bun bo hue soup. My wife and I did a lot of our food shopping at the stalls inside the Four Tigers, as well as the huge Chinese supermarket across the street. Next−door was a Vietnamese coffee stand where we could get primo Cà phê sữa đá and free lotus tea. The Vietnamese fish market offered frozen squid and dozens of herbs and greens unheard of in Hungarian markets. The woman working the last remaining Vietnamese grocery stall told me that they, along with the Dang Muoi, were moving to “Vietnami Utca” in the Europa Piac, the recently developed miniature Chinese wholesale suburb that has taken over the old factory district. The entire Chinese Market is basically moving across the street. Where Uzbek underwear leads, there shall I follow. We checked it out: all is well. Dang Muoi now has a small grocery and lunch counter near the entry gate to Vietnam street in the market. The food remains the best in town. The wall shows offerings of more than a dozen soups, but I still find myself drawn to the mysterious steam table: belly pork in spicy sauce, pickled veggies, Vietnamese slaw, chicken done four ways, tofu, eggs, and slices of stewed or fried fish... just point... and as long as it fits on top of a plate of rice, it is yours. Here’s an off−menu summer tip: ask for bun cha or bun nem: cold rice noodles topped with BBQ pork or spring rolls and crushed peanuts which you dunk in a chilled spicy broth and gobble down with a bit of fresh salad. This, my friends, is terroir! For me, this – the heady mix of unintelligible languages and business and urban mess and pepper sauce – is home. This is Beijing, Hanoi, Bucharest, Quito, Baku and New York all rolled into one. This is the Budapest I call home.

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4 Socialite

Budapest Business Journal | July 04 – July 17, 2014

BOOK REVIEW

An Unwitting Pawn in Stalin’s Hungarian Show Trials Pro−Soviet American Noel Field was imprisoned in Hungary and the confessions coerced from him were used to incriminate others. But that’s just one part of the fascinating true story of a man caught up in Cold War intrigue. BOB DENT

On 10 July 1960, the noted American journalist Flora Lewis was in Budapest, sitting in a taxi heading towards a villa in Meredek utca in Buda. She wanted to interview a man who was the subject of a book she was writing. She didn’t even get through the garden gate. Having passed her card to a maid, a message came back saying the intended interviewee had no desire at all to meet with any foreign journalist. Lewis went away disappointed. The villa’s reclusive resident was an American called Noel Field and the incident simply added further mystery to a story that was already mysterious and intriguing. Field’s journey from a pro−communist Westerner to a pawn in Stalin’s Hungarian show trials is unusual, interesting and also enlightening for anyone seeking to make sense of Stalin’s tactics and the Soviet Union’s Cold−War maneuvering. Tony Sharp, who has lectured in European Studies at Dundee University and published other books on European history, tells the story well in a new book. Noel Field was born in 1904. From his Quaker father he inherited a concern for society and a desire to help others. After doing well at Harvard, he engaged in social work for a while before joining the State Department in 1926. Like many of his generation, he fell for the naïve view that the Soviet Union represented the hope of the world and during the 1930s he engaged in low−level espionage work on behalf of the Soviets. For most of the 1940s Field was in Europe, heading the Unitarian Service

An image taken from the documentary “Noel Field – the Ficticious Spy”

Committee, an American relief agency. He used his position to channel lots of financial aid to communists fleeing the Nazis, in the process helping many leading German, Polish, Czech and other cadres to survive. Those who got to know him would later regret their acquaintance. Lured to Prague in May 1949, Field was kidnapped and handed over to the Hungarian political police. He was interrogated and tortured, much of the time in a villa at the top end of Eötvös utca, near Normafa. As a result he made some false “confessions”. What was going on? Stalin was manipulating Field with a view to using him as background for a series of planned show trials directed at alleged opponents, beginning with the one against László Rajk, a leading Hungarian Communist, in late 1949. Others followed in neighboring countries. The idea, put simply, was that Field was really an American spy, so anyone who had ever had connections with him must also be a spy. Noel Field himself never appeared in any trial. He remained

a “silent witness”, used and then forgotten, until he was finally released in late 1954. Then came more mystery. Field willingly remained in Hungary, still a supporter of “the system”, even condemning the 1956 Uprising. He spent his last years working for outfits like Corvina and the New Hungarian Quarterly, a true believer to the end. He died in 1970 and is buried in the Farkasrét Cemetery. Sharp’s gripping book provides the most detailed account of Noel Field and the intrigues surrounding him to have appeared in English. It is invaluable for gaining an insight into one of the many mysteries of the early Cold War era. STALIN’S AMERICAN SPY By Tony Sharp Published June 2014 by C. Hurst & Co. (Publishers) Ltd. ISBN: 9781849043441 http://www.hurstpublishers.com/book/ stalins−american−spy/

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Budapest Business Journal | July 04 – July 17, 2014

Restaurants FINE

4 Socialite

This is an extract from Fine Restaurants, the Budapest Business Journal’s Restaurant Guide 2014 (www.facebook.com/fine. restaurants). To order your copy of the publication, which costs HUF 2,990, send an email including contact details to Andrea Bognár, bognar.a@amedia.hu

ARAZ Restaurant ARAZ Restaurant is located at 42−44 Dohány utca, in the historic quarter of Budapest, in the 7th district. A completely renovated exterior façade, a modern interior with a lovely terrace and with a touch of art nouveau from the turn of the century, as well as excellent cuisine and attentive service awaits lovers of gastronomy. The menu offers masterpieces of Hungarian and French cuisine; all prepared using the most modern kitchen technologies of the 21th century. We invite our guests on an exciting culinary adventure, where old and new, traditional and modern cuisine meet: simple, sophisticated and exciting. Conscious gastronomy begins with the acquisition of ingredients. The freshest domestic ingredients are used in each and every dish. Uniquely rich and fresh ingredients, extraordinary imagination, and the intention of achieving the maximum harmony of flavors characterize our kitchen. Wines from the various regions of the country and unique cocktails are also offered. Address of restaurant: 1074 Budapest, Dohány utca 42–44. · Telephone number: +36 (1) 815−1100 · Telephone number For Reservations: +36 (1) 815−1100 · E−mail address: araz@araz.hu · Website address: www.araz.hu · Name of owner: Ákos Kovács · Name of chef: Áron Barka · Name of sous chef: Gergely Major, Gábor Peresi · Opening hours: Monday−Sunday: 7:00–23:00 · Type of cuisine: French, Hungarian · Number of seating places: 120+30 on the terrace · Year of establishment: 2010

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