The following article appeared in the May 2003 issue of Institutional Investor. It has been condensed for this website.

Hungary is continuing to attract millions of dollars in fresh foreign direct investment each year as it prepares for accession into the European Union in 2004. U.S. investors, in particular, are being encouraged to make new investments in high technology, in which the country is developing a highly-visible role as the regional center for Eastern Europe.

Gateway to Europe 600 Million Consumers

New foreign direct investments in high technology increasingly are being made in Hungary by U.S. investors, who long have favored the nation among other European destinations for FDI . U.S. investors recognize that Hungary is a natural gateway to the European Union and Central & Eastern Europe, a fast -growing combined market of 600 million consumers. Hungary's appeal includes its skilled and highly productive labor force, transparent investment code, attractive corporate tax rates, and other distinguishing advantages.

The skill and productivity of the Hungarian labor force is key to the country's success in attracting FDI. . Productivity, for example, is substantially higher than in Poland, Slovenia, the Czech Republic and Slovakia. This capability positions Hungary as the sixth-best country in the world to develop high-tech industries, according to the Organization for Economic Cooperation & Development.

Hungary also was the first country in the CEE to develop intellectual property right laws on par with those in the United States in 1993; as a result U.S. investors have enjoyed more confidence and security in their Hungarian investments.

Recognizing these strengths, the United States is the biggest investor in Hungary, which is the only country in CEE where the United States is the leading investor. Thanks to these investments, the United States has been Hungary's No 1 overseas trade partner for the past three years, with bilateral trade increasing ten-fold over the past decade.

Economic Growth Drives Greater FDI

Foreign investors are no doubt encouraged by Hungary's historically strong GDP growth rate, which has led much of Europe over the past decade. This year, GDP growth is projected to recover to 3.7 percent , up from the 3.3 percent level in 2002, and the outlook is for a return to even stronger growth over the next few years.

Hungary expects to join the European Union next year, which will bring a fresh infusion of investment and foreign trade interest . "More Europe does no mean less America. Hungary is committed to a strong transatlantic relationship. We firmly support the U.S. engagement on the European continent ," says László Kovács, Minister of Foreign Affairs.

Investors in Diverse Sectors Tap Educated Competitive Workforce

Already 45 of the world's top 50 multinational companies are present in Hungary. Companies partly or totally foreign owned in Hungary produced 45 percent of added value of the total corporate sector in 2001. Also, 26 percent of the corporate sector's total workforce is employed by (partly or totally) foreign owned companies in Hungary in 2001.

U.S. investors in Hungary are led by blue chip corporations like General Electric, which has made $1.1 billion in direct investment, followed by General Motors and Alcoa; overall more than a dozen U.S. corporations — including majors like Flextronics and Ford-Visteon — have invested more than $100 million each in the country. Hungary is focusing on further U.S. investment in the high technology industries, especially in the electronics, automotive, bio tech, electronics, information technology, medical and engineering sectors, additionally to software development, R&D, logistics, distribution and call centers.

Competitiveness in High Tech Industry

One of the more promising areas of high- technology growth in Hungary has been in R&D. A large number of companies — including General Electric, General Motors, Nokia, Audi, Siemens, Flextronics, Philips and Ericsson — have shifted their innovative development centers and R&D activities to Hungary. These companies strengthen the bridge-head role of the country to all of Eastern and Western Europe, and potentially to the Russian market as well.

In Hungary the majority of privatization is completed. The Hungarian government is now placing ever-increasing emphasis on the encouragement of long- term agreements between the public sector entities and the private sector in the realization of public services.

Incentives For Regional Investments

Hungary was the firs country in the region that introduced a EU-conformed investment incentive system from January, 2003. "Smart Hungary" is the theme for the country's revitalized investment promotion efforts. Transparency and open and fair competition is the motif of Hungary’s investment climate.

Substantial incentives are being offered by the Hungarian government to foreign investors, including tax holidays for up to five years. Similarly, subsidies for investments in broadband capacity, and for worker training are a cornerstone of the nation's promotion efforts of its skilled workforce.