Commission Report 2002 (Hungary)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 15: Industrial policy

Progress since the last Regular Report

Since last year`s Regular Report, Hungary has made further progress with the development of its industrial policy.

As in the previous reporting period, implementation of the industrial strategy has focused on promoting Hungarian industry and domestic and foreign investment. The implementation of the Széchenyi Plan has focused on measures aimed at promoting networking between multinational companies and local enterprises, innovation and reducing the imbalance in industrial development between different regions, inter alia by improving infrastructure. The impact has so far been positive: In 2001, HUF 118.9 billion (EUR 463 million) out of the aggregate HUF 167.1 billion (EUR 651 million) of funds requested were awarded. These grants were expected to generate investment to the value of HUF 463 billion (EUR 1.8 billion), creating 34 057 new jobs in 2001. However, only one third of the Széchenyi Plan funds allocated by the Ministry of Economic Affairs has actually been disbursed, due to the prevalent post-financing system. A supplementary plan, the Széchenyi Plus Programme, was launched in October 2001, with road construction and state support for housing construction as its largest components. In August 2002, the Government announced the freezing of a large part of the Széchenyi Plan programmes. The Széchenyi Plan will be revised to concentrate the funds on SME development and EU pre-accession projects, and will be integrated into the National Development Programme by 2004.

The Ministry of Economic Affairs and Transport, as the central body responsible for the formulation and co-ordination of industrial policy, involves the line ministries responsible for managing specific industrial branches in the formulation of enterprise policy. The key implementing agencies influencing industrial policy in Hungary are the Privatisation Agency, the Competition Office, the Hungarian Development Bank, the Investment and Trade Development co-operation Agency with its nine regional offices (FDI and export promotion), the Hungarian Foundation for Enterprise Promotion (MVA), and the SME Agency with its network of 20 local enterprise agencies. The business community and social partners are involved in the policy-making process.

The privatisation process is almost complete, and more than 80% of GDP is generated by the private sector. However, the steel sector, with Dunaferr as Hungary`s main steel producer, is still subject to privatisation and restructuring. The Hungarian Privatisation Agency (APV Rt.), currently under reorganisation, only carried out six privatisation transactions in five companies during the period under review. However, another agency, the Hungarian Development Bank, was increasingly active in asset management and privatisation deals. With its new president, APV Rt. plans to operate as a holding company managing all state enterprises.

In 2001 Hungary witnessed further growth in both domestic and foreign investments. In 2001 the real growth rate of fixed capital formation was 3.1%, and the share of gross fixed capital formation in GDP reached 23.4%.

Overall assessment

Hungary has successfully implemented an industrial policy based on market-driven principles, liberalisation and deregulation. It has also been attracting high levels of foreign direct investment (FDI) and technology-intensive industry to the country, which mainly exports to the EU. The Széchenyi Plan and Széchenyi Plus Programme were important steps towards the elaboration of an integrated industrial strategy. Restructuring and privatising the highly indebted Dunaferr steel plant remains a challenge that needs to be tackled.

An important dimension of industrial policy is the control of state aid (see also chapter 6 - Competition Policy).

Conclusion

In its 1997 Opinion, the Commission concluded that, given the extent of restructuring and modernisation efforts undertaken so far, there were good reasons to expect that most sectors of Hungarian industry, and especially those benefiting from foreign investment, could in the mid term be competitive operators in the Single Market.

Since the Opinion, Hungary has made good progress in creating an appropriate market-based business environment, privatisation and restructuring. However, imbalances remain between regions, and between the modern, export-orientated multinational companies and local industry not directly affected by inward FDI. The principles of Hungarian industrial policy are now generally in line with the concepts and principles of EU industrial policy.

Negotiations on this chapter have been provisionally closed. Hungary has not requested any transitional arrangements. Hungary is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership, Hungary`s efforts now need to focus on the concrete and swift implementation of the medium-term economic development plan, the restructuring of the steel sector (Dunaferr) and the conclusion of the privatisation process, as well as the promotion of local-market-orientated small businesses.

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