01 May Interview with Zoltán Kovács, secretary of state for international communication and international relations and spokesperson of the government, Hungary
BF: Could you explain Hungary’s position regarding the European Union’s sanctions against Russia in relation to the current conflict in Ukraine and what are the main differences between Hungary and other EU countries in terms of where the bloc’s financial policies should be heading?
Zoltán Kovács: First of all, it is important to understand that Hungary’s position on the sanctions is, in many respects, consistent with how the country has represented itself for the twelve years this government has been in power; and it is consistent with our mandate that comes from the Hungarian people. Our mandate — which has extended over four consecutive election victories by a constitutional majority — has been to implement a pragmatic, patriotic economic policy, always looking for what is best for the Hungarian people and for the Hungarian economy. All our positions regarding past, current and upcoming events are going to be directed through this prism. The Hungarian government has always been explicit that it puts Hungarian national interest first, which is also the focus of Hungary’s economic policies.
Whether it is about sanctions policies or about access to EU funds, we have always maintained that we represent Hungary’s interests, and that what is due to the country is due without conditions and without political elements attached. We intend to run programs and spend the money due to us, either from the EU COVID recovery funds or from the regular monetary mechanisms of the EU. We are not talking about money, funds and resources that are conditional — these monetary tools are due to us, especially the one that comes to us through the regular 7-year EU budget. This is a technical issue, as the algorithm through which money is redistributed within the EU is clearly economic, even though many — mainly the political left and especially in the European Parliament — are pushing toward a political-conditionality mechanism.
It is obvious that, at the end of the day, we have to handle the existing differences between EU members and problems in a pragmatic manner. The political element is actually the biggest problem that we have in negotiations and discussions with European institutions. Regarding the recovery fund, after around a year we finally received details about the concrete issues on which the European Commission was requesting discussion, negotiation and change to our proposals if required. Seventeen points were identified and all seventeen were basically sorted out in a month and a half of negotiations.
These amendments do not go against Hungary’s interest. We found not just a compromise, but we were able to make adjustments that would work in the Hungarian constitutional and legal systems, and our parliament is deliberating certain measures as we speak. What we see, though, is that new perspectives are emerging, which clearly have some kind of political, ideological aspect to them. It is very difficult to manage a situation in which you agree technically with the Commission and you sort out problems but, at the same time, it then raises political and other issues as new requirements.
The Hungarian government is very open for these discussions and we have a history of doing that: between 2010 and 2012, we had discussions with the EU about the new Hungarian constitution, our media law, some fundamental elements of our legal system, our judiciary and so on. These issues have all been cleared up, because we know how to negotiate and how to solve these kinds of things.
This is Hungary’s very firm stance: we believe the use of EU recovery funds should be looked at from the perspective of a member state and from the perspective of having a level playing field, double standards should be left out and only objective measures should be used. Issues can and should be sorted out, with special regard to the fact that it is not only Hungary’s interest and obligation that are involved, the Commission and other European institutions have an obligation as well. If the institutions want to live up to the standards of EU treaties and European law, then they should follow European law and, by the end of the year, there should be an agreement.
BF: How you would summarize “Orbanomics”? In addition, can you describe the Hungarian government’s economic vision and the challenges it faces?
Zoltán Kovács: You call it Orbanomics, but we have always called it the Hungarian economic model. From earlier in our conversation, it should be clear that this model is driven by Hungary’s national interest and takes into account perspectives on the country’s economic development and future perspectives in Central Europe and the European Union, with special attention given to the challenges facing us: we have been through COVID recently and now there is a war raging in our neighbor Ukraine. The sanctions policies against Russian are clearly having negative effects on, not only Hungary’s economy, but the entire European economy and they are having global effects too. With regard to these challenges, Hungary will continue to proceed with consistency.
I believe the key to Orbanomics is simple: we do not believe in a welfare-state approach — certainly not of the type Western European economies have inherited from the past and still have in place. Our approach is for a workfare society, meaning the creation of as many jobs as possible and raising the employment level in the country.
Back in 2010, we inherited an economy where the employment level was as low as 53%-54%. Today, it is up to 75%. We have created over 1 million new jobs over the past twelve years. This percentage growth is probably the highest in Europe and around the globe, and we are now catching up to the employment levels you see in many Western European societies, the US, China and Japan.
If the Hungarian economic model is about global competition, it is about trying to catch up with what we see happening around the world and a very high level of employment is one key to the healthy, productive economy we are trying to create. Very obviously, a disciplined fiscal regime is another characteristic of the Hungarian model. The government has started to climb down on the national debt we have inherited, step by step, although COVID, and now inflation and the economic crisis, are challenging us.
However, we have proved that Hungary is running an economic policy that is following a sustainable path. We only use money that we have produced: today, the economic performance of the country is basically covering Hungary’s working expenses and the surplus is going to investment and development, which is supported by EU resources. Over the past 3 or 4 years, one major development is that EU funds have added up to maybe 4%-5% of our yearly gross domestic product. We would be able to work without these resources, but they are an important element for catching up with Western European economies, infrastructure, competitiveness and so on.
Over the past 3-4 years, we have also been able to add almost as much from Hungarian resources to development and investment as the amount that has come from abroad. That has had a big impact on Hungary’s economic growth rate, which has consistently been among the top 3-5 highest within the EU.
Regarding this year’s budget, one element of our planning is going to be similar to other countries: we have to re-plan because of very high energy prices. One focus is that the working cost of the Hungarian state should be down to zero, while another major focus is, obviously, the sustainable growth path of the Hungarian economy.
Apart from a high level of employment and careful, disciplined monetary and fiscal policies, a further key to the Hungarian economic model is that the country is as attractive as possible for foreign direct investment. Over the last 3-4 years, we have broken the record for the amount of FDI coming into Hungary every year.
Many have criticized our opening up to the East. But what we have decided to do is simple and that is to follow the path other European countries have been following: opening up to markets and diversifying markets, not only in terms of Western, European and American investors, but also toward Eastern investors, especially Southeastern Asian investors, which have been welcomed in Hungary. More inward investment came from Southeast Asia last year than from the West and I think the biggest investor in 2022 was South Korean. That is a clear signal of the diversification of Hungary’s investment policies, which are making the Hungarian economy more resilient.
BF: To what extent are geopolitical changes and international challenges such as supply chain issues influencing inward investment and Hungary’s export sectors?
Zoltán Kovács: Regarding foreign investment — which is very connected to the country’s export performance — while FDI volumes fell by 42% globally during the pandemic, in Hungary they increased by 140%.
The way out of the crises we are experiencing today — high energy prices and the disruption of the global chains — is for Hungary to keep FDI as high as possible as it helps our export performance. In addition, those who invest in Hungary obviously do care about supply chain resilience and they are adjusting their investment policies to the new realities.
Hungary benefits in two ways from this: The FDI benefits the country directly and it is also making the country more flexible and able to meet challenges, because of the type of investment partners that are coming to Hungary. BMW and others in automobile sectors are planning to or have recently come and their plans for a presence in the country are a result of the challenges you mentioned.
However, I want to explain how the government thinks about investment and supply chains. In our view, Hungary — which is located halfway between West and East — has always looked to act as a bridge in connecting those two markets. I can give you one example: apart from Germany and China, Hungary is the only country in the world where all the major German car manufacturers have factories. So, the extensive measures we take to attract FDI are boosting the strength, resilience and flexibility of the Hungarian economy. At the same time, we are also helping to maintain East-West cooperation and supply chains, which we believe is beneficial for the European economy.
BF: The EU as a whole accounts for approximately 89% of the FDI currently in Hungary, with Germany being one of the big investors, followed by the US, then other European countries, China and South Korea. How would you describe the partnership between Hungary and the US today?
Zoltán Kovács: We always say that, if you want to know about the investment opportunities and the results businesses are achieving here, you have to talk to the investors that have already come to Hungary. The US is the second- or third-biggest investor in Hungary and has always played a major role in FDI, especially in sectors that represent high value added, modernization and high technological standards. Our tax regime is very advantageous for US companies, as we have the lowest corporate tax rate in Europe at 9%.
The Hungarian Investment Promotion Agency (HIPA) and our Minister of Foreign Affairs and Trade Péter Szijjártó have been very active in involving and attracting foreign investment, from companies such as Eaton Enterprises, Oracle Corporation and SUEZ Water Technologies & Solutions, to name a few. Obviously, as we have very strong historic bonds with Germany, there are at least 6,000 German businesses here, but there are also now 1,700 US businesses that are providing jobs for more than 100,000 people in Hungary. That clearly shows the importance and share of US investment in the country.
US business is welcome and we have even invited US companies to be part of a nuclear project. My understanding is that Siemens is providing some elements for this from Germany, but GE and other US companies have been very active in trying to help the Hungarian nuclear project.
BF: Are you trying to gear foreign investments specifically to certain sectors in order to accelerate the country’s development?
Zoltán Kovács: Energy diversification has always been in the government’s thoughts and we have decided on nuclear as one major pillar for this, because it is the cheapest and safest base energy resource. We are also working with Shell on natural gas. Increasing Hungarian domestic production of gas will probably involve some technological cooperation with this company as it is using highly developed technologies. That would make an important contribution to Hungary’s future gas energy security.
BF: How well did Hungary attract FDI in 2022 and did its export sector continue to expand?
Zoltán Kovács: In growth numbers, the latest data shows a 4% increase in FDI for the third quarter. Especially in terms of the country’s export performance, I believe it was one of our best years and we probably broke our export-level record. That is definitely due to the high level of FDI in Hungary.
The volume of our exports to the East has grown 45%, which is a result of the new markets that we have been attracting. Our automotive industry is one sector that is performing very well, with outputs that account for 25% of Hungary’s GDP, which reflects how export-oriented the Hungarian economy is. We have been pro-active in our efforts to develop this sector: I have already mentioned that BMW is planning to come to the country, but we also intend to become one of the most important actors in Europe in electric cars and, especially, in their batteries.
We have been successfully working to attract South Korean, Chinese and other investors to invest in that area. For example, Samsung is making a €1-billion-plus investment not far from Budapest and a Chinese investment is being made near to the new BMW factory in the eastern part of the country. We are looking for high-value-added, high-profile and environmentally sustainable partners for our automotive industry of the future.
BF: What are the main reasons why US companies should choose Hungary as their base for expansion into the EU and beyond?
Zoltán Kovács: I have already mentioned a couple of factors: Hungary is probably the most competitive and investor-friendly environment you will find in Europe, not only because of the low level of corporate tax, but also as we have been very active in creating an environment in which administrative burdens have been eased. It is very easy to establish and run a business in Hungary and we are very flexible.
Our investment incentives are also aimed at creating jobs. We are supportive of job-creation projects and also believe in the shift away from the era of cheap labor. The price of Hungarian labor is still very competitive within the EU and globally, but at the same time we invest a lot in higher education, training and the restructuring of our labor force. We have trained thousands of engineers in the last couple of years, for example. Today, we have a very flexible, qualified workforce that is supported by a rejuvenated higher education system and new ways of training. These include a dual system like the one in Germany, in which we start training people who are entering businesses while they are still in secondary school.
BF: What would be your final message for our readers about Hungary?
Zoltán Kovács: Without missing the role Hungary is playing, it is always advisable to keep an eye on Hungary. I believe that is going to continue to be true not only politically, but also in terms of Hungary’s economic performance — over the last twelve years, we have always come out of crises stronger than we have entered them. This is a message I would like to emphasize.
Hungary’s future approach will not be to simply react to and follow what is happening in regional, European and global economies. Instead, we will try to think innovatively about how to get ahead of problems and how to help Hungary, but also the region, to think for the future. Take a look at Hungary’s results in GDP growth, employment and the fundamentals of our economy, which are very solid. And take a look at how we have been boosting these results by taking measures that step beyond the immediate challenges of crises we are facing today, be that COVID-19 or high energy prices.