This information is derived from the State Department's Office of Investment Affairs’ Investment Climate Statement.
The U.S. Department of State Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses.
Topics include Openness to Investment, Legal and Regulatory systems, Dispute Resolution, Intellectual Property Rights, Transparency, Performance Requirements, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
These statements highlight persistent barriers to further U.S. investment. Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy. To access the ICS, visit the U.S. Department of State Investment Climate Statement website.
With a population of 9.7 million, Hungary has an open economy and GDP of approximately $161 billion. Hungary has been a member of the European Union (EU) since 2004, and fellow member states are its most important trade and investment partners in addition to the United States. Foreign direct investment (FDI) from Asian sources has increased in the past decade, accounting for about five percent of the total FDI stock in 2019 and over a third of new foreign direct investment in 2020 Macroeconomic indicators were generally strong before the COVID-19 pandemic, with GDP growing by 4.9 percent in 2019. In 2020, however, Hungary’s GDP decreased by 5.1 percent. As the Government of Hungary (GOH) increased spending to support the economy and other priorities, the 2020 budget deficit reached approximately nine percent of GDP, which pushed up public debt to over 80 percent of GDP. Ratings agencies in 2020 maintained Hungary’s sovereign debt at BBB, two notches above investment grade, with a stable outlook. In 2020, the Finance Ministry forecasted 5 to 5.5 percent economic growth and a 6.5 percent budget deficit for 2021.
Hungary’s central location in Europe and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI). Between 1989 and 2019, Hungary received approximately $97.8 billion in FDI, mainly in the banking, automotive, software development, and life sciences sectors. The EU accounts for 89 percent of all in-bound FDI. The United States is the largest non-EU investor. The GOH actively encourages investments in manufacturing and sectors promising high added value and/or employment, including research and development, defense, and service centers. To promote investment, the GOH lowered the corporate tax rate to nine percent in 2017, among the lowest rates in the EU. Hungary’s Value-Added Tax (VAT), however, is the highest in Europe at 27 percent.
Despite these advantages, Hungary’s regional economic competitiveness has declined in recent years. Since early 2016, multinationals have identified shortages of qualified labor, specifically technicians and engineers, as the largest obstacle to investment in Hungary. In certain industries, such as finance, energy, telecommunication, pharmaceuticals, and retail, unpredictable sector-specific tax and regulatory policies have favored national and government-linked companies. Additionally, persistent corruption and cronyism continue to plague the public sector. According to Transparency International’s (TI) 2020 Corruption Perceptions Index, Hungary placed 69th worldwide and tied with two other countries for 25th place out of 27 EU member states. In 2016, the GOH withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. Both foreign and domestic investors report pressure to sell their businesses to government-affiliated investors. Those who refuse to sell claim they face increased tax audits or spurious regulatory and court challenges.
Analysts remain concerned that the GOH may intervene in certain priority sectors to unfairly promote domestic ownership at the expense of foreign investors. In September 2016, Prime Minister (PM) Viktor Orban announced that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. Observers note that through various tax changes the GOH has pushed several foreign-owned banks out of Hungary. The GOH has claimed it has increased Hungarian ownership in the banking sector to close to 60 percent, up from 40 percent in 2010. In the energy sector, foreign-owned companies’ share of total revenue fell from 70 percent in 2010 to below 50 percent by the end of 2019. Foreign media ownership also has decreased drastically in recent years as GOH-aligned businesses have consolidated control of Hungary’s media landscape. The number of media outlets owned by GOH allies increased from around 30 in 2015 to nearly 500 in 2018. In November 2018, the owners of 476 pro-GOH media outlets, constituting between 80 and 90 percent of all media, donated those outlets to the Central European Press and Media Foundation (KESMA) run by individuals with ties to the ruling Fidesz party.
As part of its COVID-19 pandemic response, the Parliament passed state of emergency (SOE) legislation in March and November 2020 that gave the GOH broad authority to bypass Parliament and govern by decree. The first SOE law did not have a sunset clause and remained in effect until June 2020 when the GOH repealed it. The GOH passed a second SOE law in November, this time for a 90-day period. Following the expiration of the 90-day term, the Parliament extended the SOE for another 90 days in February 2021. As part of the emergency measures, the GOH also extended measures for national security screening of foreign investments from December 31, 2020, until June 30, 2021, and may further extend this deadline.