Foreign direct investment (FDI) in Hungary

FDI in Figures

Hungary maintains a high per capita stock of foreign direct investment (FDI) for Central and Eastern Europe standards. However, the 2009-2010 crisis has strongly affected FDI flows to the country and since then the volume of inward FDI flows has been lower. According to UNCTAD's World Investment Report 2022, FDI inflows decreased to USD 5.4 billion in 2021 compared to USD 6.8 billion one year earlier; whereas the FDI stock stood at USD 101.7 billion. The main investors are Canada, the Cayman Islands, the Netherlands, Germany, Luxembourg, and Austria. FDIs are mainly oriented towards financial services, manufacturing, trade, real estate, and scientific and technical activities. As per the Hungarian Promotion Agency, in 2021 investment projects reached an all-time high of 422 projects that created 13,883 new jobs. In the same here, the South Korean Company SK Innovation launched Hungary's largest greenfield FDI project ever (worth EUR 1.9 billion) aimed at building a battery plant in Iváncsa. According to the latest figures from OECD, in the first semester of 2021, Hungary welcomed an investment inflow of USD 1.1 billion, a drastic contraction compared to the level recorded in the same period one year earlier (USD 2.7 billion).

The national foreign investment screening mechanism requires foreign investors seeking to acquire more than a 25% stake in a Hungarian company in sensitive sectors - such as defence, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments - to seek approval from the Interior Ministry. Furthermore, approval from the Ministry of Innovation and Technology (MIT) has to be sought for greenfield or expansion of existing investments.
Hungary has benefited in recent years from a change in direction of FDI from low-value textile and food-processing sectors to wholesale, retail trade and repair of vehicles. The country’s central location and high-quality infrastructure have made it an attractive destination for FDIs. Furthermore, it has one of the lower corporate tax rates in Europe. However, the demographic decline of the country and the slow progress of the education system impede crucial structural transformation, with several foreign companies identifying shortages of qualified labour as the main obstacle to investment in Hungary. The country ranks 35th out of 82 countries in the Economist Business Environment ranking and 39th out of 63 in the World Competitiveness Index.

What to consider if you invest in Hungary

Strong Points

Strong points for FDI in Hungary:

• Hungary is widely considered to be the gateway to Central and Southeast Europe, which makes it an attractive market for foreign investment.
• Hungary's labour force is highly educated and skilled with a particular emphasis on engineering, medicine and economics.
• The labour force is also cheap which allows the country to optimally integrate itself within the European production chain and to be considered as an efficient production workshop.
• Hungary continues to be one of the fastest growing EU economies. Its financial system is one of the most developed in the region.
• Well-established infrastructure and a clear legal and regulatory framework give Hungary a favourable environment for sustainable growth.
• Integration in the EU reinforces its political and economic stability, while the support of large international organisations has reduced the effects of the crisis.

Weak Points

Weaknesses for FDI in Hungary include:  

• Banks suffered heavy losses as a result of debt buyback and speculative investments
• The currency (HUF) is prone to depreciation
• Low investments in innovation and R&D, a high level of energy dependence and a sometimes fragile banking sector (public and private) put Hungary at risk of a glass ceiling and allow some observers to be alarmed by the capacity of the country to reinvent itself and thus to be able to leave its current economic role.
• Cronyism and corruption
• Possibility of economic problems because of political conflict with the European Union
• Dependency on Russian energy exports

Government Measures to Motivate or Restrict FDI

Attracting foreign investment is a priority for the Hungarian Government. The Government established the Hungarian Investment Promotion Agency (HIPA) with the aim of providing professional help to foreign companies intending to invest in Hungary.

The recovery from the Covid-19 crisis has been facilitated by support measures. To reform the economy and increase competitiveness, incentive measures include:
•    The improvement of the administrative situation and the reduction of formalities
•    The facilitated acquisition of building permits;
•    As part of the EU budget cycle (2021-2027), EUR 52.8 billion will be allocated to productivity, research, development, innovation, infrastructure and renewable energy;
•    To promote investment, the corporate tax rate was lowered to 9%, and the social security contributions to 13%;
•    The government provides special incentive package for investments over a certain value (generally above EUR 10 million), for investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or those active in the tourism sector.

Bilateral investment conventions signed by Hungary

To see the list of investment treaties signed by Hungary, consult UNCTAD's International Investment Agreements Navigator.