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 flows has been lower. According to UNCTAD's World Investment Report 2024, FDI inflows decreased to USD 6 billion in 2023 compared to USD 9.3 billion one year earlier; whereas the FDI stock stood at USD 118.9 billion. Data from the Hungarian Investment Promotion Agency shows that 209 FDI deals were finalized in 2023, creating around 19,700 new jobs and retaining tens of thousands. Asian investors accounted for nearly 82% of the total investment volume and two-thirds of new jobs. The automotive and electronics sectors continued to dominate the FDI landscape. In terms of stock, the main investors at the end of 2022 were Germany (18.1%), Austria (9.3%), South Korea (8.9%), the United States (8.6%), and France (4.9%), with Europe as a whole accounting for 63.1% of the total. In terms of net liabilities, the main sectors receiving FDI are manufacturing (47%, especially transport equipment, at 10.7%), wholesale and retail trade; repair of motor vehicles and motorcycles (10.3%), financial and insurance activities (9.7%), professional, scientific and technical activities (8.4%), real estate activities (8.1% - data Hungarian Central Statistical Office). According to the latest figures from the OECD, in the first semester of 2024, Hungary registered an investment inflow worth only USD 400 million. China, South Korea, and Japan dominated Hungary's FDI landscape in 2024, accounting for nearly 80% of the total 4,000 billion forints (9.97 billion USD) in new investments (official governmental data).

Hungary has benefited in recent years from a change in the 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 FDI. Furthermore, it has one of the lowest 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 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. Recently, analysts and Western investors have been increasingly concerned about the Hungarian government's preferential promotion of domestic ownership at the expense of foreign investors in sectors such as banking, media, energy, retail, utilities, telecommunications, and insurance. Overall, Hungary ranks 76th among the 180 economies on the Corruption Perception Index and 72nd out of 184 countries on the latest Index of Economic Freedom.

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.