Hungary flag Hungary: Investing in Hungary

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 2021, FDI inflows decreased to USD 4.2 billion in 2020 compared to USD 3.9 billion in 2019, due to large disinvestments partly triggered by the Covid-19 pandemic. The stock of FDI was estimated at USD 101 billion in 2020. The main investors are Canada, the Cayman Islands, the Netherlands, Germany, Luxembourg, and Austria. FDI are mainly oriented towards financial services, manufacturing, trade, real estate, scientific and technical activities. According to the latest figures from OECD, in the first semester of 2021, Hungary welcomed an investment inflow of USD 0.8 billion, a drastic contraction compared to the level recorded in the same period one year earlier (USD 3 billion).

The foreign investment screening mechanism, which was adopted in 2019, has been extended until the end of 2021, with the introduction of a second screening regime aimed at protecting Hungarian industries impacted by Covid-19. The first mechanism involves sectors of strategic importance, such as defence, dual-use products, cryptography, utilities, financial industry, electronic communication and public communication system. The second mechanism has a much wider scope and includes most manufacturing activities, as well as hospitality, energy and construction, among others.
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 ranked 52nd out of 190 countries in the latest World Bank's Doing Business report.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 4,3286,8005,459
FDI Stock (million USD) 94,094102,633101,698
Number of Greenfield Investments* 102100121
Value of Greenfield Investments (million USD) 7,5153,7096,378

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Hungary Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 2.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 4.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 7.0 6.8 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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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.

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Latest Update: November 2022

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