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Internet wiz at helm of Economics Ministry
JÁNOS KÓKA SERIOUS ABOUT HIS NEW ROLE

Written By Kester Eddy

János Kóka is one of the more notable changes wrought by Ferenc Gyurcsány in his new cabinet. At age 32, the new head at the Ministry of Economy and Transport is another breed of minister - at least according to Gyurcsány. Not only does Kóka have no political or professional links to the pre-1990 regime and its command economy, he boasts a track record as a highly successful entrepreneur. Not even his right-wing predecessors sourced from economic think-tanks could claim that. Now, can Kóka put his proven business skills to good use as a minister?

Mention his IT background more than once and János Kóka, appears concerned that people see him as the archetypal computer nerd, with all the limitations that stereotype implies. Asked at a meeting with foreign journalists last month about how unemployed workers in the depressed northern and eastern Hungarian rust-belt could find work in the more prosperous (and more expensive) Hungary, he retorted: “The [future] Hungarian economy is not [just] about bio-technology or IT. Please do not look at me as an Internet geek! As someone who wants to bring his particular ideas into the government. This is about competitive industries!” Competitive industries no longer include the likes of textiles and simple assembly plants - Hungary cannot compete with China and Southeast Asia in these sectors, Kóka said. But it does include the automotive sector, where blue-collar workers can take on new skills and work in expanding plants such as Suzuki Hungary, in Esztergom, he said. (Provided, that is, workers can cross the Danube to reach Esztergom. For the time being that thorny issue was bypassed.)

Kóka, a medical graduate and successful IT entrepreneur, is keen on competitiveness. He notably stressed pharmaceuticals, biotechnology and IT as three of the principal sectors where Hungary is not only competitive but rubbing shoulders with the world’s best.

“Hungary should not only converge to the EU, because perpetual reference to convergence would only mean a secondary role in Europe. We need to converge toward those that are more developed than us, but we also need to excel in certain fields. We must precisely define the fields where we can excel,” he said.

INFLUENCING FISCAL POLICY

Not surprisingly, his main thrust is for a knowledge-based economy. And for such an economy to flourish, the economic environment too must improve. That means, amongst others, tax cuts in the future. “I am personally not responsible for fiscal policy, but I do want to influence it and I have continuous discussions with the minister of finance. Making fundamental tax reform in Hungary is unavoidable in my opinion, [e.g.] changing the way municipalities collect local taxes is a major issue, since local taxes now penalize high value added products or services,” he said. Indeed, the overall tax burden is decreasing from 2005, by approximately 2% when the reductions in income tax and social security contributions are added up, costing “over HUF 100 billion to budget revenues, or roughly 0.5% of annual GDP,” Kóka said.

THINKING LONG-TERM

Herein lies the rub. Hungary wants to decrease budget spending to meet Maastricht criteria to join the euro. At the same time, it wants to absorb massive funds from the European Union - funds it has to match in order to receive them - for infrastructure development. “We are facing an incredible challenge, to meet Maastricht, while closing the more than 25-year gap between Hungary and Western Europe.”

Kóka hopes to channel HUF 1,300 billion into Hungarian development between 2004-2006, and a further HUF 10,000 billion between 2007–2013. To achieve this, the prime minister has created a new cabinet for development policy, chaired by the prime minister, with Kóka and Etele Baráth, currently responsible for EU affairs in the government, as vice-chairmen. “In 2005 we have to plan and finalize the second national development plan for Hungary. We will form a group of professionals that will work on the strategy for the next 10-15 years,” he said.

At the other end of the chain, Kóka promised a new tendering procedure that will streamline and simplify the process by which companies can receive EU and state aid for projects.

All of this along with making Hungary more attractive for investment by creating incentives for exporters, and managing politically sensitive issues like rising energy prices. Oh, and then there is the small matter of railway reform.

Kóka insisted that while he clearly cannot achieve all his goals before the next elections in 2006, neither is he thinking of short-term political goals. “I will surely be doing things the outcome of which will only appear [after] 2006, but I’m happy to do so, because anyone who comes in 2006 will have to pursue a direction that we are currently defining, for example, the next EU planning period. Believe me, I am not planning for 18 months; I would not have come to this job if I had. I’m not that kind of politician.”

Developing the stock exchange
János Kóka is at pains to say he is a supporter of the stock exchange and all that a good working bourse stands for. As such, he has less-than-enthusiastic feelings regarding the recently failed move to impose capital gains tax on shares. “I was not fully beside the idea to impose a new tax, is this diplomatic enough? A new tax would have negatively impacted the stock exchange. We have to find a way we can prepare our companies for listing, we have to improve the economic environment to get the stock exchange growing.”
Indeed, he has already initiated moves in this direction. And having taken IT company Elender to the market, he has some experience of the process. Starting from micro and small concerns, he argues the way must be made smoother and easier for companies to progress from capital provided by the family, through seed and venture capital injections, until, with success, the firm is acquired by a trade sale, or lists with a share offering. It is simple enough in Anglo-Saxon economies, at least.
But to achieve this in Hungary, more must be done. “The Hungarian Venture Capital Act practically does not perform, because no one creates a venture capital firm under Hungarian law. This means we need to change it, we need to change the way people can invest into funds and get it managed by bodies that will invest it appropriately,” he said.
Critically, every step of the way must be worthwhile, to both investors and the developing company, which has to have the capability of absorbing the capital. “We have to improve the preparedness of small companies, with accounting and book keeping improvements, and other financial and legal measures, to make their businesses transparent. This is the only way an investor can take them seriously,” he said.
At the later stages, Kóka said ITDH, the trade promotion agency, and the stock exchange can together ensure that owners of companies on the verge of the final leap - whether in a trade deal or IPO - are well informed as to their best move.
To provide the Budapest exchange with more liquidity, Hungary could do worse than learn from the Polish experience, where pension funds have been instrumental in pushing the bourse to continually new record highs. “Poland managed to get the large pension funds to invest a portion of their money on the exchange, rather than into state bonds. In Hungary we have to convince them somehow, maybe modify the act concerning the [investment] of such funds to foster trade on the exchange. I am now preparing a policy that can be converted into action in the forthcoming months,” he said.