MONTH IN REVIEW

Prime Minister addresses R&D spending at
meeting attended by Swedish PM
Money spent on research and development in Hungary is below the EU average, but will be raised according to plans, Prime Minister Péter Medgyessy announced at a meeting of the Hungarian-Swedish Business and Research Forum in Budapest. The meeting was attended by Swedish Prime Minister Goran Persson who was on an official visit to Budapest. Medgyessy noted that money available for R&D will rise 1.8%-1.9% of the GDP by 2006 with a target of 3% by 2010 and an increase in resources provided by the public sector. Hungary is still an attractive destination for foreign investment, Medgyessy said. Despite the global recession last year, FDI in 2003 corresponded to 2002's USD 1.3 billion. The structure of FDI changed for the better, with increasing investments in R&D bases and in high value-added manufacturing, Medgyessy said. Persson welcomed the imminent enlargement of the EU at the meeting, adding that Sweden was happy to welcome Hungary into the EU because mature economies are in need of new blood.

Ford increases sales in Hungary by 24.8% in 2003
Ford had record sales in Hungary in 2003, selling 24.8% more cars than in 2002, or 13,132 new cars and light commercial vehicles (LCVs), the company announced. In 2003, Ford increased its car sales by 36.2% to 10,498 from 7,707 in 2002, but sold only 2,634 LCVs, following 2,815 in 2002. Most of the cars sold were Ford Focuses or Fiestas. Ford sold 5,122 Ford Focuses after 4,958 in 2002. In 2003, the first complete calendar year since the introduction of the new Ford Fiesta models, 2,711 Fiestas were sold.

Hungary has no imports of live animals from Thailand
Hungary does not import live animals or eggs for hatching from Thailand or Brazil, but if justified, it will take necessary restrictive measures or ban imports, according to a statement published by the Ministry of Agriculture. Hungarian authorities are following and studying with special attention the news on avian influenza in Southeastern Asia, and the decisions and positions taken by the EU, several Asian countries and the WHO to stop the spreading of the virus, the statement said. Hungarian authorities have issued permits exclusively for imports of deep-frozen poultry deliveries after stringent control (inspection) from Thailand, among other countries, the statement said. There have been no food safety objections concerning the deliveries to Hungary thus far. In 2003, 339 tons of poultry products were delivered to Hungary from Southeast Asia.

Nokia announces EUR 50 million investment in Komárom phone plant
Nokia will expand its Komárom phone plant with a EUR 50 million investment to construct a new 20,000-square-meter building, in addition to the existing similar-size production site, Nokia Komárom Kft. CEO Jyrki Jalasto announced. Manufacturing in the new building is scheduled to start in September 2004. Nokia already has invested EUR 100 million in an existing 20,000-square-meter production hall and a 10,000-square-meter warehouse in Komárom. The Komárom plant delivers products to European, Middle Eastern and African markets where demand for mobile phones has been rapidly rising. Nokia will add another 500 employees to the current roster of 2,000 people in Komárom this spring.

Rába to supply Suzuki with seat parts worth HUF 2.5 billion from 2005
Vehicle maker Rába Járm?ipari Holding Rt. announced it would supply seat parts worth more than HUF 2.5 billion for the new Suzuki model to be produced in Hungary from 2005. Including earlier orders as well as the new contract, Rába will supply parts worth HUF 6 billion to Suzuki next year. Revenue from Rába's parts business could grow more than 40% during the next two years, the firm announced. Rába delivered products worth HUF 7 billion to Suzuki in 2001, but its sales dropped to HUF 4 billion last year after the Japanese carmaker switched seat models.

Hungarian firms represented at "Rebuild Iraq 2004" fair in Kuwait
Hungary will likely be asked in near future to delegate technology consultants to the commission coordinating reconstruction works in Iraq, Foreign Ministry Deputy State Secretary István Major told Hungarian journalists in Kuwait, at the “Rebuild Iraq 2004” fair. Fifteen Hungarian businesses attended the event Jan. 19-23, with their attendance organized by state-owned Hungarian trade and investment development agency ITDH. Hungarian companies that appeared among the 1,350 firms from 48 countries at the show were active in telecommunications, energy, the oil industry, medical equipment manufacturing, the vehicle industry and agriculture. Major said reconstruction in Iraq was likely to target six primary areas: electricity, water supplies, telecommunications, the food sector, the oil industry, and the resuscitation of the commercial banking system. He said Hungarian firms could be successful candidates for projects in building and reconstructing electricity networks, in water management, food processing and the oil industry. He noted that the US approach seemed to be shifting, allowing more chance for firms from coalition countries to land contracts. Robert T. Wells, of the Humanitarian Operations Center of the US Army, also said Hungarian firms could play a role in rebuilding Iraq, but was unable to tell how large that role could be.

EUR 602.3 million from EU for rural development
in Hungary 2004-2006
Hungary is to receive EUR 602.3 million from EU sources for rural development, the second largest amount of the 10 new member states, as announced recently in Brussels. The largest amount has been granted to Poland. Hungary will receive EUR 181.2 million in 2004, EUR 201.9 million in 2005 and EUR 219.2 million in 2006, at current prices, from the EAGGF (The European Agricultural Guidance and Guarantee Fund) Guarantee Section. The European Commission has decided to fix EU funding for rural development for new member states at EUR 5.76 billion at current prices for 2004-2006. Allocations for each new member state are based on amounts contained in a declaration included in the Act of Accession.

US suspends Hungarian meat imports
The United States Department of Agriculture suspended Hungarian meat imports Jan. 13, as an investigation into Hungary last fall found some facilities not in line with US animal and food safety standards, Hungary’s US Ambassador András Simonyi said. The Food Safety and Inspection Service of the Department of Agriculture (FSIS) examined seven slaughterhouses and processing plants in Hungary, which hold export licenses from US authorities. As a result of the findings, Hungary was taken off the list of countries from which meat product imports are welcome. Simonyi said that the ban is temporary, and that as soon as Hungary is able to meet US standards - stricter than EU's - it will be put back on the list. The move will affect a small portion of Hungary's total exports to the US, worth an annual USD 2.5 billion. Hungary's meat exports to the US are worth an annual USD 5-6 million and mainly made up of processed pork (salami, packaged ham).

Hungary seen delaying euro entry, says Reuters poll
Hungary is expected to postpone entry to the euro zone by one or two years from the planned date of 2008, as it will likely overshoot budget and inflation targets in the next two years, according to a Reuters poll of analysts. The government said early this month it still preferred an early adoption of the euro, but would review the 2008 target date by March, after overshooting the budget deficit in 2003 to 5.6% of GDP, from the planned 4.5%. Forecasts for Hungary's euro entry date averaged 2009 in the survey conducted between Jan. 20-23. While only three of 10 analysts said the government would not change the target, four projected a postponement until 2009, two said 2009 or 2010 was likely, while one said the new target date was 2010.

MOL bids for Unipetrol
Oil and gas company MOL submitted a non-binding bid for the privatization of Czech company Unipetrol, MOL announced. The National Property Fund of the Czech Republic published a public announcement on its intention to sell a 62.99% stake in leading Czech oil, petrochemical and chemical holding company Unipetrol a.s. in November last year. MOL will only decide whether or not to submit a binding bid after carrying out comprehensive due diligence, the statement added. Czech’s National Property Fund received seven unofficial and non-binding bids for the stake, spokeswoman Jana Krainova announced. Binding bids must be handed in by the end of March 2004.

Sika buys Stabiment Hungaria from DDC
Swiss building materials firm Sika has bought Stabiment Hungaria from Duna-Drava Cement (DDC) for EUR 1.3 million, DDC managing director Ernö Bóna told Econews. Stabiment Hungaria sells chemicals used in the construction industry. DDC is owned equally by two German firms - Heidelberger Zement and E Schwenk Zementwerke. The sale of the subsidiary reflects the owners' decision to shed non-core business, Bóna said. DDC has net assets of HUF 36.3 billion and registered capital of HUF 16.9 billion. The DDC subsidiary BDG Hungaria has more than 30 ready-mixed concrete depots and has a 25% share of the market. DDC, which operates cement works in Vác and Beremend, produced 2.2 million tons of cement in 2003 and had 46% of the market, Bóna said. The company exported 416,000 tons of cement last year, he added. In 2003, DDC's domestic sales rose 2.9% and exports grew 1.7%. Preliminary figures show annual sales revenue of HUF 31.8 billion last year, up from HUF 29.8 billion in 2002. DDC does not expect increased market opportunities in 2004, Bóna said. The cement works' capacity is not fully used and imports increased in 2003, he added. The company's largest investment this year will be in converting its cement works to be fuelled by coal instead of gas and oil. The amount of cement sold in Hungary in 2003 rose 4.3% to about 4 million tons, including 2.2 million tons sold by DDC.

Hungarian Central Bank reiterates 4%
2005-end CPI target as primary goal
The National Bank of Hungary said meeting the 4% inflation target set for the end of 2005 is a primary task, in addition to maintaining an estimated 3% inflation rate thereafter, MNB Spokesman Gábor Missura said, citing a statement by the bank's Monetary Council following its Jan.19 meeting.
Irrespective of the euro introduction date in Hungary, the bank’s primary goal is reaching and maintaining price stability, Missura said. The spokesman reacted to reports citing a comment made by MNB Managing Director György Sándor in London during the road show of Hungary's new EUR 1 billion bond.
Sándor said the inflation target set jointly by the government and the Central Bank for December 2005 is unchanged at 4%, but Hungary should aim below 4% if it wants to join the euro zone in 2008, MTI's London correspondent reported. If there was a change in the euro accession target date of 2008, the below 4% CPI aim could be changed a little, but that 4 % was still the target of the Central Bank and government, Sándor said.

Magyar Posta to buy M5 motorway
Pest County Council chairman Imre Szabó said he learned the government will allow Magyar Posta to buy the M5 highway, from the motorway's operator, Alföldi Koncessziós Autópálya (AKA). The government earlier set a deadline of Jan. 31 for agreement to be reached on the purchase of the motorway from AKA. Szabó said he was unable to provide information on the details of the deal because the government is still in talks on the matter. Although the purchase has not yet been finalized, it is certain that AKA and Magyar Posta will reach agreement soon, Szabó added. Government spokesman Zoltan J Gál said negotiations on the buyout are proceeding in line with the government’s timetable. Motorway stickers will be valid on the M5 from March 12, he added. Legal representatives at AKA and the Economic and Transport Ministry will soon countersign the contract on the purchase of AKA, Gál said. If Magyar Posta is the buyer, the money for the deal will come from the proceeds of the sale of Magyar Posta's 97% stake in Postabank to Erste Bank at the end of 2003. Erste Bank paid HUF 101.3 billion for a 99.967% stake in Postabank. Magyar Posta received the first, smaller, installment of the purchase price last year and will receive the remainder this year. The previous government transferred ownership of Postabank to Magyar Posta when its attempt to privatize the bank fell through.

Hungary requests exemption from EU energy tax
Hungary has asked the European Union to grant it an exemption from paying a planned EU energy tax on coal, coke and district heating energy until the end of 2009, the Finance Ministry announced. Among sources used to supply district heating, the request applies to electricity, natural gas, coal and coke. The EU decided last October to levy taxes on energy products and set minimum tax levels for all current and future members. The European Commission recently said new members could be exempted until 2012 from introducing the measures. Hungary introduced an energy tax on electricity and natural gas from January 2004. The tax is paid by the electricity and gas distributors for the energy sold to commercial users. Large energy users also have to pay if they buy the energy directly from the producer or the liberalized market, or if they import energy. The tax is HUF 186 (EUR 0.71) per MWh of electricity and HUF 56 per GJ of natural gas. Environmental Minister Miklós Persányi earlier said the government expected the tax payments to generate revenue of HUF 11 billion in 2004.

New tax law still problem for car dealers
Although the implementation order related to the 2003 law on car registration tax is available on the Tax and Excise Office (APEH) website, car dealers are still encountering problems, Hungarian Car Importers Association President Gábor Gyôzô said. APEH spokesman Jenô Sipos told MTI that the new law allows companies to deduct consumption tax from sales tax they paid earlier, meaning they are not double-taxed on cars imported at the end of last year. The registration tax replaced the consumption tax under the 2003 law. Gyôzô said importers were still encountering losses because they have to pay the registration fee one month before reclaiming their sales tax. But, he said, a larger problem looms: for imported cars to be put into circulation, car dealers needed a receipt on tax paid; however, upon payment of the registration tax for cars planned to be sold in any given month, APEH will only issue a receipt on advance tax paid, with the crucial receipt coming three months later. Business daily Napi Gazdaság said the registration tax could cause a slight rise in the price of small cars, because the new registration tax on them is a fixed HUF 90,000, which is higher than the previous 10% consumption tax.

NEWS IN BRIEF
Hungary launches EUR 1 billion bond issue at 4.5%
Hungary has launched its EUR 1 billion, 10-year international bond at an issue price of HUF 99.881 with a coupon of 4.5% The spread is 41 basis points over the 4.25% bond due in January 2014, which equals a spread of 29 basis points over mid-swap. Hungary mandated BNP Paribas and Citigroup for the EUR 1 billion, 10-year issue last December. The current issue is the first of three, EUR 1 billion issues planned by Hungary this year. Hungary issued EUR 2 billion in two, 10-year bonds, each worth EUR 1 billion and issued last year. Hungary is rated A- by Standard and Poor's, A1 by Moody's Investors Services and A- by Fitch.

November retail sales up 8.1% year-on-year
Hungary's retail sales in November 2003 were up 8.1% from a year earlier, and rose 8.4% in the first 11 months of 2003, compared to the same period in 2002, working day adjusted figures of the Central Statistical Office (KSH) showed. November retail sales were up 0.1% from October on a seasonally and working day adjusted basis.

Vehicle parts maker Haldex to build plant in Hungary under Gripen offset
Swedish auto parts maker Haldex is to build a plant at a green-field site in Szentlôrinckáta, near Budapest, as part of an offset agreement related to Hungary's lease of 14 Swedish Gripen fighter jets, a Gripen International spokesperson announced. The plant will produce hydraulic components and will initially employ 110 workers.

Electrolux lays cornerstone for new EUR 65 million-refrigerator plant
Swedish appliances manufacturer Electrolux laid the foundation for a EUR 65 million refrigerator plant in Nyíregyhaza, eastern Hungary. The 48,000-square-meter-plant will employ 600 workers and will start production in one year. It is expected to turn out 560,000 refrigerators annually by 2007, making Hungary the largest producer of Electrolux freezers and refrigerators. Electrolux already produces two million refrigerators and freezers at its plant in Jászberény.

Avis opens business support center in Budapest
Minister of Economics and Transport István Csillag opened the new European Business Support Center for Avis car rental company in Budapest. The EUR 25 million center will employ around 250 people and will take care of customer services, financial processing and IT development in Europe, Africa and the near East. The center is part of a larger two-year investment program worth a total EUR 55 million.

Consumer prices up 5.7% year-on-year in December
Consumer prices in December were up 0.2% from November and stood 5.7% higher than a year earlier, the Central Statistical Office (KSH) announced. Annual average inflation was 4.7% last year, down from 5.3% in 2002. In November, consumer prices rose 0.6% month-on-month and rose 5.6% in the 12 months. The December CPI was the highest 12-month rate last year when inflation fell to 3.6%, a 22-year low, in May and rose thereafter.

Unemployment rate 5.5% in November - lowest level ever
Hungary's unemployment rate fell to 5.5% in November, according to figures published by the Central Statistics Office (KSH), the lowest level ever. The rate is well below the EU average of 8.8%.

GSM penetration up 1.4% to 76.3% in November
GSM penetration rose 1.4% to a November nationwide figure of 76.3%, the National Telecommunications Authority (NHH) announced. The number of mobile telephone customers rose by 106,000, the largest monthly increase since July. The 1.4% rise is the highest since July. The number of users at the three service providers rose to 7.7 million by the end of November. The number of users generating traffic - users who have dialed or received calls in the last three months - was 7.2 million at the end of November, a rise of 59,693 from October.

Real wages up 10.1% year-on-year January-November
Real wages rose 10.1% in the first 11 months of 2003, compared to a year prior. The increase is due to a 15.2% rise in average net wages and 4.6%, 12-month consumer price inflation during the period, the Central Statistics Office (KSH) announced. In November 2003 alone, real wages were up 3%, as net wages rose 8.8% and the 12-month CPI was 5.6%. Gross wages were up 12.5% year-on-year January-November 2003 at HUF 133,660 a month, and grew 9.3% in November to average 155,728.

Sales of new cars up 20.9% in 2003
Figures published by the Hungarian Vehicle Importers Association show that 208,441 new cars and off-road vehicles were sold in Hungary in 2003, 20.9% more than in 2002. As in the previous year, the three top-selling makes were Suzuki, Opel and Renault. Annual sales of Suzukis rose 10.6% to 39,747, Opel sales increased 16.3% to 27,043, and Renault sales were up 16.7% at 19,830. Sales of light commercial vehicles (less than 3.5 tons) were down 13.7% to 24,954. In this market segment, the most popular make was Peugeot (2,801), followed by Renault (2,761) and Ford (2,643).

NABI to lay off more workers
Bus maker Nabi announced it would begin a redundancy program to bring the number of workers employed by the firm in line with efficiency objectives. Nabi said it dismissed 100 workers in the fourth quarter of 2003, and will lay off 50 more in Q1 2004. The Nabi group employs 2,200 workers, 900 of them in Budapest. Most of the layoffs will happen in the Budapest plant, with mainly administrative staff let go, Nabi said.

Former US Secretary of State Albright visits Budapest
Former US Secretary of State Madeleine Albright met executives of the pharmaceutical company Merck in late January in Budapest to advise them about the group's Hungarian operations on behalf of the Albright Group, a global strategy consultant. While in Budapest, Albright briefly met Hungarian Prime Minister Péter Medgyessy and former Prime Minister Viktor Orbán. In an interview with business daily Világgazdaság, Albright said Merck is primarily interested in public/private partnerships in the health sector.

Waste recovery company Öko-Pannon 5% over target in 2003
Öko-Pannon, the first Hungarian packaging recovery public benefit company, exceeded its business targets by 5% in 2003, managing director György Viszkei said. Öko-Pannon recovered 144,500 tons of packaging waste, or 45% of the total volume of waste its 708 "suppliers" produced. The target set by law was 40%. Companies that signed contracts with Öko-Pannon and supply it with waste produced 92,000 tons of plastics waste, of which Öko-Pannon recovered 10,000 tons. Contracted partners produced 87,000 tons of paper waste last year, but Öko-Pannon recovered 97,000 tons total, including paper waste collected from non-contracted companies.

Ministries invite tenders for environmental subsidies worth HUF 7.8 billion
The Ministry of Economic Affairs and Transport and the Ministry of the Environment and Water Management will invite tenders this year for subsidies totalling HUF 7.8 billion (EUR 29.7 million) within the Environmental and Infrastructure Operative Program (KIOP), ministers István Csillag and Miklós Persanyi announced. The KIOP is one of five operative programs in the National Development Plan, a key means of distributing the EU's structural funding in Hungary. The tender invitations now announced will concern five environmental areas which will receive combined funding of HUF 6.6 billion, and one area, energy, which will get HUF 1.2 billion. The total KIOP budget for the years 2004-2006 is HUF 122 billion, which contains the HUF 38.5 billion earmarked for environmental projects, including EU and national funding.

József Thuma named new head of Treasury Assets Directorate
Finance Minister Csaba László has appointed József Thuma head of the Treasury Assets Directorate as of Feb. 1, the Finance Ministry announced. Thuma has been a civil servant since 1973 and has held senior posts in the National Planning Office, the Ministry of the Interior and the State Treasury. His most recent post was administrative state secretary at the Finance Ministry.

Westel to offer WLAN services to broader public
Westel will make its wireless local area network (WLAN) services available to its own clients and anyone with the proper equipment and an embossed credit card, the company said. Billing units are 15 minutes long, and cost HUF 625 each. OTP Bank is providing the secure channels over which the credit card charges will be made. Westel also said it would introduce more favourable GPRS-based WAP and Internet tariff packages from Feb. 1.

MOL to stop manufacturing 91-octane petrol
In response to market trends, MOL will stop producing and selling 91-octane petrol as for May 31, 2004, the oil and gas company announced. MOL will replace it with a 95-octane two-stroke mixture. Demand for 91-octane petrol and 91-octane two-stroke mixture falls by about 25% a year. MOL said the change would also have environmental benefits as higher-octane fuels have lower olefin content. Going over to a higher-octane fuel requires no technical modifications to vehicles, and sometimes leads to improved performance and slightly better fuel consumption, the company announcement notes.

Hungary in talks with Romania on co-hosting 2012 Euro Cup
The final decision on whether to go ahead with a proposed joint bid by Hungary and Romania to host the 2012 Football Euro Cup will be made later this year or early next year, Sports and Youth Minister Ferenc Gyurcsány told the press in Bucharest. Gyurcsány is in Bucharest for talks with Romanian officials on the possibility of co-hosting the event. Gyurcsány said Hungary will also have to hold talks with Croatia, which has offered to co-host the event. The first official meeting with Croatian officials will take place before the end of February, Gyurcsány said. Gyurcsány is scheduled to meet Romanian Prime Minister Adrian Nastase, Romanian National Sports Agency chairman Octavian Morariu and Romanian Football Federation head Mircea Sandu.