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Country Commercial Guides
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CHAPTER V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
A. Best Prospects for Non-Agricultural Goods and Services
1 -- TRAVEL/TOURISM SERVICES (TRA)
U.S. travel and tourism firms are present in the Hungarian market through equity investments, management or licensing in several major hotels, including the Marriott, Hilton, Inter-Continental, Grand Hotel Hungaria (Best Western), Radisson Béke and Hyatt Atrium. The first apartment hotel of the Marriott chain was opened in Budapest in 1997. U.S. car-rental chains, Hertz, Budget and Avis, tour operators Tradesco Tours, Travel One, Getz and American Express are in operation in Budapest. Since the Kosovo war is over, a revival of the tourism industry is widely expected in Hungary.
Tourism is of key importance to Hungary, directly generating 10 percent of GDP and about 15-20 percent indirectly. The further development of the tourism industry will require additional investments of around $1 billion, including a conference center for 4000-5000 people, new hotels in the countryside near thermal and medicinal bath and conversion of stately homes into hotels.
Statistical figures are in USD millions. Exchange rate: $1 = HUF 214 (1998).
1997 1998 1999 TOTAL SALES 2245 2504 2500 SALES BY LOCALLY-OWNED ESTABLISHMENTS 1288 1296 1300 FOREIGN SALES BY LOCAL ESTABLISHMENTS N/A N/A N/A SALES BY FOREIGN-OWNED ESTABLISHMENTS 957 1208 1200 IMPORTS FROM THE U.S.A. 162 162 190Some of the statistics were provided by the Central Statistical Office, others are unofficial estimates.
2 -- FRANCHISING (FRA)
Franchising is relatively new to Hungary and most market segments are underdeveloped. Franchise trade accounts for approx. 3-5 percent of retail trade turnover in Hungary, but this figure is expected to double in five years. There are about 200-250 franchise businesses operating in the country. In terms of dollar value, about half the ventures are foreign owned and half are Hungarian owned. The bulk of franchise operations in Hungary are found in the fast food sector, certain retail sectors such as clothing, photo service, copying/printing, gas stations, business services, and hotels.
Almost any type of franchise would have some potential, including automotive products and services, property management, hardware, home maintenance, parking facilities, passenger and cargo transportation, recreation and travel, rental and distribution services and convenience stores. Successful franchisers have modified their approach to fit the realities of the Hungarian marketplace, utilizing sub-franchisees, providing financing and obtaining foreign master franchisees.
U.S. franchise involvement is dominant in the fast-food sector, e.g., McDonald's (with 70 restaurants), Burger King (8), Wendy's (2), Pizza Hut (14), and Kentucky Fried Chicken. Other U.S. franchises include Levi's, Eastman Kodak, Adidas, Lee's and Hertz.
Figures are in USD millions. Exchange rate: $1 = HUF 214 (1998).
1997 1998 1999 TOTAL SALES 735 870 914 SALES BY LOCALLY-OWNED ESTABLISHMENTS 441 522 502 FOREIGN SALES BY LOCAL ESTABLISHMENTS N/A N/A N/A SALES BY FOREIGN-OWNED ESTABLISHMENTS 294 348 412 IMPORTS FROM THE US 147 174 206The above statistics are unofficial estimates based on figures provided by the Central Statistical Office and Hungarian Franchise Association.
3 -- MEDICAL Equipment/Healthcare Technology (MED)
The market for medical equipment is dominated by imports that account for 80-85 percent of the total market. American medical products account for 10-15 percent of the sector's total imports. The estimated average growth rate of the Hungarian medical equipment market for 1998-2000 is 3-4 percent annually.
Hungary's health care system is under-funded, still dominated by the state and administered by the National Health Insurance Fund. The Fund is supposed to be self-sustaining, based on compulsory payroll contributions from both employers and employees. Hungary has opted to retain predominantly publicly funded health system, with increasing degree of private service provision. Privatization of health services has proceeded most rapidly in the pharmaceutical and dentistry areas, where a larger share of costs has been shifted onto households. New mechanisms have been established to allow private physicians, general practitioners to act as independent contractors to public health financing agencies. Private sector development has been important for ambulatory and diagnostic services, and negligible for hospital care.
Health care in Hungary is suffering from structural imbalances. The on-going reform is reorienting the health sector from institutional toward primary care with priority given to preventative medicine and primary care.
When purchasing medical equipment, customers look for established companies with reliable after-sales service and maintenance. Institutions have more or less a free hand within their budget to decide what to buy and where to buy. Medical products are marketed in Hungary mainly through local distributors. Leasing of medical equipment has little tradition in Hungary. Also, the Hungarian medical sector is not very receptive to purchasing used/refurbished medical equipment. Health care providers prefer to pay more for new equipment, even if it means a longer waiting time for the funds.
The best sales potential for U.S. medical equipment in the coming years are expected to be in the following areas: Cardiovascular and Nuclear medicine (diagnostic & therapy equipment); Diagnostic equipment & surgical devices; Diagnostic imaging with special emphasis on X-ray equipment; Laboratory diagnostic equipment; Health care information systems. A countrywide X-ray Machine Replacement Program started in 1998 conducted by the Healthcare Ministry. During the 4-year plan, the state is planning to buy increasingly sophisticated equipment.
The Act of Public Procurement of 1995 requires open tenders for all purchases of goods exceeding $50,000 and for services over $2,500. Private sector has a limited share in the Hungarian health care sector. Various municipalities own most hospitals and clinics. Only 18 national institutes and rehabilitation centers belong directly to the Healthcare Ministry. The Hungarian health care system operates on the basis of dual financing. Major investments, equipment purchases are financed by the owners or co-financed with the Healthcare Ministry from the central budget. All recurrent expenditures of the daily operations, including disposables are financed by the National Health Insurance Fund on the basis of diagnostic related group (DRG). There are no private hospital management companies in Hungary and there is only one private hospital in the country. Third country competitors include German, Austrian, Italian and Japanese firms.
Figures are in USD millions. Exchange rate: $1 = HUF 214 (1998).
1997 1998 1999 TOTAL MARKET SIZE 160 165 170 TOTAL LOCAL PRODUCTION 30 32 34 TOTAL EXPORTS 10 13 16 TOTAL IMPORTS 140 146 152 IMPORTS FROM THE U.S. 22 23 25"The above statistics are unofficial estimates".
4 -- POLLUTION CONTROL (POL)
In 1999, the Government of Hungary's expenditures on environmental protection are scheduled to increase to approximately $600 million. The two largest items in the environmental budget are waste management and water protection. The driving forces for increasing pollution control expenditures are recent laws and government regulations with the aim to harmonize with EU legislation. However, in the EU's recent opinion of Hungary's preparedness for accession, the environment was singled out as an area that badly needs to be upgraded. The National Environmental Action Plan was passed by the Parliament in 1997. Once it is enacted, annual spending on environmental protection will near the European average of 2 percent of GDP. Currently, Hungary's spending on environmental projects is low with 1.2 percent of GDP.
With the privatization of the energy sector, the chemical and pharmaceutical industries, Western investors are bringing a higher level of environmental consciousness as well as new technologies to address environmental concerns. The United States is the largest investor in Hungary. Therefore, U.S. pollution control technologies have excellent potential to penetrate the market along with the new manufacturing technologies. The Hungarian market is receptive to US pollution control equipment for its high quality. Local production is limited -- imports account for 60-70 percent of the total environmental market, including products and services. Third country competitors include Germany, Austria, and the UK.
Figures are in USD millions. Exchange rate: $1 = HUF 214 (1998).
1997 1998 1999 TOTAL MARKET SIZE 500 550 600 TOTAL LOCAL PRODUCTION 200 215 240 TOTAL EXPORTS 15 18 20 TOTAL IMPORTS 315 353 380 IMPORTS FROM THE US 25 28 32"The above statistics are unofficial estimates".
5 -- GENERAL CONSUMER GOODS (GCG)
The Hungarian general consumer goods market continued a modest expansion in the past few years. The general non-durable consumer goods cover apparel, cleaning preparations, cosmetics, leather products (shoes, luggage and personal leather goods), food and beverages, jewelry, sporting/athletic goods, dolls and toys. Major brands such as Levi's, Liz Claiborne, Reebok, Nike, P&G, Johnson & Johnson, Colgate, Samsonite, Pepsi Cola, Douwe Egbert, Heinz, Hasbro and Mattel Toys are all represented here. New brands appear less frequently in the market than a couple of years ago but the quantity sold of branded products shows an increase. The import of general consumer goods was liberalized continuously after the economic changes in 1990 with the latest liberalization of textiles and apparel from World Trade Organization (WTO) countries at the beginning of this year. The domestic production of general consumer goods is significant too but it is mostly small private companies or family enterprises that compete with each other in terms of gaining market share. The only exception is the food and beverage market, which is ruled by large companies and cooperatives. American, German, Italian and Austrian companies have either opened up local operations and distribution outlets, or they import consumer products through domestic distributors.
General consumer goods, especially apparel, cosmetics, some food and beverage products as well as unbranded footwear still enter the country illegally and are sold at lower than normal retail prices on the black market. Illegal sellers of such products avoid paying VAT (25 percent) and import duty (average 8-11 percent). Therefore the total market size is probably larger than represented in the table below.
Figures are in USD millions. Exchange rate: $1 = HUF 186.6 (1997).
1997 1998 1999 TOTAL MARKET SIZE 2850 2975 3109 TOTAL LOCAL PRODUCTION 3431 3585 3746 TOTAL EXPORTS 2977 3110 3250 TOTAL IMPORTS 2393 2500 2613 IMPORTS FROM THE US 148 154 163The above statistics are unofficial estimates based on the Hungarian Statistical Office and Kopint-Datorg Market Research Institute publications.
6 -- COMPUTERS & PERIPHERALS (CPT)
The size of the Hungarian IT market is estimated by International Data Corp. (IDC) to have reached USD 1.1 billion in 1998. Forecasts indicated USD 1.2 billion for 1999, USD 1.3 for 2000 and USD 1.4 billion for 2001. The IT market is expected to increase by 9-10 percent annually. Hardware sales comprised 52 percent of a USD 989 million IT market in 1997, whereas software accounted for 16.3 percent and services 31.7 percent. Hungary can be considered the most developed IT market in the East-European region (in 1998: 1.36 million PCs were in use, PC penetration: 9 percent). Forecasts indicate the sale of 214,000 PCs for the year 2000. The market share of "brand names" is about 40 percent, whereas "no name" computers represent 60 percent of the market. (Leading brand-name suppliers are Compaq 14 percent, Albacomp (Hungary) 12 percent, IBM, HP, Dell, Acer, Packard Bell, and Siemens). In 1998, the share of black market sales was still considerable at 30 percent of the total market. (Computers assembled from parts illegally imported from the Far East.) This is due to the fact that 5 percent import duty is imposed (plus 25 percent VAT) on computers and parts. The U.S. is a market leader competing with ICL, Olivetti, Bull, Siemens, Toshiba and Tulip.
Of the 6-700,000 estimated Internet users, only 70-80,000 are subscribers (dial-up) with one of Hungary's 30 commercial Internet service providers, the rest of the users have access to the Net through educational institutions, government offices, multinational companies and banks through managed leased lines. The number of Internet users doubles annually. Best sales prospects in this sector are personal computers, NT servers, UNIX servers, and data communications equipment.
The National Council of Justice coordinates and finances a USD 40 million project (JUSTICIA.NET) spread over for 5 years starting in 2000. The project aims to establish local area networks at 152 courts to be connected into a nationwide WAN. Network access to national and international databases would be available as well as document and workflow management and spreadsheet handling.
Figures are in USD millions. Exchange rate: $1 = 214 HUF (1998).
1997 1998 1999 TOTAL MARKET SIZE 398 2575 2605 TOTAL LOCAL PRODUCTION 1420 3999 4175 TOTAL EXPORTS 1350 1724 1900 TOTAL IMPORTS 328 300 330 IMPORTS FROM THE U.S. 47 52 57The above statistics are unofficial estimates based on partial data from the Central Statistical Office.
7 -- TELECOMMUNICATIONS EQUIPMENT (TEL)
MATÁV, the Hungarian Telecommunications Co. operated 2,671,790 lines at the end of 1998 including 70,642 ISDN channels. MATÁV invested USD 3.2 billion between 1994-1999. MATÁV services cover 80 percent of Hungary, the phone penetration in 36 of MATÁV's primary areas reaches 35.4 percent. (In 1988, it was only 8.1 percent.) Density on main lines is likely to reach 40 percent in the company's service areas by the end of 2000. The network digitalization rate is 75.7 percent. The local telephone operators (LTOs) cover the rest of Hungary operating 781,595 lines in 18 primary areas. MATÁV (owned by Ameritech and Deutsche Telecom in 59.6 percent) has the monopoly to provide long distance and international public switched services until the end of 2001, the LTOs have monopoly rights for local services until November 1, 2002. Discussions are taking place to shorten MATAV's monopoly by one year. Public switched data transmission services are not regulated by concessions.
Mobile telephony is a fast-growing telecommunication sub-sector in Hungary. Mobile service providers experienced a much higher growth rate than anticipated: the number of subscribers reached 1.21 million as of May, 1999 and is expected to amount to 2.5 million by 2000. There are three mobile service providers in Hungary. Westel Radiotelephone Co. Ltd. was established in 1990 for a 450 MHz mobile cellular communications system (MATÁV 51 percent-Media One 49 percent). By May 1999, it had 100,000 subscribers. (Investment of USD 67 million.) In 1993, two concessions were issued for 900 MHz digital (GSM) cellular systems. Westel 900 (Media One 49 percent-MATÁV 51 percent) and Pannon GSM (a Scandinavian/Dutch/Hungarian JV) started operations in 1994. Westel 900 reached 660,000 subscribers in May 1999 with USD 334 million invested. Pannon GSM had 450,000 subscribers, having so far invested USD 500 million. On June 15, 1999 a concession on DCS 1800 MHz mobile phone service was awarded to a consortium of Airtouch/Vodafone and RWE Telliance, Germany. Antenna Hungaria, the Hungarian Broadcasting Co. will have a 20% share in the consortium and the Hungarian Post, 10%. Total investment in the coming two years will amount to USD 500-700 million. In 1999, about USD 150 million, in 2000 about USD 200 million will be spent on equipment (base stations, mobile switches, antennas etc.).
Figures are in USD millions. Exchange rate: $1 = HUF 214 (1998).
1997 1998 1999 TOTAL MARKET SIZE 392 343 438 TOTAL LOCAL PRODUCTION 200 202 204 TOTAL EXPORTS 43 78 85 TOTAL IMPORTS 235 219 319 IMPORTS FROM THE U.S. 40 26 30The above statistics are unofficial estimates based on partial data from the Central Statistical Office.
B. Best Prospects for Agricultural Products
1 -- SEEDS
Planting seed: Hungary is a traditional agricultural exporter. In that vein it imports high quality planting seed for propagation and production. U.S. exports of vegetable, grass, forage and, in particular, field corn seed have been traditionally strong in this market. One limitation for new exporters is that the market is well established and trade linkages are solid. Exporters should be aware that market limitations exist due to Hungary's tariff rate quota system. Hungary has had legislation governing the use, registration and imports of GMO materials. The first foreign GMO varieties had been approved for trials in spring, 1999.
A. NAME OF SECTOR: SEED, 1,000 METRIC TONS
1997 1998 1999 B. TOTAL MARKET SIZE 260 280 300 C. TOTAL LOCAL PRODUCTION 360 395 410 D. TOTAL EXPORTS 95 100 100 E. TOTAL IMPORTS 12 11 13 F. IMPORTS FROM THE U.S. 3 2 32 -- SOYBEAN MEAL
Soybean meal: Hungary is a large producer and exporter of livestock and products. Annual consumption of soybean meal is about 500,000 metric tons. Hungarian importers have strong ties to South American soybean pellet exporters. However, the market is price sensitive. If American soybean meal is price competitive with South American pellets, Hungary will typically opt buy American.
A. NAME OF SECTOR: SOYBEAN MEAL, 1,000 METRIC TONS
1997 1998 1999 B. TOTAL MARKET SIZE 522 510 530 C. TOTAL LOCAL PRODUCTION 8 10 14 D. TOTAL EXPORTS 0 0 0 E. TOTAL IMPORTS 514 500 510 F. IMPORTS FROM THE U.S. 7 10 103 -- BOVINE SEMEN
Bovine semen: Hungary's dairy industry is based on U.S. breeds. Demand for high quality bovine semen for dairy cows is strong and U.S. exports in this area are significant. One limitation for new exporters is that the market is well established and trading linkages are solid. Exporters should be aware that market limitations exist due to Hungary's tariff rate quota system.
A. NAME OF SECTOR: BOVINE SEMEN, USD MILLION
1997 1998 1999 B. TOTAL MARKET SIZE 10.00 9.00 9.00 C. TOTAL LOCAL PRODUCTION 8.80 7.80 7.60 D. TOTAL EXPORTS 0.50 0.60 0.40 E. TOTAL IMPORTS 1.20 1.20 1.20 F. IMPORTS FROM THE U.S. 0.88 0.90 0.904 -- POULTRY BREEDING STOCK
Hungary is a producer and exporter of poultry breeding stock and poultry. U.S. exports of poultry breeding stock, particularly baby chicks for chicken broiler and layer production, are strong. One limitation for new exporters is that the market is well established and trade linkages are solid.
A. NAME OF SECTOR: POULTRY BREEDING STOCK, USD MILLION
1997 1998 1999 B. TOTAL MARKET SIZE 78.00 77.00 80.00 C. TOTAL LOCAL PRODUCTION 76.00 75.00 74.00 D. TOTAL EXPORTS 9.00 9.10 9.00 E. TOTAL IMPORTS 8.70 8.50 9.50 F. IMPORTS FROM THE U.S. 2.00 2.00 2.005 -- DRIED FRUITS & NUTS (INC. PEANUTS)
Hungary has well-developed sweets, confectionery and bakery industries. Household baking is also traditional. Consumption of dried fruits (including raisins) and nuts(including peanuts) increases. Industry looks for better quality and higher value added raw materials. This means better competitive positions for the more expensive US products. Cheap developing country suppliers have well set market positions. Substantial parts of US imports are re-exported from Germany, Austria or other West European countries.
A. NAME OF SECTOR: DRIED FRUITS & NUTS (INC. PEANUTS) USD $M
1997 1998 1999 B. TOTAL MARKET SIZE 22.0 29.3 24.0 C. TOTAL LOCAL PRODUCTION 17.6 24.8 19.4 D. TOTAL EXPORTS 4.4 4.5 4.6 E. TOTAL IMPORTS 10.4 11.8 12.0 F. IMPORTS FROM THE U.S. 2.1 2.3 2.36 -- BEEF
Low cattle numbers' and live beef cattle exports' results in absolute and quality beef shortages, in spite of low domestic consumption. Meat processors need imported beef and edible offals, hotels want high quality beef. Import tariffs, in general, are high but preferential tariffs under quota are available and may facilitate the imports of US beef.
A. NAME OF SECTOR: BEEF, 1000 MT
1997 1998 1999 B. TOTAL MARKET SIZE 44.0 45.0 45.0 C. TOTAL LOCAL PRODUCTION 44.6 44.0 43.0 D. TOTAL EXPORTS 10.5 11.0 11.0 E. TOTAL IMPORTS 9.7 12.0 13.0 F. IMPORTS FROM THE U.S. 3.0 3.0 3.0C. Significant Investment Opportunities
As much of Hungary's state-owned industry has been privatized, opportunities for investing by means of privatization are declining. No further large-scale privatization programs are planned. In the energy sector, the government is still discussing the method of privatization for the Hungarian Electric Works (MVM), including the Paks nuclear power plant. Some of the subsidiaries of the national railway, MAV, are being sold off. Greenfield investments as well as equity investments in private companies remain excellent opportunities in Hungary.
The government of the United States acknowledges the contribution that outward foreign direct investment makes to the U.S. economy. US foreign direct investment is increasingly viewed as a complement or even a necessary component of trade. For example, roughly 60 percent of U.S. exports are sold by U.S. firms that have operations abroad. Recognizing the benefits that U.S. external investment brings to the U.S. economy, the government of the United States undertakes initiatives, such as Overseas Private Investment Corporation (OPIC) programs, Bilateral Investment Treaty Negotiations and business facilitation programs, that support U.S. investors.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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