Hungary - Market ChallengesHungary - Market Challenges
Market Challenges
Hungary’s regulatory climate makes it an increasingly difficult place to conduct business. The country dropped from 48th to 53rd place among 190 economics in the World Bank’s latest Ease of Doing Business ranking (behind Poland, the Czech Republic, and Slovakia).- Since early 2016, multinationals have identified shortages of qualified labor, both white and blue collar, as the largest obstacle to investment in Hungary.
- During recent years, the government has introduced several new taxes which mostly hit the banking, energy, retail and telecommunications sectors. In certain industries, such as media and retail, these unpredictable, sector-specific tax and regulatory policies have favored national and government-linked companies.
- In addition, Hungary’s rate of value-added tax (VAT) for most products and services is 27%, the highest in the EU.
- Persistent corruption and cronyism continue to plague the public sector. Hungary saw a ten-point decrease in Transparency International’s (TI) Corruption Perceptions Index over the last six years moving from 55 in 2012 to 46 in 2018. In 2016, the government of Hungary withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance.
- EU funding is a large driver of Hungarian GDP growth. Current draft budget proposals for the next tranche of long-term EU funding show that Hungary may lose as much as 24% of its cohesion funds, which would seriously impact economic activity.
- After the April 2018 national election, Prime Minister Victor Orban’s ruling Fidesz party retained its leadership and won majority of votes in the 2019 EU Parliament elections. The Government of Hungary remains focused on being an export-oriented economy facilitating Foreign Direct Investment (FDI) and a further lowering of taxes. It remains to be seen what will happen with public sector activity.