Central and Eastern Europe -- including Hungary -- has in recent years become Europe’s industrial heartland, and chances are good for the region to turn into the growth engine of the continent, Minister of State Zoltán Cséfalvay of the Ministry for National Economy said at the Hungarian Business Leaders Forum in Budapest. The Minister of State underlined that in order to achieve this goal Hungary shall reconsider its economic strengths and join the global product- and value-chains increasingly with products and services of high added value.

In the opinion of Zoltán Cséfalvay, Hungary has the potential required for this: the economy has been transformed, the labour market is flexible and the infrastructure is well developed. The Minister of State quoted former central bank president of Canada Mark Carney about the secret of Canada’s economic success who attributed the “crisis-resistance” of the economy to openness, economic flexibility and financial stability.

These three factors are also present in Central and Eastern Europe, including Hungary, Zoltán Cséfalvay stressed. It is a good example for openness, he added, that the total amount of foreign working capital – calculated as a proportion of GDP -- with 80 percent is the highest in Hungary among the Visegrád countries. As a case for Hungarian flexibility the Minister of State mentioned labour market regulation and he also stressed that the majority of enterprises are of the same opinion.

Speaking about financial stability Zoltán Cséfalvay underlined that after 1990 the fiscal deficit had practically never been below 3 percent, but the deficit level was successfully reduced over the past years. As far as flexibility, openness and financial stability are concerned, Europe is divided into three regions: core countries (such as Germany and Scandinavian countries) which have implemented comprehensive reforms over the past years, while in Southern Europe reforms concerning financial stability, debt reduction and openness are progressing very slowly. The third group is Central and Eastern Europe – including Hungary – which has evolved into Europe’s workshop, Zoltán Cséfalvay said. The Minister of State stressed that the share of industrial output within Hungary’s GDP is 24 percent; while along with the construction sector this figure is 27 percent.

The Minister called attention to the fact that the term re-industrialization has been widely used in the European Union, and the EU aims to increase the proportion of industry within total GDP from the current 17 percent to 20 percent by the end of the decade.

Zoltán Cséfalvay underlined that according to a recent OECD study within the global value chains with a presence in Hungary the share of Hungarian added value is 60 percent, of which the added value produced by domestic suppliers is some 16 percent. In this field regional peers may be ahead of Hungary, he said. Therefore, he continued, partners must be found for boosting high added value production and good relations must be established and maintained with the business sector. To this end, the Government has been determined to conclude Strategic Partnership Agreements with large companies operating in Hungary.

Zoltán Cséfalvay said he believes that in order to turn the region and Hungary from a workshop into an economic growth engine, research, development and innovation shall be stimulated. In the past decade, R&D expenditures had totalled about 1 percent of GDP, but this figure had been improved after 2010 and it was as high as 1.3 percent in 2012.

As the Minister of State said, on the basis of innovation performance Hungary is in the middle of European ranking, while the country is the first regarding the ratio of venture capital investment to domestic GDP, which figure is three times higher than the EU average. Hungary, he added, is an attractive location for start-ups and the gaining ground of a lively enterprise culture may convince young people to plan their future in Hungary. With regard to migration, he said that in light of data by the German federal statistical office 54 thousand Hungarians had migrated to Germany, but 28 thousand of them have already returned. Accordingly, the migration of Hungarian labour force is a two-way process and there is no sign of people “fleeing” the country. The Minister of State stressed the importance of persuading enterprises to pursue development, research and innovation in addition to producing goods in Central Europe and Hungary.

As a response to a question, Zoltán Cséfalvay informed journalists that in the upcoming development period of 2014-2020 Hungary will receive some EUR 24bn, of which 60 percent is expected to be spent on economic development.

(Ministry for National Economy)