German direct investment in Hungary

Abstract

This study aims to generally examine German FDI inflow to Hungary, also in comparison with other East-Central European countries. In particular, it investigates individual German direct investments in Hungary, as well as the motivating factors and the opinions of German investors about the Hungarian investment environment, evaluating a German–Hungarian Chamber of Industry and Commerce survey (DUIHK Konjunkturbericht 2012) and a common German survey of the German Chambers of Commerce – Worldwide Network (AHK-Konjunkturumfrage MOE 2012).

FDI inflow has had a great importance in the development of Hungary’s post-1989 economy. Foreign companies have invested more than EUR 65.2 thousand millions in Hungary until the end of 2011. Thus foreign companies play a determining role in the Hungarian economy, generating about 30 per cent of GDP and 80 per cent of Hungarian exports. In the context of FDI, German direct investment plays a leading role in Hungary, representing nearly 30 per cent of the entire FDI in Hungary at the end of 2011, i.e. Germany is the biggest single investor in Hungary.

One of the main findings of the study is that the rate of reinvested profits from German FDI is rather high. Over the last ten years, German investors have reinvested 50 per cent of their earnings. In order to maintain a favourable investment climate, continuous communication with German investor companies and “aftercare” activities are of special importance.

According to the German–Hungarian Chamber of Industry and Commerce survey (DUIHK Konjunkturbericht 2012), 71 per cent of German investors would choose Hungary as a location for their investment again. This signifies a basic trust in Hungary as a country for FDI. Concerning investor motivation for further investment and enlargement of existing facilities, the most important survey result demonstrates that the investment environment has to be calculable and reliable in the long term.

In the case of the newest German greenfield investment, Mercedes-Benz Manufacturing Hungary Kft., the main motivation factors in favour of Kecskemét were a well trained labour force, a dense supplier network and favourable logistical conditions.