"Major research into the presence of multinational companies in Hungary finds that, even allowing for profit repatriation, the overall effect has been positive. Multinational companies are sometimes seen as political targets well worth a good kicking. They contribute little to Hungary’s domestic economy, goes the somewhat simplistic argument, and drain money, in the form of profits, away from the host nation back to some foreign HQ. A major new survey commissioned by AmCham looks to place facts before presumption.For much of the readership of Voice, the results of The Present and Future of FDI in the Hungarian Economy may not be that surprising, but they are worth repeating here.
“Companies with foreign interest generate 20-25% of the GDP, they are responsible for 27% of total domestic investments and provide 15% of total employment,” says the English language summary of the report. “Considering external trade, 65-70% of all exports and 72-73% of all imports are related to these companies.”
Századvég Economic Research Ltd, part of the Századvég group, carried out the research for AmCham, and set itself two questions to answer: Firstly, how does the inflow of FDI influence economic growth and through which channels does it contribute to the domestic economic development? Secondly, do Hungary’s specific characteristics affect that?
The news, at least in answer to the first question, is positive. “According to our estimates, FDI on average contributed 0.7-0.9 percentage points to the annual GDP growth in the past 15 years. This value could be assessed as a very high contribution compared to the average 2.3 percent annual growth rate during the examined period.”
Not surprisingly, most FDI-inspired growth was found in manufacturing. The survey leaves no doubt as to the benefits of FDI. “The results are quite clear: economic openness as a factor (that includes FDI inflows and the sum of exports and imports in proportion to the GDP) has a significant positive impact on a country’s economic growth.
All in all, the inflow of FDI is regarded as a potential opportunity for the national economy.” But opportunities still have to be taken, and here there is a problem, because the essential factors that allow that to happen are not always in place or well developed. These factors include entrepreneurial attitude, openness towards constant technological development and the capability to adapt.
The CEE region, including Hungary, naturally, has what the report calls “a significant handicap… in integrating foreign investments into the national economy.” One of the more patriotic arguments trotted out against multinationals is that they create a dual economy in which domestic SMEs are doomed to stagnation and have little chance to join the export markets. The report says that approach isn’t nearly nuanced enough.
“These arguments neglect the fact that the dual economic structure is mainly the consequence of poor intensive factors [as outlined above], basically the lack of capabilities to cooperate with multinational firms. Handicaps in the capability to integrate technology transfers, to develop human capital and the weakness of R&D incentives did not enable most Hungarian firms to become partners of multinationals. If these limiting factors could be at least partly alleviated by a conscious development policy then a huge opportunity would open for the Hungarian economy by the further inflow of FDI.”
Research Body
According to its website (www.szazadveg-eco.hu/en/) Századvég Economic Research Ltd. “aims to perform and conduct high-standard, scientifically elaborated economic and social research”. It aims to be “an institution of strong professional foundations and weighty scientific background, that is always capable of acting both with due measure and authority. The research institute shoulders the responsibility for the preparation of economic analyses on the level of companies, various sectors, and the national economy.”
In the spirit of a generation
The Századvég Foundation was formed in 1991 “as an articulation of the spirit of the young generation that actively participated in the regime change in Hungary,” according to its website.
It adds that the Foundation was established to:
• create an opportunity for a high quality education in political science that considers practical needs
• contribute to the spreading of democratic political culture
• assist civil society in self-organization and efficient representation
• support new directions of research in social science
• help the education of minorities beyond the political frontiers and young scholars’ activity by offering scholarships."
Source: AmCham's Voice Magazin
30.12.2011