Investing in Hungary
Hungary had the 4th highest level of GDP growth in the world between 1998 and 2002. Hungary was the original outsourcing location for Western European manufacturers, and as of 2006 had the highest level of productivity in Eastern Europe in terms of purchasing power parity.  This means that Hungarian workers were creating the most value of any group in Eastern Europe. However, while Hungary has over the past 15 years been one of the best Eastern European countries to invest in, its growth is slowing dramatically; in 2007, real GDP grew only 1.3%.
Some of the major industries in Hungary include mining, metallurgy, construction materials, processed foods, textiles, chemicals, especially pharmaceuticals, and motor vehicle production. One of the most important industries is automobile manufacturing, and in 2005 the automobile industry was estimated to be worth EUR 8 billion by the Association of Hungarian Automotive Industries. Additionally, Hungary is one of the world's leading producers of information technology equipment with exports of more than $19 billion in 2006. This places Hungary behind only giants such as the US, China, France and a select few others that produce more in IT equipment each year.
Hungary has a highly educated workforce where nearly 70% of college-age individuals are enrolled in tertiary school. Additionally, Hungary’s is rated at a 4.2 out of 5 on the World Bank’s governance scale, meaning it is the most stable and least corrupt government in Eastern Europe.
At least 45 of the world’s largest 50 companies had a presence in Hungary, with many, such as General Electric investing more than $1 billion.. The market saturation of foreign companies coupled with some of the highest wages in Eastern Europe has led to declining, growth of the Hungarian economy .
Energy and Resources
Hungary is inarguably the most developed Eastern European country aside from Slovenia. The large presence of foreign companies, stable government, and developed infrastructure make it an ideal location for stable investment. However, these same factors mean that Hungary is not experiencing the rapid growth of many other countries in the region. GDP growth averaged 4.4% between 1997 and 2007, compared to rates between 6 and 10% for other developed Eastern European countries. In 2007 and 2008, as can be seen on the graph at right, growth was less than 2%, which is below that even of most developed Western countries. This slowed growth could be indicative of the higher costs and the slowing of entrance by foreign companies, but it would ultimately translate in the long run into lower profit expansion.
Costs of doing business in Hungary have risen rapidly since 2001. In the early 1990's, Hungary was one of the best low-cost alternatives for manufacturing in Europe, especially for pharmaceutical companies. Average wages were well below those of Western Europe. However, wages have risen as Western European companies invested in the country. Hungary however experienced some of the most aggressive foreign investment of any Eastern European country, as described above. In the years before Hungary's accession into the European Union, between 2000 and 2004, rapid growth occurred as the already stable country became even more attractive. This has led to a convergence of costs between Hungary and Western European countries. In 2007 GDP per capita was nearly $16,000, which is nearly half that of the average Western European country. This is 32% higher though than "cheaper" Eastern European countries such as Romania and Bulgaria, whose GDP per capita was around $11,000 in 2007.
Inflation in Hungary is still very high, preventing it from joining into the Euro currency group. At more than 7%, it is well above the acceptable 3% level necessary to join. Additionally, the government has been running a 4.9% budget deficit annually. These two factors combined prevent Hungary from adopting the Euro, one of the goals of the administration. To combat the high deficits, the government is raising taxes on businesses from 16% to 4%. This additional tax burden, coupled with Hungary's already demanding social benefits payments from businesses and rising wages, makes doing business in Hungary even less profitable. Businesses in Hungary thus will be forced to cut costs in some ways, or accept lower revenues, or move from Hungary which could cause high short-term moving costs.
Despite rising costs and taxes, one area in Hungary which continues to do well is the pharmaceutical industry. In 2005, Hungary produced 148 billion HUF worth of pharmaceuticals. Pharmaceutical manufacture is well suited to Hungary because it has high safety standards, a skilled workforce, and close proximity to the Western European market. As an aging population grows in Western Europe, there is increasing demand by governments in those countries that supply national healthcare for cheap drugs, and Hungary as a major manufacturing base of branded and especially generic drugs will benefit from increasing demand in this area. Some pharmaceutical companies in Hungary include Abbott Laboratories (ABT), GlaxoSmithKline (GSK), Merck (MRK), Novartis AG (NVS), and Pfizer (PFE).