Orbán government comes under fire from German multinationals decrying cronyism
German companies, which have traditionally seen Hungary as an attractive investment destination, now face special taxes, a rapidly changing legal environment and overt political campaigns to drive foreign investors out of certain areas of the economy, said Philipp Haussmann, deputy chairman of the Berlin-based German Eastern Business Association, whose members include some of Eastern Europe’s biggest investors.
The situation in Hungary is frightening,
said Haussmann who’s also the chief executive officer of Klett Group, a German educational company with business in Hungary.
There’s a pattern of intimidation against foreign investors.
The article also mentions the dispute between Spar and the government, after the retail chain has already turned to the European Commission, accusing the government of using special taxes to force a transfer of its business to people close to the Orbán administration. The government plans to take Spar to court for defamation, Cabinet Minister Gergely Gulyas told reporters on 25 April.
The news agency also cited Minister of Construction and Transport János Lázár saying last November that “the most important principle is that foreign companies and foreign construction material are persona non grata. They have no place in Hungary.”
One international company in the construction sector now pays 69% of its revenue as taxes, according to an executive who declined to be identified on concern the company might be exposed to further punitive measures.
The value of German investment in Hungary has fallen by a third in three years, coinciding with Prime Minister Viktor Orbán's increased market interventions and special taxes on companies. While German car manufacturers continue to expand in Hungary, other sectors face challenges.
Investment aid funds have dried up as the EU has suspended Hungarian EU subsidies for nearly two years over rule of law concerns - only €12.2 billion of the just over €30 billion available has been released - while the tight Hungarian budget has also reduced incentives for firms.
German companies have also expressed concerns about the country's business environment. According to a survey by the German-Hungarian Chamber of Industry and Commerce (DUIHK), companies face a number of challenges, such as weak demand, high labour costs and a shortage of skilled labour. They are also increasingly frustrated by the unpredictability of economic policy and legal certainty in Hungary.
German companies are major investors in Hungary, with 2,437 companies mainly active in the automotive sector. They employ around 220,000 people, which is about one tenth of the workforce in the business sector. Germany is also Hungary's most important export market. However, respondents in the trade sector have been the most pessimistic about their prospects, while those in manufacturing and services have been the most optimistic.
As for employment plans, 27% of firms plan to hire more people, 54% are satisfied with current staffing levels and 19% may decide on layoffs this year. Only 33% of respondents plan to make new investments.
The weak domestic economy and cautious business outlook are reflected in the respondents risk assessment, with 54% of them citing lack of demand as a concern, and almost half naming adverse labour cost developments as a risk. The lack of skilled labour is also a challenge, which mainly affects companies in IT, product development and physical production.
In summary, both foreign and domestic companies express concerns about the business environment in Hungary, citing challenges such as weak demand, high labour costs, lack of skilled labour, and unpredictability in economic policy and legal certainty.
The Hungarian government maintains that it seeks cooperation based on mutual respect, but the investment environment remains increasingly challenging for foreign investors, especially outside the automotive sector.
Cover photo: Getty Images
