Hungary key indicator rises to all-time high

The flood of EU funds and the reform of the institutional system in 2014 has resulted in a jump in Hungary’s Research & Development spending to 1.49% of GDP in 2018 from 1.35% in 2017, the updated data series of the Central Statistical Office (KSH) reveals.
Hungary key indicator rises to all-time high
The 1.49% of GDP R&D spending is the highest index Hungary reached since the change of regime in 1989-1990. The index is a key metric of competitiveness and also a key to the country’s convergence.

Despite the success, this performance puts Hungary only in the mid-section of the EU rankings, and there is still a considerable risk that the 1.8% target set for 2020 will not be reached.

In the meantime, the Ministry of Innovation and Technology noted in respect of the above data that 3.0% of GDP R&D spending should be targeted for 2030. It argues that in order to achieve that goal, the institutional system requires further restructuring, and that the billions of forints of funding need to be utilised better than before in the economy.

In scope of this great ‘reform’, the cabinet has just stripped the Hungarian Academy of Sciences (MTA) of its research network, despite domestic and international outcry.

The first time ever (since the change of regime)

The ministry published a commentary to the stats office’s updated figures. It said that if we disregard the special year of 1990 (change of regime) and the previous era, RDI expenditure as a percentage of gross domestic product indeed reached an all-time high of 1.49% in 2018, having risen from 1.35% in 2017.

The ministry said that this jump was expected, as the RDI regime has been under restructuring since 2014. It added that changes were implemented in higher education and large-volume EU-funded projects were also launched. “In order to utilise RDI expenditure even more efficiently, further steps are necessary, though," it remarked.

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Let’s see what the 1.49% of GDP RDI spending means in international comparison. As you can see, the leading innovators in Europe, the Scandinavian countries, and Germany are far ahead with indices of around 3.0%. But it could still be enough for the second place in 2018, behind the Czech Republic but before Poland and Slovakia.

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The ministry also cites the European Innovation Scoreboard 2019 recently published by the European Commission
https://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards_en
The document shows that Hungary is in the Moderate Innovators group, which - despite a major rise in R&D spending it stagnated in terms of innovation performance and slipped two spots to the 23rd place in 2018. "In other words, no matter how the R&D spending by public agents grows if these are not utilised properly in the economy," the ministry added.

The assessment of the efficiency of utilisation is a more complex tax, but at this point we should take a look at the preliminary 2018 RDI statistics provided by the Hungarian stats office. The question is what brought about the jump in R&D&I expenditure to HUF 628.7 bn in 2018 from HUF 517 bn in 2017. This is an increase of 21.5% which allowed the RDI spending per GDP ratio to rise to 1.49% from 1.35%. As the chart below shows, all three sectors experiences a significant rise in expenditures.
  • In the largest-weight business (private) sector, RDI spending rose 19% to HUF 323 bn from HUF 272 bn;
  • In the public sector, with the second-largest weight, RDI spending leaped 26.5% to HUF 209 bn from HUF 165 bn;
  • In the sector with the third-largest weight, foreign resources, RDI expenditures went up 21% to HUF 93 bn from HUF 77 bn.


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Main factors behind the sharp increase

The ministry explains the significant increase in the two main sectors and the rise in the RDI-to-GDP ratio to 1.49% by saying that these reflect the large-volume state subsidy programmes enabling not just universities and research institutes but also a number of businesses to step up their R&D game. These programmes, run under the ‘Investment into the future’ strategy, include projects co-financed by the European Union (Economic Development and Innovation OP, EDIOP) and the Competitive Central Hungary OP, CCHOP), as well as projects funded by the funds of the National Research, Development and Innovation Office (NKI), which help execute Hungary’s RDI strategy.

On the basis of the detailed figures, the ministry pointed out that RDI spending of research institutes and institutes of higher education gained from businesses and foreign resources is insignificant, which is mainly rooted in the low level of co-operation between them. It stresses that if they fail to improve their relationship with local enterprises and strengthen their presence in the EU research sphere, “they are unlikely to be able to contribute to the development of the local innovation ecosystem via the improvement of their own competitiveness or by boosting the competitiveness of local businesses."

The detailed KSH data also reveal that the number of R&D units and their staff expanded substantially in the last few years. This is most likely closely linked to the tenders invited in the 2014-2020 programming period and the institutional changes. The number of academia jumped to a new record high of 3,426 in 2018 from 3,109 in 2017, strictly owing to measures in the business sector, whereas the number of employees here rose to a new high of almost 65,000 people from about 61,000 a year earlier. This also had a lot to do with the actions of enterprises.

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Cover photo by MTI / Péter Lakatos

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