”Well, he would [say that] wouldn’t he?” Last week I took part in the 10th Hungarian Business Leaders Forum Financial Summit and found myself on a panel of Ambassadors arguing about the transformational power of Foreign Direct Investment (FDI). The UK is one of the biggest foreign investors in Hungary, so I might be expected to take that stance. But it happens that I believe in the win-win value of FDI – as, clearly, did my Australian, Canadian and US colleagues on the panel.
Over the past 20 plus years, FDI has been the main driver of economic growth and job creation in Hungary. It has brought the best international practice in Corporate Social Responsibility and (more recently) low carbon growth to the market. FDI has also helped drive up standards in domestic production, leading to increased export competitiveness. A British company is now the 2nd biggest employer (and the biggest private sector employer) and 4th biggest taxpayer in Hungary.
This country was once the biggest magnet for FDI in the region – and could be again. But right now it is not doing as well as it should be when judged against regional competitors. The government’s own figures show that Hungary’s ability to attract FDI is deteriorating (especially reinvestments by existing investors). The fact is that FDI is very mobile and global, especially low-cost manufacturing, and will migrate if it gets a better offer.
The Hungarian economy is open and export-led, which offers great opportunities. But the other side of the coin is that it is open to external risk and at the moment it is capital poor. Hungary therefore needs continued, sizeable levels of FDI to create the new jobs and induce the levels of economic growth that everyone believes are required. But if they do not get the necessary predictability, foreign investors will stop coming here.
This is why an enhanced dialogue between government and business is needed, now. Prior consultation with industry groups, including foreign investors, would ensure a greater likelihood of buy-in to the difficult economic decisions the Hungarian government is having to take and can help to prevent unintended consequences of those decisions. This is the time to create a genuine investment partnership from which everyone can benefit, including Hungarian consumers.