Hungary Puts Out Welcome Mat for Foreign Investors : Trade: Critics say the government is so eager for overseas money that it makes things tough for firms that don’t look for Western partners.
A lot of Hungarian companies are looking for foreign partners these days, but probably few are as prosperous as Zoltan Wlassics’ Kandelaber Ltd., based in this village a few miles north of Budapest.
Unlike many of those other companies, Wlassics has enough of his own money to expand his decorative lamp and cast iron business. But he says the government has implemented such extraordinary special incentives to attract foreign capital to the country that he would actually be penalized if he did not seek a Western partner.
While making concessions to lure overseas investors, the government continues to discourage home-grown investment through a punishing system of taxation and employee welfare that chews up 80 of every 100 forints Hungarian investors earn, according to the 58-year-old mechanical engineer and others among the country’s pioneering private entrepreneurs.
“A lot of people don’t invest because they get more from the bank,” Wlassics said in an interview.
Representatives of Hungary’s National Federation of Private Entrepreneurs have complained that, under current rules, they would be better off emigrating, then returning to invest in their homeland as foreigners. Minister of State Imre Pozsgay has promised to look into the matter.
Foreign firms, meanwhile, are buying into everything from newspapers to sex shops, and critics are complaining about “the selling of Hungary.”
New joint ventures are being announced so fast that it is difficult to pin down precise figures. But the pace so far this year has reportedly averaged about one deal per day, seven days a week. Vera Lantos, spokeswoman for the Hungarian Credit Bank, said there are now between 650 and 700 joint ventures registered in the country.
General Electric Co. last week announced the largest single Western investment here since World War II, a $150-million deal to take a controlling, 50%-plus-one-share interest in a Hungarian light bulb manufacturer, Tungsram Co. With $300 million in annual sales, 85% of which represent exports, Tungsram is one of the country’s biggest manufacturers.
“This is both an excellent global move for GE and a historic moment in the reform of Hungary’s economic system,” said GE Chairman John F. Welch Jr.
Hungary’s official MTI news agency said the American firm will also get the option for a further 20% share of Tungsram.
Other buyers include two rival newspaper magnates, Briton Robert Maxwell and Australian Rupert Murdoch.
Maxwell’s Mirror Group Newspapers announced earlier this month that it had bought a 40% stake in Magyar Hirlap, which was formerly the official newspaper of the Hungarian government. The paper’s new policy, according to Joszef Szaszi, its deputy editor, is to be “close to the government but politically independent.”
“It’s unprecedented that a government paper would joint venture with Western capital,” added Szaszi, who stated that the newspaper management initiated the search for a foreign partner. “We needed foreign representation for tax purposes,” he said. “A mixed company gets a tax break.”
With losses currently running at the equivalent of $1 million a year, the paper needs all the breaks it can get. While it will remain a “serious” journalistic venture, Szaszi said, it will take steps to shed its stodgy image.
“Communist rule meant the press was the servant of politics,” the deputy editor noted. “They forgot the newspaper is a product; it must be good enough to be sold. Propaganda can be distributed (for free) in front of a store.”
Murdoch is buying 50% of Reform, which is widely considered to be Budapest’s liveliest and most popular weekly. Scandals, gossip and nudity were staples in that publication even before Murdoch came on the scene, said Peter Toke, Reform’s co-founder and editor.
“I wanted to make sort of a (journalistic) Big Mac--tomatoes, lettuce, pickles,” Toke explained. “The other papers were just buns.”
Meanwhile, Suzuki of Japan is negotiating to open a joint venture automobile plant here that could ultimately reshape the entire East European car market.
“Nobody in his right mind would want to buy (an East German) Trabant if he can get a Suzuki,” a Hungarian editor said.
As much as Hungarians admire automobiles, however, probably the most talked about joint venture here last week was much tinier. It was Budapest’s first sex shop, run by a joint Hungarian-Austrian group calling itself Intim Center Ltd.
According to the MTI news agency, the center sells “sexy clothes of lace and leather, as well as whips and all the other paraphernalia associated with intimacy.” It also has 19 booths for private viewing of pornographic videos.
The partners are Wilhelm Sassmann, an Austrian who owns a chain of similar stores in his own country; Budapest’s United Clothing Cooperative, and two private Hungarian investors.
