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Hungarian Aeronautical Research Workshop 27
November 2006
Hungary - an ideal location for Investors
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Agenda

• General Economic Overview of Hungary
• Education, Workforce and Wages
• Logistics and Road Infrastructure
• Innovation in Hungary
• The Services of ITD Hungary

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General Economic Overview of Hungary
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Hungary in Europe
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Main Characteristics ofHungary as EU-Member

• High integration with the EU in respect of trade
  and investments
• The legal framework corresponds to international
  standards
• Heavy reliance on FDI as a driving force in the
  economy
• Gross industrial output per worker grew three
  times since 1990
• Sophisticated financial system
• Experienced and educated labor force
• Highly developed logistical and transport
  infrastructure, 179 industrial parks
• Strong presence of foreign and multinational
  companies
• over 30,000 companies with foreign owners

Source WIIW
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Hungarian Macroeconomy
GDP

• Rate of growth reaches 4.0 in 2006
• Industrial boom 10 year-to-year growth by 2006
  
• Export growth reaches 15 in 2006
• Unemployment rate 7.5 in 2006
• Declining real wage growth -1 in 2007
• Annual inflation forecast for 2006 is 3.9
• Volume of investments grew by 9,7 in Q12006

Output
Employment and wages
Inflation
Investments
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Cumulated FDI in Hungaryin million euros
Hungary is Front-Runner as regards FDI Potential
and Performance
53 942
Including reinvested earnings from 1995
Source National Bank of Hungary, Ministry of
Economy and Transport
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FDI Stock in Hungary by Sectors
Source National Bank of Hungary
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Education, Workforce and Wages
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High quality labour pool
University Towns

• Number of higher education
• institutions 69
• Number of students in higher
• education 421,500
• Majoring in
• Engineering 45,900
• Business and Administration 98,400
• Informatics 13,900
• Number of graduates in 2005 53,500

All diploma with foreign language certificate
and computer skills!
90 of the students speak English 2nd most
popular foreign language German followed by
French, Italian, Spanish
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Major Colleges and Universities
Number of students in thousands in academic year
2004/2005 excluding those in distance education
Source Statistical Yearbook of Higher Education
2004/2005
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Slow-down in Real Wage Growth in Hungary
Source Convergence Programme of Hungary, GKI
forecast data
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Hungary Ahead inLabour Productivity
GDP in Purchasing Power Standards per person
employed relative to EU-25 (EU-25 100)
Source Eurostat, 2006
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Logistics and Road Infrastructure
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Hungary - The Natural Regional Logistic Centre

• Central location in Europe
• Border with 7 countries
• 3 EU, 4 non-EU member states
• Three international major road corridors and the
  Danube cross Hungary.
• Innovation-logistic ring around Budapest
• Záhony the Reloading centre between narrow and
  wide railway system
• Easy access to the Balkans and Europe
• The 11 logistic districts and the 13 logistic
  centres are located in the focal points of the
  international movement of goods.

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Road Network in 2015
KOSICE
UA
Tornyosnémeti
LVOV, KIEV
Tisza
BRATISLAVA, PRAHA
M30
Miskolc
SK
M3
M25
Nyíregyháza
Salgótarján
M2
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VIENNA
V.
Parassapuszta
Emod
A
Polgár
Eger
Duna
Gyor
Vác
BUDAPEST
M9
M35
Füzesabony
Sopron
Debrecen
Tatabánya
M4
Szombathely
Székesfehérvár
Szolnok
M4
Veszprém
IV
RO
GRAZ
Dunaújváros
CLUJ-NAPOCA, ARAD
M44
Rábafüzes
Zalaegerszeg
Siófok
Kecskemét
M70
Bszgyörgy
LJUBLJANA, TRIESTE
Békéscsaba
Lelle
Nagykanizsa
Kiskunfélegyháza
M7
M5
Tornyiszmiklós
ARAD
V.
Szeged
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Letenye
Szekszárd
Kaposvár
Nagylak
ZAGREB
A
Pécs
Baja
Mohács
Röszke
TIMISOARA, BUCAREST
BELGRAD
YU
SL
M56
Ilocska
X/A
HR
SARAJEVO
Source Ministry of Economy and Transport
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Airports in Hungary
Nyíregyháza
Mezokövesd
Gyor-Pér Intl airport
Debrecen Intl airport
Budapest International airport
Fertoszentmiklós
Kunmadaras
Veszprém
Siófok Kiliti
Zalaegerszeg
Békéscsaba
Kalocsa-Fokto
Fly Balaton- Intl airport
Taszár
Szeged
Pécs
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Innovation in Hungary
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Tradition in research 11 Hungarian Nobel-Prizes

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History and Tradition
Hungary has great tradition in the transportation
industry. Significant inventors and
contributors Dávid SCHWARTZ first propeller made
of thin metallic plates (1897) János CSONKA
first Hungarian gas combustion engine (1883),
carburettor (1890) József GALAMB organizer of
Ford-T mass production (1905-15) Tódor
KÁRMÁN Kármán vortex line - streamlines
(1911) Béla BERÉNYI safety concept of vehicles
(1939-1972) Miklós HOFF Designer of airplanes and
Apollo spacecraft Ferenc PAVLOVICS first
moonwalker (1961-88) Gyula CSER combined engine
charger system (1968) Ferenc ANISITS development
leader of BMWs diesel engine (1981-99) György
SPRINGER Head of institute of Aeronautics and
Astronautics at Stanford University István
UDVARHÁZY Space and Air Center at Dallas Airport
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Corporate Research Centres
Bosch Power Tool
Teva-Biogal
General Electric
Audi, Magna Steyr, EDAG
Michelin
ZF Hungária
W.E.T.
Zenon
Teva-Biogal,National Instruments
Samsung SDI
Draixlmaier
GM Powertrain
Electrolux
Denso, Visteon
Ericsson,Temic-Telefunken, IBM, Simens PSE,GE
Lighting, GE Health-care, Nokia, Cisco, SAP, TATA
Consulting, T-Systems, Sanofi-Aventis, Servier,
Astra-Zeneca, Knorr-Bremse, Arvin Meritor
Flextronics
Knorr-Bremse
Continental Teves, Valeo Auto-Electric
Elcoteq
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Hungary attracts 15 of all new RD jobs in Europe
Source IBM Plant Location
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Hungarian RD units and FTEs
Goal Double RD expenditures in the next 5 years
and triple in 10 years. 2/3 of expenditures from
corporate sector.
Source Hungarian Central Statistical Office
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The new innovation systemof Hungary
Source National Office for Research and
Technology
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Incentives for RD Investments
1. Tender applications in the framework of the
New Hungary Development Plan ( II. National
Development Plan) co-financed by the EU VII.
Framework Program 2007-2013 2. Special incentive
package for strategic investors The Hungarian
Government prepares a tailor-made incentive
package 3. Tax allowances in corporate income
taxation 4. Development Tax Benefit 5. Other
tax-related benefits (e.g. solidarity tax,
personal income tax) 6. Subsidy for employment
creation and training 7. Special support
programs for RD activity National Office for
Research and Technology (discussed earlier)
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Objectives of the II. National Development Plan
In the II. National Development Plan HUF 651 bn
(app. EUR 2.5 bn) will be earmarked for RD
activities Under the EU VII. Framework Program
Hungary will receive another HUF 80-100 bn (app.
EUR 0.4 bn)

• I. Knowledge-based economy
• Promotion of innovation in the corporate sector
• (Technological development, Education of
  researchers at corporations, Set up RD units,
  Purchase and adapt competitive technologies,
  Establish innovation and RD clusters)
• Supporting new technology-intensive investments
• Promotion of corporations among universities,
  scientific research centres
• Supporting of setting up new research and
  development facilities
• (e.g. Knowledge and incubation centres, Research
  infrastructure, Spin-offs)
• Promotion of international cooperation
• (Technology transfer, Technology adaptation)
• II. Pole Program
• Seven regional centres
• Debrecen, Gyor, Miskolc, Pécs, Szeged and
  Székesfehérvár-Veszprém axis
• III. Details of tender application to be
  announced in early 2007
• Intensity ratio 35-75

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Special Incentive Package for Strategic Investors

• The Hungarian Government may decide on granting a
  customized incentive package and VIP treatment
• In case of establishing regional corporate
  service centre and RD centre if the investment
  volume reaches
• EUR 10 million
• Eligible costs include all wages and wage related
  costs in the first 24 months
• Applicable types of incentives
• - Direct aid
• - Development tax allowance
• - Training subsidy

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Tax related incentives for RD investments
Tax allowances in corporate income taxation

• RD costs or depreciation of activated/accounted
  RD can be 100 deducted from corporate tax base
• 300 RD direct expenses - maximum HUF 50 million
  (ca. EUR 200 thousand) - if operation of the
  company RD unit located at university or public
  research institute (e.g. Hungarian Academy of
  Sciences)
• Special Intellectual Property Rights tax
  allowance for SMEs (cost of patent applications)
• Tax allowance for corporate donations to
  organisations of public benefit supporting RD
  activities
• Tax free development reserve for five years 25
  of pre-tax profit (max. HUF 500 million, ca. EUR
  2 million)
• Tax benefit on credit agreements

.
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Tax-related incentives forRD investments

• Development tax benefit
• Applied for a period of 10 years
• Rate up to 80 of corporate income tax
• Minimum investment value HUF 100 million (app.
  EUR 380 th)
• Company RD unit is located at university or
  public research institute
• Other tax-related benefits
• RD costs or depreciation of activated/accounted
  RD can be 100 deducted from solidarity tax base
  (from 2007)
• Tax free employment of PhD, MSc or MBA students
  (up to the official minimum wage) in the field of
  educational and research activities
• Tax credit of personal income tax for
  intellectual property creation
• 10 of RD direct costs and wage costs of the
  employed software developer can be deducted for a
  period of 3 years
• SMEs pay innovation contribution in reduced rate

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High Value Added Job Creation

• Measure of subsidy HUF 30 million (EUR 120
  000)HUF 20 million (EUR 80 000) / project if the
  investment creates at least 80 jobs
• 2 Subsidy categories!
• 1. Job creation investment aim (BAA)
• 2. Job creation (ADA)
• Size of the subsidy
• 75 of the employees salary and its
  contributions for 12 months OR
• 65 of the employees salary and its
  contributions for 12 months
• It can not exceed HUF 200 000 (EUR
  800)/employee/month
• Company profile IT, finances -, accounting-,
  consulting, customer service, etc.
• Details of tender application to be announced in
  early 2007
• Please note above numbers are not confirmed

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Training subsidy

• Aid intensity the gross subsidy amount expressed
  as a percentage of the project eligible costs
• Specific training maximum 25 for large
  enterprises and 35 for SMEs
• General training maximum 50 for large
  enterprises and 70 for SMEs
• a maximum of 10 in case of disadvantaged
  workers, proportionally with their number
• Large amount of subsidy (EUR 1.000.000 or more)
  is subject to an individual assessment by the
  Commission

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Intensity Ratios from 2007
Borsod-Abaúj-Zemplén
Szabolcs-Szatmár-Bereg
Nógrád
Heves
Gyor-Moson-Sopron
Komárom-Esztergom
Budapest
Hajdú-Bihar
Jász-Nagykun-Szolnok
Pest
Vas
Veszprém
Fejér
Békés
Zala
Bács-Kiskun
Tolna
Somogy
Csongrád
for medium enterprises 10 for small
enterprises 20
Baranya
25
30
40
50
as of 2011 10
Source Ministry of Finance,17th Aug 2006
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The services of the Hungarian Investment and
Trade Development Agency
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ITD Support
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ITDH Support for the Hungarian Aviation Industry

• I. Events for HAIF members
• FP-6 Aeronautical RD Workshop, Budapest Hungary,
  2003
• Aerospace Quality Workshop, Budapest Hungary,
  2004
• Aeromart Exhibition, Toulouse France, 2004
• Hungarian Aviation Industry Event, Hamburg
  Germany, 2004
• Aerosolutions Exhibition, Bordeaux France, 2005
• Cabin Systems Holding Information Day, Budapes
  Hungary, 2005
• Airshow Exhibtion, Berlin Germany, 2006
• Aeromart Exhibition, Toulouse France, 2006
• FP-7 Aeronautical Research Workshop, Budapest
  Hungary, 2006
• Aircraft Interior Expo, Hamburg Germany, 2007
  (plan)
• II. Development of industry integration
• Hungarian Aerospace cluster, 2006
• HAIF-PANAC cluster cooperation, 2006
• Recommending Hungarian producers/exporters/subcont
  ractors to foreign customers
• III. Foreign direct investment projects in
  Hungary
• Project management

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Thank you for your attention!
György Rétfalvi, CEO ITDH
Hungarian Investment and Trade Development Agency
(ITDH) H-1061 Budapest, 12 Andrassy ut,
Hungary Phone [phone], Fax (36 1)
472-8180 E-mail investment_at_itd.hu Internet
www.itd.hu