How to strengthen the industrial co-operation in the light of Hungary’s experiences Antal Nikodemus Ph.D. Ministry of Economy and Transport Innovation and Environmental-policy Department Euro-Mediterranean Industrial Co-operation, Rome, 3. October 2003

FDI in the 10 EU accession countries, 2001-2002 Huge increases in the Czech Republic, Slovakia and Slovenia $ billions

Does it divert FDI from the EU-15 Does it divert FDI from the EU-15? FDI inflows of accession countries as % of EU-15

Why accession countries defy the global downturn More successful privatization and cross-border M&As than in other parts of the world Relative stability and growth of the accession countries Potential for attracting “higher value added” FDI (R&D, regional headquarters, logistical centres, call centres and back offices) A combination of labour skills and competitive production costs

Risks for accession countries Uncertainty brought about the transition to EU requirements, prompting a wait-and-see attitude by investors. Production costs may increase, prompting a departure of activities based on unskilled labour (to non-accession Europe and East Asia)

Matrix of specialization between accession and non-accession countries of CEE How to adjust policies/ measures to the status of new frontier, question of business environment “New frontier” for efficiency-seeking FDI Non-accession countries How to best adjust FDI promotion to EU instruments (regional and cohesion funds etc.) Upgrading of FDI activities Accession countries FDI policies and measures FDI patterns Countries

Policy challenges for accession countries Investment promotion policies: harmonization of FDI regimes with EU regulations. Examples of nonconforming FDI instruments: Slovakia (special incentives for foreign investors), Hungary (10-year tax holidays granted only to large investors), changed in 2002 General policies related to FDI: establishment and and development of an institutional framework required to administer and channel EU funds: a test for human and financial resources.

The Small Business Bridge to Growth Private and equity capital Stock Exchange Hungarian economy SMEs Private and equity capital PPP Founders, Family Friends Banks Loans < 250,000 euro 5 million euro < The Capital Chasm

Enterprises Public Research Channels of interaction Size of R&Đ Enterprise governance Market structure Absorptive capacity Innovation performance Cultural attitude Public Research Size of R&D Disciplinary structure Types of organisations Transfer capacity Research performance Compatibility of knowledge supply and demand Market demand and technology development Channels of interaction Intermediaries Industry-science relationship Promotion programmes Financial incentives PR financing, steering & management Institutional arrangements Regulations Incentive structure

Hungarian industrial production in 2001 1936,9 bHUF; 15,53% 710,85 bHUF 5,70% 1381,8 bHUF; 11,08% 1829,4 bHUF; 14,67% 909,1 bHUF; 7,29% 355, 8 bHUF 2,85% 141,39 bHUF 1,13% 365, 1 bHUF 2,93% 960,7 bHUF; 7,71% 387,5 bHUF 3,11% 495,5 bHUF 3,97% 452,2 bHUF 3,63% 381,5 bHUF 3,06% 474,6 bHUF 3,81% 258,5 bHUF 2,07% 377,38 bHUF 3,03% 334, 4 bHUF 2,68% Hungarian industrial production in 2001 191, 5 bHUF 1,54% 300, 3 bHUF 2,41% Central Transdanubia 25,02% Central Hungary 23,24% 224, 1 bHUF 1,80% Western Transdanubia 18,86% Northern Hungary 9,76% Northern Great Plain 9,59% Southern Great Plain 7,78% Southern Transdanubia 5,74%

Hungarian industrial parks, 1997-2002. (According to the year granting the „industrial park” title) Salgótarján Miskolc Eger Nyíregyháza Győr Debrecen Szombathely Tatabánya Szolnok Veszprém Zalaegerszeg Székesfehérvár Kecskemét Békéscsaba Kaposvár Szekszárd Year of granting the „industrial park” title Pécs 1997 (28) Szeged 1998 (47) 1999 (37) 2000 (21) 2001 (13) 2002 (14) © Ministry of Economy and Transport, Innovation and Environmental Protection Department, 2003.

Hungarian incubator houses Sátoraljaújhely Ózd Encs Miskolc Salgótarján Nyíregyháza Eger Győr Komárom Budapest Berettyóújfalu Budaörs Vecsés Szombathely Szolnok Székesfehérvár Sümeg Veszprém Ajka Zalaszentgrót Kecskemét Zalaegerszeg Békéscsaba Lenti Hódmezővásárhely Kaposvár Szekszárd Szeged Mórahalom Pécs Ministry of Economy and Transport, Innovation and Environmental Protection Department

Centres of Hungarian clusters Mátészalka Optomechatronic Cluster Central-Hungary Automotive Cluster Pannon Thermal Cluster University Cluster Quality Devlopment Cluster Pannon Automotive Cluster Hungarian Building Industry Cluster Pannon Fruit Cluster Central-Transdanubia Wood and Furniture Industry Cluster Saxon Export Cluster Great-Plain Thermal Cluster Papa Meat and Food Industry Cluster Great-Plain Economy-development Cluster Pannon Electronic Cluster Central-Transdanubia Electronic Cluster Pannon Wood and Furniture Industry Cluster Southern Great Plain Textile Industry Cluster Southern Great Plain Road-Construction Cluster Southern Great Plain Touristic Cluster Southern Great Plain Handicraft Cluster South-Transdanubia Regional Geothermic-Energy Development Cluster Ministry of Economy and Transport, Innovation and Environmental Protection Department

The Hungarian industrial policy 2003-2010 Succeeds the industrial policy of 1995 Contents: Hungarian present position Comparison of Hungarian and EU industrial-policy Industrial policy and other policies Goals Means Hungarian competitiveness policy Hungarian innovation policy

Thank you for your attention! Antal Nikodemus Ph.D. Ministry of Economy and Transport, Innovation and Environmental Protection Department Address: 13-15 Honved utca, Budapest, H-1055, Hungary Tel: (+36-1)-374-2960 Fax: (+36-1)-374-2878 E-mail: nikodemus@gkm.hu