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

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

3. General Economic Overview of Hungary

4. Hungary in Europe Land: 93,030 km² Population: 10,1 million people GDP/capita, at PPP (2005): US$ 16,290 Hungary

5. 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 Main Characteristics of Hungary as EU-Member

6. 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 GDP Output Inflation Employment and wages Hungarian Macroeconomy Investments

7. Cumulated FDI* in Hungary in million euros Source: National Bank of Hungary, Ministry of Economy and Transport * Including reinvested earnings from 1995 53 942 Hungary is Front-Runner as regards FDI Potential and Performance

8. Food: 5.2% Chemical: 5.7% Electronics: 8.8% Automotive: 10.9% Trade: 10.1% Transport, telecom: 9.9% Finance: 10.5% Business services: 16.8% Source: National Bank of Hungary FDI Stock in Hungary by Sectors

9. Education, Workforce and Wages

10. 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 Budapest 164,105 Szeged 30,942 Pécs 31,705 Veszprém 9,680 Miskolc 14,130 Debrecen 23,403 90% of the students speak English 2 nd most popular foreign language: German followed by French, Italian, Spanish All diploma with foreign language certificate and computer skills! High quality labour pool University Towns

11. Sopron 14.1 Szombat- hely 7.1 Veszprém 10.5 Sz.fehérvár 8.1 Budapest 158.7 Gödöllő 11.1 Eger 9.5 Miskolc 15.2 Nyíregyháza 12.8 Debrecen 27.4 Kecskemét 18.4 Szeged 31.5 Pécs 33.6 Dunaújváros 4.8 Győr 11.1 Kaposvár 4.4 Number of students in thousands in academic year 2004/2005 excluding those in distance education Source: Statistical Yearbook of Higher Education 2004/2005 Major Colleges and Universities

12. Slow-down in Real Wage Growth in Hungary Source: Convergence Programme of Hungary, GKI *forecast data

13. Hungary Ahead in Labour Productivity GDP in Purchasing Power Standards per person employed relative to EU-25 (EU-25 = 100) Source: Eurostat, 2006 Hungary Slovakia Czech Rep. Poland Romania Bulgaria

14. Logistics and Road Infrastructure

15. 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.

16. Source: Ministry of Economy and Transport Rábafüzes Parassapuszta Vác Tornyosnémeti Röszke Ilocska Letenye Dunaújváros Eger Veszprém Győr Tatabánya Kaposvár Pécs Lelle Sopron Székesfehérvár Kecskemét Békéscsaba Nyíregyháza Miskolc Kiskunfélegyháza Debrecen Füzesabony Emőd Baja Polgár X/A VIENNA BRATISLAVA, PRAHA GRAZ LJUBLJANA, TRIESTE ZAGREB SARAJEVO TIMISOARA, BUCAREST BELGRAD CLUJ- NAPOCA, ARAD LVOV, KIEV KOSICE Szolnok IV V. ARAD Szeged Nagylak Duna Tisza Zalaegerszeg Tornyiszmiklós Salgótarján M30 M2 M3 M4 M5 15 M9 M8 M7 M70 M6 M56 BUDAPEST V. M25 M35 Bszgyörgy Nagykanizsa 43 HR RO UA SK A SL YU Siófok Szekszárd Mohács A M86 Szombathely M1 M0 M3 M44 Motorway Expressway Motorway under construction Helsinki corridors Road Network in 2015 M9

17. Airports in Hungary Budapest – International airport Pécs Szeged Debrecen – Intl airport Nyíregyháza Győr-Pér – Intl airport Fertőszentmiklós Siófok – Kiliti Fly Balaton- Intl airport Mezőkövesd Békéscsaba Kalocsa-Foktő Taszár Veszprém Zalaegerszeg Kunmadaras

18. Innovation in Hungary

19. Philipp E. A. von Lenard (1862-1947)1905Physics Robert Bárány (1876-1936)1914Physiology Richard A. Zsigmondy (1865-1929)1925Chemistry Albert Szent-Györgyi (1893-1986)1937Physiology George de Hevesy (1885-1966)1943Chemistry Georg von Békésy (1899-1972)1961Physiology Jenő Wigner (1902-1995)1963Physics Dénes Gábor (1900-1979)1971Physics John C. Polanyi (1930-)1986Chemistry George A. Olah (1927-)1994Chemistry John C. Harsanyi (1920-2000)1994Economics Tradition in research: 11 Hungarian Nobel-Prizes

20. History and Tradition Hungary has great tradition in the transportation industry. Significant inventors and contributors: Dávid SCHWARTZfirst propeller made of thin metallic plates (1897) János CSONKA first Hungarian gas combustion engine (1883), carburettor (1890) József GALAMBorganizer of Ford-T mass production (1905-15) Tódor KÁRMÁN„Kármán” vortex line - streamlines (1911) Béla BERÉNYIsafety concept of vehicles (1939-1972) Miklós HOFFDesigner of airplanes and Apollo spacecraft Ferenc PAVLOVICSfirst moonwalker (1961-88) Gyula CSERcombined engine charger system (1968) Ferenc ANISITSdevelopment leader of BMW’s diesel engine (1981-99) György SPRINGERHead of institute of Aeronautics and Astronautics at Stanford University István UDVARHÁZYSpace and Air Center at Dallas Airport

21. Elcoteq 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 Bosch Power Tool Continental Teves, Valeo Auto-Electric Audi, Magna Steyr, EDAG Michelin Denso, Visteon Knorr-Bremse W.E.T. Flextronics Samsung SDI Draixlmaier Electrolux Teva-Biogal, National Instruments Zenon General Electric Teva-Biogal Corporate Research Centres ZF Hungária GM Powertrain

22. Destination countries by estimated job creation in R&D projects, H1 2005 Hungary attracts 15% of all new R & D jobs in Europe Source: IBM Plant Location

23. Hungarian R&D units and FTEs Source: Hungarian Central Statistical Office Goal: Double R&D expenditures in the next 5 years and triple in 10 years. 2/3 of expenditures from corporate sector.

24. The new innovation system of Hungary Source: National Office for Research and Technology

25. 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 R&D activity: National Office for Research and Technology (discussed earlier) Incentives for R&D Investments

26. I. Knowledge-based economy Promotion of innovation in the corporate sector (Technological development, Education of researchers at corporations, Set up R&D units, Purchase and adapt competitive technologies, Establish innovation and R&D 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, Győr, Miskolc, Pécs, Szeged and Székesfehérvár-Veszprém axis III. Details of tender application to be announced in early 2007 Intensity ratio: 35-75% 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 R&D activities Under the EU VII. Framework Program Hungary will receive another HUF 80-100 bn (app. EUR 0.4 bn)

27. The Hungarian Government may decide on granting a customized incentive package and VIP treatment In case of establishing regional corporate service centre and R&D 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 Special Incentive Package for Strategic Investors

28. R&D costs or depreciation of activated/accounted R&D can be 100% deducted from corporate tax base 300% R&D direct expenses - maximum HUF 50 million (ca. EUR 200 thousand) - if operation of the company R&D 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 R&D 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 Tax related incentives for R&D investments. Tax allowances in corporate income taxation

29. Tax-related incentives for R&D 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 R&D unit is located at university or public research institute Other tax-related benefits R&D costs or depreciation of activated/accounted R&D 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 R&D direct costs and wage costs of the employed software developer can be deducted for a period of 3 years SME’s pay innovation contribution in reduced rate

30. 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 employee’s salary and its contributions for 12 months OR 65% of the employee’s 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 High Value Added Job Creation

31. 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 Training subsidy

32. Intensity Ratios from 2007 25%*30%40%50% Vas VeszprémFejér Somogy Tolna Baranya Pest Budapest Nógrád Heves Borsod-Abaúj- Zemplén Szabolcs-Szatmár- Bereg Hajdú-Bihar Bács-Kiskun Békés Jász-Nagykun- Szolnok Csongrád Komárom- Esztergom *as of 2011: 10% Győr-Moson- Sopron Zala for medium enterprises + 10% for small enterprises + 20% Source: Ministry of Finance,17th Aug 2006

33. The services of the Hungarian Investment and Trade Development Agency

34. The Hungarian Investment and Trade Development Agency is the agency of the Hungarian Government for foreign investment promotion and trade development. Central Office in Budapest 6 Regional Offices – 14 locations 56 Foreign Trade Offices 8 Representative Offices in the border regions of neighbouring countries Network: ITD Support Budapest Debrecen Eger Szeged Pécs Veszprém Győr

35. ITDH Support for the Hungarian Aviation Industry I. Events for HAIF members FP-6 Aeronautical R&D 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/subcontractors to foreign customers III. Foreign direct investment projects in Hungary Project management

36. Thank you for your attention! Hungarian Investment and Trade Development Agency (ITDH) H-1061 Budapest, 12 Andrassy ut, Hungary Phone: (36 1) 472-8178, Fax: (36 1) 472-8180 E-mail: investment@itd.huinvestment@itd.hu Internet: www.itd.huwww.itd.hu György Rétfalvi, CEO ITDH