Dangers lurk as Hungary's economy booms

Gyor (Hungary) (AFP) –


If you listen closely amidst the whirring of machines in the Borsodi Muhely factory in Gyor, you might just make out what's been powering Hungary's buoyant economic performance in recent years.

The family metallurgical firm was founded as a one-man band in 1981 just as market-oriented reforms began to take hold under communism.

Borsodi Muhely is one of many companies in the region near the Austrian border that have benefited from the presence of a huge plant owned by German car giant Audi, which employs roughly a tenth of Gyor's 120,000 people.

Elsewhere in Hungary, Daimler and Suzuki are other big foreign investors in the key automobile sector.

Proudly showing off Borsodi Muhely's latest products, the firm's strategic director Szabolcs Horvath explained how the experience of supplying Audi has made the business able to meet international standards and win other clients.

"By 2014 we reached 100 employees, and now we have 220," said Horvath.

"And we've set up new factories -- at the moment we have three different locations."

Prime Minister Viktor Orban and his Fidesz party take credit for a business climate that has kept firms like Audi investing and expanding in Hungary, creating jobs directly and at local suppliers.

They say they cleaned up the parlous state of the economy and the public finances left by the previous Socialist administration after the financial crisis of 2008, and boast of growth of 4.0 percent in 2017.

All reasons why they are expected to win elections this Sunday.

- 'Vegetating' -

But even home-grown success stories like Borsodi Muhely are now beginning to chafe at constraints on growth, such as the high rate of emigration and a resulting upward pressure on wages.

"Labour shortage is a serious problem at the moment in the region," Erika Kalmarne Hollosi from the Gyor-Moson-Sopron chamber of commerce told AFP, adding that higher wages have lured many skilled workers to Austria and other EU states.

Last year a strike at Audi saw workers secure a pay rise and unions haven't ruled out further demands to get wages closer to Western European levels.

And on a national level, Fidesz's critics point out income growth has disproportionately benefited the well-off.

The persistence of poverty in the capital is plain to see for the Budapest Bike Maffia, a group of bike couriers and students who distribute food to the homeless.

Its head Zoltan Havasi said that many Hungarians made destitute by the 2008 crisis have struggled to get back on their feet.

Havasi said some of those he helps have used Hungary's "workfare" scheme but that what they receive is "only good for vegetating, not enough to set themselves new goals."

The government has promised reforms to counter criticism that the scheme massages the unemployment rate -- officially one of the EU's lowest at 3.8 percent -- by forcing the low-skilled onto public projects for less than the minimum wage.

- Free market no more? -

And even in terms of broader economic conditions, experts warn of possible traps lining the route of a third Orban term.

In a recent interview Economy Minster Mihaly Varga acknowledged that certain sectors had developed a "dependence on EU funding".

And the growing role of the state itself also worries some.

Economist Julia Kiraly, who quit as deputy central bank governor in 2013 in protest at its management by Orban appointees, goes as far as to say: "We are no more a free market economy".

The "political family" around Orban controls ever larger parts of the non-export-oriented sectors of the economy, harming Hungary's competitiveness, she said.

Agoston Mraz, head of the Nezopont Group think tank, countered that "it is a well-known goal of this government to strengthen national capital and capitalists," emphasising that Hungary has regained more control of strategic sectors like utilities and banks.

"'Orbanomics' is protectionist, without violating EU laws," Mraz said.

Foreign investors and banks have sometimes felt the sharp end of those protectionist measures, such as the re-denomination of foreign currency loans that were crippling some Hungarian households.

Veteran software entrepreneur Gabor Bojar, another pioneer who started his business in the 1980's and expanded it globally, advises today's Hungarian entrepreneurs to focus on exports to avoid reliance on the state.

He has hope for firms in his own sector who can draw on Hungary's strong tradition in mathematics and technology.

"Real entrepreneurial spirit should be fostered by the market and not by the state", Bojar said.