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Budapest: Fair Trade

May 1, 2006
2006 / May 2006

The great River Danube has the power to divide and to unite. Both of these forces have defined Budapest, capital of Hungary. Until the 19th century, the city did not exist as a single entity, but rather as a cluster of three distinct towns: Buda and Obuda on the hilly west bank of the river, and Pest on the relatively flat east bank. They merged under the current name in 1873, and are linked now by numerous bridges and an efficient subway system.

Of the city’s three components, the largest (accounting for about two-thirds of the total area) is Pest, which has thrived for centuries as a commercial center, benefiting from the flow of international trade along the Danube (or Duna, as it is locally known).

This great waterway, which winds its way for 1,890 miles from Germany to the Black Sea, passing through Austria, Slovakia, Hungary, the Balkans, Bulgaria and Romania, has been a vital European trade route since Roman times, and in 1997 it was formally identified as a Pan-European Transport Corridor. There are 10 such corridors, which are intended to form an integrated network of road, rail and river links. Four of these corridors pass through Budapest, confirming its strategic position at the geographic heart of Europe.

Despite its location in the center of the continent, Hungary remains an anomaly. It has been invaded and subjugated throughout its history, but the indigenous Magyar people, who make up 95 percent of the current population, maintain a proud culture that is quite different from neighboring countries. The Hungarian language is part of the Finno-Ugric family of languages, thought to have evolved in Central Asia, and is horrendously difficult to learn.

Although English is increasingly being adopted as the lingua franca of business here, the local tongue remains one of the chief impediments facing foreign companies. The services of an expert translator are often essential for business meetings and for dealing with official paperwork. Ironically, modern Hungary’s complex bureaucracy is not so much the legacy of its Communist past as a symptom of its recent (May 2004) membership of the European Union. As part of the E.U., the country is subject to a raft of new laws and directives, many of which apply to individual businesses.

Communism is an increasingly distant memory in Budapest. The city never sat comfortably behind the Iron Curtain, and in 1956 it attempted to leave the Warsaw Pact, only for the Soviet Union to send in the tanks and execute the leaders of the rebellion. Bullet holes in many of the city’s buildings still bear testament to the bloody uprising 50 years ago.

The economy became more market-orientated throughout the 1980s, and by the time the Soviet Union collapsed in 1991, Hungary was better placed than any other Eastern European country to make the transition to capitalism. Since then, Hungary has boasted one of the fastest growing economies in Europe. In the past 10 years, the annual rate of growth consistently has been between 3 and 5 percent. The buoyant economy, combined with political stability (unlike other Eastern Bloc countries, in which political crises are common, Hungary’s elected governments have always served their full terms), has created ideal conditions for foreign investment.

Since 1990, foreign companies have invested more than $25 billion in industries such as manufacturing, trade, banking and services. U.S. companies have accounted for about 30 percent of this vast sum, the majority of which has been focused on Budapest; the city generates more than a third of Hungary’s GDP.

The feeding frenzy of the 1990s, during which many of the national corporations were privatized and were snapped up by foreign companies, is now largely over. But as Hungary continues to strive to meet the criteria to join the European Monetary Union, which will result in the adoption of the euro as the official currency, there are still many attractive opportunities for foreign investors.

Budapest has a particularly strong tradition in the sciences. Having already given the world, among other inventions, the ballpoint pen and Rubik’s cube, it continues to be a hotbed of innovation. Research and development, biotechnology, and electronics are among the industries that offer great investment potential. Perhaps the brightest star in the economy at the moment is information technology. The industry has been expanding at a rate of 10 percent each year, and now accounts for 8 percent of the total GDP. Leading the way is the 17-acre InfoPark (www.infopark-budapest.hu), Budapest’s answer to Silicon Valley. This state-of-the-art development already employs more than 4,500 people, and is home to a range of international companies, including IBM, Hewlett-Packard and Panasonic.

Not all of Budapest’s inhabitants have reaped the rewards of the new market economy. In a recent survey, 23 percent of the respondents said that they would favor a return to Communism. Domestic and corporate taxation remains high by European standards, and is one of the factors that has led to an estimated 500,000 Hungarians subsisting in the “gray economy,” conducting business in cash in order to avoid taxes.

Encouragingly, though, most Hungarians are optimistic about their country’s economic prospects, and are confident they soon will reap the benefits of EU membership. In the coming years, the EU will provide funding for numerous major infrastructure projects, including the upgrading of the rural road network.

Meanwhile, Budapest has become a popular short-break destination for European tourists, and is also attracting increasing numbers of visitors from America and Asia. The city was once dismissed as a “poorman’s Vienna,” but that billing was unjustified. With its beautiful historic architecture, its hills riddled with fascinating caves (where else can you go caving within a major city?), and more than 100 natural thermal springs supplying dozens of luxurious spas, Budapest is one of Europe’s most interesting cities.

And through it all runs the Danube, the mighty river that divides the city, and at the same time unites it with the rest of Europe.

Entry Requirements

U.S. citizens must have a valid passport to enter Hungary. Visas are not required for stays of less than 90 days.

The Embassy of Hungary
3910 Shoemaker St., N.W.
Washington, D.C. 20008
tel 202 362 6730

More Information

The American Chamber of Commerce in Hungary
H-1052 Budapest, V,
Deák Ferenc u. 10, 5th floor
tel 36 1 266 9880

Hungarian Investment and Trade Development Agency
H-1061 Budapest
Andrassy u. 12
tel 36 1 472 8100


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