Foreign Direct Investment

Hungary maintains a high per capita stock of foreign direct investment FDI for Central and Eastern Europe standards. However, the 2009-2010 crisis has strongly affected FDI flows to the country and since then the volume of inward flows has been lower. According to UNCTAD's World Investment Report 2023, FDI inflows increased to USD 8.5 billion in 2022 compared to USD 7.5 billion one year earlier; whereas the FDI stock stood at USD 104.2 billion. Data by the Hungarian Investment Promotion Agency points out that a total of 92 major FDI deals were finalized in 2022, resulting in the creation of approximately 15,000 new jobs and the retention of tens of thousands. Eastern countries remained pivotal, with South Korea leading in FDI volume for the third time, following 2019 and 2021. The automotive, electronics, and food sectors continued to hold significant prominence in terms of investment. In terms of stock, the main investors are Canada, the Cayman Islands, the Netherlands, Germany, Luxembourg, and Austria. FDIs are mainly oriented towards financial services, manufacturing, trade, real estate, and scientific and technical activities. According to the latest figures from the OECD, in the first semester of 2023, Hungary registered a negative investment inflow of almost USD 1.4 billion, compared to USD 2.5 billion registered in the same period one year earlier.

The national foreign investment screening mechanism requires foreign investors seeking to acquire more than a 25% stake in a Hungarian company in sensitive sectors - such as defence, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments - to seek approval from the Interior Ministry. Furthermore, approval from the Ministry of Innovation and Technology (MIT) has to be sought for greenfield or expansion of existing investments. Hungary has benefited in recent years from a change in the direction of FDI from low-value textile and food-processing sectors to wholesale, retail trade and repair of vehicles. The country’s central location and high-quality infrastructure have made it an attractive destination for FDI. Furthermore, it has one of the lowest corporate tax rates in Europe. However, the demographic decline of the country and the slow progress of the education system impede crucial structural transformation, with several foreign companies identifying shortages of qualified labour as the main obstacle to investment in Hungary. The country ranks 35th out of 82 countries in the Economist Business Environment ranking and 46th out of 64 in the World Competitiveness Index. Furthermore, it ranks 35th among the 132 economies on the Global Innovation Index 2023 and 72ndh out of 184 countries on the 2023 Index of Economic Freedom.