Hungarian Investment Promotion Agency

More and more people are sounding the alarm about Europe’s competitiveness. And not by chance. For decades, the continent has been characterized by excessive regulation, internal disunity, poor economic policy decisions, and the low productivity growth and relatively weak innovation potential of European companies has led to the point that we are at an almost insurmountable disadvantage compared to the United States and China. As far as employment is concerned, a particularly painful point is that, according to Eurostat data, almost 1 million jobs have been lost in the European manufacturing sector over the past 4 years.

These negative developments are already evident in new investments. Despite a worldwide increase in greenfield investment in 2023, according to the data of the United Nations Conference on Trade and Development (UNCTAD), a 10% decline was registered in the European Union. In comparison, our competitors performed outstandingly: the United States of America was, as in previous years, the number one target of foreign direct investment flow, while China retained its second place. In the 2023 ranking, the first European Union country, France, is only in 7th place. No wonder, the factors that influence investors the most are not in favour of Europe. According to the report of the International Energy Agency, the price of electricity in the EU last year was almost twice as much as in the United States and China, which represents a considerable competitive disadvantage for Europe in terms of energy-intensive industries.

Delays in many of Europe’s flagship investments further undermine the continent’s long-term competitiveness. The construction of Intel’s EUR 30 billion chip factory in Magdeburg, Germany, which uses cutting edge technology, had to be postponed until 2025 due to land suitability issues. The French semiconductor plant of STMicroelectronics and Global Foundries might also be delayed by a year or even several years due to licensing disputes.

In Ireland, data centres, which form a key element of the security of the European digital economy, are triggering extremely heated debates, after their consumption has exploded and now account for nearly a fifth of the national electricity production. The energy shortage is not unprecedented on the continent: Germany restarted previously closed coal power plants last fall in order to cover the country’s energy needs during the winter; however, this represents a significant setback in terms of achieving climate goals.

Moreover, infrastructural developments that have been postponed in Europe in recent decades and the uncertain European industrial policy are also obstacles to the success of investment promotion. Still, FDI trends indicate that the wave of mega projects – i.e. investments involving capital investment of at least USD 1 billion – has not subsided, as 85 such new projects were registered worldwide in the first half of 2024. Two-thirds of these capital-intensive investments can be linked to just four sectors, led by ICT, followed by renewable energy sources, semiconductors and electric automotive developments. The year 2023 also fell in line, where 4 of the 10 largest volume FDI projects were related to battery production. That is why we can be proud of the fact that in recent years Hungarian investment promotion has also been able to show major success in this field, and as HIPA’s latest success story, BYD has recently decided to establish its first European electric passenger car production site in Szeged.

The Hungarian economy has undergone enormous development over the past 14 years, as we have focused on export-driven economic policy, the key element of which is attracting high value-added investments to Hungary. Between 2014 and 2023, HIPA participated in 2,123 favourable investment decisions, which resulted in an investment volume of EUR 49 billion and more than 150,000 new jobs across the country; these are only direct numbers, indirect job creation could be multifold. Since Hungary is a small, open economy, only economic growth based on investments and exports can be sustainable in the long term.

In Europe, real change requires a mindset change. Action speaks louder than words. From July 1, 2024, Hungary holds the consecutive presidency of the European Union. This is an excellent opportunity for our country to prioritize some really important topics, primarily the question of the EU’s competitiveness. The key to increasing competitiveness is implementing the green and digital transition, maintaining fair but free trade, deepening the unified market, increasing R&D investments, as well as reducing bureaucratic burdens. If radical changes are not achieved, the next industrial revolution – as in the case of Industry 4.0 – will take place without Europe’s leading participation. And that would be a shame.