Although Western companies are pouring into Hungary to do business, they continue to meet several obstacles:
Banking. "The banking system is really bad," says a senior Western diplomat. There are only 40,000 checking accounts in the entire country and the check-clearing system "is a disgrace." It can take three months for a check to register on an account, even when the check has been returned to the original bank. The government, aware of the problem, is working to privatize Hungary's financial sector.
Currency. Foreign exporters are anxious to see the forint devalued. Hungary's high inflation rate puts exporters at a disadvantage when they repatriate profits. While foreigners can export profits and capital, Hungarian firms and tourists must still obtain a license to do so. "We would like to liberalize in this area," says Istvan Major, deputy state secretary at the Ministry of International Economic Relations.
Telecommunications. The phone system in Hungary has not been upgraded since World War II. Only about 4 out of 10 phone calls are completed on the first attempt. The diplomat estimates this sector needs about $10 billion in investment. He says he hopes to see "a private system financed by the private sector. It's easy to get financing in this area."
Work force. "The experience with the Hungarian work force has been a pleasant surprise," the diplomat says. "They are hard-working and smart." Even so, he says, it is easier to build a plant from scratch than to convert an existing one to Western standards. Existing plants "are enormously overstaffed with workers and middle management."
General Electric's experience at the Tungsram plant it purchased is illustrative. First, it cut the work force from 18,000 to 13,000 workers, mostly through attrition. More will be laid off in the future. Productivity was very low, but Tungsram did have some "very good" technology, the diplomat says.
GE has built a new plant that produces high-tech fluorescent light bulbs for sale in the United States. Despite the challenges, the electronics giant has increased its investment in Hungary by another $60 million.