30 YEARS OF TRANSITION: Gabor Szeles, a self-made Hungarian success story

30 YEARS OF TRANSITION: Gabor Szeles, a self-made Hungarian success story
PM Viktor Orban arrives for an interview at EchoTv, owned by Gabor Szeles in 2016
By Tamas Szilagyi in Budapest November 8, 2019

Exploiting lax legislation allowing individuals to set up semi-private companies during the socialist era, a young Hungarian engineer founded a company named Muszertechnika in 1981 with a partner, initially to assemble and develop geodesic instruments.

A few years later the firm became a gold mine as its operation was based on importing PC parts that were banned under the Cocom-list. During the Socialist era, computers and software couldn't be exported to the former Warsaw Pact countries.

This made Gabor Szeles, one of the few self-made entrepreneurs of the time, a rich man. He made his name after the transition by reviving Videoton, which is now the largest electronic manufacturing services (EMS) provider in the Central and Eastern Europe (CEE) region. At 74, he remains active with investments in the media and tourism and a loyal ally of Prime Minister Viktor Orban.

Hungarians enjoyed fewer restrictions under the rule of Janos Kadar, head of the Hungarian Communist Party, than other CEE countries after the mid 1960s. Seven years after the crackdown of the 1956 revolution, amnesty laws were implemented and the party's hardline stance began to soften. 

Policies implemented by the regime allowed some forms of liberalisation, permitting freedom of speech and freedom to trade on the open market, within strict guidelines though.

The system became known as "Goulash communism", and it allowed Hungarians to enjoy arguably the highest standard of living in the Eastern bloc. This came at a heavy price as the country became dependent on foreign loans. As a result, Hungary embarked on the transition to a market economy and democracy with a crippling debt burden. It had the highest per capita debt of any country in the region.

The career of Hungarian businessmen Szeles, the country's seventh richest man with an estimated wealth of HUF150bn (€453mn), began well before the transition, and he remains one of the most prominent entrepreneurs today.

He made his fortune with Muszertechnika, which became the largest privately owned business of the time. It dominated 30% of the PC market, selling some 10,000 IBM-compatible PCs in 1990.

The change of regime ended this flourishing business quickly as Western companies moved in after the markets were opened. Muszertechnika transformed into a holding structure tapping into new business lines in telecommunications, office technology and the visual technology business.

Turning around bankrupt Videoton

Szeles soon found the opportunity of a lifetime with his business partners, who are still running the company after three decades. 

During the socialist era, Videoton was a producer of complex end products. In the 50s and 60s, and up to 1989 it was producing radio sets, black and white television sets, car stereo systems, office automation, and line printers under its own name. Roughly one-third of its output had been military, one-third consisted of civilian computers and the rest was other consumer products.

Despite several warning signs of an approaching crisis in the late 1980s, Videoton continued to increase its military output in the years before the fall of the regime. 

The collapse of its CMEA sales to former Communist countries eventually led to the company's demise. Videoton, founded in 1938 and employing 13,000 in its heyday, went bankrupt in 1991. That year, Hungary's economy suffered the largest yearly decline after WWII as output plunged 12%.

A consortium of Hungarian private entrepreneurs led by Szeles successfully bid for the company in a tender announced by the ruling conservative Hungarian Democratic Forum (MDF) party, which won the country's first democratic elections in 1990. Szeles became the general manager of the company. The price tag was HUF4bn, or $50mn at the time.

Reviving Videoton was no small challenge and undoubtedly Szeles' political crones helped it along by cancelling the bankrupt company’s debts. 

The businessman joined MDF and founded the Union of Entrepreneurs (GYOSZ), one of the few employers’ organisations close to the conservative government.  He was part of a small team of experts that worked out the government's economic policy. 

The businessman clearly had ambitions of becoming a minister in charge of industry in the government led by Jozsef Antal. Szeles was deeply disappointed after failing to accomplish this, but he became successful in running his businesses.

The restructuring of Videoton proved to be a success. A year after the Hungarian businessmen took over, it produced a modest profit. The holding and all of its individual enterprises were radically reorganised and Western management and accountancy systems with tight financial control were introduced.

Videoton was also able to apply for and receive major credits using assets of the holding company as collateral. 

Another reason for the success was its macroeconomic importance. Videoton was a major Hungarian company that decision-makers could not afford to liquidate as voters were turning against them. 

The new conservative government faced protests and social tensions from the beginning as unemployment peaked and the standard of living plunged. Hard times were falling on many Hungarians, who were accustomed to a relatively higher standard of living in the late 1980s.

Antal's government choose not to restructure debt, and servicing debt costs continued to weigh on Hungary until the economy began to expand. Under the Socialist-led government from 1994 to 1998, Hungary launched a large-scale privatisation scheme, which saw foreign investors gain majority stakes the country's strategic sectors, banks, retail and the food industry.

Over the decades Videoton has become the largest Hungarian-owned industrial company with 9,000 employers and 2,000 contracted workers. It reported an operating profit of €50mn on €588mn in 2018. 

Videoton and its subsidiaries continue to manufacture home appliances, industrial electronics, and consumer electronics but the company has also become a supplier to the automotive industry.

A loyal ally of PM Viktor Orban

Szeles entered the media market in 2005, when Fidesz was still in opposition, by taking over liberal Magyar Hirlap from Ringier and turning it into a conservative daily. In the same year, he also established a commercial television channel. In 2018, EchoTv was sold to the company owned by Hungary's most powerful oligarch Lorinc Meszaros, sees seen by many as Orban's proxy. This year EchoTv was merged into HirTv, which remains a mouthpiece of the government. 

Szeles held onto his media portfolio over the years despite massive losses in the hope of landing a ministerial job in the Orban government after 2010, according to media sources. This is becoming unlikely, but the businessman's loyalty to the government has paid off.

After just 20 months in power, the right-wing government experienced its first crisis in early 2012, when protests erupted over the new constitution and the dismantling of checks and balances. Households were also reeling from the fallout of the economic crisis as a large chunk of their debt was denominated in foreign currency.

In early 2012, the forint hit an all-time low, which made things even worse. In this climate, seeing the momentum swing toward opponents of the government, Szeles organised a grand pro-government rally drawing several hundred thousand supporters, dubbed the first Peace March.

Orban was grateful to Szeles for standing up for him in those difficult times, and he was rewarded with state contracts, although the scale of these is dwarfed in comparison to the value of contracts won by companies of Meszaros or other oligarchs close the government.

Szeles lately has invested heavily in tourism. In 2015, he opened the Zala Springs Golf Resort in a small town in Western Hungary located close to the resort town of Heviz and Lake Balaton. The complex, which has become a popular destination for foreign golf lovers, also features studio and premium flats. 

The businessman has so far invested HUF9bn in the project from his own money with plans to expand the facility, which could be one of the largest tourism investments in all of CEE according to previous reports. Szeles is planning to invest €239mn in the coming years, building a five-star hotel, a wellness centre and an artificial thermal lake on a 160-hectare area. 

He based his concept on bringing tourists from Russia and Western Europe to his golf complex through regional airport Heviz Balaton in Sarmellek, in which he also has a minority stake.

This article is part of bne IntelliNews’ series marking the 30th anniversary of the fall of the Berlin Wall. Find more articles from the series here: 

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