Hungarian opposition blasts government for hefty state funding to BMW

Hungarian opposition blasts government for hefty state funding to BMW
Hungary's government silent about subsidy to BMW
By bne IntelliNews August 7, 2018

Opposition parties on August 6 criticised the government for granting German carmaker BMW generous state funding to support its planned new plant in Debrecen instead of backing Hungarian small and medium-sized businesses. 

BMW announced last week that it will open its first European plant in 20 years, in Debrecen, northeast Hungary, with an investment of €1bn. BMW will be the third German premium carmaker to open a plant in Hungary, following in the footsteps of Audi and Mercedes. 

The plant will start production in 2023 with an annual capacity of 150,000 vehicles. With Mercedes' second plant expected to start operating next year, Hungary's annual car production could rise to 800,000 by 2023, which would make the country a significant producer in terms of vehicles per inhabitants. 

Last year Audi, Mercedes, Suzuki, and Opel turned out a total of 472,000 cars or some 2.8% of the 19mn cars manufactured in the EU.

The government has been tight-lipped about the exact amount of the state subsidy to BMW, but economic researcher GKI says that it could be similar to that for an investment by Indian tire maker Apollo Tires in 2017 when the government approved a HUF30bn (€93.7mn) subsidy for the investment, which created 1,000 new jobs.

A HUF30bn grant at current wage levels means that the Hungarian state would actually pay for the wages of BMW employees for the first four to five years, GKI added. 

Green opposition party LMP said that state support could be more efficiently used if it were granted to Hungarian SMEs, a sector that employs the largest percentage of the workforce. It is crucial for the Hungarian economy to encourage foreign investment in sectors other than car manufacturing, the party added. 

GKI also warned about the dangers of the Hungarian economy becoming “one-sided”, depending largely on the vehicle sector. 

The presence of large automobile manufacturers is positive, but it can increase the technological or even political risks if Hungary becomes too dependent on them, it added. 

Finance Minister Mihaly Varga said earlier that it shows the vulnerability of the economy if the shutdown of a single car factory is immediately reflected in the GDP. Last summer, a shutdown by automakers led to a temporary plunge in Hungary's industrial output.

On a more positive note, the BMW investment is expected to shake up the property market in Debrecen. Local media reported buyers fighting for a home the day the news broke of the investment. Prices in the area have risen in value from HUF400,000 per square metre (sqm) to HUF700,000 sqm. This is just one example of the positive effects of the investment, analysts said. 

Over a three to four year period, home prices in Debrecen could rise by up to 40%, real estate group Otthonterkep said.  

Lot prices and those of properties have dynamically increased over the past years in Gyor and Kecskemet where German premium carmakers Audi and Mercedes-Benz operate factories, respectively.