Lukashenko says he may quit as president
Belarus hits EU with tit-for-tat sanctions
Belarusian police introduce colour-coded torture system for detained protesters
Kremlin publicly condemns Belarusian police brutality in hint of growing frustration with Lukashenko
Russian services PMI rises to 48.2, but remains underwater as recovery continues to slow
Russia to start mass vaccinations on December 7
Azerbaijan’s Aliyev calls on Armenia, Russia, Turkey and Iran to assist in creating Nakhchivan land corridor
FPRI BMB Russia: Sberbank releases a three-year transformation strategy to e-commerce concern
Ukraine’s banking sector continues recovery, but profits still lagging last year
Ukraine’s real wages up over 10% in October but have been stagnant in dollar terms for almost a year
FPRI BMB Ukraine: Public has confused opinions on resolving the Donbas conflict
Western Balkans plus Ukraine subsidised coal with over €900mn in 2018-2019
Estonian parcel robot firm Cleveron eyes €30mn state loan
Estonia’s chief auditor says €1bn in state COVID-19 loans issued haphazardly
Economic sentiment in CEE falls in November as recovery momentum splutters
Estonian animation studio Imepilt to hold IPO
Brighter days ahead: The economic bounce back in 2021
Central, Southeast Europe stock markets jump in anticipation of COVID-free future
VISEGRAD BLOG: An easing of trade tensions but still an uncertain situation for export-oriented Central Europe
Hungary's PM risks isolation as Poland mulls dropping EU budget veto
Poland ready to back down from veto of EU budget
Hungary's ruling party in damage control mode after MEP sex scandal bombshell
Poland’s PMI remains stuck just above the improvement line at 50.8 in November
Czech companies dominate this year’s Deloitte Technology Fast 50 CE
Coronacrisis to get worse before it gets better forecasts wiiw
EU diplomats say no chance of Bulgaria removing veto for Skopje to start EU accession talks
IMF says downside risks to Albanian economy are increasing
EU ministers fail to agree on launch of accession talks with Albania and North Macedonia
Western Balkans commit to green agenda and regional common market at Sofia summit
Bosnia’s opposition ousts nationalist parties in major cities
Bosnia’s main ethnic parties fight to hold onto power in local elections
Southeast Europe’s EU members to get biggest boost from next budget and recovery funds
Bulgaria imposes 3-week lockdown to slow down COVID-19 spread
CEE politicians highlight trade and security ties as they congratulate Biden
Breakaway Transnistria fully under Sheriff’s control as Obnovlenie party sweeps board in parliament election
Moldova’s presidential election is over, now the battle for the parliament begins
Moldova’s foreign policy reset
Russian establishment quick to congratulate Moldova's new president-elect
Rising COVID-19 cases put intense pressure on CEE healthcare systems
MEPs urge European Commission to act against Hungarian media financing in North Macedonia and Slovenia
North Macedonia mulls decriminalising cannabis to boost tourism
Retail surpass pre-crisis peak as Romanians shop instead of holiday
Romanian venture capital firm Catalyst launches new €40mn-50mn fund for TMT
Aegon to sell its CEE business to Vienna Insurance for €830mn
The state is back in business
Slovenian PM Jansa stands alongside Hungary and Poland in EU rule of law row
BEYOND THE BOSPORUS: Turkish number crunchers deliver November inflation surprise of 14%
Erdogan needs to go says analyst assessing Turkey’s economic collapse
Ukraine strikes deal with Turkey to produce killer drones instrumental in Karabakh conflict
In Karabakh deal, as many questions as answers
Protesters flood Yerevan demanding Armenia’s “traitor” PM quit over Nagorno-Karabakh surrender
Who emerge as the real winners from the bloody Nagorno-Karabakh conflict?
Below average 2020 wine production destined for volatile and uncertain global market
Iran calls on Saudis to limit $67bn defence spending to Tehran’s $10bn
Iranian prosecutors pledge to pursue Trump for Soleimani killing even after he leaves White House
No reaction from Kazakh elites as bombshell FT report says Nazarbayev’s son in law siphoned millions from pipeline scheme
UK court freezes $5bn in assets connected to fugitive Kazakh banker Ablyazov
Attack of the Debt Tsunami: global debt soars to a new all-time high
Kyrgyzstan's proposed new constitution provokes widespread revulsion
Kyrgyzstan's China debt: Between crowdfunding and austerity
CFC joins RWC in assessing KAZ Minerals buyout offer as under-valuation
China business briefing: Not happy with Kyrgyzstan
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
Mongolia in lockdown after suffering first local coronavirus transmissions
Mongolia’s wrestling culture: From the grasslands to the cage
No surprises in Tajikistan as Rahmon retains presidency with 91% of vote
A Tajikistan poised on verge of economic calamity set for vote
Tajikistan revives on-off dispute with Iran
Turkmenistan: The dammed united
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Dirty money investigation reviews identified payments worth $1.4bn linked to Turkmenistan
Uzbekistan unveils extensive privatisation programme
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It is rare that the fractious Hungarian opposition parties can find common purpose: if the so-called left-liberal groupings, headed by the Socialists and Democratic Coalition, are riven by both political and personal disputes, then the chances of finding common ground with Jobbik are normally zero, despite the radical rightwing party’s softer rhetoric over the past 15 months. But such is the ‘innovative’ – critics say outrageous – nature of legislation in the locker of the ruling Fidesz party of Prime Minister Viktor Orban, that even Jobbik and its otherwise sworn cosmopolitan enemies are beginning to see eye-to-eye of late.
The catalyst for this remarkable concord is the sudden passing early in March of a private member’s bill – tabled, naturally, by a Fidesz MP – to render monies in foundations and companies controlled by the central bank (MNB) to be exempt from full public scrutiny.
The move follows a spate of purchases by MNB-controlled foundations and subsidiaries on expensive art and real estate, not to mention buying a 68% stake in the Budapest Stock Exchange, and the consequent legal efforts by a Socialist MP to force full disclosure on spending on the principle that the central bank’s monies are public funds.
The MNB argues its foundations and business operations will still be subject to the same transparency rules as any other, and that making them subject to the disclosure laws applicable to public funds puts its commercial secrets at risk. And the government's stance has since softened somewhat, at least over the principle of ultimate ownership of the assets. “The central bank's money is public money,” says Gergely Gulyas, deputy leader of the Fidesz parliamentary party, but, he adds, “There is the possibility to classify the spending public funds in other countries too. The question is, what is the constitutional ground for this? And how this is done?”
Critics have no truck with such logic. “Jobbik finds this clandestine treatment of spending Hungary’s public monies astounding and outrageous,” Gabor Staudt, deputy leader of Jobbik’s parliamentary group, complains to bne IntelliNews.
Noting that any losses made by the central bank have to be covered by state funds, while the bank can utilise profits via its foundations without full public disclosure, Staudt reasons: “It seems that the bank’s profit is not public money, while any losses [it might make] are. It is intolerable.” As for the bank’s foundations, “they claim that once assets are handed over to them by their founder, the money ceases to be public. This raises the suspicion of misuse. What else could it be called if somebody turns public money into private money?”
From the opposite end of the political spectrum, Dialogue for Hungary, a small pro-European party, is similarly scathing. “The activities of these foundations has been widely criticised. Now the Fidesz majority has adopted a law which allows them to hide the financial details of their activities… It is clear that the new laws are unconstitutional and their argumentations are complete legal nonsense,” Bence Tordai, Dialogue spokesman, tells bne IntelliNews.
For now, the process is on hold. Possibly influenced by the public outcry and yet more recent press allegations that MNB plans include a wine bar and spa operations, Janos Ader, the Hungarian president, declined to sign off the law, referring it instead to the Constitutional Court. News is that a ruling is expected after Easter.
While this holds out hope of at least a partial defeat for the governing party, critics of Fidesz argue the MNB's non-disclosure legislation is but one brick in a complex wall of anti-democratic legal, regulatory and political manoeuvrings initiated since Viktor Orban won his second term as prime minister in the 2010 election – all designed to facilitate Fidesz’s drive for entrenched economic and political power.
This drive has had serious implications for competitiveness and business, according to Miklos Ligeti, head of legal affairs for Transparency International (TI) in Hungary.
In the latest rankings in TI’s annual Corruption Perceptions Index, Hungary garnered 51 points on a scale of 100 last year, three points below its score in 2014. Ligeti, clearly no fan of the Socialist regimes of the 2000s, says the latest figures are part of a decline which began in the middle of the decade.
However, both the second and third Orban governments (elected in 2010 and 2014; his first was 1998-2002) “have systemically disrupted democratic checks and balances, [so] we now have a situation where the government has almost unchecked power to achieve its goals. These are largely discretionally decided and preferentially adopted, ie. it grants benefits to cronies,” Ligeti tells bne IntelliNews.
He points to a long list of scandals, including the so-called “Trafik Scam” – under which the government awarded the rights sell tobacco products only to specially licensed retailers, many of whom were known Fidesz party supporters – as an example of the ‘legalised’ cronyism employed by the regime.
Ligeti, while emphasising the decline in Hungary’s rankings began during the Socialist era in the mid-2000s, says such legal shenanigans by the Orban governments, along with the much-publicised punitive taxes levied in 2010 on the banks, large retailers, telcos and utilities – all sectors dominated by foreign investors at the time – have done much to undermine international trust in Hungary.
The government, however, insists it is both implementing strict anti-corruption measures and working hard to attract foreign investment. It points to a string of projects, some expansions of current facilities, others green field – such as the €475m investment by Apollo, the Indian tyre maker, now being built at Gyongyos, 80 km east of Budapest – as evidence of its success.
But there is little doubt that Hungary, once the leader in terms of attracting foreign direct investment (FDI) in Central Europe – both on a per-capita basis and in absolute terms – from 1990 to 1997, now simply does not make the list of potential locations for investment for many firms.
Santander, the international banking group, estimates the total stock of FDI in Hungary at $98bn in 2014, about 80% of the $122bn acquired by the similar sized Czech Republic. As the Santander country profile notes, while Hungary still has one of the highest rates of FDI stock per capita in Central and Eastern Europe, FDI inflows after 2010 have “mostly fluctuated below expected levels, except in 2012”.
Andras Vertes, chairman of GKI, a Budapest economic consultancy, while accepting that the Orban government has found solutions to the macroeconomic problems that dogged the economy in the Socialist era until 2010, says these improvements are negated by the erratic and unpredictable business environment, brought about by a lack of consultation, ill-thought out legislation affecting entire sectors, along with the “restructuring” of industries to favour certain parties.
“The most important problem is confidence: confidence of investors, banks, multinational companies and domestic players. Because the Hungarian government has created a situation in which there is legal uncertainty and economic unpredictability in many elements of political and economic life,” Vertes says. “There is an economic environment, you invest, and in two weeks’ time there will be another environment.”
EU-phemism for inaction
With so many foreign investors coming a cropper in Hungary, it might be expected that the EU would be overstretched trying to deal with all the complaints. However, the bitter experience of many foreign investors shows that Brussels has mostly just washed its hands of the problem.
Take the waste management and associated recycling business. In 2012, the Hungarian government passed a waste management law that stipulated companies involved in this business had to be in state or municipal majority ownership in order to gain a license to operate in the country. For private companies the choice was clear: either they would have to sell majority stakes to obtain a license, or else shutter their businesses. Under the law that came into force in 2013, private sector companies were further economically disadvantaged by a landfill tax and an annual energy fee for each resident whose waste is collected.
The Fidesz government defended its stance in the same way it has always done when singling out industries for ‘special attention’: that private companies are motivated only by profit, while the state pursues social goals that benefit taxpayers – especially, perhaps not coincidentally, its allies. And compensation to foreign owners was out of the question, said the environment minister at the time, because the new waste management and treatment facilities were financed by EU funds while, he claimed fancifully, the private companies had invested nothing.
When the law came into being from January 2013, the effect was profound. According to experts, at that time around half of the companies carrying out municipal waste management services did not meet the new law’s criteria, while most of the available treatment operations – landfills, recovery operations, etc. – were in the hands of private businesses.
Hungarian outfits obviously benefited at the expense of foreign firms. Közgép, owned by Lajos Simicska, a childhood friend of Orban’s and a former financial director of Fidesz, took advantage of the law change and now has a flourishing waste management business. Balazs Aron Kovacs, writing for Freedom House, says the combination of Simicska’s political ties and economic success makes him the arguably the most powerful oligarch in Hungary.
Some large foreign players like the Hungarian unit of the waste management group owned by Spain’s giant FCC group, .A.S.A., which works in eight CEE countries with a combined turnover of €354mn in 2013, and Austria’s Saubermacher survived the law change and are still operating in Hungary, though obviously expressed no wish to recount their experiences to bne IntelliNews. Others like Marlix International – a Dutch holding company containing two Hungarian start-ups, one undertaking commercial composting and the other door-to-door recycling for several municipalities in Budapest – were not so lucky.
Having fallen foul of the new waste management law and seen its composting company based in the home village of Orban forcibly closed to make way for a 6,000-seat white elephant of a football stadium, Marlix sought a legal opinion from Solvit – a network funded by the European Commission to assist citizens and businesses that feel their EU rights have been infringed. Solvit in 2011 duly ruled that the Hungarian government had openly breached four EU laws.
However, since first registering its complaint with the European Commission in 2012, Marlix has been given, quite literally, the runaround, as department after department shunted it from one to another, claiming each time it was not their responsibility. Three and half years later, on January 14, the Internal Market and Services Directorate General said that while a decision has still not yet been made, the likelihood is that Marlix’s complaint would be closed.
“The outlook is very bleak indeed – we are a very small voice,” sighs Jock MacKenzie, one of the founders of Marlix, who lost a personal fortune and was chased out of Hungary by the authorities for good measure. “We invested in Hungary in personal capacities in the open expectation of a free market and free trade deal that would be supported by the European Commission in case of any breaches of EU law – this has turned out not to be the case.”
One avenue still available to investors is the use of mutual bilateral investment treaties (BITs) – hangovers from the days before these CEE countries joined the EU. BITs aimed to protect foreign investors from discriminatory host government measures and illegal expropriation, and were signed between capital-exporting advanced economies and emerging markets with weak legal systems that wanted to give extra protection to foreign investors in order to attract them.
Given access to significant funds on the order of several million euros, aggrieved investors can still use these to enforce EU law and reach a settlement. This is the route being used by the UK-based Magyar Farming Company, which in its latest accounts filed with Companies House states that: “The company continues to face some challenges in Hungary, where retrospective legislative change to contractual property rights has placed some land used by the company under threat. The Directors continue to focus on achieving a satisfactory outcome from a number of challenges to the actions of the Hungarian government.”
Ironically, given its seeming disinterest in helping foreign investors enforce their rights, the European Commission since last year has stepped up efforts to force countries to scrap these BITs. In June last year, the Commission launched so-called ‘infringement proceedings’ against Austria, the Netherlands, Sweden, Romania and Slovakia for non-compliance with EU law by maintaining these BITs.
“The whole Commission is a self-satisfying circle, and I wouldn’t mind if the self-satisfying circle was effective, but it’s not. It makes the rules, but then won’t bloody implement them,” says Mackenzie.
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