Hungary’s ability to attract capital is terribly effete

Hungary’s ability to attract capital has seemingly improved, but what we find if we look deeper into the available data is depressing. In fact, the inflow of working capital into Hungary is so slack that it evokes memories only from the darkest years of the crisis. The balance of inflow and outflow of capital (disregarding the forced capitalisations at banks) is eating into the working capital stock of Hungary.

The similarities go as far as there is nothing really serious at first sight. Last year, over EUR 3 billion worth of foreign working capital arrived in Hungary, which may be lower than the average of the past several years, but it cannot really be labelled as dramatic.

At the same time, a significant share of the FDI inflow leaves the country immediately, just like before. (A typical deal of this kind is when a foreign parent acquires a foreign company via its Hungarian subsidiary by giving it capital.) Such

What is even more shocking than this is that three quarters of this FDI (real) FDI inflow was actually banks’ capital replacement. Foreign parents transferred EUR 1.6 bn only to make up for the capital that turned into ash in Hungary. Once we deduct this item too, FDI inflow becomes a very humble EUR 0.7 billion, which is below the 2012-2013 figures and largely equals the levels recorded during the crisis.

In other words, apart from a fluke Hungary’s FDI inflow remained unchanged at levels reached in the crisis years. (With caution we dare to note that according to central bank (MNB) figures, reinvested capital within last year’s FDI inflow amounted to EUR 1.5 bn, which means that new investment directed here actually from outside the country was probably not much in 2014.)