Hungary

Current Situation

Political Situation

Economic Situation¹

The average inflation rate was approximately 30 percent for the first half of 1995. Unemployment, 10.6 percent in July 1995, is expected to fall to slightly below 10 percent by the end of 1995.

Hungary has been able to shift its trade from East to West, with over 50 percent of its market now in Europe . Although privatization history and strategies were subject to re-thinking in 1995, several opportunities for investment remain, with potential growth expected in telecommunications, financial services, advertising, food processing, construction and automotive industries.

Environmental Expenditures

The Hungarian government, like the other four Visegrad countries, has established earmarked environmental funds including the Central Environmental Protection Fund (CEPF) and the Water Fund. The CEPF is the main fund and received about $32 million in 1994 from fuel taxes, fines and user fees. This amount is expected to double in 1996 due to the passage of legislation containing new product charges and gas taxes. As a result, total expenditures on environmental projects in Hungary should exceed $300 million in 1996.

These funds are used to finance public infrastructure projects, provide loan guarantees, and cover the cost of remedial actions. The CEPF funds are available to finance up to 100 percent of public infrastructure projects. Businesses, both public and private, can request up to 60 percent of the costs of environmental projects from the CEPF. In addition, businesses can apply for interest-free loans or soft loans with below market interest rates. These loans are usually available with terms up to 2 years and 5 years, respectively.

Environmental Priorities²

Privatization or bankruptcy of some state-owned companies has created new business opportunities in the environmental services field, and Western investors concerned about liability for restoring contaminated property are demanding environmental audits.

Hungarian companies that export a significant portion of their production cannot succeed if they neglect the environmental provisions and norms of importing countries. It is not only in the company's interest but in the national interest that OECD and EU standards and environmental norms become obligatory in Hungary. Western companies specializing in environmental technologies and consulting could expand their activities to Hungary parallel with the growing need for OECD and EU environmental conformity.

As another positive signal, the government has introduced several new economic instruments for environmental protection. Besides passing new environmental legislation, the Hungarian government has taken numerous steps to improve the environment:

• finalizing an intersectoral air quality protection action plan for 1994-1998
• accepting the new Water Act which is to be sent before the Parliament in 1996
• preparing the Balaton Comprehensive Action Plan to improve the water quality of Lake Balaton
• preparing the National Environment and Health Action Plan in cooperation with the Ministry of Welfare

The government has also identified short-term priorities which cannot be postponed further due to the potential risk to human health and the environment. Environmental projects with short-term priority include:

• developing a detailed assessment of the state of the environment
• surveying the activities of industrial plants
• providing regular funding to restore contaminated areas
• creating qualification, labeling and auditing systems that meet the recommendations and stipulations of the International Standardization Organization (ISO) of the European Union as well as assisting companies with developing environmental management systems.
• spending 1.5-2 percent of GDP on environmental protection
• increasing the selective collection of communal waste
• eliminating unauthorized disposal sites
• developing proper disposal facilities for hospital waste
• reducing sulfur dioxide and heavy metal emissions from transport and industrial activities
• developing an up-to-date air monitoring network
• developing a noise classification system and introducing stringent noise insulation requirements
• controlling radioactivity in drinking water, agricultural products, building materials and industrial wastes

Despite progress, the government is still in the process of defining the responsibilities and jurisdictions of different ministries and authorities. There is a visible gap between increasing demands on environmental administrators and their limited capacities. The responsibilities of state, territorial and local governments are being revised, and in the field of environmental protection, county governments are taking on more responsibility. Without an increase in institutional development, this gap will continue to widen, especially as Hungary presses to join the OECD and the EU.

Regulatory and Enforcement Environment

With regards to privatization, there are still unresolved liability issues as well as unclear environmental auditing procedures, and the requirements are different depending on privatization techniques. For example, the Csepel Iron and Steel Works, once one of the biggest state-owned enterprises in Hungary, is now fragmented into hundreds of limited-liability companies. Each has unclear liability for restoring damage done by the original state-owned enterprise.

Key Actors in Environmental Protection at the National Level

Environmental protection is also getting more and more attention in the mass media. In the electronic media there are more than a dozen different "green" programs. The biggest national newspapers have regular "green pages" or environmental supplements.

Academic institutions are active in policy development and are funded to help develop national environmental policy. The Ministry of Environment (MoE) and the Hungarian Academy of Sciences together published an important document entitled "The Green Future of Hungary", and the MoE is currently planning the logistics and management of a national environmental action plan. Many research institutes, university departments, national and international independent experts and representatives of green movements will be involved in the preparation of this plan.

The economic and business sphere is also playing an increasingly active role in influencing environmental policymaking. The Hungarian Chamber of Commerce signed the Business Charter of Sustainable Development issued by the International Chamber of Commerce. In addition, the MoE is building up regular contacts with nationally important economic interest groups: the Hungarian Association of International Companies, the Hungarian Association of Large Industrialists, the National Association of Entrepreneurs and the National Association of Small Industrialists.

Businesses are beginning to lobby to influence environmental regulations, evident by the long debate on the planned product charges on packaging materials. During the Open Days of Parliament organized by the Environmental Committee so the public could exchange ideas with MPs and ministerial officials in March and November 1994, the Environmental Protection Act was discussed and accepted with the strong support of the business sector and the green movement.

Status of the Hungarian Environmental Business Sector

The market is geared towards providing technical services; activity in this sector captured approximately 50 percent of company revenues. Engineering and design for air protection generated the most revenues in this area. Technical services were followed by environmental product-related activities which captured 22 percent of surveyed company revenues. Products for air protection generated the most revenues. Laboratory activities (analysis and examination) captured approximately 15 percent of company revenues.

Analysis by media revealed that water-related activities generated approximately 28 percent of company revenues. Close behind were air-related activities (19 percent) and solid waste-related activities (12 percent). Hungarian companies generate about 1 out of 4 dollars from non-media specific activities (other environmental) such as energy efficiency products, environmental audits and energy conservation studies. Companies were not very active in the municipal solid waste sector with this area comprising only about 2 percent of revenues.

Most of the companies (2 out of 3) were established after 1989 and operate as private enterprises. Relative to the other Visegrad countries, Hungarian firms were active in international markets; approximately 25 percent of the companies operated as joint ventures with foreign partners and 45 percent earned income from foreign projects.

Most of the companies in the survey were small enterprises, with more than two-thirds of the companies employing less than 30 full-time employees. Almost 9 out of 10 firms employing less than 30 persons were private enterprises. Large enterprises were mainly state-owned firms, comprising 70 percent of the organizations employing more than 100 persons.

The following section presents the responses and selected correlations to the questions from the REC's survey of 150 environmental companies in Hungary.