June 2001

 Inside this Issue...

 Eye on Southeast Europe 2

 Commercial Opportunities 4

 Around the Region 6

 Calendar of Events 7

Hungary: the Crossroads of European

Commerce

by Michael Rogers, Central and Eastern Europe Business

Information Center

Introduction

For centuries, Hungary was at the crossroads of European

commerce connecting the markets of three of Europe’s

great empires – Habsburg Austria, Czarist Russia, and

Ottoman Turkey. Consequently, Hungary was a major

conduit of European trade. At the start of the twenty-first

century, one can expect that Hungary will continue in this

role and that it will play a major role as a bridgehead

between the markets of Western Europe and the emerging

markets in Southeast Europe, Russia, and the Newly

Independent States.

Geographic location coupled with strong economic

performance, and a relatively favorable commercial

environment are the chief reasons why U.S.-Hungarian two

-way trade has grown exponentially from approximately 800

million in 1990 to 2.75 billion in 2000. It also explains why

Hungary has been the principle destination for U.S. foreign

direct investment in Central and Eastern Europe.

Hungary is an economy in transition and convergence. It

is in the latter stages of its transition from a centrally

planned economy to a free market economy.

Simultaneously, it is an economy converging toward the

European Union (EU) as it continues accession

negotiations and moves closer to full membership in the

EU.

U.S. Exports to Hungary

The growing sophistication of the Hungarian economy and

its transition to higher-end production and services have

created many opportunities for U.S exporters in the areas of

technology and industrial equipment. Some of the top

prospects for U.S exports to Hungary include computer

equipment, local area network (LAN) technology, ecommerce, Internet services, and heating and power

generation equipment.

According to the 2001 Country Commercial Guide for

Hungary, the Hungarian information technology market

reached $1.2 billion in 2000 making it one of region's largest

technology markets. Leading brand name suppliers (with

market share) in 1999 include: Compaq (13.2 percent), Dell

(9.8 percent), IBM (7.9 percent), Hewlett Packard (6.4

percent), Packard Bell NEC (5.2 percent), Gateway (4.1

percent) and Apple (3.4 percent) While U.S. firms are the

market leaders in the Hungarian market, they compete with

ICL, Olivetti, Bull, Siemens, Toshiba and Tulip.

In 1999, shipment of systems and servers increased to more

than 9,800 units with a value of $100.5 million (excluding

server add-ons). While Unix-based midrange systems

continue to generate the largest share of server revenue

($34 million), Windows NT servers ($27 million) represent

the platform of choice for multi-user applications. Market

expansion is being driven by large projects in the

government, banking and telecommunications sector as

(Continued on page 5)

Central and Eastern Europe

Commercial Update

A publication of the U.S. Department of Commerce, International Trade Administration, Central and Eastern

Europe Business Infromation Center in cooperation with the U.S. Agency for Interntional Development
2 Central and Eastern Europe Commercial Update

Eye on Southeast Europe

Central and Eastern European

Commercial Update

The Central and Eastern European Commercial

Update is produced by the Central and Eastern Europe

Business Information Center (CEEBIC). For more

information or to subscribe contact CEEBIC at: phone

++ 1 (202) 482-2645, fax ++ 1(202) 482-3898, or e-mail

ceebic@ita.doc.gov.

Director: Jay Burgess

Associate Director: Jennifer Gothard

Editor: Michael Rogers

International Trade

Specialists: Jennifer Gothard, Andrea

Lupo, Michael Rogers,

Silvia Savich

Webmaster: Gedlom Tesfazion

Contributors: Jonathan Kimball, Laurie

Molnar, Melissa Wilson

EBRD Co-financing for Projects in Southeast

Europe

by John Morphyades, CEEBIC Trade Specialist and

Jeremy Keller, Principle Commercial Officer, Thessaloniki,

Greece (Partnership Post for Albania, FYR Macedonia,

and Kosovo (“FRY”)

Recognizing the need to promote the growth of a stable

commercial environment in Southeast Europe many

governments and institutions have increased their activities

and focus on Southeast Europe. One such example is the

Balkan Investment Project recently launched by the

European Bank forReconstruction and Development (EBRD).

The EBRD was established in 1991 to foster the transition to

free and open economic markets through promotion of

investment in the private sector.

EBRD’S Balkan Investment Project

The EBRD, through its direct investment facility group,

operates a two-year initiative, which will expire in April, 2002,

to promote investment projects in Bulgaria, FYR Macedonia,

Romania, and Ukraine. The project coordinator is

Euroconsultants, a consulting company located in

Thessaloniki, Greece. Euroconsultants has established a

partnership in Thessaloniki with the Hellenic Technology

Transfer Center and the Cyprus Development Bank.

The above partnership is requesting five project proposals

to spur economic development in the

countries specified above. There are no restrictions on

industry sectors. Criteria for an approved project are

significant growth potential (sustainability), experienced

sponsors, well structured financial and business plans, and a

clear, and quick, project implementation plan. Small and

medium size applicants are especially desirable. The return

on investment for the project’s

term would be at least 30 to 35 percent, and there should be

no need for significant outside

technical assistance.

Once project proposals have received the partnership’s

evaluation, they will be forwarded to EBRD for approval.

EBRD would then buy equity shares for up to 25 to 30

percent of the value of the project (or up to 49 percent for a

short-term project.) The investment range that EBRD would

make available to a qualifying project is between $500,000

and $2.5 million, with a typical term between three to five

years. Long term could be up to seven years.

There are no current commitments by EBRD to investors.

The field is wide open for bidders. U.S. companies are

welcome to participate in this program, but are encouraged to

bid in conjunction with local partners.

Interested parties should contact the following:

Mr. Grigoris Kontzoglou, Area Manager

Euroconsultants

16, Iktinou str.

546 22 Thessaloniki, Greece

Tel. ++30 (31) 271-324

Fax: ++30 (31) 260-898

E-mail: infol@euroconsultants.com.gr

Mr. John Morphyades, CEEBIC Trade Specialist

U.S. Commercial Service

United States Consulate Thessaloniki

PSC 108

APO, AE 09842

Tel: ++30 (31) 242-905

Fax: ++30 (31) 249-910

E-mail: john.morphyades@mail.doc.gov

A Message From CEEBIC: The Area Code for

Skopje, FYR Macedonia Has Changed

The area code for Skopje, FYR Macedonia has

changed from 91 to 2.
Central and Eastern Europe Commercial Update 3

Resources for U.S. Firms Interested in

Doing Business in Hungary

U.S. Government Resources:

Central and Eastern Europe Business

Information Center (CEEBIC)

Michael Rogers

International Trade Specialist

U.S. Deparment of Commerce

Mailstop: R-CEEBIC

1401 Constitution Ave., NW

Washington, DC 20230

tel. ++ 1 (202) 482-2645

fax ++ 1 (202) 482-3898

e-mail ceebic@ita.doc.gov

www.mac.doc.gov/eebic/ceebic.html

U.S.Commercial Service Budapest

Scott Bozek

Senior Commercial Officer

Pamela Ward

Commercial Attache

Szabadsag ter 12, 1054 Budapest

Tel: ++ 36 (1) 475-4282

Fax ++ 36 (1) 475-4676

e-mail: Office.Box.Budapest@mail.doc.gov

www.usatrade.gov

Hungarian Government Resources:

Barbaras Nemeth

Trade Commissioner

Hungarian Trade Commission

150 E. 58th Street

33rd Floor

New York, NY 10155-3398

Tel: ++ 1 (212) 752-3060

Fax: ++ 1 (212) 486-2958

E-mail: HungarianTradeOfficeNY@worldnet.att.net

www.itd.hu

Non-governmental Resources:

The American Chamber of Commerce in Hungary

Peter Fath

Executive Director

Ferenc u. 10

5th Floor

H-1052 Budapest

Hungary

Tel. ++ 36 (1) 266-9880

Fax ++36 (1) 266-9888

E-mail info@amcham.hu

www.amcham.hu

U.S. - Eastern Hungary Partnership Foundation

Susan K. Kutor

Country Manager

Deák Ferenc u. 10

Budapest 1052

Tel: ++ 36 (1) 267-6858

Fax: ++ 36 (1) 266-9888

s.kutor@nextra.hu

www.invest-ehu.com

Mics Resources on the World Wide Web:

Hungarian Ministry of Economy

www.gm.hu

Hungarian Privatization and State Holding Company

www.pvrt.hu

Hungarian Ministry of Foreign Affairs

www.kum.hu

Hungarian Central Statistics Office

www.ksh.hu
4 Central and Eastern Europe Commercial Update

Central and Eastern Europe Commercial Opportunities

For more trade and investment opportunities, visit CEEBICnet at

www.mac.doc.gov/eebic/ceebic.html

Hungary

Agra-Pont Kft. opperates two hobby supply stores in Hungary. Established in 1996, Agra-Pont product-line incluedes

cotton linen, pearls, mistletoe, glass, paints for textiles, and

pottery. It is seeking to expand the number of U.S. products

available at its stores and is seeking to purchase cotton based

textiles typically used in patchwork quilting.

Contact:

Gabriella Sule

Agra-Pont Kft.

Aponyi A. utca 3

9721 Gencsapati

Hungary

Tel. ++ 36 (30) 9973-659

Fax ++ 36 (94) 318-537

Christ Hungaria Kft.is a manufacturer of water purifying equipment. It was established in 1998 and currently employes

eight people. It is seeking to become a distributor of U.S

technology and equipment that remove iron, manganese from

household drinking water.

Contact

Zsolt Szabo

Christ Hungaria Kft.

Komaromi u. 22

2040 Budaros Pest

Hungary

Tel. ++ 36 (23) 415-305

Fax ++ 36 (23) 415-561

Cellular ++ 36 (30) 970-8071

Kosovo ("FRY")

Alba Commerce is a privately held company with over 10

years experience in the production of furniture. Alba Commerce wishes to purchase equipment used in the manufacture of and production of furniture, windows, doors, and

paneling.

Contact:

Alba Commerce

Industrial Zone, Pristina

Fushe Kosova Highway

4th Kilometer

Pristina, Kosovo ("FRY") 38000

Tel. ++ 377 (0) 441-61184

E-mail bucii@hotmail.com

Romania

Comtel is a privately held providor of telehopne solutions

including audio text, facsimile, voice mail, auto attendant,

green lines, billing solutions and dynamic routing. Comtel

has been in business for three years and currently employes

38 people. They are seeking to become the distrbutor of

american telephone technology.

Contact:

Roxana Patascu

Director General

COMTEL

99 Ferdinand Blvd

Bucharest 2, 73241

Romania

Tel. ++ 4 (01) 205-0641

Fax ++ 4 (01) 205-0677

E-mail roxana@mit.ro

Recent Market Report for Hungary

The U.S. Commercial Service in Hungary has produced a number of International Market Insight (IMI)

reports that are now available on CEEBICNet.

E-Commerce Brief

June 2001

Education and Training Opportunities in Hungary

May 2001

The Automotive and Automotive Parts

Market in Hungary

April 2001

Hungarian Travel and Tourism to the United States

April 2001

Liberalization of Hungary's Energy Sector

April 2001

Mobile Commerce Brief

March 2001
Central and Eastern Europe Commercial Update 5

well as continued growth in the LAN server category

fuelled by the country’s small and medium sized business

segments. The sales of data communications equipment

amounted to $105 million in 1999, (a 34.2 percent increase

over 1998), whereas a 10.8 percent annual growth is

forecast for 2000, and 7.7 percent for 2001.

Hungary’s IT market is expected to grow at an annual rate

of 9.25 percent in terms of value in 2001. Most vendor

activity will be confined to the low end of the market, in

particular to personal computers, PC servers, desktop

software applications, peripherals and data

communications. High growth rates are also projected for

software and services.

Market reforms have transformed Hungary’s energy sector

and Hungary has become one of the models of marketoriented energy sector restructuring in Central and Eastern

Europe. Still, the transformation of the once wholly stateowned and centrally controlled energy system has not yet

finished. Massive changes have taken place in the

legislative and regulatory environment. This in turn has

triggered a major influx of foreign working capital into the

sector. Motivated by the directives of the European Union,

and also under pressure from its own energy consumers,

Hungary is now very close to adopting a truly liberal and

competitive energy market model.

According to the current liberalization plan of the Ministry

of Economic Affairs, fifteen percent of the internal power

market (all consumers with above 100 GWh per year annual

consumption) will be opened to free competition by the

middle of 2001. A gradual natural gas market opening along

with the power import liberalization is scheduled to be

implemented sometime after that date, leading to full

liberalization by the time of Hungary’s EU accession,

currently forecasted for no sooner than 2005. As a result of

the uncertainty caused by the deregulation process and

the relative oversupply situation of the power market,

industry experts do not foresee opportunities for new

independent power projects in the coming five years.

However, the Hungarian District-Heating market offers

unique opportunities for U.S. exporters of products and

services. Over 650,000 homes and 150,000 homeequivalents-worth of communal users (mainly schools,

public office buildings and hospitals) are connected to

district heating in Hungary, the biggest market (with

245,000 homes connected) being in the capital, Budapest

itself. Affecting over twenty percent of the population of

the country, most of the obsolete district-heating systems

need major technology and managerial upgrades. After

four decades of state ownership, today most Hungarian

district heating companies are municipally owned and

operated. The municipal ownership structure, however, has

not proven to be the most efficient way of operation either.

After ten years of stagnation and deterioration of assets

(resulting from lack of capital in their systems), more and

more cities are now turning towards a market-type solution,

or direct privatization to solve their district heating

problems. There are already good working examples, where

communities have sold long-term heat-supply concessions

to strategic investors, who in exchange upgraded heat

source facilities and operate systems at significantly higher

efficiency levels than before. In turn, cities, reinvesting the

savings thus generated, are able to upgrade the heat

distribution and control systems on the consumer side,

which result in significantly lower heating bills and a more

efficient system overall. With upcoming municipal

elections scheduled for late 2002, most mayors and

municipal leaders see this issue as a question of key

importance. One of the federal Government’s major energy

restructuring programs is aimed at energy efficiency,

proposing to support such developments with preferential

loans and grants to the owners of district heating systems.

According to U.S. Embassy calculations and the estimates

of the Association of Hungarian District Heating

Companies, over $60 million will be spent on new combined

heat and power facilities, new gas engines, generators and

control systems to be installed in the coming three years in

Hungary. This estimate does not include the energy

efficiency upgrades of the secondary side (distribution,

heat centers, and home level controls) of heating systems.

There are also opportunities for U.S. agribusiness in

Hungary. They include: planting seed, soybean meal,

bovine semen, poultry breeding stock, and beef. More

information on U.S. agricultural export opportunities may

be obtained from the Foreign Agriculture Service (FAS) of

the U.S. Department of Agriculture (USDA) at

www.fas.usda.gov.

U.S. Investment in Hungary

The United States has been a leader in foreign direct

investment in Hungary. To date the U.S. has invested over

7 billion in Hungary. U.S. investment in Hungary has been

led by U.S. multinationals seeking to setup hubs of

operation in Europe. The firms are taking advantage of

Hungary’s investment incentive package and its

membership in the Central Europe Free Trade Agreement

(CEFTA) and its association agreement with the European

Union, which enable Hungarian origin goods to move

throughout most Europe duty-free or at greatly reduced

tariff rates. U.S. firms that have made significant

investments in Hungary include: General Motors, General

Hungary (Continued from page 1)

(Continued on page 7)
6 Central and Eastern Europe Commercial Update

Around the Region . . .

Albania: Foreign Investment Reaches Record High in 2000

Foreign direct investment in Albania reached a record high in

2000, more than tripling from 1999, largely due to the revenue

from the privatization of the mobile phone monopoly.

Foreign direct investment totaled $143 million in 2000, the

highest level in 10 years and $100 million higher than in 1999.

In 2000, Albania sold its mobile monopoly AMC for $85.6

million to CosmOTE of Greece. International Monetary Fund

representative Volker Treichel stated that the total figure for

foreign investment may have been over $143 million.

Albanian GDP growth was 7.3 percent last year same as in

1999. (Source: Reuters)

Romania: Banca Agricola Is Privatized

Banca Agricola, Romania’s second largest state bank, was

sold for more than $50 million to a consortium including

Raiferisen Zentralbank of Austria and the Romanian

American Enterprise Fund. The new owners pledged to inject

$30 million for future capital increase.

(Source: Reuters)

Slovenia: Accelerates Pace of Privatization

The Slovenia government will accelerate the pace of its

privatization program, selling off larger stakes of several

state-owned companies this year than it had originally

intended. The government plans to privatize up to 48 percent

of Slovenia’s largest bank, Nova Ljubljanska Banka (NLB), in

2001 instead of the 35 percent that was originally planned.

Currently, the state owns 83 percent of NLB. The

government will also privatize shares of 49 percent each

in the country’s major port operator, Luka Koper , and airport

operator, Aerodrom Ljubljana. However, no modifications

have been made for plans to privatize 40 percent of

Slovenia’s second-largest bank, Nova Kreditna Banka

Maribor, 80 percent of aluminum smelter Talum, and 15

percent in Telekom. Proceeds from the privatizations will be

utilized to decrease Slovenia’s external debt. (Source:

Reuters)

Bulgaria: Changes to Privatization Regulations

Bulgaria’s government announced this week that it modified

several privatization regulations to increase the transparency and efficiency of privatization deals. Deputy Prime

Minister Petar Zhotev stated that the changes to the

privatization regulations are intended to increase investor

confidence, permit more time to prepare bids, and improve

the government marketing strategy. Zhotev announced that

all government criteria for selecting a purchaser would be

made public. With these changes, the price estimate for the

state assets made by privatization consultants would not be

mandatory for the government in its negotiations with

potential investors. Another change allows for a 30 day time

period for companies to submit bids between the time of the

tender announcement and the tender deadline. The

government stated that it will continue to develop its

privatization strategy for the few large companies that have

not yet been privatized include the telecommunications

monopoly BTC, and maritime shipping company BMF. The

government hopes to earn 640 million levs ($296million) from

the privatization of state assets in 2001. Approximately, 202

million levs of this revenue are earmarked to finance part of

the deficit in the consolidated state budget. The deficit is

approximately 424 million levs or 1.5 percent of GDP. (Source:

Reuters)

Croatia: Power Industry and USAID Sign Memorandum of

Understanding On April 11, Croatian Power Industry’s

(HEP) director Ivo Covic and the head of the U.S. Agency for

International Development (USAID) mission Pamela Baldwin

signed a Memorandum of Understanding for the reconstruction of an electric power grid. Ambassador Lawrence Rossin

and the Public Works Minster Radimir Cacic witnessed the

signing. The $7.1 million deal will help fund the

reconstruction of the power grid in Sisak-Moslavina and

Karlovac counties, which are currently without electricity.

The costs will be divided between USAID and HEP, $5

million and $2.1 million respectively. According to Pamela

Baldwin, “electricity was an exceptionally important

precondition for the return of people to those areas, local

economy and development”. (Source: Croatian News

Agency (HINA)

The U.S. and Hungary Working Together to Create Opportunities in Eastern Hungary

In the Summer of 2000 the American Chamber of Commerce

launched the U.S. - Eastern Hungary Partnership Foundation

(US-EHP). The goal of the foundation is to promote eonomic,

commercial, and cultural coopeation between the United

States and the eastern region of Hungary. The foundation is

the successor of the U.S. Embassy in Budapest's U.S. - Eastern Hungary Partnership initiative. US-EHP receives support

from both the United States and Hungary.

Eastern Hungary has been an often overlooked destination

for U.S. commercial activity. US-EHP with support from the

U.S. Commercial Service in Budapest can help match U.S.

firms with partners in Eastern Hungary and can provide U.S.

companies with information on investment incentive programs that include tax incentives, no-interest loans, and job

training grants. All of the foundation's services are free-ofcharge.

To learn more about US-EHP and its services, go to

www.invest-ehu.com.
Central and Eastern Europe Commercial Update 7

Calendar of Events

This notice is provided solely as an informational resource and

does not constitute U.S. Department of Commerce endoresement

of these events. All information published in the Commercial

Update regarding trade events is subject change without notice

by the organizers of those events.

For a more complete list of events, go to

CEEBICnet, www.mac.doc.gov/eebic/ceebic.html

June

6/25 – 6/26 14th Bled Electronic Commerce Conference: EEverything, E-Commerce, E-Government, E-Household, EDemocracy, Bled, Slovenia.

Contact: Joze Gricar, conference chair, tel. ++386 (4) 237-

4291, e-mail grican@uni-lj.si. For more information, go to

www.ecom.fov.uni-mb.si.

July

7/18 – 7/19 Amercian Catalog Show in Albania, Tirana,

Albania

Contact: Jennifer Gothard, CEEBIC trade specialist, tel. ++1

(202) 482-2645, fax ++1 (202) 482-3898, or e-mail

ceebic@ita.doc.gov. (Materials must be mailed by June 8, 2001)

7/30 CEEBIC Workshop: Exporting to Central and Eastern

Europe – The Basics of Documentation, Washington, D.C.

Contact: CEEBIC, tel. ++1 (202) 482-2645, ++ (202) 482-3898, email CEEBIC@ita.doc.gov.

August

8/29 – 9/2 Polish American Contractors and Builders Association (PACBA) Expo 2001, Wroclaw, Poland

Contact: PACBA, tel. ++1 (773) 533-2200, or E-mail

info@pacba.com

CEEBIC Launches a New E-mail Publication

CEEBIC launched a new e-mail publication in May. The

Central Europe and Norther Tier Business Brief (CENT) is a

free bi-weekly e-mail publication for the U.S. business community. The CENT provides the latest commercial information and opportunities for the Czech Republic, Estonia,

Hungary, Latvia, Lithuania, Poland, and the Slovak Republic. The CENT is modeled after CEEBIC's highly succesful

Southeastern Europe Business Brief (SEEBB). To subscribe

to either publication, you send an e-mail to

ceebic@ita.doc.gov.

Electric, Citibank, and IBM.

The Hungarian government has developed a

comprehensive investment incentive package to help

attract foreign investment to Hungary. This includes tax

abatement of up to 10 years and job training grants for

local workers. Detailed information on Hungary’s

investment incentive program is available at the Website

of the Hungarian Trade and Investment Agency (ITD)

www.itd.hu.

Conclusions

Hungary is a very attractive market for U.S. commercial

activity. Its value to U.S. business is far greater than its

actual market size. U.S. firms exploring opportunities in

Central and Eastern Europe should not overlook Hungary.

A detailed list of opportunities for U.S exporters and

investors in Hungary is available in the 2001 Country

Commercial Guide for Hungary. This comprehensive

document produced by the U.S. Commercial Service is

available on CEEBICnet at www.mac.doc.gov/eebic/

ceebic.htm.

The Central and Eastern Europe Business Information

Center (CEEBIC) and U.S. Commercial Service in Budapest

are available to assist U.S. firms seeking to export to

Hungary. CEEBIC may be reached at tel. ++ 1 (202) 482-

2645, fax ++ 1 (202) 482-3898, or e-mail

ceebic@ita.doc.gov. U.S. Commercial Service in

Budapest may be reached at tel ++ 36 (1) 475-4282, fax ++

36 (1) 475-4676, or e-mail

Office.Box.Budapest@mail.doc.gov.

Hungary (Continued from page 5)

CEEBIC Workshop

Exporting to Central and

Eastern Europe:

The Basics of Documentation

July 31, 2001

10:00 – 11:30

USA Trade Center

Ronald Reagan Building

Washington, D.C.

For more information or to RSVP,

call (202) 482-2645, fax (202) 482-3898, or e-mail

CEEBIC@ita.doc.gov
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