Investors Choosing Hungary over Slovakia for Business Investments

By: The Quinnipiac University Economics Research Team, Christopher Longchamp

Hungary is seeing more and more businesses make capital investments in the country relative to its northern neighbor, Slovakia. This trend came into focus recently when BMW decided to invest in the construction of a new plant in Hungary rather than build in Slovakia in 2018. The trend continues today as many more businesses are committing further investment in Hungary.

These investments are not new for Hungary. In the period of 2016-2020, the Hungarian economy was growing nearly 1% more per year than Slovakia. While the pandemic hit both countries hard in 2019, Slovakia’s use of the Euro is suspected to be a contributing factor to the struggles seen by the Slovakian Economy in recent years.

The strong Euro – which strengthened relative to the Hungarian forint (HUF) over this same time period – means that any investment in Slovakia pays its costs in Euros but may sell internationally in Euros (no currency benefit or cost) or USD (with some currency risk). Making cars in Hungary where the HUF has weakened in recent years means local BMW production costs are cheaper and there is a currency benefit in having costs in HUF and sales (revenue) in Euros. If the currency trends continue this will put increasing pressure on Slovakia’s economy as it loses competitiveness relative to its non-Euro-using neighbors.

The Hungarian recovery has been receiving additional assistance from the government’s focus more on business recovery during the pandemic than other governments in the Central European region have. Hungary’s corporate tax rate and value after tax rate were both some of the lowest in the region, in Europe and even globally, at 9% and 15% respectively.

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