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Audi to up production capacity in Hungary – How good is this news?

If Audi plans to boost production capacity at its Hungarian plant, the country’s GDP will also reflect the development. But does this mean that foreign capital will cease to ignore Hungary as a destination?

Audi has announced on Wednesday to move the production of 100,000 cars will be moved to the northwest town of Győr in Hungary from Martorell in Spain as part of a new model distribution plan. This may be the largest foreign working capital investment in Hungary of the last few years and the capacity boost will be visible on a national economy level too.

Without actual figures the best we can come up with is ballpark estimates, but

  • considering the weight of vehicle manufacturing in the Hungarian economy;
  • Audi’s estimated share in local vehicle production;
  • the number of Q3 models to be produced and the model’s market price; and
  • local added value

our conclusion is that including suppliers production could be around 1% of GDP. The actual impact, of course, greatly depends on how fast local suppliers can meet the increased demand and whether the Q3 model will be manufactured on brand new lines or the current ones (that are running practically at full steam) and which churn out models that are approaching the end of their career.

Vehicle production has an even bigger role in Hungary’s exports and industry so the launch of the new capacities will yield some nice growth indices there.

We might complain that the investment will only increase Hungary’s dependence on vehicle manufacturing and that it will hurt the heterogeneity of the economic structure, but we should not do that. Firstly, the past years have already proved that within the already strongly cyclical car industry Hungary secured itself a handsome portfolio 10-15 years ago which does not fare so badly even during a crisis.

Secondly, Hungary is in no position to whine about such things. The country is far from being pampered by an endless row of corporations that have only Hungary on their mind as the most wanted territory for their investments. Fresh capital has been only trickling into Hungary for years and although companies operating here apparently started to reinvest their profits locally last year, it is most likely that a part of that is merely a statistical mirage.

In view of this, we should not consider it a sharp turnaround that Audi, which has been operating in Hungary for 20 years, is willing to set up new capacities here in scope of a production optimisation scheme. No, we should have been worried if it had not happened. It seems so, though, that one of the country’s most stable partners continues to think that it has a long-term relationship with Hungary.

What local economic policy has been witnessing so far is that one of its key messages – namely that foreign capital is ferociously driven out from the services sector and warmly welcomed in manufacturing – has not really got through.

From this point of view, Audi’s decision may be regarded as if the ice has been broken. We believe, however, that this would be an overly optimistic interpretation, given that Audi is playing in its own league even within local capital investments. Not to mention that its decision fits into a global strategy and was not taken autonomously. Therefore, it would be too early to say that the government’s slogan of reindustrialisation and the interest of foreign capital in Hungary are finally making a couple.

On the whole, we should be thankful that beyond 2018, by which time Hungary plans to disburse the last available euro cents of available EU funds the country will have at least one major investment that will continue to give the economy an impetus for another one or two years. via portfolio.hu

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