Key Product Groups
Key Product Groups
The structure of Hungarian foreign trade in goods changed considerably since 1989, when the better part of Hungarian exports (as is typical for underdeveloped economies) was composed predominantly by processed products (44%), foods, beverages and tobacco products (23%), and the share of machinery and equipment was only slightly above one fifth of the total exports (22%). However, by 1999 more than half of the Hungarian exports (57%) consisted of machinery and equipment, which is outstanding even in the CEE region, whereas the participation of processed products, foods, beverages and tobacco products was considerably reduced (to 30% and 8%, respectively).
In the above-mentioned relations, the structure of Hungarian exports into the European Union revealed an even better composition (see Table 3); here some 63% of the exports consisted of machinery and equipment, and foods, beverages and tobacco products accounted for only 5%. Hungarian agricultural exports decreased, not only in a relative sense (compared to total exports) but also in terms of absolute value. In 1991, our agrarian exports into the European Union approximated USD 1.4 billion, whereas the same figure was less than USD 1 billion in 1999, which represents an almost 30% decline. The indicated structural (product group) changes are mainly due to the fact that within the framework of Hungarian exports – and to some degree imports as well – the supply and demand characteristics of the European Union are becoming more and more determinant.
More detailed data (custom duty tariffs – product class) reveal that the dynamic growth (13.8%) of the export share of machinery and equipment prevailed, climbing to 53%. The export of vehicles and components grew significantly (84.8%), attaining a Community export share of 10% in 1999. The export of textile goods retained its decisive importance; the turnover of this product subgroup increased by 4.3%, thus representing 7.2% of Hungarian exports during the same period. Hungarian agricultural and food product exports exhibited an average decline of approximately 8.7%, this product subgroup had a 5.8% EU export share in 1999.
Turning to imports (SITC product group data), food represented 2%, raw materials 1%, energy carriers again 1%, processed products 41%, machinery and equipment 54% of the total. For the customs duty tariff data, the increase of import volume – like exports – was considerable in the machinery and equipment subgroup (12%), pushing its share up to 45%. The imports of the vehicles and components product subgroup was above average (35%), representing a share of 11% in 1999. Concerning the rest of the product subgroups with a decisive turnover share, chemical product imports slightly increased (4%) to reach 8% in our EU imports. In contrast, textile imports hardly increased at all (1%). Accordingly, the share of this product subgroup was 7% in our 1999 EU imports.
The exportability and competitiveness of Hungarian economy were considerably improved by direct foreign capital investment (FDI); here Hungary has been in a leading position among the CEE countries since the beginning of the 1990s. Roughly one-third of the total investment targeted at the region was directed to Hungary. According to the figures of the National Bank of Hungary, the value of the foreign operating capital paid in cash exceeded USD 20 billion. The most important ones among the more than 30 thousand companies that had settled in Hungary and operate with foreign capital were also the definitive actors of free trade zone circulation. Free trade zone turnover remained the most dynamically increasing part of foreign trade in 1999. Exports increased by 30% (at current prices in USD), while imports directed here increased by 32% relative to the previous year’s figures. With this, the share of free trade zones in exports (imports) reached 43% (31%). Regarding the structure of free trade zone exports, machinery and equipment account for 92%, while processed products almost 8%. The same figures for imports are 80% and 20%, respectively.
The major part of the above-mentioned more than USD 20 billion foreign operating capital does not originate in privatization, but derives mostly from green field and capacity expanding investments. The involvement of foreign operating capital can be divided into three steps: the beginning of the 1990s was characterized by a relatively intense inflow of capital into the processing industry domain, which was followed by sizeable foreign investments into the utility industries after 1995. The third step was the privatization of banks and the appearance of foreign banks in Hungary, which reduced the weight of the processing industry, while that of the service sectors increased.
Foreign operating capital, privatization and green field investments significantly enhanced the competitiveness of Hungarian economy, but their impacts on various sectors were not exactly the same. In many areas, there would be no domestic competition at all, because the line-of-business or the activities simply did not exist (e.g., car manufacturing, vehicle spare part manufacturing capacities, etc.). In other cases, import liberalization launched in 1988 resulted in close international competition as early as in 1990, bringing about the suppression of non-profitable activities independent from privatization (e.g., footwear industry, branches producing base materials for the textile industry, etc.). The production of certain products diminished because of the collapse of the COMECON market (e.g., shipbuilding or crane manufacturing). At the same time, significant new capacities were created for the manufacturing of a number of electronic devices, while the production of the old product groups came to a halt, while the associated capacities were eliminated. It was still possible, though, to “reorganize” the bulk of the local workforce. Therefore, the influx of foreign capital significantly contributed to the reduction of unemployment, and the promotion of employment opportunities.
The development of Hungarian foreign trade is well demonstrated by the spectacular increase of trade within individual sectors, which refers to identical structures within the foreign trade of two countries (export and import structures). The index of in-branch trade is a measure of the extent particular countries trade with each other in the same product groups, so it is an indicator of the degree of foreign trade development. The higher its value, the more similar, or the more developed the economies of the two countries are3. According to OECD statistics, the mean value of the indices taken for the fifteen EU member states with respect to Hungary was 60% in 1999, which is second only to the Czech Republic in the region. This ratio was the highest for Germany, and it was also significant for Austria, Great Britain, and Italy.
The openness and also the competitiveness of the Hungarian economy is further reflected by the fact that in 1999 the value of our foreign trade in goods (exports + imports = USD 53.02 billion) exceeded the gross domestic product of the country (GDP of USD 49.8 billion at current prices). In the European Union this was true only for the three countries having the best developed foreign trade structures: Belgium, the Netherlands, and Ireland. Another proof of the competitiveness of the Hungarian economy4 is that more than two thirds (70%) of Hungary’s foreign trade turnover was realized in relation to EU member states, which also indicates the degree of our integration into the EU internal market. This ratio is equal to that of Denmark, and is actually higher than certain member states of the Union, namely Italy (ca. 57%) and Greece (ca. 58%).
