15 Jan Leveraging the pandemic to revitalize Hungary’s economy for the 21st century
Part 2 of our exclusive interview with Dr. Zoltán Kovács, Secretary of State for International Communication and Relations, and International Spokesman of the Government
In a recent tweet, you said: “We may remember 2020 as the annus horribilis for all its misfortune and rightly so. It was also a year of horrible media coverage of Hungary, some of the most ridiculous we’ve seen so far.” To start this interview, could you offer a retrospective of 2020, starting with how Hungary has dealt with the COVID-19 crisis, the responses it has brought and the main lessons that the country and government has learnt from this crisis?
Last year was an annus horribilis for Hungary and the rest of the world. We’ve been living with viruses for the past couple of centuries, for thousands of years even, but certainly COVID-19 was the biggest health challenge ever posed to the European Union (EU) and globally. Hungary was among the first to react to the hardship and to introduce economic incentives and programs, trying to help those affected by the situation. During this period we maintained the same approach and vision that we’ve had for the past decade, which is all about jobs. If you want to keep your economy in good shape, if you want to go through and overcome hardship as soon as possible, you really have to concentrate on jobs. You have to provide employers with the conditions they need to be able to continue giving their employees work. These were the goals of the measures we enacted in both the first and second waves of the pandemic. Altogether these measures amounted to almost a double-digit percentage of our gross domestic product (GDP).
The latest figures show that we have only lost a minimal number of jobs from those that we have created over the past 10 years. We have created over 800,000 new jobs in 10 years, with a target of 1 million by the end of the term of this administration. Overall, we have lost only 26,000 jobs due to the crisis. This is something we should be proud of. Even in sectors that have been hit the hardest, like services or tourism, we have been able to provide a meaningful framework within which employees have been able to address the COVID challenge.
Having a solid economic framework is essential for our society and country to be able to continue functioning. Obviously, the performance of the Hungarian healthcare system is equally important. We prepared the healthcare system in a way that enabled it to address the challenge. This was a flexible system: during the first wave of the pandemic, we were among the most successful countries in trying to and succeeding in stopping the spread of the virus. During the second wave the challenge was different, because we learned a lot from the first wave. We knew the limits of the healthcare system, as well as the stress limits of our society emerging in the summer and autumn of 2020.
In Hungary, the numbers of infections and deaths per 100,000 inhabitants is close to the European average. We were able to address the second wave in line with the general European picture. The threshold was not exceeded, meaning that we managed to stay within the capacity of our healthcare system. We were able to care for everyone who was infected—whether with treatment in their homes, in hospital or in intensive care in our healthcare system. In national comparison, the Hungarian healthcare system performed very well and showed that those working in it are not only capable of handling the crisis, but also of meeting society’s expectations.
In the midst of the crisis we started to renew the healthcare system, with a major catch up in salaries for doctors and nurses, as well as a complete systematic renewal of the management system. Through pay rises for healthcare workers and through management we hoped to be able to handle the situation not only in 2020, but also to be able to address the challenges brought by 2021.
Hungarian society has an ageing demographic and last year was an accelerator in this, as we had a total net loss of 30,000 to 40,000 lives. Over the past six years, we have been introducing new measures for families. In fact, our Prime Minister appointed a new minister responsible for families and demography, as a sign of the increased attention we are paying to that area and as part of our general philosophy. Amid the crisis, we are able to allocate resources not only to the healthcare system, but also to those measures we started six years ago. These include home creation programs, and help and incentives for families with children. Week by week, month by month, we have announced new measures that are cumulatively contributing to the economic and healthcare effort.
This is part of our philosophy that, I believe, is outstanding in a European context: we are not only concentrating on the immediate effects of COVID-19 and not only focusing on treatment and vaccination, but we are also looking at the broader picture, which is families and family protection. This is the strategy we have chosen over the past decade, and which is behind every economic and social healthcare measure we have enacted: family protection, with the goal of there being more children in Hungary to stop demographic decline.
In 2019, Hungary was the second-fastest growing economy in the EU, having attracted a record €3.5 billion in foreign direct investment (FDI): an increase of about 24 percent on the previous year. This investment came from a wide range of about 20 different source countries. What were the investment trends in 2020?
Hungary’s drop in GDP was about 6.4 percent for 2020, somewhere around the European average. Yet at the same time we have been trying to utilize all available funding in the economy to stimulate investment and job creation in the country. For the past 10 years, we have been trying to leverage all crises for our future—if 2019 was a record year for FDIs, we believe that 2020 will also look fairly good, given the circumstances. Investments worth billions of Hungarian forints and millions of US dollars and euros were announced during the year, as we are running a major investment program helping foreign and Hungarian investors to actually take advantage of the pandemic situation.
We have already prepared the first strategic outline to utilize available EU funding: the regular European budget, and also the Next Generation EU (NGEU) fund for 2021 and 2022. The government has agreed on the main areas in which we plan to use the available NGEU revitalization funding, keeping in mind not only Hungarian strategic goals—families, economic investments, growth and obviously jobs—but also the main EU objectives addressing the challenges of the 21st century, such as climate and innovation, social reinvigoration, greening the economy and so on. The Hungarian energy strategy has two important pillars: nuclear power, which can supply about half of our country’s needs, and solar energy. The solar program we have announced is gaining momentum and will be reflected in our plans and spending, using the available EU funds.
I’d like to talk about innovation and also sustainability, which are two concepts that go together. Two years have passed since Hungary created its Ministry of Innovation and Technology. What progress has been made on the innovation path and, going forward, what are your plans for promoting further investments in research and development, and enhancing Hungary’s credentials as a strong innovator?
I believe the immediate effects of the ministry itself are clear enough from its record. Innovation and sustainability go together: our energy strategy reflects this and it is in itself a clear indication of what we think about the subject. We are aiming to reduce carbon dioxide emissions, not only in line with the European expectations for Hungary’s share, but beyond that.
At the same time, we are trying to implement a paradigm shift, changing the structure and priorities of the Hungarian economy. In addition to participating in as much international cooperation as possible—inviting and accepting foreign direct investment—we have also started to equip Hungarian small- and medium-sized businesses (SMEs) to be able to address the technological challenges of the 21st century. Being part of an international investment project is itself good, and it’s a good sign that more and more Hungarian SMEs are able to be part of those chains of cooperation; but at the same time, we started to establish hubs, which are going to play a major role in innovation and in the future of our economy.
These include the ongoing reform of universities, which are intended to become more competitive with the new model we are introducing. This new model essentially seeks to follow a Western European model. Their management and background wealth management are in the hands of foundations, which in turn will allow universities the flexibility to address new education areas, to directly address the interests of businesses and industry, and to better direct their innovation efforts.
This is not a secret. We are working on renewing traditional universities like Corvinus or the Agricultural University, bringing them up to Western European standards as soon as possible. In the Hungarian agricultural university, for instance, we are running a program to improve processing in this industry, so instead of exporting raw material and primary products, we can process our products domestically and thus increase the added value in Hungarian agriculture.
There are other hubs, such as ongoing military reform. In some provincial cities we are reestablishing and reinvigorating Hungarian military production. This comes with a very strong innovative element, meaning that we are cooperating with German and other Western European companies on the production of tanks and other vehicles, and we are cooperating with French and German companies on helicopter and other aerospace production. At the same time, as part of our focus on innovation and higher education reform, we are also promoting innovative technologies such as laser and other technologies.
Another part of this effort is a new approach to research. Instead of letting the Hungarian Academy of Sciences cope with problems as they did for decades, we have put a new structure in place, involving direct cooperation with business. This new structure is overseen by the state but directly connected to business. Our aim is that the hundreds of billions of forints directed to research and innovation should be spent in a way that produces more direct outcomes for business. We believe that this is the field in which there should be most improvement. Money going into research and innovation should be further utilized directly for business purposes—both Hungarian and, if possible, as part of international cooperation.
When it comes to infrastructure, Hungary has one of the highest motorway and road densities in Europe, it also has an extensive railway network and three international airports. Due to its central location, it is positioning itself quite strongly as a primary logistics hub in the EU, with ever more investments in this sector. The COVID-19 crisis should only reinforce this trend, having focused attention on the importance of shortening supply chains and bringing production closer to the consumer. What big plans does the government have to further revamp infrastructure and strengthen Hungary’s position, not only as a manufacturing hub but also as a logistics hub?
Hungary’s development over the past decade has been outstanding—whether in road building or in infrastructure provision to cope with the flow of traffic. The high numbers of lorries crossing the country means that Hungary has Europe’s second- or third-highest transit traffic flow. Improving the infrastructure is therefore imperative, in order to better connect Hungary to the eastern and southeastern parts of the EU and to Western Europe.
The expansion of our road system and renewal of our infrastructure is something we must address. In that regard, there has been spectacular development, which continues today.
The government is undertaking a program in 22 major cities that are natural hubs outside Budapest, and which by the end of this term should be connected by motorway or dual carriageway. I think we are making very good progress: new sections are being built toward Croatia and there is renewal work on the M1, which is one of the major motorways connecting Budapest and Hungary to the western part of Europe. We are also extending the motorway network to the Romanian border and have started to extend it to the southeastern part of Hungary.
One of our priorities is also the renewal of the railway system. A major hub is the N0 railway structure, which is intended to reconfigure Budapest and will help to speed up transport—such as rail cargo—around the country. This is another area in which Hungary will make use of European funds, both regular and NGEU. This requires new connections and a new faster connection toward the southeastern part of Europe. In essence, the N0 seeks to avoid crossing Budapest and to establish alternative routes that speed up the flow of goods around and through Hungary. We are also building a new rapid rail link connecting Belgrade and Budapest, in cooperation with Chinese sources of investment. We believe that this will greatly contribute not only to Hungary’s infrastructure capabilities and positioning as a hub, but also in connecting Europe’s infrastructure to the Western Balkans.
In addition to this, we are improving the general quality of roads outside major urban areas, helping to revitalize rural Hungary. We have a major program for the provinces that aims to enhance the quality of life in rural areas and small villages, providing them with the same infrastructure, IT, internet connections and other such facilities as in cities. We are also working on the ongoing renewal of the road and transport system serving smaller villages.
We have now closed the book on 2020 and are looking at the fresh new year that is 2021. How would you summarize Hungary’s plans and priorities for this year? What are the main items on your roadmap?
The immediate challenge is the virus itself, and how to move on from the lockdown that Hungary and most European countries are in. Many countries, including some of our neighbors, are constantly changing their action plans and healthcare measures to deal with the pandemic, with two-week or one-month lockdowns, then a relaxation of restrictions and so on. We have chosen a different path. Learning from the experience of the first wave, we carefully determined the appropriate type and level of restrictions and how to ensure that life can continue even under restrictions.
We have been managing the second wave without extreme measures. Moderate measures are being applied but very systematically and for a longer duration. The only strategy for emerging from these restrictive measures is vaccination and the speed of vaccination will be key. Therefore, we are working intensively on that, trying to dispel skepticism about vaccination—which is not only a problem in Hungary but all around the world. Yet ever more people are receiving the vaccine and we have used more than 80 percent of the vaccines we have so far been able to acquire. We have a systematic plan for vaccination and we see that the willingness of Hungarians to be vaccinated is increasing. We are running a registration program to measure that willingness, calculating the numbers and proportions, and also negative attitudes to the vaccine.
It is a government’s responsibility to vaccinate as many people as quickly as possible. This will be the key to easing the restrictions and bringing life back to normal as soon as possible. A lot depends on the availability of the vaccine. Therefore, apart from fully cooperating and utilizing European sources, we are also looking to all possible sources—while, of course, aiming to ensure that only a safe and reliable vaccine will be used in Hungary. We are negotiating with everyone, because that is in the best interest of Hungary. The sooner the critical vaccination level needed for society is reached, the sooner economies can be opened up and return to relative normality.