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The aim of this paper is to illustrate the unevenness of development in the economic transformation process of Hunary's country. In the first part of the paper I will introduce the cuntry's present post-transformation economy. Understanding these differences, even in a relatively small country like Hungary is important for successfully undertaking business in this country. This economy is characterised by extreme differences in economic performance in spatial and sectoral aspect. This is often described as "dual economy". The ownership of enterprises is a reason as well as a symptom for this dualism. Therefore the development and role of foreign direct investment (FDI) and domestic micro, small and medium sized enterprises (SME) are introduced. The dualism of ownership and its spatial effects are illustrated with cases from Baranya County in Southwest Hungary. In the second part of the paper I want to outline the efforts of the Hungarian government to overcome the gap between FDI and SME. I will emphasise those programmes, which are included in the Hungarian National Development Plan the so-called "Szechenyi-Plan".
2 Dual Economy
The transformation process starting in Hungary already in 1979 altered the nature of the economy completely.1 The state controlled highly autarchic economy is now an economy that can be regarded as a working market economy.2 Hungary's restructuring was a very successful process and is the most advanced economy post-socialist economy. The transformation crisis with its effects like increasing unemployment, decreasing GDP and industrial output accompanied by soaring inflation-rates, current account debt and great budget deficits was overcome successfully in the late 1990's. The economy underwent this restructuring very uneven. Sectors of the economy like mining, heavy industry but also the agricultural sector declined and did not recover yet. Light industry, especially mechanical and electronic engineering, declined in the early 1990's and recovered in the second half of the decade. This also applies to basic services already existing in the "gulyás communist" past. Especially sophisticated services like financial transaction, consulting and related information technology as well as internal and external trade grew since the early 1990s. The following table shows the sectoral differences of present and future growth.
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Table 1: Estimated sectoral growth from 1998-2006 (1998 = 100)3
The change was not only uneven in sectoral but also in spatial aspects. On the one hand the gap between urban and rural areas was widened. On the other side the regional differences were aggravated between the Central Region as well as northwestern regions and the eastern regions.4 The difference in GDP/capita Central region and the peripheral regions in the East is more than two-fold.5 Also that the well performing areas have nearly full employment whereas the East has unemployment of over 16%. In the near future these regions will not converge, as at growth rates compared are also lagging behind. (See Table 2)
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Table 2: Regional differences of main economic factors6
To understand the emergence of these differences the character of the transformation process has to be analysed more detailed. One of the main goals of the transformation was the change of ownership of economic entities. Hungary decided mainly for direct sales. The privatisation of great enterprises and the cheap but skilled labour attract foreign investment. Domestic investors purchased mostly small enterprises the service sector. In the second half of the 1990's Hungary's active policy to attract foreign investment led to the establishment of "green-field investments" by foreign multinationals in custom-free zones.7 Foreign direct investment is the driving factor for Hungary's economic growth. These investments are mainly in manufacturing and are highly export oriented. The majority of these investments are located in the Northwest of the country due to the more developed infrastructure and the location close to the EU. The SME with domestic ownership were in increasing their numbers with the liberalisation of the economy.8 These enterprises are mostly engaged in production and services for the domestic market. These enterprises play a very important role for the employment, but due to their low productivity their contribution to the GNP is limited. The differences in the Hungarian economy created by the transformation process are expressed by three dualism, which are interrelated:
- sectoral dualism
- regional dualism
- and dualism by ownership
In the next chapters the stress will be on the dualism of ownership and Hungary's policy to bridge this gap.
2.1 Foreign Direct Investment
Hungary's governments applied quite early a policy of liberalisation. This allowed foreign ownership of enterprises already in the socialist market economy in the form of joint ventures. The first post-communist government started the privatisation in the form of direct sale by closed bit tenders9. Since in Hungary capital was very limited this favoured the acquisition by foreign multinationals. The establishment of new enterprises was supported by tax incentives if an investment was undertaken in one of the custom free industrial parks. In the first decade of the 1990's the most FDI went into manufacturing industry and in to food processing. Since mid-1990's the number of green-field investments grew especially in labour intensive manufacturing. Privatisation was coming slowly but surely to its end and only "strategic" enterprises remained. The privatisation included banks, military industry as well as the natural monopolies like power plants, regional gas and electricity supplier and the Hungarian Telecommunication Company MATÁV.10 Hungary was the most successful country to attract foreign capital and reached in 1999 a stock of FDI of 1900$11per capita. The majority of FDI came from the European Union and the US. Of total FDI stock in 1999 Germany had a share of 28%, the Netherlands 17%, the US 12%, Austria 11,0%, UK and France of 6%. Whereas the neighbour countries invested mostly in mediums sized companies, other European countries and overseas investors invested in large-scale companies.12 FDI plays a major role for the Hungarian economy the investment undertaken in 1999 reflected 4,1% of total GDP. The FDI is the major factor for the average economic growth of ~5% p. a. in the last 3 years.13 Beside the tax incentives and cheap skilled labour the "Association Agreement" with the European Community signed in 1990 led to the specific nature of FDI in Hungary. The gradual introduction of free trade for industrial goods eliminated obstacles for imports and exports.14 Therefore the most companies in foreign hand located only a small part of their whole production chain in Hungary. These companies have a much higher productivity than domestic companies they consist mostly of the low-value added processes.15. The foreign companies in custom free zones form "islands of modernisation" in the Hungarian economy. These companies purchase the gross of their products abroad and export their production. Only in the automotive sector foreign sub-contractor settled around the assembly plants. This fact is illustrated by following numbers. 70% of total exports and 60% of total imports are coming from res. going to the foreign owned companies. This shows their limited linkage with the domestic market.16 This means that the economic growth centres in Hungary are depended on decisions from abroad. Therefore the economy is very vulnerable to changes on the international market and due to the high level of integration with the European Union (76% of total exports)17 this is limited to only a few countries.
Since the last years small changes are visible in this development. Nokia and Audi established R&D centres in Hungary18 and the number of domestic sub-contractors is increasing. Also more and more foreign investment is going into high level services, tourism, utilities and trade. These investments will help Hungary to modernise its economy further in a sectoral as well as in a geographic sense. With the increasing purchase power of the Hungarians the domestic market will also grow and becoming an interesting market for the products produced in the country.
2.2 Micro, Small and Medium Sized Enterprises
Beside the FDI the SME are the backbone of Hungary's success in transforming the economy. Hungary had since the introduction of the NEM reforms in 1968 a relatively higher number of privately owned enterprises and in 1989 it reached a share of about 20%.19 With the economic and political change in 1990 the number of enterprises increased. "... New type of firms entered the scene, bringing along new entrepreneurial and management skills and attitudes, which were marked by enthusiasm rather than professionalism".20 The typical new entrepreneur was a bi-professional, who was on the one hand on the pay roll of a state-owned company or collective farm and on the other hand a part time business man. As the big enterprises restructured or even went bankrupt the self-employment many were pushed in involuntary entrepreneurship. These SME were lacking of capital and of entrepreneurial experiences. The taxation burden (an average SME pays 17% of tax in comparison with foreign - 8%), the costs induced by social security contribution as well as the administrative work and the changing regulations created a disadvantageous environment for many companies.21 Therefore many were partly involved in "grey or black market" activities. The decreasing of domestic consumption as well as the pressure of imported products after removing trade barrier aggravated the situation for the SME further. The majority of SME are engaged in basic services like retail trade, tourism, catering and other basic services. (See Table 3) The number of 75 working enterprises per 1000 capita is much higher than in comparison to the EU where there are only 48 enterprises per 1000 capita. The reason for this is the high number of the strikingly large share of self-employed (66%) which mostly function only within the family circle. This number is exceeding the EU average with 52%. In the Central Region the number of SME is three-fold to the Eastern Regions this is due to the better business environment. (see Table 2)22
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Table 3: Number of active corporations and unincorporated enterprises by industries, 199823
Despite the upper mentioned problems the SME play an important role for the Hungarian economy. 56% of all employees and 70% of worker are employed by SME. These companies contribute to 45% of the GDP, but to 68% of all taxes. Most of them are active in the domestic market but their share of exports reached already 30% of the total. Although SME have due to their low creditability limited access to credits they already contribute to 30% of all investments. This is at the moment still the third position behind foreign investors and the public institutions, but their share is growing steadily. The supported by the Phare Microcredit Programme assisted more than 10,000 small enterprises in the last seven years and contributed with 15 million EURO to the development of a healthy business environment, and created jobs where most needed.24 These developments show that the SME gradually play a more important role in Hungary's economy.
2.3 Dual Economy on the example of the Baranya district
The Baranya County is located in the very south of Transdanubia. With its diverse socio- and geo-economic structure it reflects the problems of whole Hungary. The county has 401,000 inhabitants (4% of Hungary's total population) and covers 4,5 % of the Hungarian territory. Because Baranya includes parts of the Southern Plain, the mountainous Mecsek hills and has sparsely populated areas on the river Dráva the natural setting is highly diverse. Due to the size of the city of Pécs (158,600) 2/3 of the population live in urban areas. The rural settlements are so fragmented that 10% of all Hungarian municipalities are in this county.25 The region has a higher share of agriculture and service than the national average. The high share of service derives from tourism as the regions offer beside the historic centre of Pécs, spas, lakes and has highly developed agro-tourism in vine-growing areas. The previous main employers for workers were the uranium and coalmines in Pécs and Komló, which either closed or lay off majority of their staff. The rural areas with a distance of more of 35 km to Pécs can be regarded as peripheral and backwards. The county is divided into 8 sub-regions . The economic disparities between the Pécs and the most backward Sellye sub-region reflects the differences between the Central and north-eastern region. Whereas Pécs with 4,5% has nearly full-employment Sellye is suffering with 16,7%, the average gross income of a "Pécsi" 2,2 as high than of a "Sellyei".26 Of all Hungarian companies 3,9% have their seat in Barnaya (compared to 4,0% of population). 3,4% of enterprises with FDI are located there but their stock of subscribed capital is only 1,1%. This shows the weakness of this region to attract multinational investors.27 The main investors in Pécs are the German companies Bayernwerk and Ruhrgas, which purchased the regional electricity and gas suppliers DÉDÁSZ and DDGÁZ in 1996. Also the other utilities and the local power plant were privatised.28 These investments on the short term lead to higher unemployment due to restructuring and only gradually have an effect on the modernisation of the local economy. Pécs also attracted major "green-field" investments. The Finish company Nokia established a monitor plant in 1997 giving employment to 1,400 people. With the end of the tax-holidays and the strategic decision to withdraw from the monitor market the plant was closed down in end of 1999. The Finish mobile phone producer Elcoteq, employing 3,000 people in Baranya reduced its staff by 800 people after loosing a major contract in February 2001. Both cases are typical for multinational FDI active in assembling imported parts in Hungary and show the vulnerability of these investments.29
Also food processing was a main field of foreign investment. BAT invested in to the Sopiane cigarette factory and the Austrian brewery Ottakringer bought the local Szalon brewery. These investments led to an improvement of the existing plants and rising of quality of products.30 Another investor is the Austrian meat producer Pankl&Hoffmann AG employing 1,100 people mostly in the Délhús factory in Pécs. Beside its activities on the domestic market, where it has a share of 11% it is also exporting into the EU. Due to financial problems of Pankl&Hoffmann was close to be liquidated and is for over a year for sale.31 One investment that is connected with the region is the medium sized Pannon Vin champagne maker, a Hungarian-Swedish joint-venture. The company buys local wine and produces high- quality champagne for export.32
Except of the two last examples non-of the foreign investments utilises specific strengths of the county. However for future economic success this will be necessary. With the political changes in the two southern neighbour countries Baranya could change its "dead end" position into a "southern gate" role. The Serbian and Croatian ethnic minorities can support this development as the German minority already was able to build up links to German and Austrian investors. Also the human resources are a strength of the region 5,6% of all employees in R&D are in Baranya and 7,0% of all Hungarian students studying in Pécs. The strength of the University of Pécs (PTE) are in humanities, like cultural studies, adult education and language teaching, as well as in medicine and architecture. The weakness in the engineering field is one of the reasons Nokia did not establish its R&D centre in Pécs. The goal of future regional development policy is to establish networks in the cultural industry and to create linkages with domestic and foreign information technology companies. Start-ups with close link to the medical college were established are active in pharmacy and in medical technologies. To give these enterprises a better business environment a technology centre in the local industry park was opened in March this year and will also work as an incubator. This centre shall function as the starting point of a future economic cluster in culture and health industry.33
3 Hungary's Policy to bridge the gap between FDI and SME
The Hungarian government realised that the dualism of the country's economy is one of the main challenges. In January 2001 the Ministry of Economic Affairs presented the final draft of a medium term economic development plan the so-called "Széchenyi Plan". "The fundamental objective of the Sz é chenyi Plan is to provide for dynamic and sustainable growth and to improve the Hungarian economy's level of competitiveness." 34 This plan is a combination of regional and sectoral development programmes, which will be centrally co- ordinated, but implemented by de-centralised units. In the budget of 2001 259,9 billion Forint (approximately 1 billion USD) are earmarked for this plan. The main items are the traffic related infrastructure and housing programme which amount to 2/3 of the whole plan. For the enterprise development programme are 31,4 billion Ft. (110 million USD) reserved. Most of these means used for SME development and sub-contracting programmes. From other items like R&D, information society, tourism and regional development also SME as well as foreign investors will profit. The Plan is based on the principle of co-financing were the governments contributes up to 50% (an average of 25% is envisaged). The other contributors will be financial institutions, the EU with its pre-accession programmes, sub-national agencies and domestic and foreign business people35
In the following part I will describe which measures the "Széchenyi Plan" contains to overcome the dualism of ownership in the Hungarian economy. These firstly are continuing attraction of foreign investment, with the stress on high value added production and those increasing the innovation potential of the economy. Secondly the measures to foster existing SME in their development and to make the entrance for new entrepreneurs easier. As a third the "Bridging Subprograms" are introduced, which try to overcome the gap between multinational FDI local SME. I also will mention accompanied government strategies in the area of taxation, social welfare and administration.
3.1 FDI programme
Most of the large-scale foreign investments were attracted by Hungary's taxation policy that gave these enterprises located in custom free enterprise zones extensive tax holidays. Recently the Hungarian government allowed companies to reduced their taxation by 20% of their costs for Research and Development in Hungary. As this policy is not compatible with the requirements of the acquis of the European Community Hungary has to change its policy for furhter attracting foreign investments. Hungary's low corporate tax of 18% is still attractive for foreign investors and the measures undertaken to reduce the employee's share to the social security will support this.
With Hungary's efforts to fulfil the requirements of EU accession the focus will change from tax incentives to direct state aid via subsidise or in form of loans. This aid will be only available for specific fields like establishing and enlarging Research and Development units as well as for programmes helping to create an information society in Hungary. Aid will be given in especially for e-commerce and telecommuting (distance working) programmes. The modernisation of Hungarian agriculture also offers aid especially from the EU for Foreign companies, this goes hand in hand with the rural area development programmes of the Ministry of Agriculture and Regional development. A main obstacle is still the limited possibilities of foreign companies to purchase land or to rent it on long term basis. The creation of logistic centres and industrial parks in the backward regions including the Eastern and in less extend the Southern regions will attract foreign companies to settle in areas were there still skilled labour force is available.36
3.2 SME programme
The system of tax incentives is designed for large-scale investments and favours foreign investors. These supporting schemes are only available for SME investing in depressed areas (sub-regions with over 15% unemployment) or if they settle down in business parks. The policy to support further developed with the introduction of the Széchenyi Plan. Positive to note is the creation of the Enterprise Development Council and the further involvement of the business community in the policy dialogue it lays the ground. The exclusion of the chambers from the regional and local development councils and from the process of developing the Szechényi Plan shows this in another light. The specific SME programme outlined in the plan aims at developing the business culture and skills and improved access to finance. Of particular relevance to SME development are also the separate programmes in the area of sub- contracting (see part 3.3 Sub-contracting) and tourism development.37
The main obstacles for SME to develop further and to grow are high administrative and legal burden (esp. for micro and small enterprises), the lacking of entrepreneurial experience and know-how as well as the lacking and limited access to capital. The SME related programmes, which are in line with the EU requirements targeting especially these problems. With new legal arrangements, but also with the reform of public administration it is planned to ease the burden of micro and small enterprises. On the one hand one-stop-shop administration will be introduced and the legal requirements concerning taxation and employment will be eased. On the other hand the support offered by various ministries, regional and county bodies, municipalities and the EU will be made easier assessable with the establishment of de- centralised development agencies.38
For developing business culture and competitiveness of SME, training and access to business information is necessary. The development programmes include specific training, meetings for exchanging experience and providing of market information designed for SME. For increasing the innovative potential of high-tech start-ups and medium sized enterprises networks between large sized enterprises, R&D units and SME representatives are promoted. For overcoming the problem of limited access to capital several programmes are set up. The micro-credit programme started by PHARE will be extended and continued as a part of the Szechényi Plan. Also a special SME development bank providing the money from "SME Target Fund" will be established. The present government wants to shift the support from state aid to interest subsidised loans. The government also wants to share the capital burden with other institutions like domestic and foreign banks. This shall be reached with funding of regional venture-capital banks.39 In the next part the sub-contracting programme is introduced as it plays a crucial role in overcoming the dualism of the economy.
The sub-contracting programme was launched in 1998 and performed by the Hungarian Foundation of Enterprise Promotion (MVA) and is now included in the "Szechenyi plan".
This programme is aimed to increase the number of Hungarian subcontractors working for the multinationals in Hungary. The long-term goal of this programme which is supplementing the other SME and regional development programmes, the creation of economic clusters with FDI investment as the core. Following programmes are assessable for SME:
1. Establishing a national subcontractor information network including a central database with audited potential subcontracting enterprises
2. Education, training, extension training and consultant service for entrepreneurs to become familiar with quality, legal and related requirements of subcontracting
3. Establishing direct relations between Hungarian companies and large enterprises as well as among subcontractors by exchanges of experiences, organisation of meetings for business people and participation in fairs and exhibitions
4. Financial support for subcontractors which can get subsidised loans for subcontracting activities40
In the first years the focus was on enterprises active in mechanical, electric and electronic engineering. Since the year 2000 the programme also includes light industry (textile, leather, paper) enterprises and increasingly also research points and engineering offices. Since the establishment of the "Internet Subcontracting Academy" a greater number of training are provided through distance education. A main focus is the improvements of quality via subsidise for ISO 9000 auditing, since reliability and quality are still the main deficiencies of domestic enterprises. In the last years the "Bridging" programmes were successful to increase the number of domestic subcontractors. This is an important step to decrease the share of imports in the production in Hungary. It also helps to integrate a bigger number of Hungarian enterprises to take part in the European economic network. The multinationals play a role of integrators in this process. Successful sub-contracting in Hungary can also be a first step for successful sub-contracting on international level.41
In the post-transformation "dual-economy" in Hungary the modernisation and globalisation process is limited to "islands of growth". This is a fact that might not be expected looking at Hungary's impressive macro-economic records. This fact creates many problems for the efforts of the country to join the European Union as soon as possible. This also creates for investors many obstacles to do business successfully in the country. The country active measures to overcome the dualism are necessary to create a competitive economy. The setting up of a co-ordinated mid-term national development plan is an important step in this direction. The means that will be transferred by this programme and also the changes resulting from it offer investors new opportunities in the country. The design of these programmes with the focus on SME open support for starting new business activities or enlarging existing not only for domestic enterprises but also for foreign. To show and explain these opportunities and threats was the main aim of this paper.
Altmann F., Baratta M., Baumann W-R., ... ,Der Fischer Weltalmanach 2001, 2000 ,Frankfurt Bartlett David, The Political Economy of Dual Transformations, 1997, Ann Arbour Budapest Business Journal, Elcoteq buys Nokia's Pécs plant, (http://www.bbj.hu/common/article.asp?site=3&id=66760 ,1/11/2000
Budapest Business Journal, Mobile Production starts in Pécs, (http://www.bbj.hu/common/article.asp?site=3&id=73302 ,10/04/00
Budapest Business Journal, Elcoteq moves phone making to Pécs, (http://www.bbj.hu/common/article.asp?site=3&id=74384 ,26/04/00
Cséfalvay Zóltán, Széchenyi Plan - Background, Objectives and Funding, in: Economic Trends in Hungary, No. 2, August, 2000, Budapest
European Commission, 2000 Regular Report from the Commission on Hungary's progress towards accession, 08/11/2000, Bruxelles
European Commission, Directorate General VI, Sixth Periodic Report on the social and economic situation and development of the regions of the European Union, (http://www.europe.eu.int/comm/regional_policy/document/radi/radi_en.htm), 1999 Farkas György, Transition and the adjustment of businesses, in: Hungary on the path to Europe (Nr. 4), 2000, Budapest
Finczicki Bela, Austrian owner looks th shed meet processor Délhús, in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=97116), 23/10/2001 Hegedüs Miklós, The competitiveness of the Hungarian Economy, in: Economic Trends in Hungary, Nr. 2, August 2000, Budapest
Központi Statisztikai Hivatal, Terület Statisztikai Évkönyv 1999, 2000, Budapest
Ministry of Economic Affairs (1), Government's Strategy for Supporting Small- and Medium- sized Enterprises, ,(http://www.gm.hu/english/sme/smestrat.htm), December, 1998 Ministry of Economic Affairs (2), Mentor - Subcontracting Programme, (http://www.gm.hu/kulfold/english/sme/subcontract.htm), 28/04/2001 Ministry of Economic Affairs (3), Széchenyi Plan, A National Development Plan, (http://www.gm.hu/english/economy/szechenyi.htm) ,2000
Ministry of Economic Affairs (4), Széchenyi Plan - Hungary's Development Summary, (http://www.gm.hu/kulfold/english/economy/szechenyi.htm), 28/04/2001
Ministry of Economic Affairs (5), Szechenyi Plan -1. Enterprise Development Programme, (http://www.gm.hu.kulfold/english/economy/szt-prog-1.htm), 28/04/2001 Ministry of Economic Affairs (6), Szechenyi Plan -5. Information Society and Information
Economy Development Programme, (http://www.gm.hu.kulfold/english/economy/szt-prog- 5.htm), 28/04/2001
Ministry of Economic Affairs (7), Szechenyi Plan -7. Regional Economy Development
Programme, (http://www.gm.hu.kulfold/english/economy/szt-prog-7.htm), 28/04/2001
Ministry of Economic Affairs (8), Preliminary National Development Plan - Version 2 - 1st Draft, 14/12/2000, Budapest
Mohorovice Denis (1), Despite EU complaints, Hungary maintains investment incentives, in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=87372), 21/08/2000
Mohorovice Denis (2), ,"Szechenyi" Plan detailed ,in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=72913), 03/04/2000
Nashaat Daniel (1), Elcoteq lays off 800 at Pécs plant, in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=108880), 05/02/2001
Nashaat Daniel (2), Pécs Industrial Park dreams of airport to land more tenants, in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=98916), 13/11/2000 Pernetta Robert, Developing a Energy Consulting Strategy for Domestic Customers for DÉDÁSZ Rt., (thesis handed in at Fachhochschule Würzburg-Schweinfurt), 16/12/1996, Schweinfurt
Pest Megyei Kereskedelmi és Ipar Kamera, Kiírták a Szechényi-terv pályázatait, http://www.pmkik.hu/world/pmkikweb.nst/all/kiiratak_a_szechenyi_terv_palyazait.htm, 05/02/2001
PriceWaterhouseCoopers, Doing Business and Investing in Hungary, 1999, Budapest South Transdanubian Regional Development Agency, Preliminary Draft of South Transdanubian regional development plan, 29/04/2000, Pécs
 Bartlett argues with the introduction of the austerity measures of NEM II Hungary started the economic transformation process, see: Bartlett David, The Political Economy of Dual Transformations, 1997, Ann Arbour, pg. 8
 from European Commission,2000 Regular Report from the Commission on Hungary's progress towards accession, 08/11/2000, Bruxelles, pg. 22
 Source: Hegedüs Miklós, The competitiveness of the Hungarian Economy, in: Economic Trends in Hungary, No. 2, August, 2000, Budapest, pg. 24
 Central Hungary includes Budapest and the Pest district. The North East includes the regions North (Györ) and Central Transdanubia (Székesfehérvár), the East includes North Hungary (Miskolc) and the Northern Great Plain (Debrecen).
 In the EU this would be the difference between Greater London, Oberbayern or Lombardia and Central Makedonia, Magdeburg or Cantabria on the other. from: European Commission, Directorate General VI, Sixth Periodic Report on the social and economic situation and development of the regions of the European Union, (http://www.europe.eu.int/comm/regional_policy/document/radi/radi_en.htm), 1999, Table 43
 Source: own calculations based on Központi Statisztikai Hivatal, Terület Statisztikai Évkönyv 1999, 2000 ,Budapest
 Ministry of Economic Affairs (4),Széchenyi Plan - Hungary's Development Summary, (http://www.gm.hu/kulfold/english/economy/szechenyi.htm), 28/04/2001, pg. 3-5
 The definition used in this paper bases on the use by the Hungarian Statistical office is: micro enterprises: up to 10 employees, small enterprises: between 10 and 50, medium sized enterprises: from 50 to 250. from: Központi Statisztikai Hivatal, Magyar Statisztikai É vkönyv 1999, 2000, Budapest, Központi Statisztikai Hivatal pg. M 25
 Bartlett David, pg. 160
 Cséfalvay Zóltán ,Széchenyi Plan - Background, Objectives and Funding ,in:Economic Trends in Hungary, Nr. 2, August , 2000,Budapest, pg. 6-7
 Hegedüs Miklós, pg. 25
 Ministry of Economic Affairs (4), pg. 6
 Altmann F., Baratta M., Baumann W-R., ..., Der Fischer Weltalmanach 2001, 2000,Frankfurt, pg. 822
 FarkasGyörgy, pg. 5
 Ministry of Economic Affairs (4), pg. 10
 Ministry of Economic Affairs (8),Preliminary National Development Plan - Version 2 - 1st Draft,,14/12/2000,Budapest, pp. 89 -90
 Ministry of Economic Affairs (4), pg. 7
 Mohorovice Denis, Despite EU complaints, Hungary maintains investment incentives, in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=72913,21/08/2000,pg. 1
 see Ministry of Economic Affairs (4), pg. 4
 Farkas György, pg. 9
 European Commission, pg. 12 and Ministry of Economic Affairs (3), pg. 8
 Ministry of Economic Affairs (8), pp. 38-39
 Központi Statisztikai Hivatal, pp. 241-242
 Ministry of Economic Affairs (8), pp. 37-38 and European Commission, pg. 11
 In Hungary nearly every village constitutes a municipality, of the 301 settlements in Baranya 206 have less than 500 inhabitants and only 10 above 10.000. see: Központi Statisztikai Hivatal,pp 4 and 234
 One has to mention that Sellye has one of the highest Romani shares of all sub-regions and that they life in this region a completely marginalised live. (Own observation) . For statistical data see Központi Statisztikai Hivatal, pp. 4-5, 69, 236-237
 ibid. pp. 5-6
 see Pernetta Robert, Developing a Energy Consulting Strategy for Domestic Customers for DÉDÁSZ Rt., (thesis handed in at Fachhochschule Würzburg-Schweinfurt), 16/12/1996, pg. 3-4
 see Budapest Business Journal: Elcoteq buys Nokia's Pécs plant (http://www.bbj.hu/common/article.asp?site=3& id=66760), from 1/11/2000; Mobile Production starts in Pécs (http://www.bbj.hu/common/article.asp?site=3&id=73302), from 10/04/00; Elcoteq moves phone making to Pécs (http://www.bbj.hu/common/article.asp?site=3&id=74384),26/04/00 and Nashaat Daniel (1), Elcoteq lays off 800 at Pécs plant (http://www.bbj.hu/common/article.asp?site=3&id=108880) from: 05/02/2001
 Own observations.
 Budapest Business Journal: Finczicki Bela,Austrian owner looks to shed meet processor Délus, (http://www.bbj.hu/common/article.asp? site=3&id=97116, 23/10/2000
 Interview with Békésy Gábor, EHKB office manager, 01/02/2001
 Ministry of Economic Affairs (8), pp. 133-136, 204-207, South Transdanubian Regional Development Agency, Preliminary Draft of South Transdanubian regional development plan,,29/04/2000,Pécs, pg. 10-12, Nashaat Daniel (2),Pécs Industrial Park dreams of airport to land more tenants, in: Budapest Business Journal, (http://www.bbj.hu/common/article.asp?site=3&id=98916,13/11/2000, and interview with Márton György, project manager at the South Transdanubian Regional Development Agency,07/02/2001 and Gál Zoltán, research fellow at the Sourth Transdanubian Regional Institute, 06/02/2001
 Ministry of Economic Affairs (4), pg.11
 Ministry of Economic Affairs (4), pg. 16, Ministry of Economic Affairs (3),Széchenyi Plan, A National Development Plan , ( http://www.gm.hu/english/economy/szechenyi.htm ),2000, pg. 22, Pest Megyei Kereskedelmi és Ipar Kamera,Kiírták a Szechényi-terv pályázatait,http://www.pmkik.hu/world/pmkikweb.nst/all/kiiratak_a_szechenyi_terv_palyazai t.htm,05/02/2001, and Mohorovice Denis(2) "Szechenyi" Plan detailed, in: Budapest Business Journal (http://www.bbj.hu/common/article.asp?site=3&id=72913) ,03/04/2000,
 Ministry of Economic Affairs (6), Szechenyi Plan -5. Information Society and Information Economy Development Programme, (http://www.gm.hu.kulfold/english/economy/szt-prog- 5.htm),28/04/2001, Ministry of Economic Affairs (7), Szechenyi Plan -7. Regional Economy Development Programme, (http://www.gm.hu.kulfold/english/economy/szt-prog- 7.htm),28/04/2001, Mohorovice Denis (1),Despite EU complaints, Hungary maintains investment incentives, in: Budapest Business Journal (http://www.bbj.hu/common/article.asp?site=3&id=72913), 21/08/2000 and European Commission pp. 40-44 and PriceWaterhouseCoopers, Doing Business and Investing in Hungary, 1999, Budapest, pg. 8
 PriceWaterhouseCoopers, pp. 10-12, European Commission, pg. 61-62 and interview with Várga-Sabján László,Director of the Regional European Information- and Education Centre in Pécs and of head of the Baranya County European Development Office, 06/02/2001
 Interview with Sándo Kirsztina,Baranya County Development Agency,07/02/2001
 Ministry of Economic Affairs (5), Szechenyi Plan -1. Enterprise Development Programme,(http://www.gm.hu.kulfold/english/economy/szt-prog-1.htm),28/04/2001, and Ministry of Economic Affairs (1), Government's Strategy for Supporting Small- and Medium- sized Enterprises, ,(http://www.gm.hu/english/sme/smestrat.htm), December, 1998
 Ministry of Economic Affairs (2),Mentor - Subcontracting Programme, (http://www.gm.hu/kulfold/english/sme/subcontract.htm), 28/04/2001, pp. 1-3
 Ministry of Economic Affairs (1), pp. 7-8 and Ministry of Economic Affairs (2), pp. 6-7