German investors' growing dilemma in Orban's Hungary

Although German companies have traditionally viewed Hungary as an extension of their market, increased government pressure is prompting sectors like telecommunications, media, and retail to reconsider their investments, Bloomberg reported on Monday.

Despite this shift, automakers Mercedes Benz, BMW, and Audi (owned by Volkswagen) continue to invest heavily in Hungary, enhancing the nation's exports. Meanwhile, defence manufacturer Rheinmetall is expanding its presence through the construction of new factories.

However, firms from various other sectors are expressing growing frustration with Prime Minister Viktor Orban's administration. According to executives in retail, financial services, media, telecommunications, and even the airport operating sector, they face pressure from Orban's nationalist agenda to relinquish control of their assets to Hungarian entities, particularly those allied with his government.

Philipp Haussmann, Vice President of the German Eastern Business Association in Berlin and an investor with the Klett Group in Hungary, identified punitive taxes, an unpredictable legislative landscape, regulatory pressures, and political campaigns targeting foreign companies as strategies to expel foreign investment.

Additionally, Hans Reisch, CEO of the Austrian firm that owns the Spar grocery chain in Hungary, recently accused the government of implementing special taxes to push the business towards entities affiliated with the Orban administration. In response, the government intends to sue Spar for these allegations.

While openly pursuing the "Make Hungary Great Again" strategy—a nod to Donald Trump's campaign slogan—the Orban government denies any wrongdoing in its treatment of investors. The Ministry of Economy maintains that Hungary enjoys an "excellent" reputation among investors, as a report from the German-Hungarian Chamber of Industry and Commerce shows.

According to this report, four out of five German firms would again select Hungary as their investment destination.

As Bloomberg observes, these reports of a souring investor climate emerge at a particularly challenging time for Orban. The European Union is withholding €20 billion in funds over concerns about the rule of law and corruption.

Additionally, Orban’s Fidesz party is seeing a decline in support as it faces European and local elections, and a fiscal crisis is exacerbating an already fragile recovery from recession.