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25 January 2013

Hungary's "Opening to the East" and Turkey


There is huge potential in the East, but fantasy remains more exciting than reality. There will not be any buying of Hungarian bonds by Turkey, Azerbaijan or Kazakhstan. Growth in trade volumes stagnated this year.

Most of Hungary’s exports to the East come from multinationals based in Hungary. In order to facilitate market access for small and medium companies, Hungarian diplomacy invests considerable effort. Some projects with Turkey promise rich rewards.

The government also wants to attract more Turkish investment to Hungary. One vision is to attract Turkish tourists to southern Hungary. Five star hotels, airport renovations and private hospitals for wealthy Muslim patients are being discussed. But the plan hinges on finding the lost grave (türbe) of Suleiman the Magnificent near Szigetvár.

 

Many Hungarian businessmen are ready to invest in Turkey or jump into privatisations as they did in Romania and many Western Balkans countries.

A lot has been said and written about Hungary’s keleti nyitás – the “opening to the East”. And a lot of it consists of misunderstandings, says Hungary’s Ambassador to Turkey, former Deputy State Secretary for Global Issues János Hóvári: “It is not only an opening to the East, we are opening to the whole world, strengthening ties with all new and important global players. Everyone is doing it, others have long shown the way, first of all Germany.”

The aim is to attract investment and gain new markets for Hungarian exports. For a time, there was even talk in the media of issuing Hungarian state bonds in currency denominations of Turkey, Azerbaijan and Kazakhstan.

Such bonds are a fantasy, says Hóvári. It just does not add up – inflation in Turkey, for example, is high, and the interest rate needed to attract investors would need to be higher still.

In terms of growth in trade volumes, a lot has indeed happened. Trade with Turkey increased fivefold in the ten years up to 2011, reaching 2.3 billion USD. The balance is positive for Hungary: only 800 million USD were Turkish imports, 1.5 billion USD were Hungarian exports.

Still, that growth was nothing out of the ordinary compared to the growth in trade volumes between Turkey and other European countries. Hungarian exports rose by 8 per cent just in 2011, but German exports to Turkey increased 31 percent, although there is no talk in Germany about an “eastern” or “global opening”. Berlin just does it, rather than talk about it. So, while the Hungarian result is not bad, Budapest is not satisfied: “It is far from our potentials”, says Hóvári. “For this reason Hungarian diplomacy has become more active in Turkey.”

Also, these increases compared to 2010 need to be put into perspective. Trade volume between Turkey and Hungary was 2.1 billion USD in 2008, only slightly less than in 2011. The “fivefold increase within the last ten years” essentially happened between 2001 and 2008. The economic crisis since then has slowed the dynamic, but was not able to stop it.

This year, although Hungarian livestock exports to Turkey are growing (around 60 million EUR), there will probably be no significant increase overall, due to the difficult world economy. And here is the catch: most “Hungarian” exports to Turkey in fact come from foreign multinational companies based in Hungary. “That is dangerous”, says Hungary’s consul-general in Istanbul, Gábor Kiss, whose main task is to facilitate trade and investment between the two countries on an everyday basis. “If and when those multinational companies experience problems due to the international environment, or even retreat from Hungary, exports may suffer.”

The challenge, then, is to facilitate market access for small and medium Hungarian companies. A lot of diplomatic effort is being invested to that effect. It is, by the way, not an invention of the Fidesz government. An agreement to create a “mixed economic commission”, a high level intergovernmental framework to maximise economic cooperation, was signed as far back as 2005, with the first meeting taking place in 2009 in Ankara, before Fidesz came to power.

At the next meeting, one point to be discussed will be the ailing Hungarian Rába company and its bus production. There is definite interest in buying 19 trolley buses for the town of Kütahya (where Hungary’s leader of the War of Independence 1848–49, Lajos Kossuth lived in exile 1850–51). Beyond that, there are talks for the sale of anywhere between 150 and more than 200 trolley buses yearly to Turkish cities. That deal would need to include infrastructure (electric grid) and servicing. Turkish partners demand technology transfers, and that a part of the assembly process happen in Turkey. If solutions can be found for that, good news for Rába may be in the offing. It would be a return to the “good old times” – in the 1980s most buses in Turkey were Ikarus buses. Since then, Turks have been wondering what happened to Ikarus’s production capabilities.

Another promising area is water purification. The Turkish government aims to give financial support for local areas which invest in clean water. This is also a big priority for the EU, which means EU funds would probably also be available. A Hungarian company by the name of Organica has developed proprietary water purification technology that Turkey is interested in. A deal, here too, would need to include technology transfer, but may bring rich rewards for the Hungarian side.

Opening” towards the East is not so easy, the East must also be willing to open. In some areas, that is more difficult than in others. In the pharmaceutical sector, for instance (where Hungary has enough quality products to offer), Turkey follows protectionist policies. Exports can only proceed after Turkish experts personally inspect production facilities in the country of origin. There are a number of such deliberately restrictive rules in other areas as well, for instance alcoholic beverages. The one impact of Hungary’s “Opening to the East” that Hungarians may actually witness themselves in a few years may be tourism. If current visions become reality, a large inflow of Turkish tourists may boost Hungary’s economy. Already around 30,000 Turks visit Hungary every year. That does not include those from Germany and Austria, who also love Hungary and especially Budapest.

The plans to boost Turkish tourism to Hungary hinge on one condition: finding the heart of Suleiman the Magnificent.

The Sultan, whose troops destroyed the Kingdom of Hungary at the battle of Mohács in 1526, died during the siege of Szigetvár in 1566. He is the icon of Ottoman  Turkish greatness, as his reign marked the Ottoman Empire’s high point and greatest extent. Prime Minister Recep Tayyip Erdogan is personally a great Suleiman fan – to the point that he threatens legal doom on the makers of a TV soap depicting alleged lewd aspects of his favourite hero’s personal life.

Suleiman died in his tent, about an hour’s walk from the fortress of Szigetvár. His grave and remains are in Istanbul, but his heart and intestines were buried where he died, and a magnificent stone tomb (türbe) was later built over the place. After Christian troops pushed the Turks out of Hungary, the Habsburg commander of Szigetvár set about destroying the türbe in 1697. Today, nothing remains.

Now, the Turkish government is co-financing new archeological research in order to find the remnants of the türbe. And the city of Szigetvár has started to restore the old Turkish fortress. Turkey is ready to contribute two million euros towards the reconstruction of the Mosque of Suleiman, situated in the central part of the castle.

If the türbe can be found, plans are to turn the place into a major tourist destination for Turks. There is little doubt that the Turkish government itself, thanks to Erdogan’s passion for the Sultan, would give great support to this project. In fact, Erdogan visited Szigetvár in 2005 during his official visit to Hungary.

But a larger tourist influx would necessitate hotels, expensive ones; and a renovation of Pécs airport, which is currently only useable by planes up to 40 tonnes, whereas the smallest airplane in the fleet of Turkish Airlines, the Boeing 737, weighs 70 tonnes. Strengthening the runway would cost eight million euros, which could be potentially funded by Turkish money.

And then there is health tourism. Affluent Turks, but also Arabs, Russians and Chinese, are a huge market for international health tourism. The Hévíz area with its thermal springs is ideally suited. But there is not enough infrastructure in place for luxury health tourism. Discussions are underway for the construction of a private Turkish hospital in Hévíz, aimed at a wealthy Muslim clientele, meaning that there would be separate areas for women and men. In addition, there are plans for building “at least two”, perhaps three five star hotels in the Hévíz area by Turkish investors, for mainly “Eastern” customers.

Such plans for the future, however, should not be mistaken for current exponential growth in Turkish direct investments in Hungary. In fact, there was no single sizeable (over one million euros) investment in 2011. With growth in trade volumes, greater leaps happened earlier – for instance, Celebi’s 39 million euros investment in ground handling at Ferihegy airport. Hungarian investment in Turkey is larger, about 150 million euros officially and according to some sources even more than that, if one includes off-shore investments.

The greatest “opening”, perhaps, is an opening of minds. Budapest may be looking for not only money and markets, but inspiration in Turkey. Hungary’s more dynamic foreign policy and opening up to partners in Asia and the Middle East as well as South America, is getting a lot of attention and has been highly successful. Perhaps Budapest adopted more than just the catchphrase. Hungary seems to be mirroring Turkish tactics in its negotiations with the IMF – possibly aiming not for an actual IMF credit line but rather to calm markets by keeping alive the notion that an agreement may at some point materialise. And, just like Turkey, Hungary has stopped issuing state bonds in foreign currencies. So far it works quite well for both countries.




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