If you believed that the stable political circumstances would result in a predictable economic policy, you are probably bitterly disappointed after the entry of the third Orbán government. The example of the telecommunications sector shows clearly how much trouble is cooking up in Hungary.
Four months have passed since Magyar Telekom was accepted as one of the strategic partners of the Hungarian government. To be precise, there was “only” a “partnership” made with Deutsche Telekom that must have been signed by mistake by Prime Minister Viktor Orbán and CEO Timotheus Höttiges, since many of the 40 strategic partners so far have been allowed to validate their personal agreement with the signature of only a state secretary.
Especially since Orbán announced an important aim at the event: Hungary will be able to realise by 2018 the digitalisation planned by the European Union to be finished by 2020; an early finish thanks to the Telekom Group. The Germans will invest several hundreds of billion forints to introduce broadband internet in every Hungarian household. They will do this as far as the circumstances are right, because the sunshine and roses that characterised the relationship with the partners from the automotive industry were not there for the contributions by which Orbán and Höttiges will validate their partnership.
Partnerships in the
telecommunications sector:
a handshake won’t guarantee profitability
Telekom wanted constructive dialogue with government
The Telekom manager required an investor-friendly environment for the announced big project and wished for a constructive dialogue with the government. The prime minister should have guaranteed these, since finally it is his goal to lead Hungary (back) to the top of the region and shape it into one of the most competitive economies in old Europe. It is logical that a company that is the industry market leader in Hungary, as well as in many other national markets, would like to make business with the wished innovations.
Orbán spoke about the telecommunications sector at the partnership ceremony in February: you have to hit the horse, and it pulls well. His speechwriters have the urge to write in sunny metaphors on everything. However, instead of the fast stallion we see a loaded donkey, because the telecommunications sector was burdened in an especially intensive way through the crisis taxes imposed by the second Orbán government, beside the banks, the energy sector and the commercial sector.
The net profit of Magyar Telekom is only half its result in 2010; Vodafone has been on the edge of zero balance for years, only Telenor can keep up the profit like they used to in times of peace. And there is always the threat that a new fourth, state-owned competitor might enter the competition any time.
Ambivalent relationship to the powers in Budapest
Both big competitors on the mobile phone market have entered the envied circle of the government’s strategic partners in the last half-year; Telenor announced in November 2013 the end of the ice age in the sector, Vodafone became the main supplier of state mobile fleets in January.
The ambivalence of the relationship between the sector and the holders of power in Budapest is represented in the reduction of dividend payments that have fallen even more than in the energy sector. Still, the energy providers are the target of a long-term policy launched at the end of 2012, the policy of utility cost cutting, so it is expected that the tariff calculation and business policy in the sector will be regulated to the smallest detail, and the state would like to see all the providers and strategically important power plants in their own hands if possible, and sooner rather than later.
The managers of the telecommunications companies have shaken hands to seal the agreement for a strategic partnership, although soon they will not be able to explain the reduced profitability of business in Hungary to their mother companies any more.
On the other hand, Magyar Telekom alone invested HUF 1,800 billion in Hungary in the last two decades and provides directly and indirectly at least 100,000 workplaces countrywide. These are numbers that would count as important even in Germany. Orbán must also be aware of this, since he was the one who mentioned these numbers – beside some further ones also underlining the positive role of the Telekom group in the Hungarian economy – to praise the value of the new partner.
This happened in February. Today Orbán is beginning the next four years with solidified power structures and a governing team set on continuity. There are still some different tones. The problems around the internet portal Origo are only one example.
Minister of National Economy Mihály Varga: “Fullest understanding“
There has been another storm cooking up in Parliament, where the introduction of advertising tax for media companies resulted in a revolt that saw even the publishers of Magyar Nemzet and Népszava rocking in the same boat: the pro-government newspaper paired up side-by-side with the ultra-left in protest against the new law, which was supported at times by faction chefs and at times by the ones sitting in the backbenches.
Minister of National Economy Mihály Varga is asking for the fullest understanding for the upcoming legislation period. He says every MP has the right to bring forward their own suggestions, such as the advertising tax. The decision would be made by Parliament but Varga will surely not say no to the modifications that would result in an increase in income for the state budget. He counts as an optimistic representative of the Orbán government. I wonder what he thinks, how this intervention will work out for the mood of investors?
Fidesz MP Jenő Manninger advised in this spirit that the law on company tax and dividend tax should be modified. Manninger is a traffic engineer who has been dealing with traffic issues in Parliament as well for at least a decade. Now the traffic expert writes in defence of his novel on the law on taxation that the change is necessary in order to adapt the local law to the Community law, since the EU no longer allows tax reduction for certain development projects.
What are those projects? Investments in a better energy efficiency and – hard to believe – the expansion of broadband internet. Does this mean that the state wants no more of these investments? Orbán does want them because Hungary must be made competitive again somehow. Still, his Minister of National Economy is charmed by the opportunity to deny several tens of billion HUF tax relief for big companies. Let’s wait and see which will be more important for the stable political majority.
