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Hungary’s SME sector, its Small Business Development policies and the process of European Integration

Asistenţă Tehnică pentru Agenţia Naţională pentru Întreprinderi Mici şi Mijlocii şi Cooperaţie

Dr. Péter Futó

Presentation at the National SME Conference, Bucharest, 3. June 2004

Mixolid Consultancy, Budapest

In co-operation with Eurecna CNA Veneto

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The beginnings of the

small- and medium sized company sector

in Hungary

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(R)evolution of the SME sector

Certain forms of entrepreneurship were surviving during the decades of communism and socialism. The activity of independent traders and craftsmen was legal throughout this period.

But the political changes of 1989 have brought a real revolution of entrepreneurship.

Number of private retail traders and private craftsmen in Hungary

0

50

100

150

200

250

300

Th

ou

sa

nd

en

terp

ren

eu

rs

Privateretailtraders

Privatecraftsmen

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The transformation crisis

After 1989 many new SMEs were created during the crisis years of 1990-1993. State owned firms have been privatised, split up, outsourced activities, lost their employment and their markets – leading to the creation of many SMEs.

Entrepreneurs „out of necessity” started businesses in order to avoid unemployment.

Characteristics of this period: it was easy to establish new enterprises, but only few could enter the stage of growth.

GDP volume indices (% change to previous year)

-14-12-10-8-6-4-202468

European Union

Hungary

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SME statistics

Size distribution:         Hundreds of thousands of micro businesses,         tens of thousands of small companies        thousands of medium sized businessesIn 2001 two-thirds of Hungarian enterprises functioned without

employees (compared to 52% in the EU). Many enterpreneurs are just legally self-employed, in reality hidden employees of firms.

Number of active enterprises by legal form. Hungary, 1999-2002

0

100000

200000

300000

400000

500000

600000

Sole proprietorships

General partnerships

Limited partnerships

Limited liabilitycompanies

Companies limited byshares

Co-operatives

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Challenges of the Hungarian SME sector

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Causes of low productivity and efficiencyObsolete technologyLack of fundsWeak entrepreneurial knowledgeDifficulties in accessing business services and consultingMany SMEs lack Information Technology equipmentLack of IT knowledge

 

Challenge: productivity

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0%

20%

40%

60%

80%

100%

Distribution of major indicators characterising the situation of enterprises by size category

Whole economy = 100%

Large

Medium-size

Small

Micro

Enterprises withoutemployee

Low efficiency of SMEsSMEs produce one-third of total Gross Value Added and one-sixth of total export sales - with two-thirds of the total manpower.

9

05

101520253035

Micro Small Medium Large

Firm size

Share of exports within turnover (%)Hungarian firms compared with EU + 4 countries

Eu-19

HU

To increase competitiveness on foreign marketsMost SMEs supply

the domestic market and multinational companies located in Hungary.

SMEs generally lack the knowledge of EU standardsQualityDesign Consumer preferences.

Challenge: competitiveness

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Challenge: to bridge the duality of the Hungarian economy

 Duality of the Hungarian economy: Weak ties between· predominantly Hungarian-owned, mostly under-capitalized SMEs · and the predominantly foreign-owned, technologically advanced

medium sized and big companies.

 Foreign Direct Investment in Hungary

0

500

1000

1500

2000

2500

3000

3500

4000

Equity capital, Mill.Euro

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Company integration pendulum

Socialist economy: over-integrated big companies

Transition: fragmentation of the company domain into hundreds of thousands of SMEs

Recent trends: mergers and acquisitions in the SME domain, intensive networking, subcontracting activities, beginning of formation of regional clusters

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One of the few possibilities of growth: through developing supplier relations with large companies. Most SMEs find it difficult to become subcontractors to local multinationals. Many problems arise from the fact that potential suppliers are ill-equipped ·         in financial,·         technological, ·         technical, ·         quality assurance systems (e.g. ISO 9001)·         and logistic terms.

 Today SMEs can join the chain of suppliers of an international company only at lower levels of the networks of suppliers: most Hungarian suppliers to integrator companies are secondary or tertiary suppliers.

Challenge: Growth through networking and subcontracting

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Regions of the North-Plain and North-Hungary have particularly low number of enterprises. These are regions characterized by higher unemployment and lower entrepreneurial culture

Challenge: Economic activity varies by region

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Regional Distribution of Active Enterprises per 1000 Inhabitants, Hungary, 2002

010203040

50607080

Num

ber p

er 1

000

inha

bita

nts

Companies and partnerships

Sole Proprietorships

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It is difficult for SMEs to obtain capital.

Many SMEs in domestic ownership are under-capitalised.

Micro and small enterprises borrow a significantly lower proportion than medium-sized and large enterprises do. Only 20 percent of the small enterprises and 30 percent of the medium-sized and large enterprises have any long term credit.

Traditionally, banks estimate that when lending to SMEs,

•risks and administration costs are too high

•profitability is too low.

Commercial banks have shown the first signs of interest in financing SMEs only after 2000.

 

Venture capital is still relatively underdeveloped, it focuses mainly on existing enterprises.

Challenge: SME's difficult access to finance

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Loans granted by banks to companies by firm size, Hungary, 1993-2000 (Billion HUF)

0200400600800

100012001400160018002000

1993 1994 1995 1996 1997 1998 1999 2000

Large companies

SMEs

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Expected difficulties in satisfying requirements of the European Union in the following fields:

•environment protection

•work safety,

•work hygiene.

 

Expected difficulties in acquiring and applying know how on

•company management,

•marketing,

•environmental management

•financial management

Challenge: EU membership

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Factors Obstructing the Growth of Enterprises in Hungary

0 10 20 30 40 50 60 70 80

High tax and social insurance expenses

Strong competition

Incalculable economic regulations

Lack of necessary amount of orders

Unfair competition

Lack of capital

Delays of customer payments

Lack of credit

Other obstructing factors

Outdated and outw orn existing capacities

Procurement diff iculties

Labour shortages

Importance, as measured by % of enterprises mentioning the factor

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A considerable proportion of enterprises has a relatively short lifespan. Only 32% of the enterprises started in 1995, and 52% of the enterprises founded in 1997 were operating in September 2001, which is the lowest figure in regional comparison.

Survival rate of enterprises

010

2030

4050

6070

80

Jan 1995 Jan 1997

Proportion of active enterprises, 100%= Active enterprises in September 2001

Czech Republic

Poland

Hungary

Slovakia

Slovenia

Challenge: Survival of SMEs

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Institutionalization of Hungarian SME

development policy

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15 years ago this was a non-existent policy field.

The European Union has helped to develop Hungarian SME development policy through

•Transfer of policy know-how through the harmonization of policies and laws

•Some 80 Mill Euro financial aid to the SME sector through the PHARE Programme

During the last 15 years a wide range of SME development organizations have developed

• in the public sector as agencies of the central and local governments, interest reconciliation bodies and companies owned by the state or by local governments

• in the non-profit sector as chambers, trade associations, interest representations and independent foundations

• in the private sector:banks delivering SME subsidies and loans, business consultancies delivering training,

assessment and project management

Evolution of Hungarian SME development policy

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Central InstitutionsEnterprise Development CouncilSME Development Public Benefit CompanyHungarian Investment and Trade Development Agency

Network of Enterprise Promotion AgenciesHungarian Foundation for Enterprise Promotion (MVA) and Local

Entrepreneurial Agencies (HVKs)Budapest Enterprise Promotion Centre

Networks of Intermediate OrganizationsRegional Development AgenciesVenture Capital OrganizationsLoan Guarantee OrganizationsIndustrial parks

Networks of Interest RepresentationsThe Chamber System (e.g. Hungarian Chamber of Commerce and Industry)Trade AssociationsOther Business Community Interest Representations

Networks of information points and independent foundations for SME trainingEuro-Info Centres (EICs), SEED Small Enterprise Development Foundation, etc.

Typology of SME development organisations

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Delivery Mechanisms of Government SME Policy

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Act on Small and Medium Sized Enterprises in 1999

Its contents

•Definition of the terms of micro, small and medium-size enterprises

•Summary of public subsidies available to promote SME development

•Mechanism for interest reconciliation with the organisations of small entrepreneurs

•Definition of jurisdiction of Enterprise Promotion Council.

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The Széchényi Plan was a wide range of non-returnable subsidy schemes for beneficiaries such as

•Companies,

•Local Governments

•and civil organizations.

 

The subsidy schemes were grouped into 7 programmes, according to the aims to be supported.

One of these programmes was the Enterprise Promotion Programme, which contained an SME development Subprogramme.

The Government Subsidy Programme "Széchenyi Plan" (2001)

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After the elections of 2002, the new Government phased out the Széchenyi Plan and initiated a new, still operating policy under the umbrella name "Széchenyi Economic Development Programme".

Aim of the programme: To enhance the development and competitveness of micro-, small- and medium size enterprises.

While the Széchenyi Plan had focused on non-repayable assistance, the Széchenyi Enterprise Promotion Programme involves other measures as well, such as

•co-ordinating the subsidy systems of the various autonomous ministries

•tax breaks

•and measures to decrease the administrative burden to SMEs.

Indicators: under the Széchenyi Enterprise Promotion Programme since 2004

•more than 100 individual subsidy schemes operate

•and directly benefits more than 2000 SMEs per year.

The Széchenyi Enterprise Promotion Programme (2002)

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Tax allowances:

•Simplified tax for entrepreneurs was introduced as of 2003,

•Health contribution rate was reduced,

•Tax allowances to investments by micro and small enterprises were extended to intellectual products and the renewal/extension of real property,

•Creation of company-level development fund has become tax-free.

 Assistance to provide SMEs access to financial services and the capital market:

•Special credit schemes, such as the Technology Catching-up Investment and Credit Programme

•Interest subsidies

•Guarantee commitments

•Micro Credit Programme reformed

•Széchenyi Card scheme to promote fixed assets financing.

•Support SME investments of state owned venture capital societies.

Measures of the Széchenyi Enterprise Promotion Programme

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Széchenyi Enterprise Development Programme

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Investment

Business services

Company-level Quality Policy

Education and training

Information provision

Consultancy

Networking organization

Activities supported by the Széchenyi Enterprise Development Programme

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Individual subsidy titles of the Széchenyi Enterprise Development Programme

•Technology development of manufacturing SMEs. •Developing SMEs’ entrepreneurial culture: supported consultancy fee.•Introducing ISO 9000 quality assurance systems in SMEs.•Introducing manager information IT systems.•Training of employees of SMEs. •Networking of SMEs: subsidy for consultancy fee.•Internet webpage development.•Networking of SMEs

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Aim: Developing relations between large and small enterprises in the fields of production, innovation and information.

Supports purchase of equipment, development of real estate, IT development, licence purchasing.

Total value of subsidies= 1,5 Bill HUFIndividual subsidy: max. 10Mill HUF

50% self financing

Subcontracting subsidy

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Széchenyi Card

Micro Credit

Europa Credit

Development EquityDevelopment Equity

Credit schemesCredit schemes

Support for financing SMEsSupport for financing SMEs

Guarantee Schemes Guarantee Schemes

Hungarian Development Bank Equity Scheme

SME Financial Co.

Credit Guarantee Co.

Agrarian Credit Foundation

Guarantee Coopeations

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Segmented SME Credit ProgramSegmented SME Credit Program

Roma Program 500-700 thousand HUF

Micro Creditmax. 3 Mill. HUF for development

Széchenyi CardMax. 5 Mill. HUF for Working Capital

Supported Dev’t Credits Max. 10 Mill HUF for development

Europa Credit 10-500 Mill. HUF

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Total volume Total volume of disbursable of disbursable

credit:credit:120-150 Bill HUF120-150 Bill HUF

Of which:Of which:40 Bill HUF 40 Bill HUF

For SMEsFor SMEs

Subsidized interest rateSubsidized interest rate

Additional 1,3 % Interest rate subsidyAdditional 1,3 % Interest rate subsidy

Individual loan size: 10 to 1500 Mill. HUFIndividual loan size: 10 to 1500 Mill. HUF

Individual loan size: 10 to 150 Mill. HUFIndividual loan size: 10 to 150 Mill. HUF

Maturity: 4 to 15 yearsMaturity: 4 to 15 years

Financing from own sources: min. 25%Financing from own sources: min. 25%

Grace period: 2 yearsGrace period: 2 years

Europa Credit Program Europa Credit Program for Technological Investment for Technological Investment

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In 2003, the Government introduced the so-called “Smart Hungary” medium-term investment stimulation programme. Target group: medium sized companies.

Goals:

•·to improve the investment climate,

•·to increase investments leading to higher added value instead of cheap out-processing work.

The Smart Hungary Concept includes

•tax-type assistance schemes

•tax breaks on investment depending on the amount invested and the jobs involved

•gradual decrease of health contribution payment

•direct subsidy schemes

•other measures to improve the investment climate (simplifying official procedures)

 

Investment stimulation concept "Smart Hungary" (2003)

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There are various credit guarantee foundations and co-operatives providing guarantees for SMEs.

 

The largest credit guarantee organization is the Credit Guarantee Company (Hitelgarancia Rt., CGC), which was founded in December 1992. Owners:

•·Government of Hungary and its agencies

•·Commercial banks

•·Hungarian Foundation for Enterprise Promotion

•·Savings associations

•·Interest representing organisations

 

Operation: CGC assesses the creditworthiness of the SME and if the decision is positive, it issues a guarantee to the disbursing bank. The annual fee between 0.5% - 2 % of the guaranteed credit amount is to be paid by the SME.

Credit Guarantees for SMEs

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Activity of the Credit Guarantee Company

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Activity of the Credit Guarantee Company by firm size of beneficiaries

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Responsible: Ministry of Economy and Transport.

•A manual entitled "Practical Information on the European Union for Small and Medium-size Entreprises" was prepared

•A so-called "Uniform Training Package" was compiled jointly with the chambers, interest representation und trade organisations

•Training programmes were held at 150 small regional centres by end-2003

•Sector- and profession-specific brochures were published on EU requirements/regulations

Training the SME sector to EU accession (since 2002)

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In Hungary a regional cluster is a Government-subsidized regional network of co-operating

companies, SME-support institutions, local governments, trade associations and technology transfer institutions such as

University departments or technology consulting firms.

Clusters are as a rule not legal entities, have no legal forms (such as companies or associations).

In 2004 there are some 20 clusters in the country. Cluster establishment and development projects are as a rule subsidized by funds

•of the EU and

•of the Hungarian Government.

Support to regional clusters of enterprises

Pannon Wood and Furniture Industry Cluster

Pannon Electronic Cluster

Pannon Fruit Cluster

Pannon Thermal Cluster Pannon Automotive

Cluster

Central-Hungary Automotive Cluster

Central-Transdanubia Wood and Furniture Industry Cluster

Central-Transdanubia Electronic Cluster

Papa Meat and Food Industry

Cluster

South-Transdanubia Regional Geothermic-Energy Development Cluster

Saxon Export Cluster

University Cluster

Hungarian Building Industry

Cluster

Quality Devlopment

Cluster

Southern Great Plain Textile Industry Cluster

Southern Great Plain Road-Construction Cluster

Southern Great Plain Handicraft Cluster

Southern Great Plain Touristic Cluster

Great-Plain Thermal Cluster

Great-Plain Economy-development Cluster

Mátészalka Optomechatronic Cluster

© Ministry of Economy and Transport, Innovation and Environmental Protection Department

Centres of Hungarian clusters

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•Training, transfer of know-how in order to become subcontractors, joint quality management, spreading information on European Union standards

•Product family marketing

•Regional marketing

•Interest representation (competition to existing trade associations and to regional lobbies)

•Web pages

•Conferences, joint participation on fairs, organisation of business meetings

•Preparation of Hungarian and European Union tender documents

Activities of cluster organizations

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Cluster Case Study: Pannon Automotive Industry Cluster (PANAC)

Sectoral subcontracting network of the automotive industry in North West Hungary, established: December, 2000.

Based on a network which was already supported by the government's former Subcontracting Development Programme (1995-2000)

Members:      12 multinational or foreign owned firms of the automotive

industry e.g. Audi, Opel.      46 smaller component manufacturers    18 service providers, e.g. banks, consultancies, developers,

traders, logistic companies etc.Aims        Integrating multinationals in the Hungarian automotive sector,        Network building, focus on „bridging function” between SMEs

and the major companies in the industry.

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Activities of PANAC Cluster

Training, sharing of best-practices, spreading know how  Seminars for active and potential subcontractors on needs of

buyer companies Benchmarking Club: monthly programmes, events (Logistic Day,

Technology Day)   Internet: portal-site, mailing list.   Surveying management and technological abilities of member

firms.

International relations        Austrian-Hungarian business meetings,         International Pannon Automotive Forum in Raab        Compillation of Automotive Industry Dictionary in 3 languages,  

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Strengths of cluster support policies

 Supporting networking instead of supporting individual firms, consequently support is less interventionistic than previous schemes

  Clusters create frameworks for absorbing European Union subsidies

  Support of clusters: a consequent continuation previous Hungarian subcontracting policy. Aim: to develop a wide stratum of SMEs, which are capable to serve the outsourcing needs of multinational companies in Hungary

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Weaknesses of cluster support policies

•        Loosely, vaguely defined cluster concept•    Lack of clear concepts about how to develop self-financing,

sustainable clusters•     Weak coupling between strategies of individual policy areas on

the one side and cluster-supportin institutional structure on the other side

•     Support has an experimental character•   Heavy overlaps between cluster subsidy and subsidy for other,

better institutionalised support structures (industrial parks, incubation houses etc.)

•        Weak control and monitoring procedures• Fight for scarce subsidy resources between various institutionalised

interest groups (regions, sectors, industrial parks etc.)•  Some clusters become hotbeds of guild mentality, market

protection ideologies (e.g. Chinese textile import)

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PHARE co-financed Organizations and Delivery

Mechanisms

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•Objective: To promote employment and economic restructuring by developing the SME sector.

•Delivery mechanism: The European Union granted significant funds through the MVA for individual projects.

•Finances: Since 1990 to 2002 the PHARE programme of the European Union provided the SME promotion programme over EUR 80 million financing, supplemented by the Ministry of Economy and Transport as co-financier.

 

Types of programmes implemented by the Hungarian Foundation for Enterprise Promotion:

•Building of supprt organization network

•Consulting and training programmes

•Financing programmes: micro credit, support programme for sports enterprises

•International business meetings, events

PHARE's SME Development Programme

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Components of the 1999 Program

·         Micro Credit Scheme

·         Non-repayable subsidies to LEAs, Incubator Houses

 

Components of the 2000 Program

·         Non-repayable support of co-operation between SMEs (Total: 9 m €)

·         Support SMEs Human Resource Development by training (Total: 2,4 m €)

 

Components of the 2001 Program:

·         Electronic commerce for SMEs ( 4 m €, service tender)

·         Non-repayable support to innovation activities of the SMEs of the South Great Plain (Total: 4 m € )

National Phare SME Programmes in Hungary

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Hungarian Foundation for Enterprise Promotion and the Local Entrepreneurial Agencies

(1990-up to this date)

The HFEP was established in 1990 by the Hungarian Government, banks and interest representation organisations.

In the same year the Commission of the European Union appointed MVA to implement PHARE's SME Development Programme (SME Programme).

The headquarter of the Hungarian Foundation for Enterprise Promotion in Budapest, 2004

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The Foundation is part of the national network of the local enterprise centres.Established in Nyiregyháza, a major town of North Eastern Hungary, Szabolcs-Szatmár-Bereg county in 1990. Donors: Hungarian Government, European Union’s PHARE Programme and various national donors of the EU countries. Activities:         Training: yearly 100 to 300 participants on the courses.         SME counselling         Incubator House and Innovation Centre         Micro Credit provision since 1992         Euro Info Centre since 1999         Organization of events for SMEs such as fairs and exhibitions

The PRIMOM Foundation for Enterprise Promotion in Nyíregyháza

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The Micro Credit Programme is a credit scheme in operation since 1992 up to this date with co-financing from the European Union's PHARE Programme and the Hungarian Government.

Credits are financed from a revolving fund "Micro Credit Fund".

Credit applications are assessed by local enterprise agencies of the Hungarian Foundation for Enterprise Promotion.

The Programme has provided micro and small enterprises access to credit          for a term of five years,          at preferential interest,          which may be used to purchase equipment and assets         and beneficiary entrepreneurs get professional support via the Enterprise Agencies to the financial assistance

Average default rate of the credit scheme: 9%.

The Micro Credit Programme

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An evaluation of the Micro Credit Programme in 2000

Relevance to government policy

Micro-finance in short supply, so these credits are needed. But the supported micro-enterprises are unlikely to become the clients of the commercial banks.

3

Relevance to the micro-enterprise sector

This is the only source of affordable and legal funds for micro-enterprise sector. 4

Relevance of design Start-ups are offered good level of support. But LEAs retain a high percentage of the loan capital as operating expenses. 2

Efficiency Recipients are offered quick and easy money after decision by LEA. But some LEAs delay the process in order to earn interest and to offset other financial responsibilities imposed by Phare.

2

Effectiveness Positive additionality effects. 3

Impact LEAs attained a solid profile in local community and developed their business skills through these credits. The Programme has helped to support and formalise a lot of businesses which would have remained hidden.

3

Sustainability LEAs and banks diminish the Fund through “handling charges”. No account taken of inflation. Even with reasonable repayment performance, there are virtually no prospects for sustainability over longer term

1

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In 2000, the Micro Credit Fund became the property of the Hungarian state. A new Memorandum of Understanding concerning the programme was signed by the Ministry of Economy and Hungarian Foundation for Enterprise Promotion (HFEP) in 2000. The Memorandum

•appointed the Hungarian Foundation for Enterprise Promotion as the manager of the Micro Credit Fund

•and updated the Micro Credit Programme Manual, which regulates the operation of the revised Micro Credit Programme according to the new terms and conditions.

 

Between July 2000 and September 2002 HFEP disbursed credits to 5757 SMEs in the value of over HUF 14,8 billion in the framework of the revised Programme.

The revised Micro Credit Programme

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 The Phare Loan Scheme (PLS) was established in 1992. It provided loans of up to 50.000 Euro for up to 7 years at 75% of the base rate. The risk of default was shared between the disbursing banks and PHARE / HFEP.

 

Aim: to encourage the commercial banking sector to begin to develop a range of loans and other service arrangements to support the emerging SME sector.

 

Phare’s total financial contribution to the Phare Loan Scheme between 1992 and 1997 was 11,9 Million ECU. Approximate contribution to Phare Loan Scheme by supporting organisation

•Participating banks: one-third

•Central Bank: one-sixth

•Phare and Hungarian Foundation for Enreprise Promotion: one half

The Phare Loan Scheme

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Hungarian incubator houses

Zalaegerszeg

Lenti

Zalaszentgrót

Szombathely

Sümeg

Győr Komárom

AjkaVeszprém

Székesfehérvár

Budaörs

Budapest

Vecsés

Kaposvár

Pécs

Szekszárd

Mórahalom

Hódmezővásárhely

Szeged

Kecskemét

Szolnok

Békéscsaba

Salgótarján

Eger

Ózd

Berettyóújfalu

NyíregyházaMiskolc

Encs

Sátoraljaújhely

© Ministry of Economy and Transport, Innovation and Environmental Protection Department

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The National Development Plan (2003)

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An influential document governing the utilisation of the Structural Funds in Hungary. This document serves as the basis for the negotiations with the Commission. As a result of these negotiations the Community Support Framework (CSF) is developed, i.e. the legal framework of the subsidies. The document CSF shall include the financial commitment of the EU and the Hungarian parties, broken down by individual development areas in the period from 2004 to 2006.

The National Development Plan (2003)

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According to the preliminary calculations, in 2004-2006, the EU shall grant assistance worth

•nearly HUF 500 billion to implement the Plan from Structural Funds (2 Billion Euro)

•and another HUF 250 billion to implement the large-scale transport and environmental protection projects financed from the Cohesion Fund (1 Billion Euro)

Co-financing: approximately half of the total HUF 1200-1500 billion in NDP funds are originating from the Hungarian taxpayers.

 

Time scope of the NDP:

•The first phase of National Development Plan (NDP) begins in 2004 when Hungary joins the EU.

•It will last until the end of the EU’s current seven-year budgetary session in 2006.

Financial sources and scope of National Development Plan

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The NDP is comprised of five so-called Operational Programs (OP), each outlining a specific area for development:

•Economic Competitiveness Operational Programme (ECOP)

•Human Resources,

•Regional Development,

•Environmental Protection and Infrastructure,

•Agriculture and Rural Development.

Composition of the National Development Plan

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Economic Competitiveness Operational Programme (ECOP) is a sub-plan of the National Development Plan

•ECOP's implementation will benefit from the support of the European Regional Development Fund (ERDF) from among the Structural Funds.

•Responsible within the Government for ECOP's implementation: the Ministry of Economy and Transport.

 

The development of small and medium-sized enterprises is the so-called 2nd Priority of the ECOP. It is sub-divided into the following measures and fields of intervention (components). The Economic Competitiveness OP includes SME promotion besides such

•development areas as

•investment stimulation,

•the boosting of tourism,

•research, development and innovation

•Development of the infrastructural conditions of information society

What is the ECOP

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•To increase the contribution of SMEs to economic performance,

•To decrease the duality of the Hungarian economy

•To increase SME's modernisation,

•Develop enterprise culture

•Consolidate inter-enterprise co-operation.

Goals of Hungarian SME policy as formulated by the ECOP

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After five years the plan aims to achieve

•a total of HUF 80 billion of supported investments,

•an increase of HUF 100 billion in the turnover of companies receiving support

•an increase of 12,000 people employed by companies receiving support

•increase productivity of the SME sector by 20%

•and increase the contribution of SMEs to GDP by 1%.

Planned achievements of the ECOP

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Sub-divided into components:

•Component 1: Technical-technological development (such as purchase of new machines, equipment, construction, enlargement of production related buildings, purchase of license, know-how)

•Component 2: Support of modern management systems and techniques (such as quality insurance, environmental management and information protection systems conforming to European Union and the NATO requirements)

 

Financial plan, 2004-2006: Total 123.46 million € of which

·         Structural Funds (ERDF): 86.42 million €,

·         Central budget of Hungary 37.04 million €.

 

Subsidy schemes under Measure 2.1:

·         Beneficiaries: Business organisations, co-operatives, private entrepreneurs registered in Hungary qualified as SMEs.

·         Non-refundable grants can be obtained between 1.4 and 25 million HUF

Measure 2.1. of ECOP: Development of the technical and technological background of SMEs

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Measure sub-divided into components:

•Component 1. Basic level consultancy, Business advisory services. (Access to basic information required for the operation of SMEs, free of charge, anywhere in the country through the Local Enterprise Development Agencies.)

•Component 2: Advanced level, technical consultancy, advanced business advisory services. (Support directly to enterprises through subsidized advisory fee of the advanced level technical consultancy used by them.)

 

Financial plan, 2004-2006: Total 123.46 million € of which

•Structural Funds (ERDF): 86.42 million €,

•Central budget of Hungary: 37.04 million €.

 

Number of SMEs receiving

•basic advisory services: 30,000.

•advanced level advisory services: 1600 to 1800

Measure 2.2. of ECOP: Development of entrepreneurial culture

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Measure sub-divided into components:

•Component 1. Organisation of co-operation between SMEs. (Promotes the organisation of start-up and development of co-operations / networks and the related counseling activity, shared business services)

•Component 2. Joint investments of cooperating enterprises. (Promotes the developments necessary for the extension of existing networks: by supporting joint investments of the co-operating enterprises)

 

Financial plan, 2004-2006 for this Measure:

•Structural Funds (ERDF) 21.59 million €,

•Central Budget, Hungary: 9.25 million €

Measure 2.3. of ECOP: Development of co-operation in the corporate sector

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Hungary’s place in the frameworks of EU SME Policy

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The European Union pays special attention to the situation of European SMEs, stressing their central role in economic growth, competitiveness, job creation and social cohesion. Accordingly, the SME dimension gets integrated into a growing number of community policies und programmes, which were originally not SME specific.

 

The March 2000 Lisbon European Council set the strategic goal for the European Union to become the most competitive und dynamic knowledge-based economy in the world in the following ten years, capable of sustainable economic growth, more und better jobs und greater social cohesion.

 

Basic European policy documents based on the Lisbon decisions:

•The European Charter for Small Enterprises accepted in June 2000

•The new Multiannual SME Development Programme for 2001-2005. The entire Programme budget is EUR450 Million, of which EUR317 Million is allocated specifically to financial instruments.

EU SME Policy Frameworks

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The EU has supported Hungarian SMEs since the political changes of 1989. It has closely followed Hungarian SME policy during the accession period.

•In each yearly Country Report on Hungary the progress made in the revision of SME policy was assessed.

•The European Charter for Small Enterprises has been endorsed in Hungary by a Government Decision in 2002.

•Hungary is part of the Multiannual Programme for Enterprise and Entrepreneurship 2001-2005

•Hungary is part of the BEST (Business Environment Simplification Task Force)

Mechanisms of EU Integration of Hungarian SME Policy

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Multiannual Programme for Enterprise and Entrepreneurship 2001-2005

Total budget for all concerned countries: 45O million Euros

Aims:

•Business development, knowledge based economy, internationalisation

•Simplification of administrative and regulation environment

 

Improving financial environment:

•European Technology Facility Start-up Scheme,

•SME Guarantee Facility,

•Seed Capital Action,

•Joint European Venture

MAP 2001-2005

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In the EU Member States the BEST project was launched in September 1997.

BEST = Business Environment Simplification Task Force

 

Aims: assessment of the business environment, including the simplification of the

•Administrative

•Legal

•Taxation

•Financial

•and social regulations

regarding SMEs (e.g. company foundation and inheritage procedures, etc.)

The BEST Project

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In 2001 the BEST project was extended to the Candidate Countries

The Hungarian report was compiled in the first half of 2001, under the responsibility of the SME Development Division of the Ministry of Economy. The six domains assessed:

•Entrepreunial training and education

•Access to finance

•Access to R and D

•Business support organizations

•Public administration

•Conditions of employment and work

CC BEST: Extension to the Candidate Countries (2001)

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•Soft loan - in particular Micro Loan - applications should include an assessment of additionality, displacement and employment impact

•The Business Support network should be involved in the complex appraisal and performance monitoring of beneficiary firms.

•Ownership of Soft (Micro) loan funds should be clarified after the withdrawal of PHARE.

•Regular monitoring of performance of loan funds necessary.

•Schemes should include an element of co-financing on a risk sharing basis with the intermediary banks

•Loan schemes should aim at achieving sustainability of the fund and becoming potentially independent form the original donors.

Recommendations to the future of SME loan schemes

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Support should be given to strengthen the capacity of local and regional administrations to take the lead in facilitating local economic and business development.

The business support network should become* either integrated within the public sector as parts of the

regional development institutional framework* or the Business Support Centres should become private

businesses offering services at market prices.

Recommendations to the future of the Business Support network

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Thank you for your attention!