Overview
The digital economy currently accounts for 6.7% of Hungary’s overall gross value added (GVA) production with an estimated value of HUF 3,780 billion (USD 10.4 billion) in 2022. Including in-house digital developments in the manufacturing industry, consumer electronics and financial service providers, the digital economy accounts for at least 10% of Hungary’s total GDP. The mid-term outlook is positive as the pandemic accelerated the momentum for digital transformation and cloud adoption in the private and public sector.
Hungary’s digital economy is specialized primarily in ICT manufacturing of electronic components and boards, magnetic and optical media and communication equipment, computers and peripheral equipment. These are among the highest shares of ICT manufacturing recorded in any of the European Union (EU) Member States. The Association of Digital Companies (IVSZ) is the largest and most significant interest group of this industry in Hungary. It is dedicated to implement and spread the importance of the digital economy and contribute to the digital transformation of the country.
In the public sector, the main stakeholder for digitalization include is DMU – Digital Hungary Agency, the strategic body for digitalization, established in 2022, and reports to the Cabinet Office of the Prime Minister. DMU is responsible for the entire Hungarian government’s IT. Additionally, the Ministry for National Economy covers strategies concerning the use of information and communication technology including broadband policies. These fall under the responsibility of the state secretariat for industrial policy and technology within the ministry.
The Hungarian government adopted a National Digitalization Strategy 2022-2030 in 2022 which is aligned with the EU’s Digital Decade Policy Program. The strategy is structured around the four main pillars of the Digital Decade Compass measured in Digital Economy and Society Index (DESI). These are digital infrastructure, digital skills, digital economy and digital state. Hungary has a very ambitious and challenging aim of exceeding the EU average in digital development by the middle of the decade. The National Digitalization Strategy targets 95% coverage of households with gigabit networks and 90% usage of e-government services, as well as aims to increase digital skills of the population and to support digitalization of business processes, among others. The Hungarian Government’s objective is for Hungary to be among the top 10 performing EU countries in the field of digitalization by 2030.
Hungary was ranked 22nd of EU’s 27 Member States in terms of connectivity in a 2022 DESI report. The 2023 Digital Decade Country Report suggests that Hungary should accelerate its efforts around digital skills and further digitalization of businesses and public services. Although progress was made in the digitalization of enterprises, opportunities offered by digital technologies have not been fully exploited by most Hungarian enterprises. There is room to increase the use of enterprise resource planning software to share information electronically, to rely on social media or send e-invoices. The situation is similar for advanced technologies, such as AI, cloud and big data, where Hungary scores well below the EU average. Hungary performs well with broadband connectivity and is a leader with 22% of households subscribing to 1Gbps broadband service in 2021 compared with 7.6% in the EU.
Hungary plans to use EU funding for broadband infrastructure deployment in rural regions. However, the EU continues to withhold some EUR 19 billion (USD 21 billion) of funding amid disputes over the rule of law in the country. In Hungary’s Recovery and Resilience Plan (RRP) 30% of its allocation i.e. EUR 1.7 billion (USD 1.9 billion) is devoted to digital measures, of which EUR 1.2 billion (USD 1.33 billion) is contributing to the Digital Decade targets. The RRP plan includes a comprehensive package to promote the digital transformation of the economy and society with measures on digital transition. Hungary has plans to improve the digital equipment and skills in its primary, vocational and higher education institutions. The RRP plan also contains measures related to the digitalization of public administration and of the health, transport and energy sectors.
As a consequence of Russia’s invasion of Ukraine, the overall threat level in cyberspace has increased. The National Cybersecurity Centre (NCSC) is, therefore, monitoring the government network infrastructure and the Hungarian cyberspace in an increased preparedness mode on a 24/7 basis.
The Hungarian government’s focus on digitalization is expected to boost spending on information technology, especially in the manufacturing industry, cybersecurity and government sectors. Development and investment in Hungary’s technology industry will be spurred by the adoption of new technologies.
Market Challenges
Hungary’s digital economy is highly regulated and complex. This complexity stems in part from the slight differences between EU and national laws. Many of these EU regulations are also new and thus not yet fully implemented. Consequently, navigating this opaque and fragmented regulatory environment can be a challenge especially for startups and small and medium-sized enterprises (SMEs) with limited financial resources.
The main development in the Hungarian market is the continuing consolidation trend among telecom operators. Hungary’s telecoms and IT group, 4iG, is owned by Government of Hungary-allied oligarch Gellert Jaszai, has been rapidly expanding over the past years. 4iG has engaged in multiple vertical and horizontal acquisitions. In 2021, it acquired Invitech, a fiber network operator. In 2022, 4iG purchased DIGI Hungary and Antenna Hungaria - key players in the Hungarian telecommunications sector for decades, and also the exclusive provider of national digital terrestrial television and analogue radio broadcasting in Hungary. In 2023, 4iG became the majority owner of Vodafone Hungary (70.5%), assuming leadership in several markets and a significantly improved position across both the mobile and fixed segments. The sale of Vodafone Hungary was declared to be of national strategic interest and the transaction was exempted from competition review. 4iG is also expanding abroad, acquiring telecoms companies in Montenegro, and Albania and a satellite operator in Israel. This type of market consolidation coupled with government influence that the Hungarian market is characterized by is likely to decrease competition in the market.
Another market challenges derives from the fact that the current government of Hungary has close commercial and political ties with Russia and China and will allow its equipment originating from those markets to be used in the 5G rollout. Hungary has resisted U.S. warnings about Chinese firm, Huawei, from playing a role in the rollout of 5G infrastructure for security concerns and welcomes Huawei’s collaboration in rollout plans. Huawei is a large investor in Hungary, and in October 2020 opened a research and development center in Budapest. In November 2021, the Ministry of Innovation and Technology and Huawei signed a Memorandum of Understanding (MoU) on long-term co-operation which was renewed in October 2023.
Decisions related to the digital economy are made at several ministries and authorities, no single entity is assigned for digitalization, creating a lack of clarity in the industry. There is no real dialog about the digital development of Hungary on a strategic level due to the fragmented decision-making framework. The private sector faces challenges in finding the relevant stakeholders. Besides the Digital Hungary Agency reporting to the Cabinet Office of the Prime Minister, the non-exhaustive list of stakeholders on digitalization include the Ministry for National Economy, the National Broadcasting and Information Technology Council (NHIT), the Digital Government Agency (DKU) which is responsible for IT Procurement, the Ministry of Foreign Affairs and Trade, the Central Bank of Hungary (MNB) and the National Cybersecurity Institute (NBSZ / NKI) which is responsible for the re-drafting of the law governing IT security, etc.
IT security laws (Law 50 or Law L) under the narrative of data sovereignty are very restrictive regarding the use of Public Cloud services. The regulation restricts sensitive data to be stored and processed within the territory of Hungary (while under the regulation of the EU, it would be sufficient to keep and process data withing the EU). Proper data classification would help because already public data (like the website contents of a government office) could be stored and processed in public cloud, however most players are afraid of complications and therefore threat all their data the same, i.e. keeping them within Hungary and on their on-premises data centres.
Other barriers to U.S. companies entering Hungary’s digital economy might include that many public services are still not available online. There was substantial progress on the demand side of e-government, however the quality and completeness of the supply of digital public services for both people and businesses remained relatively low, especially for cross-border service provision, which is key to achieving the Digital Decade target for all key public services to be fully online by 2030.
The United States 2024 Investment Climate Statements for Hungary outlines additional barriers to U.S. goods and services in Hungary, including in areas related to its digital economy.
Most laws are set at the EU level. The Digital Economy Chapter of our Country Commercial Guide for the European Union provides a more comprehensive overview.
Opportunities
The digital economy can become the engine of the entire national economy: the introduction of new technologies (5G, IoT, AI, blockchain, cloud, etc.) would result in an annual GDP surplus of almost HUF 4,000 billion (USD 11 billion) in mid-term, which is almost 10 % of the GDP.
There could also be significant opportunities derived from the EU recovery investment strategy, which has a major digital element. IT public procurement planning of the various government agencies, ministries and state-owned enterprises is centralized through the Digital Government Agency (DKÜ) for the procurement of IT services and solutions with a dedicated EU-funded IT Operative Program. The budget allocated for this would be HUF 700 billion (USD 2.2 billion).
The pandemic accelerated trends such as remote work, ecommerce, online content and services consumption – and this will drive IT investments in areas such as cloud computing, cybersecurity, AI and wearables. The adoption of advanced automation solutions has accelerated that utilize robotics, 5G, sensors and machine learning in fields such as autos, manufacturing and logistics creating opportunities for U.S. tech firms. The development of 5G networks in Hungary will open sales opportunities for a wide range of products and solutions, ranging from security solutions and network products to accessories for end-user equipment.
The Hungarian cybersecurity market, one of the largest ICT subsectors, is poised for robust growth, with expected annual growth of 12.25% from 2024 to 2029. This growth trajectory, coupled with the immediate need for compliance with NIS2 Directive, a European Union directive that specifies critical infrastructure cybersecurity requirements, presents an ideal opportunity for market entry. Revenue in the cyber solutions market in Hungary is projected to reach $105.7 million in 2024. Opportunities exist for U.S cybersecurity companies providing stronger supply chain security, enhanced network security, better access control and encryption.
In Hungarian research institutes and universities, nearly twenty internationally renowned research groups are working on projects related to quantum computing. The Quantum Information National Laboratory, established in 2020, brings together the domestic resources of physicists, engineers, mathematicians, and computer scientists, whose activities can be further focused on certain rapidly emerging areas of quantum technology in the theoretical and applied fields.