Summary

 

The Indian tyre manufacturer Apollo Tyres planned to invest € 300 million and create 900 jobs in Gyöngyös, a town 30 kms east of Budapest. The project has faced difficulties from the beginning due to problems with the purchase of land, slowness of the bureaucratic procedures and political attacks. Fidesz initiated a local referendum against the factory, so finally Apollo had no other option but to give up the investment. The Apollo-affair and the attacks against the South Korean tyre manufacturer Hankook might have negative effects on the future investments of Asian companies. Both cases reveal the contradictions in the political strategy of Fidesz: the conflict between the opposition position and the pre-government position.

 

 

Referendum? Again?

 

Despite of the advantages of the investment, opposition party Fidesz argued against Apollo Tyres’ investments in Gyöngyös arguing that:

 

  • environmental risks (Mátra mountains are already overloaded environmentally, the factory would have ruined tourism),
  • social risks (the factory would have used too much water, retail water price would have risen),
  • geographical problems (there’s not enough land for Apollo in the Industrial park),
  • employment doubts (out of the 900 employees 200 engineers would have come from India),
  • lack of local democracy (the Socialist-led local government had not “consulted the people of Gyöngyös” before the investment).

 

The local Fidesz faction initiated a local referendum on 30th May 2008. On 14th August Apollo announced they were abandoning their investment plan in Gyöngyös. According to the Company “Apollo doesn’t want to settle down in a city where it is not welcomed”, and they asked the Hungarian Investment and Trade Development Agency (ITDH) to help to find an alternative location. At present, nearly 30 Hungarian cities (from all around the country) said that they would warmly welcome Apollo Tyres, including Fidesz-led municipalities. However, at this phase, Polish, Czech and Slovak locations may come into consideration again.

 

 

Political and economic consequences

 


1. Local political risks to be considered

 

At the moment no one knows whether Apollo will stay in Hungary or not. If Apollo leaves the country that means approx. 2000 lost new job openings, lost tax revenues and a damaged reputation. Furthermore, political fights over foreign investments may frighten away other international investors. An ITDH official has said that after the Apollo affair local political risk shall inevitably be implicated when companies intending to come to Hungary evaluate the investment environment.

 

 

FDI in Hungary 1998-2006

 

 

2. Asian firms to follow each other

 

Apollo is not the first Asian firm to be in the middle of political debates in Hungary. South-Korean Hankook came into the focus of national politics when Fidesz questioned the amount of subsidies the company had received from the government. Fidesz also criticized the high rate of “imported” Asian employees. According to a new KPMG study, Asian companies typically “move together” and base upon each other’s experiences when investing in European countries. Thus the fate of Hankook and Apollo will determine future investments.

 


3. Local political forces gain terrain

 

Local political risks have to be taken into consideration by companies planning to set up factories in Hungary, but companies also have to prepare for “local politics” that can completely secede from national politics. Recently, municipalities and local interests managed to set the agenda with their own political issues, completely independent of national parties.

 

When it comes to local party members or representatives, local interests may differ from the central party’s interests. Fidesz is the most vulnerable in this aspect due to the fact that it has the most mayors and local councillors in the municipalities.

 


4. Fidesz: urge to apologize

 

As one of the reasons of Apollo’s withdrawal was the possible referendum, opposition party Fidesz now faces the challenge of explaining. The opposition party’s arguments are confused at the moment. For Fidesz it is very difficult to give an explanation to “chasing away” Apollo Tyres since the party permanently blames the government for high unemployment. Party President Viktor Orbán is now trying to court foreign investors. But it is difficult to forget that he was the one who campaigned against “alien capitalists” only a couple of years ago. The governing Socialists attack Fidesz that the party is ready to damage the country only to gain some popularity with demagogy. In the upcoming months, the Gyöngyös-case may become a major argument for the government and for MSZP to show the “irresponsibility” of Fidesz. Also, it gives the opportunity to the government to blame Fidesz for economic problems (i.e. low growth). The leaders of Fidesz have so far been silent, but the party’s media network launched a campaign against Apollo Tyres, which is again evidence of indecisiveness within the party.

 


5. Contradictions in Fidesz policy: a long way from opposition to governance

 

The Apollo-affair reveals the contradictions of the opposition party’s economic policy and political strategy. The opposition party permanently attacks the initiatives of the government and MSZP, while trying to demonstrate Fidesz’ ability to govern and their competence at the same time. These factors often generate contradictions, as we have seen before in the case of healthcare privatisation. The party leadership generally opposes privatisation in the healthcare sector, but some local and national politicians support it – or have direct business interests in privatisation. This has caused significant conflicts inside the party. The contradictions between the political strategy of Fidesz as an opposition party and the Fidesz as a party preparing for governance will become more and more visible and divisive in the coming months.