EMCC European Monitoring Centre on Change

Hungary: ERM Comparative Analytical Report on ‘Public policy and support for restructuring in SMEs’

  • Observatory: EMCC
  • Topic:
  • Published on: 14 May 2013



About
Country:
Hungary
Author:
Adrienn Bálint, Ildikó Krén
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

SMEs are strongly hit by the economic crisis in Hungary. Although many economic action plans and policy debates exist about their economic recovery, there are no dedicated programmes or subsidies targeted for their restructuring processes and needs. Although the communication of the government says that the support of (Hungarian owned) SMEs has high priority as those companies are according to numbers, economic turnover and employment the backbone of economy, the austerity policy of the government does not facilitate growth momentum for them. The SME sector’s most important problem is the access to financial resources. It means on the one hand the shortage of bank credit programmes, on the other hand the high rate of taxation and social contribution which causes liquidity problems and object employment. Thus, social partners are aiming to reduce these rates, and to obtain more state or EU funded subsidies to increase employment.

QUESTIONNAIRE

Part 1: Overall policy context

1.1. Has there been public or policy debate on the specific challenges for SMEs and/or their employees in restructuring before the global recession of 2008/09? Please specify, for example:

Not sufficiently, but there have always been some supportive measures and instruments even before the crisis, but neither the former nor the recent government could really define the political state and role of the SMEs in the national economy. A good indicator of this is the fact that none of the deputy state secretaries has filled the position of Strategical and Political Leaders of the SME sector longer than two years in the last decade. So there was no consequent strategical goal for at least a four-year periode, with the always changing staff the goals and ideas have changed parallel.

(Antal Szabó dr, Győr, 2010: http://www.vallalkozastan.hu/data/pagecontent/0/ERENET/kkvhelyzete_szabo.pdf)

The policy of in the last five to eight years before the crisis (approx. 2002 – 2008) was more focused on securing the existence of larger companies (former large state owned companies) which were threatened by downsizing due to lower competitiveness in and outside the common market. Another priority was to promote investment incentives to privatised companies or greenfield investments of transnational undertakings.

• If so, since when (e.g. up to 3 years before, 3-10 years before, longer), at which level (national, regional, sectoral, all of them) and in which form (‘real’ policy debate mirrored in policy documents or rather public debate mirrored in media, or both)?

There was a growing understanding that SMEs are playing a more and more important role in the economy and the discussion started about the neccessity of supporting them early. The debates have always been more at national level, but the actions happened more at regional level, especially when a given – fragmented and downsized – former larger company needed to restructure in order to survive or increase competitiveness.

Anyways it was first necessary to change the legal and institutional environment.

On 9 November 1999, the government has first adopted the law 1999/XCV on supporting SMEs. This law defined SMEs as such and summarised the financial support instruments covered by the Ministry of Ecomony; defined the government’s roles concerning these measures and established the Council of Enterprise Development (Vállalkozásfejlesztési Tanács, VT) to develop a SME support strategy.

The law has been amended on 26 April 2004 due to the EU accession (law 2004/XXXIV) including a new definition of micro, small and medium sized companies (to align to the EU definition) and setting new types of companies (for example, self employers (that is, one-person enterprises)). The law has set financial guarantees for the support instruments.

The law 2006/CIX, adopted on 11 December 2006, concerning the operation of central administrative institutions has also affected the law on SMEs by apponting the responsible ministers and reorganising the VT.

On 7 February 2007 the government has accepted the Strategy of the Development of Small and Medium sized Enterprises as our SME sector has been far behind the European average at development and financial level.

The government targeted the development of the environment for SMEs by issuing the ‘Tuned to Business’ programme for the period between 2007 and 2013 which has been included into the SME development strategy at the end of 2007.

The aims of this strategy:

  1. at company level:
  • developing the regulation on SMEs,
  • facilitate application for and reception of financial surces,
  • development of education, knowledge,
  • better productivity with better infrastucture;
  1. at horizontal level:
  • increasing employment figures,
  • better integration to the global market,
  • more efficient cooperation between companies.

Since 2008, the government aims to provide the financial conditions through the New Hungarian Enterprise Development Programme. The only fly in the ointment is that only companies with good results and creditability can apply for the financial sources of this programme.

Since 15 March 2008, the restructured Ministry of National Development and Economy is responsible for the SME sector. The governement has adopted the mid-term strategic steps on decreasing administrative burdens of the SMEs by 25% until 2012 according to the request of the European Comission (gov. regulation1058/2008 (IX. 9.); and has appointed a State Secretary for the sectoral issues.

• Which policy areas (for example, SME policy, entrepreneurship policy, employment policy, social policy, regional policy etc.) were involved? Particularly: Does SME policy specifically deal with restructuring? Does ‘restructuring policy’ specifically deal with SME issues?

  1. The law on SMEs regulates the general framework of governmental SME policy, such as state aid and budgetary policy, government’s tasks and responsibilities on SME development, it created the Council of Enterprise Development, which is a consultation body of nine national level employers’ organisations, two representatives of the six trade union confederations, and the representatives of the Ministry of National Development. The basic principle of the law on SMEs is to promote the economic development of SMEs, which employ the majority of Hungarian workers and are the largest payers in the state budget. http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A0400034.TV
  2. The Strategy of the Development of SMEs appoints four pillars which determine the economic situation of SMEs:
  • regulatory environment,
  • financing and taxation,
  • knowledge (including knowledge of entrepreneurship and human resources),
  • enterprise infrastructure, productivity.

Anyway: The SME policy did never especially deal with restructuring issues.

The central budget provided always a low amount of support for the SMEs; there was

  • in 2000 – HUF 5,23 billion (€ 17,5 million on exchange rate in May 2012 – 1 €= 298,46 HUF)
  • in 2001 – HUF 12,2 billion (€ 41 million on exchange rate in May 2012 – 1 €= 298,46 HUF)
  • in 2003 – HUF 20 billion (€ 67 million on exchange rate in May 2012 – 1 €= 298,46 HUF)
  • in 2004 – HUF 13,4 billion (€ 45 million on exchange rate in May 2012 – 1 € = 298,46 HUF) which has been decreased to HUF 10,4 billlion (EUR 35 million on exchange rate in May 2012 – 1 €= 298,46 HUF) due to saving measures
  • in 2005 – HUF 3,67 billion (€ 1,2 million on exchange rate in May 2012 – 1 €= 298,46 HUF)
  • in 2006 – HUF 3,7 billion (€ 1,2 million on exchange rate in May 2012 – 1 €= 298,46 HUF)
  • in 2007 – HUF 3,26 billion (€ 1,1 million on exchange rate in May 2012 – 1 € = 298,46 HUF)

Debates passed off at national level, as the most important forum of social partners’ policy-making was the National Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT). The issues of SMEs were not a priority for the OÉT.

• Did the public and policy discussions deal with restructuring as such or were specific types or phases of restructuring covered?

The Strategy identified the necessity of the improvement of the SMEs’ access to financial resources and the improvement of their human resources.

There have been during the last ten years policy-level debates at several levels, to appoint the directions of future developments, but rarely concrete measures of restructuring were in the centre of the discussion.

• Which were the issues/contents that have been discussed? Which specific characteristics of SMEs in restructuring were considered in this context? Was the specific case of SMEs as subcontractors a topic for discussions?

As we mentioned before, four points were identified as a possible area of restructuring:

  • regulatory environment
  • financing and taxation
  • knowledge (including knowledge of entrepreneurship and human resources)
  • enterprise infrastructure

The issue of subcontracting was not included; it arose only after the crisis.

• Did the discussions rather deal with the enterprise perspective or with the employee perspective or both?

It dealt with the employers’ perspective even if increasing employment has always been a general priority.

1.2. Did the global economic and financial crisis of 2008/09 cause any change in focus of the above (for example, increased/decreased focus on SMEs and their employees in restructuring, change in policy areas or issues covered)?

It should be mentioned that it is not provable whether the crisis made the government’s focus changing or the changed government got another focus – probably both.

However, we can capture that the economic crisis significantly affects the SME sector. And the governmental policies are paying more attention to it. The former government which introduced the above mentioned mechanism did not change the measures, but reduced the amount of support cofinanced by the state budget. The current government´s communication sees SMEs as the backbone of the economy – especially if those are Hungarian owned companies. Even so in fact they are under pressure because of IMF negotiations about new credits to consolidate the state budget by increasing any kind of taxes and originating even new taxes. Due to the debt brake policy the burdens of the anyway vulnerable SMEs is de facto growing, even if there is a number of compensations introduced which are also – but not exclusive available for them (wage compensation etc.)

1.3. Are social partners or employers’ and employees’ organisations involved in public and policy debate on restructuring in SMEs?

The employer organisations are involved in debates and are presenting their own positions on SME development and increasing competitiveness of SMEs. The employee organisations are less involved, which is indicated by two main reasons:

  1. As employees´representation in SME is weak, developing and debating their own position on restructuring in SMEs has no high priority.
  2. The system of national consultation has been changed, as described below, employees’ organisations have lost power and influence in decision making.

• If so, which (types of) organisations and at which levels?

At national level in the frames of the OÉT and the Governing Body of the Labour Market Fund (Munkaerőpiaci Alap Irányító Testülete) the social partners were involved in these debates. These institutions have been abolished in 2010-2011. Instead the National Economic and Social Council (Nemzeti Gazdasági és Társadalmi Tanács, NGTT) has been established in 2011. Principally it provides now a forum for social partners to debate also on SME-related issues; however it has never been a case for this yet. The Permanent Consultative Forum between the Private Sector and the Government (Versenyszféra és a Kormány Állandó Konzultációs Fóruma, VKF) could also deal with this, but it was not convened since its establishement on 22 February 2012.

Social partners were involved only at national level.

• What are their opinions, perspectives, recommendations?

As only the employers have formulated positions on the issues, only these are summarised here. According to them the following measures are neccessary to strenghten SMEs:

  • decreasing labour costs: the social contributions of employment (employee 18.5 %, employer 28.5 %; basis: gross monthly salary) and self-employed/single-enterpreneurs (18.5+28.5% , basis: at least the 1.5 times the monthly mandatory minimum wage);
  • decreasing administrative burdens;
  • facilitating access to financial resources: restart bank lendings/credits and making the distribution of EU resources more effective (mainly for productive and labour intensive sectors);
  • boosting the state’s research+development+innovation activities, promoting innovative economic activities;
  • reforming the education system in order to improve the quality of workforce.

• Did they succeed in convincing governments or public authorities at various levels of their viewpoints?

Yes. The improvment of the economic situation of SMEs is in the focus of the economic policy of the present government. However, the strict austerity policy of the government does not really make it possible to promote growth.

Part 2: Support instruments

2.1. Please provide an overall assessment about how accessible and suitable public and social partner based restructuring support for companies in general are for SMEs or their employees.• Do SMEs and/or their employees generally have access to the available instruments and are these suitable for their specific needs in restructuring?

Yes, SMEs have access in general, but in fact they can rarely use them because the financial and banking crisis decreased massively the possibility to reach financial resources, credits for investment. The above mentioned financial straits incurred by a very limited access to cheap credits hinder that SMEs restructure themselves to achieve competitiveness.

In case of the access of employees it can be said that the government has changed the unemployment benefits system (HU1206011Q) and is changing the Labour Code (HU1111011I), which implies that employees are more vulnerable in case of restructuring connected lay-offs. Even if this is true for all employees in the Hungarian economy, it affects especially a high number of employees in SMEs as work contracts are often more flexible anyway and they are rarely covered by collective agreements.

• Are there specific (types of) instruments (for example, targeting specific types or phases of restructuring, offered at specific administrative levels) that are more/less accessible and suitable for SMEs and/or their employees that for larger firms? If so,why?

  1. In the frames of the New Széchenyi Plan (Új Széchenyi Plan, ÚSZP), published in 2010 – in line with the governmental development plan, several employment-related state aid programmes are available for SMEs.

According to the communication of the Government in most of the support measures SME support is mainstreamed. There are smaller easy-going application possibilities which are tailored for SMEs not only at the country side but also in the middle regions of the country (the previouse Széchenyi Plan only supported SMEs at country side) and some of the instruments can even cover 65% of the given investments.

An example herefor can be the promoting the use of innovative results for SMEs

  • Duration is max. 12 months,
  • The amount can be HUF 5-25 million (€ 17,000-83,000) nonrefundable support,
  • Can cover 4,000-5,000 innovation projects,
  • The company’s obligation is to keep the numerical employment level stable, and to increase the employment-related expenses by at least 5% in two years.

http://www.szechenyiterv.eu/palyazatok/vallalkozas-fejlesztes/munkahelyi-kepzes-tamogatasa-kozepvallalatoknak-tamop-2-1-3-b/

  1. Support of job-related trainings: the aim is to improve SMEs’ competitiveness and the adaptability and employability of workforce through the enforcement of employees’ skills and competencies. Another important purpose is to promote those SMEs which are not able to ensure these developments from own resources. The resource of the support is the European Social Fund, with the cooperation of National Development Agency and ESZA Kht (www.esza.hu).
  2. Flexible workplaces (Kombinált mikro hitel, KMR): The aim is to support those SMEs, applicants, which increase the workforce flexibility at the workplaces; at the same time to promote work- family life balance. An important requirement of this support is that the enterprise should undertake to ignore those restructurings which force employees to reduce the working hours or press them to change to any atypical employment contract or disadvantaged working time schemes against their will. The resource is the European Social Fund with the cooperation of ESZA Kht. The support is available not only for SMEs, but any other organisation which has employees.

2.2. Do there exist specific public or social partner based support instruments explicitly targeting at SMEs and/or their employees in restructuring? Please specify, for example:

Yes, the Széchenyi Credit Card Programme.

The Széchenyi Card is an option to solve the problems of temporary financial burdens. It is a kind of credit card programme, with low interest and state guarantee, specially developed for micro enterprises and SMEs. This is mainly for self-enterpreneurs, small companies and cooperatives, which operate for more than ten years. The credit repayment is lower than 1 % monthly, the procedure to arrange it is fast, and does not need property mortgage, specially useful for solving daily liquidity problems.

• If so, by whom are they offered (public vs. social partners/employers’/employees’ organisations) and at which administrative levels (national, regional)?

As mentioned above, it had been initated by the MKIK and the VOSZ, through the establishment of their common agency: KA-VOSZ Zrt., which is based on the partnership of the Hungarian Chambers of Commerce and Industry (Magyar Kereskedelmi és Iparkamara, MKIK) and the National Association of Entrepreneurs and Employers (Vállalkozók és Munkáltatók Országos Szövetsége, VOSZ).

For that credit card can be applied everywhere in the country, at the offices of KA-VOSZ.

• Are the activities of different support service providers coordinated? If so, how and how well does this work?

This card is mainly to solve daily problems and to ensure a financial background for enterprises, but it is not specialised to avoid or deal with restructuring issues. The KA-VOSZ is also providing a financial consultation forum for the SMEs in business development.

But there is not a developed network or coordination institution. There is no non-profit service provider for restructuring issues. Companies can contact consultancies, but this is in general less suitable for SMEs because these are cost intensive, thus rarely used by SMEs.

• Which phases of restructuring do they target?

- both: anticipation and management of change

• Which types of restructuring do they target?• Do they target SMEs in general, or specific size classes, sectors, regions, legal forms, roles (for example, as subcontractors) etc.? Do they target employees of SMEs in restructuring?• What type of support do they provide? What specific challenges for SMEs in restructuring do they address?• Is there some information about how well they are known among SMEs and their advisors and about how they are generally assessed by the SME sector? What are their strengths and weaknesses? Are there recommendations for improvement?

Part 3: Good Practice

Even though the Széchenyi Credit Card Programme won the European Enterprise Award in 2007 (in the category of Best Practice of red tape releasing and improving SMEs’ access to finance), this cannot be considered as a good practice in this study, because it is not targeting especially restructuring cases.

In this view, there is no best practise in Hungary.

  • Name of the instrument in national language and English:

Széchenyi Credit Card Programme, which was widened with the services of the so called Széchenyi Current Assets Credit Programme in August 2010 and with the Széchenyi Investment Credit Programme in September 2010 and Széchenyi Agrar Credit Card in authomne 2011.

  • Justification for selecting this measure as Good Practice:

This is an iniciative of red tape releasing and improving SMEs’ access to finance

  • Date of launch of the instrument and end date (if applicable):

April 2002 since then several modifications were undertaken, but no general change

  • Initiator/administrator (organisation):

KA-VOSZ LTD funded by the Hungarian Chamber of Commerce and Industry (Magyar Kereskedelmi és Iparkamara, MKIK) and the National Association of Entrepreneurs and Employers Association (VOSZ) in 2002 for the very reason to coordinate the (governmental) programme, and to link companies to the participating banks.

  • Other involved actors and their roles:

The government is providing state funds for low-interest credits and the credit guarantees via the Guarantiqa Creditguarantee Ltd for the debtors.

Banks actually concluding the low-interest credit contracts and providing credit cards to facilitate finances.

  • Source of funding:

State funds

  • Target group/eligibility/coverage:

Micro-, Small- and Medium sized companies

  • Phase of restructuring targeted:

Any phases of operating a company, but not especially only for restructuring

  • Type of restructuring targeted:

To manage financial burdens in operations.

  • Purpose/content/characteristics/description of services provided:

The purpose of the programme is to encourage companies to emerge and/or to soften financial burdens of existing ones. For description see above.

  • Outcome of the instrument (e.g. number of beneficiaries, effects):

According to the referendum made on its ten-years jubilee in March 2012, in the frames of the programme more than 100,000 companies obtained more than HUF 1,000 billion (€ 3.5 billion). There have been 216,000 applicants, from which 162,000 have received the card.

  • Strengths/success factors of the measure:

This was a new scheme, it has been always amended on the basis of the feedback of the companies. The Széchenyi Programme in general has an easy and fast procedure; it also helps companies to get over the crisis through the new credit constructions.

In the last years, the banks do not likely provide credits to any one, but in the frames of the Széchenyi Programme the lendings have not got stucked.

The IT technologies are continously developed according to the new programmes’ requirements too.

Now on that scheme also the EU funds can be easier accessed by the companies by that kind of credit construction. There is an ongoing discussion that a newer construction should be be developed enforcing processing, mainly food processing enterprises.

  • Weaknesses/bottlenecks of the measure:

It is not targeting especially restructuring cases, it helps companies to overcome liquidity problems.

The increasing credit limits are generating higher risks for companies, and the investment credits also increase risk factors and require more foresight from the companies. Some sources also mention that the state funded coverage of the increased credit limits were uncertain.

  • Was the instrument formally monitored/evaluated? If so, please specify (by whom, how, what were the finding and how were the findings used etc.)

KA-VOSZ and also the Ministry for National Economy both permanently monitor and analise the Programme.

A jubilee has been held in April 2010, where all participants jugded the programme as a success story.

  • Weblink:

http://www.kavosz.hu/ceginformacio

  • Information sources used for filling this section:

http://www.kavosz.hu/ceginformacio

http://videotar.mtv.hu/Videok/2012/04/19/23/10_eves_a_Szechenyi_kartya.aspx

http://www.kormany.hu/hu/nemzetgazdasagi-miniszterium/hirek

http://www.kormany.hu/hu/nemzetgazdasagi-miniszterium/hirek/tiz-eves-a-szechenyi-kartya

http://www.nepszava.hu/articles/article.php?id=332317&referer_id=friss#null

http://hvg.hu/kkv/20110427_Szechenyi_Terv_palyazat_kkv_tamogatas

Commentary

The SME sector is acceped as an important sector of the Hungarian economy since at least 10 – 15 years now. Nearly all governments were developing support measures for them. However, during the time of the social-liberal governments, the main focus has been more on strengthening the larger economic entities. After accession to the EU (but also in preaccession times) a number of funds (EU cofinanced) were available for economic development. The focus has been changing with the changing governments and depending on their priorities sometimes it was at regional development, sometimes at employment development, sometimes at modernisation of the economy. As the number of SMEs is high in Hungary the incentives of the governments reached also those companies. Practically this was a side effect of each government’s economic policy. As governments were most of the time changing every four years, focuses were changing quite frequently that hindered continuity. Some employer organisations (often weaker by numbers and lobby capacity) were interested in SME development, while others were representatives of the larger companies which did not really deal with the subject. Employees’ representatives are traditionally weak in organising SMEs, so the interest in strengthening SMEs has always been low. The breakthrough of the crises led to a policy of reducing expenditures which led to a decline in supporting SMEs in restructuring. The recent government´s aim is to strengthen the Hungarian owned companies. This potentially could lead to an increasing level of SME (restructuring) support. However, the needs of meeting the Maastricht criteria and the pressure of the IMF results in that only a few support measures can be cofinanced. As tripartite social dialogue and involvement of social partners in consulting economic policy is not a strength of the recent government, measures are not consulted prior to taking decisions. The result is that SMEs are lacking support, which affects the entire economy and deepens the economic downturn in Hungary.

Ildikó Krén, Solution4.org,Adrienne Bálint, director for social dialogue, Confederation of Hungarian Employers and Industrialists (MGYOSZ-BusinessHungary)

Sources: Official information of National Reconciliation CouncilPosition papers of MGYOSZ-BusinessHungary, VOSZ, OKISZ-Hungarian Industrial Association and Hungarian Association of Craftmen’s Corporations (Ipartestületek Országos Szövetsége, IPOSZ)

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