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Capital city Budapest is the main FDI hub in Hungary, although the country has just introduced screening measures in response to Covid-19. (Photo by Attila Kisbenedek/AFP via Getty Images)

With Covid-19 presenting myriad challenges for countries around the world, Hungary has responded by introducing a new foreign direct investment (FDI) screening mechanism in a move that some critics are claiming is protectionist.

The Governmental Decree no. 227/2020, which was introduced in May 2020, applies to both investors from the EU and other countries. The screening measures will be in place until the end of December 2020.

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The new decree involves notification to and acknowledgement by the minister of innovation and technology as a requirement for executing foreign investment in companies operating in sectors such as defence and healthcare, among others.

A dip in FDI

In 2019, FDI inflows into Hungary stood at $5.2bn, down from $8.3bn in 2018, but up from the $3.5bn recorded in 2017, according to data from the UN Conference on Trade and Development (UNCTAD).

This data also reveals that in contrast to the FDI inflows, Hungary’s FDI stock has been growing consistently over the same period, with the 2019 figure standing at $97.8bn, up from $95.7bn in 2018 and $93.6bn in 2017.

The value of announced greenfield projects into Hungary has also been steadily growing since 2017. Data from UNCTAD shows that the value of greenfield projects stood at $7.5bn in 2019, increasing from $4.5bn in 2018 and $3bn in 2017.

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However, the picture for project numbers is mixed. In 2019, Hungary attracted 102 projects, down from 114 in 2018 but up from 83 in 2017.

Manufacturing, financial and insurance services, wholesale and retail trade, as well as professional, scientific and technical activities, are among the sectors that attracted the largest FDI flows into Hungary in 2018, according to data from the OECD.