Hungary’s Foreign Direct Investment Shift and Sustainable Development Goals

Overview of Hungary’s FDI Landscape

Hungary’s foreign direct investment (FDI) trajectory has reached a pivotal moment. Historically, the country attracted manufacturing FDI due to its EU membership, low costs, favorable tax regime, and welcoming policies. This attracted manufacturers primarily from Western Europe, the US, and more recently Asia.

However, despite strong FDI numbers, local value addition remains limited, reinforcing Hungary’s image as a low-cost manufacturing base within the EU. The dominance of the automotive sector has overshadowed other manufacturing activities, making the economy vulnerable to fluctuations in the European car market. Consequently, Hungary’s economic performance lags behind regional peers, and emigration rates remain high, with 41,300 Hungarians leaving in 2024 alone.

Strategic Shift Towards High-Value FDI Aligned with SDGs

The Hungarian government is now prioritizing research and development (R&D) and high value-added FDI to enhance economic momentum and sustainability, aligning with several Sustainable Development Goals (SDGs), including:

1. SDG 8: Decent Work and Economic Growth – by fostering innovation and higher-value jobs.
2. SDG 9: Industry, Innovation, and Infrastructure – through investment in R&D and advanced manufacturing.
3. SDG 12: Responsible Consumption and Production – by encouraging sustainable industrial practices.

Chinese Investment and the Development of Electric Mobility

BYD’s Commitment to Sustainable Innovation

Chinese car manufacturer BYD has announced the relocation of its European headquarters to Budapest, committing approximately €250 million to two R&D projects focused on electric mobility. This investment is expected to create 2,000 jobs, reinforcing Hungary’s role as a key hub for Chinese investment in the EU.

This development supports:

• SDG 7: Affordable and Clean Energy – by advancing electric vehicle technologies.
• SDG 11: Sustainable Cities and Communities – through promoting cleaner transportation solutions.
• SDG 13: Climate Action – by reducing carbon emissions via electric mobility.

Expansion of Battery Manufacturing Cluster

Hungary has witnessed significant Chinese investment in battery production, with CATL planning a €7.3 billion gigafactory in Debrecen. This facility will complement existing operations by South Korean firms SK Innovation and Samsung, creating a fast-growing battery cluster linked to the automotive sector.

Challenges of Economic Monoculture and Sustainability

Risks of Overdependence on Automotive and Battery Manufacturing

Experts warn that Hungary’s focus on automotive and battery manufacturing risks creating an economic monoculture, which could undermine diversification and economic resilience. The automotive sector currently accounts for approximately 20% of GDP, with projections reaching 30% by 2030. This concentration exposes Hungary to market volatility and limits sustainable economic development.

This situation poses challenges to:

• SDG 8: Economic Growth – due to vulnerability to sector-specific downturns.
• SDG 9: Industry Diversification – as limited diversification may hinder innovation.
• SDG 10: Reduced Inequalities – since benefits may not be evenly distributed.

Environmental and Social Considerations

Battery manufacturing is energy-intensive, increasing Hungary’s dependence on energy imports, many from Russia, which raises concerns about energy security and sustainability. Additionally, the country lacks domestic mineral resources and advanced technology for battery production. Labor shortages have led to recruitment from abroad, with 500 workers from the Philippines employed at the CATL plant.

These factors highlight issues related to:

• SDG 7: Clean Energy Access and Energy Security.
• SDG 12: Sustainable Resource Management.
• SDG 8: Decent Work Conditions and Fair Wages.
• SDG 4: Quality Education and Skill Development – to address workforce challenges.

Limited Local Economic Spillovers

Most new jobs created in battery manufacturing are low-skilled, and Asian investors often bring their own suppliers, limiting local supply chain development. This reduces the positive ripple effects on the Hungarian economy and restricts value addition within the country.

This situation impacts:

• SDG 8: Economic Growth and Employment Quality.
• SDG 9: Building Sustainable Industrial Infrastructure.
• SDG 17: Partnerships for the Goals – emphasizing the need for local integration.

Strategic Importance and Future Directions

Hungary’s Role in the EU’s Electric Mobility Transition

Hungary’s gigafactories are strategically important for the EU’s transition to electric mobility, especially following the collapse of Northvolt. The country’s role in this ecosystem extends beyond national borders, contributing to:

• SDG 7: Affordable and Clean Energy.
• SDG 13: Climate Action.
• SDG 9: Industry Innovation.

Recommendations for Sustainable FDI Growth

1. Enhance focus on high-value-added investments and R&D to increase local economic benefits and innovation capacity.
2. Promote diversification to reduce economic risks associated with sector concentration.
3. Develop workforce skills and education to meet the demands of advanced manufacturing and technology sectors.
4. Encourage sustainable and responsible investment practices aligned with SDGs.
5. Strengthen local supply chains to maximize economic spillovers and inclusive growth.

Hungary’s recent initiatives, including BYD’s R&D commitments, represent positive steps toward aligning FDI with sustainable development objectives. Continued efforts are essential to unlock the full potential of Hungary’s FDI trajectory while advancing the Sustainable Development Goals.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 8: Decent Work and Economic Growth
   • The article discusses foreign direct investment (FDI) in Hungary, focusing on economic growth, job creation, and moving up the value chain.
   • Emphasis on research and development (R&D) and high value-added FDI aligns with promoting sustained economic growth and productive employment.
2. SDG 9: Industry, Innovation and Infrastructure
   • The article highlights investments in electric mobility, battery manufacturing, and R&D projects, which relate to building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation.
3. SDG 10: Reduced Inequality
   • Brain drain and emigration of skilled workers are mentioned, reflecting issues related to inequality and the need to reduce disparities within and among countries.
4. SDG 12: Responsible Consumption and Production
   • The focus on electric vehicles and battery production ties into sustainable consumption and production patterns, especially in the context of transitioning to electric mobility.
5. SDG 13: Climate Action
   • The investments in electric mobility and battery manufacturing contribute to climate action by supporting low-carbon technologies and reducing greenhouse gas emissions.
6. SDG 7: Affordable and Clean Energy
   • The article mentions energy intensity of battery manufacturing and dependence on energy imports, highlighting the importance of clean and affordable energy.

2. Specific Targets Under Those SDGs Identified

1. SDG 8 Targets
   • 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
   • 8.5: Achieve full and productive employment and decent work for all.
2. SDG 9 Targets
   • 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and GDP.
   • 9.5: Enhance scientific research, upgrade technological capabilities of industrial sectors.
3. SDG 10 Targets
   • 10.2: Empower and promote the social, economic and political inclusion of all.
   • 10.7: Facilitate orderly, safe, and responsible migration and mobility of people.
4. SDG 12 Targets
   • 12.2: Achieve sustainable management and efficient use of natural resources.
5. SDG 13 Targets
   • 13.2: Integrate climate change measures into national policies, strategies and planning.
6. SDG 7 Targets
   • 7.2: Increase substantially the share of renewable energy in the global energy mix.

3. Indicators Mentioned or Implied to Measure Progress

1. SDG 8 Indicators
   • 8.2.1: Annual growth rate of real GDP per employed person.
   • 8.5.2: Unemployment rate, by sex, age and persons with disabilities.
   • Number of jobs created by FDI projects (e.g., 2000 jobs created by BYD’s R&D projects).
2. SDG 9 Indicators
   • 9.2.2: Manufacturing value added as a proportion of GDP and per capita.
   • 9.5.1: Research and development expenditure as a proportion of GDP.
   • Investment amounts in R&D and industrial projects (e.g., €250mn by BYD, €7.3bn gigafactory by CATL).
3. SDG 10 Indicators
   • 10.7.1: Recruitment cost borne by employee as a proportion of monthly income earned in country of destination (implied by foreign workers recruitment).
   • Migration statistics (e.g., 41,300 Hungarians emigrated in 2024).
4. SDG 12 Indicators
   • 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP.
   • Energy intensity of battery manufacturing (implied).
5. SDG 13 Indicators
   • 13.2.2: Total greenhouse gas emissions per year (implied through focus on electric mobility).
6. SDG 7 Indicators
   • 7.2.1: Renewable energy share in the total final energy consumption (implied need).
   • Energy import dependency rate (implied by reliance on energy imports from Russia).

4. Table of SDGs, Targets, and Indicators

Source: fdiintelligence.com