Enhancing Competition and the Business Environment in Hungary

Over the past decade, the growth potential of the Hungarian economy has declined substantially. Trend productivityhas ceased to increase, and investment has fallen to historically low levels. To an important extent, the explanationlies in a business environment characterised by high administrative burdens, regulatory volatility, barriers to growthof small and medium-sized enterprises (SMEs) and entrepreneurship, and limited competition in major non-tradablesectors, problems which have sometimes become worse in recent years. Under these conditions, many SMEs find ithard to leave semi-informality and grow. Large multinational firms operating in manufacturing often have suppliernetworks weakly anchored in Hungary, while those in the non-tradable sectors sometimes face little competitivepressure in both cases, positive spillovers to the domestic economy remain limited.Steps should be taken both at the economy-wide level and in specific sectors to increase investment and restoreproductivity growth. Such measures must include fostering greater regulatory stability, inter alia by reducing the flowof new regulation and improving its quality, not least in taxation. Investor confidence would benefit from promotingtrust and transparency in public institutions. Apart from vigorous competition enforcement across the economy, it isessential to remove sector-specific obstacles to competition, such as barriers to entry of different types, lock-in effectsand distortive regulated prices, in retail, professional services, energy, and telecommunications. This Working Paperrelates to the 2014 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/economic-survey-hungary.htm).      