APPENDIX B Best Prospects for U.S. Exports With respect to U.S. trade data, it is believed that the level of U.S. export activity to Hungary is understated. Most companies ship products to subsidiaries or warehouses in Western Europe, especially Germany. These products are then sent on to Hungary. However, they do not show up in U.S. statistics as an export to Hungary but rather to Germany. The Embassy has identified several cases where products were warehoused and/or further processed before distribution in Hungary. A. Best Trade Prospects: Industry Sectors A. RANK OF SECTOR: 1 B. NAME OF SECTOR: Cosmetics C. INDUSTRY SECTOR CODE: COS D. TOTAL MARKET SIZE: 98 E. TOTAL LOCAL PRODUCTION: 43.3 F. TOTAL EXPORTS: 5.3 G. TOTAL IMPORTS: 60 H. IMPORTS FROM U.S.: 5 I. EXCHANGE RATE: $1 = HuF 78.98 COMMENTS: Imports of cosmetics continue to increase at a brisk pace. Foreign cosmetics have the greatest attraction in the market place in spite of their higher pricing. Some small American companies are reporting good business in low-end, no- name products especially for nail polish, eye make-up (liner and mascara), shampoos, lipsticks, etc. A. RANK OF SECTOR: 2 B. NAME OF SECTOR: Telecommunications C. INDUSTRY SECTOR CODE: TEL D. TOTAL MARKET SIZE: 493 E. TOTAL LOCAL PRODUCTION: 20 F. TOTAL EXPORTS: 7 G. TOTAL IMPORTS: 480 H. IMPORTS FROM U.S.: 10 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: The Hungarian Telecommunications Company (MATAV) sold 30 percent of its shares to the strategic investors Ameritech and Deutsche Telekom. The investors will undertake an ambitious development program in the next 2 years totalling $2 billion involving the expansion upgrade of installed infrastructure and the experimentation with new types of wireless technology. Additionally, the switching tender will be issued in 1995 and there will be substantial opportunities in transmission equipment. Concessions were awarded for rural telephone districts which must also upgrade infrastructure. Finally, there are a number of private activities in cellular mobile, voice/data (VSAT) transmission. A. RANK OF SECTOR: 3 B. NAME OF SECTOR: Pharmaceuticals C. INDUSTRY SECTOR CODE: DRG D. TOTAL MARKET SIZE: 510 E. TOTAL LOCAL PRODUCTION: 504 F. TOTAL EXPORTS: 234 G. TOTAL IMPORTS: 240 H. IMPORTS FROM U.S.: 2.8 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: Market size has nearly doubled in the last year. Imports account for a larger share of the market. While imports from the U.S. seem low, a good portion of American pharmaceutical products are moving through West European subsidiaries. Future outlook for sales will depend on the new government's policies in the health care sector, particularly as it affects drug reimbursement. There is pent-up demand for newer, more advanced drugs that Hungary had no access to in the past. Cardio-vascular drugs have strong market potential. A. RANK OF SECTOR: 4 B. NAME OF SECTOR: Oil & Gas Field Machinery and Services C. INDUSTRY SECTOR CODE: OGM D. TOTAL MARKET SIZE: 15,878 E. TOTAL LOCAL PRODUCTION: 25,206 F. TOTAL EXPORTS: 3,159 G. TOTAL IMPORTS: 12,755 H. IMPORTS FROM U.S.: 3,427 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: Hungary intends to move forward with further exploration of its petroleum and gas resources. Currently, Hungary is energy import dependent -- the preponderance of oil and gas are sourced from the former Soviet Union. In August 1994, the Ministry of Industry awarded four 35-year concessions for exploration and drilling to the following American companies: Blue Star Corporation; Occidental; MOBIL; and Coastal Oil & Gas Corp. A. RANK OF SECTOR: 5 B. NAME OF SECTOR: Electric Power Systems C. INDUSTRY SECTOR CODE: ELP D. TOTAL MARKET SIZE: 100 E. TOTAL LOCAL PRODUCTION: 88 F. TOTAL EXPORTS: 8 G. TOTAL IMPORTS: 20 H. IMPORTS FROM U.S.: 5 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: The new government will move quickly in late 1994 to begin privatization of the electricity-generating facilities. Privatization is likely to involve massive upgrades of the existing facilities. A. RANK OF SECTOR: 6 B. NAME OF SECTOR: Plastic Materials and Resins C. INDUSTRY SECTOR CODE: PMR D. TOTAL MARKET SIZE: 524 E. TOTAL LOCAL PRODUCTION: 755 F. TOTAL EXPORTS: 320 G. TOTAL IMPORTS: 192 H. IMPORTS FROM U.S.: 5 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: Hungary produces primarily polyethylene which is used domestically and exported. There is a demand for more advanced industrial and engineered plastics. A. RANK OF SECTOR: 7 B. NAME OF SECTOR: Industrial Chemicals C. INDUSTRY SECTOR CODE: ICH D. TOTAL MARKET SIZE: 2,041 E. TOTAL LOCAL PRODUCTION: 1,900 F. TOTAL EXPORTS: 269 G. TOTAL IMPORTS: 410 H. IMPORTS FROM U.S.: 9 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: The United States is internationally competitive in natural gas and petroleum-based organic chemicals. Hungary has only one major petrochemical facility -- TVK. Rising production costs will make imported products increasingly more competitive. A. RANK OF SECTOR: 8 B. NAME OF SECTOR: Computers & Peripherals C. INDUSTRY SECTOR CODE: CPT D. TOTAL MARKET SIZE: 290 E. TOTAL LOCAL PRODUCTION: 45 F. TOTAL EXPORTS: 10 G. TOTAL IMPORTS: 255 H. IMPORTS FROM U.S.: 45 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: While market size has constricted slightly, U.S. exports continue to rise. American companies have been successful in automating most of the new foreign ventures in Hungary and winning government procurements. While there will be budget cutbacks in terms of new equipment procurements, there are still several large procurements which will be issued in the next couple years. Additionally, new foreign investor interest continues to be strong with major privatizations taking place at year's end. A. RANK OF SECTOR: 9 B. NAME OF SECTOR: Automotive Parts & Service Equipment C. INDUSTRY SECTOR CODE: APS D. TOTAL MARKET SIZE: 476 E. TOTAL LOCAL PRODUCTION: 500 F. TOTAL EXPORTS: 186 G. TOTAL IMPORTS: 162 H. IMPORTS FROM U.S.: 11.6 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: There is increased demand for automotive parts by both finished vehicle manufacturers and in the after-market. Many Western automotive producers have established production facilities in Hungary. These producers are for parts that cannot be sourced in Hungary; some manufacturers have even brought certain suppliers to invest in facilities in Hungary. In terms of the after-market, legions of Western cars have hit the roads in Hungary. The new owners require services and parts to maintain their autos. A. RANK OF SECTOR: 10 B. NAME OF SECTOR: Computer Software C. INDUSTRY SECTOR CODE: CSF D. TOTAL MARKET SIZE: 58 E. TOTAL LOCAL PRODUCTION: 30 F. TOTAL EXPORTS: 7 G. TOTAL IMPORTS: 35 H. IMPORTS FROM U.S.: 31.5 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: The computer software continues to be supplied primarily by the United States. The software market is very competitive and in some niches becoming saturated. However, producers and distributors continue to expand and to focus on new segments such as the banking/financial sectors, and integrated software for telecom/adp systems. A. RANK OF SECTOR: 11 B. NAME OF SECTOR: Foods - Processed C. INDUSTRY SECTOR CODE: FOD D. TOTAL MARKET SIZE: 3,087 E. TOTAL LOCAL PRODUCTION: 3,985 F. TOTAL EXPORTS: 1,300 G. TOTAL IMPORTS: 402 H. IMPORTS FROM U.S.: 5.8 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: Hungary has maintained low quotas for imported processed foods. This will change given the conclusion of the Uruguay Round agreement; quotas will be eliminated. There is rising demand for snackfoods and confectionery products. Additionally, canned and packaged foods (fruits, vegetables, pastas, sauces), frozen foods, etc. A. RANK OF SECTOR: 12 B. NAME OF SECTOR: Franchising C. INDUSTRY SECTOR CODE: FRA D. TOTAL SALES: 56 E. TOTAL SALES BY LOCAL FIRMS: 30 F. TOTAL SALES BY LOCAL FIRMS: 30 G. TOTAL SALES BY FOREIGN-OWNED FIRMS: 26 H. TOTAL SALES BY U.S.-OWNED FIRMS: 22 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: Franchises offer entrepreneurs the application of a successful business concept in their particular economy. Franchises in food service have been particularly successful, with an explosion of sales for these businesses. The following offer potential: automobile servicing, business services (including printing/copying), dry cleaning. A. RANK OF SECTOR: 13 B. NAME OF SECTOR: Travel & Tourism C. INDUSTRY SECTOR CODE: TRA D. TOTAL SALES: 1,100 E. TOTAL SALES BY LOCAL FIRMS: 980 F. TOTAL SALES BY LOCAL FIRMS: 980 G. TOTAL SALES BY FOREIGN-OWNED FIRMS: 120 H. TOTAL SALES BY U.S.-OWNED FIRMS: 18 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: The new government has articulated its intention to emphasize development of the tourism sector. Specifically, the government is likely to offer investment incentives for this sector. The government has already opened new tourism offices abroad to promote tourism to Hungary. Other related sectors will benefit such as fast-food franchises, hotel and catering services. Additionally, the airport is being expanded to handle increased passenger loads. Motorway and railways are also being improved and further expanded to facilitate travel around the country. A. RANK OF SECTOR: 14 B. NAME OF SECTOR: Medical Equipment C. INDUSTRY SECTOR CODE: MED D. TOTAL MARKET SIZE: 45 E. TOTAL LOCAL PRODUCTION: 55 F. TOTAL EXPORTS: 22 G. TOTAL IMPORTS: 12 H. IMPORTS FROM U.S.: 5.6 I. EXCHANGE RATE: $1 = 106 COMMENTS: The medical equipment market depends entirely on larger issues facing Hungary's health care system. The "state of health" of that system is poor. Many hospitals and care centers are experiencing financial difficulties. While the new government is likely to overhaul the health care system and reduce some benefits, it is equally likely that the system will be streamlined and future procurements made to upgrade some facilities. Already, U.S. exporters have made sales in electro- cardiovascular, patient monitoring and x-ray-based equipment. There is some privatization already taking place in the health care sector. While opportunities are still limited, there is good growth potential. A. RANK OF SECTOR: 15 B. NAME OF SECTOR: Apparel C. INDUSTRY SECTOR CODE: APP D. TOTAL MARKET SIZE: 540 E. TOTAL LOCAL PRODUCTION: 400 F. TOTAL EXPORTS: 200 G. TOTAL IMPORTS: 160 H. IMPORTS FROM U.S.: 2 I. EXCHANGE RATE: $1 = HuF 92 COMMENTS: Western-style "trendy" clothes are very popular such as sports and leisure wear which define lifestyles -- jeans, brandname t-shirts, athletic wear, designer labels. An increasing amount of disposable income is being directed at apparel purchases, especially for the younger generations (ages 16-30). B. Best Trade Prospects: Agricultural Sector A. RANK OF SECTOR: B. NAME OF SECTOR: Seed C. INDUSTRY SECTOR CODE: D. TOTAL CONSUMPTION: 100 E. TOTAL LOCAL PRODUCTION: 0 F. TOTAL EXPORTS: 70 G. TOTAL IMPORTS: 10 H. IMPORTS FROM U.S.: 6 I. EXCHANGE RATE: N/A A. RANK OF SECTOR: B. NAME OF SECTOR: Cotton C. INDUSTRY SECTOR CODE: D. TOTAL CONSUMPTION: 88 E. TOTAL LOCAL PRODUCTION: 0 F. TOTAL EXPORTS: 0 G. TOTAL IMPORTS: 88 H. IMPORTS FROM U.S.: 6 I. EXCHANGE RATE: N/A A. RANK OF SECTOR: B. NAME OF SECTOR: Bovine Semen C. INDUSTRY SECTOR CODE: D. TOTAL CONSUMPTION: 10 E. TOTAL LOCAL PRODUCTION: 0 F. TOTAL EXPORTS: 0 G. TOTAL IMPORTS: 88 H. IMPORTS FROM U.S.: 6 I. EXCHANGE RATE: N/A A. RANK OF SECTOR: B. NAME OF SECTOR: Poultry Breeding Stock C. INDUSTRY SECTOR CODE: D. TOTAL CONSUMPTION: 75 E. TOTAL LOCAL PRODUCTION: 0 F. TOTAL EXPORTS: 19 G. TOTAL IMPORTS: 4 H. IMPORTS FROM U.S.: 3 I. EXCHANGE RATE: