Hungary is widely known for its goulash, a spicy meat stew with origins tracing back to Medieval times. And it was this dish that gave the name to so-called 'goulash communism', a 1960s economic policy enabling Hungarians to enjoy some elements of a free market, making the country's economy one of the strongest in the former Soviet bloc.

Modern day Hungary should still be one step ahead of much of the rest of the central and eastern Europe (CEE) region, according to Gergely Urmossy, senior economist at Erste Bank Hungary, the national arm of the Austrian lender. This can in part be attributed to “a very advantageous geographical position and advanced infrastructure, including a highly developed road network”, says Mr Urmossy. On top of that he adds, the country's cost of labour is one of the lowest in the region, second only to Romania. “This means that Hungary can offer a hard infrastructure that is at least at the CEE standard, with labour costs that are below the CEE average,” he says.

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Investment rollercoaster

And yet, while Hungary's economy has struggled since the onset of the global financial crisis (it recorded -6.6% GDP growth in 2009, rebounding slightly in 2010 and in 2011, before registering -1.7% in 2012, only to rebound again the following year), its inbound FDI record over the past few years has been consistently poor. While the country attracted 139 new greenfield projects in 2010, according to fDi Markets data, the following year the number decreased slightly to 123, and then continued on its downward spiral the following two years. In 2013, Hungary secured half the number of greenfield investment projects that it managed in 2010, while 2014 and 2015 saw an uptick in the number of projects, with 84 and 93, respectively.

To make matters worse, the $2.5bn that Hungary brought in in FDI capital investment in 2015 was one of the country's worst years of late. In 2010, it attracted three times that amount.

The year 2010 was when Viktor Orban, a right-wing politician known for his nationalistic views and brash style of government came to power. Mr Orban's style has earned him a number of critics, among them European Commission president Jean-Claude Juncker, who called him a "dictator".

A state of inertia

It is, however, not necessarily Mr Orban's style that is deterring investors from entering Hungary. Indeed, Mr Orban was in power between 1998 and 2002, when Hungary's business environment was widely considered to be investor friendly. “FDI inflows have been lagging behind since the start of the financial crisis. That is true not just for Hungary, but also the other CEE countries,” says Mr Urmossy.

However, Mr Orban's increased taxes on banks, the energy sector, telecommunications and retail chains, introduced to counter the impact of the financial crisis, have done little to increase the country's attractiveness to investors, given that most of companies operational in Hungary within these sectors are owned by foreign companies.

Also, since Mr Orban came to power in 2010, its main rivals for foreign investment in the CEE region have been making strides to become more business friendly. In 2010, Hungary ranked 47th globally in the World Bank's Doing Business report, close to Slovakia (42nd) and Bulgaria (44th), and more than 20 places ahead of Poland and the Czech Republic. In the 2015 ranking, Hungary's position has remained almost unchanged (42nd), but every other CEE country, apart from Moldova, has overtaken it. Even Moldova has jumped 42 places since 2010 and now ranks only 10 places behind Hungary.

The policy of re-industrialisation pursued by Mr Orban since 2013 has also done little to improve Hungary's FDI record. “What follows from this [re-industrialisation] are jobs, economic growth, foreign investment and competitiveness,” Mr Orban was quoted as saying by politics.hu, a Hungarian news website. And although the country's industrial production output in 2014 rose to 7.3% (it only increased by 1.5% in 2013), led by FDI-friendly sectors such as automotive components and industrial machinery, the country's jobs creation via FDI remained stagnant. In 2014, foreign investors created just over 12,000 jobs in Hungary. In 2015, the number was 17,500. Meanwhile, in 2010 the number is estimated to have been 28,000, according to fDi Markets.

IPAs: the sound of silence

While Mr Orban's claim that Hungary should be an industrial leader in the CEE region was widely reported, his critics have claimed that he has yet to take any discernible action to make this happen. The same goes for activity within the Hungarian Investment Promotion Agency (HIPA) and local investment promotion agencies (IPAs). “There is not much news about HIPA, or the regional agencies,” says Mr Umrossy. “Actually, there is no public data about them.”

Despite multiple requests, HIPA failed to provide fDi with information or statistics regarding the country's business climate. Out of a similar request sent to IPAs representing Hungary's five largest cities excluding Budapest (which appears not to have an IPA – just a specific team within HIPA), only one – Szeged, a city of 162,000 people located in the south-eastern par of Hungary – addressed fDi's questions.

“We have a non-profit company that collects information relevant to investors and their role is to be a one-stop-shop for investors,” says Sandor Nagy, the vice-mayor of Szeged, who adds that the city is looking for investments into the ICT sector “based on the excellent training at the [local] university". Yet asked whether his city is seeking international investment, Mr Nagy stated: “We relaunched this activity a year ago, and therefore we have not attended any foreign events yet.”

During its 'goulash communism' era, Hungary was often referred to as “the happiest barrack in the socialist camp”. If the country's unimpressive approach to FDI attraction and business friendliness continues, that happiness could disappear altogether.