2021 Entrepreneurial Activity Review

Hungary is participating in GEM’s surveys for the first time since 2016. In the years leading up to 2016, the country’s TEA and EBO rates were averaging around 9% and 8%, respectively. Fittingly, in 2021, Hungary’s TEA rate was 9.8%, while its EBO was 8.4%. This consistency suggests a stable, perhaps natural, level of entrepreneurial activity in the country, which was sustained despite the unique challenges of COVID-19 to global business conditions. Yet the results of this year’s surveys also suggest that Hungarian entrepreneurs may not be sufficiently reacting to the new business realities caused by the pandemic, which could contribute to a decline in entrepreneurial activity if not addressed.

It is easy to see why Hungarian entrepreneurs were able to maintain previous activity levels in 2021, considering the economic performance of the country. In 2021, the IMF is projecting GDP to grow by nearly 8%. Additionally, according to GEM results, the rate of Hungarian adults who had lost household income as a result of the pandemic was only 32.6% — among the lowest of GEM Level B economies.

Improved macroeconomic conditions can certainly foster entrepreneurial opportunities. Perhaps as a result of this performance, only 33.9% of Hungarian TEA respondents said it was more difficult to start a business than in the previous year, fourth lowest among GEM Level B economies. Yet these strong economic conditions may be distracting Hungarian entrepreneurs from making necessary adjustments to their business strategy as a result of COVID-19, which is still a very present concern globally. This is evident in the number of entrepreneurs who said they saw new opportunities as a result of the pandemic. Only 23.4% of TEA respondents and 11.9% of EBO respondents agreed with this statement, both among the lowest rates for GEM Level B economies. Furthermore, only 28.3% of TEA respondents and 18% of EBO respondents said they planned to use more digital technology to grow their business in the next six months, the secondlowest rates among GEM Level B economies. These results indicate a low desire to meet new consumer demands for services and products generated by the pandemic. As COVID-19 will continue to be a significant factor in 2022, Hungarian entrepreneurs may be forced to change or risk decline.

2021 Framework Conditions Review

With a few exceptions, Hungary’s framework conditions were scored relatively well by experts. In particular, the condition Entrepreneurial Finance received a 4.9, third among GEM Level B economies, while Ease of Access to Finance received 4.7, also third. Strong scores in these conditions may reflect the new business opportunities generated by Hungary’s 2021 economic recovery. In a fast-growing economy with a developed financial sector, institutions’ balance sheets grow and entrepreneurs can more easily get access to finance. 

Hungary’s infrastructure conditions also received strong scores, providing a solid foundation for maintaining entrepreneurial activity, much like its financial sector. The condition Commercial and Professional Infrastructure, scored 5.8, fourth among Level B economies; while Physical Infrastructure received a 7.2, which was third among this group. Yet, surprisingly, Ease of Entry: Market Dynamics received a score of 3.5, second lowest among GEM Level B economies. This would indicate some regulatory barriers preventing entrepreneurs from offering their goods and services to the domestic market, but it could also help explain why both TEA and EBO respondents were less likely to invest in digital technologies to grow their business.

If there were regulatory hurdles in place that would cap entrepreneurial activity anyway, why would businesses invest in new technology? Lowering these regulatory burdens would therefore make these long-term investments more attractive.