Competitiveness of Hungarian regions fails to improve despite immense EU funds

The current situation shown on spectacular map

The European Commission timed the release of its latest European Regional Competitiveness Index (RCI) for the European Week of Regions and Cities.

The Regional Competitiveness Index (RCI) has been measuring the major factors of competitiveness over the past ten years for all the NUTS-2 level regions across the European Union. The Index, which is published every three years (the first was released in 2010) measures with more than 70 comparable indicators the ability of a region to offer an attractive and sustainable environment for firms and residents to live and work.

RCI 2019 tracks the performance of 268 regions at NUTS-2 level across 28 EU Member States . It measures 11 dimensions of competitiveness capturing concepts that are relevant to productivity and long-term development.

As you can see, the capital cities and their immediate regions stand out from the other regions in terms of their competitiveness rankings. This also stands for Hungary, i.e. Budapest and its commuting zone is way more competitive than the other regions in the country.

There are three main dimensions gauging competitiveness: the basic, the efficiency, and the innovation pillars. The first includes institutions, macroeconomic stability, infrastructure, health, and basic education. The second includes higher education and lifelong learning, labour market efficiency, and market size. The third includes technological readiness, business sophistication, and innovation.

The pattern in Hungary is slightly different than the general pattern, as it is not only the capital city and its commuting belt that stands out, but also the Western Transdanubia region, i.e. both are more competitive than the rest of the country.

Unfortunately, if we dig a bit deeper, we find that six regions (except Central Hungary) are lagging far behind the EU average in the RCI 2019.

And the problem is not only the relative backlog Hungary has at the moment. The trend is also worrying. Hungarian regions did not make progress regarding their lagging behind in competitiveness either between 2016 and 2019 or between 2010 and 2019.

This means that despite the massive inflow cohesion funds targeting the most underdeveloped regions the desired results were never achieved.

This should definitely make policymakers wonder how the funds of the next programming cycle should be distributed and what changes should be made to the logic of intervention policy. One of the outcomes of such brainstorming could be the realisation that Hungary needs gap analyses before putting together national or regional development lists, rather than lumping together ‘leftover’ projects that failed to receive allocations in the current cycle.

There are already informal consultations between the Commission and Hungarian authorities on the programming of funds in four out of the five main objectives in the 2021-2027 period (bar the ‘Europe closer to citizens’ goal).

This makes a lot of sense because after the ‘big deal’ between heads of state and government is made about all the parameters of the EU budget, Hungarian authorities will be able to quickly submit all the necessary documents to the Commission for approval, and development programmes can be launched shortly in Hungary. The competitiveness problems regions are currently facing provides a useful planning foundation for that.

Five main objectives will drive EU investments in 2021-2027:

Regional development investments will strongly focus on objectives 1 and 2. 65% to 85% of ERDF and Cohesion Fund resources will be allocated to these priorities, depending on Member States’ relative wealth.

1. Smarter Europe, through innovation, digitisation, economic transformation and support to small and medium-sized businesses
2. a Greener, carbon free Europe, implementing the Paris Agreement and investing in energy transition, renewables and the fight against climate change
3. a more Connected Europe, with strategic transport and digital networks
4. a more Social Europe, delivering on the European Pillar of Social Rights and supporting quality employment, education, skills, social inclusion and equal access to healthcare
5. a Europe closer to citizens, by supporting locally-led development strategies and sustainable urban development across the EU.

The objective in 2021-2027 should definitely be to boost the development level of Hungarian regions a lot closer to the EU average. For that it would be indispensable to mitigate the huge development gaps between the regions.

There are massive development gaps not only between the regions, but also within the counties that make up the regions. The EC argues that this is a main obstacle to improving the competitiveness of the whole country.

The table below attests that none of the Hungarian regions closed the gap to the EU average, no matter which year you look at and which year is the base:

Highlights of the RCI 2019 in respect of Hungarian regions:

• Central Hungary is on the 139th spot among 268 regions, while it is 92nd based on GDP per head in purchasing power standard (PPS). This means that its competitiveness is weaker than what its economic development level would imply.
• Central Transdanubia is 194th in the overall rankings, and it is 220th based on GDP per capita in PPS. In other words, it fares better in competitiveness than its economic development level would imply.
• Western Transdanubia is on the 196th and the 192nd places, respectively, so the same applies here, as well.
• Northern Hungary is ranked 227th and 258th, respectively.
• The Southern Great Plain region is ranked 221st and 254th, respectively.
• Southern Transdanubia is ranked 230th in the RCI 2019 and 259th based on per capita GDP (PPS).
• The Northern Great Plain region occupies the 233rd and 260th spots, respectively.

The top performer in this edition of the RCI is the region of Stockholm, followed by Utrecht and London with its wide commuting zone, sharing the second position.

As in all previous RCI editions, most of the top regions host either capitals or large metropolitan areas whose agglomeration and connectivity of economic activities and human capital make them engines of growth and competitiveness.

At the other end of the scale, we find five Greek regions, one Romanian, one Bulgarian region and the Spanish autonomous city of Melilla on the north coast of Africa plus the French outermost regions of Mayotte and Guyane.

Cover photo by MTI / János Bugány 

This article is part of the work programme titled "The impacts of EU cohesion policy in Hungary - Present and Future" which is carried out by Net Média Zrt., the publisher of Portfolio.hu, between 1st April 2019 and 31st March 2020 with European Union financing. The views in this article solely reflect the opinions of the author. The European Commission as the funding entity does not take any responsibility for the use of information presented in this article.