Smart policies help Hungary's MSMEs benefit from the fourth industrial revolution: Digital transformation programmes provides opportunity to improve economic output while increasing connectivity.

• Author: Vattai, Tamas
• Position: SPECIAL REPORT - Micro, small and medium-sized enterprises

The fourth industrial revolution offers a unique opportunity for countries with smart economic policies, which aim to boost energy efficiency and sustainable transport, to raise domestic value added and increase economic growth.

Such policies on one hand have to improve the ecosystem horizontally for business actors. On the other they have to target strategically important sectors, where digitization can have the most impact. Closing the productivity gap between micro, small and medium-sized enterprises (MSMEs) and large companies is another important factor promising large growth potential.

Accelerating digitization and converging towards a technology-driven economy can increase Hungarian GDP growth by an extra half percentage point each year until 2025, according to global management consultancy McKinsey & Co. Close to half of workforce activities in Hungary today could be automated by 2030 using technology that is already available, leading to greater productivity, the analysis shows. It is particularly the historically workforce-intensive and currently under-digitized sectors, such as manufacturing, agriculture and trade, show significant automation potential.

For a successful digital transition, Hungary adopted in 2016 the Industry 4.0 programme. This focuses on sectors that have already a strategic importance in the economy and in which digitization, higher research and development can considerably raise the value added content. These targeted sectors include the electric and automated vehicles; e-health; tourism; digital trade; and smart agriculture industries. Supporting MSMEs is a key aspect of the industry development strategy as these companies contribute 54% of Hungarian GDP and employ 70% of the nation's workforce.

Some Hungarian MSMEs are successfully integrated in global value chains, especially automotive suppliers and pharmaceutical companies. However, most MSMEs are less productive than larger companies. Closing this gap in productivity and increasing the ability of MSMEs to bring innovative products and services to the market represent a major opportunity for improvement to the whole economy, given the high share of these companies in GDP and employment. In order to enhance their productivity the government is improving the business ecosystem for doing business and has introduced tailor-made development programs for MSMEs.

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