It was a good day for Judit Csabai, the mayor of this east Hungarian city. She had just met with officials from Flextronics International Ltd., a California-based electronics company, who after months of negotiations with the local council were in town to oversee the final details of their plans to open an assembly factory.
The bottom line: 500 new jobs immediately, and the likelihood that the number of people employed by Flextronics would triple in the next two years.
"There are two winners," said a buoyant Csabai, "the company and the city."
It seemed like just another success for Hungary's booming economy, which has attracted $20 billion in direct foreign investment in the past 10 years, more per capita than any other central or East European country. Hungary's gross domestic product has grown nearly 5 percent annually in the past four years, making it the region's fastest growing economy. And since the fall of communism in 1989 the country has become one of central Europe's most favorable business locations, with 70 percent of its exports going to the European Union.
But the impressive statistics disguise one unhappy fact, which made Flextronics' decision to locate in Nyiregyhaza all the more noteworthy: Hungary is a country with a deep internal fault line. While the capital Budapest and the counties to its west prosper, the east, including cities such as Nyiregyhaza, has been stagnating.
"Hungary is too small to have two countries in it," Prime Minister Victor Orban said in an interview. "First, the eastern part of the country should join the western part. And then we together should join the European Union."
Unlike Poland, central Europe's other economic powerhouse, which has strong regional cities, particularly Krakow, Poznan, Wroclaw and Gdansk, Hungary is essentially a one-city country. Twenty percent of the population of 10 million lives in Budapest, which accounts for 40 percent of the nation's GDP and has an unemployment rate of only 5 percent. More tellingly, the greater Budapest area has attracted 70 percent of all foreign investment, according to the Economy Ministry.
The communist government located much of its heavy industry in the east, and the region once had major mining, machinery and other labor intensive enterprises, much of which collapsed after the political change. Unemployment in the east tops 20 percent in some areas, and in the county where Nyiregyhaza is located it stands at 19 percent, according to local authorities. Education levels are comparatively low, a higher percentage of people subsist on small farms, and no highway reaches the region.
"The country has developed very quickly," said Csabai, whose city has 120,000 residents. "But our balance has been upset. The east is clearly more backward."
In response, Hungary has begun a major effort to mitigate the problem. Companies such as Flextronics are offered 10-year tax breaks if they locate in the east, and municipal authorities in places such as Nyiregyhaza offer land at cut-rate prices and local tax breaks to attract industry.
And according to Peter Baumgartner, executive director of Flextronics for central Europe, the tax breaks and the government's commitment to build a new highway from Budapest to the Romanian border were critical factors in his company's decision.
"This is an excellent platform for business in Romania and Ukraine," he said. "Western Hungary is now very crowded, but, yes, the tax breaks were a major part of our decision to come here--plus the fact that the city has been very welcoming and cooperative."
According to Prime Minister Orban, change is already apparent, mostly tracking the eastern highway that now extends about 100 miles from Budapest. It should reach Nyiregyhaza in two years.
"It's clear that the business environment is more vivid, more dynamic in the territories reached by the highways," said Orban, who added that regional development is one of his major priorities. "By the end of our term, some perceivable results will be achieved."
The U.S. Embassy has opened three business offices in eastern Hungary, including one in Nyiregyhaza, to help improve the business practices of local companies and to act as a liaison for American companies considering locating there. Ambassador Peter Tufo said the initiative has resulted in a number of companies, including General Electric, opening facilities in parts of the country that they had ignored. And it has helped Hungarian-owned companies to standardize their accounting and other financial practices to attract Western capital.
"This has not been tried before," said Tufo, "and it's a model for what we can do in southeastern Europe."
For unemployed people such as Lazslo Ocsodi, new jobs can't come soon enough. Ocsodi, 37, had worked in food processing, but has had difficulty finding steady employment since he was laid off in the mid-1990s.
"It seems like Budapest gets everything," he said. "And that's not good for the country."