Shared from the 2017-12-22 Financial Times (Europe) eEdition

FT BIG READ. HUNGARY

Orban’s oligarchs

Viktor Orban is best known for introducing his brand of ‘illiberal democracy’ in Hungary. But he has also cultivated a group of friendly, wealthy businessmen in what critics call a form of crony capitalism.
By Neil Buckley and Andrew Byrne

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Across the road from Viktor Orban’s modest farmhouse in his childhood village of Felcsut stands a temple to the Hungarian prime minister’s passion: football. With a slate roof and wooden supports evoking illustrations from Hungarian folklore, the Pancho Arena — from the nickname of Fer-enc Puskas, widely regarded as the country’s greatest footballer — seats 3,800. The population of Felcsut, about 45km west of Budapest, is little more than 1,600.

At the end of the road runs a narrow-gauge railway along which, three times a day, a little red tourist train chugs 6km to an even smaller village, Alcsutdoboz, where Mr Orban lived until he was 10. The train, closed in the 1970s but reopened last year with €2m EU funding, is largely empty most days.

The railway and stadium have been pilloried by the prime minister’s critics as vanity projects. But they have something else in common. Both were built, in part, by Felcsut’s mayor, and a childhood friend of Mr Orban, Lorinc Meszaros. Until a few years ago, Mr Meszaros was a gas fitter. Thanks to winning state contracts, he jumped to number five in this year’s list of the wealthiest Hungarians compiled by website Napi.hu. In a year, his fortune soared from Ft23bn (€73m) to Ft120bn.

Asked by reporters how he had grown his business faster than Mark Zuckerberg’s Facebook, Mr Meszaros quipped, “Maybe I’m smarter.”

Mr Meszaros is just one of several businessmen with close links to Mr Orban and his ruling Fidesz party whose wealth has surged since it came to power in 2010. Foreign scrutiny has largely focused on how Hungary’s government has dismantled democratic checks and balances, created what Mr Orban calls an “illiberal democracy” and embraced a hardline nationalist, anti-immigrant ideology. Yet as Fidesz has entrenched its control, a circle of wealthy businesspeople has arisen around the party and the prime minister — in essence, a group of loyalist “oligarchs”.

Anti-corruption campaigners, bankers and opposition politicians say Hungary has shifted to a form of “crony capitalism”, increasingly resembling models found further east in ex-Soviet republics, where business success is intertwined with political power. Hungary’s government-favoured tycoons may be worth only hundreds of millions, not the billions of dollars of, say, Russia’s oligarch class. But critics say its economic structure is becoming a miniature version of Vladimir Putin’s Russia.

The difference is that Hungary has built this system within the EU — in part, using EU funds. Much of the new Fidesz-linked business elite has achieved its success primarily through state contracts, about 60 per cent of which are funded by the EU.

“Since 2010, going along with the distortion of the whole institutional system, basically Fidesz and oligarchs close to Fidesz have captured the state,” says Jozsef Peter Martin, executive director of Transparency International, the anti-corruption group, in Budapest. “The most worrying thing about Hungary’s development today is cronyism.”

‘Several little Simicskas’

Until a few years ago, most Hungarians were aware of only one Fidesz oligarch, the publicity-shy Lajos Simicska. Mr Simicska went through school, army service and university with Mr Orban, then helped him build Fidesz from a 1980s pro-democracy youth movement into the party that now rules Hungary.

From the early 1990s, Mr Simicska used party money to create business ventures to fund Fidesz. He assembled a loyal media empire and, thanks largely to state contracts, a sprawling construction business. But after the two men fell out in 2015 — in part over attempts by Mr Orban to clip the wings of his ally — Mr Simicska was squeezed out of some media assets and stopped winning contracts. Opportunities opened for new, loyal businessmen.

“Orban apparently doesn’t want another Simicska, someone as powerful as him,” says Andras Petho, editor of investigative website Direkt36. “So what we are seeing now is several little Simicskas.”

Not so little. While the upper echelons of Hungary’s rich list remain dominated by business people who emerged in the 1990s, there have been several striking rises apart from Mr Meszaros. At 14th in Napi’s list this year with estimated wealth of €192m was Andy Vajna, a Hungarian-American who made some of his fortune as a Hollywood producer of films including Rambo and Total Recall. Mr Orban stayed with him as a young Fidesz MP on a US trip in the 1990s. Mr Vajna was appointed Hungary’s film commissioner by Mr Orban in 2011 and, having returned to Hungary, has replaced Mr Simicska as a leading pro-Fidesz media baron.

At 23rd was Istvan Garancsi, another friend of Mr Orban and owner of his second-favourite football club, Videoton, with an €80m fortune — three times his worth when the prime minister came to power in 2010. Despite Mr Simicska’s fall from grace, he is Hungary’s 11th-richest man, worth €256m. A wealth list in last month’s Forbes Hungary magazine, with marginally different estimates, put all four men among Hungary’s top 21 richest.

Party benefits

Fidesz’s large parliamentary majority and dominance of national and many regional institutions gives it several ways of helping favoured business people. Everything from lucrative state advertising to business licences can be channelled to friendly entrepreneurs. A study by two Hungarian academics this year found that state-owned companies account for 26 per cent of print advertising, 15 per cent of online advertising, and 7 per cent of TV ad revenues.

In 2013, Mr Vajna was awarded five out of seven casino licences issued by the government. He also benefited from support from state-controlled development banks. The media tycoon received loans totalling €26m in 2015 and 2016 in part from Hungary’s Eximbank — which is supposed to finance exporters — to help acquire and develop TV2, Hungary’s second-largest TV channel. The government said it had changed a law in 2013 to allow the state bank to finance domestic companies to improve international competitiveness.

But pro-Fidesz tycoons have prospered above all from public contracts, often part-financed by EU funds — of which Hungary is, in proportion to its gross domestic product, the EU’s largest recipient. The Corruption Research Center Budapest, a non-governmental organisation, analysed all public procurement contracts from 2010-16. It found four Fidesz-linked businessmen — Mr Simicska, Mr Meszaros, Mr Garancsi and Istvan Tiborcz, who is the prime minister’s son-in-law — together won 5 per cent of contracts by value, totalling €1.88bn. In 2013, the four won 12 per cent of all contracts; Mr Simicska’s companies alone won 11 per cent.

Contracts won by the four men averaged 13 times the size of other contracts. The four also tended to face fewer competing bids than in other tenders — suggesting rivals might steer clear because they assumed the Fidesz-linked businessmen would win. Based on analysis of contracts since 2007, Transparency International, meanwhile, estimated in November 2015 that Hungarian public contracts were overpriced, on average, by 25 per cent compared with market prices. “Orban is a clever guy,” says Istvan Janos Toth, CRCB director. “He’s using European funds to build this cronyist regime.”

Zoltan Kovacs, Hungary’s government spokesman, says the government had a “rule, within the confines of EU law, to help Hungarian companies be successful”. But he said all contracts were awarded on merit and it was “simply not true there is an unfair number of assignments that have been given to” businesspeople close to Fidesz.

The four businessmen in the CRCB study and Mr Vajna did not respond to questions sent by the Financial Times. Mr Meszaros, in a 2014 interview, did thank “God, luck and Viktor Orban” for his achievements. “But,” he added, “I’ve never privatised anything, I’ve never embezzled and I’ve acquired everything with my own work and my own wits.”

In an interview last month, Mr Meszaros rebuffed a question over whether he is a stroman, a Hungarian word similar to straw man and meaning proxy, for Mr Orban. “I think what I do speaks for itself, the way our company works doesn’t need an explanation and I think I contribute a lot,” he said. “How could I be [Mr Orban’s] proxy? It’s ridiculous.”

Asked about the same issue in a parliamentary question last year by Gabor Vona, leader of the far-right Jobbik party, Mr Orban replied: “I never had a straw man, nor do I have one now, nor will I ever have one in the future.”

A patriotic cohort

Yet, despite their humble background in Felcsut, where his father was a labourer and agricultural engineer, the Orban family has had some business success. A scandal erupted during Mr Orban’s first prime ministerial term in 1999 when it emerged that a Fidesz- and Simicskalinked company had helped his father, Gyozo, and associates gain control of a privatised mine. In recent years, companies belonging to Mr Orban Senior and the prime minister’s two brothers have been reported to be supplying building materials to state construction projects. Asked about the report on Direkt36, Mr Orban hinted that since his father was not a contractor but an indirect supplier, there was no conflict of interest.

Mr Tiborcz, who married Mr Orban’s daughter Rahel in 2013, is also an up-and-coming businessman. A company he then controlled won partly EUfunded contracts totalling €65m in 2014 and 2015 to install LED street lights in Fidesz-run towns across Hungary. Olaf, the EU’s anti-corruption office, confirmed to the FT that it was investigating these contracts. Forbes Hungary in 2015 estimated the family’s wealth, excluding Mr Tiborcz, at €22m.

Surprisingly, perhaps, the rise of Fidesz-linked businessmen is happening essentially in plain sight — indeed, with official approval. Andras Lanczi, rector of Budapest’s Corvinus University, and considered an unofficial ideologist for Fidesz, told the FT that “certainly, these are Hungarian oligarchs”.

“But it is openly pursued as a policy, it is what [the government] wants,” he added. “Although [Mr Orban] has never said that, he perhaps encourages or allows that certain Hungarian entrepreneurs get really rich, to form the top of the Hungarian middle class.”

Fidesz leaders have spoken of the need to create a national bourgeoisie, or what Mr Lanczi calls a “patriotic cohort of entrepreneurs”. What the ruling party is doing to advance its vision is, he says, no more corrupt than communist-era nationalisation or the post-communist privatisations of the 1990s.

A senior Hungarian banker who asks not to be named counters that the patriotic entrepreneurs are not creating innovative businesses. “The new capitalist ruling class . . . make their money from the government, and competition for these [contracts] is far from fair, open or transparent.”

Mr Martin of Transparency International says that while cronyism and graft were big problems during the eight-year socialist government before 2010, many Hungarians fail to appreciate how much more centralised corruption has become.

“Corruption before 2010 was rather a dysfunction of the system,” he says. “Today, it’s a part of the system.”

‘Along with the distortion of the institutional system Fidesz and oligarchs close to Fidesz have basically captured the state’ ‘The new ruling class . . . make their money from the government, and competition for these [contracts] is far from fair’

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