Orbán expands his grip to Hungary’s military and defence industry

Kristóf Szalay-Bobrovniczky was still in business with a Russian rail company under US sanctions when he took over as Hungary’s defence minister last year.

Although he sold his stake weeks after assuming office, his appointment, business ties and political affinities are indicative of Prime Minister Viktor Orbán’s expanding grip on Hungarian society to include the armed forces and defence industry.

The Orbanisation of the Hungarian military-industrial complex comes as Nato allies are increasingly alarmed by the prime minister’s ambivalent stance towards Russia and the war in Ukraine, where Budapest remains an outlier in its continued refusal to send weapons to Kyiv.

Orbán on Saturday defended his position, arguing that any actions by Nato allies that go beyond defending themselves are optional and that his country opted to stay out of the war.

“We don’t think humanitarian support to Ukraine means nullifying our Russian connections,” Orbán said. “That would be against our national interest . . . So we maintain our economic ties with Russia, and we advise the entire western world the same.”

A longtime Orbán ally, Szalay-Bobrovniczky last month started a push to trim the military’s top ranks, many of whom spent their whole career within Nato — a move critics say is politically motivated.

Petr Pavel, a former Nato general who was recently elected as Czech president, described the military purge as part of a “step-by-step concentration of power around Viktor Orbán and restrictions on all those who had a different view”.

On paper, Szalay-Bobrovniczky has the right credentials for his job: as a businessman, he invested in the defence sector and he served as Hungary’s ambassador to the UK between 2016-2022. But his career would have probably taken a different turn had he not become what Tamás Csiki Varga, a defence expert at the Hungarian University of Public Service, called “an important member of Orbán’s governing elite”.

“Hungary’s military upgrade will require a staggering amount of resources,” said Csiki Varga, adding that the minister enjoys the “political trust” needed to spend the funds effectively.

As a former leader of a pro-government think-tank and a weekly newspaper, Szalay-Bobrovniczky has maintained close ties to the System of National Cooperation (NER), Orbán’s network of institutions and private corporations that is leading the development of Hungary’s defence industry.

Orbán’s plans for the defence industry were made clear last year, when he attended a ceremony for army recruits: “We are building a military industry here at home, in Hungary, one that can produce modern weapons.”

Szalay-Bobrovniczky is seen as the right man to implement that strategy partly because he once participated in the sector as an investor: In 2021, he purchased a Czech aircraft manufacturer, Aero Vodochody, with the help of a €150mn loan from the state-owned Hungarian Development Bank. Weeks before he was appointed, he received a government order of 12 training and reconnaissance jets in an estimated €180mn deal.

After taking office, Szalay-Bobrovniczky sold his stakes in the plane maker, as well as in the Russian joint venture, to an investment fund controlled by Zsolt Hernádi, chief executive of oil group MOL. Hernádi, regarded by some analysts as an NER insider, declined to comment on his role in the acquisitions.

Szalay-Bobrovniczky has long identified as a backer of the illiberal regime of Orbán. He said in 2015 that he was “an active member of the ongoing elite change” replacing leftist-liberal politics — a role that has come with powerful friends and juicy perks.

In 2020, while ambassador in London, he acquired a casino commission together with another friend of Orbán’s affiliated with NER. According to company data, the casino company paid its owners a €28mn dividend in 2021. Szalay-Bobrovniczky sold his stake in the casino venture in December for an undisclosed price. The buyer was Árpád Habony, Orbán’s political mastermind.

The award of public contracts to Orbán’s coterie, including for EU-funded projects, is among the reasons why Budapest has failed to unlock some €30bn of EU money, despite the premier’s attempts to pressure Brussels by delaying sanctions against Russia and financial assistance to Ukraine.

One of the main companies involved in Hungary’s fledgling defence industry is 4iG, a listed telecommunications group. Once a lossmaking penny stock, it was acquired in 2018 by Orbán’s childhood friend Lőrinc Mészáros, Hungary’s richest man. State contracts have sparked a rapid expansion for 4iG: revenue in the first three quarters of 2022 exceeded full-year 2017 numbers about 13-fold. Its share price has increased from Ft40 ($0.11) in 2017 to Ft700.

Passed on to a former Mészáros associate, Gellért Jászai, in 2020, 4iG has since bought state-owned transmission systems operator Antenna Hungária; used state loans to buy Vodafone’s Hungarian business; and acquired a string of Balkans telecommunications companies.

German arms maker Rheinmetall, which contributes to the manufacture of the Leopard 2 tanks coveted by Ukraine, last year took a 25 per cent stake in 4iG. Their joint venture plans to offer military-grade IT services in what Jászai said was a “unique opportunity to gain a foothold in the global defence industry”.

Rheinmetall will sell hundreds of Lynx armoured carriers to Hungary, as well as ammunition and technical equipment, opening at least three factories to enable local production. Production of Lynxes started up in the western town of Zalaegerszeg last month.

Armin Papperger, Rheinmetall chief executive, called the co-operation “a token of our special commitment to Hungary” and an integral part of a digitisation strategy that reflects modern weapons systems’ reliance on IT infrastructure.

4iG said its partnership with the Hungarian government was limited to the telecommunications sector.

“Our strategic co-operation with Rheinmetall is in no direct connection with Rheinmetall’s position as a government supplier [in Hungary],” 4iG said, adding that it seeks to expand its partnership with the German company beyond Hungary’s borders.

Szalay-Bobrovniczky said the defence industry partnerships were mainly European “for strategic reasons” — highlighting Hungary’s increasing distance from Nato’s leading force, the US.

Ties with America have frayed more rapidly since Russia’s full-scale invasion of Ukraine. In one especially heated exchange, US ambassador David Pressman reminded Hungary it should side unambiguously with the west, sparking an angry response from Budapest.

Pressman said Hungary’s relationship with Russia remains “concerning, especially as it has shown no signs of abating following Russia’s full-scale invasion”.

“While every country has its own interests and perspectives, Russia’s brazen attempts to redraw borders by force tears up the rule book,” Pressman told the Financial Times. “(They) are not merely a domestic political issue for any single country, especially an ally.”