Catastrophic economic projects of the Hungarian communists: the Hungarian housing project in Libya

According to some economists, it is a widespread misbelief in Hungary that communism bankrupted because leaders spent more Western money on keeping living standards higher than they were in the neighbouring countries. They say, instead, the many prestige investments could be the reason, all of which failed. One of them is the Libyan housing project.

The end of the big housing/flat building projects of the 1970s marked the start of the crisis in the Hungarian construction sector because it had a lot of unnecessary capacities. Therefore, the Hungarian government was very happy to hear during the 1980 Libyan-Hungarian negotiation that the Libyan government would like to entrust Hungarian companies to build 1,000 flats and the joint infrastructure in the North-African country. Based on the plans, the Hungarians would have produced 300 units in Tripoli and 700 in Zintan. The Hungarian government chose the ÉMEXPORT to carry out the plan, and the company received 600 million HUF to do so from the National Bank of Hungary. If they succeeded

they would have received 100.6 million dollars from Libya

which was a considerable amount of foreign currency those days for communist Hungary.

However, it became shortly clear that the Hungarian construction companies lack the experience and knowledge to build flats in the hot desert of the African country. They needed new vehicles and tools which had to be bought from the West, so they needed another 600 million HUF from the National Bank of Hungary. Further loans followed these so this sum climbed to 2.2 billion HUF in the end.

Moreover, the Libyan economy did not grow according to the expectations, so the local government introduced austereness which caused the decrease of the purchasing power of the people. As a result, socialist construction companies from Easter-Germany or Bulgaria left Libya one after the other, only the Hungarian one remained. But

without good local relationships, money and help

they could not solve even the most basic problems.

Despite all these, the Hungarian government trusted the good Hungarian-Libyan political relationship. Thus, they did not halt the project but unsuccessfully tried to modify the conditions of the contract.

The Hungarian companies could not keep the deadlines, so the government fired the CEOs one after the other, but that could not solve the problem. Since the fallback was considerable, in 1984, the Libyan government stopped the project and sent the ÉMEXPORT home. The company became bankrupt because of that decision.

The altogether sum the Hungarian state lost on the project 7.8 billion HUF,

almost one pc of the 1984 Hungarian GDP. Of course, nobody was brought to court because of the project.

Featured image: Tripoli, the capital of Libya.