Germany’s Late Bloomer

The east of Germany is catching up, attracting a series of high-profile, big-ticket international business expansions. The region is finally delivering on a 30-year-old promise.

 February 2023

Blossoming landscapes – that was the flowery phrase West German Chancellor Helmut Kohl used in 1990 to describe the future of the former Communist east when it was being incorporated into the Federal Republic. But the regional economy did not immediately flourish after reunification, despite Germans paying a special “solidarity surcharge” in their taxes. In fact, over the three decades that followed, many worried that Germany’s east would be forever left behind.
Those concerns have dissipated in the past few years, as companies like Intel, Tesla, CATL and others have expanded east. While GDP in western Germany was almost three times as high as in the east in 1991, today it is only 1.4 times. Of course, one source of eastern attraction is access to what is known as the “GRW” cash incentives program (“Joint Task for the Improvement of Regional Economic Structures”). Another advantage is that labor and labor costs are lower than in the west.

The Bottom Line

The unique qualities of Germany’s east offer competitive advantages to international businesses that choose to expand there. Numerous subsidies from local and national governments are still available.

But there’s more to it than that. “Silicon Saxony,” as the populous eastern state is now known, is home to numerous microelectronics, semiconductor and software companies. One of them is the US manufacturer GlobalFoundries. The company has been producing chips in Dresden since 2009. “Dresden has a large network of suppliers and service providers,” says Jens Drews, director of government relations at GlobalFoundries. The German outpost plans to increase production capacities by 250 percent.
Saxony was the leading hub for microelectronics in Communist East Germany. That solid basis, combined with a host of economic reconstruction programs in the eastern states, has yielded a sensational catch-up process.

Other regions have developed new areas of specialization. Brandenburg, for instance, is increasingly becoming synonymous with batteries. Canadian cleantech company Rock Tech Lithium is expanding to the town of Guben, not far from Tesla’s massive gigafactory in Grünheide. It will begin producing climate-neutral lithium from 2024. “A state-of-the-art cluster for electromobility is currently being created in Brandenburg,” says Markus Brügmann, CEO of Rock Tech Lithium. “From our lithium processing to battery and cell production to e-car construction, everything that is important to us and for which we are important will be here.”
One big selling point for the eastern states is their flexibility and willingness to meet businesses’ needs and ability to fast-track development plans. “Intel went to Magdeburg in Saxony-Anhalt because they wanted them the most,” says Holtemöller. It was a similar story with Elon Musk and Tesla in Brandenburg. Jörg Steinbach, the region’s minister for economics, took a personal interest in the project, and now – just two years after construction began – cars are already rolling off assembly lines.

Eastern Germany has excellent higher education opportunities and a world-class research landscape, as well as greater gender equality in the workplace © Stokkete, Adobe Stock

“In general, the population is very positive toward industry,” says Silke Poppe, the GTAI division director for eastern Germany. That openness to change extends to renewable energy facilities. Some 40 new onshore wind turbines were built in Brandenburg in 2021 – more than four times the number than in Bavaria, which is bigger and more populous.

“Especially in terms of climate protection, the eastern states sometimes outstrip the western ones,” says Poppe. According to a survey by Deutsche WindGuard consultancy, Brandenburg now has the second-most onshore wind turbines among the regional states. “The availability of renewable energy is an enormous advantage when it comes to climate-neutral production, which is important to environmentally conscious companies,” explains Poppe. “Plus the infrastructure is newer, from rail networks to schools and universities. And we have a state-of-the-art research landscape here.”

The faculty–student ratio in Thuringia, for example, is one teacher for every 43 students – the best in Germany. These factors, as well as the lower overall cost of living, affordable property prices, greater gender equality in the workplace (a legacy from the Communist era when women shared the work) and affordable, quality childcare have a positive impact on attracting professionals to settle in the region.

All in all, there has never been a better time for international businesses to come to eastern Germany – before it catches up with the west.

Contact

Germany Trade & Invest’s division for eastern Germany and structural change