Germany’s Manufacturing Bounce

Manufacturing, one of the central pillars of the German economy, did not escape the coronavirus pandemic unscathed. But in 2021, Germany’s determined, export-focused producers and family-run businesses led the country’s economic recovery.

January 2022

The Swedish global hygiene and healthcare company Essity has not let the pandemic get in the way of progress. Essity invested EUR 40 million in expanding its facility in Mannheim, one of the biggest business investments in Baden-Württemberg in all of 2020. The innovative integrated production site will process wheat straw pulp for manufacturing paper products such as tissues and kitchen rolls. Wheat straw pulp produces the same quality as wood pulp but requires less water and energy to process and is a renewable resource.

Mannheim is Essity’s largest European plant, processing 220,000 tons of wood pulp annually. The facility expansion will increase that capacity by 35,000 tons of wheat straw pulp. Construction of the new buildings continued through the pandemic, with Essity still on target to start selling its sustainable paper products in the second half of 2021. The Mannheim plant provides work for around 2,000 people, making it one of the leading employers in the region. And the new straw pulp production will create additional jobs.

“Germany is the largest and most important market for Essity in Europe,” says Roger Schilling, head of Essity’s Mannheim location. “Here we have not only good investment conditions, but also excellently trained skilled workers with whom we can effectively implement the transformation toward even greater sustainability.”

Like other sectors worldwide, German manufacturing was hit hard by pandemic restrictions on freedom of movement and disruptions to supply chains. But manufacturers carried on and are now reaping the rewards of their creativity and persistence.

Cheery outlook

The Federation of German Industries (BDI) projects that manufacturing in general will grow by 8 percent and total exports by 8.5 percent in 2021. “Industry is the anchor of stability for the German economy. It is playing a key role in the economic recovery,” BDI President Siegfried Russwurm said at the Hannover Messe trade fair in April. “Germany is an industrial country, and Germany is an export country. That is our trademark, and it has to stay that way – and we are succeeding this year.”

Two key drivers were diversification and state help. The German manufacturing market encompasses everything from small high-tech components to heavy-duty machinery. And the government has made commitments to support industry throughout the coronavirus pandemic. Germany’s EUR 130 billion stimulus package is especially useful for international businesses working in the areas of mobility, medical devices, CO2 reduction, digitalization and artificial intelligence.

The Bottom Line

Export-oriented manufacturing is traditionally a German strength, and the sector has pulled its weight in helping the country recover from the pandemic. German subsidiaries of international companies have profited from its robustness.

French company Air Liquide, for example, is investing EUR 40 million in a new air separation plant at its German partner BASF’s Schwarzheide site near the eastern city of Dresden. It will manufacture material for lithium-ion batteries for 400,000 electric vehicles annually, beginning in 2022.

The OECD predicts that German GDP will grow by 3.3 percent in 2021 and 4.4 percent in 2022. Whereas Germany’s service sector has struggled somewhat, the country’s export-focused manufacturing industry has kept expanding despite some supply issues.

“Germany has the highest number of industrial robots in Europe – it’s number four in the world after Singapore, South Korea and Japan,” says Andreas Glunz, managing partner International Business at KPMG. “This was very helpful when vaccine production had to be ramped up very quickly for European production facilities.”

“Germany is also home to many ‘hidden champions’ – family-owned businesses with long-term horizons that are world market leaders in their niche,” Glunz adds. “German manufacturers are highly respected for their quality and timely delivery. Our reliable and robust supply chains stood up to the challenges of the pandemic.”

»German manufacturers are highly respected for their quality and timely delivery.«

Andreas Glunz,

KPMG

Hidden champions go global

Austrian vehicle manufacturer EMPL experienced growing global demand during the pandemic. The family-owned company based in Tyrol invested EUR 20 million to expand its cutting-edge assembly plant in Zahna-Elster in Saxony-Anhalt. The facility is designed for flexible, environmentally friendly production and is set to be completed by the end of 2021.

About 70 percent of the company’s output is exported, which is why EMPL initially decided to establish capacity in Germany shortly after German reunification. The expansion of the site, not far from the eastern town of Wittenberg, will create about 60 new jobs. Many family-owned manufacturers in the region supply EMPL with vital components.

“It was fundamentally a success story,” says former CEO Herbert Empl, whose son now runs the company. “We recruit from the whole region and train apprentices to help fill our team of skilled professionals. We’re very happy, because the people are highly motivated and work hard.”

But there’s another reason why Germany is attractive to international investors: “There is a very high number of German family-owned businesses looking at succession plans right now,” Glunz says. “Germany offers unrivaled access to all other 26 EU countries because of its central geographical position within Europe, and the tightly knit network of scientific institutions, universities, government and business creates a reliable and sustainable investment ecosystem.”

Glunz also points out that Brexit has weakened one of Germany’s biggest competitors, as UK manufacturing is no longer part of the EU. “Germany remains a highly sophisticated location for manufacturing companies,” says Thomas Bozoyan, a senior manager at GTAI. “In the future, Germany will continue to offer a wide range of possibilities for domestic and foreign business in different sectors.”

Manufacturing success: the outlook for these sectors is paricularly sunny

Additive manufacturing: Germany is a worldwide leader in 3D printing, particularly with metals. With applications in automotive, aerospace and biotech, the additive manufacturing market grew by 21 percent from 2019 to 2020.

Batteries: With the e-mobility revolution, the market for European-made batteries could reach EUR 250 billion by the mid-2020s. Germany is investing more than EUR 1.5 billion in battery research and production and is the continent’s leading battery location.

Green products: The EU Green Deal has set the goal of recycling 55 percent of plastic packaging by 2030. This is creating opportunities for manufacturers focusing on the circular economy, says consulting firm KPMG.

Healthcare & life sciences: Germany’s pandemic response bolstered pharma and medtech manufacturing. Investment in biotech companies exceeded EUR 3 billion in 2020, three times the volume of 2019.

Growing Again

Year-on-year change in total manufacturing
in Germany

8%

2021

-9.7%

2020

Source: BDI

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