Economists give hope
Are high-tech billions now giving the East a boost?
01.06.2024, 07:51 a.m.
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Gigantic investments are being channeled to eastern Germany with billions in state aid. Economic experts hope that settlements such as those of Intel and TSMC will also boost small and medium-sized businesses in the region. At the moment, things are going better in the east than in other parts of Germany.
They like to call their construction projects “giga-factory” or “mega-factory”. What the US chip manufacturer Intel is planning in Magdeburg is expected to trigger investments totaling around 30 billion euros. Tesla has already set up its controversial electric car factory in Grünheide, Brandenburg, which Elon Musk calls the “gigafactory”, with around 10,000 employees at present. More high-tech industries want to settle in eastern Germany, including the Taiwanese semiconductor manufacturer TSMC in Dresden, for example. Economic researchers are actually largely in agreement: Eastern Germany can catch up with the West and also offers some locational advantages for such investments – not least due to the growth in renewable energies. “For more and more industrial companies, green electricity is the new “conditio sine qua non”,” says Hanno Kempermann, managing director of the employer-friendly Institute of the German Economy (IW) in Cologne.
In addition, the current economic crisis is hitting the south of Germany harder, according to research institutes. And what significance will the state elections in Thuringia, Saxony and Brandenburg in September have? Managers of German companies fear that the AfD’s rise in strength will harm the country’s business location.
Subsidies are a decisive factor for new settlements, as is the fact that the east is less densely populated and therefore larger areas are available, as the President of the Leibniz Institute for Economic Research in Halle (IWH), Reint Gropp, emphasizes. The subsidies for Intel and TSMC are unusual: the federal government is contributing around ten and five billion euros respectively.
East not so strongly involved in world trade
At the East German Economic Forum in Bad Saarow, Brandenburg, entrepreneurs, associations and politicians will be discussing the opportunities and risks for East Germany as a business location from Sunday. Chancellor Olaf Scholz, who entrepreneurs do not necessarily have a good opinion of, is also expected to attend. The President of the Federation of German Industries, Siegfried Russwurm, said in April that the seriousness of the situation was clearly being underestimated in the Chancellery.
A message from economic researchers doesn’t sound so bad at first: “Eastern Germany is doing a little better than western Germany at the moment,” says economist Gropp. Although the economy in southern Germany is often seen as the flagship, the pressure in the industrial regions there also seems to be particularly high. Car manufacturers, suppliers and chemical companies in the west have announced massive job cuts and savings programs, some of which are running into billions. “The wind is blowing hard in the places where a large part of the wealth is generated – Bavaria and Baden-Württemberg -,” says Kempermann. “Eastern Germany is less affected by this because there is less industry there and the companies are not as closely involved in world trade.”
However, according to economic surveys, the mood is clouded. Companies are feeling uncertain, and some sectors are in deep crisis mode. Among them are solar manufacturers suffering from Chinese competition, who are calling for state aid: Meyer Burger, for example, has closed a site in Freiberg, Saxony, and others want to reduce production.
In addition, the automobile market is weakening and the ramp-up of e-mobility is stalling. Brandenburg, for example, is noticing this: the Chinese battery manufacturer Svolt is not settling in Lusatia as planned. The planned construction of the Intel chip factory in Magdeburg has not yet received the approval of the billions in funding from the EU Commission, and there is also criticism of water consumption. This is also a reason for long-lasting protests at the car manufacturer Tesla, which is already cutting jobs worldwide.
What about the suppliers
State governments are constantly promoting booming regions for microelectronics – confidently called “Silicon Saxony” – and are banking on battery manufacturing locations. Economic researchers say that large-scale locations are good and wages are likely to rise. However, it is unclear whether the hope that many suppliers will also settle here will be fulfilled, says Gropp, who believes that more investment in research and universities is necessary. “In addition to the actual locations themselves, local supplier relationships are being created with hundreds or thousands of additional jobs,” says Kempermann, who is more optimistic. Despite the current downturn, electromobility will grow strongly in the coming years, and solar and wind power will also be massively expanded.
But a lack of skilled workers is increasing the pressure on many companies. “Around 400,000 people per year will leave the labor market in Germany, over 10 to 15 years,” says Gropp. According to the Ifo Institute, the shortage of skilled workers is hitting companies in eastern Germany even harder than in the rest of Germany. One reason: demographic change in the east has been more noticeable for years than in the west. A lack of skilled workers is already “the limiting factor for economic growth,” said Brandenburg’s Prime Minister Dietmar Woidke of the SPD in 2023. Added to this is the fear of damage to the company’s image due to the AfD gaining strength in the upcoming elections and concerns that bright minds might avoid the east.