Manufacturing

The German economy is essentially a processing economy. This was true of both West Germany and East Germany before unification. It will remain true in the future, although the detailed shares of GDP remain to be determined by unification and may not be clearly evident until the mid- or late 1990s.

Before unification, 40 percent of the German workforce was involved in manufacturing, with the main industries being machine tools, automotive manufacturing, electrical engineering, iron, steel, chemicals, and optics. Although the industrial sector in the former East Germany is still evolving, manufacturing in that part of Germany is expected to concentrate in the same industries over time. Thus, the future German economy will retain a powerful industrial component that will likely total well above 30 percent of German GDP.

Almost all areas of western Germany have some industry. The main industrial areas are the Ruhr district in North Rhine-Westphalia, the traditional center of German coal, steel, and heavy industry; the concentration of industry around several large cities, such as Hanover, Munich, Frankfurt am Main, and Stuttgart; the chemical production areas that stretch mainly along the Rhine River in Baden-Württemberg and farther north; and the automotive manufacturing centers, increasingly concentrated in southern Germany in Bavaria and Baden-Württemberg.

In eastern Germany, the main industrial manufacturing areas are in Saxony, Saxony-Anhalt, and Thuringia, principally concentrated in the Leipzig, Dresden, Halle, and Chemnitz regions. Before World War II, Saxony was the technology center of Central Europe. The Elbe River, like the Rhine, attracted chemical and other industry along its shores. It is uncertain which eastern German industries will survive, but the firms in the southern part of the region appear to have better chances than those farther north. Even before unification, more industry was concentrated in the south than in the north. The districts in northern East Germany had industrial employment below 25 percent, those around Berlin had industrial employment between 25 and 35 percent, and those south of Berlin had over 35 percent employment in industry. No such clear geographical delineation for sector employment existed in West Germany.

The glory of German industry is not in the big firms that are well known around the world, such as Daimler-Benz, Volkswagen, Siemens, or Bayer (see table 16, Appendix). It is in the small- and medium-sized firms that constitute what the Germans call the Mittelstand . Although that term has political and social as well as management connotations, it has been widely accepted to mean companies that employ fewer than 500 workers. Such firms constitute 98 percent of all German companies, hire 80 percent of all employees, are responsible for a significant share of exports, and provide one of the firmest foundations of the middle class.

The government has supported and furthered the Mittelstand , in part for political reasons, but also because it makes a crucial contribution to the economy. The government has established special provisions that permit those firms to cooperate if they do not thereby hinder competition. It makes available special funds to promote research and development by Mittelstand companies. After unification, the government used investment and tax incentives to encourage Mittelstand companies to invest in eastern Germany.

The single most successful German industry is mechanical engineering, with a total turnover in 1991 of DM240 billion. Unlike many industries in Germany and elsewhere, it is dominated by small rather than large companies. It includes over 4,000 firms throughout Germany. Only 3 percent of the companies have more than 1,000 employees. German mechanical engineering has a range of more than 17,000 products. Almost two-thirds of the products are exported.

The best-known industry and the second-largest, with a turnover of DM217 billion in 1991, is automotive manufacturing. Such companies as Daimler-Benz, Volkswagen, and Bayerische Motorenwerke (BMW) are known throughout the world. Almost half of all German-produced automobiles are exported, mainly to other EU members and to North America.

Electrical engineering ranks third in importance among German industries, with a turnover of DM207 billion in 1991. The biggest single firm is Siemens, although Bosch also ranks among Germany's largest companies. Products range from giant electric generating turbines exported all over the world to smaller electric engines and some consumer goods.

The chemical industry, with a total output of DM166 billion in 1991, is based principally on three large corporations that have been leaders in the field for 100 years--Hoechst, Bayer, and BASF. There are also many medium-sized companies. About one-half of the industry's products are exported.

Other important industries are the traditional German industries of steel and coal mining, both heavily subsidized and still large employers. Precision engineering remains a strong area. Aerospace is a small but growing industry, also heavily subsidized, and German companies often join with companies from other EU countries--such as Airbus and military aircraft production (see fig. 10).

One reason to believe that the eastern and western portions of the united Germany will again knit together into one large manufacturing economy is that such an economy has been part of the German tradition for centuries and that both Germanys have specialized in the same general industrial sectors. Some analysts contend that the eastern economy will even have a competitive edge later in the 1990s because of the vast sums being invested in modernizing its industrial plant.

Energy and Natural Resources

Like most modern states, Germany relies principally on fossil fuels as sources of energy. About 40 percent of German energy consumption comes from petroleum, largely for trucks and automobiles. About 30 percent comes from domestic coal deposits, half from lignite, or brown coal, in the east and the other half from anthracite located in the west. Natural gas provides about 17 percent of energy consumed, and nuclear energy about 10 percent. Other sources of energy, such as hydroelectric, solar, or wind-powered electric power plants, are relatively insignificant. Most production is in private hands.

Electrical power comes almost equally from three sources: the largest (31 percent) is generated by lignite, the next largest (28 percent) from nuclear reactors, and the third largest (26 percent) from anthracite. Natural gas provides about 7 percent. Those proportions will undoubtedly shift over time because of the high pollution levels generated by the relatively inefficient lignite, especially in the new Länder , where it accounts for over 90 percent of electricity production (see table 17, Appendix). The public's aversion to nuclear power that developed in Germany in the 1980s will likewise cause this source of power to become less important. Natural gas will become more significant.

The necessary reduction of brown coal consumption is unfortunate for the nation's economy because it and anthracite are Germany's only significant natural resources. As of 1993, Germany was the world's largest producer of brown coal, mining nearly twice as much as the next greatest producer, Russia. Anthracite mining is also significant, and Germany was the world's ninth greatest producer of this substance in 1993.

Germany has over twenty nuclear reactors, most of them small and having production levels below 2,000 megawatts per reactor. It has virtually no domestic uranium deposits and must import enriched uranium for its reactors. Most of the reactors in operation in the early 1990s were built during the 1970s and early 1980s. Reliance on nuclear power has become controversial, however. Because of the controversy, no new nuclear reactor has entered service since 1988. A number of older reactors dating to the 1960s have ceased operations. A major international energy crisis would be needed to renew impetus in Germany's nuclear energy program because the country is densely populated, and most of its inhabitants do not want a reactor near their houses or offices.

Germany must import almost all the oil and gas that it uses. In 1993 the three largest suppliers of crude petroleum were Norway (18.4 percent of the total), the Commonwealth of Independent States (CIS--see Glossary) (17.4 percent), and Britain (12.4 percent) (see table 18, Appendix). Germany has its own modest oil deposits, estimated in 1990 at 50 million tons, in the North German Plain. It has a share of North Sea gas reserves and production, with reserves estimated in 1990 at 9.9 billion cubic meters. But these are not adequate long-term sources. Thus, Germany will increase its imports of oil and gas, most likely from Russia. East Germany relied heavily on Soviet gas before unification, and united Germany will want to purchase petrochemicals from Russia to enable Russia to pay for the German manufactures that Russia is purchasing.

Like all modern economies, Germany has become increasingly cost conscious and conservation conscious about energy consumption. Whereas GDP in West Germany rose by about 50 percent from 1973 to the early 1990s, energy consumption rose by only 7 percent.

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Source: U.S. Library of Congress