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Cablegate: Eastern Germany has the Right Chemistry

R 281657Z OCT 08
FM AMCONSUL LEIPZIG
TO SECSTATE WASHDC 0123
INFO USDOC WASHDC 0003
FRG COLLECTIVE
AMCONSUL LEIPZIG

UNCLAS LEIPZIG 000020


DEPT FOR EUR/CE, EEB

E.O. 12958: N/A
TAGS: EIND ECON GM
SUBJECT: EASTERN GERMANY HAS THE RIGHT CHEMISTRY

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Summary
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1. (U) The chemical industry is one of eastern Germany's most
successful retooled industry sectors. Companies (including the
U.S. firm Dow) invested in the region after the fall of the
Wall. They acquired state-owned facilities and capitalized on
their proximity and historic ties to eastern European markets,
and the region's qualified and motivated workforce. Larger
chemical companies have production facilities in the region, but
keep their R&D facilities outside. Small and medium-sized
companies with fewer resources have joined with other chemical
companies, research facilities, and universities to synergize
R&D efforts. Over the long term, it might be difficult to
attract and retain qualified workers and expand production of
specialty chemicals. End Summary.

------------------------------------
Chemical Industry Strong and Growing
------------------------------------

2. (U) The chemical industry is the fourth largest industrial
sector in the Germany. After reunification in 1990, the former
East Germany's state-owned chemical plants were privatized and
by 2007 had total sales of 18 billion euros and a 16.2 percent
growth rate, far above the national average of 7.1 percent.
This high performance is due to eastern Germany's central
location, modern transportation infrastructure and highly
trained and motivated workforce.

------------------------------------------
Chemical Parks and Clusters Emphasize R&D
------------------------------------------

3. (U) Most chemical companies are small or medium-sized and
work in R&D clusters. Six chemical parks provide infrastructure
and utilities. For example, 750 companies, 12 university
research institutions and 9 associated institutes have formed
the "Future Cluster Chemistry/Plastics Central Germany" (CPCG)
to maximize R&D efforts and product development. CPCG cluster
spokesman Dr. Christoph Muehlhaus told Pol/Econ staff that this
research emphasis developed only after privatization, as larger
West German companies kept their R&D centers in the west and
used eastern German facilities only for production.

4. (U) In addition, eastern German chemistry parks, chemical
companies, business associations and service providers joined
forces to form the "Central European Chemical Network"
(CeChemNet). It hopes to create an innovation network
integrating all aspects of chemical industry research and
production. Likewise, in 2003, Saxony-Anhalt integrated 18
chemical regions from nine countries with German companies from
the Central German Chemical Triangle into the "European Chemical
Regions Network" (ECRN).

----------------
Challenges Ahead
----------------

5. (U) Despite these successes, the eastern German chemical
industry faces two major challenges according to Harald Beer,
manager of the Dow facility in Schkopau, Saxony-Anhalt.
Economic migration to the west and a low birth-rate could
deprive the region of qualified employees. Second, eastern
Germany's chemical companies produce large volumes of commodity
chemicals (a partially processed product in high demand) which
are distributed mostly in Russia and the Arabian Peninsula.
Competition from chemical companies already established in those
regions heightens the need for eastern Germany's chemical
industry to diversify. Beer noted that Eastern German companies
hope to stayQmpetitive by expanding into specialty chemicals
for the solar industry, new technologies, and products based on
biomass.

-------
Comment
-------

6. (U) Eastern Germany's communist-era chemical industry has
been successfully rebuilt and restructured. The small and
mid-sized companies that evolved from privatization had the
foresight to pool resources and knowledge and create new
technologies to stay competitive. Continued growth in the
sector could help drive eastern Germany's economy out of
stagnation. The chemical industry, however, must recruit and
retain qualified employees and induce research and production
facilities to stay in or move to eastern Germany. End Comment.

7. (U) This message was coordinated with Embassy Berlin.

BRUCKER

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