Germany calling

Sitting in an exclusive, wooden-panelled restaurant once frequented by the old communist "nomenclatura", Thilo Schelling reveals some home truths about the east German economy.

Schelling is a German version of Robert Crawford, the new chief of Scottish Enterprise. Originally from Munich, Schelling was brought to the new federal state of Mecklenberg-Vorpommern, in former East Germany, to encourage inward investment and prosperity. But he is alarmingly honest about the prospects. "It's still a very hard slog, even if shipbuilding remains buoyant. We grow because we offer huge subsidies, not really for any other reason and we have other more pressing problems of racism, with the neo-Nazis gaining ground."

What he says will interest the Kvaerner shipyard workers who face an uncertain future in Govan. For the splendour of Zur Gartenlaube, which dates back to 1890s, in the "tourist" resort of Warnemnde, is a stone's throw from the Kvaerner yard near Rostock, which enjoys full employment and a decent order book.

Schelling, the region's director for technological policy, tourism, foreign trade and sales promotion, said: "The infrastructure is slowly being rebuilt but the investment is slow from outside. It's not working as well as it should and when the subsidies run out there'll be major problems, so we need to concentrate on other areas."

Mecklenberg-Vorpommern, with its extensive coastline along the north-east corner of Germany, is attempting to develop into a significant centre of business activity with a population of nearly two million.

But eight years after the transition from a state-controlled to a market economy, the restructuring is slow. Roland Berger, project manager for the region's economic development corporation, says it's not been easy. The shipbuilding industry, with port related maritime industries, food and drink, construction, mechanical engineering and wood, remain the central part of the state's economy as in communist times. However, shipbuilding continues to thrive.

"No other region anywhere in Europe has been so massively and completely modernised in such a short time," said Berger. "Our high- tech compact shipyards are global models of complex low cost manufacturing and we are focusing on high-tech, bio-tech and medi- tech areas to create more jobs. But we still have unemployment rates at 24%, well above the average."

In terms of production output, Germany is the number three in world shipbuilding, behind Japan and South Korea. One-third of the German output is produced in the Mecklenberg Vorpommern area. Two billion German marks have been invested in the area's shipbuilding but the figures still show South Korea forging ahead. In 1997, European Union shipbuilders had 28.92% of the world market share and Korea had 15.14%. By 1999, the EU dropped to 12.8% and South Korea quadrupled to 62.5%.

There are now three major employers in Mecklenberg-Vorpommern; the Kvaerner Warnow yard in Rostock, Acker MTW in Wismar, and Volswerft, part of the AP Moller group in Stralsund. Each yard is now supported by innovative technology centres and research institutes, and up to 50% of the cost of investment is available from public subsidies and retraining allowances for employees will also be met.

Berger adds: "Another special feature for us is the unusually wide range of ships we can produce, especially the highly fitted-out vessels. We can build general and multi-purpose freighters, container vessels up to jumbo class, roll on/roll off ferries, bulk carriers and tankers as well as passenger ships for ocean and coastal shipping."

Offshore technology is a newcomer to Mecklenberg-Vorpommern but has become vital to the shipyards' survival in the diminishing sector. When Kvaerner announced it was pulling out of shipbuilding in Europe, the axe did not fall on Rostock as it did in Glasgow.

The Kvaerner Warnow yard now builds platforms for preparing wellheads, clients include Norway's Statoil, and it is being used as the training ground for Kvaerner's American Philadelphia yards.

Many believe the new investment has been the key to the yard's prosperity. In 1996, the company commissioned a 320 metre long and 54 metre wide dry dock as part of a #250 million investment, including a new electronic data processing system make it possible to build specialised ships, roll on/roll off ferries as well as floating offshore facilities. Since 1997, MTW Schiffswerft Wismar has built a new dock allowing unusual-sized hulls to be completed, and another Norwegian group, Aker MTW, introduced a #200m modernisation, completed in 1999, which has turned the yard's strategy to meet the demands of the world market including roll on/roll off ferries and high specification passenger ships.

Diethelm Tabel, director of human resources at Aker MTW, says: "In 1990, we employed 9000 and now in 2000, we have just 1350. Our shipyard is one of the most productive and modern shipbuilding companies in Germany. In the previous 10 years, we built 72 ships of eight different kinds for 19 shipping companies. Last year, we turned over #310m and completed seven ships. We would have accepted more orders but are held back by crippling European Union legislation."

Asked why German yards remained successful, while many other European yards floundered, he agrees subsidies had a major part to play. But he adds: "The division of tasks between shipyards and suppliers guarantees short building times and ships tailored to customer's needs, unlike our competitors".

And he hopes the EU limitations on accepting more work will be changed. "The law stipulates that we have to limit production until 2005. In 2001 we can ask for a change in the present proposals, but the quotas go hand in hand with our subsidies from the federal government and the EU so we can't really complain."

But Tabel still has plenty to smile about. His order book for 2000- 2001 includes one passenger vessel and five container ships, including two for P&O, one of which was handed over last Friday.

"A new market for us is building club cruising ships," he says. "They are more relaxed and more informal than larger cruise liners and are used for areas such as the Great Lakes in the USA. Our philosophy is based on high safety, quality, reliability, low operation cost and a market and customer-orientated product strategy. That's where the others fail."

Schelling adds: "Inward investment is always welcome. Call centres seem to be the new 'in' thing but they don't require entrepreneurial skills."

Investment allowances are also available for incoming companies with tax concessions and this has attracted three call centres, two from Norway and one from Colt Telecom, the London-based telecoms group.

Other subsidies can be harnessed through the technology programme, where projects will be supported with non-repayable grants for personnel costs, external research and development services and cost of materials. Purchasing and manufacturing costs of equipment required by each project will also be covered and training subsidies for up to 80% can be awarded for hiring a long-term, unemployed worker.

Schelling now hopes to create "home-grown" companies to bring down the high unemployment levels and subsidies and to instil an entrepreneurial culture still not evident in the old East Germany. Petra Ludwig, manager of the Rostock-Warnemunde Technology Park, which is celebrating its 10th anniversary, explained the reasons behind the new growth technology shift. "Our promotion of regional economic development has been slow since reunification but we have had a shortage of home-founded business enterprises and established firms. We established this technology park to concentrate on the research, development, marketing and production of high technology coming direct from our universities," she says.

"We provide support incubators for new start-up businesses. We don't have business angels so the state helps but people have to be willing to work."

Sharon Ward was on a fact-finding trip, organised by the federal government of Germany.

Since the reunification of Germany in 1889, costs. The huge subsidies, which buttressed the strongly-unionised industries for decades, have been slashed but still remain high in comparison with the UK. The north east area of Mecklenburg-Vorpommern, formerly in the East, remains the poor cousin of its Western neighbours, with high unemployment rates. But the shipbuilding and maritime industries, along with life sciences show the most promising growth

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