New study by Oxford Economics

The chemical industry location Germany is losing competitiveness

The chemical industry is strong on the export side. But global competition and falling competitiveness have been increasingly affecting Germany as a chemical industry location. This downtrend has intensified since 2008. A new study by Oxford Economics substantiates this with facts and figures. The study also highlights which factors have the greatest leverage to stop the described trend in the most effective manner.

The German chemical industry is strong on the export side: 60 percent of sales are realized with customers abroad. But the high export ratio conceals the problem that global competition and falling competitiveness are more and more impacting Germany as a chemical industry location. It is particularly alarming that this downtrend has become stronger since 2008. Now, a new study by the researchers Oxford Economics substantiates the described development with facts and figures.

At the presentation of the study, Karl-Ludwig Kley (the outgoing president of the German chemical industry association VCI), stated: “Germany is an attractive location for the chemical industry. But the truth for the past two decades is that we have been losing shares in global chemical trade and global chemical production. Politicians and the general public should realize that we are in a crucial phase, as regards our international competitiveness.” The study entitled “Competitiveness of the German chemical industry: historical trends and future prospects” was presented in Frankfurt on the occasion of the VCI’s general assembly. This study, which was mandated by the VCI, fills a gap: Previously, there had been no scientific comparative studies on the competitiveness of various chemical manufacturing nations.

Irrespective of the growing foreign trade surplus, the German chemical industry’s share in the global export market has fallen over the past two decades, so the analysis by Oxford Economics. The research institute highlights that this drop in market shares was mainly due to a loss in global competitiveness of Germany as a chemical industry location. This is one of several factors that have brought a growth and investment weakness: Since 2011 the chemical industry has expanded neither production nor investment in this country.

Kley: “Given the persistently weak growth in Europe, competitiveness on international export markets is essential for the chemical industry location Germany.” In the past, Germany benefited with exports from the dynamic catching-up process of emerging markets. But the success of those past years is no guarantee for the future. Kley continued: “If our competitiveness declines any further, we might be left behind by the global economy.”

Factors influencing competitiveness

The study by Oxford Economics examines which factors have a particularly strong influence on the competitiveness of a chemical industry location. Here, the researchers identified energy and raw material costs as well as the R&D spending of the industry. Also important are the quality of the transportation infrastructure, investment, exchange rates, taxation, regulatory burdens and the density of the industrial network.

The study substantiates that overly high energy prices have a strong negative impact on competitiveness and lead to falling export shares. Referring to these findings, the VCI president had a message for all those who repeatedly claim in the political debate that high energy prices bring more investment and, finally, are even good for a location. Kley emphasized: “We should say goodbye to the myth of strongly rising energy prices without losses in competitiveness. A glance across the Atlantic shows how favourable energy costs can enhance competitiveness.”

In the long term, a high R&D intensity has positive effects on competitiveness and on the share in the global chemical export market, so the study. Kley concluded: “We simply need to be better than others.” For this reason, the German chemical industry has increased its annual R&D spending since 2009 by well over 2.5 billion to 10.5 billion euros. But it should be possible to turn new research results into innovative products. According to Kley, an open mind for technology is a task for society as a whole. But he also stressed the following point: “In this respect, it is up to industry to take the initiative. We should explain more clearly which advantages new technologies bring for individuals and for society overall.”

Furthermore, Oxford Economics identified investments as a major influence factor for competitiveness. Kley: “It gives rise to concern that for several years the investments at the chemical industry location Germany barely exceed depreciation – even more so as massive investments go to other parts of the world.”

Better political framework conditions are needed

The study by Oxford Economics shows which factors have the greatest leverage for improving the competitiveness of a chemical industry location.
Kley: “For lasting success, Germany needs affordable energy and better ideas.” The course for better political framework conditions for companies can be set mainly in three fields: by lowering the energy costs attributable to public administration measures, by giving up the over-ambitious pioneering role in climate protection, and by strengthening the R&D intensity. The latter also means strengthening the innovation capability of chemical companies located in Germany.

The competitiveness of the chemical industry location is no purpose in itself

Kley underlined: “Chemistry is at the hub of Germany’s network of industries, and this network is central to the success of Germany as an industrial nation. Jobs and prosperity depend on this.” If major parts of the chemical industry relocate away from Germany, there is the danger of breaking the value chains. This puts at risk the German industrial network in its entirety. Kley rounded off his statement: “Therefore, we want to continue the dialogue with politicians on a common framework for further developing the competitiveness of Germany as a land of industry – keeping up the good tradition of our industry.”

Extra: The 24-page VCI report (in German) based on the study by Oxford Economics can be accessed here:

The full study in English language (63 pages) can be downloaded from:

The statement of Karl-Ludwig Kley explaining the study as well as some illustrating charts are available in the download section at the top of this page (both in German only, sorry).

The VCI represents the politico-economic interests of over 1,650 German chemical companies and German subsidiaries of foreign businesses. For this purpose, the VCI is in contact with politicians, public authorities, other industries, science and media. The VCI stands for over 90 percent of the chemical industry in Germany. In 2013 the German chemical industry realised sales of more than 190 billion euros and employed around 438,000 staff.

Contact: VCI Press Dept., Phone: +49 69 2556-1496, E-Mail:
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Jürgen Udwari