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Topic - Industrial Policy

A modern industrial policy

Introduction

The industrial sector plays a much stronger role as a driver of growth, prosperity, and employment in Germany than in other countries that share many characteristics with Germany. Over many decades, German manufacturers have earned an excellent reputation for providing innovative high-quality products – thanks to their highly skilled workers and outstanding industrial research and development.

Industry is at the heart of Germany’s strong export performance. The country is a world leader in many sectors, such as vehicle manufacturing, mechanical and plant engineering, and chemicals and pharmaceuticals. This reflects impressively the high esteem in which products ‘Made in Germany’ are held around the world.

Mastering global challenges, utilising opportunities

Faced with global challenges, such as climate change, scarcity of resources, digitalisation of business and society, and demographic change, the German industrial sector needs to constantly adapt and evolve, which is certainly difficult, but also opens up major opportunities. After all, the industrial sector is absolutely indispensable when it comes to tackling many of the changes brought about by these developments. With its expertise and capacity for innovation, it is in an ideal position to help us tackle the challenges of our time.

An innovative industrial sector for Germany

Industry can only continue to guarantee prosperity and economic success if it is competitive – not just within Europe, but worldwide. This requires the sort of innovation-friendly business environment that a modern industrial policy can put in place. It is also important to have fair competition on the international markets, as called for by the German government, as well as a forward-looking policy to safeguard the supply of skilled labour.

It is important to provide a forward looking stimulus in order to boost the innovative capacity of the companies based in Germany. The objective here is to foster innovation across the board, so that it covers all the lead markets and key enabling technologies that are of relevance for Germany. These include for example mechanical and plant engineering, microelectronics, production technology, materials technology, bio- and nano-technology, energy and environmental technology, mobility and logistics, healthcare and medical technology, and not least information and communications technology. The process of technological transformation and the trend towards sharing knowledge and information on an ever-growing scale are continuing at unabated speed. Similarly, new developments in information and communication technology are having a considerable impact on the production of complex goods and services requiring a great deal of research and expertise. It is now increasingly possible for such complex manufacturing processes to be digitally controllable.

For Germany to remain an attractive base for manufacturing and innovation in the long term, it is vital that policy-makers remain just as open and flexible in the face of new challenges as the industrial sector itself.

Environmental and climate protection

Industry has a crucial role to play when it comes to tackling the economic impact of climate change, improving resource and energy efficiency, and increasing the use of renewable energy. The bio-economy relies on sustainable economic activity in industrial processes using bio-based raw materials, and thus points to a promising path which leads away from oil. On the one hand, environmental protection is a significant cost factor; on the other, it also offers fresh market opportunities.

German companies – above all producers of machinery and plants, measuring and control technology, and electrical engineering goods – have all that it takes to be among the most successful exporters of green-technology products worldwide. They stand to benefit from the move towards green technology and can make an important contribution to tackling environmental challenges. By creating a market-oriented and technology-neutral policy environment, the Economic Affairs Ministry reflects the special role that industry plays in implementing the Federal Government’s sustainability strategy. Find out more about the Federal Government’s sustainability strategy.

As the policies on protecting the environment and mitigating climate change are developed further, it is important to avoid distortions of competition to the detriment of industry in Germany. It is necessary to pay attention to cost-efficiency and proportionality.

The European context: working together to attain more

Industry plays an important role in the economic structure of the European Union. It accounts for 85% of EU exports, and more than 32 million jobs. A consistent and targeted industrial policy is thus one of the central tasks for the EU in order to stimulate growth and prosperity in the EU and to safeguard secure jobs which have a future.

Since 2013, the ministers of industry of several EU Member States have convened for an annual Friends of Industry conference, an event used for better coordination on key issues relating to industrial policy. The German Government hosted this ministerial meeting in 2017. Find out more about the issues of European industrial policy.

6.1
Symbolicon für Arbeiter

million employees
are working in 44,788 industrial companies with 20 or more employees in Germany

89.6
Symbolicon für Bürogebäude in Deutschland

percent of all industrial companies
belong to the "German Mittelstand", and have fewer than 250 employees

22.6
Symbolicon für Tortendiagramm

percent
Share in net value creation that was generated by the industrial sector in Germany in 2016

48
Symbolicon für Dampfer

percent is the export ratio
of German industry; in 2016, Germany exported goods worth €1.2 billion

Industry in Germany

The engine of the German economy

The manufacturing sector employed approx. 6.12 million people in almost 45,000 companies in 2016, and generated a turnover of close to €1.8 trillion. Here, German industry is characterised by a good blend of internationally active companies and well-positioned small and medium-sized enterprises.

The proportion of gross value added delivered by manufacturing has been fairly steady for the last 20 years, amounting to 22.6 % in 2016. In contrast, industry only accounted for 16 % of gross value added in the overall EU in 2016; in leading industrial nations like France and Britain, it was actually much lower (cf. Diagram).

Regional clusters, strong SMEs

The comparatively great significance of industry in Germany is a reflection of the traditional specialisation in the German economy due to specific advantages. These include the regional clusters of efficient small, medium-sized and large firms and research establishments, and the availability of highly qualified workers and engineers.

The largest industrial sectors in 2016
SectorTurnover (in € billion)1,000 employees
Automotive industry407828
Mechanical engineering2401025
Metal industry203916
Chemical/pharmaceutical industry184447
Food industry171580
Electrical industry168706

Source: Federal Statistical Office (only including companies employing 20-plus people, apart from construction industry proper)

A strong exporter

Germany is one of the most successful exporters in the world. In 2016, the country exported goods worth €1,207 billion (+1.1% more than in 2015). The balance of trade attained a record surplus (€252 billion). This strong export performance is mainly due to the efficiency of the German industrial sector. The manufacturing sector sold almost 50 per cent of its output to customers outside Germany, but the significance of foreign trade is even greater in many other sectors: in 2016, the export ratio was just under 67 per cent in the pharmaceuticals industry, more than 63 per cent in the German automotive industry, and around 61 per cent in mechanical engineering.

The world’s leading exporters and importers of goods in 2016 (share of global export/import of goods)
China13.2 %USA13.9 %
USA9.1 %China9.8 %
Germany8.4 %Germany6.5 %
Japan4.0 %United Kingdom3.9 %
Netherlands3.6 %Japan3.7 %
Hong Kong3.2France3.5 %
France3.1 %Hong Kong3.4 %
South Korea3.1 %Netherlands3.1 %
Italy2.9 %Canada2.6 %
United Kingdom2.6 %South Korea2.5 %

Source: WTO

Industry-related services increasingly prominent

The structure of the German economy has changed radically over recent decades. Whilst in 1970 half the workforce worked in manufacturing, the figure today is only 19 %. Also, the share of gross value added accounted for by industry was 36.5% back in 1970 and then declined for many years; however, this development has come to a halt since the mid-1990s. In 2016, the share of gross value added accounted for by industry was 22.6 % in Germany – much higher than in comparable industrial nations.

These shifts are not a reflection of a decline in the importance of industry, but are mainly the result of fundamental changes in the value creation process, in which company-related and product-related services are playing an increasing role. This development means that the share of value creation does not fully reflect the actual economic significance of industry. With its strong demand for services, industry makes an important contribution towards the development of this sector. Service providers are increasingly becoming upstream suppliers for industry, and product-related services are growing in significance in the marketing of industrial products and facilities.

All Infografics on a glance

Key enabling technologies and lead markets

Innovative technologies with potential for the future

Key enabling technologies drive innovations: they form the basis for a wide range of applications, innovative products and new services in various sectors of industry.

Germany's economic strength is largely based on the efficiency of German industry, and particularly on its innovative strength. In order to foster this, the German government has brought together all its research, technology and innovation policy measures in the "High-tech Strategy". All of the federal ministries work together on this strategy, and have coordinated their respective measures. The strategy is developed together with research, business and groups in society, and is adapted to the challenges of the future.

In this process, the potential of the key enabling technologies is to be used: due to their economic leverage, they are of especial importance. They form the basis for a variety of applications in different sectors of industry and promote the development of new, marketable products. In addition to the key enabling technologies, the "lead markets" with great potential for the future merit particular attention.

Within the framework of the Federal Government’s High-tech Strategy, the fields of health, mobility, climate/energy, security and communication are particularly addressed as important markets with potential for the future in cooperation with business and science. The Economic Affairs Ministry has special programmes for aerospace, the maritime industry, and the fields of mobility and information and communication technology. Also, innovative SMEs in all sectors can access government funding via the Ministry’s technology-neutral programmes.

An overview of the key lead markets with potential for the future can be found here. And click next to it through the key industrial technologies:

Icon of an electric vehicle; Source: Getty Images/Lya_Cattel

© Getty Images/Lya_Cattel

Raw materials and energy

Important factors in global competition

Raw materials and energy are the foundation of industrial value creation. The Economic Affairs Ministry’s responsible policies on raw materials and energy are boosting the competitiveness of German industry.

Securing raw materials and using them efficiently

Germany is one of the world’s largest consumers of raw materials, and is highly dependent on imports of them. Security of supply, protection of natural resources, a sparing and efficient use of raw materials, and their re-use, are therefore of great importance for the economy. Raw materials policy and resource efficiency thus make an important contribution to more growth and employment in Germany. With this end in mind, the German government adopted ProgRess, the German resource efficiency programme, in 2012, and revised it in 2016.

A secure supply of raw materials and energy is absolutely crucial for any manufacturer in Germany. The Federal Government and the private sector fully agree that companies are themselves responsible for ensuring that they have the resources they need. The German Government has been contributing to this effort by adopting a Raw Materials Strategy, under which it has taken a large number of supportive measures.

Structural measures like the establishment of the German Mineral Resources Agency (DERA) in the Federal Institute for Geosciences and Natural Resources (BGR), the Helmholtz Institute Freiberg (HIF) for Resource Technology, and the Interministerial Committee on Raw Materials serve to strengthen and advise industry, and small and medium-sized enterprises in particular. The monitoring of critical raw materials produces information on supply and demand trends for primary mineral raw materials, so that potential price and supply risks and problems on the raw materials markets can be identified at an early stage.

With fossil resources becoming increasingly scarce, the bio-economy is gaining importance in the context of industrial manufacturing. Biotechnology is one of the key drivers of bio-based innovation.

Promoting raw materials transparency

Germany has been a candidate country for the global Extractive Industries Transparency Initiative (EITI) since 23 February 2016. By meeting the EITI Standard in Germany, the German federal government is sending a clear signal to strengthen developing countries and emerging economies in their common fight against corruption in the commodity sector. On 23 August 2017, Germany submitted the first EITI report – an important step towards the country's full EITI membership, which is expected to be decided upon by the international EITI Board in spring 2019. For further information, please click here (in german).

Focussing on renewable energy across sectors

Fossil fuels are to be replaced with renewable energies, not only when generating power but also in industry, transport and heating. Click here to find out more on integrated energy (in German), its contribution to the energy transition, and measures introduced by the Federal Ministry for Economic Affairs and Energy.

Energy as a cost factor

In the case of many energy-intensive industries, energy and the use of electricity are the leading cost factors. Since Germany’s electricity prices are high in an international comparison, some exemptions from the taxes, levies and surcharges contained in those prices are needed if energy-intensive industries are to remain competitive and the industrial jobs to be safeguarded. Companies in the energy-intensive sectors are therefore granted reductions or compensation for burdens imposed on them by levies (e.g. in the context of the Renewable Energy Sources Act or rules on combined heat and power generation), electricity taxes and grid fees.

Environmental protection

Industry and environment

Protecting environment and mitigating climate change are crucial challenges for our age. Through innovative manufacturing methods and environmentally friendly products, German industry makes an important contribution to sustainable growth. The Economic Affairs Ministry supports the development of energy-efficient and climate-friendly production processes and provides incentives for more efforts for climate change mitigation and for industrial growth.

In order to reduce carbon emissions in electricity generation, space heating, transport and industrial companies, Germany is aiming to boost renewable energy, energy efficiency and climate-friendly production processes. The German government has set itself the ambitious goal of cutting harmful carbon emissions by 40 % by 2020 and by as much as 80-95 % by 2050. In the Paris Climate Agreement, which entered into force on 4 November 2016, the international community has adopted a global climate regime for the period after 2020 which provides a comprehensive framework for action.

Climate check

Scientists say that global warming will impact on Germany in many different ways. For example, extreme weather events represent a potential risk for industry in view of increasingly interconnected supply and value chains. A “climate check” has therefore been developed on behalf of the Federal Ministry for Economic Affairs and Energy. It is intended to help companies to pinpoint climate-related risks and to develop ways to handle these risks.

Helping to mitigate climate change

In the EU emissions trading system, which covers all energy-intensive industries, the total amount of greenhouse gas emissions permitted by the system are cut each year, so that these sectors make an effective contribution towards climate change mitigation. Also, the other environmental protection and energy efficiency standards in Germany are much higher than in many other countries. Savings of more than a quarter were made across the industrial sector between 1990 and 2013.

Internationally, the contracting parties to the United Nations Framework Convention on Climate Change agreed in Cancún (Mexico) at the end of 2010 to strengthen cooperation in the field of climate-related technologies and decided to set up the "technology mechanism". This is composed of a policy unit — the Technology Executive Committee (TEC), and an implementing unit — the Climate Technology Centre and Network (CTCN). The TEC has been making recommendations for decisions in the Climate Framework Convention since 2011. The CTCN has been in operation since 2013 and aims to improve cooperation on climate-related technologies.

As policy on climate change mitigation develops, we also need to keep an eye on the competitiveness of our energy-intensive industries. It is also necessary to prevent very strict climate rules from causing carbon leakage – that is to say, the relocation of companies and their carbon emissions from the EU to third countries in order to avoid costs. This is also true of investment leakage – i.e. the relocation of investment due to less stringent climate rules in other countries.

CCS technology

Carbon Capture and Storage (CCS) means the separation of CO2 in power stations or industrial plant, and the subsequent storage in deep geological strata. According to the International Energy Agency (IEA), CCS technology could cover about 14 % of the global carbon emission reductions needed by 2050. The technology is currently being tested in Germany.

Woman in front of a monitor; Quelle: Getty Images/Bloomberg

© Getty Images/Bloomberg

Industrie 4.0

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Industrie 4.0

Digitally driven and smartly networked

Digitally controlled production processes, smart factories and a networking of sales, production and logistics: the term "Industrie 4.0" describes a fourth industrial revolution which is picking up speed in the wake of rapid digitalisation.

Industrie 4.0 combines production methods with state-of-the-art information and communication technology. This smart approach makes it possible to deliver tailored products to meet individual customer requirements – at low cost and in high quality. Highly flexible production methods and logistics will make it possible to customise products. Customers and business partners will be directly involved in operational and production processes, and there will be production methods and products that are closely intertwined with state-of-the-art, knowledge-intensive services (hybrid production, hybrid products).

Plattform Industrie 4.0: working together to shape the digitalisation of industry

The Economic Affairs Ministry is helping to shape digital structural change – through its Industrie 4.0 platform. Under the leadership of Economic Affairs Minister Gabriel and Research Minister Wanka, the previous platform of business associations has been broadened, and the alliance now includes government representatives, representatives of business associations (VDMA, ZVEI, BITKOM, BDI, VDA, BDEW), trade unions (IG Metall) and science (Fraunhofer Society).
You can find detailed information about Plattform Industrie 4.0 here.

Turbine; Source: Getty Images/Jonathan Knowles

© Getty Images/Jonathan Knowles

Alliance for the "Future of Industry"

Shaping modern industry and tackling challenges

Digitalisation, climate change, demographic change: what does this mean for our industry? How can it stay strong and grow stronger? In order to find answers to these questions, the Economic Affairs Ministry has set up the "Future of Industry" Alliance together with industrial and employers' associations and trade unions. It aims to develop measures to strengthen Germany's industrial competitiveness.

It is necessary to reshape Germany's industrial policy so that industry will remain a strong core of the German economy. This is because megatrends like digitalisation are driving structural change. This reshaping cannot work unless all the relevant partners are integrated in the dialogue. For this reason, the Economic Affairs Ministry and the social partners and industrial associations have set up the “Future of Industry” Alliance.

The Alliance brings together key industrial policy expertise and improves the coordination of industrial policy interests. It aims to link up key areas of research and funding policy and of industrial and competition policy in Germany and Europe.

Find out more about the work of the "Future of Industry" Alliance here.

Woman; Source: mauritius images/Cultura