Tue, Oct 11, 2022 page11

• German firms look offshore as energy expenses rocket

  • Reuters, BERLIN
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  Germany’s 200 billion euro (US$193.81 billion) energy aid package is expected to provide only limited relief for businesses, and is unlikely to dissuade companies that are already looking to relocate to cheaper manufacturing bases overseas.

  The German government set out its energy relief package last month, including a gas price brake and a cut in fuel sales tax to help households and small and medium-sized businesses (SMEs) cope with surging prices.

  “The proposed energy relief package will not change anything on the agenda for the time being. We still have to find alternatives,” said Mads Ryder, chief executive of Bavaria-based porcelain manufacturer Rosenthal GmbH.

  

  People protest against high energy prices in Berlin on Saturday.

  Photo: Reuters

  The company, established in Germany 143 years ago, has been looking to relocate some of its production out of Germany to cut costs, and Ryder said the gas brake plan was still too vague to convince Rosenthal to reconsider its plans.

  The German government this week is due to unveil details of the gas brake and other aspects of the relief package, which is due to run until spring 2024.

  High labor and other costs in Germany have been driving many companies to relocate parts or all of their business to cheaper locations in emerging European economies and elsewhere, or to think about doing so.

  Lars Feld, an economic adviser to German Minister of Finance Christian Lindner, said the energy crisis was bringing those sorts of decisions to a head.

  “Industry, thinking of moving, is now going to wait to see how the energy price brake works. It is an important psychological boost, but we will not be able to return to energy prices as they were before the [Ukraine] war,” Feld said.

  As manufacturers in Germany face energy bills of up to 10 times more than what they paid two years ago, one in five engineering firms saw the risk of relocating at least some of their business overseas, a survey by German union IG Metall showed last month.

  High energy prices helped drive up consumer inflation in Germany to 10.9 percent last month, the highest level in more than a quarter of a century, which in turn is putting upward pressure on wages, adding to labor costs.

  Industry bodies initially welcomed the energy relief package, which also includes a temporary electricity price brake to subsidize basic consumption for consumers and SMEs, and some companies are optimistic.

  Textiles manufacturer Wuelfing GmbH & Co KG said it would shelve plans to move production to Portugal or Pakistan from Germany if the government caps energy prices at levels that are only twice as high as in 2020.

  “It will help, but we don’t yet know exactly what to expect,” Wuelfing managing director Johannes Dowe said.

  The German Association for Small and Medium-sized Enterprises said it saw no concrete indications of increased outsourcing of production abroad, as the energy price crisis is affecting all European countries.

  “The situation is different for expansion plans, which are currently being examined,” association executive director Marc Tenbieg said.

  A study by Deutsche Bank saw production in Germany shrinking by 2.5 percent this year and by 5 percent next year due to rising energy prices.

  “If we look back at the current energy crisis in about 10 years, we could see this time as the starting point for accelerated deindustrialization in Germany,” the study said.

  Germany’s large industrial companies can move production elsewhere depending on cost and customers, but for small and medium-sized firms, the backbone of German industry, the crisis is likely to hit harder.

  “For German SMEs ... adapting to a new energy world will be a major challenge that some companies will fail at,” the study said.

  Automotive parts supplier Boegra Technologie GmbH, which is based near Duesseldorf, reduced production last month due to rising energy prices. The company, which has already outsourced some production to the Czech Republic, is now looking for an alternative to Germany.

  “I am traveling to the Czech Republic next week to examine the possibilities of expanding our business there,” Boegra managing director Tobias Linser said.
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