By Lars Rischke
DRESDEN, Germany, Nov 20 (Reuters) - Generous state subsidies, aggressive government marketing, low wages and long working hours are helping the eastern German state of Saxony regain its traditional standing as an industrial heartland.
U.S. semiconductor giant Advanced Micro Devices announced on Thursday plans for a second, 2.4 billion euro ($2.8 billion) plant in Dresden, adding to a the list of firms that have flocked to the state.
Once one of Germany's wealthiest regions, and a hotbed for industrial innovation since the 17th century, the state near the Polish and Czech borders lost much of its economic might in the ravages of World War Two and the post-war Communist era.
Although still plagued by lingering after effects of Communism such as high unemployment and depopulation, Saxony has managed to attract billions of euros in investment from blue-chip firms by rolling out the red carpet.
Building work started earlier this month on a new 15 million euro fuel pump factory for Hitachi Automotive Systems . Volkswagen AG, Infineon Technologies AG , BMW AG and Porsche AG have also built or are building factories in the state.
Chancellor Gerhard Schroeder said in an interview with Reuters the AMD investment was proof that Germany was an attractive location for international firms.
"I'm especially delighted by the decision of AMD to build a second factory in Dresden," Schroeder said. "It shows that Germany is a good place to do business."
The AMD project, expected to create 1,400 jobs, will get state and federal credits that will reportedly amount to 700 million euros -- or almost one third of its costs. Dresden beat out a rival bid from East Fishkill, New York.
WHY SAXONY?
"There are many factors that make Saxony an attractive location for investors," said Martin Rosenfeld, who tracks investment patterns at the independent Halle-based IWH institute for economic research.
"The high state subsidies are not the only reason," he said, referring to the enormous amounts the regional governments in all five eastern German states are willing to spend to lure investors.
But they sure help.
Saxony wanted to give BMW 416 million euros in state aid for a 1.3 billion euro factory in Leipzig, but had that amount cut by 363 million euros by the European Commission. BMW picked Leipzig over 250 competitors, including the nearby Czech Republic town of Kolin where wages are one-quarter those in Germany.
Saxony state officials say more than 40 billion euros has been invested since 1990 in the state in plant and equipment, creating 220,000 jobs and saving another 220,000. Exports abroad from the state have expanded sixfold to 14 billion euros.
Whereas the German economy as a whole shrank in the first half of 2003, Saxony grew 1.4 percent.
"Saxony's industry was the growth engine in the first half with an increase of eight percent," said Martin Gillo, the state's U.S.-educated economy minister and a former head of AMD's Saxony operations.
LURING INVESTORS TOP PRIORITY
IWH's Rosenfeld said Saxony has had a long heritage of inventiveness, registering more patents per head than many other states. He said there were also important historical factors giving the region an edge.
On top of that, wages are about 15 percent below those of workers in western states and easterners put in about three hours more each week on assembly lines.
A strike by eastern German IG Metall workers seeking equal working hours to match the 35 hours worked in the west collapsed earlier this year after four weeks, dealing IG Metall its worst defeat in decades.
"Wage agreements for individual plants are more possible to arrange here than elsewhere," said Burkhard Zscheischler, an official at the Saxony economic promotion agency. "And besides that, there's no speed limit on the motorways and no bar-closing times. Investors like that. They think that's sexy."
Streamlined bureaucracy is also a factor making Saxony attractive for investors, officials said. Investors are welcomed with open arms by state and local officials and are often assigned advisers to help clear bureaucratic hurdles.
Porsche, for example, had no trouble getting approval to build a test track next to its plant in Leipzig in an ecologically protected area -- plans which could have run into difficult obstacles in other wealthier parts of Germany.
In fact, Porsche AG Chairman Wendelin Wiedeking has criticised other luxury carmakers for taking state handouts to build plants in eastern Germany.
"I don't think luxury and state support fit together," Wiedeking said. "Investment in Germany is worthwhile, even without money from the state." (Additional reporting by Erik Kirschbaum)