Economic Region: The German Palatinate (Pfalz) Important Facts and Figures

I. Regional Structure ofthe Palatinate

A. Administrative Divisions

The Palatinate (Pfalz) is the most southerly region of the German federalstate of Rhineland-Palatinate (Rheinland-Pfalz). For almost 170 years, our IHK(Industrie- und Handelskammer, i.e. Chamber of Commerce and Industry) has beenresponsible for and actively involved in the economic development of this region.Both geographically and in terms of its economy, the Palatinate has long hadclose links with the Saarland to the west and the state of Baden-Württemberg tothe east. The state border with the latter is marked by the Rhine, Europe's mostimportant inland commercial waterway. To the south, the national border with the French regions of Alsace and Lorraine calls to mind the turbulent history of ourregion. Once a hotly disputed border territory, its location now represents both a challenge and an opportunity, inasmuch as it is an area where the overcoming of language problems and a few last economic barriers can help pave the way to aunified Europe.

In terms of its administration, the Palatinate, which actually once belonged to the Kingdom of Bavaria, used to be incorporated into the formeradministrative district of Rheinhessen-Pfalz. A far-reaching reorganization of the state government authorities in 2000 saw the abolition of such administrative districts, which were replaced by the Supervisory and Service Authority (Aufsichts- und Dienstleistungsdirektion; ADD), as well as two Structural and Licensing Authorities (Struktur- und Genehmigungsdirektionen; SGDs), one responsible for the northern part of the region, the other for the south part. The latter, the SGD South, is based in Neustadt an der Weinstrasse. The state government of Rhineland-Palatinate has its seat in the state capital, Mainz. With a total area of about 5,500 km2 (about 2,150 miles2),the Palatinate is divided into eight administrative districts, as well ascontaining eight towns/cities that do not belong to any of these districts (seebelow); of these towns, the two largest are Ludwigshafen, with a population of about 164,500, and Kaiserslautern, with approximately 99,000 inhabitants. Neustadt ander Weinstrasse is a good deal smaller, numbering about 55,000 inhabitants. The headquarters of our IHK is located in Ludwigshafen. As this is the area's mostimportant economic centre but is located on its periphery, three IHK servicecentres in Kaiserslautern, Pirmasens and Landau ensure optimal local liaison and support for the many businesses that are members of our organization.

B. ThePalatinate as an Area of Outstanding Natural Beauty

In terms of its geography, the Palatinate falls into two clearly delineatedsub-regions referred to as the Westpfalz and Rheinpfalz(Vorderpfalz and Südpfalz). Die Rheinpfalz extends from the Rhine to the steepfoothills of the Haardt Hills to the west. This area is a part of the UpperRhine Graben System, a geographical trench about 155 miles long extending fromthe Swiss border to the south as far north as the densely urbanized Rhine-Mainregion around Frankfurt. The Rheinpfalz is, at the same time, part of theco-operative economic zone called the MetropolregionRhein-Neckar, which contains two important cities located to the east of theRhine, namely Mannheim and Heidelberg. The flat countryside of the Rhine Plainhas always offered excellent opportunities for infrastructural development.Well-equipped inland harbours have furthered the expansion of commercialshipping, while the high concentration of major roads and rail connectionsensures optimal traffic links with other important economic centres both withinGermany and beyond its borders.

As any visitor to the Palatinate can hardly fail to notice, a pre-eminentfeature of the region's economy outside of its urban centres is agriculture,especially in the Rhine Plain. The local farmers profit greatly from thevery favourable climate of this region, which is numbered among the warmest andsunniest areas of Germany. With good reason, it is often referred to as the 'Tuscanyof Germany'. As a consequence, the highly intensive cultivation of specializedcrops has become a feature of the Palatinate's economy. Thus, the Palatinate isbest known for the German Wine Road (Deutsche Weinstrasse), a touristroad extending along the foothills of the Haardt Hills, which runs throughGermany's second-largest wine-growing region. Thanks to their excellent vintages,many of its long-established wine-growing estates have contributed to thePalatinate enjoying an outstanding reputation among connoisseurs of the grapeboth in Germany and throughout the world. For more information about this,please refer to an article (in German) published in a regional newspaper ( DieRheinpfalz September 29, 2007; pdf document ). Other specialized crops thatthrive in the ideal climatic conditions of the region include tobacco and arange of vegetables grown in the Rheinpfalz. In fact, the Rhine-PalatinateDistrict (Rhein-Pfalz-Kreis) is by far the largest producer of vegetables inRhineland-Palatinate.

The Westpfalz comprises that part of the Palatinate extending to theborder of the Saarland to the west and to the French (Alsatian) border to thesouth. The rural character of this region is marked by agricultural use and thevirtually unbroken wooded area making up the Palatinate Forest (Pfälzerwald),the largest contiguous area of woodland in Germany. The Palatinate Forestbelongs to the biosphere reserve, Palatinate-Forest/Northern-Vosges-Hills (Pfälzerwald-Nordvogesen),and it covers approximately one-third of the Westpfalz region. The highest pointof the Palatinate is the Donnersberg, which is 687 metres (2,233 feet) above sealevel and is located in the hills of the Northern Palatinate (NordpfälzerBergland). Throughout its history, the development of the Westpfalz was hinderedby its geopolitical border location, as well as by the obstacles to the growthof a satisfactory transport infrastructure presented by its very hilly landscape.Even today, such structural deficits have yet to be entirely rectified, with theresult that the economic momentum of this region cannot rival that of theneighbouring Rhine Plain.

II. Economic Structure

Its landscape, economic structure and close links with neighbouring regionsmean that the Palatinate is an economic region characterized by strikingcontrasts and highly diverse regional facets. As a result of this and the cleargeographical division between the Rhine Plain and Palatinate Forest, thecenturies have seen the emergence of two very distinct economic sub-regions.

As one might expect, the sub-regions that have attained the greatest economicimportance are those whose location along the Rhine has allowed them toprofit from the favourable transport links with other economic centres withinGermany and abroad. Thus, as a result of the founding of BASF SE (i.e. Baden Aniline and Soda Factory) during the period of industrialization, the northsection of the Rhine Plain in the conurbation around Ludwigshafen developed intowhat is now the largest single chemical plant in the world. Ludwigshafen is, atthe same time, the economic hub of the Palatinate. In addition, the southernpart of the Palatinate has also undergone very rapid development, especially inthe last couple of decades. The establishment of a truck assembly plant ofMercedes-Benz (now Daimler) in Wörth moved vehicle manufacturing to the fore inthis area.

In contrast, owing to its location close to the national border and itsgeographical separation from the Rhine Plain, the economic development of the Westpfalzhas been significantly less dynamic. For a long time, the establishment of anadequate transport infrastructure was greatly hindered by the dense andextensive Palatinate Forest, which thus prevented economic growth comparable tothat enjoyed by the Rheinpfalz. The Westpfalz sub-region, in which Pirmasens andZweibrücken are important centres, is characterized by medium-sized businessesand industries, e.g. shoe-making. The largest city of the Westpfalz, though, isKaiserslautern, an important economic centre currently facing significantchallenges. Here, two major industrial employers have production plants in thePalatinate, i.e. the sewing-machine producer, Pfaff ,and Adam Opel AG, which employs about 3400 staff in its parts factory. However,the draw-down of American forces in Germany - many of which were based in andaround the city - has left Kaiserslautern facing severe structural problems.

A. Gross Value Added

As an measure of economic potential and output, the gross value added clearly mirrors the disparities existing between theindividual sub-regions of the Palatinate. Excepting the findings for Kaiserslautern, which is the economic and services centre of the Westpfalz, the highest values are to be found along the Rhine, with Ludwigshafen achieving topfigures. Just under 70% (i.e. 21,540 million Euros of the total of 32,009 million Euros recorded for 2009) of the Palatinate's total economic output is concentrated in the Rheinpfalz. As population distribution and demographic changes are linked with economic development, it is no surprise that the moredensely populated areas are also those areas manifesting the highest economic output. If one divides the figures for the value added by the number of employedpersons, the pro capita annual revenue (gross domestic product) of about 60,000 Euros in the Rheinpfalz is markedly higher than the average for the whole Palatinate of approximately 57,000 Euros, while the Westpfalz lies below thestate average with a pro capita gross revenue of around 53,000 Euros.

If the gross value added is considered for individual economic sectors, aclear preponderance of major industry becomes evident; indeed, this isthe most important economic sector in the Palatinate. For example, more thanhalf of the economic yield of the city of Ludwigshafen (principally because of BASF SE) and of the district of Germersheim (mainly because of Daimler AG) is derived from industrial production. In the Palatinate as a whole, production industries contribute about 35% of the gross value added (in figures, 11,076 million Euros). About 65% of the gross value added (20,496 million Euros) is generated by the services sector; here, the retailing branch, the hoteland restaurant industry, and transport services account for 4,830 million Euros or about 15% of the gross value added, while the sector comprising financial,hire and corporate services yields 7,895 million Euros (about 25%).

Considered in the context of the whole state of Rhineland-Palatinate, the industrial output of the Palatinate is of outstanding significance. Indeed, the industrialproducers of the Palatinate account for 52% (i.e. 41,531 million Euros) of theindustrial volume of Rhineland-Palatinate. Of all the industrial employees inthe state, no less than 42% work in the Palatinate. It should also be borne inmind that a high proportion of the industry located in the Palatinate is exportoriented. The current export quota for the region is over 60% - a remarkableproportion when one considers that the comparable figures are about 50% for theentire state of Rhineland-Palatinate and around 44% for Germany as a whole.

Production for export is particularly marked in the chemical industry. Asalready mentioned, the chemical industry - the most important branch of industryin the Palatinate - is inseparably linked with the name of the city ofLudwigshafen. Along with BASF SE, major producers in the area are BK Giulini aswell as Raschig and Abbott. Other major industrial branches are vehiclemanufacture and supplies, with the Daimler truck assembly plants in Wörth andGermersheim, the Opel factory Kaiserslautern, and a number of important autosuppliers such as Keiper Recaro, BorgWarner and Harman Becker. In the field ofengineering and machine construction, the Palatinate is the preferred locationof many major companies, including Europe's largest pump producer, KSB, and themanufacturer of printing machinery, König und Bauer-Albert (KBA); in addition,the region is home to the producer of mechanical pulping machinery, GebrüderPfeiffer AG, and the crane manufacturer, Terex Demag. In addition, metalproduction and the manufacture of metal products are of importance in thePalatinate.

B. Employment Profile

Another indicator of the economic potential and output of the Rhine Plain isthe number of employees in the region  Alittle under two-thirds (65%) of the Palatinate's approximately 426,000 jobs (figurefor June 30, 2010) are accounted for by the Vorderpfalz and Südpfalz, while theremaining one-third or so (35%) are to be found in the Westpfalz. Employmenttrends, though, indicate that, in the past couple of decades, job cutbacks havebeen especially marked in the industrial sector, which nonetheless remains theregion's largest provider of employment. Thus, the production and processingsegment currently employs just under 126,000 persons. At the same time, the services branch accounts for almost 264,000 jobs.

As pointed out above, the economic output of the Westpfalz is markedly lowerthan that of the Rheinpfalz. The main causes and resulting problems of thissituation can be traced back to the decline in importance of the shoe industry,whose effects have been particularly pronounced in the region around Pirmasensand Zweibrücken (photo: Exerzierplatz in Pirmasens). Increasingly toughcompetition from abroad has meant that, of the 300 or so companies with 27,000 employees that were based here in 1960, only about 80 firms are still involvedin the leather industry (production and processing, shoemaking). Nonetheless,the shoe industry remains one of the most important sources of employment inthis sub-region, with major production plants including those of Peter Kaiser,Josef Seibel and Louis Steitz Secura.

Some of the companies that once specialized in supplying the shoe industry (forexample, producers of the chemical industry that produced glue for themanufacture of shoes) have been able to terminate their dependence ondevelopments in the footwear branch by turning to other technologies andestablishing themselves in different markets. The same applies to companiesproducing plastics that used to make heels and soles for shoes. They have alsobeen able to loosen their ties with the shoe industry and, instead, becomeimportant producers of a variety of plastic elements, such as window frames(Firma Kömmerling in Pirmasens). In spite of such innovative developments,however, this region is still marked by the abrupt decline in its footwearindustry.

The current draw-down of Allied forces - up to now, an economic factor not tobe underestimated - is now presenting the Westpfalz with further fundamentalproblems that need to be tackled. For many years, the bases of such troops werethe largest employer in the Westpfalz. The withdrawal of US forces as aconsequence of disarmament and decreasing political tensions has led to the lossof a considerable number of jobs. The resulting loss of income has affected thespending power of the region's population. The same problems apply to the cityof Kaiserslautern, in which the establishment of several IT companies since the1960s has not been able to compensate fully for the draw-down of US troops.

Located in Kaiserslautern, the Technical University (founded in 1970) - inconjunction with a centre devoted to technology and to training entrepreneursestablishing their own businesses - has become an educational and traininginstitution of great importance throughout this economic region. By its supportand training of technical students and the two-way transfer of know-how betweenscientific research and industry, this university plays a crucial role in thedevelopment of the region as well as adding to its attractiveness for high-techcompanies. In the meantime, two Fraunhofer Institutes (IESE and ITWM) as well asnumerous firms specializing in information and communication technology havechosen the PRE-Park in Kaiserslautern (see aerial photo) as their base ofoperations. These include the Software Academy (SWA), Insiders, LMS, the maxessSystemhaus and Q-Labs (for further information, click on this link to thePRE-Park). This has proved to be a successful new approach that opens upexciting prospects for the long-term economic growth and development of theregion.

For many years now, considerable efforts have been made to tackle and toovercome the fundamental structural deficits of this region as a whole and togenerate new economic impulses and approaches. Converting existing sites andfacilities for new uses and applications - a good example being theDesigner-Outlet-Center in Zweibrücken, in which about 100 retailers sellbrand-name goods from the last season's ranges, display stock, overstock andslight seconds - is one approach that has proved to be not without itsdifficulties and has been the source of much dispute and debate.

Apart from a few regional and branch-specific exceptions, the tertiaryeconomic sector is comparatively unimportant in the Palatinate. Serviceproviders are mainly to be found in Neustadt and Speyer, Landau and Kaiserslautern, i.e. towns and cities in which primarily supra-regionalgovernmental organizations, administrative offices and educational institutessuch as universities and colleges are located. Although, as ever, the preponderance of the industrial sector remains unchallenged in the region, it isnonetheless unmistakably clear that recent decades have seen a steady growth inthe importance of the services sector. Thus, while the entire service sector (includingthe retail and transport branches) accounted for 34% of the gross value added ofthe Palatinate in 1970, the corresponding proportion for the year 2007 had risento about 58%. Over the same period, the share of the gross value addedattributable to the industrial sector has correspondingly declined steadily.

As already mentioned, production industries account for just under 32% (about136,000 employees) of the total number of jobs in the region and are thereforestill of enormous importance. However, while the number of staff employed inthis branch has declined steadily over the past 20 years, the number of jobs inthe services sector has risen significantly to almost 260,000 during the sameperiod, thereby overtaking the number of people employed in productionindustries.

Within the services sector itself, the segment concerned with so-calledcorporate services, which now employs about 43,500 persons, deserves especialmention. This category embraces, above all, companies active in theinformation-technology and software branches, estate agents and brokers,advertising specialists and various types of freelancers. These branches havetheir own particular growth dynamics and have exhibited a significant increasein employment levels in recent decades.
Every major conurbation does, of course, play a more-or-less well-developed rolein supplying the needs of the town or city itself, as well as of its hinterland.This manifests itself in a concentration of diverse retailers in town centres,along with, in more recent years, large shopping malls and agglomerations ofconvenience stores on the outskirts or in the immediate vicinity of towns. Thewholesale and retail sector accounts for approximately 57,000 jobs in thePalatinate.

Thanks to an attractive landscape characterized by very extensive vineyardsas well as the recreational possibilities available in the Palatinate Forest,the Palatinate has developed into a popular leisure and holiday destinationduring the last decades. In addition, its many features of cultural and historicinterest, such as its numerous medieval castles and towns, Hambach Castle nearNeustadt an der Weinstrasse and the famous Imperial Cathedral of Speyer, havecontributed significantly to tourism becoming a significant economic factor, particularly for manyvillages and small communities located in the Palatinate. Nowadays, it isimpossible to overlook the value of tourism to the region, which in 2010, attracted about 1.6 million visitors from within Germany and from abroad, withabout 4 million overnight stays.

III. Economic Outlook

Even though, in quantitative terms, the industrial sector is losing ground tothe services sector, the qualitative significance of industry in the Palatinateremains unchallenged. Geographically, this is equally true for the highlyindustrialized Rheinpfalz, where for decades, particularly the chemical industryand vehicle construction have been crucial sources of employment and prosperity,as well as for the Westpfalz, in which mainly medium-sized, family-ownedbusinesses involved in the production of shoes are of particular importance. Incoming years, a nucleus of very competitive and innovative industrial companiescapable of a high degree of market adaptability will continue to flourish.

Bearing this in mind, clustering, i.e. the integration andconcentration within a particular region of businesses and institutions workingin the same or related economic fields, will have a important role to play inthe future. The competitive advantages of this type of network usually derivefrom the improved division of labour and the lively exchange of market-relevantinformation, resulting in an increase in the innovative capabilities of thecompanies involved. Good examples of successful initiatives of this kind in theregion include the automotive cluster in Rhineland-Palatinate and the so-called'Bioregion Rhein-Neckar-Dreieck' in the co-operative economic zone, theMetropolregion Rhein-Neckar.

The diversity and many-sidedness of the Palatinate will lead to theindividual sub-regions contained within it becoming increasingly distinct fromone another, as each explores new opportunities and possibilities. This process,which has gained in momentum over the past few years, while become more and moreevident both here and beyond the borders of the state of Rhineland-Palatinate aswell as of Germany itself. For the Vorderpfalz, closer integration into theRhine-Neckar region will become increasingly important, while the Südpfalz hasgood chances of profiting from its proximity to the important city of Karlsruhejust over the Baden-Württemberg border. Similarly, the Westpfalz will set outto intensify its links with its immediate neighbours, the Saarland, France andLuxembourg.