HomeOur Economy 2023Our Economy 2023: Saxony and Saxony-Anhalt, Germany

Saxony and Saxony-Anhalt, Germany

Saxony and Saxony-Anhalt is one of our inclusive productivity case studies for Our Economy 2023. The focus here was creating the conditions to attract businesses and people, through place-making and targeted interventions such as childcare and child education. 

Overview

Saxony and Saxony-Anhalt are neighbouring regions in east Germany with a combined population of 6.2 million people.

Leipzig is the most populous metropolitan area across both regions, located in Saxony roughly 100 miles south of Berlin, with a population of around 600,000 people. Other urban areas include Dresden, Magdeburg and Halle (Saale). Both regions also have large rural areas and are largely composed of hill and mountain country.

Although the Saxon economy suffered severe cutbacks after unification, especially in manufacturing, it remains one of the largest economies in east Germany and one of the few in which ‘new economy’ sectors such as microelectronics have experienced considerable growth. Though agriculture in Saxony-Anhalt dominates much of the landscape it plays a modest role in total output and employment.

Key institutions across both regions include Technische Universitat Dresden, Universitat Leipzig and Technische Universitat Chemnitz, Martin-Luther-Universitat Halle-Wittenberg, Otto-von-Guericke-Universitat Madgeburg and Hochschule Merseburg. 

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Performance on key indicators

Saxony and Saxony-Anhalt saw much stronger growth across two of our key indicators than the North East since 2018. GDP per head rose by 14% in Saxony-Anhalt and by 18% in Saxony, compared with an increase of 4% in North East England. At the same time the economic activity rate increased by 20 percentage points in Saxony-Anhalt and by 22 percentage points in Saxony compared to a 1% growth in North  East England. 

Disposable household income per head rose at a greater rate in the North East over the period, 17% as opposed to 13% in Saxony and 15% in Saxony-Anhalt, but the Nort East still lagged behind these regions overall on this measure by 2018. You can see the data for the North East and both regions across the three charts below.
 

14%

Between 2008 and 2018, GDP per head rose by 14% in Saxony-Anhalt and by 18% in Saxony, compared with an increase of 4% in North East England.

Policy priorities 

Following German reunification in 1990, a strong case is made that a united Germany, despite turbulences, adjusted well to a post Cold War world and found its niche as a medium power, gradually making its political clout commensurate with its economic expansion[1]. Despite high unemployment and low growth in the early 2000s, in the later part of the decade, Germany experienced an increased growth trajectory.

Germany has a strong and effective structure for boosting the regional economy through compensation of differences in economic structure and environments for growth across regions. Germany’s Constitution features a commitment to reducing regional disparities and places the joint responsibility of regional development to be placed on federal government and the Lander[2]. In both regions, the Landtag of Saxony and the Landtag of Saxony-Anhalt are the legislatures of the regional states, and they govern jointly with the federal government as unicameral assemblies exercising legislative competence. 

Both Saxony and Saxony-Anhalt were formerly part of East Germany and during reunification both regions experienced deindustrialisation and considerable declines in employment rates. For example, in Leipzig the employment rate in pre-existing industrial jobs declined by 80%[3]. 

Saxony-Anhalt experienced rural challenges such as depopulation and high unemployment, subsequently becoming one of Germany’s poorest states by the early 2000s. In Saxony, the Leipzig metropolitan area experienced significant rates of out-migration post-reunification, leading to it being nicknamed a “shrinking city”. Overall, reunification had initial negative impacts on the two regions particularly at city level. 

Deindustrialisation, unemployment and population decline were linked to low levels of R&D expenditure in an SME-dominated economy, and under-utilisation of a “crumbling” housing stock. 

  1. ^ Elizabeth Pond (2010) Germany finds its niche as a regional power. Available here
  2. ^ OECD Regional Outlook (2019): Leveraging Megatrends for Cities and Rural Areas. Available here
  3. ^ Susanne Frick (2023) Turnaround Cities: German Case Studies Insights from Dortmund, Duisburg and Leipzig. Available here

Population decline and policy

 

Saxony and Saxony-Anhalt have both seen regional population decline between 2008 and 2018, by 138,890 and 189,390 respectively. This is rare amongst OECD regions with average population density across the OECD increasing during 2008 to 2018. Working age population in both regions has also declined over the same period by 290,290 in Saxony and 233,740 in Saxony-Anhalt.

The fact economic growth has happened whilst the population has been falling shows the importance of labour force participation. The demand-led and targeted childcare and child education policies may have been key to this.

Interestingly, despite the decline in regional population in Saxony, in Leipzig specifically, employment has grown, unemployment has declined, and population has increased by 116,000 between 2005 and 2020. This shows the extent to which investing in cities like Leipzig has driven economic and productivity growth.

There have been similar population changes to the Saxonies in the North East. Since the 2011 Census, the population has decreased within three broad working age groups (16 to 24, 35 to 44 and 45 to 54). A decrease in working age population can be a barrier to growth without measures to increase economic activity and employment like those seen in Saxony and Saxony-Anhalt, such as better childcare, improving health outcomes, and age-friendly recruitment and employment[1].

  1. ^ North East evidence hub (2023) Population by age. Available here

Policy interventions and aims

The policy focus in response to the challenges were to boost business growth and employment prospects whilst contributing to sustainable development. Policies delivered were a mix of city level, regional, and specific rural interventions.

City level (Leipzig, Saxony)

The policy interventions outlined in this section came because of the Reunification Project in Germany. For Leipzig, the policy interventions aimed at attracting people and businesses to the city through interventions focused primarily on urban regeneration. This involved targeting the inner-city buildings which were in a poor condition following out-migration. Numerous regeneration strategies were implemented such as a strategic process known as ‘New Founder Epoch’ which aimed to improve the quality of life and attractiveness of inner-city areas by increasing greenspace and reducing density. This was implemented alongside a dedicated housing plan for housing and urban renewal. 

In attempting to attract businesses to Leipzig and tackle unemployment, interventions focused on the role of priority clusters (automotive and suppliers, healthcare and biotech, energy and environment, logistics, and media and creativity) and attracting investorsi. For example, ‘Autoland Saxony’ was used by Saxony Trade & Investment to promote the automotive industry. 

Rural Development Programme:

Rural Development Programmes (RDP) for both Saxony and Saxony-Anhalt were enacted throughout the period of 2008 to 2018 with each region having its own specific goals.  

The 2007–2013 RDP for Saxony aimed to increase the value and competitiveness in the production, processing, and marketing of agricultural and forestry products to create and preserve jobs[1]. Saxony-Anhalt’s 2007–2013 RDP was based on improving the living conditions and economic situation in rural areas, as well as taking into consideration the importance of nature and environmental protection[2]. 

The RDPs for Saxony anticipate increases in economic growth, labour productivity, and numerous environmental benefits. The more recent programmes prioritise the promotion of social inclusion, poverty reduction and economic development in rural areas, and restoration, preservation, and enhancement of ecosystems related to agriculture and forestry[3]. For Saxony-Anhalt the RDPs are working to increase economic performance and improve the employment situation, while considering the protection of nature and environment. 

  1. ^ European Network for Rural Development (2010) Rural Development Programme (RDP) of Saxony, Germany. Available here
  2. ^ European Network for Rural Development (2010) Rural Development Programme (RDP) of Saxony-Anhalt, Germany. Available here
  3. ^ European Commission (2022) Factsheet on 2014–2020 Rural Development Programme for Saxony-Anhalt (Germany). Available here

European Regional Development Fund (ERDF)

Both Saxony and Saxony-Anhalt benefitted from ERDF funding. The Saxony and Saxony-Anhalt programmes aimed to address the underlying challenge of the insufficient R&D expenditure of the SME-dominated economy through strengthening research, technological development and innovation, and enhancing the competitiveness of SMEs[1][2]. 

Funding for childcare and child education was enhanced in Saxony and Saxony-Anhalt with additional demand-based funding to providers, which was not universal across Germany. Increased childcare and child education coverage helps parents enter and remain in the labour market. The OECD reflections of Germany in 2018 note how better childcare and early childhood education can reduce poverty and raise the labour supply[3]. 

The ERDF programmes aimed to create 1,400 new jobs in 250 supported enterprises in Saxony, and 3,775 new jobs in 1,842 supported enterprises in Saxony-Anhalt with a transition to a low carbon economy, contributing to a reduction in annual greenhouse gas emissions.

  1. ^ European Commission (2020) OP Sachsen ERDF 2014–2020. Available here
  2. ^ European Commission (2020) OP Sachsen-Anhalt ERDF 2014–2020. Available here
  3. ^ OECD (2018) Economic Surveys: Germany. Available here

What has changed since 2008 

Leipzig has emerged as one of the most promising urban areas in German city rankings. Between 2005 and 2021, employment increased by 90,000, unemployment has declined, and the population increased by 116,000 between 2005 and 2020.  

A key lesson is that Leipzig’s transformation was partly driven by attracting large companies such as Amazon, BMW, and Porsche and developing a comprehensive supply chain in the region. This was underpinned by investment in childhood education and programmes to increase innovation and productivity in SMEs. 

In 2008, there were 0.71 jobs per resident in Saxony, but only 0.64 in Saxony-Anhalt. By 2018, this had increased to 0.83 and 0.73 jobs per resident, respectively. By comparison, there were 0.67 jobs per resident in North East England in 2008, rising to 0.68 in 2018. 

1.8% of people in employment worked in high-technology manufacturing in Saxony in 2008, and 1.1% in Saxony-Anhalt. The proportions were similar in 2018, at 1.7% and 1.1% respectively. In North East England, 0.9% of people in employment worked in high-technology manufacturing in 2008. This proportion had fallen to 0.6% by 2018. 

Caveats and conclusions

There are some caveats it is important to consider when considering the relaitive economic success of Saxony and Saxony-Anhalt in this period. Unlike in the UK the political structure of Germany means regional development is mainly the responsibility of the regions themselves[1].

Also, the policy interventions in Saxony and Saxony-Anhalt happened at a time when recovery and regeneration were fundamental to the Reunification Project regionally and nationally. The Reunification Project, is said to have cost up to 2 trillion euros between 1990 and 2014. For comparison, the UK’s Levelling Up fund is £4.8 billion in total[2].

Finally, the German economy itself is globally strong and this will have aided the regional growth realised in Saxony and Saxony-Anhalt in this period. 

Overall, the two regions have seen very strong growth compared to the North East despite starting in a similar economic position, and in particular have seen large increases in GDP per head, economic activity and jobs per head despite population decline. This growth has been supported through policies aimed at attracting businesses and people, and targeted interventions such as in childcare and child education.

  1. ^ OECD (2019) Regional Development Policy in Germany. Available here
  2. ^ Kathrin Enenkel (2021) What can German reunification teach the UK about levelling up? Available here

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