Industrial failures rising in the east

MORE than anything else the future of eastern Germany depends on its newly privatised companies.

Treuhandanstalt, the privatisation agency, has virtually completed its four-year task and has just 100 formerly state-owned companies left on its books. But how successful will privatised companies be, once the current big incentives to invest in the east run out?

At KWO Kabel, a former state- owned cable manufacturing group that is now a subsidiary of BICC of the UK, Rainer Hemmann, managing director, argues that the company's future is secure.

Unlike many German acquisitions in the eastern lander, which have been motivated simply by the prospect of a cheap production line, the purchase of KWO was underpinned by an international strategy, he said.

'BICC was not previously represented in the German market, which is the biggest in Europe. This strategic gap has been closed,' Mr Hemmann said. 'We also decided to exploit KWO's excellent relationship with Eastern Europe and the former Soviet Union.'

To implement his strategy he has put in place an ambitious training programme - 9,000 work-days are planned this year. But rationalisation has also been necessary - he has also had to slash the workforce from 3,800 to 2,400 over the past year.

It may be that KWO will hire more people in the years to come if its expansion strategy pays off. But for the moment, the company is doing what many other employers in eastern Germany have done, paying for political mistakes with jobs.

East Germans were theoretically guaranteed pay rates of 80 per cent of western levels.

'It was the biggest political mistake, you took away the advantage of the region,' Mr Hemmann said.

It has meant that the privatised companies have moved swiftly to replace old equipment with high technology, to reap productivity gains. That has meant enormous job losses.

As Dr Heinzhermann Klottschen, a senior official of Treuhandanstalt, points out: 'West German companies have made investments here because of the incentives. But they employ fewer people.'

Joblessness also reflects large numbers of bankruptcies among newly formed companies.

Around half the region's workforce, 3 million people, is now employed by east Germany's 440,000 private companies. The worry is that many of these firms face an unstable future.

There are grounds for hope, however. Almost half of east German industry is based in the more prosperous lander of Saxony and Thuringia - which have a strong industrial tradition.

Andreas Jansen, who heads Saxony's representative office in Bonn, believes that by the year 2000 'we will have achieved the standard of the west'.

(Photograph omitted)