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

A. Administrative Divisions

The Palatinate (Pfalz) is the most southerly region of the German federal state of Rhineland-Palatinate (Rheinland-Pfalz). For 175 years, our IHK (Industrie- und Handelskammer, i.e. Chamber of Commerce and Industry) has been responsible for and actively involved in the economic development of this region. Both geographically and in terms of its economy, the Palatinate has long had close links with the Saarland to the west and the state of Baden-Württemberg to the east. The state border with the latter is marked by the Rhine, Europe's most important inland commercial waterway. To the south, the national border with the French regions of Alsace and Lorraine calls to mind the turbulent history of our region. Once a hotly disputed border territory, its location now represents both a challenge and an opportunity, in as much as it is an area where the overcoming of language problems and a few last economic barriers can help pave the way to an unified Europe.

In terms of its administration, the Palatinate, which actually once belonged to the Kingdom of Bavaria, used to be incorporated into the former administrative 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 southern 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 (see below); of these towns, the two largest are Ludwigshafen, with a population of about 167,000, and Kaiserslautern, with approximately 100,000 inhabitants. Neustadt an der Weinstrasse is a good deal smaller, numbering about 53,000 inhabitants. The headquarters of our IHK is located in Ludwigshafen. As this is the area's most important 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.

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B. The Palatinate as an Area of Outstanding Natural Beauty

In terms of its geography, the Palatinate falls into two clearly delineated sub-regions referred to as the Westpfalz and Rheinpfalz (Vorderpfalz and Südpfalz). Die Rheinpfalz extends from the Rhine to the steep foothills of the Haardt Hills to the west. This area is a part of the Upper Rhine Graben System, a geographical trench about 155 miles long extending from the Swiss border to the south as far north as the densely urbanized Rhine-Mainr egion around Frankfurt. The Rheinpfalz is, at the same time, part of the co-operative economic zone called the Metropolregion Rhein-Neckar, which contains two important cities located to the east of the Rhine, namely Mannheim and Heidelberg. The flat countryside of the Rhine Plain has always offered excellent opportunities for infrastructural development. Well-equipped inland harbours have furthered the expansion of commercial shipping, while the high concentration of major roads and rail connection sensures optimal traffic links with other important economic centres both within Germany and beyond its borders.

As any visitor to the Palatinate can hardly fail to notice, a pre-eminent feature of the region's economy outside of its urban centres is agriculture, especially in the Rhine Plain. The local farmers profit greatly from the very favourable climate of this region, which is numbered among the warmest and sunniest areas of Germany. With good reason, it is often referred to as the 'Tuscany of Germany'. As a consequence, the highly intensive cultivation of specialized crops has become a feature of the Palatinate's economy. Thus, the Palatinate is best known for the German Wine Road (Deutsche Weinstrasse), a tourist road extending along the foothills of the Haardt Hills, which runs through Germany's second-largest wine-growing region. Thanks to their excellent vintages, many of its long-established wine-growing estates have contributed to the Palatinate enjoying an outstanding reputation among connoisseurs of the grape both in Germany and throughout the world. tobacco and arange of vegetables grown in the Rheinpfalz. In fact, the Rhine-Palatinate District (Rhein-Pfalz-Kreis) is by far the largest producer of vegetables in Rhineland-Palatinate.

The Westpfalz comprises that part of the Palatinate extending to the border of the Saarland to the west and to the French (Alsatian) border to the south. The rural character of this region is marked by agricultural use and the virtually unbroken wooded area making up the Palatinate Forest (Pfälzerwald), the largest contiguous area of woodland in Germany. The Palatinate Forest belongs to the biosphere reserve, Palatinate-Forest/Northern-Vosges-Hills (Pfälzerwald-Nordvogesen), and it covers approximately one-third of the Westpfalz region. The highest point of the Palatinate is the Donnersberg, which is 687 metres (2,233 feet) above sealevel and is located in the hills of the Northern Palatinate (Nordpfälzer Bergland). Throughout its history, the development of the Westpfalz was hindered by its geopolitical border location, as well as by the obstacles to the growth of 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 the neighbouring Rhine Plain.

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

As one might expect, the sub-regions that have attained the greatest economic importance are those whose location along the Rhine has allowed them to profit from the favourable transport links with other economic centres within Germany 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 north section of the Rhine Plain in the conurbation around Ludwigshafen developed into what is now the largest single chemical plant in the world. Ludwigshafen is, at the same time, the economic hub of the Palatinate. In addition, the southern part of the Palatinate has also under gone very rapid development, especially in the last couple of decades. The establishment of a truck assembly plant of Mercedes-Benz in Wörth moved vehicle manufacturing to the fore in this area.

In contrast, owing to its location close to the national border and its geographical separation from the Rhine Plain, the economic development of the Westpfalz has been significantly less dynamic. For a long time, the establishment of an adequate transport infrastructure was greatly hindered by the dense ande xtensive Palatinate Forest, which thus prevented economic growth comparable to that enjoyed by the Rheinpfalz. The Westpfalz sub-region, in which Pirmasens and Zweibrücken are important centres, is characterized by medium-sized businesses and industries, e.g. shoe-making. The largest city of the Westpfalz, though, is Kaiserslautern, an important economic centre currently facing significant challenges. Here, two major industrial employers have production plants in the Palatinate, i.e. the sewing-machine producer, Pfaff and Opel Automobile GmbH Werk Kaiserslautern, which employs about 2000 staff in its parts factory. However, the draw-down of American forces in Germany - many of which were based in and around 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 the individual 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 top figures. Just 69% (i.e. 30,713 million Euros of the total of 44,197 million Euros recorded for 2020) 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 more densely populated areas are also those areas manifesting the highest economic output. If one divides the figures for the value added by the number of employed persons, the pro capita annual revenue (gross domestic product) of about 75,000 Euros in the Rheinpfalz is markedly higher than the average for the whole rhineland-palatinate of approximately 71,000 Euros, while the Westpfalz lies below the state average with a pro capita gross revenue of around 65,200 Euros.

If the gross value added is considered for individual economic sectors, a clear preponderance of major industry becomes evident; indeed, this is the most important economic sector in the Palatinate. For example, more than half 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 38% of the gross value added (in figures, 16,666 million Euros). About 61% of the gross value added (26,783 million Euros) is generated by the services sector; here, the retailing branch, the hotel and restaurant and transport services account for 7,161 million Euros or about 16% of the gross value added, while the sector comprising financial, hire and corporate services yields 9,468 million Euros (about 21%).

Considered in the context of the whole state of Rhineland-Palatinate, the industrial output of the Palatinate is of outstanding significance. Indeed, the industrial producers of the Palatinate account for 52% (i.e. about 64,800 million Euros) of the industrial volume of Rhineland-Palatinate (115,800 million Euros). Of all the industrial employees in the state, no less than 41% work in the Palatinate. It should also be borne in mind that a high proportion of the industry located in the Palatinate is exportoriented. The current export quota for the region is about 65%

Production for export is particularly marked in the chemical industry. As already mentioned, the chemical industry - the most important branch of industry in the Palatinate - is inseparably linked with the name of the city of Ludwigshafen. Along with BASF SE, major producers in the area are  as well as Raschig and Abbvie. Other major industrial branches are vehicle manufacture and supplies, with the Daimler truck assembly plant in Wörth and the Opel factory Kaiserslautern, and a number of important autosuppliers such as Johnson Controls and, BorgWarner. In the field of engineering and machine construction, the Palatinate is the preferred location of many major companies, including Europe's largest pump producer, KSB; in addition,the region is home to the producer of mechanical pulping machinery, Gebrüder Pfeiffer SE, and the crane manufacturer, Terex Cranes. In addition, metalproduction and the manufacture of metal products are of importance in the Palatinate.

B. Employment Profile

Another indicator of the economic potential and output of the Rhine Plain ist he number of employees in the region  Two-thirds (67%) of the Palatinate's approximately 510,000 jobs (figure for June 30, 2020) are accounted for by the Vorderpfalz and Südpfalz, while there maining one-third or so (33%) are to be found in the Westpfalz. Employment trends, though, indicate that, in the past couple of decades, job cutbacks have been especially marked in the industrial sector, which nonetheless remains the region's largest provider of employment. Thus, the producting sector currently employs just for almost 159,000 persons. At the same time, the services branch accounts for almost 347.000 jobs.

As pointed out above, the economic output of the Westpfalz is markedly lower than that of the Rheinpfalz. The main causes and resulting problems of this situation can be traced back to the decline in importance of the shoe industry, whose effects have been particularly pronounced in the region around Pirmasens and Zweibrücken. Increasingly tough competition 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 involved in the leather industry and today onlly 6 (production and processing, shoemaking). Nonetheless, the shoe industry remains one of the most important sources of employment int his 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 (for example, producers of the chemical industry that produced glue for the manufacture of shoes) have been able to terminate their dependence on developments in the footwear branch by turning to other technologies and establishing themselves in different markets. The same applies to companies producing plastics that used to make heels and soles for shoes. They have also been able to loosen their ties with the shoe industry and, instead, become important 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 footwear industry.

The current draw-down of Allied forces - up to now, an economic factor not to be underestimated - is now presenting the Westpfalz with further fundamental problems that need to be tackled. For many years, the bases of such troops were the largest employer in the Westpfalz. The withdrawal of US forces as ac onsequence of disarmament and decreasing political tensions has led to the loss of a considerable number of jobs. The resulting loss of income has affected thes pending power of the region's population. The same problems apply to the city of Kaiserslautern, in which the establishment of several IT companies since the 1960s has not been able to compensate fully for the draw-down of US troops.

Located in Kaiserslautern, the Technical University (founded in 1970) - in conjunction with a centre devoted to technology and to training entrepreneurs establishing their own businesses - has become an educational and training institution of great importance throughout this economic region. By its supportand training of technical students and the two-way transfer of know-how between scientific research and industry, this university plays a crucial role in the development of the region as well as adding to its attractiveness for high-tech companies. In the meantime, two Fraunhofer Institutes (IESE and ITWM) as well asnumerous firms specializing in information and communication technology havec hosen the PRE-Park in Kaiserslautern as their base of operations. These include the Software Academy (SWA), Insiders, LMS, the maxess Systemhaus and Q-Labs (for further information, click on this link to the PRE-Park). This has proved to be a successful new approach that opens upexciting prospects for the long-term economic growth and development of the region.

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

Apart from a few regional and branch-specific exceptions, the tertiary economic sector is comparatively unimportant in the Palatinate. Service providers 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 institutes such as universities and colleges are located. Although, as ever, the preponderance of the industrial sector remains unchallenged in the region, it isn onetheless unmistakably clear that recent decades have seen a steady growth in the importance of the services sector. Thus, while the entire service sector (including the retail and transport branches) accounted for 34% of the gross value added of the Palatinate in 1970, the corresponding proportion for the year 2020 had risen to about 61%. Over the same period, the share of the gross value addedattributable to the industrial sector has correspondingly declined steadily.

As already mentioned, productiing sector account for just under 31% (about 159,000 employees) of the total number of jobs in the region and are therefore still of enormous importance. However, while the number of staff employed in this branch has declined steadily over the past 25 years, the number of jobs in the services sector has risen significantly to almost 343,000 during the same period, thereby overtaking the number of people employed in production industries.

Within the services sector itself, the segment concerned with so-called corporate services, which now employs about 68,000 persons, deserves especial mention. This category embraces, above all, companies active in the information-technology and software branches, estate agents and brokers, advertising specialists and various types of freelancers. These branches have their own particular growth dynamics and have exhibited a significant increase in employment levels in recent decades.
Every major conurbation does, of course, play a more-or-less well-developed role in 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 of convenience stores on the outskirts or in the immediate vicinity of towns. The wholesale and retail sector accounts for approximately 71.200 jobs in the Palatinate.

Thanks to an attractive landscape characterized by very extensive vineyard sas well as the recreational possibilities available in the Palatinate Forest,the Palatinate has developed into a popular leisure and holiday destination during the last decades. In addition, its many features of cultural and historic interest, such as its numerous medieval castles and towns, Hambach Castle near Neustadt an der Weinstrasse and the famous Imperial Cathedral of Speyer, have contributed significantly to tourism becoming a significant economic factor, particularly for many villages and small communities located in the Palatinate. Nowadays, it is impossible to overlook the value of tourism to the region, which in 2022, attracted about 1.73 million visitors from within Germany and from abroad, with about 4,16 million overnight stays.

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

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

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

March 2023