Economic Analysis of Germany with respect to Agriculture, Retail and Heavy machinery Industryay - Term Paper Example

Economic Analysis of Germany with respect to Agriculture, Retail and Heavy machinery Industry In terms of PPP, Germany is world’s fifth largest economy and the largest economy of Europe. The country has a highly skilled workforce and hence it is the largest exporter of machinery, vehicles, household equipment and chemicals (cia.gov). Germany was till 1990 divided into two separate entities – East and West Germany. The consolidation post 1990 has been an expensive affair for West Germany. This can be seen from the fact that transfers from West to East in 2008 alone were $12 billion as East has been plagued with unemployment (as high as 20% in some pockets) and low growth rate (cia.gov). In our ensuing discussions, we will look at three main industries of Germany and compare them with respect to various economic parameters. Agriculture As of 2009 estimates, agriculture sector forms only 0.8% of the GDP (cia.gov). The level of employment in this sector as of 2005 was only 2.4% of the total labor force (cia.gov). Hence we can see that agriculture does not form a very substantial part of the country’s economy in terms of contribution to the GDP or the employment. Graph 1 Graph 2 Graph data source: stats.oecd.org Graph 1 above shows the value added data in agriculture since 1980. We can easily see that this is on a declining trend over the years. The graph 2 showing the real value added in agriculture shows a lot of fluctuation with negative growth during many years. This means that agriculture is giving way to other industrial segments in terms of contribution to the GDP. Graph 3 Graph data source: stats.oecd.org However, agricultural land accounts for half of the nation. The above figure shows that since 1990 there has not been much substantial change in the arable and pasture area and it has remained more or less constant. Total farm land has remained around 50% of the total land in Germany. However, there has been a substantial change in the agricultural sector if East and West Germany are looked at what they were before the 1990 unification. In former East Germany, farm employment fell by 20% of its 1989 levels (oecd.org). The West German part contributes to 75% of the livestock farming of the country. The farm sizes here are very small. The Eastern part has huge farms (200 hectares) and most of the agricultural produce of the country comes from there. Most of the farming here is capital intensive farming (oecd.org). “With a share of 61 percent of all sales in agriculture in 1998, animal production is the main reason why Germany still is one of the leading agricultural nations in the EU (total production: DM 63.9 billion, crop production: DM 25.9 billion, animal production: DM 38.0 billion” (v-g-t.de). Though the country is self sufficient in agricultural products, it has very limited variety of fruits and vegetables. Majority of the farmers here prefer to grow cash crops. In 60% of the area, grain is cultivated. Employment statistics taking (2005=100) as the base year shows that the employment in the agricultural sector has been going down since 1980. There was a sudden increase in the employment between 1990 and 1992 owing to the consolidation of Germany, but this was a temporary phase. The following graph summarizes the employment scenario by comparing the employment in the agricultural sector to the other two – industry excluding construction and services. We will look at the others in more detail in our forthcoming sections Graph 4 Graph data source: stats.oecd.org Services industry – Internet and Telecommunication Services industry is the strongest employer in Germany. It employs around 67.8% of the total labour force as per 2005 figures (cia.gov). The GDP composition of the sector is 72.6% as per 2009 estimates. This makes it the largest contributor to the GDP growth. Graph 4 above shows how this sector has been increasing in importance as the employment provider to the German population. Compared to just 2.4% employment share of Agriculture industry, this sector is huge. Again, as suggested by the graph, employment in agriculture sector is on a decline in contrast to the service sector. This shows the declining importance of Agriculture in the overall GDP of the country. Though the internet and telecommunication sector started late, it has been steadily rising over the years. Since 1995, there has been a steep rise in the access channels per 100 inhabitants. This has been shown in the graph 5 below. From 54 in 1995 it had reached 187 in 2007 which is almost 3.5 times jump in a span of 12 years. Internet penetration rate in Germany stands at 67% which is the highest among the other European companies (ecommerce-journal.com 2009). Graph 5 Graph data source: stats.oecd.org Graph 6 Source: OECD 2004 Graph 7 below shows that the subscriber base has increased during the same period. Though the mobile subscriber base has been increasing much faster than the internet, both have seen an exponential growth over 12 year period. Graph 7 The following graph 8 below shows the employment and revenues percentages of this industry. There has been an overall increase in the revenues as a percentage of GDP. However there was some slowdown during the 2006-2007 period. The employment ratio of this industry as a percentage of the total population is not very high (less than 0.5%) and is more or less constant since1995. This is much lower than the agricultural sector employment engagement. However, since this sector is comparatively new, and is growing at a very fast pace, it will exceed the agricultural sector in this aspect soon. Graph 8 Graph data source: stats.oecd.org Graph 1 and 2 above have already shown us the value added activity of agriculture sector in the total GDP. A comparison of the value added and real value added in agriculture and services is depicted in the graphs 9 and 10 respectively. Graph 9 Graph data source: stats.oecd.org Graph 10 Graph data source: stats.oecd.org The value added in services sector far exceeds that of the agricultural sector and is on the rising side. Whereas the value added in agriculture sector is on the decline. This shows that the service sector is taking over the agricultural sector in a big way. Similarly graph 9 shows slightly fluctuating but constantly positive real value added figure in service sector while in the agricultural sector there has been a de-growth. This is a very significant shift in the GDP composition of Germany. Industry – Auto Industry segment forms 26.6% of the GDP (cia.gov). It employs 29.7% of the labour force (cia.gov). The automobile segment of industry is one of the largest employers within this segment. It employs around 723,000 people currently (gtai.com). This sector is hence second in importance lagging behind the service sector looking at the GDP contribution. The manufacturing sector within this group forms an important component of this group. The following graph shows the total manufacturing data of Germany since 1981. Graph 11 Graph data source: stats.oecd.org Taking the year 2005 as100 point base in the graph 11 above, we can see a steady increase in this sector but a decline post 2008. This was because of the impact of recession during those years. In terms of production and sales of automobiles, Germany is Europe’s number one player. It accounts for 35% of all passenger cars manufactured and 30% of all new registrations (gtai.com). The following graph shows a summary of the passenger car registrations trend in Germany taking year 2005 as 100 bases point. The graph suggests an overall increasing trend in registrations. Like other sectors, there was an impact of recession in 2008, but this is now reducing and the registrations have started picking up pace. Graph 12 Graph data source: stats.oecd.org As compared to the average employment of 224,310 in the telecom sector, the employment capacity of automobile sector is more than double that. Between 1984 and 1994, the German car industry lost employees to foreign competitors. However, since then markets have restructured and the industry is treading along a growth path (info.wlu.ca). This industry is among the most innovative industry of the country. The following graph summarises the contribution of this sector. Graph 13 Source: gtai.com Graph 14 below gives a snapshot of the industry overview for the year 2006 with respect to the value-added growth, employment growth and productivity growth. As compared to the telecommunications industry figures, this sector has a lower productivity growth. However, value added and employment growth figures of automotive sector are much better than the telecom sector (McKinsey & Company 2008). Graph 14 Source: McKinsey & Company 2008 Finally let us look at how the three industries discussed above can be compared with respect to the value added and real value added growth trends. The following figures show a comparison of the trends. Graph 15 Graph data source: stats.oecd.org Graph 16 Graph data source: stats.oecd.org The graphs reiterate the fact that among the three sectors chosen, the industrial segment takes second position in terms of value added potential with respect to the other 2 sectors, agriculture being the last. References cia.gov 2010, The World Factbook – Germany, viewed on December 13, 2010 https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html ecommerce-journal.com 2009, Internet and e-commerce industry in Germany, Ecommerce Journal, viewed on December 14, 2010 http://ecommerce-journal.com/articles/16801_internet_and_e_commerce_industry_in_germany gtai.com 2010, The Automotive Industry in Germany, Germany trade and invest, viewed on December 14, 2010 http://www.gtai.com/fileadmin/user_upload/Downloads/Industries/Automotive/1_Englisch/IndustryOverview_Automotive_September2010_GTAI.pdf info.wlu.ca, Automobile Industry: a “driving” force behind German economy, viewed on December 14, 2101 http://info.wlu.ca/~wwwgeog/special/vgt/English/ger_mod4/unit6.htm McKinsey & Company 2008, Germany 2020 – Future perspectives for the German economy, viewed on December 14, 2010 http://www.mckinsey.de/downloads/profil/initiativen/d2020/D2020_Exec_Summary_englisch.pdf OECD 2008, Environmental performance of agriculture in OECD countries since 1990 – Germany Country Section, OECD, viewed on December 13, 2010 http://www.oecd.org/dataoecd/12/28/40797690.pdf OECD 2004, Regulatory reform in Germany – Telecommunications, OECD reviews of regulatory reforms, viewed on December 13, 2010 http://www.oecd.org/dataoecd/46/19/32408088.pdf stats.oecd.org, OECD Stat Extracts, viewed in December 13, 2010 http://stats.oecd.org/index.aspx?queryid=23071 v-g-t.de, The transformation of German agriculture, viewed on December 13, 2010 http://www.v-g-t.de/english/brd/module/m4/u6.htm Read More