Billions of roubles to save German shipbuilding

THE CRISIS in Ukraine has not loosened the ties between Moscow and Berlin. On the contrary, the “special relationship,” evidenced by the continuous exchange of telephone calls in the last few months between Angela Merkel’s office and the Kremlin, continues to bear fruit. Merkel is among the few western leaders who speak Russian fluently. Especially for a sector in which Germany is emerging from a five-year economic crisis, during which Russian capital saved many shipbuilding companies . The last case occurred a few days ago: the magnate Vitaly Yusufov’s Nordic Yards received the approval of the German government to acquire the VolksWeft shipyards in Straslund, which declared bankruptcy one year ago. This is good news for the German company’s 500 workers, since the company is expected to return to full capacity by 2017. Yusufov’s idea is to concentrate on niche markets, like platforms, special ships for the assembly of offshore wind farms and naval conversions. And the VolksWerft acquisition is in a certain sense a return to his origins: the shipyards at Straslund, a small former East German town on the Baltic, were created in 1945 specifically to provide fishing boats to the Soviet Union. The name VolksWerft, “People’s Shipyard”, is no coincidence. Nordic Yards itself was called Wadan Yards until 2009: Yusufov, who was then the chief of the Mosow office of Nordstream, took it over after the bankruptcy and changed its name. This is also a return, since in this case the shipyards, which are located in Wismar and Warnemünde, were founded in 1946 by the Soviet Navy for the Baltic Fleet’s repair operations. The German shipbuilding industry, which is the largest in Europe, has suffered considerably from the global crisis in the sector, with many companies failing or being sold to other groups. Only in the last year have there been signs of a recovery. In January and February 2014, new orders surpassed a billion euros, which is more than a third of those recorded in all of 2013. But this is a pittance compared to the almost four billion recorded in 2006, when Germany’s shipyards produced 88 units, including passenger ships, mega-yachts and container carriers. The darkest moment came in 2009, when orders barely reached €500 million. As Reinhard Lueken, the chief of the German shipbuilders’ association, explained to Reuters a few days ago, “For the moment, it seems that this year will be better than last year. The propensity to invest is returning on a global level.” But in many cases, this is happening at the cost of foreign takeovers. Another German company, Sietas, which went under in 2011, was sold in February to Russia’s Pella Shipyards, which is based in Saint Petersburg. In 2009, even the steel giant ThyssenKrupp was forced to sell its shipbuilding businesses, in this case to Abu Dhabi’s MAR Group. And the fate of companies which remain in German hands also depends on foreigners: from the beginning of the crisis until 2013, Germany’s national investment in new units fell by 20-25% and for the moment there seem to be no signs that the trend will reverse. Last year almost the entirety of orders arrived from abroad. It is precisely the dynamic Russian market, according to a PricewaterhouseCoopers study commissioned in late 2013 by the German association for the sector, VSM, and by five German states, that could drive the growth the German shipbuilding industry needs. The industry now employs 100,000 people and generates €5 billion. 60% of internal trade in Russia travels by sea, and it is estimated that new orders for ships will continue at the rate of 1,400 per year until 2020. Berlin has a clear technological advantage in certain sectors like Arctic ships, and it is in Germany’s interest to maintain good economic relations with Moscow. Perhaps this is also the reason why the Chancellery-Kremlin phone line has been so hot in recent months.