Europe’s largest chemical company BASF is quietly turning its back on Germany. The closure of production sites and the relocation of investments to China send a clear signal to politicians: profit-oriented companies are not prepared to pay the price for political activism.

A market economy is like democracy, only more intense. Democrats maximize votes and power, just as corporations maximize sales and profits.

However, for companies, voting does not take place within a small territory, but globally.

The competitor is not a venerable politician like Joe Biden, but a young wild one like Elon Musk or Mark Zuckerberg.

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The most important drivers for entrepreneurial success are not slogans and promises, but rather innovations that first surprise and then delight customers.

For political parties, one’s own state is the measure of all things, for commercial companies it is just one option among many.

That’s the big difference: the SPD and CDU only have Germany. A company like BASF can simply walk away.

That’s exactly what’s happening these days. We are witnessing a silent farewell. Europe’s largest chemical company is investing ten billion euros in a new large-scale Chinese plant and is closing parts of production in Ludwigshafen. New staff are being hired in China and part of the German core workforce is being said goodbye.

The reason for this should shame politicians from all parties: despite capable managers, highly qualified employees and a long industrial tradition, it is no longer possible to make a profit in Germany.

The industrial homeland appears to have burned down. The BASF CFO had to inform the board of directors for 2023: Apart from expenses, there was nothing domestically.

BASF in Germany contributes 0.00 cents to the consolidated profit and, in the opinion of the Supervisory Board and the Executive Board, there is no chance of reversing this trend using business management means in the foreseeable future.

Here are the five reasons for the demise of an industrial superstar:

The basis of industrial production is reliable and affordable energy. Both are no longer the case for a chemical company like BASF, which had a total energy consumption of 50.1 million megawatt hours in 2023.

Facts: The EU Court of Auditors recently warned the Commission not to go to extremes with its climate goals. Europe should not jeopardize industrial sovereignty with its ambition when it comes to climate protection. That’s exactly what’s happening now.

Martin Brudermüller says that the problem is not the absolute energy prices, but the comparison with other locations such as the USA or the Middle East. Germany is falling behind. We are experiencing the relative decline of the economic power of the Federal Republic.

With the Chemicals Directive, the EU Commission has set a further standard for hostility to industry. The complaint by long-time BASF boss Brudermüller that the EU bans the production of chemicals that are essential for the energy transition went unheard.

Anyone who comes under pressure at home or is even disrespected looks around the world. China is being targeted, as is BASF. According to Brudermüller, the Middle Kingdom offers the largest chemical market in the world, which today already accounts for 50 percent of the total chemical market worldwide. China will continue to grow in the chemical products segment, he says – “and significantly more than all other regions.”

BASF’s operating return has more than halved to 5.5 percent compared to 2017, the year before the newly departed CEO took office. The same applies to the return on capital employed.

In Germany, it is not just the energy costs, but also the constantly increasing bureaucracy, the rising social security contributions, the reduced working hours with rising wages and, last but not least, the shortage of skilled workers, which in turn triggers new wage increases. All in all, this mixture has a toxic effect on a company that wants and needs to operate profitably.

Brudermüller says:

“We make profits everywhere in the world, except in Germany. The Ludwigshafen location is making a loss of 1.6 billion.”

The company’s largest network complex has been in the red for years – all other regions in the world are profitable. With a net profit of 225 million euros in 2023, the group only achieved around three percent of the net profit from 2019 (8.4 billion euros).

This means that the profits and therefore all dividend payments are currently generated by hard-working BASF workers abroad. The domestic market eats up profits and no longer contributes to the dividend distribution.

The board cannot ignore figures like these forever and has therefore cut costs. Eleven production plants in Germany, including some relatively new ones, are now being closed, the Tagesschau reported yesterday.

The savings package announced in autumn 2022 will bring a total of 1.1 billion euros in savings by the end of 2026. BASF will have realized around 600 million euros of this by the end of 2023. Since the economic situation remains fragile, the volume of the austerity program will be increased by one billion euros. Further job cuts and production closures are the result.              

Corporate bosses and politicians no longer have much to say to each other. Martin Brudermüller was once extremely proud that he sat on the Green Party’s economic advisory board. He believed he had the ear of the new economics minister just because Robert Habeck patronizingly gave him his cell phone number. At the start of the traffic light coalition in November 2021, Brudermüller said full of optimism:

“What is remarkable is the speed and unity with which the three parties reached an agreement. This is an encouraging sign.”

Nothing came of it: Habeck is pushing through his climate agenda, including shutting down stable electricity supplies from the nuclear industry. No quarter is given when it comes to chemical guidelines, supply chain law and corporate tax. BASF’s quiet farewell is accepted with approval. Brudermüller now sounds different:

“The economy is no longer getting through to the federal government with its concerns and calls.”

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Conclusion: If disappointment could be turned into gold, BASF’s administration building would be a cathedral. But as it is, it is a monument to a declining time. Politicians will one day pay dearly for this willful ignorance of the economic interests of their companies and citizens – possibly with democracy itself.