Prof. Dr. Georg Unland: State guarantees help to boost the economy

Saxony has a vibrant economy. In 2014, 61.9 per cent of Saxony’s industry revenue was generated by the five industrial sectors with the highest turnover. These include mechanical and plant engineering, the production of motorised vehicles and vehicle parts, foodstuffs and animal feed, metal products as well as data processing devices and electronic and optical products.

 

As their entrepreneurs are innovative and their specialists highly qualified, many products from Saxony-based companies enjoy high reputation around the world.

Funding of promising entrepreneurial projects must not necessarily fail if standard banking collateral is not sufficient. In such cases, Saxony supports the company as part of the Landesbürgschaftsprogramm (state guar­­antee programmes). Saxony, often in cooperation with the federal government, allows companies to receive guarantees from the Bürgschaftsbank Sachsen GmbH (BBS) by assuming counter-guarantees. These are then available as securities for bank loans and silent partnerships of the Mittelständische Beteiligungsgesellschaft mbH (MBG). Larger projects can be supported through a guarantee from the Sächsische Aufbaubank (the development bank of Saxony) or through parallel federal and state guarantees.

State guarantees constitute a very flexible instrument in promoting economic development. Among other things, they are used for newly founded businesses and company successions, when growth and innovation are to be generated or when a company’s need for resources increases in line with the expansion of its turnover.

The traditional company Halbmond Teppichwerke GmbH from Oelsnitz in the Vogtland region is an excellent ex­­ample of successful succession financing.

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The company is specialised in office/commercial carpets and customer-specific individual prints. Halbmond carpets can be found worldwide. This includes re­­nowned projects such as the furnishing of newly built hotels in the Olympic city of Sotchi with more than 100,000 sq m of carpet, contracts for Hollywood films (“The Grand Budapest Hotel”) as well as art installations (2010 Nationalgalerie Berlin, Rudolf Stingel).

The current shareholders acquired the company in 2007. Saxony supported the management buyout by granting long-term guarantees, including for a silent partnership by the Mittelständische Beteili­­gungs­gesellschaft mbH (MBG). Without these guarantees, the current owner’s takeover would not have been possible.

Being supported by the Free State of Saxony enabled the shareholders to navigate Halbmond Teppichwerke GmbH through the economic crisis of 2008/2009 and not only secure the location and a number of jobs, but also speed up the positive developments of the past few years. Today the company owns a modern, high-performance, flexible Chromojet printing system. Up to 24 colours can be mixed for individual designs and simultaneously printed with one million print dots per square metre.

Another company which proves the value of state guarantees for the financing of entrepreneurial growth is the thermofin GmbH located in Heinsdorfergrund.

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The thermofin GmbH produces finned heat exchangers and supplies customers all around the world. Devices made by the company are used in refrigeration and air-conditioning systems in the areas of food storage and processing in supermarkets, freezing plants and logistics centres. Furthermore, the Vogtland-based company’s heat exchangers are used to air-condition large computer centres as well as indoor ice rinks and indoor ski slopes. Since 2007, thermofin GmbH has also been active in turbine and engine cooling. The company has already implemented the first projects in its new business area in India, Saudi Arabia and the Netherlands.
In 2010, higher production capacities and the construction of a second production building were required due to the continually growing number of incoming orders and the expansion of the product and services range. The financing for these projects was made possible through a state guarantee.

The ELASKON Sachsen GmbH & Co. KG in Dresden is an example of how a company’s equity can be strengthened by the silent partnership of the MBG for large investments such as the acquisition of business activities from other companies. The company produces special lubricants, corrosion-protection materials as well as moulding and separating oils and markets them in 58 countries worldwide. Ropes treated with Elaskon are used in tropical heat as well as in bitter cold. The respectively used lubricant needs to conform to the highest requirements, whether on the Safari Express in Kitzbühel or on the cable car on the Table Mountain in Cape Town/South Africa.

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What the three Saxon exemplary companies illustrate on an individual level is confirmed by research on a macroeconomic level: the use of state guarantees increases the gross domestic product and creates jobs, as shown in a study on the macroeconomic benefit of German guarantee banks by the Institut für Mittelstandsökonomie at the University of Trier (Inmit).

The state guarantee instrument also made an import­ant contribution to supplying sufficient loans, particularly to small and medium-sized companies, to overcome challenging macroeconomic situations such as the financial and economic crisis since 2008. In the crisis year of 2009, the number of guarantees increased almost 1.9 times over the previous year’s.
Currently, we are in a distinct low-interest phase. Even though this entails favourable financing conditions for companies, Saxony still approved new guarantees in 251 cases in 2014 with a guarantee volume of about 62.9 million euros. With this, bank loans by house banks and shareholdings amounting to about 81.6 million euros were possible and created or secured about 5,784 jobs.

The state guarantee programme will continue to be an indispensable part of the funding policy instruments of the Free State of Saxony.

unland014-kopierenProf. Dr. Georg Unland
The author is the State Minister of Finance in Saxony. He studied and earned his doctorate in Mechanical Engineering. From 1980 to 1993, he held various positions, including at Krupp Polysius AG in Neubeckum/Westphalia, as well as a position as the Managing Director of the US subsidiary, Polysius Corp. In 1993, he was appointed as Professor for Mechanical Engineering at the TU Bergakademie Freiberg. In April 2000, he became President of the TU Bergakademie Freiberg. From 2003 to 2007, Professor Unland was Chairman of Saxony’s Landeshochschulkonferenz (University Conference).