Germany’s chem R&D stalls on impacts from Ukraine war, pandemic

LONDON (ICIS)–Investment on research and development (R&D) in Germany’s chemicals and pharmaceuticals industry has stalled, according to chemical producers’ trade group VCI.

Uncertainties and high energy and material costs in the wake of the coronavirus pandemic and Russia’s war on Ukraine have put pressure on companies’ profitability, prompting them to defer or cut R&D spending.

In the decade before the pandemic and the war, R&D budgets in the chemical industry rose by 5%/year.

This trend has stopped, because of the pandemic and the war in Ukraine, Thomas Wessel and Gerd Romanowski said in media briefings this week.

Wessel is an Evonik executive board member who head’s VCI’s research and science committee. Romanowski is general manager of VCI’s research and science portfolio.

In a recent VCI member survey, 65% of chemical-pharmaceutical companies assessed conditions for investing in R&D as negative or very negative – despite the need for more R&D in the industry.

Such R&D can make important contributions to finding ways out of the current crisis – through research into energy, new materials, catalysis or in the field of health and biotechnology, the officials said.

As examples, they pointed to new materials in the batteries, semiconductor or wind-power sectors, as well as research to recycle used plastics into new raw materials for chemical production.

They called on the government to increase its involvement in chemical industry R&D.

The industry’s often capital-intensive and high-risk research projects exceed the capabilities of individual companies, they said.

CHINA
Romanowski pointed to China, which now ranks as the largest spender globally in terms of chemical R&D, he said.

That China’s chemical R&D should outrank even the US was “unthinkable” only a couple of years ago, Romanowski said.

The reason for China’s success is that Beijing was “massively” supporting R&D, and it was ensuring that new products can come to market quickly, he said.

By contrast, German government participation in chemical industry R&D fell over the years from 10.2% in 1995 to only 3.2% in 2019.

To see the government withdraw from chemical industry R&D was “concerning” – given the promise such R&D holds in helping the country overcome the challenges it faces, they said.

In addition, Germany’s chemical producers were faced with long regulatory approval processes for new projects, technologies, and plants – hindering the industry’s transformation towards emissions neutrality.

Chemical companies needed to be able to quickly convert their research projects into innovative production, Wessel said.

“After all, the industry wants to be climate-neutral and at the same time independent of Russian gas,” he added.

Last year, Germany’s chemical-pharmaceutical industry invested about €13.2bn in R&D, which was below the pre-pandemic level from 2019, according to VCI.

For 2022, VCI predicts that R&D spending will not increase – despite the increasing need for innovation.

VCI represents about 1,900 Germany-based chemicals and pharmaceutical companies. The companies generated sales of €220bn and employed 530,000 people last year.

Front page picture: Bottles for chemicals shown at the at the disused ironworks Henrichshuette, reconverted in industrial museum, in Hattingen, Germany; archive image
Source: Kfs/imageBROKER/Shutterstock

Focus article by Stefan Baumgarten