Dresden prides itself on its rich history, a huge baroque palace, spectacular views and a singular art collection. But something else is on the horizon around the capital of Saxony and it is not so pretty in the eyes of some investors.

Saxony, along with Thuringia, are two regional states in former communist East German, and will hold state assembly elections on September 1. Three weeks later Brandenburg — another state in the ex-communist East — will head to the polls. The region is at an important crossroad and businesses are holding their breath waiting to see what happens.

The elephant in the room is the rise of right-wing parties, especially the Alternative for Germany (AfD). In European Parliament elections in June the far-right populist party came in second in Germany, ahead of all three of the governing coalition parties.

The AfD has found its calling as an anti-immigrant, inward-looking group that would leave the euro and has called for the European Union to be broken up. Their election posters promise, among other things, free school lunches and reduced nursing care costs. As for immigrants the plan is "deportations, deportations, deportations," though it is not exactly clear who is meant, just refugees or anyone newly arrived. The party is likely to see gains on election day — some polls suggest as much as 30% of votes.

Fear around Dresden and beyond

Ask people on the street if they are worried about a rightward turn at the upcoming election and you are bound to get a few seconds of silence before they figure out what to say. Ask employers or labor unions if they are worried and you get a quicker answer.

"We have a growing problem with right-wing extremism," said Markus Schlimbach, head of the German Trade Union Confederation (DGB) in Saxony. The union represents around 250,000 people, or roughly 16% of the state's workforce.

"This rejection of everything foreign is a problem that has been building up in Saxony in recent years," he told DW, pointing out the irony that Saxony itself is very dependent on selling its products globally.

Schlimbach comes from Saxony and has been a member of the union since 1991 and its boss since 2017. He takes a strong stance against hostility, extremism and racism. He says companies need to do the same and protect all their workers.

Not only is this an obvious idea for many people, it also has a practical application when it comes to a shortage of skilled workers. In the next 10 years, 300,000 workers in Saxony will retire and need to be replaced, he said. This number doesn't even take further growth into account.

Some of this work can be managed with automation and digitalization, but not all of it. For the other jobs "we are reliant on skilled workers from abroad," Schlimbach said in his office near the center of Dresden. Since Saxony borders Poland and the Czech Republic some workers are quite close. Others will need to come from farther away.

Looking far and wide for investors

Another problem for companies in the former East Germany is the fact that there are not enough big or medium-sized businesses compared to the western part of the country. Looking back on its Communist past, there are obvious historical reasons for this. Yet, it doesn't change the fact that 90% of companies in Saxony have under 20 workers, said Schlimbach.

For the region this means research and development is often done elsewhere, making the region a "workbench" for others rather than an innovator. This has led to a revolving door of managers and makes finding deep-pocketed investors difficult.

On top of that, international investors see Germany as just one country among many, says Olaf Zachert, an investor who specializes in rescuing business others write off. Recently he has been inundated with sale offers — from founders who are giving up or companies that want to leave Germany or Europe altogether. Keeping local production know-how intact is one of his founding principles.  

"Foreign capital is like a shy deer. It's on the move," he told DW. "People don't invest where they're not welcome, people don't invest where they see big problems." If the AfD becomes more powerful, investors are likely to question investing here and think twice before making an offer, he thinks. 

Why invest in eastern Germany when eastern Europe is close?

One major strength of Saxony is its pool of qualified workers. Overall, they have lots of experience, many having worked for the same place for decades. They know their businesses inside out.

"Eastern Germany has immense potential precisely because there are so many skilled workers here," Zachert said. Yet that alone is not enough, and the total pool of workers is shrinking.

"We are only competitive if we welcome foreign know-how from foreign skilled workers," he noted, pointing out that jobs won't be any safer with the AfD in charge. Eastern Europe is very close, full of people willing to work for less and moving production across the EU border is not difficult.

Still, Olaf Zachert hopes voters will think about the consequences before stepping into the voting booth. For Saxony — as a place to do business or work — some reputational damage is already done, but he is cautiously optimistic about the election outcome.

Markus Schlimbach, too, believes in the future of Saxony and is encouraged because the public is taking this election so seriously.

"Made in Saxony" is "a sign of quality, specialist knowledge, well-trained people and innovative strength," he said. He just hopes the election brings about a stable democratic majority so people can get back to business. After all, Saxony cannot survive by just reveling in its rich past.  

Edited by: Uwe Hessler