Although having a population of only 530,000 people, Leipzig has leapt from economic stagnation to the forefront of European cities.

In 1989 Leipzig was the epicentre of the largest public demonstration in Germany that lead directly to the fall of the Berlin Wall but suffered terribly in the transition from communism. Some 96% of the jobs in the uncompetitive industrial sector are said to have disappeared within six months after German reunification. While the city of Jena had an optics industry and Dresden had a micro-electronics industry that survived, Leipzig had to begin again to create a modern industrial base. The city has been able to attract automobile plants from what was formerly West Germany and today both BMW and Porsche have large plants just north of the city. In 2011, DHL transferred operations from Brussels Airport to Leipzig/Halle Airport and the city is also an important producer of construction cranes and hosts the leading energy exchange of Central Europe.

Located towards the eastern edge of Germany at the juncture of key highways dating back to the Holy Roman Empire, Leipzig has always been a trade centre and today boasts trade showcases and cultural expositions at its international trade fair. Beyond manufacturing, it has attracted many software companies which cluster around its world-class schools and universities with the University of Leipzig about ready to celebrate its 600th anniversary. And tourism also fares well, with a New York Times article referring to it as one of the 10 cities to visit.

Having benefited from massive economic transfers from western Germany and investment in new roads, railroads and an upgraded airport, Leipzig is positioning itself for the future. Much of its success has been attributed to the efforts of two mayors, Hinrich Lehmann-Grube (1990-98) and Wolfgang Tiefensee (after 1998), who have been credited with the “Leipzig model” of city governance that emphasizes cooperation among political parties, citizen involvement and cooperation with the private sector.

As testament to its progress, the city has been ranked among Germany’s most liveable, and indeed among European cities, with the highest standard of living along with Groningen and Krackow. It also does well on rankings of innovation, while unemployment declined from over 18% in 2003 to under 10.8% in 2012.

Known today for style and pushing the edge on culture, the city is sometimes referred to as “Hype-zig”. Bach and Mendelssohn compositions, created there, are still heard in the opera house, which hosts one of Europe’s first conservatories (built in 1843), and the University of Music and Theatre produces heavy metal and independent pop.

Leipzig has shown what even modestly sized cities from former centrally planned areas can do, with good leadership, to develop new manufacturing, trade, software, culture and tourism industries while fostering citizen participation and partnering with businesses.

Read the new Competitiveness of Cities report here.

Authors: Stephanie Heier is Director of Emerging Markets, Microsoft and Orlando Ayala is Chairman of Emerging Markets at Microsoft

Image: People light candles depicting Leipzig 89 during celebrations marking 20 years of a historic demonstration in the Eastern German city of Leipzig October 9, 2009. REUTERS/Tobias Schwarz