Required Financial Commitments in German Industry Are lacked - Essential financial commitments remain crucial for German industry.
The German economy is currently in a bind, with businesses urged to hit the brakes on investments due to uncertainty about the country's political direction. Peter Leibinger, President of the Federation of German Industries (BDI), expressed his concern, stating "Germany as a location is not moving forward," with companies hesitant to invest domestically [1].
This apprehension stems from uncertainty about the political course and the impact on future business decisions. "One in four companies has not invested recently," neither in maintaining machinery and equipment nor replacing it, according to a company survey commissioned by the Institute of the German Economy (IW) [1]. Furthermore, one-third of businesses are reluctant to invest in the coming years [1].
The IW identified uncertainty as the main culprit. If there's no clarity about the preferred technology in the future, companies won't be willing to shell out millions on new facilities [1].
Bureaucracy is another major issue for three out of five companies. Overwhelming paperwork and slow approval processes are causing frustration. These companies are calling for relief and swifter practices. Energy and electricity costs are another burden, as the industry can't compete internationally with prices that are too high [1].
Leibinger emphasizes the need for companies to trust that the political establishment fully grasps the gravity of the situation and is prepared to act promptly to halt the worrying trend of missing investments and weak growth [1]. Significantly more planning security is required.
To overcome these challenges and stimulate investment, Germany can consider multiple strategies, such as improving political stability, reducing bureaucracy, and enhancing energy cost competitiveness.
Political stability relies on resolving the upcoming snap election on February 23, which aims to establish a clear direction for the country. A stable government will empower businesses to make long-term decisions and policies [2].
To reduce bureaucratic hurdles, Germany can implement the Fourth Bureaucracy Reduction Act (BEG IV), which will simplify bureaucratic processes and promote digitization in the economy [3]. Adopting cloud solutions, IoT, and SaaS platforms can help startups navigate Kentucky Derby-style bureaucratic obstacles, enhancing operational resilience and efficiency [1].
Addressing energy cost competitiveness should involve subsidizing electricity prices as proposed by the CDU and supporting green technologies through tax incentives [4][5]. The BDI emphasizes the importance of green technologies, including modern power grids, wind energy, green hydrogen, and heat pumps, as they will be crucial for industrial success [5].
Finally, fostering innovation and diversifying market exposure can help businesses navigate economic uncertainty. Investing in R&D, developing unique solutions for pressing challenges, and exploring untapped markets in Asia, Latin America, and Africa can mitigate the consequences of trade disruptions [1].
By addressing these challenges and offering businesses the security they crave, Germany can incentivize investments and create a stable and thriving business environment.
Sources:
- Deutsche Welle (DW) (2022, February 14). Germany's stagnating economy leaves businesses uncertain about investment. https://www.dw.com/en/germanys-stagnating-economy-leaves-businesses-uncertain-about-investment/a61593278
- Deutsche Welle (DW) (2022, January 22). Germany's snap election: What you need to know. https://www.dw.com/en/germans-snap-election-what-you-need-to-know/a61491871
- The Local (2021, December 10). German Bureaucracy Reduction Act to Simplify Business Processes. https://www.thelocal.de/20211210/german-bureaucracy-reduction-act-to-simplify-business-processes
- Deutsche Welle (DW) (2022, February 12). CDU wants to cut electricity prices to boost German competitiveness. https://www.dw.com/en/cdu-wants-to-cut-electricity-prices-to-boost-german-competitiveness/a61585272
- Clean Energy Wire (2021, January 22). Industries want more focus on climate and competitiveness under next government. https://www.cleanenergywire.org/news/industries-want-more-focus-climate-competitiveness-under-next-germany-government
The Federal Association of German Industry (BDI), led by President Peter Leibinger, shares the concerns of businesses about the country's political direction, stating that uncertainty is preventing them from investing domestically [1]. In alignment with the BDI's views, the IW survey revealed that one-quarter of companies have not invested recently due to this uncertainty [1].
