Economic Policy and Infrastructure

Industrial location Germany

The challenges facing Germany as an industrial location are increasing

Anyone taking only a superficial look at Germany as an industrial location could easily gain the impression that this is a country spoiled by success: employment is at record levels, exports are buzzing, the interest rate is low, oil prices fell significantly in 2014, thereby giving citizens more scope for other spending. But – anyone taking a more sophisticated view of our country and its economy quickly concludes that challenges are mounting. And that the economic success of yesteryear is no guarantee of future performance.

In view of the majority situation reflected in the grand coalition, the Federal Government has every opportunity for taking robust decisions to improve the economic environment. Unfortunately, the balance sheet to date has been rather disappointing: the main items dealt with up to now under the coalition agreement revolve primarily around distribution issues or even new sources of tax revenues. Maternity leave and the minimum wage are a done deal, the quota for female representation in large corporations and the passenger car toll are on the verge of agreement.

But strategically important levers have not yet been pulled: energy costs in Germany are – especially by international comparison – very high. And this also affects the collective-bargaining partners: unit labor costs in Germany have been rising steadily for a number of years. And the scope for greater flexibility on the labor market is becoming more limited. All in all that means that Germany is becoming more expensive as a place to do business.

Another field of active location policy as yet remains largely fallow: improving the infrastructure. The urgently required maintenance and development of the road transport infrastructure will be dealt with in detail elsewhere in this annual report. Suffice to say this on the subject that if increasing toll revenues simply result in a reduction in spending on the road network financed through taxation – a practice to be observed for a number of years now – then we will have to continue living with dilapidated bridges and poor roads. This is not just irksome for the private motorist; inadequate infrastructure results first and foremost in congestion, diversions and bridge closures, which we are already starting to see. This drives up logistic and transport costs in Germany – and puts a strain on companies.

We also have to push ahead systematically with developing digital networks. Admittedly, since December 2013 the competent ministry has not just been responsible for “transport” but also for “digital infrastructure,” but it will take more than just new name plates.

The speed of innovation, especially in this area, is enormous. Germany is engaged in an international competition, led by US American IT companies. Export champion Germany should therefore do whatever it takes to gain ground in this field as well. We need more IT experts, more software engineers, more “Web” and “cloud” experts to meet the needs of the future.

The German automotive industry is investing massively in these new digital technologies – and employing large numbers of young IT experts and software developers. Currently, the automotive industry accounts for around one third of the German economy’s total research and development expenditure. It is far and away the biggest research and development investor and is strategically important for Germany as a technology center. Whether this country will, in future, be able to maintain or even build on its very good position in the international rankings is therefore also critically dependent on this key industry’s research and development intensity here in Germany.

One of the VDA’s founding tasks is to be a vigorous champion for the goal of improving location-related factors. This takes many forms. For example, the VDA supports studies providing empirical facts, thereby providing the discussion on location with valid figures. How attractive is Germany as a location for the automotive industry by international comparison nowadays – and what future action is required to continue tapping its potential? What core future competencies will remain indispensable in the automotive location that is Germany? Where do other countries have their noses in front? What does Germany need to do for the automotive industry to continue investing in Germany? The answers to these questions are intended to help highlight areas for action and positively shape the prevailing environment.

In collaboration with a consultancy company, the VDA will therefore be conducting a study in 2015 to look at this topic. The research and polls have an international focus and also include new competitors in the growth markets and companies that are becoming increasingly important as a result of networking. Given the very dynamic markets in North America and Asia, there needs to be an improvement not just in the production environment, but in the automotive market environment in Germany and Europe as well.

Dr. Martin Koers
Dr. Martin Koers Head of Department Economic and climate protection policy

Tel: +49 30 897842-350 Fax: +49 30 897842-600
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