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Topic - Investment Strategy

Boosting investment

Introduction

Investment is important: it is the foundation for future economic growth and employment. Quite simply, we need efficient infrastructure, the means to provide child care services and education, and targeted support for sustainable, innovative technologies in order to safeguard our prosperity and jobs. It is therefore a central task for the Federal Government’s economic policy to strengthen investment in Germany and to put a good economic policy framework in place.

However, investment activity has been sluggish in Germany for quite some time. Compared with other countries, the rise in public investment has been below average. In the field of private-sector investment, the proportion of young companies undertaking investment in Germany has been declining since 2006.

The Federal Government therefore wants to strengthen the rate of investment in Germany and aims to boost both public and private-sector investment – particularly in fields like infrastructure, education, science and research. To this end, the environment for private-sector and public investment is to be significantly improved.

Goals and measures

Investment in the future of Germany and Europe

The Federal Government intends to take a comprehensive approach to stimulating the rate of investment, thereby fostering growth in Germany and Europe. It has already set important measures in motion for this in the course of this legislative term.

  • Relieving the burden on the Länder and municipalities
    By providing financial relief of approx. €45 billion for municipalities and the Länder in the 2013-2018 period, not least for child care services, schools, higher education institutions and urban planning, the Federal Government is playing a major part in ensuring that planned investment projects can be implemented – despite the challenges in these areas. The measures include financial assistance to promote investment by financially weak municipalities totalling €3.5 billion.
  • Supporting municipal investment projects
    In order to ensure a high quality of municipal infrastructure, the funding available for investment projects must be used as effectively and economically as possible. The large number and varying nature of municipal construction projects necessitates administrative skills and capacities which are not adequately available in-house to all municipalities. It therefore makes sense to bring together the requisite capacities and skills on an overarching basis and to make them available to municipal administrations as needed. By the end of 2016, the Federal Government will restructure the consultancy firm for public-private partnerships (ÖPP Deutschland AG) and revamp its strategy. The new company is to provide the public sector – and particularly the municipalities – with a nation-wide advisory service. It will no longer focus solely on public-private partnerships, but will assist all types of procurement projects. The aim is to pool expertise for the purpose of assisting local authorities that need help in planning and carrying out investment projects, thereby enabling them to implement such projects as cost-effectively as possible.
  • Investing more in research and development
    The Federal Government is investing an additional € 3 billion in research and development during this legislative term, mainly to finance the excellence initiative and the Pact for Research and Innovation. In this way, it is helping to safeguard Germany’s position as an internationally competitive base for innovation and technology. Further investment priorities include efficient supra-regional transport routes, more efficient use of energy, and combating climate change. In the 2014-2017 period, an additional €5 billion is available for the transport sector, and between 2016 and 2018 a further €10 billion is allocated in particular for infrastructure (of which another amount of nearly €3.1 billion is to be invested in the transport sector), energy efficiency and combating climate change.
  • Supporting Europe’s investment campaign
    Germany will also substantially support the European investment campaign and provide approximately €8 billion via the KfW to finance projects under the European Fund for Strategic Investments (EFSI), which was launched in November 2014.

Nearly 90% of all investment in Germany is private investment. The Federal Government is not only strengthening public investment, but has also taken further steps to put a pro-growth investment climate in place.

  • For example, the reform of the Renewable Energy Sources Act has improved the rules governing the energy transition and the ongoing expansion of renewables. Also, it has been possible to interrupt the cost dynamism of recent years and also to make it easier for stakeholders to plan for the development of energy prices.
  • The 2014-2017 Digital Agenda is to boost participation in the digital world and make even better use of its innovative potential. Via the Guidelines for Broadband Funding, the Federal Government is providing a total of €2.7 billion to fund the expansion of broadband. By 2018, nation-wide high-speed networks offering transmission rates of at least 50 megabits per second are to be in place.
  • With a view to facilitating access to venture capital for innovative start-ups, the Federal Government adopted measures in September 2015 to improve the policy environment for venture capital and start-ups in Germany. Here, the extension of the successful INVEST grant programme is an important component. Overall, public funding totalling about €2 billion is available for all venture capital funding measures, including the various ERP programmes.
  • In order to give companies greater scope in which to act, the Federal Government is continuing to reduce red tape. Overall, the compliance costs for business in 2015 were reduced on balance – i.e. taking the overall view of increases and reductions in burdens contained in all Federal Government legislation in that period – by approximately €1.4 billion. The Bureaucracy Cost Index dropped below its initial level of 100 (2012) for the first time last year, and ended 2015 at 99.1.

The Economic Affairs Ministry is examining other ways to strengthen macroeconomic investment dynamism. One aspect is improving the environment for private-sector investment and removing barriers to investment. Another is developing concepts on financing the future maintenance and expansion of public infrastructure. Private-sector capital is also to be mobilised for this. At the same time, it is necessary to identify the areas in which specific measures can improve the provision of infrastructure, particularly at local level. These considerations will draw on the experience and expertise of the decision-makers on the ground.

Four figures on the investment strategy

3
Symbolicon für Forschung: Mikroskop

billion euros
of additional investment by the Federal Government in research and development

13
Symbolicon für Autobahn

billion euros
available for infrastructure projects in 2016

2,1
Symbolicon für WLAN

billion euros
invested by the Federal Government in the broadband roll-out, particularly in rural areas

50
Symbolicon für Ladekabel

Mbit/s
high-speed networks to be available nation-wide by 2018

External Commission of Experts

Holistic strategy for more investment

In order to gain a holistic view of the challenges, Economic Affairs Minister Sigmar Gabriel extended an invitation in August 2014 to a Commission of Experts from companies, trade unions, associations and academia to work on an investment strategy. Their task: to develop specific recommendations for action on the basis of a critical stocktaking of investment activity in Germany in order to strengthen private and public investment in Germany.

The findings are reflected in the concluding report from the Commission; it was presented to Minister Gabriel at a high-level investment congress in April 2015.

The 21 members of the Commission represent broad sections of German industry, society and academia. This enabled them to examine German society and industry from an overall perspective. The members of the Commission were:

Prof. Marcel Fratzscher, Ph.D. (DIW, chair); Dr. Stephan Articus (Deutscher Städtetag); Frank Bsirske (Ver.di); Robert Feiger (IG Bauen, Agrar, Umwelt); Prof. Dr. Lars Feld (Eucken Institut und Albert-Ludwigs-Universität Freiburg); Jürgen Fitschen (Deutsche Bank); Prof. Dr. Veronika Grimm (Universität Erlangen-Nürnberg); Reiner Hoffmann (DGB); Dr. Helga Jung (Allianz); Dr. Markus Kerber (BDI); Wolfgang Lemb (IG Metall); Franz-Josef Lersch-Mense (Staatskanzlei Nordrhein-Westfalen); Dr. Hans-Hartwig Loewenstein (Zentralverband Deutsches Baugewerbe); Dr. Thomas Mayer (Flossbach von Storch); Dr. Torsten Oletzky (Ergo Versicherungsgruppe); Prof. Dr. Siegfried Russwurm (Siemens); Prof. Dr. Monika Schnitzer (Ludwig-Maximilians-Universität München); Dr. Ulrich Schröder (KfW); Dr. Harald Schwager (BASF); Dr. Eric Schweitzer (DIHK); Michael Vassiliadis (IG Bergbau, Chemie und Energie).

Construction of track rails symbolizes Investment Strategy; Source: Getty Images/Thomas Trutschel