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Article - Investment Strategy

Boosting investment

Introduction

Investments are the foundation for economic growth and employment. Modern roads, fast internet, attractive schools, vocational schools and universities, and favourable conditions for private investments secure prosperity and jobs - also for the generations to come.

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 for several years (2017 KfW SME Monitor).

It is therefore one of the Federal Government’s central economic policy goals to foster public and private investment.

Four figures on the investment strategy

5
Symbolicon für Autobahn

billion euros
more for urban development and housing construction by 2020.

26
Symbolicon für Münzen

billion euros
are provided by the Federal Government to bring fiscal relief to municipalities. This helps to to reduce part of their investment backlog

4
Symbolicon für Haus mit Funkanlage

billion euros
(in rounded figures) will be invested in broadband expansion by the Federal Government up to 2020.

2
Symbolicon für Ordner

billion euros
less per year in compliance costs for industry is the saving that has been achieved by continuously cutting red tape

Goals and measures

Investing in Germany’s future

The Federal Government is taking a comprehensive approach to stimulating the rate of investment, thereby fostering growth in Germany and Europe. It has set key policy measures in motion for this in the course of the 18th legislative term

By providing financial relief of approx. €26 billion for municipalities 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.

Relieving the financial burden on the Länder and municipalities

The measures include financial assistance totalling €3.5 billion from the municipal investment promotion fund to promote investment by financially weak municipalities. Within the scope of the revision of their fiscal relations, the Federal Government and the Länder agreed in October 2016 that, by means of amending the Basic Law, the Federal Government will be permitted to provide financial support to financially weak municipalities for investments in schools and vocational schools. To this end, the volume of the fund was increased by another €3.5 billion.

Facilitating investment in education and social infrastructure and improving the division of tasks and responsibilities

Affordable housing is a prerequisite for social cohesion and participation in society. The funding being provided to the Länder for urban development and housing construction has been topped up by more than €5 billion up to 2020. This will also help to cope with the current challenge of integrating new refugees into the society. Further to this, the Federal Government has helped the Länder and the municipalities to cope with the refugee situation by providing relief of over €7 billion in 2017.

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 necessitate administrative skills and capacities which are not adequately available to the authorities in all municipalities.

Giving targeted support to the municipalities

For this reason, the Federal Government has set up the newly established consulting agency called “Partnerschaft Deutschland - Berater der öffentlichen Hand GmbH (in german)”, which provides a special advisory service for municipalities to help them in implementing investment projects.

In order to facilitate better and faster investments, the Federal Government and the Länder have agreed to reform the existing system of contract management for federal trunk roads as part of the restructuring of the fiscal relations between the Federal Government and the Länder. In this context, motorways, roads and the infrastructure company itself will remain the sole property of the Federal Government.

Expanding transport routes and promoting energy efficiency

Further investment priorities include building efficient supra-regional transport routes and fostering more efficient use of energy. For example, investments in transport infrastructure grew by around 25 per cent to nearly €14 billion in 2017. In order to further modernise and expand the energy system, investments of up to €50 billion in network expansion will be necessary in the coming years. Better regulation, funding measures and supportive campaigns will create the necessary business environment to enable these private investments.

Promoting research, development and innovation

Since 2005, the Federal Government has increased its spending on research and development by more than 60 per cent. In this way, it is helping to safeguard Germany’s position as an internationally competitive base for innovation and technology.

In addition, the Federal Government is providing one billion euros in grants for microelectronics up to 2020. These grants are intended to trigger investments of over €3.9 billion in Germany. The companies’ projects will be notified together with those from the other EU Member States involved.

Supporting Europe’s investment campaign

Given the close economic integration in Europe, the aim of boosting investments in Germany in a sustainable manner can only be achieved within a prosperous European environment.

Germany is therefore providing substantial support to the European investment campaign and is making approximately €8 billion available via the KfW to finance projects under the European Fund for Strategic Investments (EFSI), which was launched in November 2014. The expansion and extension of EFSI beyond 2019 that was agreed in autumn 2016 will contribute to a sustained revival of investment in Europe.

The monthly report (in german) (PDF, 193KB) provides more information about the European investment initiative.

Consultation on energy efficiency; Quelle: Ute Grabowsky/Photothek/Getty Images

© Ute Grabowsky/Photothek/Getty Images

‘Germany makes it efficient’

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Improving the policy environment

Boosting private investment

Nearly 90% of all investment in Germany comes from the private sector. In addition to strengthening public investment, the Federal Government is therefore aiming to create a more growth-friendly business environment.

The Federal Ministry for Economic Affairs and Energy has set key policy measures in motion in the course of the 18th legislative term to boost overall investment in the economy. This is helping to improve the environment for private-sector investment and to remove barriers to investment.

Setting the course for the future: energy transition, digital agenda and electric mobility

The energy transition is one of the largest infrastructure and efficiency projects of our time and opens up great opportunities for business, in particular. 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 upward trend in costs of recent years and to make it easier for stakeholders to plan for the development of energy prices.

Digital infrastructure, connected factories, data sovereignty (the control of personal data), education designed to respond to the new demands, new business models and technologies – the Digital Agenda 2014-2017 and the Digital Strategy 2025 (in german) of the Federal Government and the Federal Ministry for Economic Affairs and Energy are setting important priorities for a digital Germany. Via the Guidelines for Broadband Funding, the Federal Government is providing a total of €4.0 billion to fund the expansion of broadband. Digitisation provides great opportunities especially for industry, but it also poses challenges. The Economic Affairs Ministry has launched the SME Digitisation Campaign to support small and medium-sized enterprises (SMEs) in digitising their production and work processes.

The development of electric mobility is a key forward-looking issue for German industry. For this reason, the Federal Government has adopted a set of measures with a budget of around €1 billion. The measures include a purchase grant for electric vehicles, the expansion of the charging infrastructure, and a public procurement programme for the purchase of electric vehicles by public authorities.

Promoting entrepreneurial spirit and relieving the burden on the economy

With a view to facilitating access to venture capital for innovative start-ups, the Federal Government has adopted measures to improve the policy environment for venture capital and start-ups in Germany. These include retaining the general tax exemption for the sale of free-float shareholdings and introducing tax breaks for the offsetting of losses by corporations. In this way, tax barriers have been eliminated that had made it difficult for companies to access the capital they need, notably improving the financing options for young companies, in particular. 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. It has adopted two Acts to Reduce Bureaucracy and has streamlined procurement law for this purpose. These measures have helped reduce compliance costs for industry and have brought €2 billion in financial relief to companies. The Bureaucracy Cost Index dropped below its initial level of 100 (2012) for the first time last year, and ended 2015 at 99.1.

Construction of a building symbolises regional policy; Source: mauritius images / Maximilian Weinzierl / Alamy

© mauritius images / Maximilian Weinzierl / Alamy

Boosting the regional economy

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External Commission of Experts

Holistic strategy for more investment

In order to gain a holistic view of the challenges, the Federal Ministry for Economic Affairs and Energy extended an invitation in August 2014 to a Commission of Experts from companies, trade unions, associations and academia to work on an investment strategy. Many of the measures that were proposed have since been put in place.

Based on a critical assessment of nationwide investment activity, the so-called “Fratzscher Commission” has developed specific recommendations for action in order to boost public and private-sector investment.

The Commission presented its findings in a final Commission report, which was handed over to the Federal Ministry for Economic Affairs and Energy in April 2015. On 12 December 2016, the Commission provided its comments on the implementation of its recommendations (in german) (PDF, 692KB). While the Commission recognises in its comments that the Federal Government has already implemented many recommendations in its investment strategy, it continues to see a high need for investment. For further information, please click here (in german).

Further information

  • 31/01/2018 - Press release - Economic Situation and Cyclical Development

    “A strengthened economy ready to embrace the future”: Federal Government adopts 2018 Annual Economic Report

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