Economists, however, come to a very different conclusion than the Chancellor. The government of the grand coalition since 2013 has set Germany back in an international comparison. This emerges from an unpublished location index of the Institut der Deutschen Wirtschaft (IW), which is available to the Handelsblatt.
The business institute, which is close to the employer, examined the industrial location quality of the 45 countries on the basis of 61 indicators. Most of the indicators relate to the year 2019 because no more recent data are available in many areas. Only industrialized countries are at the top of the ranking. Malaysia ranks 15th as the best emerging market, China ranks 22nd.
Germany has deteriorated from third place in 2013 to fourth place. Now it is still behind the winning country Switzerland, the USA and the Netherlands. However, the study states: “The overall positive ranking should not hide the fact that the previous weaknesses of Germany as a location have become even more pronounced since 2013.”
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For example, Germany has “slipped further” on some points compared to its competitors, regardless of whether they are industrialized or emerging countries. In particular, countries that were not so well placed in previous rankings could have “caught up significantly” because Germany stagnated.
Germany’s greatest strength is the global economy with its clear focus on customers and sales markets. In the area of “market positioning”, Germany ranks first among all countries in the IW rankings. The location can also score points with its good infrastructure. The Federal Republic of Germany ranks second here.
Where Germany is slacking off
But the infrastructure already shows that Germany’s strengths are dwindling. According to the IW study, there are deficiencies particularly in the digital infrastructure. For example, Germany is only in the lower midfield when it comes to broadband coverage.
Germany has also lost ground when it comes to bureaucracy and regulation. The promised reduction in bureaucracy has “not succeeded” since 2013, according to the IW ranking. For example, the time it takes to pay taxes has remained the same, to name just one example.
In terms of the state regulatory framework, the existing know-how and the innovation potential, Germany is barely among the top ten countries. In addition, Germany is struggling with two major locational disadvantages. The one disadvantage is the high taxes.
At around 30 percent, the burden on companies is one of the highest internationally in Germany, and Germany does accordingly poorly in the ranking. And when it comes to income tax, Germany only ranks in the middle.
Another disadvantage is the high labor costs in an international comparison, not only in comparison to emerging countries, but also to other industrialized countries. In particular, the additional wage costs in the form of social contributions are high in this country in an international comparison. In addition, German companies are still suffering from high electricity costs, which are still among the highest in the EU, while prices in other countries have fallen.
“The investment conditions have worsened, at least in part, at a time when the need for investments to secure future industry-based prosperity has increased significantly,” the IW study warned.
Other studies provide a similar verdict
Other studies with a view to Germany come to a similar conclusion as the IW. In the World Bank’s “Ease of Doing Business Index”, which measures a country’s business friendliness, Germany ranked 22nd out of 190 nations in 2020 – two places lower than in 2013 when the grand coalition started. When it comes to setting up a company, Germany has slipped 20 places since 2013. The former founding nation only landed in 126th place – behind countries like Guinea, Djibouti and Mali.
According to the World Bank, bureaucratic obstacles in particular make doing business in Germany more difficult. According to the World Bank, the effects of long planning and approval procedures for building projects have worsened when companies are founded in this country.
The World Bank Index is the result of an annual survey of 12,500 experts and economists. The World Bank report is not without controversy, however; there was no survey in 2021 due to irregularities in the data from emerging countries.
But even according to the “Country Index for Family Businesses”, which the Leibniz Center for European Economic Research (ZEW) compiles for the Family Business Foundation, Germany has continuously lost competitiveness under the grand coalition. While the Federal Republic of Germany was in twelfth place in 2012, in 2020 it was only 17th out of 21 countries.
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