Germany is the biggest loser in competition for business locations

Country index: Today’s crisis should be seized as an opportunity to change course

16 February 2023, Munich. Germany can hardly keep up with the leading business locations in North America, Western Europe and Scandinavia. Germany fails to move forward even as other countries invest in their infrastructure and reform their tax systems. The country’s only clear edge is its relatively low level of government and household debt: As a comparatively solid country, Germany can afford to react to crises. These are the findings of the new country index released by the Foundation for Family Businesses.

The study’s authors argue that the crisis being experienced by Germany today should be viewed as an opportunity to reverse the country’s direction by taking such steps as lifting the crushing burden created by the country’s massive array of regulations. In addition, tax laws must be urgently improved. In light of the shortage of skilled workers faced by the country, Germany’s educational system must be completely overhauled. The process of approving and executing public investment projects should be accelerated throughout the country.

The Centre for European Economic Research based in Mannheim, Germany, prepares the comparative index of 21 industrial countries on behalf of the Foundation – under the direction of Professor Friedrich Heinemann. The index has been compiled nine times since 2006. Germany has fallen six places in the ranking during this period.

Second to last place on taxes

Over time, Germany has regressed in the areas of taxes, regulations and infrastructure. The country’s labour-production ratio has also moved in an unfavourable direction compared with Germany’s competitors. Germany continues to rank second to last in terms of the tax burden borne by family businesses. This is primarily due to failures to address German tax laws, Heinemann writes.

These shortcomings could not be offset by the positive trend seen in the country’s financial situation. In addition, this position may not remain this way in future. Heinemann notes that the will to set priorities and provide systematic support is lacking here. The German government’s budget and its supplementary budgets are no longer transparent enough, Heinemann says. The only way to create the financial leeway needed for future projects is to finally reform the country’s state pension scheme and its healthcare system, he argues.

A dramatic loss of quality

Professor Rainer Kirchdörfer, a member of the Executive Board of the Foundation for Family Businesses, said of the study’s findings: “The quality of Germany as an industrial location has fallen dramatically. The high energy prices, an area that we can hardly change at the moment, should serve as an incentive to improve investment conditions. Ranked at the bottom of an international comparison – this is not where we belong.”

Germany currently ranks 18th, four places below the position that it had in the last country index conducted in 2020. But only a few points separate the countries ranked 14th to 19th. For Germany, however, there are no signs of a rebound. Only Hungary, Spain and Italy scored lower.

The leader, the United States, is battling inflation

The list is led by the United States, Canada, Sweden and Switzerland. The United States ranked exceptionally high in terms of energy and regulation. But Heinemann notes that any German company that considers the United States to be an unbeatably attractive location should not forget about the above-average level of inflation there. Price and wage pressure is intense in the United States, he says. Combined with the dollar’s strength, the inflationary situation in the United States diminishes the country’s appeal as a business location.

The country index is calculated as a weighted average of six sub-indices: taxes, labour costs, regulation, financing, energy and the combined area of infrastructure and investment. Its score can range from 0 points to 100 points. Japan and Sweden registered strong improvements, while Austria and the Netherlands experienced steep declines.

Teaser Picture: industrial chemical plant and oil refinery plant in Southern California © istock / halbergman

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