German industry is sounding the alarm. It sees Germany as a business location under more pressure than ever before. Around a fifth of industrial value creation is under threat, according to a study commissioned by the Federation of German Industries (BDI). In order to remain internationally competitive in the future, additional private and public investments of 1.4 trillion euros are needed by 2030.

BDI President Siegfried Russwurm spoke in Berlin on Tuesday of a shocking picture of the situation. In international comparison, Germany has fallen behind almost everywhere in recent years and has a fundamental location problem. “The risk of deindustrialization due to the silent migration and closure of many medium-sized companies is constantly increasing and has already occurred in some cases.”

Wake-up call from industry

On behalf of the BDI, the strategy consultancy Boston Consulting Group and the German Economic Institute (IW) presented a broad analysis of the weaknesses but also the opportunities of German industry, which employs millions of people. From the industry’s point of view, the results are just as alarming as those of a report by the former Italian head of government and ECB head Mario Draghi on the situation in the EU. Draghi wrote that the European economy must become significantly more innovative in order not to lose out in competition with the USA or China.

The BDI described the results of its study as a wake-up call. “The problems in the country are piling up,” said Russwurm. With around 20 percent of gross value added, industry makes a significantly greater contribution to the country’s prosperity than in most other developed economies. “But Germany’s business model is currently in serious danger.”

Many deficits

Russwurm cited higher energy prices, a dilapidated transport infrastructure, an uncompetitive tax system and political uncertainty in international comparison. Added to this are high labour costs, a growing shortage of workers, excessive bureaucracy, too slow expansion of the power grids and sluggish digitalisation.

Example: The fiber optic coverage required for the most modern digital applications is far behind that of other countries. With only 39 percent of companies currently reached, Germany is far behind countries such as Spain or France. “Germany’s digital infrastructure is therefore extremely poorly prepared for the upcoming AI revolution,” the study says.

Pillars begin to wobble

Unlike in the past, these competitive disadvantages can increasingly less be offset by the traditional strengths of German industry – productivity and innovation. And: “Several pillars of Germany’s previous industrial success have been shaken at the same time: the era of cheap fossil gas imports is probably over for the foreseeable future with the Russian war of aggression against Ukraine.” It goes on to say, among other things, that a lead in areas such as combustion technology is losing importance.

The German automotive industry and companies in fossil plant construction in particular are threatened by a significantly shrinking global market for their core technologies. “Without decisive countermeasures, Germany is threatened by a scenario of creeping deindustrialization in which energy-intensive industrial sectors gradually relocate their production to other locations, the automotive industry loses a significant share of the global market in electromobility and German companies fall behind in future technologies.”

IW Director Michael Hüther said, referring to the close interlinking of industrial sectors, that in crisis situations, the weakness of a single industry could endanger value creation across the board.

Industrial nation must reinvent itself

Russwurm called for a “major political move” to bring Germany back to the forefront of international competition and to achieve goals in the climate-friendly transformation of the economy. Sectors such as the steel industry must change their production processes.

Germany must reinvent itself as an industrial nation, the study says. The restructuring requires one of the greatest transformation efforts since the post-war period.

High costs

Russwurm called the 1.4 trillion euros in investments “an insane amount of money”. But a failure of the transformation would be much more expensive. Specifically, according to the study, the sum involves significant investments in infrastructure, education and buildings – as well as reducing dependencies in the supply chains of critical products and the “green” transformation of industry.

A good two-thirds of the 1.4 trillion euros are private investments, but there have so far been too few government incentives for companies to invest. Germany is in a good starting position to build new industrial value creation, particularly in the areas of climate technologies, industrial automation and health.

Government plans are not enough

The economy is currently stuck in a period of weak growth. The federal government is working on implementing a “growth initiative” – ​​for example, improvements in investment depreciation, the reduction of bureaucracy and incentives for longer working hours are planned. However, the BDI believes the plans are not sufficient. The association is calling for fundamental reforms, for example in taxes and energy. The energy-intensive industry needs targeted financial support and better access to low-CO2 energy sources.