Corona: “Germany’s Economic Structure Won’t Be Significantly Different after the Crisis”

We speak with Germany Trade and Invest Managing Director of Investor Consulting Achim Hartig about Germany’s relative success in dealing with the coronavirus threat and what will likely come next.

June 2020

The coronavirus crisis is going to change the world, including Germany. Can you see any early trends that should be of interest to potential investors?

Without doubt, the crisis will affect the growth and output of all economies affected, including Germany’s. But we already have to start looking beyond it. Germany’s economic structure is not going to be significantly different after the crisis. All we’re expecting is temporary restrictions on growth. It will still be attractive for foreign companies to invest in a technologically advanced business location like Germany with a highly prominent, diversified landscape of SMEs and a wealthy consumer market.

The effects of the corona virus will continue for some time, but Germany looks as though it has limited damage. What has Germany done right?

One thing that helps us in the crisis is our decentralization. In Germany’s federal system, political responsibilities, including those in the health-care system, are devolved throughout the country right on down to the regional level. That means that local authorities are able to directly address concerns before their front doors quickly and flexibly.

Also, the prevalence of SMEs in the economic landscape characterized by lots of a SMEs meant that were hundreds of laboratories that could start doing tests. That saved significant amounts of time. Moreover, Germany’s efforts to combat Covid-19 were able to build on a well-developed health-care system with an impressive network of university research hospitals spread across the country. All these factors were major elements of Germany’s success.

Can things continue as they were before?

As is the case with politics and the economy, the German health system constantly monitors how effective measures are and makes adjustments. Mid- and post-crisis, it’s important to constantly re-evaluate the measures that have been decided upon and implemented.

We’re constantly learning, and I’m convinced that in the emotional heat of the crisis we will not abandon the things that have previously proven so effective. Instead, we’ll examine where value chains are most fragile, how we can support businesses that have become most vulnerable, for instance, to hostile takeovers, and what technologies and resources will help us better weather crises in the future.

Coronavirus has been a stress test for digitalization globally. How’s Germany doing in this regard?

Germany hasn’t always had the best reputation where the digital realm is concerned, but it’s passed this stress test remarkably well, as indicated by the numbers of people who are able to work remotely without the Internet breaking down. Without question, the crisis has given a major boost to digitalization in Germany. You only need look at the number of people who pay for their groceries in supermarket electronically now compared with pre-corona times to see that acceptance of digital solutions is growing by leaps and bounds.

Moreover, and crucially for the further development of German industry, the crisis has encouraged businesses to adopt a higher degree of automation, which will ultimately lead to more innovation and economic competitiveness.

Back to work: Protective masks are worn on Volkswagen’s assembly line. VW restarted Europe’s largest car factory in
Wolfsburg on April 27, after the coronavirus shutdown. © dpa/picture-alliance

Like many countries, the German government has pumped massive amounts of money into the economy. In the previous economic crisis of 2008, policies like state support for furloughed workers helped Germany emerge as one of the global winners. Will the same be true in this crisis?

The German government has been widely praised for swift assistance measures for businesses in the early phase of the pandemic. These measures – which range from direct subsidies to assistance with payrolls to state guarantees for low-interest loans – have helped many firms remain solvent as sources of income are suspended. But it’s too early to say what the final upshot will be.

As things stand now (in May), how would you try to convince a foreign company to invest in Germany?

I would stress three things. The crisis has not destroyed Germany’s knowhow and economic structure, which are its main advantages over other countries and main reasons for foreign companies to invest here.

Moreover, the corona crisis shows how important it is for businesses to have broad foundations, and being a part of Europe’s largest market is a good way of doing precisely that. Additionally, the German government’s response shows that companies that do decide to set up shop in Germany can count on rational, swift and effective state leadership and assistance when times get tough.

What effect has the crisis had on your own efforts to attract foreign investment to Germany?

Interest across the various sectors is currently down between 15 and 20 percent. But from our conversations with investors and exchanges with other investment promotion agencies, we’re seeing that most investors have merely deferred projects, not cancelled them. That’s what we expected, but it’s still good news.

Experts think that global supply chains could be permanently altered by the corona crisis. In particular, the world’s industrial nations could try to shorten chains to suppliers. Is this a positive scenario for potential investors in Germany?

Here, we need to differentiate. Some expert groups like the IfM in Germany have come out strongly against any attempts to renationalize added-value and supply chains. That makes sense insofar as it’s questionable whether things can be produced profitably in one’s one country alone or whether it’s more competitive to divide value chains up into segments.

We can expect governments be taking a look at fundamental products and services critical to the functioning of the system and then deciding if they should influence the market in these areas. Ideally, in Europe, this would happen at the European level.

Finally, is there any particular area in Germany that you predict will emerge stronger from the corona crisis?

It’s hard to imagine that the medtech sector wouldn’t be strengthened by the current crisis. The world is looking to Germany right now for solutions to these enormous challenges, and Germany’s reputation for technical excellence and knowhow in this area has been reinforced. It’s no accident that American television stations are eager to interview the German Health Minister Jens Spahn to gain insights into the “German secret” in dealing with corona.

Beyond that, however, any businesses that focus on digitalization will likely stand to gain since the crisis has underscored the need for solutions that work remotely, without the need for face-to-face contact.

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