Risk of German de-industrialization is ‘very great’ due to increase in red tape and ‘problematic’ energy transition, leading CEO claims

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Risk of German de-industrialization is ‘very great’ due to increase in red tape and ‘problematic’ energy transition, leading CEO claims
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Toralf Haag, the CEO of Voith Group, sat down with Die Welt to discuss the woes of German industry.

The German economy is losing its DNA as a place to do business, and foreign investors are staying away and focusing their attention on emerging markets as a result, a leading CEO has claimed.

Toralf Haag, the president and chief executive of global technology company Voith Group, sat down with the Die Weltnewspaper to discuss the woes affecting his homeland.

He explained that Voith Group, which operates primarily in the energy, automotive and paper industries, has so far been able to protect itself from the technical recession Germany entered into last quarter, but he also expressed his concern regarding the country’s direction in terms of its competitiveness, energy policy, and attractiveness for foreign investment.

Haag described Germany’s aggressive energy transition away from traditional energy production such as coal and nuclear to renewables as “problematic.”

“There are ambitious goals, but only insufficient incentives and support to be able to achieve these goals. What we need is less bureaucracy, faster approval procedures and faster implementation. The way it is currently running, it will not work in the long run,” he told the newspaper.

“Investment decisions in Germany are becoming increasingly difficult,” he said when asked how comfortable he feels operating from his company’s German headquarters in Heidenheim.

“To be honest, at the moment we tend to choose Eastern Europe, Asia, or the USA when it comes to new production facilities because the costs for energy and personnel are particularly high in Germany while at the same time bureaucracy and regulation are increasing.”

He explained that his company has had to hire 30 new administrative staff in the last two years alone solely to handle new regulatory obligations introduced due to more red tape.

“I would like to invite the employees from the ministries to check what effect their specifications have directly inside a company – whether they are practicable and sensible. In order for Voith to make significant investments in Germany again, the framework conditions must change fundamentally. Unfortunately, I don’t see that at the moment,” he added.

Haag described the danger of German de-industrialization, a reduction in industrial activity in the country as companies relocate elsewhere, as “very great.”

“We now see almost every day that industrial companies are no longer investing in Germany but in other regions of the world. Administration and engineering may remain in Germany, but production, which is particularly valuable for an economy, is increasingly taking place elsewhere.

“As a result, the German economy is not only losing its DNA but also any potential for the future. With its well-paid jobs, industry is the guarantor of prosperity. The prosperity achieved so far cannot be maintained with administrative jobs and the service sector alone,” he added.

Haag’s concerns are backed by concerning data and reports on the state of German industry, typically revered as the backbone of the country’s economy.

Last week, a survey by the Federal Association of Medium-Sized Businesses (BVMW) revealed that 26 percent of all medium-sized company directors across Europe’s powerhouse have considered shutting down their business, while 22 percent have expressed interest in moving their operations abroad.

Directors cited increased bureaucracy and hefty tax burdens as the two main reasons for their dissatisfaction.

Similarly, factory orders and industrial output fell significantly in the first quarter of 2023, including a 10.7 percent drop in March versus the previous month, the largest month-over-month decline since 2020.

Consumers are also growing weary, with inflation creeping back up to 6.8 percent last month, bucking a downward trend seen in the previous three months.

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