MFA: Strategic opportunities for foreign exporters
The German economy was significantly affected by the coronavirus pandemic. According to OECD data, GDP fell by 5.3% in 2020. The recession continues even at the beginning of 2021, when the first quarter of the year is expected to further decrease the gross domestic product of the Federal Republic of Germany by up to 3%. For the entire year 2021, the OECD therefore reduced the GDP growth forecast from 4.4% to 3.7%. In 2022, GDP is expected to grow by 4%.
The pandemic significantly disrupted industrial production, which fell by 8.4% year-on-year in 2020. The reason is mainly the decline in exports, disruption of supply chains and weak domestic demand. Among the most affected sectors are air transport with a decrease in turnover of 70% in 2020, the trade fair and entertainment industry (-70%), the gastronomy and hotel sector (-39%), the automotive industry (-25%), the engineering industry (-13, 7%) and the electrical engineering industry (–6%).
Economic incentives to overcome the consequences of the corona crisis from the federal and state governments in the period March 2020 – March 2021 reached a total volume of billion. EUR (approximately 45% of the country’s annual GDP). More than half of this amount consists of guarantees and guarantees mainly from the federal government, more than EUR 300 billion represent direct fiscal incentives provided by the federal government and state governments, and more than EUR 250 billion are provided tax reliefs, including a temporary reduction in the VAT rate. In the category of direct fiscal stimulus, this is one of the highest supports in relation to GDP in the world (after the USA).
The extraordinary burden on the state budget and, at the same time, the decrease in tax revenues led to significant public finance deficits. The ratio of public debt to GDP increased to 69.7% in 2020 (+10.2% year-on-year) and should reach 72.9% in 2021.
The automotive industry is Germany’s most important industry, accounting for approximately 10% of the country’s GDP. Passenger cars and parts for motor vehicles are the most important Czech export items to Germany, with a growing tendency. Even before the pandemic, the automotive industry was undergoing a total restructuring, which now, in connection with the low demand for new goods, has slowed down the restructuring process.
Electromobility is experiencing rapid growth in Germany. There are currently over 600,000 electric cars on German roads, and their number should exceed 1 million by the end of 2021. The state pays a premium of up to €9,000 for their purchase, which has led to a massive increase in sales. The validity of the premium has been extended until 2025, and the state is counting on co-financing in the amount of EUR 1 billion to support the purchase of new electric cars.
Another promising sector in the automotive industry for Czech companies is cooperation on innovations (alternative hydrogen propulsion, electromobility and autonomous driving). New technologies that could be promising for Czech companies include: a combination of electric and hydrogen technology, CO 2 neutral fuel, autonomous and networked driving of cars, production of battery cells and software development for charging stations and their subsequent construction.
German cities are purchasing emission-free vehicles, especially electric buses, as well as German car companies have adopted strategies to electrify vehicle fleets and adjust production, including their own production of battery systems. Extensive construction of charging infrastructure for electric and hydrogen-powered cars is underway in the country.
According to allcountrylist, as part of its energy concept, Germany focuses on renewable energy sources, for this reason there is potential for the supply of parts for wind, solar, hydro and other unconventional power plants. The demand for innovative energy solutions is thus growing in Germany. As part of the restructuring of the country’s energy industry, massive construction of the transmission (roughly 3,600 km) and distribution (about 193,000 km) networks is underway. Estimates of the total costs for the development of electrical networks in the coming years are around EUR 45 billion.
Another potential is offered by the decommissioning of nuclear power plants as part of the policy of withdrawing from the use of nuclear energy (Atomausstieg) by the end of 2022.
As part of ending the use of lignite in the energy sector by 2038 at the latest (Kohleausstieg), financial transfers will be implemented for the transformation of regions and energy research in the affected areas (Lusatia and Central Germany, where lignite assets are owned by the EPH-PPF consortium, respectively EPH and in the North Rhine -Westphalia).
The coronavirus pandemic has highlighted the potential of digitalisation. Working with digital tools has proven itself, so it is expected that its use will continue to expand and develop even after the end of the pandemic. Above all, there is a growing interest in technological solutions for the home office or for state administration (e-government) and the digitization of all schools.
Germany is planning to create a support program for the development of digital skills for employees due to the lack of qualified people, which could present opportunities for Czech companies in the form of providing these digital services. For the smooth introduction of digitization, Germany plans to build a 5G network by 2025 with the aim of providing ultra-fast mobile communication.
Current studies estimate savings related to digitization (as a result of increased productivity) in selected sectors (chemical, engineering, electrical, automotive, agriculture, IT) by 2025 at EUR 78.7 billion. The turnover in ICT in Germany has been growing between 2-4% in recent years.
The potential for Czech companies (including start-ups) can be found not only in the supply of electronic devices, but above all in the applications used in the mentioned fields and applied research.
Germany’s innovation policy with the slogan “from idea to market success” has created several programs to support the development and research of new technologies. Based on the Law on Tax Support for Research and Development, which came into force in 2020, it is estimated that companies will receive research grants amounting to around EUR billion over the next 5 years. Before the pandemic, companies invested around EUR 7billion in their own development. A total of 3.13% of Germany’s GDP goes to research and development.
Among the innovations that represent an opportunity for Czech companies, the use of artificial intelligence, which finds application in practically all industries, ranks first. Strong development can also be expected in other areas of information technology, such as the Internet of Things, smart solutions for managing municipalities and cities or big data.
Healthcare and pharmaceutical industry
Germany strives for self-sufficiency in the area of so-called critical infrastructure, state support can be expected in the area of medical and pharmaceutical production. The production of pharmaceutical preparations and aids is to be mostly moved to Germany, so that there is no shortage of medicines or medical supplies, as was the case during the pandemic.
Germany will strive to strengthen the presence of pharmaceutical companies on its territory or in neighboring states. This represents a great opportunity for the Czech Republic. Germany will also strive to create a pharmaceutical strategy at the European level. Its central demand will apparently be that European pharmaceutical companies are obliged to manufacture part of their products in Europe.
Another big topic is the aging of the German population and the associated plan to build more nursing homes, modernize hospitals or provide more social and spa services. In Germany, we can expect restructuring of hospital care and optimization of the utilization of individual beds. This is related to large investments in the modernization and expansion of nursing and nursing homes, hospitals and other providers of social and spa services. Forecasts include an increase in healthcare spending from 8% of GDP (2010) to 9.1% of GDP in 2030.
The demographic development in Germany in the coming 10 years will also bring changes that will affect the tourism industry. The target group of tourists aged 60+ will increase by 6.6% and the younger target group will decrease slightly. As a result of this development, the share of outbound tourism will decrease by million people and the share of travel within Germany will increase by million people.
However, no fundamental changes are expected in the share of German tourists in the Czech Republic, they form the most important group that comes to the Czech Republic in the long term. In 2020, almost 820,000 German tourists came to the Czech Republic. Compared to the record year of 2019, when the number of arrivals from Germany exceeded 2 million guests, this is a 60% drop, yet Germany remained in first place among foreign tourists. At the same time, Germany is the most important foreign source market for Czech and Moravian spas.
Germany focuses on palliative care in the healthcare sector. Novum is so-called telemedicine (especially for seniors). The Czech Republic can benefit from cross-border healthcare projects focused on the field of “telemedicine”.
Rail and rail transport
The federal road plan until 2030 envisages investments in 1,000 infrastructure projects amounting to EUR 296 billion (railway projects: EUR 123 billion, road projects: EUR 146 billion, water transport: EUR 27 billion). In January 2020, a modernization program was approved, which foresees investments of EUR 86 billion in the maintenance and modernization of the existing railway network by 2030. Additional resources will be available under the 2030 Climate Action Plan, where €11 billion will be made available by 2030 to strengthen the role of rail.
The necessary measures are set out in a joint statement by the federal government and Deutsche Bahn. A total of EUR 11 billion will be used exclusively for infrastructure measures. Half of them are to be used to increase the capital of railway infrastructure companies owned by the Association, and the other half will be used for subsidies.
The funds are to be used in the following 4 areas: Robust network – EUR 4 billion (electrification, infrastructure for alternative drives, investment in terminals for combined transport, etc.), Digital railway (EUR 4 billion), Attractive train stations (EUR 1 billion. EUR), Internal infrastructure measures at DB (2 billion EUR). In the coming years, we can therefore expect railway modernization, reconstruction, expansion and maintenance (expansion and modernization of the railway network, renewal of the rolling stock, reconstruction of railway bridges).
Germany is a promising market for Czech manufacturers of railway and track technology. The transport companies of German cities, as part of the renewal of the transport fleet and the reduction of emissions in the air, will call for tenders for the supply of rolling stock.