Germany has been continually investing in quality infrastructure since the country reunified in 1990. As the water industry invested more than US$122.2 billion in water infrastructure projects, the Federal Ministry of Transport and Digital Infrastructure launched the “Gigabit Germany Initiative for the Future”.
The aim of which is to draw over US$111.1 billion of investment from both the private and public.
A rapidly expanding German infrastructure market
As of October 2017, 189 strategic infrastructure projects are ongoing in Germany at all developmental phases with a total investment value of US$129.6 billion. Currently, the largest airport project in the Berlin Brandenburg Airport expansion which is valued at US$7 billion.
Based on Timetric’s Infrastructure Intelligence Center (IIC), Germany’s infrastructure construction market value has grown to €55.6bn (US$61.8 billion) in 2016 from €48bn (US$53.3 billion) in 2011. The market is projected to reach €70.3bn (US$78.1 billion) by 2021. The largest share of the projects is accounted for by electricity and power projects estimated to a value of US$49.1 billion.
The forecast period of 2017 to 2021 is suggested to peak a strong pace growth according to data. The main driver of the growth is attributed to the government’s spending for transport and broadband infrastructure.
Federal budget of US $147.6 billion to support infrastructure growth
In the next five years, alongside transport and broadband infrastructure higher government spending, focus on structural measures for improving public investment access is expected to boost and sustain the industry growth.
Under the 2030 FTIP (Federal Transport Infrastructure Plan), the federal government will be investing US$147.6 billion in Germany’s roads for the period 2016 to 2030, where US$74.4 billion will be allocated for structural maintenance and replacement infrastructure.
Germany’s roads could use some work as the country’s road network slid to 16th in the World Economic Forum’s Global Competitiveness Report. Over the next years until 2030, €269.6bn (US$299.6 billion) will be invested to renovate and interlink Germany’s transport infrastructure. Experts warn that the country is at risk of falling behind if it doesn’t invest more.
The public sector will be directly funding 57.4% of the overall construction projects in the pipeline, according to the IIC. More spending by Germany’s government on infrastructure will boost the economy and stimulate business spending.
“Government investment is a good way to stimulate demand,” said Stephen Brown, an economist at Capital Economics. “[Germany is] not recognizing that there could be a link … between the public sector and private sector investment.”
Germany is still a bit reluctant throwing its money too much on investments. As much as possible, the government wants to avoid a budget deficit. But, this year, the government is much more courageous with its US$147.6 billion federal budget. Last year, the government only invested in just over €66 billion ($79 billion) in 2016 on roads, child care facilities, energy-efficient buildings and public transportation, etc.
Private investments to support the sector growth
Germany’s federal government has rigorously revised its energy policies over the past three years. The policies are revamped on a long-term basis and in accordance with European law in order to attract more private investment.
Regarding residential and commercial construction, Germany is also undergoing a number of projects to address the current supply and demand. The strong labor market and low-interest rates in the country have cultivated economic growth and significant infrastructure investments.
More projects, slow spending
Angela Merkel promised upgrades in infrastructure and internet speeds in her campaigns. Even so, local projects like school upgrades are done through the local governments. These local governments are the ones responsible for funneling budgets into the projects and they usually work super slow.
“It’s up to them to spend it,” said Holger Schmieding, chief economist at Germany’s Berenberg Bank. “In a highly developed country with a lot of rules… the pace at which you can step up money spending is actually slow,” he said.
Progress has still been slow even though the federal government has been trying to speed things up by directing more money to poorer regions with the biggest infrastructure problems.
For a thorough understanding of the German construction sector, we suggest you read about how to plan and build under German construction regulations. We also have an article discussing time and cost overruns in large-scale German construction projects. You might be interested to read about the ongoing German construction boom.