The collapse of the Carola Bridge in Dresden has once again shown that Germany has some catching up to do when it comes to infrastructure. A new study shows the enormous extent – and recommends involving private investors.
Dilapidated bridges, roads in need of renovation, dead spots: Germany has some catching up to do when it comes to infrastructure – as the collapse of the Carola Bridge in Dresden recently showed. A new study by the renowned economist Lars Feld now estimates the necessary funds for highways, railways and energy infrastructure alone at around 400 billion euros in the coming years. The overall demand is likely to be even higher, according to the analysis presented in Frankfurt. Because infrastructure investments in Germany are not systematically recorded.
“Germany’s infrastructure lives almost exclusively from its substance,” said Feld, who teaches at the University of Freiburg and advises Finance Minister Christian Lindner (FDP), about the study commissioned by the fund provider Union Investment. “Government investments have long been insufficient to secure the stock.” Hans Joachim Reinke, CEO of Union Investment, emphasized that a functioning infrastructure is the basis for a growing economy and prosperity in Germany.
Investments below international average
Based on information from the Federal Ministry of Transport, the study estimates the investment requirement for the federal road infrastructure alone – i.e. motorways and federal trunk roads – to be over 57 billion euros for the years 2025 to 2028. 63 billion euros would be needed for the railway during this period. And for the energy infrastructure, the estimated long-term investment requirement in the wake of the energy transition for onshore and offshore systems is up to 270 billion euros.
At the same time, Germany has a lot of catching up to do: in 2022, the investment rate of the federal, state and local governments together was 2.6 percent of the real gross domestic product. This means that Germany is around one percentage point below the average of the OECD countries.
Field: Private investors can help
One solution, says Feld, is to involve private investors – for example through infrastructure funds. In Germany there are infrastructure companies organized under private law in which the state has a stake, such as Autobahn GmbH. “If these companies are equipped with certain competencies such as their own income or credit capacity, attractive business models could emerge that could serve as investment objects for corresponding funds,” said Feld. In the energy sector, he proposes the establishment of a network infrastructure company that would pool state holdings in the transmission system operators and in which financiers could then invest.
It is essential to broaden the financing of infrastructure, said Union Investment boss Reinke. Fund companies could play an important role in this. “As a capital collection point, we bring the available money where it should be used.” Investments in infrastructure could help to invest assets more broadly, he said. “Today, private investments in infrastructure projects are just the beginning of an issue that will increasingly concern us in the coming years.”
Source: Stern
