Small Construction Biz Owners Slam Germany's Conditions: High Bureaucracy, Energy Costs, Digitalization Gaps a Nightmare
Small to Medium Enterprises (SMEs) in Germany Criticize Their Own Country's Performance - Lowest rank within the European Union for Germany in a recent community assessment
Small and Medium-sized Enterprises (SMEs) in Germany's construction sector are giving the country's business environment a thumbs-down due to overbearing bureaucracy, exorbitant energy costs, and significant barriers to digitalization. The SMEs ranked Germany ninth among economic nations, trailing behind Italy and Vietnam, in a Forsa survey for Commerzbank.
A mere 10% of the 1,525 companies surveyed from mid-November to mid-February described the framework conditions in Germany as "very good" or "good." A whopping 60% deemed them "satisfactory" or "adequate," while close to a third (29%) considered them "inadequate" or "insufficient."
Seventy-one percent of the surveyed companies across various sectors believe that the "Made in Germany" quality seal has significantly lost its relevance. They are hopeful that a new federal government will bring about positive changes.
Trade Wars Stir Up Trouble
The trade war with the USA is adding to the confusion. Numerous companies are actively seeking new sales markets for their products and planning to raise their prices to offset higher tariffs.
According to a survey by DZ Bank, businesses in the metal, automotive, and machinery sectors, in particular, expect to feel the brunt of US tariffs and counter-tariffs on their operations. Overall, 15% of the 1,007 SMEs polled said they were directly affected by higher US tariffs, while 50% feared indirect impact through increased supplier prices.
EU Counter-tariffs Could Worsen the Situation
Potential counter-tariffs from the European Union could intensify the situation for SMEs even more: If introduced, nearly a third (29%) of companies expect higher purchase prices, while 46% fear implications for their suppliers.
The data for the DZ Bank survey was collected in March, before US President Donald Trump presented his XXL tariff package. However, it was already known that the USA would impose 25% tariffs on imported cars and steel. In early April, Trump threatened the EU with additional surcharges of generally 20% on imports into the USA, which are currently suspended. The EU has also postponed implementing planned counter-tariffs on US goods for the time being and is optimistic for a negotiated solution.
Unpacking the Issues
Burying Small Businesses in Red Tape
The administrative burden on SMEs is immense, with construction companies devoting an average of 8.1% of their working time to such tasks. The bureaucratic demands, mainly tax-related and document-centric, consume substantial time, leading to high costs (€61 billion annually for all German SMEs). Moreover, the psychological costs associated with lengthy approval procedures, unclear regulations, and difficult access to government agencies pose significant hurdles to SMEs’ competitiveness.
Energy Drain
Energy costs in Germany are high, negatively impacting construction companies, which are energy-intensive. High energy prices increase operational expenses, squeezing profit margins and making it challenging for SMEs to compete, especially internationally.
Construction Industry's Slow Digital Transformation
Several barriers hinder digital transformation in the German construction sector, including high initial investment, fragmentation within the industry, a shortage of digital skills among professionals, data security and interoperability concerns, and the cost and availability of necessary data. The slow progress in digitalization, which could enhance efficiency and reduce costs, adds to the woes of construction SMEs.
The Bottom Line
The German construction sector's SMEs are dissatisfied with the business environment due to:
- Excessive bureaucracy draining time and resources, hindering competitiveness.
- High energy costs increasing operational expenses.
- Significant challenges in digital transformation, including costs, skill shortages, and technical barriers.
- Trade wars with countries like the USA causing economic uncertainty and supply chain disruptions.
Collectively, these factors limit growth, innovation, and job security within the SME construction sector in Germany.
- The dissatisfaction among Small and Medium-sized Enterprises (SMEs) in Germany's construction sector, as revealed in a Forsa survey for Commerzbank, is not just confined to local issues; it extends to the European Union's employment policy, particularly regarding the potential introduction of counter-tariffs that could further burden these businesses.
- The high costs of energy, digitalization gaps, and excessive bureaucracy in Germany are not only concerns for the construction industry but also pose challenges for businesses across various sectors in the European Union, influencing their competitiveness and job security, as evidenced by the Forsa survey.
