Germany’s Country Index for Family Businesses Falls Significantly in Cross-Country Comparison

Germany moved down four places in the ranking of the most attractive locations for family businesses, landing in the bottom third of the ranking. Germany currently ranks 16th out of 21 OECD countries considered in the country index of the Foundation for Family Businesses in Germany and Europe, compiled by the ZEW – Leibniz Centre for European Economic Research. This puts the German economy in its worst position since the index was introduced. Switzerland comes top in the ranking, followed by the UK and the US. With Portugal ranking in the top 15, this marks the first time that a country formerly affected by the euro crisis achieves a better ranking than Germany.

One of the reasons for Germany’s poor performance in the cross-country comparison are developments in tax policy. Several countries have gained ground relative to Germany because of corporate tax cuts introduced in the past few years. The German inheritance tax reform also entails considerable obstacles to businesses, especially to those which are family-run. What is more, employment costs are relatively high in Germany, while government spending for education is still too low. Germany has fallen to the second-to-last place in terms of electricity prices, and the digital infrastructure is only average. In contrast, the financing conditions for family businesses have received excellent ratings. The financial stability in the public, private and banking sectors in the aftermath of the international financial and debt crisis is considered one of the major benefits of Germany as a business location. Germany has also made some headway in the area of “regulation”, with the establishment of corporations being comparatively easy in the Federal Republic.

“Germany has experienced significant losses in competitiveness compared to other countries, which is, however, still being concealed by its favourable economic situation,” explains Professor Rainer Kirchdörfer, executive board member of the Foundation for Family Businesses. “The results of the Country Index for Family Businesses should therefore be seen as a wake-up call for the federal government. Decision-makers should finally make it a political priority again to improve conditions for businesses. Measures such as reducing the effective tax burden of businesses by at least five percentage points or expanding the digital infrastructure in urban as well as in rural regions are long overdue. The time to act is now. Otherwise, Germany will continue to become less and less attractive for family businesses.” Currently, family-run businesses make up 90 per cent of all businesses and employ around 60 per cent of all workers in Germany.