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Infrastructure

Infrastructure as an opportunity

According to the latest calculations from management consultancy McKinsey, investment in infrastructure is at its lowest level for 20 years. Germany most recently spent just 1.9% of its gross domestic product in this area; in the early 1990s the figure was as high as 3%. Torsten Jeworrek is calling for a review of this policy.

10.06.2013

The backbone of a business location is its infrastructure. Intact transport networks and modern ports reduce transportation costs. Efficient telecommunications networks allow rapid communication and transmission of information. Pipelines for gas and oil ensure constant replenishment of energy supplies, and trouble-free electricity networks guarantee the smooth production of goods.

Of course, it costs money to develop and maintain a strong infrastructure, but such investment simultaneously increases a country's competitive edge. Germany offers all of the above advantages, and for that reason is seen as a very attractive business location.

Protecting Germany's advantage as a business location

Admittedly, years of wrangling over major projects such as the Stuttgart 21 railway project or the Berlin-Brandenburg airport would sometimes make one question Germany's future as a competitive state. But I believe that this is no reason to downplay Germany's many strengths. Respected competition indicators show that Germany is one of the leading players in the world. For example, in the latest Global Competitiveness Report for 2012-2013, published by the World Economic Forum, the quality of German infrastructure placed third behind Hong Kong and Singapore. France is next in fourth place. The USA features 14th in this global comparison.

In terms of innovation capability, Germany ranks 7th of 144 countries, while the USA, the world's largest economy, places 6th. Long-term investment is needed to secure Germany's advantage as an industrial location. Parts of the transport infrastructure in Germany are out of date. In order to have a future-oriented energy supply, new structures need to be developed, both for electricity generation, and for its distribution across intelligent networks. The investment required for this transformation will be enormous, but it can be financed with the assistance of international investors and the capital markets. However, one precondition is to have reliable political conditions and planning security.

Long-term investment is needed to secure Germany's advantage as an industrial location. However, one precondition is to have reliable political conditions and planning security.
Torsten Jeworrek
Member of the Board and
CEOReinsurance

Example of the energy transformation: The discussion on the emerging costs is damaging the energy policy itself and also people's confidence in Germany's reliability as an industrial location. The policy direction should not be dictated by party political objectives or the interests of individual industrial sectors, but should be directed by a far-sighted strategy that extends beyond a single legislative period.

In this context, it is important that political decisions be transparent, and also that they can be reliably implemented afterwards. Start-up assistance for new technologies, for example in the form of subsidies, or guaranteed feed-in compensation for alternative energies, will be unavoidable. But, of course, renewable energies must be made marketable as soon as possible. The German Renewable Energies Act in (EEG) must be amended so that it promotes not specific technologies or locations, but rather the most effective method of generating energy in the place where it is most suitable. With a market-oriented support system like this, the expansion of renewable energies could be structured in a more cost-effective way, and misplaced allocations avoided.

A Europe-wide coordinated energy policy could also achieve much more, because schemes that made economic sense would be given priority over individual national solutions. Also, the total investment costs would be significantly lower and the availability of electricity from renewable sources would be higher thanks to the diversity of locations within a European network. If the EEG is amended, it would be important to ensure that government commitments would not be subsequently withdrawn if there were a change of system. Many investors were alarmed by the cancellation of government assurances for feed-in tariffs in 2010 in Spain, and again in 2011 in the Czech Republic.

There are now similar discussions in Germany under the heading of an "EEG-Soli" (EEG solidarity tax). I would warn against such a move because decisions like these undermine the basis for long-term investment. However, the signals coming from the German government on this matter in the course of the energy discussions with the prime ministers of the federal states on 21 March 2013 lead one to hope that a sensible decision will eventually be reached in this area, and that confidence in the reliability of German politics will be recognised as the prime asset for the development of our economy.

Both investors and insurers or funds are ready and waiting

However, investment providers and banks alone will be unable to provide the investment required to develop a strong decentralised infrastructure for energy supply. And there are also other major infrastructure projects that need new investors. Many new investors such as insurance companies and pension funds are ready and waiting.

Particularly in the current economic situation, with historically low interest rates, investors are looking for safe and profitable ways to invest their money. Public-private partnerships, infrastructure investment funds, or projects that finance themselves by way of duties and fees, are some examples of flexible financing schemes.

A well-developed infrastructure secures jobs

The insurance industry could even take on a dual role in this situation: firstly as an investor, since investments in renewable energies and infrastructure are very attractive for insurance companies in view of the long-term and relatively stable returns that they offer. And secondly as an insurer which assumes a portion of investors' risks, thereby increasing the reliability of returns.

For example, Munich Re is market leader in insurance solutions for the performance guarantees that manufacturers of photovoltaic modules offer their customers. This makes it easier to invest in renewable energy. It is my belief that we should view the upcoming billions in investment required to restructure our energy supply and modernise our infrastructure not as a burden on the state and society, but as an opportunity. And it is an opportunity that we must seize. Jobs are created wherever investments are made in infrastructure. This applies not only in the construction sector, but at a later stage in other sectors as well, for example industry, education and transport.

A recent study shows that in the long term increasing the infrastructure capital stock by 10% produces an increase of up to 1% in per capita economic output. The costs for infrastructure projects today thus represent an investment to secure the wealth and prosperity of tomorrow. Germany has all the economic and political prerequisites, as well as the technical expertise and vision, to set the right course for the future.

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