Reducing municipal investment backlog – more competitive infrastructure

• Municipal investment backlog at record high of around EUR 159 billion
• Germany scores below average in international comparison
• Capitalising on Germany's federal structure

A current study by KfW Research compares the investment backlog of municipalities in Germany and France. The comparison is based on data published by the European Investment Bank (EIB) and the KfW Municipal Panel.

The KfW Municipal Panel 2018 estimates this shortfall at just under EUR 159 billion. Almost two thirds of the municipalities in Germany have a significant or even serious investment shortfall overall. In an international comparison as well, an above-average number of German municipalities – 36% – report a significant investment backlog. In contrast, this figure is 17% in France, which is just half the level of the European average of 33%.

It is true that there are marked differences between France and Germany in terms of state organisation. "But to conclude that France's centralist system is better per se is wrong," comments Dr Jörg Zeuner, Chief Economist at KfW. "But what we can learn from France is that providing more funds also leads to better public infrastructure. This is not related to the political system but is a question of political priorities."

In recent decades, investments in French municipalities have quite simply been higher than municipal investments in Germany. "You can't make something out of nothing. Investments must be ongoing to ensure the reliability and competitiveness of the infrastructure. Municipalities in particular are responsible for a large part of the infrastructure. For example, further investments in school buildings as a key factor for the future viability of our country should be facilitated," says Dr Zeuner.

The failures of the past are making themselves felt: according to current rankings, Germany's position among its global competitors is steadily on the decline. At the same time, investment needs in infrastructure are growing, as the KfW Municipal Panel 2018 shows. Jörg Zeuner is certain that more needs to happen.

A federal state in particular offers many advantages as it can meet local needs with locally tailored solutions: "We need a stronger federal culture. We will only capitalise on the potential of our decentralised state structure if we give local authorities the freedom to respond to the challenges independently. However, this requires clearly allocated tasks and appropriate financial resources, which are still lacking in many places," concludes Dr Zeuner.

Note:
The KfW Municipal Panel was set up in 2009 by the German Institute for Urban Affairs (Difu) on behalf of KfW. The panel is the largest regular survey of German treasurers in urban municipalities, rural municipalities and district communities with over 2,000 inhabitants. The survey focuses primarily on the municipalities' financial position, investment activity and financing. The report and further information is available at www.kfw.de/kommunalpanel.

The comparative study conducted by KfW Research is available at www.kfw.de/fokus.