ifo Study: Germany Only Average in Digitalization

“To ensure that Germany continues to be a leading innovation country, the governing coalition must now urgently set the necessary framework for a successful digital transformation in the years to come,” says IHK President Klaus Josef Lutz. “In quite a few instances, however, it’s also up to companies themselves to recognize and take advantage of the full range of opportunities that digitalization presents.” There is a lot of catching up to do, he says, especially in the digital services provided by public administrations and in companies’ capacity for digital innovation.

But all the other areas of digitalization examined in the study “Benchmarking – Digitalization in Germany” must also be tackled, Lutz adds. The economy is hampered both by a constrictive regulatory framework for digital innovations and by a lack of digital skills. Widespread data protection concerns and a weak digital entrepreneurial spirit are putting the brakes on a long overdue digital awakening.

Germany ranks below average in an international comparison carried out by the ifo Institute, especially in the digital services provided by public administrations. The country is lagging behind when it comes to the user-friendliness of digital public services, the exchange of data between authorities, and in digital public services for companies. The main reasons for this are a lack of decision-making authority in federal structures, a lack of innovation-oriented procurement in the public sector, and a lack of digital skills in public administration. 

Overall, the economic researchers see great potential in the better application of key digital technologies and data for new products and services. However, digital innovations are too rarely translated into market-ready business models. The weak points are the declining enterprise birth rate in IT and the subordinate role of highly scalable, platform-based business models. Although expertise in digital applications is widespread across Germany overall, the country performs significantly worse when it comes to the top skills that are crucial for innovation. The ifo authors therefore call for an expansion of digital skills throughout the education system, a simplified regulatory framework for the digital economy, less bureaucracy, and better access to venture capital.

The ifo study also advocates more openness with regard to data protection. For instance, there is great potential for the public sector to stimulate innovation by providing anonymized personal data. The study still sees gaps in digital infrastructure such as broadband and mobile communications, although network rollout is often more advanced than public opinion would suggest. In some cases, the problem is not with supply but with demand, i.e., existing infrastructure is nowhere near fully utilized. Nevertheless, gigabit and 5G networks should continue to be expanded ambitiously.