KNOWLEDGE BASE Governance In Germany
Governance In Germany
A stable and effective government is one of the areas worth considering for any global expansion. The regulatory environment toward business is also a factor. Germany's government is stable and effective, and while it does impose some hurdles in setting up a business, the German economy is the largest in the EU and worth entering.
In this section, we look at several reports gathered by the World Bank Group and Transparency International, all of which rank Germany's government against a number of other countries in the ease of doing business, effective governance, and perceived public sector corruption. Germany does well in these comparisons, as you’ll see below.
Ease of doing business in Germany
In its Doing Business 2017 report, the World Bank Group ranks Germany 17th out of 190 countries for ease of doing business within the country as a small or medium-sized company. Specifically, regulations applying to companies through their life cycle are considered. A high ranking indicates that the German regulatory environment is relatively more conducive to starting and operating a company locally. The World Bank Group ranking takes into consideration the following parameters:
Starting a Business
Dealing with Construction Permits
Protecting Minority Investors
Trading across Borders
With its rank of 17th out of 190 countries, the World Bank Group considers it relatively easy for small and medium-sized companies to do business in Germany.
Ease of doing business resources
The effectiveness of Germany’s governance
The World Bank Group also evaluates and reports on the governance effectiveness of over 200 countries in their Worldwide Governance Indicators reports, and Germany ranks very highly on all of its governance effectiveness aggregate scores - another reason to consider doing business in that country. The six parameters for which perceptions are captured and Germany's scores are:
Voice and Accountability - 95.6
The extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media
Political Stability and Absence of Violence/Terrorism - 70
The likelihood of political instability and/or politically-motivated violence, including terrorism
Government Effectiveness - 94.2
The quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies
Regulatory Quality - 93.3
The ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development
Rule of Law - 92.8
The extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence
Control of Corruption - 93.3
The extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests
What is Governance?
According to the World Bank Group, “Governance consists of the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.”
The significance of Rule of Law
When asked about which factor is most important when evaluating which countries to do business in, many companies will say that Rule of Law is their biggest concern.
As stated above in the Worldwide Governance Indicators results, The Rule of Law concept considers the extent to which business operators within a select country have confidence in and abide by the rules or laws of that society. Some of the characteristics that should be evaluated to make a sound decision encompasses the clarity, certainty and predictability of laws and their application.
Some considerations are:
Contract enforcement consistency
Adherence to property rights (personal, business, intellectual)
Ability and effectiveness of the courts to make and enforce laws
The likelihood and ability of the police to enforce laws
The extent of crime and violence
Some of the specific practices to watch out for are the freedom from expropriation, physical security of persons, respect for contracts, access to effective and efficient courts, and government adherence to agreements and clear dispute resolution procedures. Well-functioning law and justice institutions and a government bound by the rule of law are important to economic, political and social development.
Germany received its lowest score in the category of Political Stability and Absence of Violence/Terrorism - the likelihood of political instability and/or politically-motivated violence, including terrorism. Even as it’s lowest score, it still comes in at 70. The World Bank Group explains how a country that appears quite stable can see a lower score in this area. ‘This indicator does not measure how long a particular government has been in power. Instead, it captures perceptions of the likelihood of politically-motivated violence, including terrorism. Thus the United States for example has a sharp decline in this dimension between 2000 and 2002. This happened not because the political process in the United States is now perceived as more unstable than in the 1990s. Rather, it reflects perceptions of the risk of terrorist attacks on the United States that increased sharply following the events of September 11, 2001. Similarly, countries that are functioning democracies, but are marred by domestic politically-motivated violence, may also not score well on this indicator.’
The Worldwide Governance Indicators Report provides an extensive list of resources to help you dig into their ratings. As you can see by their numbers, Germany is considered by this review to be an effective and stable government.
Perceived public sector corruption levels
Every year, Transparency International publishes a report on perceived public sector corruption around the world. Their latest report, Transparency International’s Corruption Perceptions Index 2016, reports on 175 countries. Transparency International looks at a number of areas where corruption can take place, including topics such as public procurement and judiciary.
Germany tied for a rank of 10th out the 215 countries evaluated, with a total score of 81 out of 100 (a perfect score is 100, and the highest score earned was 90 by Denmark). So what does this mean for you? There is a low likelihood of corruption stemming from the regulations placed by the government on businesses, the courts are fair, and you will not be expected to conduct business through bribes or kickbacks.
Take advantage of local experts
Even in a country with effective governance and low corruption, there are many regulatory and tax rules to follow. Through the Globig Marketplace, you can find local German legal and regulatory experts to help you be sure you are following the subtleties of the laws within Germany. If you are in doubt on any legal requirements in Germany, we recommend you contact an appropriate law firm. Find experts who can help you with tax laws, and those who can walk you through the process of setting up a business in Germany. The Globig Marketplace provides a list of firms for your consideration, both local and global.
KNOWLEDGE BASE Governance In Germany