Guest post by
Prof. Dr. Liane Buchholz, President of the Westphalia-Lippe Savings Bank Association
in the Börsen-Zeitung, special supplement “North Rhine-Westphalia Economic Area”
The year 2022 has slowed down digital and sustainable change and at the same time made it more expensive - Sparkasse President Prof. Dr. Liane Buchholz suggests “Transformation Summit for NRW”.
If you ask people in Germany about their worries, one answer is consistently at the top of the list: rising prices. Concerns about affordable housing and the economic situation follow. And this is not a snapshot from 2022. Germans have already ranked inflation as their top concern twelve times in a 30-year, nationwide long-term study.
How much people's everyday lives are determined by the question of the affordability of everyday things can be seen from the abundance of guides about saving in bookstores and also on the Internet. Whether it's the "100 savings tips to follow" from a financial website or the "Ten tips on how to save money when shopping" from a public broadcaster - there is no shortage of good advice on how to deal with the inflation rates of the past few months.
That's basically a good thing. Even today, in the 22nd month with an inflation rate that exceeds all stability parameters, the accounting of German households is under considerable pressure. They have to absorb food cost increases of around 20 percent and energy costs of almost 30 percent. This ties up energy, time and planning security.
Inflation, energy shortages, war in Europe, supply chain breaks, the lack of skilled workers – the year 2022 was like a scrapbook of crises and bad news. And let’s not kid ourselves: collecting will continue in 2023. Inflation rates will remain at their level for the time being, energy remains expensive despite market relaxations and the Russian president will not end his war against Ukraine any time soon. All of these are challenges that have settled like an ominous fog over one of the most important strategic issues of today. What is meant is the transformation into a climate-neutral and thoroughly digitalized economy and society.
Although the energy crisis of 2022 has increased awareness of changes in energy production, the temporary return to fossil and nuclear energy production has also made the call for cheap electricity and cheap heating louder. Europe, and with it Germany, has lost time due to the crisis year. At the same time, inflation has fueled the costs of transformation.
This transformation into a climate-neutral and thoroughly digitalized economy requires gigantic sums, as we already know and as a study by the German Economic Institute on behalf of the savings banks and banking associations together with the Ministry of Economic Affairs for North Rhine-Westphalia has confirmed: for the implementation of the digital transformation This results in an investment volume of up to €70 billion annually.
The figures are from autumn 2021. If we assume a uniform influence of the average inflation rates since the publication of the IW study, we should now assume costs of 80 billion euros. This can be rephrased into a clear message to the entire state of North Rhine-Westphalia: Every day that we do not dedicate to transformation costs more money!
The savings banks in Westphalia-Lippe are ready to provide their share of the necessary financing. However, everyone involved will have to work together in order to be able to move volumes in the dimensions described. In this collaboration, legislators, banking supervisors, development banks and house banks must work like a finely tuned mechanism so that more capital can be released for transformation financing. Because house banks have sufficient equity capital for a country in normal mode. However, a country in transformation mode needs a real capital booster. We need tools that will unleash the economic and financial performance of this country.
This would be possible with a transformation factor in the equity backing of loans for the purposes of digitalization and climate neutrality, as already exists in the European regulatory framework Capital Requirements Regulation (CRR) for equity privileges in infrastructure financing. Such a factor would provide capital relief when granting loans. In this way, billions of euros in additional loans could be granted and structural change accelerated.
Banking supervision could also get things moving. With its countercyclical buffer and its systemic risk buffer, it is currently causing interest rates to rise. And with it, almost €1 billion in hard core capital will be frozen at the Westphalian-Lippe savings banks alone. This corresponds to a credit capacity of almost €10 billion - €10 billion that is not available for the transformation. In addition, subsidies and publicly funded loans will have to be included. Especially in view of the considerable inflationary burden, private households are currently the least able to optimize their property's energy efficiency or to pay higher rents for the landlord's energy-saving measures. Part of private capital in Germany has been literally pulverized by the crisis year of 2022. The Ifo Institute assumes that inflation last year caused a loss of purchasing power of €110 billion - €110 per inhabitant per month. In order to make up for time and put the right levers in place, it is now time for a transformation summit in North Rhine-Westphalia. It would be a strong signal if this initiative came from the most populous federal state. The task of this summit: Renew awareness of the transformation, create alliances and enable the financing boosters.
There is no lack of will to transform, as an exemplary look at the entrepreneurs in Westphalia-Lippe shows. To this end, the Westphalia-Lippe Savings Bank Association, together with Helaba, commissioned a study from the Ruhr University in Bochum, which was intended to systematically find success factors and obstacles to transformation in companies in different sectors.
The core results:
- In over 80 percent of companies, the goal of transformation is already anchored in the long-term corporate goals.
- Most management decisions are already based on sustainable or digital goals.
- With regard to their own industry, many companies see dealing with transformation as a competitive advantage.
- The study specifically shows that companies with a high degree of digitalization can deal with crises more successfully.
- The transformation is already reaching companies on both the micro and macro levels. Companies can usually implement changes at the micro level – for example in the standardization of internal processes (paperless office) – using their own resources.
- When it comes to automated production, the diversification of energy sources and the revision of the business model, long-term, large-volume loans and risk sharing from development, state and house banks are necessary.
- The entrepreneurs surveyed see their house bank as the first partner for the transformation.
That alone gives an idea of the boost the transformation will get in the next few years. But the framework conditions must be right for this to happen. Private households are currently in trouble. For companies, it will be important that the necessary financing can be provided. This requires the aforementioned capital booster. This text describes how it could be triggered. As part of the NRW Banking Day on March 28, 2023 at the NRW-Bank in Düsseldorf, we will discuss in more detail how the framework for transformation in North Rhine-Westphalia could be designed.
More guest posts:
