Runaway Spending: A Billion-Euro Boon for German Railways' Profit Margins
Research reveals substantial expense associated with constructing a national rail network, amounting to billions of dollars in state funding.
Venture into the world of German railways, where a beguiling flow of billions swirls into the antiquated network's revitalization, only to contribute more to soaring costs in the sector. Felix Berschin, a researcher from the Ifo Institute, harbors suspicions that this industry has cleverly inflated its profits and garnered a hefty share of the public purse.
The federal government's recent infusions into the railway sector have scarcely propelled the rejuvenation of the railway network. Instead, these funds have primarily fueled a destructive escalation of expenses within the construction and railway industries. According to the "Tagesspiegel," this scenario unfolds from Berschin's study. Intriguingly, the railway sector accounts for about three-eighths, or €148 billion, of the federal government's total infrastructure special fund.
During Berschin's investigation, he scrutinized Deutsche Bahn's investment reports from 2006-2024 to determine the extent of primary investments in rail infrastructure elements like tracks, switches, bridges, and overhead lines. The enlightening outcome: the installed infrastructure components increased by merely 21% between 2011 and 2024. However, investments for these areas skyrocketed, with an increase of more than four times the 2011 level.
"The price of railway construction has nearly doubled compared to that of road construction," admits Berschin, supported by a comparison of construction price indices. This breathtaking escalation cannot be attributed solely to the inflationary aftermath of the Covid-19 crisis and the ongoing Ukrainian conflict.
What's truly remarkable is the significant price increase observed in signaling technology and bridge construction as early as 2018. Simultaneously, the government stepped up its financial aid to the railway sector in a bid to push forward climate protection initiatives. Analysts aver that the railway and construction industries may have capitalized on these enhanced state investments by boosting their profit margins, citing the duopoly in Germany's signaling technology sector, featuring Siemens and Hitachi as the sole heavyweights.
Source: ntv.de, lme
- German Railway
- Signaling Technology
- Profit Margins
- Investments in Infrastructure
- Ifo Institute
The Ifo Institute researcher, Felix Berschin, suggests that the German railway sector might have increased its profit margins by capitalizing on augmented state investments, particularly in signaling technology and infrastructure. This is partially due to the duopoly in Germany's signaling technology sector, predominantly consisting of Siemens and Hitachi. To mitigate rising costs and improve profitability, the community could consider implementing a policy focused on vocational training for railway and construction sectors, thereby enhancing efficiency and reducing expenses.
