Blind Spots in Germany's Industrial Strategy: Why Has Public Procurement Not Been Fully Activated?

Opening: What Is Missing from Germany’s Industrial "Policy Toolbox"?

When the German Federal Ministry for Economic Affairs and Climate Action grandly launched the "National Industrial Strategy 2030" and invested billions of euros to support battery production and the hydrogen industry chain, one key tool was left in the cold: public procurement. Amid the global resurgence of industrial policy, the United States, the European Union, India, and even Bangladesh are re-evaluating the role of government as the largest buyer. Is Germany overlooking this lever that could reshape its manufacturing landscape?

Background: The Role of Procurement in the Global Industrial Policy Revival

As *The Business Standard* pointed out in its analysis of Bangladesh's FY27 budget, the United States injected $39 billion in direct subsidies through the CHIPS and Science Act. The EU invested €67 billion between 2014 and 2020 under the "Smart Specialisation" strategy. Germany, France, Japan, and others have also rolled out national support strategies for electric vehicles, renewable energy, and advanced manufacturing. However, these strategies generally focus on supply-side subsidies. India, by contrast, has taken a unique path: through the Public Procurement (Preference to Make in India) Order, it grants absolute priority in government tenders to suppliers with a local content ratio of 50% or more, with some products facing local content thresholds as high as 70%.

Underlying Reasons: Why Is Germany Silent on the Procurement Lever?

Germany’s public procurement market is worth about €550 billion annually, accounting for approximately 15% of GDP. Yet the current legal framework—such as the Act Against Restraints of Competition—emphasizes the lowest price and EU-wide fair competition, creating legal obstacles to local preference clauses. A deeper reason is that German manufacturing has long relied on technological leadership and export orientation rather than government orders to cultivate domestic industries. But today, with soaring energy costs, intensifying competition from China, and a lagging electric vehicle transition, traditional advantages are eroding. If Germany continues to overlook the "market-creating" tool of procurement, it risks missing the window to establish economies of scale and learning curves in key areas.

Impact on German Industry: Opportunities from Equipment Manufacturing to Electric Vehicles

Germany is home to world-leading machinery, automotive components, and industrial software industries, but in many sub-sectors (such as photovoltaic inverters and the localization rate of industrial robots), it has been impacted by imports in recent years. If Germany were to follow India’s example and set differentiated local content requirements for public transport, medical devices, and IT hardware, it could directly stimulate demand. For instance, requiring that local content for city bus procurement gradually increase to 60% would create a predictable market for commercial vehicle manufacturers and battery suppliers. Setting a local adaptation ratio for industrial software procured by government agencies would incentivize companies like SAP to deepen their local innovation.

Europe and Global Impact: The "Rules Race" in Competing for ProcurementAt the EU level, the Net-Zero Industry Act, passed in 2024, has allowed for the consideration of "resilience contributions" (i.e., supply chain localization) in renewable energy project bids, but it has not yet been extended to general public procurement. If Germany takes the lead in implementing systematic procurement preferences at both federal and state levels, it may trigger imitation and controversy within Europe—on one hand strengthening European manufacturing resilience, on the other hand potentially sparking trade frictions. Against the backdrop of global industrial policy shifting from a "subsidy race" to a "rule race," Germany needs to find a balance between complying with WTO rules and nurturing its domestic industries.

Long-term Trend Assessment: Future Industrial Policy Will Be "Driven by Both Supply and Demand"

Over the next 3-10 years, industrial policies relying solely on R&D subsidies and tax incentives will become increasingly ineffective. A successful industrial model must also address the question of "who to sell the production to." Germany's industrial advantage lies in its technological accumulation, while its weakness is insufficient demand creation capacity. If public procurement can be elevated from an administrative task to a strategic tool, providing early markets for emerging fields such as battery recycling, green hydrogen applications, and smart factory solutions, Germany may solidify its position as a high-end manufacturing hub by 2040. Conversely, if it continues to rely on a "subsidize-and-wait" logic, German manufacturing could lose its initiative in the next generation of green technologies and digital manufacturing.

SEO Description Is Germany's Industry 4.0 strategy overly reliant on supply-side subsidies? This article explores how public procurement, as a demand-creation tool, might become an unavoidable path for upgrading German manufacturing.