Government Support for Starting a Business

What Other Country is Doing?

• Investors interested in Germany are offered numerous support programs, including loans, subsidies, grants and business consulting.
• The German government offers more than 3,000 support programs to investors. It is financed by the federal government, the states and international organizations, including the European Union.
• This government aid is intended to support business start-ups, investment, research and development, and training, as well as improve and protect the environment. The aid comes in the form of investment premiums, additional capital allowances, regional support and special credit programs.
• Most programs are designed to help small and medium-sized businesses. However, large companies may receive grants of up to 35 percent of their investment costs in the new, eastern German states and up to 18 percent in the western German states. In some cases, grants to mid-sized businesses may be as much as 50 percent of the initial investment.
• Subsidies are a main form of support from the German federal government and regional governments. From 1994 to 2004, €32.5 billion worth of subsidies were offered and 880,000 new jobs were created. Subsidies are granted for the creation of jobs, acquisition or manufacture of new depreciable movable fixed assets or for the purchase or construction of buildings.
• A second type of aid is low-interest loans or interest-subsidized loans for start-ups. In addition repayment can be done over a 10 to 20 year period.
• Third, the state offers guarantees for some investment projects if banks are unwilling to secure a loan and the project would otherwise not come to fruition. In some cases, up to 80 percent of the loan amount is guaranteed.
• Finally, grants are made available for research and development, human resource development and environmental protection.
• International investors interested in European Union support for new business initiatives usually obtain such support through German government grants funded by EU capital. From 2002 to 2006, for instance, Germany has €29.7 billion available in EU funding to promote the economy.
• In some cases, investors apply directly to the EU for assistance. Support includes loans at concessionary rates of interest, equity investments or venture capital.
• Further aid from the EU’s Structural Fund is available to small and medium-sized enterprises. In addition, such companies benefit from non-financial assistance such as business support services and consulting.

MIDA Cologne – Comments

• Government assistance in developed countries is still provided at all levels, starting from the city/municipality, district, state, federal and the EU.
• Malaysia may want to study the possibility of Government guarantees for loans and venture capital companies for high risk investments.
• For a more even development of all the states, Malaysia may eventually have to investigate the possibility of certain cities / municipalities, districts or states offering incentives/grants/subsidies ( over and above what the federal government offers ) for attracting investments to their respective region.
• ASEAN may want to start a fund to undertake structured financing to attract investments to certain underdeveloped countries in ASEAN. Malaysian companies could benefit from this fund if reverse investments are undertaken in these countries as Malaysian companies could avail themselves to this fund. ( German companies undertaking investments in Poland, Czech republic ,Hungary etc are able to benefit from EU funding, which otherwise, they would not be eligible in Germany )