The European Migrant Crisis: A Silver-Lining for German Industry and Society?

As migrants flood into Europe from countries like Afghanistan, Iraq, Nigeria, Kosovo, and especially Syria, European leaders and policymakers face a great challenge.  Coming on the heels of the Greek debt crisis, the recent influx of migrants is testing the European Union once again. The responses and policy proposals from EU member states vary greatly, but the majority are focused on securing borders rather than protecting the rights of migrants and refugees.  In the short run, the migrant crisis may be a burden on most of Europe, but in the long run, it could present an economic opportunity.

A Silver-Lining

Europe’s surging migrant population could be a valuable resource for sustained economic growth in those countries that possess the foresight to invest in them now.  Many European economies face demographic challenges as fertility rates fall to 1.3 – below the replacement rate of 2.1 – while the average age increases.  In 2014, 19 of the top 20 countries with percent of population ages 65 and above were European countries.  This dramatic demographic change poses a serious threat to future productivity.  Europe is in need of fresh young workers to counter its feeble birth rate and aging population.

Germanys Response

So far, Germany has led the humanitarian charge, unveiling some of the most generous asylum policies in the EU.  One week ago, Germany’s Chancellor Angela Merkel pledged to spend $6.6 billion to cope with the roughly 800,000 migrants and refugees expected to enter the country this year.  Unfortunately, without similar refugee support from nearby countries—most notably Hungary—Germany was overwhelmed by the flow of asylum seekers and decided to temporarily close its border with Austria.

Refugees arrive at the train station in Saalfeld, Germany (Source: Jens Meyer)
Refugees arrive at the train station in Saalfeld, Germany (Source: Jens Meyer)

In spite of the border closure, the continued acceptance of refugees is economically sensible.  As of 2014, Germany had the world’s third highest percentage of individuals 65 years and older (21%), coupled with the world’s fourth lowest percent of population between the ages of 0 and 14 (13%).  According to the German government’s Federal Institute for Research on Building, Urban Affairs and Spatial Development, if this trend continues, the number of working age people in Germany (about 45 million) will shrink by 8.5 million by 2030 and another 8.7 million by 2050. Put another way, Germany will lose over 37 percent of its working age population in just 35 years.  The largest economy in Europe cannot be sustained without more workers.

Industry as a Catalyst for Integration

As migrants and refugees enter a host country, one of the main issues that they face is integration with and acceptance by the native population.  A successful way to avoid this problem is to provide opportunities for migrants and refugees to quickly contribute to the workforce and the country’s overall welfare.  Private-sector investment is crucial in this process.  Fortunately, several corporations have already started to make an impact on the refugee and migrant populations in Germany.

Ulrich Grillo, Head of the Federation of German Industries (BDI), said last week: “If we can integrate [refugees] quickly into the jobs market, we’ll be helping the refugees, but also helping ourselves.” In addition to speaking about the economic benefits of refugees, BDI has proposed changes to Germany’s labor laws and regulations and even sought assurances that migrants who do find employment will not be deported.

Corporate leaders in the automobile industry, one of the largest sources of employment in the country, have been the most outspoken in their support of migrant and refugee employment programs.  Dieter Zetsche, the CEO of Daimler-Benz and a global leader in corporate philanthropy and human capital investment, said that his company would take steps to recruit new employees from the incoming pool of refugees.  In addition to investing in refugee capital, the famous automobile maker also joined in the relief effort.  A few months ago, Daimler Trucks, in collaboration with the Frankfurt-based aid organization “Wings of Help”, initiated a mobile relief effort in the Turkey-Syria border region. A fleet of eight Actros semitrailer trucks, provided by Daimler-Benz, carried some 120 tons of relief supplies to those in need.

More recently, Matthias Müller, the CEO of Porsche AG, called for industry leaders to “take a clear stand against xenophobia and extremism.” Muller’s statement is especially important in light of the recent attacks on refugee residences. VW’s Porsche luxury-car division will also provide language training and counseling to refugees. The impact of language instruction, in particular, cannot be understated.  The ability to communicate in German is a necessary step towards successful societal and workforce integration.

Europe’s refugee crisis may be viewed as a political problem, but it can be an economic and social opportunity. The actions of corporations like Porsche and Daimler, as well as organizations like BDI, demonstrate that refugees can be invaluable contributors to economic and social development. Moreover, by encouraging private-sector investment in refugees governments can transform the current migrant crisis into an economic and social turning point for both Germany and the European Union.

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Money For Nothing: Overstating Official Development Assistance

Aid projects can help young children in Africa obtain access to fresh drinking water.
Aid projects can help young children in Africa obtain access to fresh drinking water.

Recently a report by The Guardian exposed the troubling reality that some nations overvalue their ODA. By exploiting the antiquated formula for calculating ODA, which calls for interest rates on foreign aid loans to be less than 10% (grants are held to a 25% rate), countries like Germany, France and Japan, are taking credit for more aid than they actually give. Just how much more? David Roodman, the author of the Guardian article, estimated that billions of dollars in ODA is tacked on each year by manipulating one simple calculation. Last April, former chairman of the DAC Richard Manning warned in a letter to the Financial Times that fewer and fewer loans given by OECD countries are “concessional in character.”

The 2008 Financial Crisis upset the ODA equilibrium.
The 2008 Financial Crisis upset the ODA equilibrium.

After the 2008 Financial Crisis, interest rates fell but the 10% discount benchmark rate for ODA loans stayed the same, causing the imbalance that upset the equilibrium of ODA calculations. Roodman writes, “Today, rich nations can borrow at 2% or 3%, lend at 4% or 5%, and make a profit while calling the loan aid.” Further compounding the problem, the profits made on these loans go back into the financial system of the lending country.  These interest repayments, as they are called, are not subtracted from net ODA like capital repayments, skewing the final figures. In the case of Japan, who in 2011 took in $2.6 billion in interest repayments, a nation can actually receive more money from developing countries than it gives to them in ODA.

But which nations are receiving these loans? Manning explains in his letter that “France, Germany and the European Investment Bank” give loans to the middle-incomes countries of Latin America and Asia. These loans count as concessional ODA, but in reality they do not reflect the “real cost of capital” and rake in huge profits for the lending countries. As more countries have discovered this type of loan practice, Manning writes, we have seen a recent surge in ODA to middle-income countries and a slight drop-off in ODA to sub-Saharan Africa. In their defense, some lending countries argue that the rates also must reflect default risk. And to be fair, default risk is always a factor when lending to countries in dire straits.

Thankfully, Roodman reports, nearly all of the DAC countries employ a more effective calculation method in their handling of export credit arrangements. This method uses calculated differentiated discount rates based on currency values and the rate at which each country pays to borrow money. Unlike the 10% benchmark, which has held steady since 1972, differentiated discount rates are updated yearly to reflect current market forces.  In applied, this could be an effected method of calculating rates for ODA as well. But no matter the ultimate solution, the fact remains that our fifty-year-old method of ODA calculation is in desperate need of an update.