Germany Is Wasting Its Innovation Potential
A ZEW study shows that there is room for improvement in research grants, technology funding, and venture capital.
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The research grant is catching on in Germany’s chemical, pharmaceutical, and biotech industries: About 40 percent of roughly 2,700 companies have applied for this funding since 2021. But the potential is far from being fully realized. Innovation is a crucial driver of competitiveness: New products and more efficient processes generate growth, ensure value creation, and strengthen Germany’s position as an industrial hub. Government funding can spur additional investment in research and development (R&D)—especially for high-risk projects. This makes it all the more important to remove existing barriers. This is the conclusion reached by a study conducted by ZEW Mannheim and the Center for Economic Policy Studies (CWS) at Leibniz University Hannover on behalf of the German chemical industry Association (VCI). It identifies shortcomings and unnecessary administrative burdens associated with the research tax credit, insufficient consideration of the chemical, pharmaceutical, and biotech sectors in technology programs, and gaps in the financing of startups.
Ulrike Zimmer, VCI Head of Research and Technology, emphasizes: “Research funding should not be an obstacle course. If you want innovation, you must not tie researchers down with bureaucracy. Policymakers must make funding instruments simpler, more reliable, and more attractive, and reduce bureaucracy so that additional innovations become possible.”
Dr. Christian Rammer, Deputy Director of the ZEW Research Department “Economics of Innovation and Firm Dynamics,” explains: “The research tax credit is an important tool, but it does not yet reach all companies that conduct research. Access must become easier, especially for smaller companies. Above all, the effort required to familiarize oneself with the procedure and set up the necessary internal processes is a hurdle.”
Research Tax Credit: Facilitating Access
In the chemical industry, 714 companies have applied for the research allowance so far, and 352 in the pharmaceutical industry. For the approved projects, eligible R&D expenditures totaled just under 3.6 billion euros.
According to the study, small and medium-sized enterprises (SMEs) account for a large proportion of the applicants. In the chemical industry, this group accounted for 73 percent, and in the pharmaceutical industry, 81 percent. Nevertheless, the program does not reach all companies in the industry that are fundamentally eligible for funding. The study identifies room for improvement in the current funding cap of 12 million euros per year, an insufficient funding rate, and bureaucratic hurdles in the application process.
The study therefore proposes simplifying the application process and refining the funding criteria. This includes raising the funding cap to 25 million euros, expanding digital support services for the application process, and offering a more attractive funding rate for industrial research.
Technology Funding: Greater Focus on Chemistry, Pharmaceuticals, and Biotechnology
The study also identifies a clear need for action regarding the federal government’s thematically focused technology programs: Between 2021 and 2025, the federal government allocated eight billion euros annually for these programs. Technologies related to the chemical, pharmaceutical, and biotech sectors accounted for seven percent—approximately 500 million euros.
The Central Innovation Program for SMEs (ZIM), however, shows that the industry benefits significantly more from open-topic funding: there, the corresponding share was 20 percent. Zimmer: “Chemicals, pharmaceuticals, and biotech are key industries for innovation and transformation. This makes it all the more problematic that the industry benefits significantly less from thematically focused technology funding than it does from the Central Innovation Program for SMEs.”
The study therefore advocates aligning thematic technology funding more closely with the needs of industry. For the chemical, pharmaceutical, and biotech sectors in particular, this involves technologies that are just as crucial for new products and processes as they are for the transformation of Germany as an industrial hub.
Start-ups Need Better Access to Venture Capital
Since 2010, more than 400 startups have been founded in the chemical, pharmaceutical, and biotechnology industries. For research findings to become marketable products and processes, young companies need sufficient venture capital. Especially in the case of technology-intensive developments, the path to market readiness is long and fraught with high risks.
The study therefore emphasizes the importance of reliable financing options. Greater collaboration between startups, academia, and established companies can help translate knowledge into marketable products more quickly. Progress is also needed on the regulatory front. The study therefore recommends establishing experimental spaces and real-world labs for all companies, regardless of their size or stage of development, where new technologies can be tested under real-world conditions and brought to market more quickly.
About the Methodology
The study examines the research and innovation performance of the German chemical and pharmaceutical industry using a wide range of indicators. This year’s focus is on the financing of research and innovation. The analysis includes data from the Research Allowance Certification Office, the ZEW Mannheim Innovation Panel, the Stifterverband’s science statistics, the Organization for Economic Cooperation and Development (OECD), as well as data on government technology programs and venture capital investments from Invest Europe and PitchBook.
The data set used to identify eligible companies comprises approximately 4,680 chemical, pharmaceutical, and biotech firms listed in the revenue statistics. Of these, approximately 2,700 companies with relevant R&D expenditures were analyzed.
In 2025, the chemical and pharmaceutical industry invested just under 16 billion euros in research and development.
Note: This article has been translated using a computer system without human intervention. LUMITOS offers these automatic translations to present a wider range of current news. Since this article has been translated with automatic translation, it is possible that it contains errors in vocabulary, syntax or grammar. The original article in German can be found here.
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