KfW Study Reveals Bureaucracy Costs SMEs EUR61 Billion Annually

Fri 25th Apr, 2025

A recent study conducted by the KfW bank has highlighted the substantial financial impact of bureaucracy on small and medium-sized enterprises (SMEs) in Germany, estimating that the associated costs amount to approximately EUR61 billion each year. This analysis underscores the burdens imposed by numerous regulations and increasing compliance requirements that hinder business operations.

According to the KfW's representative 'Mittelstandspanel', which surveyed around 10,000 SMEs across various sectors, employees in these businesses dedicate an average of seven percent of their working hours to bureaucratic tasks. This translates to roughly 32 hours per month for each company, culminating in a staggering total of 1.5 billion working hours annually devoted to navigating administrative processes.

KfW's expert on SMEs, Michael Schwarz, noted that while structured procedures are essential for a functioning economy, excessive bureaucracy raises concerns about whether the costs outweigh the benefits. He emphasized that reducing bureaucratic hurdles is currently the most pressing economic policy issue for SMEs.

It's important to note that the study does not account for various indirect burdens that are difficult to quantify, such as lengthy planning and approval processes, poor accessibility to governmental services, and ambiguous interpretations of regulations. These 'psychological costs' significantly affect many businesses, according to Schwarz, who identified bureaucracy as the primary threat to competitive viability.

Particularly affected by bureaucratic demands are the construction sector and self-employed individuals. The burden of bureaucracy tends to decrease as the size of the business increases, suggesting that smaller firms face greater challenges in managing regulatory compliance.

In light of these findings, the anticipated coalition government, which may include members from the Union and SPD parties, has promised to undertake comprehensive bureaucratic reforms aimed at modernizing state decisions, processes, and structures. However, previous administrations have made similar commitments with limited success in reducing bureaucratic burdens.

Furthermore, a survey conducted by the Ifo Institute at the end of 2024 indicated that German companies, on average, allocate approximately six percent of their revenues to bureaucratic expenses, further illustrating the financial strain caused by regulatory compliance.


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