What’s the overall trend coming from the UK with so many changes due to Brexit and COVID-19 over the past year?
Scheid: Overall, it’s very positive. Between 2016 and 2020 there were a total of 733 expansion projects by UK companies in Germany. That said, after the record year of 2019, there was a steep drop in 2020. Last year we had 104 projects, which was down from 185 projects in 2019.
There is a lot to unpack in this data. Let’s start with last year’s decline. What do you think was the main cause?
Scheid: Well, clearly the COVID-19 pandemic had a negative effect on the willingness and ability to complete foreign projects. With very few exceptions, CEOs and business development managers were unable to travel to Germany for most of the year to visit potential sites, open corporate bank accounts and take care of other practical matters like that.
So I imagine this was a global trend, not just from the UK.
Scheid: Exactly. We can see a decline in projects from almost all other important source countries as well. But Germany’s nine-percent drop in total projects from all countries was actually better than most of the predictions. The United Nations Conference on Trade and Development estimated the drop in global FDI investments would be around 15 percent.
Based on my quick calculations, the drop in British FDI to Germany was more severe. Why is that?
Scheid: You are correct that the drop-off is more significant for the UK. To be precise, it was around 44 percent. Based on conversations with companies here, it seems that the combination of Covid-19 and Brexit significantly depressed the numbers.
I understand Covid-19 causing a reduction, but given the disadvantages of Brexit to UK businesses, wouldn’t the number of companies setting up in Germany be expected to increase?
Scheid: This is where we need to break down the numbers carefully. The overall, medium-term trend is very positive. The number of companies setting up a subsidiary in Germany each year more than doubled from 2014 to 2018 and then increased even more than that in 2019. This is at least in part due to the needs of some companies to secure access to the EU post-Brexit.
Last year was very different because of the way that Brexit played out. Following the referendum in 2016, the UK was set to leave the EU on January 31, 2020, which it effectively did. However, a transition period was implemented for the remainder of the year, so it was “business as usual” while negotiations on the future relationship continued. An agreement wasn’t reached until December 24, just days before a potential cliff-edge situation.