Germany: Ripe for Investment

GTAI’s new report on foreign direct investment shows that Germany remains a top destination for global investors.

November, 2020

Germany remains one of the world’s leading destinations for foreign investment. Last year, non-German companies set up 1,851 businesses projects – not including mergers and acquisitions (M&A) transactions – in the country. That’s according to GTAI’s annual FDI report.

© All graphs on page: GTAI

Promising KPIs

Although the number of investment projects declined last year by around 10 percent from 2018 (which was a record year), the number of jobs created by these projects increased considerably, from 24,000 in 2018 to 42,000 in 2019. More significantly, the overall investment volume rose in 2019 to EUR 5.1 billion from EUR 4.8 billion in 2018.

“This underscores our belief that Germany is one of the most attractive business locations in the world,” says Thomas Bozoyan, GTAI’s senior manager of market intelligence for Germany.

Top investors in Germany

The United States remained at the top of the list of countries investing in Germany with 302 new projects in 2019. The country’s skilled workforce and supply chain connections were the biggest draws for investors. A study by the American Chamber of Commerce and Roland Berger found that 91 percent of U.S. companies think the quality of German employees is very good and 79 percent believe the quality of supplier networks is very good.

China dropped down to fourth from its usual place in the top three in 2019. Bozoyan attributes this to increased capital export controls in China as well as some new measures in the EU that more closely scrutinize Chinese investment.

Strength in innovation

Consultancy firm KPMG reports that more than 36,000 companies in Germany are owned by a foreign majority shareholder. Although these foreign-owned ventures account for less than 2 percent of the total number of companies in Germany, they contribute about 27 percent of the country’s total added value.

So why does Germany continue to be such an attractive location? Much of the appeal has to do with the skilled workforce. KPMG found that 75 percent of chief financial officers see Germany among the top five countries in the world in terms of labor productivity.

Innovation is another big draw. Germany filed a total of 26,805 patents in 2019, second only in world rankings to the United States and up half a percentage point from the previous year. The number of companies that want to use Germany as a production or research and development location rose by two points to 19 percent in 2019.

What the future holds

Despite the uncertainty regarding Covid-19, “Germany is still open to every new investment,” says GTAI’s market intelligence guru Bozoyan. While the coronavirus pandemic pushed the ‘pause button’ on several projects in 2020, he expects 2021 to show strong growth again.

“There’s a huge backlog right now,” he says. “Companies that are already planning investments in Germany will complete their plans as soon as everything returns to normal.”

Germany is likely to see a drop in GDP in 2020 and foreign direct investment in countries around the world. Nonetheless, Bozoyan says: “The German government expects the economy to see a strong increase in GDP growth in 2021, and we presume we will see full recovery in 2022.”

View from the Top: Germany Trade & Invest

»We are positive that Germany will maintain its position as a safe haven.«

GTAI’s managing director Achim Hartig discusses this year’s FDI report, which shows an increase of interest from foreign investors in Germany during the last two years.

Which industries will find Germany increasingly attractive in the coming years?

I think the healthcare and pharmaceutical industries will remain a major focus. As the entire world is striving to fight Covid-19, Germany has a world-class healthcare system and research and development facilities. Digitalization in all of its forms is also extremely important, and digital delivery of information, goods and services is moving faster than ever.

Manufacturing industries have always been the backbone of Germany’s economy. Manufacturing’s contribution to GDP remains around 30 percent, which is unparalleled in Europe. I expect the size, strength and structure of German manufacturing, which is mostly comprised of small and medium-sized enterprises, to become even more attractive due to its versatility and resilience.

Furthermore, renewable energy and energy efficiency are cornerstones of the German government’s plan to reboot the economy. Germany’s position in the areas of renewable energy and energy efficiency was already strong, and it will become even more attractive in years to come.

How do you think Brexit will affect FDI in Germany?

The UK has been a strong trade partner for Germany, but in the past few years, exports to the UK have dropped by 6 percent as exports to other European countries grew by 7 percent. Companies are already restructuring their value chains to avoid new tariffs and other barriers after Brexit. Germany has seen increasing interest from foreign investors in the past two years.

What’s Germany’s biggest selling point for potential investors?

Trust. After the UK, Germany is the most attractive European country for foreign direct investment. The pandemic-related measures in Germany were effective in an early stage to stabilize our society and economy. We are positive that Germany will maintain its position as a safe haven for investors in turbulent times.