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Foreign direct investment (FDI) in Germany

FDI in Figures

Germany is considered an attractive country for foreign direct investment, but in recent years the influx of FDI has been hampered by the global recession and subsequent Eurozone crisis. According to the 2021 World Investment Report by UNCTAD, FDI inflows into Germany declined by almost 34% in 2020, reaching USD 36 billion, compared to USD 54 billion in the previous year, despite an increase in cross-border M&A transactions, mainly due to the outbreak of the COVID-19 pandemic. The stock of FDI increased slightly in 2020 to over USD 1 trillion. The country has traditionally been a key investor, but this trend has been slowed by the pandemic: Germany's outward investment fell from USD 139 billion in 2019 to USD 35 billion in 2020.
FDIs in Germany are mostly owned by Luxembourg, the Netherlands, the US, Switzerland and the UK, which represent more than 60% of the total stock. France, Ireland, Italy, Austria, and Japan are also investing in the country. FDIs are mainly oriented towards finance and insurance, manufacturing and trade, information and communication, management and consultancy activities, and real estate. According to the latest data by the OECD, in the first half of 2021 FDI inflows reached a total of USD 21.38 billion, up by 18.1% compared to the second half of the previous year.

Among the country’s strengths are a highly powerful and diversified industrial network, a highly skilled workforce with a good command of English, reliable infrastructure, a favourable social climate, a table legal framework and a location at the heart of Europe. Its main weaknesses are a high tax rate (for both individuals and businesses), rather inflexible labour laws, and the high dependence on the automotive and mechanical industries. The World Bank ranked Germany 22nd out of 190 countries in its latest edition of the Doing Business report (gaining two positions compared to the previous publication).

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 52,66564,58931,267
FDI Stock (million USD) 963,5671,107,8391,139,106
Number of Greenfield Investments* 8601,0771,118
Value of Greenfield Investments (million USD) 21,32425,91740,527

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Germany OECD United States
Index of Transaction Transparency* 5.0 6.5 7.0
Index of Manager’s Responsibility** 5.0 5.3 9.0
Index of Shareholders’ Power*** 5.0 7.3 9.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Germany

Strong Points

Germany's strengths for FDI are:

  • Strategic location in the centre of Europe
  • Political stability and a good anchor in international relations
  • The largest population of the European Union
  • Infrastructure among the most developed in the European Union
  • Strong manufacturing base (almost a third of the GDP)
  • Strong exports (high range products and diversified clients)
  • Advanced technology and expertise
  • Highly qualified work force
  • Consolidated public finances
  • Competitive taxation.
Weak Points

Germany's weaknesses for FDI are:

  • Eastern part of the Germany (former DDR) is struggling to catch up with the western part in many areas
  • Ageing population weighs heavily on growth
  • German economy is highly dependant on exports, especially to China
  • Ageing infrastructure
  • Unproductive service sector
  • Insufficient infrastructure for development of start-ups
  • A low investment/GDP ratio
  • Lack of engineers
Government Measures to Motivate or Restrict FDI
Germany distinguishes itself with a business climate compliant with international standards and with transparency of its judicial system. The German Government is implementing measures aimed at encouraging investments including:

  • Grants for investments (Cash Incentives Program: GRW)
  • Grants for R&D for different research categories (fundamental research, industrial research, experimental development)
  • Grants for hiring personnel (programs focusing on recruitment support, training support, wage subsidies and on-the-job training)
  • Public loans
  • Public guarantees

For more information, visit the website of Germany Trade & Invest (GTAI).

Bilateral investment conventions signed by Germany
Germany has signed bilateral investment treaties (BITs) with numerous countries. To see a list of participating countries, consult UNCTAD website.

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Latest Update: September 2022