According to a study by the IW, foreign companies prefer to invest in other EU countries. According to the experts, Germany is no longer attractive enough as a business location.
Foreign companies are investing less in Germany than they have for a long time. This emerges from a study by the employer-related Institute of the German Economy (IW). The amount of direct investment from abroad was around 22 billion euros in 2023, the last time it was less ten years ago. For comparison: in 2018 and 2020, around 140 billion euros flowed into Germany through investments by foreign companies.
“Politics make it anything but attractive for companies to invest in Germany,” said IW economist Christian Rusche. One reason for this is that funding programs – such as those for electric cars or energy-efficient construction – would be stopped at short notice. Politicians must drastically improve investment conditions, otherwise “de-industrialization could accelerate significantly.”
For the third year in a row, foreign companies in this country have invested significantly less than German companies abroad. Although the situation with energy costs has eased somewhat after the turbulence of recent years, net outflows from Germany remain high at 94 billion euros. Since 1971, more money has only flowed out in 2021 and 2022. The accumulation in recent years shows that these were not just isolated cases or catch-up effects, but that a deeper development could be suspected, said Rusche. This is “a warning signal”.
Investments in the EU increased sharply
According to the IW, direct investment is currently declining worldwide, but not in the EU. In the first nine months of 2023 alone, inflows increased by 120 percent, including from Germany. 90 of the total 116 billion euros that German companies invested abroad last year subsequently flowed to other EU countries. Most of it went to the Benelux countries and France.
According to IW, companies from Germany have recently preferred to invest in the EU, but rarely within German borders. “If they did do so, they were often smaller acquisitions or projects – an indication of the unfavorable location conditions in global competition,” says Rusche.
The federal government has recognized the need for action. Action must now be taken “so that the attractiveness of Germany as a location does not erode any further. This also includes the creation of reliable political framework conditions that ensure planning and therefore investment security.”
International investors are currently not giving Germany particularly good marks as a location. As a survey by the auditing firm KPMG shows, the Federal Republic is only in the middle field. “All location factors worsen as dynamics increase,” the report said. Excessive bureaucracy (61 percent) and high energy costs (57 percent) were cited as the biggest obstacles to investment.
Source: Stern
