Direct investments

Foreign project investors are turning away from Germany

The quality of Germany's business environment seems to be on a decline: The federal economic development agency GTAI anticipates a significant decrease in foreign projects in 2023. What can be done without state funding?

Foreign project investors are turning away from Germany

Foreign companies are showing less interest in Germany. The German government-owned company Germany Trade & Invest (GTAI) expects a decline in foreign direct investments by 18% compared to the previous year, when around 1,800 new establishments and expansions were recorded. However, economic developers do not interpret this trend as a vote of no confidence in Germany as a business location. "We remain the most sought-after location in the European Union for foreign direct investments," said Achim Hartig, Managing Director of GTAI, to Reuters. Hartig also mentioned stronger declines in other countries, such as France.

German companies invest much more in projects abroad than foreign investors coming to Germany. The attractiveness of the location seems to have significantly diminished.

However, the situation is quite complex. The measurement of foreign direct investments can vary, for example based on the balance of investment flows or the number of projects. An analysis by the German Economic Institute (IW) raises alarms. About $132 billion (125 billion euros) in foreign direct investments left Germany in 2022 more than the amount invested in the same period. These were the highest net outflows ever recorded in Germany. While this reflects the high investment activity of German companies abroad, it also indicates the decreasing attractiveness of Germany as a business location, especially considering the inflows have also decreased in absolute numbers. According to a study by the auditor EY, Germany still ranks at the top as the destination for investments in Europe in terms of the number of projects, but the investments are diminishing. In 2022, the number decreased again, contrary to a slightly positive European trend. With only 832 projects, the lowest level since 2013 was reached.

Investment weakness persists

Not only foreign companies are currently hesitating with investments in Germany, but also German companies. According to a recent survey by the German Economic Institute (IW), only 27% plan higher investment spending for 2024 than in the current year, while 36% plan lower budgets. "The investment weakness will not be overcome in 2024," concludes the IW.

Looking at 2023, Hartig emphasizes the high quality of the projects. Alone, 16 investments with a volume of more than 100 million euros have been committed so far – including six in the billion-euro range. Recently, the US pharmaceutical company Eli Lilly announced an investment of around 2.3 billion euros in a new plant in Alzey, Rhineland-Palatinate. The largest investment comes from the energy company BP, which plans to spend 6.8 billion euros on two wind farms in the North Sea. Also, three data centers in Berlin, Wustermark in Brandenburg, and Hanau in Hesse are each expected to exceed the billion-euro mark. Apple, in turn, plans to massively expand its European center for chip design in Munich, with around 1 billion euros.