FDI drops in Germany to 3.5bn in H1

In a striking development, foreign direct investment (FDI) in Germany witnessed a significant decline, plummeting from 34.1 billion euros in the first half of 2022 to a mere 3.5 billion euros ($3.75 billion) in the corresponding period of 2023, as revealed by data from the Bundesbank. This stark decline paints a troubling picture of the country’s appeal as a business destination, as reported by the Germany Economic Institute (IW) on Tuesday.

This alarming drop in FDI, marking the lowest level in nearly two decades, has raised concerns about Germany’s competitiveness on the global stage. Juergen Matthes, the head of the Global & Regional Markets Research Unit at IW, commented, “When the chancellor and the economics minister praise Germany’s alleged attractiveness as a business location, this cannot refer to the first half of 2023.” He pointed out that if the primary reason behind the lacklustre figures was skepticism about the quality of the location, it was unlikely to improve in the latter half of the year.

Matthes further stated, “Hardly anyone from abroad wants to invest here anymore; the location conditions are obviously too unfavourable for that.”

Notably, the German Economics Ministry has reported that there is an anticipated 80 billion euros worth of foreign direct investments in the pipeline. Chancellor Olaf Scholz remains optimistic, envisioning a “great future” for Germany as an industrial hub. This optimism followed a landmark agreement in June, in which Germany secured a more than 30-billion-euro partnership with U.S. chip giant Intel to establish two chip-making facilities in Magdeburg.

However, Matthes expressed reservations about such developments, noting that these projects had yet to break ground, and construction timelines can be lengthy. He emphasised that foreign semiconductor companies’ investments were less indicative of Germany’s inherent attractiveness as a business destination and more a result of the “exorbitant subsidies” extended to them by Germany.

While Germany’s aspiration to remain a key player in the global business arena is evident, the recent sharp decline in FDI underscores the importance of addressing the factors that have led to this downturn and ensuring that the nation’s appeal as an investment destination remains robust and competitive in the years to come.