Germany recorded its highest level of foreign direct investment last year, with a surge in UK companies setting up operations to keep a post-Brexit presence in the EU.
FDI into Germany totalled €25.3bn last year, up 261 per cent from €7bn in Covid-hit 2021, according to official figures from Germany Trade & Invest (GTAI). The biggest sources of investment were the US, which accounted for 279 projects, Switzerland and the UK. The total of 170 FDI projects originating in the UK was up 21 per cent on 2021.
“For British companies, it’s particularly important to have a foothold in the EU after Brexit,” said Robert Hermann, chief executive of GTAI.
One of the biggest UK investments was by Frasers Group, the owner of Sports Direct, which announced last April that it was spending €300mn on a new distribution centre at Bitburg airport in western Germany that would become its European headquarters.
UK company Mura Technology announced it would build a chemical recycling plant in the eastern town of Böhlen that would turn 120,000 tonnes a year of plastic waste into oil. Proton Motor Power Systems said it was expanding its Puchheim plant in southern Germany, which produces fuel cell stacks and hydrogen fuel cell engines.
THEMPC, a promotional and branding company, set up an operations hub in Munich to produce and distribute printed goods and bespoke packaging inside the EU without customers needing to pay extra duties and taxes.
In euro terms these were dwarfed by the biggest foreign investment in Germany announced in 2022: US chipmaker Intel’s plan to build a €17bn factory in the eastern German city of Magdeburg. Sweden’s Northvolt also announced a €4.5bn investment in a new battery factory in the northern state of Schleswig-Holstein.
The GTAI figures measure the value of announced FDI projects into Germany in 2022 with the money likely to flow only in subsequent years.
According to OECD figures which measure inflows, Germany attracted $11bn of FDI in 2022, less than the UK and a quarter of the size of France and Sweden. OECD figures also show that German companies invested $142bn abroad in the same year.
Flows of FDI include greenfield investments in new factories, buildings and machinery and also cross border takeovers and mergers. With a large trade surplus, Germany generally provides much larger outflows of FDI than it receives in inflows.
The huge increase in energy prices last year caused by Russia’s war in Ukraine made Germany a much less attractive place to do business than it was before the invasion.
While gas prices are now close to prewar levels, many companies are still looking elsewhere, particularly the US where President Joe Biden’s Inflation Reduction Act has provided $369bn of subsidies and tax credits for clean energy technologies.
“When it comes to new decisions, the numbers are dropping,” said Hermann, identifying the IRA as a potential factor. “We assume it will have an effect on investment in Europe and Germany,” he said.
The agency noted that inbound investment from China was in retreat, with only about 141 projects announced last year — the lowest figure in eight years.
Some experts have attributed the decrease to tightened restrictions on M&A activity by Chinese companies in Germany. But Hermann blamed the decline on the aftermath of the Covid-19 pandemic, which had made it harder for Chinese executives to travel to Germany.