Foreign Investment

Investors Choose Germany First in Europe

industrie Park Frankfurt Hoechst
French investment is behind the Frankfurt-Höchst industrial park.
  • Why it matters

    Why it matters

    Germany’s popularity for investors could be affected if it doesn’t look at reducing its bureaucratic barriers and focusing on supporting innovation within its borders.

  • Facts

    Facts

    • Germany’s secure location, highly-trained workforce and high profits make it an attractive investment option.
    • Last year, 40 percent of all Chinese investments in Europe went to Germany.
    • The number of German jobs created by foreign investments rose by 9 percent to 11,300 last year.
  • Audio

    Audio

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French pharmaceutical giant Sanofi-Aventis hired 500 employees in its expanded industrial park in Frankfurt-Höchst. In the town of Eisleben, Germany, Swiss bakery goods producer Aryzta built a large bakery that employs 295 people. And Britain’s largest online dealer for household equipment, AO World, is transferring its European headquarters to Bergheim, a city near Cologne.

These are three of 763 projects in Germany funded by foreign investors. For them, the continent’s largest economy has become one of the three most attractive business locations in the world — and by far the top in Europe. After two years of decline, the number of jobs created in Germany by foreign investors rose in 2014 by 9 percent to 11,300.

That is according to international accounting company Ernst Young (EY), which used its company databank and a survey of executives at 808 international companies.

The findings, which have been obtained by Handelsblatt, show 21 percent of managers named Germany when asked about the most attractive locations for investments. Worldwide, only China (38 percent) and the United States (35 percent) did better.

The next most popular European country, Britain, was in eighth place (9 percent). In comparison to the previous year, Germany climbed one position.

“Foreign firms are not concerned with where they receive the highest subsidies and pay the lowest taxes,” said EY’s Peter Englisch, who oversaw the study. If that were the case, Germany would not be the top choice so often.

“Germany's excellent reputation can be expected to last for a while, because the general economic framework remains positive.”

Peter Englisch, EY

Instead, the country’s popularity is based on its higher net income, rising domestic consumption, remarkably high profits in many companies, record-breaking tax revenues and a rate of unemployment lower than at any time since German reunification 25 years ago.

“Germany’s excellent reputation can be expected to last for a while, because the general economic framework remains positive,” Mr. Englisch said. He believes Germany holds all the necessary cards for maintaining its position in the coming years.

The largest investor in Germany is the United States, with 156 projects. For example, Corning built a new production site for particle filters in Kaiserslautern. Logistics company Syncreon opened a factory for exporting Volkswagen components in Duisburg.

“Germany is the secure harbor in Europe and one of the most rapidly growing industrial countries,” said Achim Hartig of Germany Trade & Invest, which promotes the country as a business location.

Europe’s largest economy is also admired for its good infrastructure, favorable geographical location in Europe and highly-qualified workforce.

Last year, the second most important investor was China, for the first time, with 79 projects. China overtook Switzerland in this regard. China’s Minth Group from Jiaxing built production facilities in Ilsenburg, Germany, for roof-luggage racks, trim and other items for the automotive industry.

“Chinese investors are increasingly on the lookout for qualitatively valuable investments — and Germany profits from this orientation in particular,” Mr. Englisch said. Last year, 40 percent of all Chinese investments in Europe went to Germany.

A current study by HSBC bank shows that by 2030 at the latest, China will be Germany’s largest two-way trading partner. The machinery building and pharma sectors will be the ones to profit most from this growth in trade.

When asked about the most attractive location for investment in Western Europe, 42 percent of the 808 companies polled named Germany. Britain was next with 18 percent.

But foreign managers saw deficits in Germany in the areas of digitalization and innovation, two fundamental challenges for future growth. About 30 percent of executives called for improvements in basic and advanced training in the area of new technologies, and one in four would like to see stronger promotion of innovation through tax incentives.

Germany’s complicated bureaucratic hurdles discourage the establishment of seminal technologies with innovative business models along the lines of the Silicon Valley companies.

Foreign Investment Projects in Germany-01

Dieter Kempf, president of the information-technology industry association Bitcom, made the same point: “Currently, Germany and Europe are only mid-level players in terms of an international comparison of digital performance capability.”

SAP and Deutsche Telekom are the only German companies that play in the top digital league with U.S. companies such as IBM, Google and Oracle, and Softbank in Japan.

Bitcom advocates digital developmental assistance in Germany. The association is calling for tax incentives for start-ups, financial support for research concentrating on digital technology, and IT as a compulsory subject in schools.

 

Ulf Sommer reports for Handelsblatt on industry and finance. To contact him: sommer@handelsblatt.com.

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