THE IMPACT OF FDI O

N

GERMANY

RICHARD KING, SCOTT HUCKE, A

ND BRIAN PASTUZYN

SCOPE OF PRESENTATION• Introduction• Employment• Balance of Payments• Resource Transfer Effects• Gross Fixed Capital Formation• Competition• Growth• National Sovereignty• Conclusion

INTRODUCTION

• Federal Parliamentary Republic• Reunified in 1990• Germany exists as the fourth-largest economy in the world• Germany still retains manufacturing as the core of its economy• Germany has one of the slowest growing economies

worldwide• Germany actively seeks foreign direct investment from other

nations

FOREIGN DIRECT INVESTMENT FLOWS

2005 2006 2007 2008 2009 2010 2011 2012 2013 201459.86 87.44 50.84 30.93 56.67 86.05 97.48 54.66 59.01 8.39Source: “Foreign Direct Investment, Net Inflows (BoP, Current US$).” The World Bank. World Bank Group, 2015. Web. 04 Nov. 2015.

Inward FDI Flows in Germany, 2005-2014 (US $ billion)

Country % of FDI Country % of FDINetherlands 25.0% Switzerland 8.6%Luxembourg 14.3% United Kingdom 8.2%United States 10.0% Italy 5.1%France 9.1%    Source: “Germany: Foreign Investment.” Foreign Investment in Germany. Santander, Oct. 2015. Web. 04 Nov. 2015.

Primary Sources of FDI inflows in Germany

Sector % of FDIFinancial Mediation 47.7%Real Estate, Renting, and Business Activities 26.8%Transport, Storage, and Logistics 13.5%Trade and Repairs 9.7%Source: “Germany: Foreign Investment.” Foreign Investment in Germany. Santander, Oct. 2015. Web. 04 Nov. 2015.

Inward FDI, primary Sector Concentration

EMPLOYMENT

• FDI projects in Germany went from 624 in 2012 to 701 in 2013• Jobs created, as a result of FDI, were 12,508 in 2012 and

10,350 in 2013• FDI job creation, in recent years, has been focused on R&D in

Germany

BALANCE OF PAYMENTS

• Germany runs a current account surplus, meaning that the country exports more goods, services, and income than it imports

• 2013 - Germany exported 1.38 trillion (UDS) worth of good versus importing 1.15 trillion (USD) worth of goods

• Current account surplus has been growing, due to falling commodity prices and slowly increasing levels of FDI in German businesses.

Year Value ($) % change from previous year

2014 323,177,000,000 16.88%2013 276,492,000,000 36.72%2012 202,239,000,000 20.59%2011 167,702,000,000 35.49%2010 123,770,000,000 -26.11%2009 167,510,000,000 -7.98%Fig. 1: "Germany - Balance of Payments." Knoema. Knoema, 2015. Web. 02 Dec. 2015. <http://knoema.com/atlas/Germany/topics/Economy/Balance-of-Payments-Capital-and-financial-account/Net-financial-account-BoP-current-USdollar>. 

Germany: Financial Account, 2009-2014

RESOURCE TRANSFER EFFECTS● Since foreign investment is so easy in Germany, many resources are

passed on and create a very skilled labor force● The workforce had a head start (making it even easier for

investment) with large companies already based in Germany▪ -i.e. Mercedes Benz, Adidas, Volkswagen

● Making the country better with environmental protection and renewable energy projects, giving workers new ways to conserve energy and their homes

● High tech products lead to innovation, information, and new skills for the workforce

GROSS FIXED CAPITAL FORMATION

• Remained at 20% of GDP over the past four years, and has remained relatively unchanged since 2001

• The economy has remained relatively stagnant over the past two decades

• Public, corporate, and government investment has been slow to recover after the global financial crisis of 2008-09

• Gross Fixed Capital Formation has been hampered by the long term effects of the reunification of East Germany and West Germany

COMPETITION

• Main competitor to German foreign direct investment is China• German auto manufacturers are outsourcing production to

China, with 240 German supplier sites being located in China• Levels of German exports have been declining, due to

competition• German auto exports are expected to remain low, as German

auto companies continue to increase production in China

GROWTH

• German tax subsidy rate, of 25-27.5%, is applicable to all foreign companies doing business in the country for one year

• The government grants special financing options for foreign investors that perform R&D in Germany

• Despite incentives, growth in FDI levels have stagnated

NATIONAL SOVREIGNTY

• Germany has largely abolished policies that encumber free trade in favor of national sovereignty

• German government and corporations actively encourage and seek inward FDI

• German law recognizes no difference between German companies and foreign companies

• There is no broad authority to screen or block inward FDI flows

CONCLUSION

• Germany actively encourages foreign direct investment• Recently, FDI has spurred growth in the R&D sector, and has

increased employment in that field• Although FDI is important to the German economy, it has done

little to combat the country’s stagnant economy• Corporate investment has been slow to recover since the

financial crisis, but is beginning to show signs of improvement• Despite poor German economic growth, the Netherlands, the

United States, France, Switzerland, the United Kingdom, and Italy continue to invest in Germany