Germany’s status as a key player in the global FDI markets should remain undiminished by the Covid-19 crisis, but it was showing signs of strain before the pandemic even hit. Sofia Karadima reports.

Germany is a global powerhouse when it comes to attracting foreign direct investment (FDI), and its position of strength was shown in 2017 and 2018 when it attracted $60.3bn and $73.5bn, respectively. However, 2019 saw FDI inflows decline in Germany to $36.3bn.

But it is not only FDI inflows that have been struggling. The Covid-19 pandemic has hit Germany’s gross domestic product (GDP), which fell by a record 10.1% in the second quarter of 2020.

On top of that, there was an increase in the number of people enrolled in the state-funded furlough scheme in May, when compared with the month before. Data from the Federal Employment Agency shows that there were 6.7 million people registered in May, up from 6.1 million in April.

Heightened screening

Germany has recently decided to modify its Foreign Trade and Payments Ordinance. According to an amendment in May 2020, governmental authorisation is required for foreign acquisitions of 10% or more in enterprises involved in the production of vaccines, medicines and protective medical equipment, among other key public health sectors.

Manufacturing, wholesale and retail trade, and financial and insurance activities, are among the most popular investment sectors in Germany. With regard to greenfield investments, there were 860 projects in 2019, down from 1,190 the year before, according to data from the United Nations Conference on Trade and Development (UNCTAD).

However, on the positive side, levels of capital expenditure have remained solid, with 2019 seeing $953.3bn spent on projects in the country, up from $934.4bn in 2018, though down from $963bn in 2017. UNCTAD data shows that companies from the Netherlands, Luxembourg, US, UK and Switzerland are the most prolific investors in Germany.