Navigating changing FDI Tides
In #Week21 Germany announced record levels of foreign direct investment (FDI) in 2022; no small part due to UK companies setting up operations there to retain a post-Brexit EU presence. “For British companies, it’s particularly important to have a foothold in the EU after Brexit,” said Robert Hermann, chief executive of Germany Trade and Invest (GTAI).
Germany’s FDI total for 2022 was €25.3 billion, up 261 per cent from €7 billion in Covid-hit 2021, according to official figures from GTAI. The UK was amongst the top three contributing countries, alongside Switzerland and the US, bringing 170 projects. One of the largest was brought by Frasers Group (owner of Sports Direct), which established a €300 million distribution centre at Bitburg airport in western Germany that would become its European headquarters.
“This positive trend for Germany is backed up by Investment Monitor’s 2021 data which showed Germany as the top country in the world that year for the number of inbound greenfield FDI projects,” commented FDI expert Courtney Fingar.
“This a very clear (and predictable) Brexit effect, and various measures of FDI have shown European neighbours such as Ireland, France and Germany seeing post-Brexit increases in investment as companies need to ensure they have a foothold in the EU whereas before they might have been able to go ‘all in’ on the UK.”
Berlin has curbed expectations for 2023 though, predicting that total volume will fall as companies turn to US on the back of the Inflation Reduction Act. The act, signed by President Biden in August 2022, promises to lower energy costs for businesses, accelerate private investment in clean energy solutions, strengthen supply chains for everything from critical minerals to efficient electric appliances, and create well paid jobs and new economic opportunities. The US is also increasingly attractive from a capital markets perspective, with a number of bosses eyeing the higher appetite for risk and acceptance of high-growth tech companies, with Monzo founder Tom Bloomfield the latest to move stateside.
The UK is still a major player when it comes attracting FDI, ranking second only to France amongst European countries in a recent Ernst Young study, despite a fall in project numbers.
Courtney Fingar added: “[The UK] retains a number of advantages, but project sizes have reduced in size as companies hedge. This however fits with a broader global trend of companies seeking to minimise risks in a fractious and volatile macro environment by not over-investing or being overly reliant on any investment hub.”