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“The beginning of de-industrialization”: Companies withdraw more money from Germany than ever before and invest abroad
Romanus Otte
28 June 2023
German industry is having a hard time. Companies mainly close energy-intensive plants. Getty Images
Companies withdrew more money for investments from Germany last year than ever before. This is the result of calculations by the German Economic Institute (IW).
Investments by German companies abroad were 125 billion euros higher than investments by foreign companies in Germany.
"The numbers are alarming: In the worst case, this is the beginning of de-industrialization," writes the IW, naming three dangers for Germany as a business location.
A new study by the German Economic Institute (IW) shows that companies have never withdrawn so much money from Germany as they did last year. "The numbers are alarming: In the worst case, this is the beginning of deindustrialization," comments the institute, which is close to employers.
Last year around 132 billion US dollars (125 billion euros) more direct investment flowed out of Germany than was invested in Germany from abroad. The balance thus describes the difference between investments by German companies abroad and foreign companies in Germany. 125 billion euros represented "the highest net outflows ever recorded in Germany," said the IW.
The negative development for Germany had already begun before the corona pandemic with its supply bottlenecks and Russia's war against Ukraine and rising energy prices.
The reason for the record outflow in 2022 lies in the low level of foreign investment in Germany. According to figures from the OECD, the organization for industrialized countries, they have collapsed almost completely: in 2022, foreign companies would only have invested around 10.5 billion euros directly in Germany.
German companies have invested almost 135.5 billion euros abroad. "It is particularly alarming that investments from European neighbors have collapsed," judges the IW. At the same time, almost 70 percent of investments from Germany flowed into European countries.
Recently, some large investments from abroad in Germany caused a stir. Including the settlement of Tesla near Berlin. Intel even wants to invest 33 billion euros in the construction of two chip factories in Magdeburg. The German state is involved with around ten billion euros. According to the federal government, this is the largest foreign direct investment in Germany to date. This investment is not yet included in the IW calculation.
10 billion euros for Intel: The state could pay for so many schools, apartments, bike paths or railway lines with the money
For the alarming development up to 2022 according to their analysis, economists from the IW name three developments that made Germany unattractive as a business location:
Deindustrialization: Three dangers for Germany
● Shortage of skilled workers: The lack of workers and skilled workers is a huge burden for companies. In a survey, 76 percent of medium-sized industrial companies named labor costs and a shortage of skilled workers as the greatest challenge - ahead of high energy prices and increasing bureaucracy.
● Subsidies abroad: Programs such as the Inflation Reduction Act in the USA made investments outside of Germany more attractive. With similar European initiatives such as the NextGenerationEU program, most of the money flows past Germany.
● Auto industry: "With the disappearance of the internal combustion engine, the German economy loses an important unique selling point in its key industry," warns the IW.
"The investment conditions in Germany have recently deteriorated again due to the high energy prices and the increasing shortage of skilled workers," says IW economist Christian Rusche. He criticizes that many problems are home-made and cites "high corporate taxes, excessive bureaucracy and a dilapidated infrastructure" as examples.