Investment Abroad : Germany

After the Second World War, the Germans had to start from scratch where foreign investment was concerned. Nearly all German assets abroad had been lost. By the end of 1995, the total value of the investments of German firms abroad had once again risen to approximately DM362 billion. In 1996 German firms invested about DM39 billion abroad. Foreign firms, however, only invested about DM 1 billion in the Federal Republic in 1996 (down from DM18 billion in 1995), pushing Germany’s negative balance of direct investment to a record DM38 billion that year. These figures confirm fears that Germany is losing ground against other countries as an attractive location for business and industry. Germany’s most important partners for investment are by far the United States and the Member States of the European Union.

There are many reasons for investing overseas. The chief motive behind German investment abroad is to maintain and expand markets for German products. The desire to minimize currency risks plays a role as well. More and more German firms are also investing abroad in order to cut costs.

Investment abroad helps consolidate international trade. It is conducive to the international division of labor and to economic and industrial development in developing countries. The latter receive not only long-term investment capital but also technology, managerial know-how and business experience.

In order to offset possible economic and political risks attaching to investment in developing countries, the Federal Government has introduced special promotional instruments. For instance, it has concluded investment protection and promotion agreements with 115 developing countries and nations in Central and Eastern Europe. To guard against political risks, the Federation also provides financial guarantees for investments it considers worth supporting. The Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG) founded by the Federation promotes direct investment by German firms in the Third World and in the countries currently undergoing reform. Small and medium-sized German companies receive low-interest loans and grants to help them finance branches in developing countries and the transfer of technology.