Foreign investors rate Germany as a location worse than before. The bureaucracy in particular is criticized in a study by the auditing firm KPMG. Traditional strengths were viewed more skeptically.
International investors only see Germany as a midfield location compared to other countries. Energy transition, digitalization, upgrades and infrastructure have opened up great business opportunities for international companies, but “all location factors are deteriorating with increasing dynamics,” wrote the consulting firm KPMG in a report.
The auditors interviewed 350 CFOs of German subsidiaries of international corporations from September to December.
bureaucracy, energy costs, digitalization inadequate
Excessive bureaucracy (61 percent) and high energy costs (57 percent) were cited as the biggest obstacles to investment, followed by inadequate digitalization, environmental, social and corporate governance regulations and a lack of openness to technology (31 percent).
The business location received the best ratings for its central location in Europe (79 percent). Respondents also see the standard of living, public safety, political stability and the research landscape as traditional strengths of the location, although they rate them significantly more skeptically compared to previous surveys.
Predominantly worse grades than last
Only 58 percent of those surveyed consider Germany to be one of the five most stable EU countries (2021: 80 percent), but 13 percent consider Germany to be one of the five most unstable EU countries. And only 43 percent see the German research landscape among the top five in the EU (2017: 64 percent). There were also worse grades than in 2021 for labor productivity (minus 17 percentage points), innovation-friendly environment (minus eight percentage points) and logistical infrastructure (minus 16 percentage points).
According to KPMG, 23 percent of those surveyed see Germany among the five best EU locations and 21 percent among the five worst when it comes to the availability of skilled workers and highly qualified workers. As the baby boomers retire, an immigration of 500,000 qualified workers per year would be necessary to compensate for the shortage of skilled workers. “But many of the immigrants do not gain a foothold in working life or quickly leave the country,” said KPMG divisional director Andreas Glunz. An integration, productivity and needs-oriented immigration policy would be necessary.
“Living on substance for too long”
In the KPMG location index, which takes into account 23 location factors, “the world’s third largest economy is slipping increasingly into the middle of the field compared to the EU,” says the report. On a scale from plus to minus 10, Germany currently has a value of plus 1.2. This corresponds to a halving compared to the 2021 value (plus 2.4). In 2017 the value was plus 3.1.
“We have lived on substance for too long and neglected important reforms,” explains Glunz. Currently, almost every second international CFO considers other countries and regions to be experiencing faster growth and wants to invest primarily there in the next five years.
DIHK: German companies invest abroad – costs
German industry is also investing more and more abroad. This was the result of a survey by the German Chamber of Industry and Commerce (DIHK) among around 1,900 companies.
35 percent of companies with investment plans abroad cited cost savings as their main motivation. “The last time such a high value was in 2008,” said Ilja Nothnagel, member of the DIHK executive board. For smaller companies with fewer than 200 employees, the proportion is somewhat higher. “Unfortunately, this is a reaction to the deteriorating economic policy conditions in the country.”
In the long term, fewer companies are investing abroad
Germany has structural problems that the government must address. But foreign business is often not booming either. The investment budgets are manageable. Overall, according to the survey, only 42 percent of companies want to invest abroad, slightly more than in the previous year, but rather below average in a long-term comparison. Caution is also apparent when expanding existing foreign investments. Only 30 percent (previous year: 31) are planning to increase the corresponding budgets. In contrast, 23 percent (previous year: 18) planned cuts.
Foreign investments have actually always benefited Germany as a location, said Nothnagel. “But the tide is turning: more and more companies are now investing abroad because Germany is too expensive and complicated for them. They are migrating at the expense of Germany.”
Asia is becoming more important
The Asia-Pacific region – excluding China – continues to gain in importance. The same applies to Turkey and the Eastern and Southeastern European areas outside the EU. In North America and China, engagement remains almost unchanged compared to the previous year.
Although the Eurozone remains the most important target region for German companies, it is losing some of its importance. According to the DIHK, the huge subsidy program for more climate protection does not play the main role in the USA, but rather the large market coupled with planning security and consumers who are happy to buy.