Foreign Direct Investment

Germany is considered an attractive country for foreign direct investment. According to the 2024 World Investment Report by UNCTAD, FDI inflows into Germany totalled USD 36.7 billion, up by 33.8% year on year but still below the levels recorded before the pandemic. In the same year, the stock of FDI increased slightly to over USD 1.12 trillion. The country has traditionally been a key investor: Germany's outward investment position stood at USD 2.17 billion at the end of 2023. According to data from the national Trade and Investment Agency (GTAI), in 2023, Germany's federal states recorded 1,759 FDI projects, including greenfield investments, expansions, and relocations, marking a slight 1% decline from the previous year, excluding M&A activities. Additionally, 484 M&A deals were reported, with foreign investors acquiring more than 50% of shares. The U.S. led in greenfield projects with 235, while the EU remained the top source region. Overall, FDIs in Germany are mostly owned by Luxembourg, the Netherlands, the U.S., Switzerland and the UK, which represent more than 60% of the total stock. France, Ireland, Italy, Austria, and Japan are also investing in the country. FDIs are mainly oriented towards finance and insurance, manufacturing and trade, information and communication, management and consultancy activities, and real estate. According to the OECD, in the first half of 2024, FDI inflows to Germany reached a total of USD 16.1 billion, down from almost USD 21 billion in the same period one year earlier. Germany faces a challenging economic outlook due to declining FDI inflows and project delays. Preliminary data from fDi Markets shows that foreign investors announced only 305 greenfield projects worth USD 16.7 billion between January and August 2024, compared to 776 projects valued at USD 43.3 billion during the same period in 2023. Despite the drop, capex intensity remained high, consistent with 2021–2023 levels. Several projects were halted or delayed. For instance, Intel postponed its EUR 30 billion semiconductor site in Magdeburg until at least 2026, while Wolfspeed deferred its USD 3 billion plant in Saarland to mid-2025. The battery sector also faced setbacks, with companies like Northvolt and Stellantis pausing factory plans for the EV transition. These delays undermine the German government's efforts, which included a USD 11.4 billion incentives package for Intel in 2022 and an average of USD 1.53 billion per semiconductor project from 2010 to 2024.

Among the country’s strengths are a highly powerful and diversified industrial network, a highly skilled workforce with a good command of English, reliable infrastructure, a favourable social climate, a stable legal framework and a location at the heart of Europe. Its main weaknesses are a high tax rate (for both individuals and businesses), rather inflexible labour laws, and a high dependence on the automotive and mechanical industries. Germany's legal, regulatory, and accounting systems are complex but transparent and aligned with developed-market standards. Businesses operate in a well-regulated, high-cost environment where foreign and domestic investors receive equal treatment regarding investment incentives and property rights. To safeguard national security, the government has tightened screening for foreign investments, particularly after high-risk acquisitions by Chinese investors. Authorities may review acquisitions involving more than 10% of voting rights in critical sectors, such as healthcare, AI, autonomous vehicles, robotics, semiconductors, additive manufacturing, and quantum technology. Foreign investors in these fields must notify the government and may undergo investment reviews. Germany’s business climate is favourable, and the country ranks 9th among the 180 economies on the 2023 Corruption Perception Index and 18th out of 184 countries on the latest Index of Economic Freedom.