The foreign direct investment stocks reached a new peak at year-end 2017. In 2017, Germany’s primary outward foreign direct investment (FDI) grew considerably by €61 billion and reached a new peak of €1,167 billion at the end of that year. In the opposite direction, inward FDI in Germany rose by €32 billion, likewise achieving its highest ever recorded value (€741 billion).

High growth in EU countries – United States remains main destination

In terms of Germany’s primary outward FDI, 85% of the growth was accounted for by EU Member States, resulting in their share of the total stock increasing to more than 56% respectively €659 billion. The United States continued to be the main destination for German FDI. Despite substantial valuation losses of €25 billion due to the weak US dollar, stocks remained essentially unchanged overall at €225 billion. In 2017, the significance of China as an investment location also remained comparatively limited with a share of just under 7% respectively €77 billion. At the same time, Germany’s primary outward foreign direct investment in China achieved the highest return on equity by a wide margin.

One-off effects impacted FDI in Germany

The rise in primary inward FDI in Germany in the year under review was largely determined by decisions made by US enterprises, whose investment of €17 billion constituted more than half of the increase. However, this development came to pass as a result of one-off effects related to restructuring measures amongst internationally active enterprise groups. Alongside those from the United States, investors from the EU and Asia (+€6 billion and +€2 billion respectively) also had a favourable view of Germany as an investment location and contributed to the overall positive development.

In terms of immediate origins of invested funds, EU Member States, with 71%, played the most significant role. If the focus was instead placed on corporate headquarters’ countries of domicile, the EU represented a share of only around 50%, while the United States widened its lead as top investor. From this perspective, investment from the United States reached €182 billion, which corresponded to 25% of the total stock.

Increased turnover and employees in companies with German participation

According to the direct investment stock statistics, the turnover of enterprises abroad with German equity participation rose by just under €160 billion to more than €3,000 billion in 2017. The number of employees at these enterprises grew by an additional 300,000 to 7.6 million, of which 900,000 were employed in the United States. By contrast, both the turnover and number of employees at German enterprises with investors from the United States declined slightly. The number of employees fell from 244,000 to 223,000, and turnover decreased from €134 billion to €113 billion. In general, German enterprises with foreign equity investments recorded relatively constant growth. Turnover rose by €64 billion to just under €1,600 billion, while the number of employees remained essentially unchanged at 3.1 million.

Developments in detail

German primary outward FDI

In 2017, the stock of German primary outward FDI, which only includes the first foreign company in the case of a direct investment chain, rose by €61 billion to €1,167 billion. In this context, claims on investment enterprises – which, contrary to the accounting definition, also include equity capital – grew with considerably more momentum (+€66 billion) than the deductible liabilities (+€5 billion). This increase in stocks consisted of transactions and valuation effects, with opposing movements recorded in 2017. While, according to the balance of payments, German investors invested €123 billion in enterprises abroad, negative valuation effects – in particular, exchange rate losses against the euro totalling €48 billion – had to be taken into account at the same time.

In regional terms, the overall buoyant growth proved to be unevenly distributed. Over 85% of this growth was attributable to countries within the EU, where stocks rose by €52 billion to €659 billion. Looking at the United States, however, the depreciation of the US dollar had a noticeable impact. Taken in isolation, the exchange rate effect reduced the value of US investment enterprises by €25 billion. The stocks’ total value nonetheless remained unchanged at €225 billion owing to increased lending by German investors, while equity capital has even been scaled back to a limited extent. In the People’s Republic of China, too, more equity capital was liquidated than reinvested (-€2.5 billion). In spite of an additional exchange rate-related decline of a further €4.4 billion, the stocks increased to €77 billion. This was primarily on account of the as yet undistributed corporate profits earned in China, which were assigned based on the investment relationship to the respective FDI stocks in the same year they were generated. With over €12 billion in pro rata profits, China achieved a 25% return on equity. This rate of return took first place in the rankings for the 2017 reporting year, pitted against other top countries for FDI.

Primary inward FDI in Germany

Primary inward FDI in Germany rose by €32 billion to €741 billion at the end of 2017. This growth was observed in equity capital in particular. Other assets and liabilities resulting from lending and borrowing within the FDI network, by contrast, remained largely unchanged.

With regard to the regional origin of inward FDI, it can be allocated to the country of domicile of the foreign investor who directly holds the investment, or the corporate headquarters’ country of domicile. Investment originating directly from EU countries saw comparatively muted growth of €6 billion to €525 billion, whilst investment from other European countries rose by €7 billion to a total of €87 billion. At €17 billion, the lion’s share of growth stemmed from investors from the United States, yielding a stock increase to €79 billion. However, it must be taken into account that this increase was largely due to the restructuring of multinational enterprise groups’ global business. Although Germany merely acted as a transit country in these transactions, these “investments” were reflected on both sides of Germany’s FDI stock statistics.

An examination of FDI broken down by the corporate headquarters’ country of domicile – in other words, by the actual lender – revealed a clear shift in the regional distribution of foreign investors in Germany. Taken together, the EU countries’ stock totalled only €389 billion, corresponding to growth of €8 billion compared with the end-2016 level. Here it should be stressed that €59 billion of this stock ultimately stems from Germany, as the corporate headquarters of the foreign direct investors are based in Germany. At €182 billion, groups from the United States continue to top the list of primary FDI in Germany by a wide margin. Here, too, growth of €18 billion compared with 2016 can essentially be attributed to the aforementioned group restructuring. The remaining growth can be ascribed to investors from other European countries (+€3 billion) and Asia (+€3 billion).

Primary and secondary FDI

A broader view of investors’ targets is made possible by consolidating primary and secondary FDI. This consolidation essentially involves disregarding primary investment in holding companies as these obscure the investor’s actual investment object, i.e. the actual investment location and economic activity. By contrast, secondary equity investments in enterprises which do provide this information are included.

Germany’s primary and secondary outward FDI in 2017 was at €1,196 billion. The year-on-year change of €43 billion was thus smaller than when primary FDI were considered. Investment in the United States rose by €9 billion, raising the total value to €335 billion. In the analysis of primary and secondary FDI broken down by the economic activity of the foreign investment enterprises, enterprises in manufacturing made up the bulk of the investment with €404 billion. Within this economic activity, the manufacture of motor vehicles, trailers and semi-trailers is the principal focus of German investment with stocks of €99 billion (+€5 billion), followed by the manufacture of chemicals and chemical products (€84 billion/+€1 billion). However, wholesale and retail trade remained the most important single economic activity with stocks of €185 billion (+€10 billion on 2016).

Disregarding holding companies especially affects the stocks of those countries that typically serve as the location for these companies. In Europe, these include, inter alia, Luxembourg and the Netherlands. In these places, FDI stocks are revised downwards: from a primary figure of €142 billion to a primary and secondary figure of €73 billion for Luxembourg and from €122 billion to -€66 billion for the Netherlands. The change for the Netherlands is particularly striking as now the claims of German direct investors are outweighed by their liabilities in consolidated terms. This view illustrates the role the Netherlands plays as a location for financing companies that grant loans to German affiliated enterprises.

By contrast, when consolidated, stocks for countries such as the United Kingdom or Belgium are revised upwards, from a primary figure of €105 billion and €13 billion respectively to a primary and secondary figure of €145 billion and €34 billion respectively.

Looking at inward FDI in Germany, too, the rise in primary and secondary FDI of €27 billion was lower than that for primary FDI, reaching €534 billion. Enterprises in manufacturing, especially the manufacture of basic pharmaceutical products and pharmaceutical preparations, saw the greatest level of growth, raising stocks to €136 billion (+€14 billion) and €18 billion (+€6 billion) respectively.

Newsletter for Special Statistical Publication 10

Detailed results of outward and inward FDI broken down by country and economic activity as well as methodological notes can be found in Special Statistical Publication 10 – Foreign direct investment stock statistics. Special Statistical Publication 10 is only available online. Anyone wanting to know when the latest edition will be published can subscribe to a newsletter on this Special Statistical Publication.