At the end of 2022, Germany’s primary outward foreign direct investment (FDI) stocks were higher than at the end of 2021, by just under 3% to €1,634 billion net. In addition to capital flows, positive valuation effects due to the depreciation of the euro also played a role here. Just over one-third of the increase in German outward FDI was attributable to these exchange rate effects. Inward FDI was also up on its end-2021 level, rising by 6.5% to €956 billion.

In general, FDI is based on strategic considerations and therefore entails long planning and implementation horizons. However, it is not entirely independent of short-term developments in target regions or individual sectors of the economy. In particular, if FDI operations have a financing function within a group, stocks may fluctuate significantly even within the period of one year via intra-group lending or repayments.

Stock of German outward FDI – focus on war and energy supply

Equity capital was Germany’s largest primary outward FDI position in 2022, at €1,808 billion. Compared to 2021, its relative growth was moderate, however, at just under 2%. In percentage terms, the rise in credit claims was significantly stronger (15%). At the end of 2022, primary outward FDI amounted to €1,634 billion on balance. Total assets of €2,243 billion stood against slightly increased total liabilities of €609 billion. 

As usual, the bulk of primary FDI flowed to holding companies. These are often used for tax operations or to pool or pass through capital. They therefore are not the ultimate investment target but rather act as conduits for FDI capital. In order to identify the region or sector that is the final investment target, it is necessary to “look through” the holding companies. This is done by looking at consolidated data on primary and secondary FDI, which amounted to €1,546 billion at the end of 2022. Of this amount, around 50% (or €755 billion) went to the target region of Europe, followed by the Americas (€512 billion) and Asia (€243 billion).

Looking at individual countries, Luxembourg was still the primary target country in Europe for German investments (€119 billion), mainly in the financial and insurance activities sector (€104 billion). In sectoral terms, it was a similar story for the United States, traditionally the most important country in the Americas for German FDI. Of the €424 billion invested there in total, FDI here was likewise concentrated in the financial and insurance services sector (€126 billion). Only in China, the main target country in Asia, was manufacturing the dominant economic sector, accounting for €86 billion of the total €122 billion invested.

Since the beginning of the Russian war of aggression against Ukraine, the current analysis is the first in which it has been possible to assess the overall impact on German FDI stocks vis-à-vis Russia and Ukraine, but also on FDI stocks of domestic and foreign energy suppliers. Despite the dislocations in bilateral relations and the sanctions, both German primary and secondary FDI stocks vis-à-vis Russia as a target country ended up declining only marginally on balance in statistical terms, by around €1 billion to €22 billion. 

However, the metrics of affiliated enterprises in Russia revealed quite marked changes. Not only did the number of those enterprises decline by 41 to 692, but also, in connection with this, the number of employees decreased by 75 thousand to 182 thousand and the annual revenue of affiliated enterprises in Russia dropped by €18 billion to around €57 billion. These metrics appear to reflect the impact of the war more clearly than the change in FDI stocks. 

For Ukraine, the impact of the war was also more evident in the stocks themselves. German FDI halved to €2 billion. Much like FDI stocks, the revenues of enterprises in Ukraine also halved from just under €9 billion to roughly €5 billion in 2022, with the number of enterprises remaining virtually unchanged (minus 7 to 143).

Against the backdrop of the war, no economic sector received more attention than energy supply: in 2022, domestic energy suppliers increased their primary and secondary FDI stocks from around €10 billion to €11 billion, with the number of domestic investors remaining more or less the same (plus 1 to 79). However, looking at foreign subsidiaries in the energy sector provides greater insights. Here, primary and secondary stocks of all domestic foreign direct investors went up by more than €13 billion to just under €50 billion. The revenues of their subsidiaries grew by more than 80% in the period under review, climbing from €136 billion to €248 billion. This unusually high jump in the revenue figures was most likely also driven by the war pushing up energy prices.

Stock of German inward FDI – Luxembourg, the Netherlands and the United States continue to top the list

The stock of primary inward FDI in Germany rose again by €61 billion compared to previous year’s figure. The main driver was equity capital, which increased by around €47 billion to a total of €749 billion. Equity liabilities of German subsidiaries thus made up 60% of total liabilities in the amount of €1,240 billion. Net FDI, i.e. liabilities less claims on foreign investors, therefore reached a level of €956 billion in 2022.

Accounting for just under €420 billion, the financial and insurance activities sector was the best-represented economic sector. Of this, around €296 billion was attributable to domestic holding companies without a management function. 

It is possible with FDI in this direction, too, to “look through” domestic holding companies (with and without a management function) to identify the economic sector of their investment targets. Viewed in this way, the bulk of FDI stocks were again attributable to the financial and insurance activities sector. Compared with the previous year, the stock of FDI in these investment targets increased, climbing by around €27 billion to just under €240 billion. This corresponds to an increase of 13%. 

Luxembourg (€131 billion) and the Netherlands (€131 billion) remained the largest sources of primary and secondary FDI in Germany, followed by the United States (€73 billion).

Moderate FDI flows to and from Germany in 2023 

While the availability of FDI stock data taken from corporate balance sheets is subject to a time lag of around 16 months, balance of payments reporting already provides transaction data for 2023. These capture solely primary FDI operations. Although Germany’s FDI assets indicated significantly weaker investment activity than in the year prior, it recorded an overall increase of €75 billion in 2023 (2022: €170 billion). The increase of German liabilities was €15 billion, which is one-quarter of the previous year’s figure. On balance, Germany’s net FDI flows amounted to around €60 billion. This was half of the previous year’s figure.

Germany’s FDI asset flows: Europe is the most important target region 

In 2023, German enterprises invested around €75 billion worldwide. The bulk of this went to equity capital (€63 billion), whilst only €12 billion was attributable to intra-group lending. Europe was once again the most popular target region for German FDI: €76 billion was invested in European countries, with over half of this amount going to the euro area.

On the other continents, return flows of around €18 billion from North America were observed, while Central America and South America contributed to the change to lesser extents (minus €4 billion and plus €3 billion, respectively). At just under €16 billion, larger amounts were also invested in Asia.

A country breakdown reveals that the largest equity investments in Europe were in Luxembourg (€15 billion), the Netherlands (€6 billion), France (€5 billion) and Spain (€4 billion). Outside the EU and the euro area, the United Kingdom was the main destination for German FDI (€19 billion), mainly in the form of FDI loans (€15 billion).

Compared to the previous year, additional assets of €3 billion were statistically built up in 2023, mainly due to imputed reinvestments of corporate profits of Russian companies. Since the reinvested profits are a provisional estimate calculated purely on the basis of stock variables, the actual impact of the reinvestments can only be reliably quantified once stock data for 2023 are available.

The United States accounted for almost all of the large return flow from the Americas, at €19 billion. This was mainly due to decreased borrowing. Flows of funds to Asia were driven strongly by a €7 billion increase in equity capital in China, followed by Israel (over €3 billion) and India (around €2 billion). 

FDI flows from Europe remain dominant

At €15 billion, foreign investors’ new investment in German enterprises in 2023 once again increased less strongly than in the previous year. The decline of three-quarters was due to a significant reduction in FDI loans to the tune of €10 billion (2022: increase of €36 billion). In 2023, €25 billion was invested in equity capital, with new investments of €45 billion standing against liquidations of €24 billion. 

In Europe, there were larger, in some cases countervailing movements. Within the euro area, the Netherlands (€30 billion) and Ireland (€10 billion), in particular, pulled funds from Germany. In both cases, this was largely in connection with the reduction of FDI lending.

A total of €43 billion in liabilities was built up from other parts of Europe. There were significant inflows of funds from the United Kingdom. Driven by FDI loans (€35 billion), German liabilities increased by €38 billion.

The trend in the Americas was similar to the one observed in the euro area. German liabilities fell by more than €11 billion. The largest decline was observed in intra-group lending from the United States (more than €13 billion). It was due solely to growth in equity capital (€6 billion) that the decline in liabilities remained in the single-digit billion range.

Enterprises from Asia, by contrast, continued to increase their exposure to Germany, raising it by just over €2 billion in 2023, which was relatively moderate compared with the previous year (2022: over €9 billion).