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Industry shifts investments abroad - Germany loses its appeal as a business location

Germany's manufacturing industry is increasingly moving abroad for cost reasons. High energy and labour costs as well as unfavourable economic policy conditions are making Germany less attractive as a business location. Geopolitical tensions and a weak economy are putting companies under additional pressure. This is shown by the latest DIHK economic survey on foreign investment. Of the approximately 1,700 industrial companies surveyed that are active abroad, 40 per cent are planning to invest abroad - a slight decline compared to the previous year (42 per cent). Investments are no longer primarily aimed at opening new markets, but above all at reducing costs. "Germany is in danger of losing touch! If companies are increasingly moving abroad because high energy costs, crippling bureaucracy and a rising tax burden are choking them off here in Germany, this is a dangerous signal," warns DIHK Head of Foreign Trade Volker Treier. In fact, at 35 per cent, the cost motive has reached its highest level since the 2008 financial crisis. "We are at a turning point: Germany is rapidly losing ground as an investment location," says Treier. "More and more companies are being forced to relocate their production and jobs abroad - this must be a warning shot for our economic policy!"

Smaller industrial companies are currently finding it difficult to become involved internationally: Only 30 per cent of companies with up to 200 employees are still planning to invest abroad (previous year: 31 per cent). Before the coronavirus pandemic, this figure was still between 35 and 39 per cent. For large companies with more than 1,000 employees, the level remains high (80 per cent after 81 per cent in the previous year).

Germany under pressure as a business location The comparison between domestic and foreign investments illustrates the current challenges facing Germany as a business location: while more companies are expanding investments abroad, the willingness to invest at home is poor: Two out of five companies in the manufacturing industry want to reduce their investments in Germany. The gap between the two developments continues to widen - a striking illustration of Germany's increasing locational disadvantages.

Change in investment motives: focus on cost reduction For a long time, foreign investments were traditionally primarily used to open up new markets. This motivation remains relevant, but at 30 per cent it is now only at the long-term average level. For the first time, this motive is on a par with expenditure for the development of sales and customer service - the classic foreign investments to support export activities from home. Cost-cutting is becoming more of a focus: 35 per cent of companies are investing primarily to reduce their expenditure - a record figure since 2008. High energy prices are putting pressure on energy-intensive companies in particular: three out of four companies (76 per cent) see this as a major business risk. Many are drawing their conclusions from this - they are investing more where costs are lower.

Shift in target regions: America on the upswing The target regions of German foreign investment are increasingly shifting. Although the eurozone remains the most important region with 64 per cent of mentions, North America is gaining in importance. The proportion of companies looking to invest there has risen from 45 to 48 per cent. In the mechanical and vehicle engineering sector in particular, the proportion has reached a record high of over 60 per cent. In addition to market opportunities, low energy costs and local regulations also play an important role here. Furthermore, "local content" rules and the risk of trade conflicts are making a presence in North America - especially in the USA - increasingly attractive to mitigate potential customs disputes

While diversification into the Asia-Pacific region has recently increased, this trend is now reaching its limits. The decline in investment in this region shows that companies are becoming increasingly cautious. In China, only 31 per cent of companies are still planning investments - down from 33 per cent in the previous year. The decline is even more pronounced in the rest of the Asia-Pacific region excluding China, where the proportion has fallen from 33 per cent to 21 per cent. The creeping withdrawal from the Chinese market is continuing. This makes resilient free trade agreements even more important to facilitate access to the dynamic markets of East Asia, such as India and Indonesia, and to create long-term investment security.

Need for action for Germany as a business location The results of the DIHK survey show that German industrial companies are currently favouring foreign locations due to high costs and uncertain framework conditions. It is particularly worrying that companies that invest abroad for cost reasons are also drastically reducing their domestic investment and employment plans. "If companies increasingly see their future outside Germany, then there is more at stake than just individual investments," warns Treier. "Our country's prosperity and economic stability are at stake. Politicians must act decisively now - with lower energy prices, tax relief, a reduction in bureaucracy and better conditions for skilled workers!"