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Business

Half Full or Half Empty?

Contrary to public perception, Germany is the most attractive country in Europe for foreign investments. That's according to a new study by an international business consultancy. It is, however, not the whole story.

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Most attractive place for foreign investment: Germany

German politicians and business leaders can breathe a deep sigh of relief. The EU's largest country, often viewed as the bloc's biggest obstacle for economic recovery, is the most attractive place in Europe for foreign investment, according to a recent European Attractiveness Survey conducted by business consultants Ernst & Young among 513 corporate executives in Europe, North America and Asia.

Of those surveyed, 19 percent named Germany as the most attractive country for investment, compared with 16 percent for the runner-up Great Britain. Of the "big three" EU-countries, France fared worst among business executives. Only eight percent -- on an equal footing with Russia in this regard -- considered it the best place to put their money, trailing far behind EU-newcomers Poland (15 percent) and the Czech Republic (11 percent).

Thanks to old strengths

What makes Germany, despite its rigid labor system, steep wage costs and high taxes, so appealing to international executives? According to the survey, it was the country's traditional strengths that made it shine. Conditions for logistics, as well as research and development are simply top-notch, to the extent that Germany is not only Europe's number one in these categories, but also ranks first on a global level -- relegating the United States to second place. In addition, executives stressed the importance of Germany's highly trained workforce and the high level of productivity in the country.

While Germany held its ground in the survey -- it has always placed among the top five -- not all is good in the country that once coined the term "Wirtschaftswunder" (economic miracle). Not only does Germany lag far behind China (37 percent) and the U.S. (30 percent) as the most attractive place for investments world-wide, it also gets the expected bad marks for high work costs and the rigidity of the labor markets.

Decline in real foreign investment

Despite the good ratings by executives, there is still no turn-around for real foreign investments in sight. According to an April survey conducted by the U.N. Conference on Trade and Development, which was also referenced in the Ernst & Young study, estimated foreign investment in Germany declined again in 2003 to 36 billion dollars after a slight up-turn in 2002 to 38 billion dollars. While that holds true for most other European countries with the exception of the Netherlands, Luxembourg and Ireland, Germany's global competitors have been raking in more investors' dollars. Foreign investments in the U.S., for instance, nearly tripled to an estimated 87 billion dollars in 2003 from 30 billion dollars in 2002. China raised an estimated 57 billion in foreign investors' dollars in 2003, up from 53 billion the year before.

What's more, when asked directly whether their company had concrete plans to invest in Germany, the clear majority of the executives polled in a smaller survey of 201 participants answered 'no' with 30 percent definitely not planing to invest and 28 percent unlikely to invest in Germany. Only 19 percent said they would definitely invest, while 21 stated they would likely invest in Germany.

That does not mean there aren't any signs of an economic recovery in Germany on the horizon, but rather that surveys and other economic research do not necessarily pare with reality. Whether they in fact signal a new trend only becomes clear when the hard numbers are in - next year.

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