Investment in Germany Drops Massively | Business| Economy and finance news from a German perspective | DW | 19.09.2002
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Investment in Germany Drops Massively

Hefty tax burdens, complicated labor laws and byzantine work approval process are just a few of the many reasons direct investment sank 84 percent last year, according to industry advocates.


Investors are fleeing tax laws and strong unions

Less and less foreign investors are turning to Germany as a place to do business, according to a new United Nations report on direct investment.

The amount of direct investment into the country dropped radically by 84 percent in 2001, down to only $31.8 billion (32.6 billion euro). The UN report pointed out the struggling worldwide economy caused significant drops in most industrialized nations – they dropped on average 59 percent . But German industry associations said the country continued to suffer from the number of bureaucratic walls it builds against foreign investors.

“The reasons are homemade,” said Anton F. Börner, the president of the Federation of German Wholesale and Foreign Trade (BGA), in a statement. “These include the encrusted labor market, the hefty tax burden, the overloaded tax state and the winding and complicated work approval process.”

The complaints are not new ones. Foreign investors have been making similar ones for years. But with the world economy in as bad a shape as it is now, Germany is suffering as foreign investors look to Eastern Europe and Africa for more liberal tax laws and cheaper labor market, according to the report.

The amount of direct investment in African countries climbed an average of 16 percent. Germany, in particular, invested around 1 billion euro last year in development projects in African countries.

Eastern European countries like Russia, Poland and the Czech Republic were able to add 2 percent to last year’s totals, even as direct investment for other developing countries sank.

"No one has the courage" for reforms

Germany, currently ailing under an economy predicted to grow less than 1 percent in the coming year, must undergo massive reforms in its labor and tax laws before any turnaround can take place, said Fred Irwin, president of the American Chamber of Commerce in Frankfurt.

“The main advantage in Germany is the production capabilities, the good apprenticeship system,” Irwin told the daily Frankfurter Allgemeine Zeitung. “If we go by the hard factors, like tax laws, labor laws, then Germany is always the loser.”

Around 98 percent of the 500 largest US companies do business in Germany, according to Irwin. But the investment that flooded Germany following the end of the war has let off considerably, said Irwin.

“More important is the re-investment,” he said. “IBM or Hewlett Packard should invest more in Germany.”

Instead, investors get “chased away” by the hard line taken by the unions, Irwin told the newspaper. No one is expecting much change, even if Chancellor Gerhard Schröder’s pro-union party gets voted out of the chancellor’s office this Sunday. The reforms necessary are too bold and require more political courage than any of the current candidates possess, Irwin said.

“No one has the courage for that,” he said. “I don’t expect much change. There isn’t enough pressure from the population.”

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