Moderate increase in FDI stocks in 2016
Germany’s outward foreign direct investment (FDI) stocks grew at a significantly slower rate in 2016 than they did one year earlier on account of smaller positive exchange rate effects as well as a lower volume of new equity investments. Inward FDI in Germany expanded at just a subdued pace, much as it had done in the previous years.
Germany’s outward FDI
Stocks of outward FDI by German direct investors increased by a total of €24 billion in 2016 to reach €1,094 billion. Just under half of this increase (€11 billion) related to investments in countries of the European Union, which accounted for the bulk (55%, or €601 billion) of outward German FDI. A breakdown of the overall increase reveals that there was a rise in equity capital (€54 billion) and loans (€5 billion), while loans granted by foreign subsidiaries to their German parent companies (reverse investments) came in at €35 billion.
Developments at the country level were mixed. Outward German FDI grew particularly strongly in the Netherlands (up €13 billion to €106 billion) and Luxembourg (up €3 billion to €124 billion), both of which rank as major holding locations for German investors. Outside Europe, China registered an increase of €6 billion to €73 billion. There was a downturn, meanwhile, in German FDI in the USA, which nonetheless remained Germany’s number one FDI destination with stocks of €224 billion. Outward German FDI in the United Kingdom eased by €3 billion to €106 billion, though it is worth noting here that the strong appreciation of 14% by the euro against the pound sterling alone was responsible for a negative exchange rate effect of almost €7 billion.
However, the significant volatility experienced by certain currencies against the euro meant that substantial adjustments were not confined to the UK. The euro’s 25% depreciation against the Russian rouble and the Brazilian real, to name but two, generated valuation gains of almost €3 billion and a little more than €2 billion, respectively, boosting German FDI in each of these countries to €17 billion and €14 billion. Across all the countries, however, the exchange rate-related changes (an increase of €3 billion) were relatively modest compared with previous years.
Inward FDI in Germany
Inward FDI in Germany by direct investors rose by €11 billion in 2016 to €686 billion. Equity capital was up by €8 billion and loans increased by €7 billion, while reverse investments came to €5 billion. EU countries remained the most important foreign investors in Germany, with a share of 74%, despite slightly paring back their stocks by €4 billion to €507 billion. Inward FDI increased, on the other hand, from other European countries (up €9 billion to €80 billion), Asia (up €3 billion to €35 billion) and the USA (up €2 billion to €55 billion).
Allocating stocks according to the ultimate investing country (UIC) – the country in which the group’s headquarters is resident – paints a different picture altogether, however. It reduces the share accounted for by EU countries to just 55% (€375 billion) and increases FDI shares from other countries accordingly, although the regional breakdown is largely unchanged on the year. From a UIC perspective, the USA is by far the biggest source of inward FDI in Germany, at €156 billion, followed by the United Kingdom at €77 billion. Groups resident in Asia account for €66 billion in FDI.
Direct investment interests held directly and indirectly
The aforementioned direct investment interests held by direct investors represent direct investments by shareholders in other countries. Countries which encourage enterprises to establish holding companies there play a highly important role in this regard. Holding companies receive and forward funds without operating as an independent economic entity. They therefore complicate the task of allocating investments to countries and economic sectors.
A more informative breakdown of direct investment interests can be produced if they are presented in a way that excludes any investments in dependent holding companies but includes their (indirectly held) investments. Besides presenting directly held FDI stocks, the foreign direct investment stock statistics therefore also provide data on direct and indirect (consolidated) equity investments in enterprises as a standard feature. For example, excluding the majority-German-owned holding companies domiciled in Luxembourg reduces the stocks of German enterprises’ outward FDI in that country from €124 billion to €71 billion. The difference (€53 billion) is accounted for by equity investments held indirectly by domestic investors in other countries.
Detailed results of outward and inward FDI broken down by country and economic sector as well as methodological notes can be found in Special Statistical Publication 10 “Foreign direct investment stock statistics”. The current edition of Special Statistical Publication 10 is the last one that will be printed (available in German only). Later editions will only be available on the internet. Anyone wanting to know when the latest edition will be published can subscribe to a newsletter on the Bundesbank’s Special Statistical Publications.
Currently only available in German. Headings and footnotes in English will be available in a few days.