The German economy’s international capital links

The results from the Bundesbank's foreign direct investment stock survey from the end of 2004 have just been published in a new edition of the Special Statistical Publication 10 “International capital links" ("Internal links"). This publication contains information on cross-border corporate participating interests, as well as key data on enterprises, broken down by country and economic sector.

In 2004, primary German direct investment abroad remained virtually unchanged at €583 billion. A comparatively large amount of liquidations and exchange-rate-related value losses on corporate assets were virtually offset by additional investment. In the same period, however, there was a marked reduction in primary foreign direct investment in Germany (down €17 billion to €527 billion), owing mainly to repayments of long-term loans which had been granted by foreign investors in previous years.

A somewhat different picture of both sides of the capital links emerges if the consolidated primary and secondary foreign direct investment is considered [1]. rPrimary and secondary German direct investment abroad went up by €19 billion to €677 billion, while primary and secondary foreign direct investment in Germany went up by €33 billion to €345 billion.

In order to ensure a better analysis of the geographical and sectoral breakdown of the results of the international capital links survey and to avoid double counting, secondary direct investment via dependent holding companies is included in the analysis, whereas primary direct investment in the dependent holding companies is disregarded.

German investors increased their investment, particularly in the EU countries outside the euro area. By contrast, there was a further exchange-rate-related fall in corporate assets in German investors' most important target country, the United States, of more than 5% to €204 billion. The profitability of German affiliates abroad continued to improve. In 2004, annual profits were increased and annual losses reduced. Whereas the number of German direct investment enterprises abroad that are captured in this survey (just over 22,700 altogether) declined, the main reduction being in the euro-area countries (222 enterprises on balance), China accounted for the largest increase (93 enterprises on balance), a development which was accompanied by a 20% rise in the number of staff at those enterprises. In total, the foreign affiliates of German enterprises employed 4.6 million staff at the end of 2004.

Statistically, investors from the Netherlands accounted for almost two-thirds of the rise in foreign direct investment in Germany. Experience suggests, however, that the Netherlands are not the country of domicile of the ultimate beneficial owners, since the Netherlands are still regarded as an important holding company location. In addition, the increase by €9 billion to €50 billion in the direct investment stock of US investors played an important role. The number of enterprises in Germany which were captured in the survey and in which foreign investors held a stake fell to just over 9,000 enterprises. By contrast, their turnover went up by nearly 10% to more than €900 billion, while the number of staff remained at nearly 2.2 million.

footnote:

1. In order to ensure a better analysis of the geographical and sectoral breakdown of the results of the international capital links survey and to avoid double counting, secondary direct investment via dependent holding companies is included in the analysis, whereas primary direct investment in the dependent holding companies is disregarded.