Germany does not need Additional Protectionist Measures on Inward FDI

The German government plans to impose a tighter oversight rule on foreign direct investments (FDI) from investors outside the European Union (EU). The German Federal Ministry for Economic Affairs and Energy (BMWi) recently suggested that the threshold for the FDI screening should be lowered from 25 percent to 15 percent in the future. The new rule under consideration would make it possible for the German government to scrutinize FDI from non-EU investors if they intend to buy at least 15 percent in firms operating in defence- and security-related sectors and in the area of critical infrastructure.

In an interview by WirtschaftsWoche, Prof. Holger Görg, Ph.D., KCG Managing Director, emphasised that against the background that Germany is not a highly popular FDI destination country as, for example, the United States, “what Germany certainly does not need are further policy measures that signal protectionism and additional bureaucracy and thus deter foreign investors [from investing in Germany]”. To avoid transfer of critical technologies is often considered as one of the reasons behind stricter rules on inward FDI. Görg considered “the fear of such technology transfer may be too exaggerated. In the past decades Germany benefitted a lot from the increasing international economic interdependence. Technology transfer is just one of the key aspects of such economic interdependence and it also existed when German firms invested in the US and other countries.”

Tightening the rules related to the FDI screening is not an issue for Germany only. The EU also proposed a new framework for FDI screening about one year ago. The new framework is expected to ensure that FDI in defence- and security-related sectors and in critical infrastructure in the EU happen in a transparent way with scrutiny and debate. It is understandable that countries and economies may want to oversee FDI for national security considerations. Stricter rules may, however, hinder FDI in an unnecessary way, lead to countermeasures from other countries and at the end result in negative impact on the global economic growth.

The abovementioned interview (in German) can be found here: WirtschaftsWoche (2018), Ökonomen kritisieren Altmaiers Vorstoß, September 07, 2018.