Foreign investments must become articulate politically

In the middle of the Berlin parliamentary summer recess, the Federal Ministry of Economics and Energy (BMWi) blocked the Chinese state-owned State Grid Corporation of China (SGCC) from acquiring the German grid operator 50Hertz. Surprisingly undiplomatic and in plain language, the German federal government justified the decision with a "high interest in protecting critical energy infrastructures for security policy reasons". "The German people and German economy expect a secure energy supply." As one of four grid operators, 50Hertz secures the power supply of around 18 million people. The message to Beijing is clear: The time when investors from the Far East were able to acquire German companies largely unhindered is over.

Another example occurred at the same time: The BMWi signaled Chinese investor Yantai Taihai Cooperation explicitly that the German government would not agree on an attempted takeover of the traditional German company Leifeld Metal Spinning AG. Yantai was not willing to risk its investment and withdrew the application for permission prematurely. The Federal Ministry of Economics did not make a formal decision – the showdown was cancelled.

Both cases are (interim) results of an ongoing political debate in Berlin, which revolves around the question of whether both Germany and the European Union are currently in the possession of sufficient tools to control and intervene in the economic activities of foreign investors. The discussion is fuelled by an increase in Chinese investment. According to a study by the consulting firm EY, the M&A volume of Chinese companies in Germany alone amounted to around 24.6 billion Euros in 2016 and 2017. The takeover of high-tech companies from key industries causes as much unease in Berlin and Brussels as various attempts by state-owned Chinese companies to buy up parts of critical infrastructure.

In addition to these individual examples a further general tightening of German foreign investment control is currently being discussed at high government level. The German government is considering lowering the formal threshold for investment audits from 25 to 15 percent. Public resistance to this has not been heard so far – not even from trade associations in Berlin. In view of growing economic uncertainty about protectionist tendencies in other parts of the world, this is unlikely to change in the future. The similar debate at EU level underlines that foreign direct investments (FDI) will remain an explosive issue in the short and medium term.

Germany benefits extraordinarily from foreign investments, i.e. from foreign acquisitions of German companies and from strong ties between foreign and German business partners. They create and protect thousands of jobs every year: According to an EY study, around 31.000 new jobs were created in 2017 by FDIs alone. More than three million employees work in foreign companies in Germany. The strong international networking of the German economy is a particular driver of growth and prosperity. Foreign capital is also a sign of confidence in Germany as a secure location. In 2017 the annual AmCham Business Barometer showed that a majority of companies give Germany a good or even very good rating as a business location.

There are enough arguments in favour of foreign direct investment – but they are hardly used in the public debate these days. Investors as well as companies not only miss an opportunity by avoiding a public debate, but also expose themselves to avoidable risks. What is a simple truism for any economic enterprise applies to FDI in a special way: If you cannot explain entrepreneurial actions, do not communicate decisions openly and are therefore unable to engage in dialogue with politicians and the public you will find it increasingly difficult in future to realise and secure your investments in Germany. Past experience shows how important it is already today for foreign investors to be politically articulate in Germany. Foreign companies in Germany do not operate in a media and public vacuum, but are themselves stakeholders of public perception. They have the choice of being merely the subject of political and social discussion – or of taking an active part in shaping it. In many cases however, the lack of local presence in Berlin and Brussels and the lack of knowledge of the political decision making process hinder a dialogue on the political stage. That can cause immense damage. Top-class transactions do not only promise benefits but are also subject to certain risks. Companies and investors must keep an eye on these risks as well – this includes taking political debate into account more than ever before. In a nutshell: Strategic public affairs have truly become a vital part of any corporate strategy.

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