Foreign Investors Rediscover Germany, Ushered in by Hilmar Kopper

Hilmar Kopper attracts foreign investment to Germany.

Hilmar Kopper is a name known to almost everyone in Germany. His imposing stature makes his presence felt immediately in any room, though his jovial manner softens the effect. His penthouse office suite atop Frankfurt's tallest skyscraper commands a spectacular view of the city that is at Germany's financial epicenter.

As Chairman of Deutsche Bank -- and a member of the board of several other major corporations, including Bayer and Daimler Chrysler -- he is seen as an icon of German finance and industry. This man knows his country's business.

Tapped in 1998 to direct the government's new Federal Commission on Foreign Investment, he is now the point man for assisting foreign investors and corporations interested in doing business in Germany.

"After a long period, starting in the early 1990’s through 1997," says Kopper, "there was very little foreign investment in Germany.

It was about that time that the German Parliament decided to create a position like mine. Ever since the figures for foreign investment have gone way up. I don’t think it was because of my work but it just so happens that the country has been rediscovered in a way by foreign investors."

Kopper suspects this renewed interest in Germany by foreign companies has to do with the widening of the European Union because Germany, and especially Eastern Germany, is considered an important "gateway" to Eastern Europe. Countries like Poland, the Czech Republic and Rumania are now the fastest growing economies in Europe and analysts expect that trend to continue for the next ten years.

Foreign investment has risen dramatically in Germany from €23 billion in 1998, to almost €60 billion in 1999, and a whopping €196 billion in 2000. In the first five months of this year the total figure already stands at more than€33 billion, according to Kopper.

“This is a development that we haven’t seen before,” says Kopper. It (foreign investment in Germany) use to be€3, 4 or 5 billion a year in the early 1990’s"

Kopper is outspoken about the need for reduced corporate tax levels in the country. Germany’s social welfare structure is expensive and the country is famous for having high taxes. But reforms along these lines have already been made. Corporate rates that use to be 64% two years ago will be reduced to about 37% starting in January 2002. "This will be a totally new world," he says. "What we need now is a lowering of income tax and pension reform." But what should be of particular interest to foreign investors, he adds, is that there is a new law that allows German companies to sell stock capital gain tax-free.

"This represents a wonderful opportunity for foreign investors to pick up a piece (of a German company) here and there and establish themselves as important shareholders." The door to Germany’s corporate world has swung open.

Globalization, says Kopper, means there is more competition and the government must have good policies to ensure that Germany is competitive. After years of subsidies to bring up its economic level, there remains much to do in the eastern part of Germany.

The main problem from the standpoint of attracting investors, Kopper believes, is the perception a gap still exists between productivity and wages in the east. According to official figures, productivity is only about 60% of the western average, while eastern Germans already earn 86% of the Western wages. Kopper maintains these figures are misleading. When the many government workers and costs associated with restructuring the eastern economy are factored in the level of productivity between East and West is really about the same.

He notes that, at Deutschebank where he is a member of its supervisory board, the work week in the East averages about two hours a week longer than in the West.

"For fifty years," says Kopper, "the Eastern States, like it or not, was a part of a communist planned economy that could not develop. They had trading partners in the East (who were) not very discriminating partners because they took whatever they got. So there was a dramatic change. I think that those people over there (in Eastern Germany) with our help from the West have coped with that change rather well. We should not blame them. They are not idiots. When you look at the young people there, they are extremely eager because they want to catch up. They want to show us they are at least as good as anybody is here. So I feel rather positive for the East."

Kopper believes that criticism by western Germans regarding the seemingly slow progress of recovery in the Eastern States is unfair. He points out that of the estimated1.5 trillion German marks that have been sent over to the East in the last ten years, not all of it has been available for infrastructure investments.

"Unfortunately, most of that money went for pensions and unemployment benefits in the initial phase which is not a very productive way to spend money. But at the same time, we had to do something for these people."

"Maybe we wanted to see results too quickly," he says.

As of 1997 the German economy consisted of roughly 44,500 industrial enterprises employing close to 6.2 million people. But despite Germany’s association with well-know international corporations such as Bayer, BMW and Daimler Chrysler, the mainstay of the economy is in small companies.

Only about 1.7 per cent of industrial enterprises is large companies with more than 1,000 employees; nearly three-quarters are firms with fewer than 100 on the payroll.

The Federal Commission for Foreign Investment in Germany can provide companies with information ranging from site selection and logistics to set-up incentives and operating cost analysis. The Commission, based in Frankfurt, also maintains offices in Berlin and New York City. Frau Dr. Urda Martens-Jeebe directs the Commission’s office in Berlin and Mr. Michael Rassmann is the contact person in New York.

For further information, see www.foreign-direct-investment.de.—