21 March 2001, 10:18 BBK:HIGH GERMANY 2000 FDI INFLOWS TO LIFT ECONOMY LONGER-TERM
FRANKFURT (MktNews) - Germany's record-high level of foreign direct
investment (FDI) inflows last year should be produce a rise in real
investments, and so the economy, in the medium and long term, rather
than in the short term, the Bundesbank said Wednesday in its monthly
report for March.
In a review of German balance of payments developments in 2000, the
Bundesbank noted that FDI inflows, at E191.1 billion, were about one
third more than for the previous 30 years combined. However, that feat
was largely due to the distorting influence of UK company Vodafone's
takeover of German conglomerate Mannesmann AG, it noted, pointing also
to the inflows related to the financing of UMTS licenses last summer.
With German direct investment abroad totalling E52.7 billion last
year, the net balance of capital imports came to E138.4 billion, the
first time since 1974 that Europe's largest economy recorded a surplus
for that category. In addition, the country posted a net inflow of E41.7
billion in non-securitized credit transactions, the Bundesbank noted.
"The high level of direct investment inflows in 2000 should have
positive effects for the real economy, less so in the short term and
much more in the medium and long term," the Bundesbank wrote.
The central bank observed that as is customary in mergers of the
magnitude of Vodafone-Mannesmann, a stock swap took place, so that there
was no immediate improvement in Mannesmann's financial situation.
"But in the longer term a rise in real investments domestically can
be expected from this (merger), as well as from the direct investments
related to UMTS licenses, as this involves a strategic positioning in
the German market," according to the Bundesbank.
The central bank noted that while the spin-off by Mannesmann AG of
its stake in foreign companies played a large part in the decline in
German foreign direct investment in 2000, it was not the only factor.
The Bundesbank pointed to the high level of credit raised by German
firms through their foreign subsidiaries, which were recorded as reverse
flows in connection with German direct investment abroad. That volume
hit E39.5 billion in 2000, up from E26.5 billion in 1999. This practice
has gained "great importance," and the doling out of financing functions
to foreign units -- either for bond issuance or tax purposes --
apparently offers large German companies advantages, the report said.
Such trends seem to be enjoying growing favor in eurozone financial
markets marked by increasing integration and therefore require "special
care" in the analysis of direct investments, the Bundesbank said.
Meanwhile, in a mirror image of FDI developments, and also shaped
by the flow of shares related to the Mannesmann takeover, German
portfolio investments recorded a net outflow of E164.1 billion last
year, more than 10 times the volume seen in 1999, the Bundesbank noted.
In the process, German investors boosted their foreign portfolio
investments by a net E210.3 billion last year, up from E178.2 billion in
1999. Foreign investors, in contrast, raised their portfolio investment
in Germany merely by a net E46.1 billion in 2000, well down from E164.6
billion. Again, this result was exclusively due to the Mannesmann deal.
"If one excludes the aformentioned special factor (Mannesmann),
foreign investors actually acquired noticeably more German shares last
year than in 1999," the Bundesbank said, citing the German post's IPO
and the placing of more Deutsche Telekom shares in the market.
"In the last analysis, the fact that foreign acquisitions of German
shares in 2000 roughly doubled speaks for a further rise in the foreign
investors' interest in domestic shares," the Bundesbank concluded.
In contrast, the attractiveness of German government bonds for
foreigners declined last year, when they purchased a net E69 billion in
German sovereign debt, which was down from E98 billion in 1999.
German debt instruments, the Bundesbank said, have faced stiffer
competition from government bonds issued by other eurozone governments
since the euro's introduction in 1999. Investors are apparently less
interested in the liquidity advantage offered by German bunds' benchmark
status than they are in taking advantage of slightly higher yields
offered by government bonds from other EMU countries, it ventured.
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