German Firms Delay UK Investments Ahead of Brexit Talks, Reports Reuters

By Michael Nienaber and Paul Carrel

BERLIN – A number of German businesses are delaying their investments in Britain as they await further clarity on the country’s future relationship with Europe following the Brexit referendum.

While large firms like Siemens and Bosch have the financial resources to adopt a long-term perspective amidst uncertainties surrounding the exit terms, smaller enterprises are adopting a more cautious stance.

Britain remains a significant market for Germany, accounting for approximately 7 percent of its exports, and this is unlikely to change, irrespective of Brexit. However, the VDMA association, which represents a multitude of engineering firms, noted that many of its members are hesitant to commit financially at present.

"Companies wish to continue prospering in Britain, but many are currently holding off to see how the exit negotiations evolve," stated VDMA head Thilo Brodtmann.

For instance, the family-owned industrial manufacturer Kemper has paused its expansion plans in the UK. Prior to the Brexit vote, the company, which produces air filter systems for the automotive and construction sectors, had intended to invest in its marketing and service capabilities in Britain this year.

"We certainly won’t pursue those plans now," remarked CEO Bjoern Kemper from his office in Vreden, located near the Dutch border in North Rhine-Westphalia. He mentioned that British sales had declined this year, partly due to customers postponing spending in advance of the June 23 referendum, and he is not optimistic about a quick recovery after the decision to leave the EU.

Kemper, which has an annual turnover of about 40 million euros, anticipates losing around 1 million euros in UK sales this year due to the economic uncertainty surrounding Brexit.

The impact of Brexit on the economies of Britain and Germany remains unclear. The Bank of England recently indicated that there is "no clear evidence" of a significant economic downturn in the UK following the recent vote, although indications suggest that investment and hiring have been put on hold.

New Prime Minister Theresa May is working on her government’s approach for negotiations which will define the post-Brexit relationship with the EU, requesting time to navigate this complex process. British officials have expressed optimism that investment will resume once foreign businesses can discern the emerging relationship between Britain and the EU.

"Companies are not divesting; they are just pausing … if by December or March they can see a reasonable resolution, they will proceed," noted a senior economic official.

Kemper’s situation is particularly sensitive, with the UK representing one-tenth of its total turnover. Nonetheless, its experiences highlight the broader challenges that the Brexit vote imposes on Germany’s economy.

Data from the first five months of 2016 show that German exports to Britain remained unchanged compared to the previous year, marking a stark contrast to a nearly 13 percent increase last year when exports reached nearly 90 billion euros. In 2015, the only countries that received more goods from Germany than Britain were the United States and France.

The VDMA reported a 4.2 percent decline in German engineering exports to Britain in the first quarter of this year compared to the same period last year. Moreover, there was a 6 percent drop in German foreign direct investment in Britain during the first three months of 2016, as per Bundesbank statistics.

Markus Kerber from the BDI Federation of German Industries expected a notable deterioration in economic ties with Britain in the near future, stating, "The outlook for new German foreign direct investment is bleak."

For larger firms, the uncertainty may pose less of a challenge due to their capability to plan for the long term. Siemens has announced it will continue its investment in a British wind power factory set to begin operations soon. Similarly, Bosch, which employs over 5,300 staff in the UK, confirmed it would maintain its investment plans, estimated between 20-25 million euros for this year, similar to last year.

Negotiations between London and Brussels will likely hinge on the balance between Britain’s immigration controls and its access to the EU single market, with stricter immigration measures potentially leading to diminished market access.

Reduced market access for the UK could harm trade flows between Britain and the EU, but some German businesses might benefit from this situation. Stephan Gais, CEO of Mahr, a manufacturer of premium measuring tools for the automotive and chemicals sectors, acknowledged that while Brexit-related uncertainty has negatively impacted his business, there could also be opportunities should trade relations between Britain and the EU become more complicated.

"There are a few British competitors, and if they face challenges in Europe, that would certainly be advantageous for us."