While the UK’s political elite debate whether the country will go for a hard Brexit, a soft Brexit, a 'red, white and blue Brexit', a 'Brexit means Brexit', a clean Brexit, an open Brexit, or a jobs Brexit, other countries are getting on with the business of making the most of the opportunities that Brexit uncertainties are bringing to the investment world.
One location positioning itself as the economic gateway to the EU is the German region of Hessen, which includes continental Europe’s financial hub, Frankfurt.
According to the Center for Financial Studies’ CFS Survey 2016, Frankfurt’s financial centre will emerge as a major winner in the Brexit stakes in securities trading and settlement, corporate banking and asset management.
Pros and cons
Some insiders believe that Frankfurt lacks the financial services infrastructure to challenge London, employing only 75,000 in the sector compared with the UK capital’s 400,000-plus. In addition, it does not offer the economies of scale found on Wall Street and in the Asian financial centres and it has a relatively small fintech scene.
However, it has plenty of things in its favour. Not only was it the leading city in fDi Magazine’s German Cities of the Future 2016/17 ranking, it has a strong footing as continental Europe’s financial hub and the home of the European Central Bank, EIOPA, the central bank of Germany, the Frankfurt Stock Exchange, Europe’s largest futures exchange, and many international banks and global financial services institutions.
“London is, and will remain, the world’s foremost financial sector,” says Hubertus Väth, managing director of Frankfurt Main Finance. “However, due to Brexit, there will be opportunities for continental growth. Our strategy is not to damage London and the global financial sectors. We aim to build bridges to facilitate interaction between Frankfurt and London entities, because this is in the long-term interest of both financial services and German industry.”
It is not only financial services that Frankfurt and the wider Hessen region aim to capitalise on. They are also rolling out the red carpet for investors from the aerospace, automotive, chemical and pharmaceutical sectors, who are looking to maintain a presence in the heart of Europe so they can continue to benefit from freedom of movement and overcome potential tariff and non-tariff goods and services barriers in a post-Brexit world.
“Frankfurt offers excellent advantages for financial services as well as for the industrial sector,” says Tarek Al-Wazir, the minister of economics, energy, transport and regional development for the state of Hessen. “We want to build a bridge for those seeking alternative locations for their EU offices.”
In its November 2016 Germany Monitor, Deutsche Bank said that if Frankfurt succeeds in attracting 1% of London's financial sector employees – a headcount of about 3500 – plus potentially 150 European Banking Authority employees, companies outside of the financial industry and a number of expats from London, it can expect its working population to increase by 5000. This should also boost the number of office workers by 5000 and lead to a similar number of extra homes being required in the city by 2020.
Mr Väth says there is plenty of anecdotal evidence of increased interest in Frankfurt. “Before the vote for Brexit, we were receiving about one enquiry per month, whereas we’re now receiving at least one per day from companies wanting information about the city’s IT infrastructure and looking for assistance with setting up as an SME and obtaining licences.”
Firms looking to expand or establish a base in Germany say that the country’s political and economic stability are key factors in its attractiveness, as is its location at the heart of Europe.
According to Hessen Trade & Invest, the investment promotion agency for the state of Hessen, Germany plays a leading role in the EU and benefits from the customs duty exemptions that membership provides. The country accounts for about 20% of the EU-28’s GDP (about 25% of the EU-27’s) and offers competitive tax rates. Its economy is both highly industrialised and diversified – with an equal focus on services and industrial production. ‘Made in Germany’ is a synonym for innovation and quality. In 2015, it was among the top three FDI destinations for global investments.
The agency adds that Hessen is one of the strongest and most international states in Germany with a GDP per capita significantly above the national average. Thanks to its central location in Europe and Germany and its international airport in Frankfurt, the region also serves as a logistics hub.
Ticking the boxes
Germany fares well when measured against other EU members when it comes to labour relations. According to the Cologne Institute for Economic Research, the annual average number of days not worked due to industrial action per 1000 employees between 2006 and 2015 was seven compared with eight in the Netherlands, 28 in Ireland and 117 in France.
Hessen is taking steps to welcome expat workers. After the UK voted to leave the EU, Frankfurt launched the www.welcometofrm.com platform to provide expats with information about living and working in the city. While other parts of Europe seem to be closing their door to foreign workers, Hessen is keen to highlight its international credentials.
It is home to people from more than 190 countries and 12,500 international companies. According to local authorities, there are more than 40 daycare facilities for children offering foreign language teaching in Frankfurt and the surrounding area. Plus there are about 23 multilingual schools. Also, the city is already making plans to ensure its international schools can keep pace with demand, according to Mr Väth. He says: “The financial sector has clarified the hurdles that could be expected in the future as more people move to Frankfurt, and a commitment has been made to expand capacity at international schools by 50%.”
Expat workers are also able to enjoy Frankfurt's green areas and its easy access to a variety of open spaces and parks. The city is also compact in size, which means less time is wasted commuting.
There have been several major property developments in and around the Frankfurt area in recent years, with more on the cards. As a consequence, the city’s investment authorities say there is sufficient office space to accommodate the needs of firms looking to relocate there after Brexit. The property market could gain momentum if UK companies and employees move to Frankfurt, with Deutsche Bank’s Germany Monitor reporting that growth in employment in the wake of Brexit should stimulate demand for office space, reduce vacancies and increase rents in the office market close to the city centre.
Costs of this report were underwritten by Hessen Trade & Invest. Reporting and editing were carried out independently by fDi Magazine.