The "law is more likely to deter investors than to help create more wealth within your country," Niebel told a news conference in Harare on Monday. His was the first high-profile visit to Zimbabwe by a German official in 15 years.
The country has been shunned by western nations because of to violence and rights abuses blamed on supporters of President Robert Mugabe.
In 2010, Mugabe signed a law requiring foreign-owned companies to sell 51 percent of the firms to black Zimbabweans, and Niebel said this made German companies in Zimbabwe vulnerable.
"At present Zimbabwe's government does not guarantee the protection of German companies' investments even though it has made a commitment under international law to do so," he noted.
"I expressly call for compliance with the investment protection agreement for Germany companies," Niebel added.
He also voiced support for "a fair and credible" and violence-free constitutional referendum and election next year to avoid a repeat of events that marred the 2008 general vote.
Niebel held talks with Vice President Joice Mujuru and Prime Minister Morgan Tsvangirai, but said his visit did not mean that ties between the two countries had returned to normal.
Germany stopped giving direct aid to Mugabe's government in 2002 following violent seizures of white-owned farms and bloody elections.
Development aid would remain "suspended until democracy and the rule of law
have been restored," the German minister said.