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Phenomenal rise in FDI proposals for BD Greenfield projects

Net inward foreign investments decline in 2023 in line with global trend

ASJADUL KIBRIA | June 21, 2024 00:00:00

Though the inflow of foreign direct investment (FDI) in Bangladesh declined significantly last year, foreign-investment proposals in greenfield projects posted a record jump during the period under review.

World Investment Report (WIR) 2024, released on Thursday afternoon in Geneva by the UN Trade and Development (UNCTAD), showed that foreign-investment announcement relating to greenfield projects increased by 345 per cent in 2023 compared to 2022.

The growth rate is highest in South Asia where Bhutan witnessed a 258.70 per cent jump in greenfield investment projects.

The UNCTAD report also showed that Bangladesh received some $2.89 billion (or $2,891 million) investment proposals as greenfield FDI last year against just $650 million in the previous year.

A greenfield investment is a type of FDI in which a parent company creates a subsidiary in a different country, building its operations from the ground up.

In addition to the construction of new production facilities, these projects can also include the building of new distribution hubs, offices, and living quarters.

"The number and value of greenfield project announcements in LDCs increased substantially in 2023 (by 51 per cent and almost 300 per cent, respectively), said the latest version of WIR.

"A large part of the jump in values is explained by the $34 billion green hydrogen project in Mauritania. Excluding this outlier, announced greenfield project values rose by 51 per cent, to $42 billion," the report added.

"As with FDI, just a few countries explain the bulk of greenfield project announcements and expenditures," the WIR continued. "Guinea, the Democratic Republic of the Congo, Ethiopia, Mozambique and Bangladesh (in that order) were the leading destinations in terms of project values," it explained.

"Combined, these countries accounted for about 60 per cent of the total project values for LDCs in 2023 (excluding the outlier deal in Mauritania)," it continued.

WIR, one of the annual flagship publications of UNCTAD, also said that the primary sector has accounted for about one fourth of greenfield project values in Least Developed Countries (LDCs) over recent years.

"For developing countries overall, its share is only about 10 per cent," added the report. "This highlights that LDCs are significantly exposed to global commodity cycles, not only for trade but also for investment."

Again, FDI to the 45 LDCs increased by 17 per cent in 2023, to $31 billion. Flows remained concentrated, with the top five recipient countries -- Cambodia, Ethiopia, Bangladesh, Uganda and Senegal --accounting for about 50 per cent of the total.

The net inward FDI in Bangladesh, however, declined by 13.70 per cent in the last year to $3.0 billion from $3.48 billion, according to the UNCTAD report.

In 2023, global FDI decreased by 2.0 per cent to $1.3 trillion and by excluding the impact of a few exceptions, it was a sharper decline of over 10 per cent in global foreign investments for the second consecutive year, said the WIR.

"This decline is driven by increasing trade and geopolitical tensions in a slowing global economy," it added.

As the prospects for FDI remain challenging in 2024, the report said that "modest growth for the full year appears possible," citing the easing of financial conditions and concerted efforts towards investment facilitation - a prominent feature of national policies and international agreements.

"Investment is not just about capital flows; it is about human potential, environmental stewardship and the enduring pursuit of a more equitable and sustainable world," said UN Trade and Development Secretary-General Rebeca Grynspan at a press statement in this connection.

FDI flows to developing countries fell by 7.0 per cent to $867 billion last year, reflecting an 8.0 per cent decrease in developing Asia. This figure dipped by 3.0 per cent in Africa and by 1.0 per cent in Latin America and the Caribbean.

On the other hand, flows to developed countries were strongly affected by the financial transactions of multinational enterprises, partly due to efforts to implement a global minimum tax rate on the profits of these corporations.

Inflows to most parts of Europe and North America were down by 14 per cent and 5.0 per cent, respectively.

As a percentage of gross fixed capital formation, FDI in Bangladesh stood at 2.20 per cent in the last year which was 2.40 per cent in 2022.

The stock of FDI in Bangladesh also dropped to $ 20.55 billion at the end of last year, accounting for around 4.30 per cent of the country's gross domestic product (GDP).

The theme of this year's WIR is 'investment facilitation and digital government.' It is the 33th annual version of the WIR since 1991.

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