Greenfield FDI inflow into Bangladesh falls drastically

Greenfield foreign direct investment (FDI) in Bangladesh declined by 84 per cent during the first half of 2020 over that of the corresponding period of 2019, primarily due to the Covid-19, according to an ILO report.

“Foreign direct investment has dried up. The increased uncertainty about the viability of future investment projects has caused a drying up of FDI in the Asia-Pacific region,” the International Labour Organization (ILO) report, launched Tuesday, said.

According to UNCTAD’s defintion, Greenfield FDI relates to “investment projects that entail the establishment of new entities and the setting up of offices, buildings, plants and factories from scratch.”

It is a kind of working capital. The direct investment enterprise established through greenfield FDI can be a branch, an unincorporated enterprise or an incorporated enterprise (that is, a separate unit maintaining its own accounting books).

The report titled ‘Asia-Pacific Employment and Social Outlook 2020: Navigating the crisis towards a human-centred future of work’ showed Bangladesh is among other six countries that witnessed largest decline in Greenfield FDI in January to June 2020 period.

The rest six countries–Macau (China), the Maldives, Pakistan, the Philippines and Sri Lanka reflected the largest decline in Greenfield investment, ranging from 84 per cent to 89 per cent, according to the report

On the whole, the region experienced a decline in foreign Greenfield investment in the first half of 2020, at 34 per cent, compared with the year before.

The drop was 41 per cent for extra-regional FDI, while intraregional FDI dropped by 26 per cent.

Of 25 economies for which data are available, only six-Cambodia, Indonesia, Brunei Darussalam, Myanmar, Australia and Malaysia showed an increase in Greenfield investment during the same time period.

When asked, Bangladesh Investment Development Authority (BIDA) Md Sirazul Islam said the ILO findings are nothing unusual as there was no investment since March to June while April and May were almost zero.

Though July saw some investments, the situation, investment environment and mobility has not improved mainly because of the Covid-19 pandemic, he explained.

The possible investors would want to know about the potentials, risks, cost and profits before starting a venture, he said adding the mobility has restricted followed by restrictions on air connectivity in many countries.

“In such a situation, it is usual that investment will decline,” he said adding number of local projects during July to October has increased but the amount of investment is much lower.

He, however, expressed the hope that in the coming months especially after the winter investment would go up in the economic zones due to planned industrialization there.

According to the BIDA, overall investment proposals both local and foreign declined by 67.11 per cent in April to June compared to that of January to March this year.

In 2020, Bangladesh received Tk 41.50 billion foreign investment proposals during April to June which was Tk 80.20 billion during January to March showing a 48.25 per cent fall.

The proposed foreign investment amount was Tk 12.85 billion during July to September of 2020, according to BIDA.

The ILO report also estimated that the economic backlash of the Covid-19 pandemic wiped out some 81 million jobs in the Asia Pacific region in 2020.

The impact of the crisis has been far-reaching, with underemployment surging as millions of workers are asked to work reduced hours or no hours at all.

Overall, working hours in Asia and the Pacific decreased by an estimated 15.2 per cent in the second quarter and by 10.7 per cent in the third quarter of 2020, relative to pre-crisis levels, the report said.

“Working-hour losses are also influenced by the millions of persons moving outside the labour force or into unemployment as job creation in the region collapsed.”

Using available quarterly data, the report provided a preliminary estimate that the regional unemployment rate could increase from 4.4 per cent in 2019 to somewhere between 5.2 per cent and 5.7 per cent in 2020.

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