Pandemic casts gloom on greenfield investment | The Daily Star
12:00 AM, October 28, 2020 / LAST MODIFIED: 01:42 AM, October 28, 2020

Pandemic casts gloom on greenfield investment

Unctad says inflow to Bangladesh falls 78pc

The value of greenfield investment project announcements – an indicator of future foreign direct investment trend – fell by 78 per cent in Bangladesh in the first eight months of 2020 because of the coronavirus pandemic, said the Unctad yesterday.

The Global Investment Trends Monitor of the United Nations Conference on Trade and Development (Unctad) made the disclosure. It did not provide any figure.

Greenfield investment typically refers to projects that create new physical facilities which are considered productive, in part because they usually generate jobs.

Bangladesh received $2.49 billion in gross FDI in the July-March period of the last fiscal year, down from $3.97 billion in the same period a year ago, Bangladesh Bank data showed. 

FDI in South Asia fell 31 per cent to $20 billion in the first half of the year. India, the largest FDI recipient in the region, saw FDI contracting by 33 per cent to $17 billion as the country struggles with Covid-19 containment, the UN agency said. 

In other South Asian countries where investments are largely tied to export-oriented apparel manufacturing, greenfield investments have taken a severe hit due to activity stoppages and contracting global demand.

Announced greenfield projects in Bangladesh fell by 78 per cent and in Sri Lanka by 97 per cent.

Global FDI flows plunged 49 per cent in the first half of 2020 compared to 2019, due to the economic fallout from the Covid-19.

In the wake of the pandemic, lockdowns around the world slowed existing investment projects and the prospects of a deep recession led multinational enterprises to reassess new projects.

"The FDI decline is more drastic than we expected, particularly in developed economies. Developing economies weathered the storm relatively better for the first half of the year," said James Zhan, Unctad's investment and enterprise director, in a press release. 

"The outlook remains highly uncertain."

According to the report, developed economies saw the biggest fall, with FDI reaching an estimated $98 billion in the six-month period – a decline of 75 per cent compared to 2019.

The trend was exacerbated by sharply negative inflows in European economies, mainly in the Netherlands and Switzerland. FDI flows to North America plummeted by 56 per cent to $68 billion.

Meanwhile, the 16 per cent decrease in FDI flows to developing economies was less than expected, due mainly to resilient investment in China. Flows decreased by just 12 per cent in Asia but were 28 per cent lower than in 2019 in Africa and 25 per cent lower in Latin America and the Caribbean.

In the six months to June, developing countries in Asia accounted for more than half of global FDI. Flows to economies in transition were down 81 per cent due to a strong decline in the Russian Federation. 

The value of greenfield investment project announcements was $358 billion in the first eight months of 2020. Developing economies saw a much bigger fall (-49 per cent) than developed economies (-17 per cent), reflecting their more limited capacity to roll out economic support packages.

The number of announced cross-border project finance deals declined by 25 per cent, suggesting that the slide is still accelerating.

The flows will hinge on the duration of the health crisis and the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical risks continue to add to the uncertainty, the Unctad said.

Despite the 2020 drop, FDI remains the most important source of external finance for developing countries. Global FDI stock stood at $37 trillion at the end of 2019. 

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