Why Greenfield investment is important for our economy

Foreign Direct Investment in our country is not in a very stable or buoyant situation owing to multi-faceted reasons. Especially, after the onslaught of the pandemic, economies around the world including Bangladesh are suffering. However, despite the fact that the overall economic situation of our country is quite good now, the amount of Foreign Direct Investment (FDI) inflow is not so impressive. Well, many of us don’t know that even FDI can be of two types – greenfield investment and brownfield investment. When we are talking about foreign investment, it relates more to brownfield investment as it’s difficult to attract foreign investors to go for greenfield investment in a country like Bangladesh where the whole process is too complex and hamstrung by bureaucratic tangles. However, at a time when we have set up many new economic zones and expecting a boom in the FDI inflow, Bangladesh should rather focus on attracting greenfield investment.

Greenfield investment is one of the ways of getting foreign direct investment (FDI). Last year, many of our local firms and startups have raised their valuation by attracting foreign investors. Indian logistics giant Ecom Express Ltd showed interest to invest Tk100 crore in Paperfly, a home delivery platform. SoftBank Vision Fund II has invested $250 million for around 10 per cent stake in bKash, the most popular mobile financial service (MFS) in the country. Also, ShopUp, the country's largest business-to-business (B2B) e-commerce platform, has raised $75 million or nearly Tk 640 crore in 2021 from a number of foreign investors for expanding its business. All these investments are actually brownfield investment, not greenfield. Greenfield investment is such kind of investment where a foreign investor or company begins from the scratch in the host country and set up everything including necessary establishments to commence a new business. In this kind of investment, a renowned foreign company can also open a parent company or subsidiary in the host country. Whereas as far as brownfield investment is concerned, foreign investors only buy the stocks or bonds of an existing company.

According to investopedia.com in a greenfield investment, parent company opens a subsidiary in another country. Instead of buying an existing facility in that country, the company begins a new venture by constructing new facilities in that country. Construction projects may include more than just a production facility. They sometimes also entail the completion of offices, accommodations for the company's staff and management, as well as distribution centers. Brownfield investments, on the other hand, occur when an entity purchases or leases an existing facility to begin new production. Companies may consider this approach a great time and money saver since there is no need to go through the motions of building a brand new building.

Why do greenfield investments matter for a developing country like Bangladesh? We really need to ramp up our efforts to lure in more greenfield investments in the country for a number of reasons. First, greenfield investment is a great way of creating new job opportunities and put our skilled workforce to work. According to a report titled 'World Employment and Social Outlook Trends 2022 (WESO Trends)’ published by the International Labour Organization (ILO) in January 2022, unemployment rate would remain 5.0 per cent in 2022 (0.6 per cent higher than pre-pandemic period) whereas some 3.6 million people will remain unemployed in this year. Looking at this gloomy forecast, it can easily be said that greenfield investment is now important more than ever in our country.

When new investors will try to start from the scratch, they will have to set up new establishments and hire people for kicking off the operational functions of the business. This will be a great opportunity for our skilled young workforce to get hired. Unemployment rate is increasing in the post-pandemic period, even skilled people are not getting job due to shrinking market. So, greenfield investment can open up new opportunities for the unemployed skilled workforce of our country.

Second, such kind of investment results in knowledge spillover effect. There will be both internal and external knowledge spillover effects, creating endless opportunities both in and outside the organization to share and learn new set of skills and knowledge. As investors will definitely bring foreign skilled workforce to initialize the business operations along with them, the locally-hired people will have a chance to work with them and learn from the skilled workers. As a usual consequence, there will be a spillover effect, helping the local people gather ideas about international business trends.

Third, greenfield investment signifies a more stable condition for investment and inspires others to follow the suit. Moreover, risks associated with brownfield investment are higher. Last year, we have seen many foreign investors plowing back their capital in many of our locally-grown startups, but the fact is that they are just buying stocks and a percentage of the company’s equity, leaving the gate wide open for them to withdraw their investment anytime. This probability leaves that particular company/startup always vulnerable or at fear of losing the investment, which is not good for the growth trajectory in the long run. But, if it’s greenfield investment, the investor will take the business and all matters related to it more seriously because the feeling and empathy for that subsidiary grows deeper, just like a mother feels for her baby as she raises a baby from zero to a full-grown adult.

Most importantly, greenfield investment helps create a more competitive and conducive environment for the market as they bring along with them hands-on experience of doing business in the international arena following standard practices and market trends. When they apply those in the local market, local investors and businesses also try to adopt to those changes, creating a more competitive and adaptive market for all.

Well, Bangladesh has failed so far to lure in greenfield investment in a considerable amount. According to the World Investment Report 2021 released by the UN Conference on Trade and Development (UNCTAD) in 2021, Bangladesh’s foreign direct investment (FDI) inflow has dropped significantly and declared greenfield investment projects in 2020 contracted by 87 percent in Bangladesh. The contraction of greenfield investment is not a good sign at all. Policymakers and government organizations concerned need to take a look at it with utmost sincerity and map out the right plans to attract more foreign investors to go for greenfield investment in the country.

The writer is a communications professional. He can be contacted at malammohabbat@gmail.com