FDI in Bangladesh drops 56pc in 2019: UNCTAD

The flow of foreign direct investment (FDI) into Bangladesh fell by 56 percent to $1.6 billion in 2019, down from a record $3.61 billion in 2018, according to a report of the United Nations Conference on Trade and Development (UNCTAD) released on June 16.

The export-oriented apparel industry remained an important FDI recipient, with major investments from the Republic of Korea, Hong Kong, and China in 2019, said the "World Investment Report 2020".

In 2020, the sector is expected to be severely affected by both factory closures and a global fall in demand for apparel products, it said.  

As of April 2020, the country’s garment manufacturers and exporters association estimated that more than $3 billion worth of exports have been cancelled or suspended.

The Covid-19 crisis will cause a dramatic drop in FDI in 2020 and 2021. It will have an immediate negative impact in 2020, with a further deterioration in 2021, forecast the report. 

Due to the pandemic, global flows of FDI will be slumped by up to 40 percent in 2020, from their 2019 value of $1.54 trillion, said the UN report. The drop will bring FDI below $1 trillion for the first time since 2005.

FDI is projected to decrease by a further 5 to 10 percent in 2021. And the FDI Flows to developing countries will be hit especially hard, as export-oriented and commodity-linked investments are among the most seriously affected by the pandemic.

Meanwhile, FDI inflows to South Asia grew by 10 percent to $57 billion in 2019. The growth was driven largely by a rise in investment in India, which further relaxed investment barriers in mid-2019 in retail, insurance and downstream coal processing, among others.

In India alone, FDI inflows increased 20 percent to $51 billion sustaining the country’s upward FDI trend. Most of the investments were in the information and communication technology and the construction industry, said the UN report. 

The UNCTAD in its forecast for South Asia in 2020 said FDI is also expected to contract sharply.

In the first quarter of 2020, the number and value of greenfield investments declined by 4 and 31 percent, respectively, and mergers and acquisitions (M&A) fell by 56 percent from their 2019 quarterly average to $1.7 billion, signalling a reversal of the growth trend in the sub region.

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

In the case of East Asia, FDI inflows declined by 13 percent to $233 billion in 2019. But in particular, the flow of FDI in China rose and reached an all-time high of $141 billion despite trade tensions, as per the UN report. 

Though the inflows from the United States and Europe declined in China, regional investment continued to increase as flows from ASEAN countries grew.

The report said a U-shaped trajectory, with a recovery of FDI to its pre-crisis trend line before 2022, is possible but only at the upper bound of the expectations.

Economic and geopolitical uncertainty look set to dominate the investment landscape in the medium term.

At the lower bound of the forecast, further stagnation in 2022 will leave the value of global FDI well below the 2019 level, the report added.

sh/at