FDI inflows in Bangladesh to take longer to recover: UNCTAD

Foreign Direct Investment inflows in Bangladesh is likely to take more time to recover, as investment commitments in the country remained weak, United Nations Conference on Trade and Development said on Monday.

The UN agency made the prediction in its World Investment Report (WIR) 2021 released on Monday from Geneva.

The report states that announced greenfield investment projects in 2020, which is an indication of Foreign Direct Investment (FDI) trends over the next few years, contracted 87 per cent in Bangladesh. This contraction is significant and resulted due to weak investment interests in garment production, a major export industry and FDI recipient in the country.

Investment in, and production of, garments suffered severely in 2020, with no sign of recovery as of early 2021, said the report, mentioning that garment factories in Bangladesh faced some $3 billion worth of cancelled export orders in 2020.

FDI in South Asia rose by 20 per cent to $71 billion in 2020, driven mainly by strong mergers and acquisitions (M&As) in India. In that country, FDI increased 27 per cent to $64 billion, according to the WIR.

In Pakistan, FDI was down by 6 per cent to $2.1 billion, cushioned by continued investments in power generation and telecommunication industries. meanwhile, inflows in Sri Lanka contracted by 43 per cent.

In Bangladesh, inflows declined by 11 per cent to $2.6 billion. Both general economic activities and FDI shrank in the country’s export-oriented garment manufacturing.

United Nations Conference on Trade and Development (UNCTAD) said foreign investment inflows in Bangladesh are shifting away from large non-renewable energy and finance projects towards fintech, the pharmaceutical industry, liquefied natural gas plants and agribusiness, which the government is actively promoting.

FDI fell in other South-Asian economies that rely on export-oriented garment manufacturing, as orders from the United States and the European Union dropped substantially in 2020.

"As in previous years, inflows were concentrated in some large LDCs [Least Developed Countries]. The top five recipients (Cambodia, Bangladesh, Ethiopia, Mozambique and Myanmar, in that order) accounted for more than half of FDI to the group," WIR 2021 read.

The prospects of FDI in LDCs remain subdued in the immediate future, says the report, adding that UNCTAD expects inflows to remain sluggish over the next few years.

"The immediate challenge is to minimise the number of 'lost' years in terms of progress toward SDG goals," it said in the report.

The main concern in LDCs is that the pandemic could wipe out development gains achieved over the last decade under the Istanbul Programme of Action (2011–2020) and the SDG agenda, WIR 2021 stated, adding that the concern extends to the six LDCs in the process of graduation including Bangladesh.

According to the report, the fact that an additional two years were added to the transition period for the countries selected for graduation after the outbreak of the Covid pandemic (e.g. until 2026 for Bangladesh and Nepal) suggests that the international community is willing to support LDCs to adjust in a more orderly manner to the changing conditions of the world economy.