Bangladesh's investment flows decline sharply in 2022: Unctad

Greenfield investment projects announced in Bangladesh dropped by 59% during the first eleven months of 2022, according to a report by the United Nations Conference on Trade and Development (Unctad).

In 2022, Bangladesh received greenfield investment projects worth $376 million representing a 59% decline from the previous year despite it being considered a reliable indicator of future foreign direct investment (FDI) trends.

Furthermore, the report revealed that international project finance deals announced in 2022 also fell drastically, by 97% to $117 million. The number of project finance deals fell by 93%, from 14 deals in 2021 to just 1 deal in 2022.

Globally, the number of international project finance deals in 2022 was 42% lower than in 2019, with a 76% reduction in value. The number of greenfield project announcements by multinational enterprises decreased by 55% over the same period.

The report released on 6 March highlighted that the impact of the ongoing global crises was evident across all types of investment flows. This is a major concern for the least developed countries (LDCs), as greenfield investments and project finance deals are crucial for developing productive capacity and essential infrastructure, thus supporting sustainable development prospects.

FDI flows to LDCs showed a decline of about 30%, compared to a marginal increase in developing countries as a group. The report notes that the succession of global crises, including floods, energy crises, financial distress, and debt, has disproportionately affected investment flows to the poorest countries.

Despite this, extractive industries remain among the top sectors for international project finance deals and greenfield investments, highlighting the continued dependence of LDCs on these sectors and resource-driven FDI. However, several LDCs are now diversifying their sectors.

Investment in LDCs in sectors relevant to the attainment of the Sustainable Development Goals (SDGs), including infrastructure, renewables, water and sanitation, food security, health, and education, suffered a significant blow in 2021-2022.

Compared to 2015, when the SDGs were adopted, project numbers in most sectors, except for renewables and water and sanitation, were significantly lower in the last two years.

The decrease was evident in both greenfield project announcements and international project finance deals, highlighting the challenges that LDCs face in attracting foreign investment.

What are greenfield investments and the impact of decline on Bangladesh?

Greenfield investment projects in Bangladesh refer to new investment projects that are initiated by foreign companies or investors to establish their presence in Bangladesh. These projects involve setting up new facilities, factories, or production units from scratch, without acquiring or merging with any existing local business.

Some examples of greenfield investment projects in Bangladesh include the establishment of new manufacturing plants, such as textile mills, pharmaceutical factories, and automobile assembly plants.

Additionally, foreign investors have also set up greenfield investment projects in Bangladesh in the energy and infrastructure sectors, including power plants, renewable energy projects, and the construction of highways and bridges.

These investments aim to tap into Bangladesh's growing economy and its large domestic market, as well as its strategic location as a gateway to South Asia.

Sustainable and Renewable Energy Development Authority (Sreda), an organisation under the Power Division of the Ministry of Power Energy and Mineral Resource, works to promote renewable energy development to reduce dependency on fossil fuels to ensure energy security.

Agreeing with the Unctad report, Sreda Chairman Munira Sultana, said that solar is a prospective area for Bangladesh among all renewable resources.

"But, despite there being a big scope for investment in the renewable sector of the country, foreign investors are not coming to Bangladesh, as land scarcity is a big barrier to developing solar projects," she said.

Masrur Reaz, chairman of Policy Exchange Bangladesh, said that the ongoing power and energy crisis, the volatile exchange rate, and uncertainty surrounding raw materials due to import restrictions are causing new investors to postpone their decisions.

He said that the decline in foreign investment is understandable due to the global economic instability in the post-Covid-19 reality. However, the amount of decline illustrated in the Unctad report is alarming.

Over the course of the last year, the value of the taka has decreased by approximately 20% in 17 phases. This decline has been accompanied by a range of challenges, including the need to address macroeconomic factors such as balance payments, as well as fuel availability, he noted.

"Potential investors are wary of investing until they have a clear idea of the future trajectory of the value of the taka. Furthermore, there are concerns regarding the availability and cost of raw materials, which could create obstacles for those looking to establish new industries."

Additionally, investors will want assurances about the reliability and affordability of gas and electricity in the country. These uncertainties have contributed to a general sense of hesitation among investors, the chairman of Policy Exchange Bangladesh further said.