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FDI in Bangladesh falls by 32% in H1 of 2020

  • Published at 09:41 pm October 27th, 2020

Global FDI flows fall 49% to $399 billion

Inflows of Foreign direct investment (FDI) to Bangladesh declined by 31.79% to $1.15 billion in the first half of 2020, due to the Covid-19 pandemic.

However, the global FDI flows fell 49% to $399 billion during January-June period of 2020, compared to $777 billion during the same period of 2019, said the United Nations Conference on Trade and Development (Unctad) in its report titled Global Investment Trends Monitor released yesterday.

According to Bangladesh Bank (BB)'s provisional data, during the January-June period of 2020, net inflow of overseas investment stood at $1.15 billion, down by 31.79%, which was $1.69 billion in the same period last year.

Why FDI declined sharply

Both the global as well as Bangladesh’s FDI inflows declined sharply due to the devastating impact of the pandemic.

The global lockdown slowed existing investment projects and the prospect of a deep recession led multinational enterprises (MNEs) to reassess new projects.  

"Amid the pandemic, Bangladesh's economy is doing better among the South Asian nations in terms of GDP growth and our recovery from the economic fallout is better than others,” Bangladesh Investment Development Authority (Bida) executive member Nabhash Chandra Mandal told Dhaka Tribune.

"As the pandemic hit the global economy, the FDI inflows contracted across the globe and we are not out of its impact," said Nabhash.

"However, the drop rate is lower than the global ones and we are hopeful to recover faster than other economies," he added.  

Economists also blamed the pandemic for the decline and called for preparation to overcome the situation.   

Bangladesh’s FDI inflow was in downtrend before the pandemic and it was expedited by the impact of Covid-19. This is because of slowdown of mostly the Chinese economy caused by the US-China trade war and the subsequent pandemic,” Ahsan H Mansur, executive director of Policy Research Institute, told Dhaka Tribune.    

China is the largest investor here, which itself is going through a critical time. Although the recovery has started, it is yet to peak, said Mansur.

Also Read: Unctad: FDI flows to developing economies fall 16%

On the other hand, other investors like the US are not in a good position to invest due to the pandemic, he added.   

“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.

The outlook remains highly uncertain," he added.

FDI in South Asia  

FDI in South Asia fell by 31% to $20 billion in the first half of 2020.

India, the largest FDI recipient in the region, saw 33% decline to $17 billion as the country continued to struggle against the pandemic.

Meanwhile, FDI in developing Asia fell by 12% in January –June period of 2020.

In the other south Asian economies, where investments are largely tied to export oriented apparel manufacturing, greenfield investments have taken a severe hit due to activity stoppage and contracting global demands.  

Announced Greenfield projects in Bangladesh fell by 78% and in Sri Lanka by 97%. 

Global FDI picture

As per the Unctad report, global FDI flows in the first half of 2020 were down 49% compared to 2019 due to the pandemic.

The FDI flows were 28% lower in Africa, 25% in Latin America and the Caribbean and 12% in Asia.

FDI flows to transitional economies were down 81% due to a strong decline in the Russian Federation, while the flows to North America fell by 56% to $68 billion.

The decline cut across all major forms of FDI. New greenfield investment project announcements dropped by 37%, cross-border mergers and acquisitions fell by 15% and newly announced cross-border project finance deals, an important source of investment in infrastructure, declined by 25%.

Developed economies suffer steepest fall

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% compared to 2019.

The trend was exacerbated by sharp negative inflows in European economies, mainly in the Netherlands and Switzerland. FDI flows to North America fell by 56% to $68 billion.

Meanwhile, the 16% decrease in FDI flows to developing economies was less than expected, due mainly to resilient investment in China.

Flows decreased by just 12% in Asia but were 28% lower than in 2019 in Africa and 25% lower in Latin America and the Caribbean.

In the six months to June 2020, developing countries in Asia accounted for more than half of the global FDI. Flows to economies in transition were down 81% due to a strong decline in the Russian Federation.           

The decline cut across all major forms of FDI, the report shows.

The report shows that cross-border M&A values reached $319 billion in the first three quarters of 2020. The 21% decline in developed countries, which account for about 80% of global transactions, was checked by the continuation of M&A activity in digital industries.

The value of greenfield investment project announcements – an indicator of future FDI trends – was $358 billion in the first eight months of 2020.

Developing economies saw a much bigger fall by 49% than developed economies 17%, reflecting their more limited capacity to roll out economic support packages.

The number of announced cross-border project finance deals declined by 25%, with the biggest drops in the third quarter of 2020, suggesting that the slide is still accelerating. 

Outlook for entire year remains negative

Prospects for the full year remain in line with Unctad’s earlier projections of a 30% to 40% decrease in FDI flows, the report indicates.

The rate of decline in developed economies is likely to flatten as some investment activity appeared to be picking up in the third quarter.

Flows to developing economies are expected to stabilize, with East Asia showing signs of an impending recovery.

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.

Despite the 2020 drop, FDI remains the most important source of external finance for developing countries.

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