Staff Correspondent: The Greenfield investment projects has dropped by 78% in Bangladesh, says United Nations Conference on Trade and Development (UNCTAD).
Greenfield investment project announcements are an indicator of future foreign direct investment (FDI) trends.
In global context, the FDI flow contracted 49% in the first half of 2020 compared 2019 as lockdown around the world slowed down existing investment projects.
The decline cut across all major forms of FDI. New greenfield investment project announcements dropped by 37%, cross-border mergers and acquisitions (M&As) fell by 15% and newly announced cross-border project finance deals, an important source of investment in infrastructure, declined by 25%.
The UNCTAD made the observation in its latest report titled “Investment Trend Monitor” released yesterday.
According to the report, developing economies (-49%) faced severe fall and developed economies (-17%), indication more limited capacity to roll out economic support packages in the developing countries.
On the other hand, Cross-border M&A declined 15% globally, while it rose 12% in developing countries. However, the value dropped 21% in developed economies, which is 80% of global transactions.
The number of announced cross-border project finance deals declined by 25%, with the biggest drops in Q3, suggesting that the slide is still accelerating.
FDI remains the most important source of finance for developing countries
Despite the drastic decline, FDI remains the largest sources of external financing for developing economies, although official development assistance (ODA) and remittance play a relatively greater role in least developed countries (LDCs). Remittance, the second largest sources of financial flows is especially important for developing countries are strongly affected by the economic downturn in developed economies where most of the migrant workers earn their income. The overall picture of external financial flows is especially important for developing countries facing external payments problems, which may be aggravated by a prolonged downturn in FDI inflows, said the report. Developed economies experienced the biggest contraction of FDI (75%) overall. The trend was exacerbated by sharply negative inflows in European, One the other hand, North America fell by 56% to $68 billion. Due to resilient investment in China Asia’s FDI inflows dropped only 12%, while the value was 28% lower in Africa, 25% in Latin America and the Caribbean. However, due to investment activities start to pick up in developed economies, the rate of decline in developed economies is likely to flatten in the third quarter of 2020. One the other hand, recovery sign of the East Asians’ countries may stabilize the declining trend of developing countries. Country wise, Italy (-74%) experienced highest fell in FDI flow in first half of 2020, followed by the United States (-61%), Brazil (-48%) and Australia (-29%). The neighboring country India, lost 29% of FDI inflow in the first half. The outlook remains highly uncertain, depending on the duration of the health crisis and on the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical risks also continue to add to the uncertainty.
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