Sharp 35pc fall in greenfield FDI in 2024 puts Bangladesh at odds

Greenfield foreign direct investment (FDI) into Bangladesh took a significant hit in 2024, with announced project values plummeting to $1.75 billion, according to the latest World Investment Report by the United Nations Conference on Trade and Development (UNCTAD).

The 35-percent decline from $2.70 billion in 2023 stands in stark contrast to broader regional trends.

While South Asia recorded a 5.8 per cent growth in greenfield investments during the same period, Bangladesh lagged behind, raising concern among analysts and policymakers alike.

Greenfield investment, where a foreign investor builds new facilities or operations from the ground up, is widely seen as a catalyst for sustainable economic growth.

These projects typically create new production units, distribution centres, corporate offices, and staff accommodation, contributing to employment generation, industrial expansion, and technology transfer.

"This is very alarming for the economy," said Dr. M. Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh.

He noted that the decline signals a sharp drop in new capital inflows, as most recent FDI involves reinvestment or expansion of existing projects rather than fresh investments.

Several factors have contributed to this downturn, Dr. Reaz explained. "The balance of payments has remained volatile since 2022. Measures to curb imports and protect foreign exchange reserves have also discouraged investors."

He further cited political uncertainty stemming from the August movement of 2024 and upcoming national elections as additional deterrents.

He also highlighted long-standing structural problems that continue to impede Bangladesh's investment climate - including weak governance, lack of policy continuity, and inadequate port and logistics infrastructure.

"Greenfield investments are essential for Bangladesh, especially as the country transitions from a labour-intensive economy to a more diversified, knowledge-based one," said Dr. Khondaker Golam Moazzem, Research Director at the Centre for Policy Dialogue (CPD).

"A decline of this magnitude is concerning, as it reflects waning investor confidence and could delay planned industrial expansion."

Dr. Moazzem pointed out that in recent years, most foreign investments have come in the form of reinvested earnings, while equity investments, typically associated with greenfield projects, have seen a marked decline.

He added that the domestic business environment is becoming increasingly unfriendly to new equity investors, citing several barriers such as irregular gas and electricity supply, shortage of quality raw material suppliers, a poorly structured supply chain, and recently emerging issues like restrictions on profit repatriation and an unstable exchange rate.

Globally, greenfield investment remained robust in 2024, according to the UNCTAD report, reaching $1.3 trillion - the second-highest level on record.

Much of this growth was driven by the boom in information and communication technology (ICT), particularly in data centres, cloud infrastructure, and digital services.

However, Bangladesh has largely missed out on this wave of tech-driven investments, despite its increasing internet penetration and a large, youthful population.

"We are not yet seeing the kind of data-driven infrastructure investment that's flowing into other emerging markets," said a Dhaka-based ICT entrepreneur, who asked not to be named.

Analysts attribute Bangladesh's sluggish FDI inflows to a combination of policy unpredictability, bureaucratic red tape, infrastructure bottlenecks, and persistent concerns over political stability - all of which pose significant risks for investors seeking clarity and efficiency in emerging markets.

Despite these challenges, officials at the Bangladesh Investment Development Authority (BIDA) remain hopeful.

"We are taking steps to streamline regulatory approvals and improve the ease of doing business," said a senior BIDA official, requesting anonymity. "We expect the numbers to rebound in the coming years as reforms take hold."

jasimharoon@yahoo.com