As per the Unctad report, the decrease was evident in both greenfield project announcements and international project finance deals.

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.

The dollar steadied on Monday as investors awaited testimony from Federal Reserve Chair Jerome Powell ahead of the February jobs report at the end of the week that will likely influence how much more the US central bank will raise interest rates.

The dollar index, which measures the performance of the US currency against six others, was last flat on the day at 104.63, having lifted off a session low of 104.34. The index clocked a weekly loss for the first time since January, last week.

After delivering jumbo hikes last year, the Fed has raised interest rates by 25 basis points at its last two meetings. But a slew of resilient economic data has fed a belief among investors that the central bank might have to switch back to half-point rises.

Futures imply a 76 per cent chance the Fed will raise interest rates by 25 basis points at its meeting on March 22, with a 24 per cent chance of a 50 bps increase. The spotlight will be firmly on the February jobs report scheduled for Friday and Powell’s testimony to Congress on Tuesday and Wednesday.

“Of all this week’s events, it will be payrolls that will be the most important one,” Rabobank currency strategist Jane Foley said.

“Are we going to have a continuation of the February outlook of higher for longer or are the markets going to come back to January payrolls is going to be a bit of an outlier and maybe the economy is slowing,” she said.

In early February, the January monthly employment report showed blisteringly fast job growth and sustained wage inflation, which was enough to convince investors that the US central bank won’t have any reason to cut rates this year.

The dollar has risen by around 2 per cent since then, largely at the expense of the Japanese yen, which has lost over 5 per cent in value against the US currency in that time.

The euro, which has lost around 3 per cent against the dollar since early February, was last flat on the day at $1.0635, while sterling was down 0.4 per cent at $1.200.

Weekly futures data on Friday showed money managers are holding the largest bullish euro position in over two years, which drove the currency to nine-month highs in February. But now that’s leaving it looking vulnerable to a steep sell-off, especially if investors’ outlook for U.S. rates does not shift and euro zone economic data doesn’t show a material improvement.

“At this stage, people probably extended those positions assuming a recovery story and what they’re getting instead is a technical recession followed by some resilience and that’s not good enough,” Rabobank’s Foley said.

Powell’s remarks, meanwhile, will be under scrutiny too.

“He may provide clues as to what employment and inflation numbers need to do to make the Fed act in a particular way, especially how it pertains to whether 50-bp hikes are back on the table,” Deutsche Bank strategist Jim Reid said.

The yen was last down 0.24 per cent on the day at 136.15 per dollar, ahead of the final policy meeting on Friday for Bank of Japan Governor Haruhiko Kuroda.

Elsewhere, China’s yuan fell against the dollar, after Beijing set a modest target for 2023 economic growth of around 5 per cent. The offshore yuan fell as much as 0.8 per cent to 6.949 per dollar, while the Australian dollar, often traded as a liquid proxy for the yuan, fell 0.7 per cent to $0.672.

Source: The Daily Star

Have you ever bought any pack of flour produced by Yusuf Flour Mills or heard the name of Yusuf Moyda, the brand under which the company is selling the item?

If the answer is no, then how could the stock of Yusuf Flour Mills be one of the most expensive on the Dhaka Stock Exchange (DSE)?

On February 28, its share price stood at Tk 2,312 on the SME board of the bourse, becoming the fourth costliest stock on the premier bourse of Bangladesh, leaving household names Berger Paints and Renata behind.

“The surge of the stock of Yusuf Flour Mills to the level of multinational companies shows what’s actually going on in the stock market of Bangladesh,” said Abu Ahmed, an analyst.

“What did the company pay back to its investors in the previous years that could have attracted a rational investor to buy it? Very little.”

Since its listing, Yusuf Flour Mills has announced a cash dividend for its shareholders just once. It gave a 10 per cent cash dividend in 2020, DSE data showed.

Yusuf Flour Mills was listed on the DSE in 1987. Because of the disappointing performance, it was sent to the over-the-counter (OTC) in 2009. In 2022, the company was brought back to the SME board.

The surprise did not end there.

A stock of Yusuf Flour Mills traded at Tk 26 on November 9 of 2022 only to skyrocket to Tk 2,884 in the span of just one month, a spike of 10,992 per cent, or more than 110 times.

“The rise of the stock price was mainly driven by manipulation,” alleged Ahmed, a former professor of economics at the University of Dhaka.

Yusuf Flour Mills could not be reached for comments as its page on the DSE neither gave any contact number nor email address. The contact number on the company’s own website was also found to be switched off.

Yusuf Flour Mills is not alone. In fact, most of the stocks that trade on the SME board have skyrocketed recently although the overall market has been in a bearish mood owing to the low confidence among investors because of the global and local crisis.

The stocks on the SME board surged in the past six months due mainly to speculation that a group of dishonest traders are now targeting the SME board to manipulate prices, according to analysts.

But when people start to invest in them, manipulators dump their holdings, forcing the stocks to plummet, they warn.

In August, the stocks of Krishibid Feed Ltd climbed to Tk 46 from Tk 15 in just three months. Then the stock started to decline and the downward trend accelerated after one of its sponsors announced to sell of his entire stake.

On February 2 this year, Md Musherraf Husain, the sponsor, expressed his intention to sell his entire holdings of 11.50 lakh shares at the prevailing market rate.

After the announcement, the stock slumped to Tk 15, down from Tk 25 before the price-sensitive information.

“When a sponsor sells his entire stake, it shows that the sponsor himself thinks that selling the shares is better than holding them,” Ahmed said.

“It is clear that the hike in the company’s share price has benefited the sponsors. The regulator should not let the sponsors sell their stakes within a short time after the company’s debut.”

Sponsors of the firms that trade on the main board of the DSE can’t sell their shares within three years of listing. The lock-in period is just one year for SMEs.

The manipulation around the SME stocks would hand a huge blow to the small and medium enterprise segment in Bangladesh since investors’ trust in the genuine SMEs would also be dented, depriving them of the cheapest source of capital in a country where small-sized firms find it difficult to raise funds.

The Bangladesh Securities and Exchange Commission (BSEC) launched the DSE-SME, the small-cap board, on April 30, 2019, so that SMEs having a paid-up capital between Tk 5 crore and Tk 30 crore could avail financing from the stock market.

“But manipulators have turned it into a gambling board,” Ahmed said.

Ahmed urged the regulator to curb manipulation related to the SME board and communicate with SMEs to encourage them to raise funds from the market.

“Manipulators have targeted the stocks on the SME board as offloading the securities is easy. The BSEC has allowed general investors to invest in the board if they have handsome investments in the market,” said a stockbroker.

In February of 2022, the BSEC eased conditions by reducing the minimum investment requirement to Tk 20 lakh from Tk 50 lakh. Investors don’t have to take any permission now but it was mandatory previously.

After the relaxations of the rules, the SME Index soared 51 per cent, or 696 points in just one month, prompting analysts to criticise the BSEC move. Later, the minimum investment requirement was raised to Tk 30 lakh.

A huge number of investors still qualify to meet the condition, so they have been lured to the new board, the broker said.

“The board has offered a huge scope to manipulators to make unprecedented gains. But it is contributing little to help SMEs raise funds,” the broker added.

The BSEC worked on Yusuf Flour Mills stocks and found that its price was overvalued mainly because the number of tradeable (free-float) shares is low whereas the number of sellers was a few, said Mohammad Rezaul Karim, spokesperson of the BSEC.

The number of shares of the flour mills is 6.06 lakh, of which 53.8 per cent is held by its sponsors, according to the DSE data.

Though the company reopened its factory, its earnings don’t match the prices, he admitted.

“So, we are working to make the SMEs raise their paid-up capital. But it takes time,” said Karim, urging investors to buy a stock after analysing companies’ potential.

After the launching of the board, 10 SME companies raised Tk 104 crore from the market, DSE data showed.

Source: The Daily Star