Greenfield FDI in despair

Greenfield investments grew much larger than cross-border mergers and acquisitions in global FDI during CY10 and CY11. However, this was not the case for South Asia as the inflows in many developing countries shrunk on the back of global worries and macroeconomic concerns. CY12 has not been any good in this regard either. Emerging markets have been struck by growing fears of a Euro contagion that would have damaging impact on investments. As a result, the countries have seen reduced investment in both cross border mergers and acquisitions as well as Greenfield projects. In Pakistan, fiscal perils coupled with security and geopolitical fears add to the ado, stymieing any hopes for the current year. Nearing towards it close, FY12 has become a nightmare for Pakistan as FDI for 11MFY12 has tumbled by more than 48 percent to new depths. Pakistan has attracted FDI of around 23 billion dollars over the past decade, with majority of foreign inflows coming in the shape of Greenfield investments. However, the value of these projects has perished briskly over time especially when compared to the South Asian giant, India. According to the latest report by FDI Intelligence, Pakistan amongst others has recorded more than 60 percent growth in capital investment in terms of project size. However, with hardly any inflows from cross border mergers and acquisitions or privatisation proceeds, the dwindling number of Greenfield projects is a direct hit to investment that lands from abroad. Like most of the other South Asian countries including India, Bangladesh and Sri Lanka, primary sectors like energy and telecom have lured most of Greenfield investment in the country over the past decade. FDI during 11MFY12 stood at a mere 756 million dollars, half of what it was during 11MFY11. FDI has been continuously receding at a rate of more than 25 percent YoY since its all time high during FY07. Once eye-candy, saturation in telecom and banking sector has now left oil and gas as the only contributor to the FDI inflows. Looking ahead, foreign investment in the country has no signs of recovering any time soon, especially when the forecasts point towards a slowdown in FDI inflows in emerging economies.

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Investment in Primary Greenfield Projects  (US$ million)
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             Pakistan   India   Sri Lanka   Bangladesh
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Energy         9,233   108,311      448          1,348
Telecom       10,980    77,959    1,724          6,099
Transport        512    21,163        0              0
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Source: Public Private Infrastructure Advisory facility, A World Bank Group