KARACHI, July 26: Increased attraction for financial business, telecommunications and oil and gas exploration collectively pushed foreign direct investment even higher than last year despite continued political uncertainties and poor economic performance.

The State Bank of Pakistan reported that while the telecommunications still maintained its attraction for the FDI, the financial business proved more attractive and invited more foreign investment than the telecom.

Researchers said for the first time financial business attracted more FDI than telecom sector during the last five years.

Telecom was still the second highest attractive sector despite decline in volume of investment in 2007-08 compared to last year.

Total FDI which crossed $5.152 billion compared to $5.139 billion of last year, a growth of 0.3 per cent, surprised many analysts and economists, painting a bleak picture for the economy.

The FDI in financial business helped the country come out from the depressing scenario that emerged after outflows from the portfolio investment.

The financial business attracted $1.607 billion during 2007-08 as compared to $930 million in the preceding year, a sharp increase of 72 per cent, making the sector best place for FDI.

The FDI in the telecommunications touched $1.438 billion during 2007-08 which was second highest foreign investment but was still 21 per cent lower than last year.

The drop was also because of lower privatisation proceeds which remained half to what it was last year.

The total privatisation proceeds in this sector dropped to $133 million from earlier proceeds of $266 million.

Information technology also attracted FDI much higher than last year. Total FDI in IT sector reached $180 million from $72 million last year, an increase of 151 per cent.

Oil and gas exploration showed steady increase and remained one of the most attractive sectors for foreign investment.

The sector attracted $635 million during the year ended last month. The FDI in this sector was 16.5 per cent higher than the preceding year. However, the related power sector faces a setback as the FDI dropped by 65.5 per cent to remain at $70 million, compared to $204 million of last year.

Some of the sectors, which were attractive for FDI last year, recorded an almost zero response. Tobacco and cigarette, which attracted $389.5 million last year, could hardly attract $9.2 million.

Similarly, beverages, which showed good growth in the domestic market and had attracted $88.8 million, failed to attract FDI, rather an outflow of $1.7 million was reported by the State Bank.

Significant drops were noted in petroleum and refining sector as FDI remained at just $75.4 million compared to $155 million of preceding year.

Construction sector, which is emerging as one of the leading sectors for attraction of FDI and fetched $157 million a year earlier, could hardly attract $88.5 million during the year ended last month.

Analysts believe that the drop in construction was mainly because of uncertain political situation in the country and they see no chance of betterment in the near future as things are still unsettled.

The FDI, which surpassed last year’s figures, was a clear signal that foreign investors have seen good prospects of economy on long term basis, said a researcher.

He said outflow of portfolio investment has no long-term impact as it would come again with an improvement in economic and political situation of the country.

“Speculative investment never shows reliable picture of an economy. It may come again into Pakistan within weeks or in few months, once the situation is ripe for them,” said the researcher.

The portfolio investment fell to just $19 million from $3.288 billion of last year.