FOREIGN investment, which began shrinking four years ago, touched a new low in the first quarter of the current fiscal year. This reflects a trend that is likely to continue for some more years.

However, more alarming is the rapid pace with which net withdrawals, divestment and repatriation of profits on foreign direct investment (FDI) is taking place.

Most of the sectors excluding the oil and exploration sector witnessed a significant increase in the outflow of foreign invest-ment during the first three months of 2012-2013.

But the scale of capital leaving the country was amazing in the telecommunications sector which had always done well and attracted global investors. This sector registered an inflow of $78.3 million only against the outflow of $179.2 million making a net outflow of $100.9 million. In the first two months of this fiscal year Norway had withdrawn $124.8 million.

It means some of the cellular firms are packing up to leave the country. In other words, the telecommunication sector which enabled even an ordinary labourer to possess a cellphone because of cheaper rates has touched off its peak and is no more attractive for foreign investors because of rising taxes.

The FDI fell by 67 per cent to $87 million during the July-September compared to $263 million in the same period last year. It is a big fall.

The overall inflow of FDI, including private and portfolio investments, during the quarter was $286 million while the outflow was $199 million.

The FDI had touched its peak level of $5.41 billion in 2007-08. Since then, it has been a downward journey.

The country is facing this situation because of the worsening law and order situation, kidnappings, extortions, energy crisis, high cost of doing business, poor governance and political instability. And it is because of these factors that the country is also facing increased outflows.

Of course, in some cases, parent companies are withdrawing to consolidate their position in the current recent recession in the Eurozone and fragile recovery in the United States.

The only attraction for investors is the oil and gas exploration which was able to receive an investment of $114 million during the first quarter.

The increased outflows may also hit the foreign exchange reserves which on October 12 stood at $14.3 billion.

The rise in the outflows in the first quarter is in fact the continuity of the pattern that had emerged in the 2011-12 fiscal year. According to the State Bank, the overall outflows during the period stood at $1.061 billion while the country received FDI of just $741 million.

In this situation, the only factor giving some solace is the continuing rise in remittances which amounted to over $12 billion in the just-ended year — a feat which only a few countries have accomplished. During the last four years, the foreign direct investment remained below 20 per cent of the FDI the country received in 2007-08.

The details of last year’s FDI show that most of the investment was made in oil and gas exploration sector while other sectors faced either withdrawals or received minor investment.

The outflows from power sector investment were $97 million in addition to a net withdrawal of $85 million. The financial business received $56.4 million but the amount it repatriated was almost twice of that — $133 million.

It is the same story regarding the transport sector which received $10.9 million but sent out $111 million. Outflows from the food sector were to the tune of $69.5 million and from petroleum refining $85.7 million while inflows were only $13.6 million and $14.6 million respectively. The falling foreign exchange reserves and inflows have hit the exchange rate which devalued the local currency by 8.8 per cent against the dollar in the year just ended.

In June, the Senate Standing Committee on Finance and Revenues took up the issue of rise in outflows of profits and capital by foreign companies and favoured restrictions on ‘unlimited’ repatriation.

The finance secretary assured the committee members that his ministry would give a detailed response on this issue after holding consultations with the State Bank officials. He, however, made it clear that there were separate agreements with each of the multinational firms which could not be breached.

Last year, there occurred another change in the investment pattern. For the first time, FDI from developing economies surpassed the volume of investment by the developed economies.

The State Bank data reveals that the FDI from developed economies fell sharply from $1.455 billion in 2009-10 to just $520 million in 2010-11, a decline of 64.2 per cent.

During the first quarter of FY 2011-12, US, UK and other developed countries only invested to the tune of 50.1 million dollars in Pakistan compared to over 290 million dollars in the same period last year.