KARACHI, April 21: Foreign investment fell by 21 per cent in the last nine months, but the most important factor was the dominance of services sector which remained over 60 per cent of the total foreign direct investment (FDI), State Bank data showed on Monday.

Analysts said that domination of services sector in foreign inflows means less-productive activities and higher outflows.

Despite a troubled year, the country received Foreign Direct Investment (FDI) to the tune of $2.905 billion (without privatisation proceeds) during July-March 2008, which was 21 per cent less than the corresponding year of last year.

The services sector contribution was about $1.743 billion. In this sector, communications (especially telecommunications) and financial services remained a dominant force. The communications sector contributed $923 million during the period while financial sector made an investment of $685.5 million. It gives a clear picture that the foreign inflows were not making contribution to the productivity of the country.

“The services sector investment means investment would make more money and the outflows will continue to rise with accumulation of foreign investment in the services sector,” said a researcher, Abid Saleem.

Earlier, reports suggested that dividends and profit outflow from Pakistan have started soaring and could cross over 1.3 billion by the end of this fiscal.

“At this time while the country is facing a huge trade deficit of over $14 billion in nine months, the rising outflow of dollars from the country will only add to the burden of the country,” said another analyst. The trade deficit has gone beyond the total exports during this period.

For the last five years, the country has been facing the same phenomenon and the production or industrial sector received very little foreign investment, almost ignorable. However, no effort was made to analyse the situation.

The previous government took credit of attracting foreign investment, but the continued inflows in this sector show that the inflows in the services sector were irrelevant to the government.

“The investment in telecommunication and banking is highly profitable. It never stopped despite serious political turmoil in the country,” said the analyst.

The only sector, other than services sector, which attracted significant foreign inflows, was oil and gas exploration.

The investment in this sector was $465 million, 10 per cent higher than the previous year’s nine months.

During the last five years, the services sector contributed higher than any sector which contributed to Gross Domestic Product (GDP).

It shows the national economy is mostly dependent on services sector which does not provide a sound base for a long-term economic growth, said the analyst.