The rise of the services economy around the world represents a profound transformation that offers significant opportunities for countries’ sustainable development strategies.
Globally, services now comprise the largest share of economic activity and employment, accounting for almost two-thirds of global GDP. In Africa, services have grown and now account for over 50 per cent of GDP, including for almost 60 per cent of GDP in East Africa. For African countries that are not resource-rich, in particular, services have contributed for the greater part of annual GDP growth since 2000, compared to manufacturing and agriculture.
The rise of services is also occurring in the sphere of international trade and investment. Services are increasingly tradable as a result of technological advances and now represent the fastest growing component of world trade, as well as account for the largest share of global foreign direct investment.
Services, Trade and Development
Services trade is important from a development perspective for various reasons. A range of services – from finance to telecommunications or logistics – are essential to facilitate all other economic activities, and are therefore critical to economies’ overall competitiveness and growth. Access to affordable and efficient services, through trade and investment, benefits all other economic sectors and improves export performance in manufacturing and agriculture.
Services also offer increasing opportunities for exports and diversification. While Africa still only accounts for a small share of total world services trade, the region’s exports grew by 10 per cent in 2018. Services exports of least-developed countries (LDCs), the majority of which are African countries, increased by 15 per cent in 2018, though their share of world services trade remains minute. In the case of Kenya, several services sectors, such as tourism, aviation, finance and ICT, have flourished and boosted the country’s exports and economic growth. Other Industries including, the cut flowers industry have done extremely well as a result of efficient logistics services.
By its very nature, services trade can be instrumental in efforts to promote inclusiveness by providing increased opportunities to women and micro, small and medium-sized enterprises (MSMEs). Globally, the services sector employs more women than other sectors and hosts large numbers of MSMEs. A dynamic and expanding services sector, encouraged by growing trade and investment, contributes to the empowerment of women and enhances economic and social inclusion.
Finally, services are an essential part of regional integration efforts, as recognized by governments in the context of the African Continental Free Trade Area (AfCFTA). Strengthening economic relationships in Africa – including by facilitating the development of agriculture and industrialization – requires a strong services sector in the region. In Kenya, for example, suppliers and distributors of telecom, transport and financial services play a fundamental role in facilitating broader trade integration in East Africa. Services enable landlocked countries overcome geographical constraints and effectively access regional and global markets for their products.
International Cooperation Matters
At the regional level, trade agreements, in particular the AfCFTA, are indispensable in supporting the sector’s expansion and growth. They will ensure that all countries benefit from such expansion of economic activity by creating new trade opportunities and fostering transparency and predictability through clear and mutually advantageous rules. A key test for the AfCFTA would be whether it promotes inclusive growth and sustainable development of all African countries and not just a few.
At the multilateral level, engagement on services has the potential to complement regional efforts and help advance national objectives, while contributing to building a climate conducive for the advancement of African negotiating interests in agriculture and other areas. WTO Members took a notable step in promoting the further integration of LDCs in the trading system by adopting, in 2011, the services waiver, which allows these economies to receive preferential access for their services exports. But to increase the participation of developing countries, including African countries, the capacity constraints faced by them need to be taken into account.
Trade obligations on services are best complemented by the international community’s efforts, in the context of Aid for Trade, to help build domestic services capacity and support governments’ regulatory and trade facilitative efforts.
Paying due attention to both aspects will be key to ensuring that services trade helps fulfil development aspirations of many developing countries.