Africa Rising - Seminar on the Growing Potential of Trade in Services in Africa
02 October 2015
Good morning,
As we embark on the post-2015 agenda, Africa finds itself at an important crossroads. In view of the challenges ahead, I'm grateful for the invitation to present UNCTAD's 2015 Africa Report, "Unlocking the Potential of Africa´s Services Trade for Growth and Development".
Our hope is that this report can provide timely policy guidance on how services can be instrumental to Africa's development story.
Search Google for "African economy," and what you'll find are images of women balancing baskets on their heads or picking cotton in the fields, and men toiling in the mines.
But these traditional impressions obscure how Africa is changing, and changing fast, mainly through the dynamism of Africa's service sector. And, more importantly, according to our report, it is completely missing that services has become the main driver for economic growth at large, indeed the much hyped talk about "Africa's rising". The rise of Africa is very much a services phenomenon.
Growth in services in Africa has, in fact, grown at more than twice the average global rate between 2009 and 2012. In 30 of Africa's 54 countries, it was services that propelled their GDP growth. In no less than 45 African countries, the share of services in total output grew, whilst - at the same time - some 30 countries saw manufacturing contracted. Also: the services sector now accounts for 32 percent of total employment on the continent.
And we have just seen the beginning: as Africa's middle class swells in urban regions, the services sector is expected to expand further. Though Africa remains a marginal player in global services trade, with an export share of merely 2.2 percent (US$271 billion in 2012), the sector represents a vital source of export revenue and future growth.
So: why do we think this is good news, not only for services in Africa, but for Africa's economic development at large?
Here we are fully in concurrence with what also various Swedish studies have shown. Regardless of an economy's development level and irrespective of whether it is commodity-dependent or manufacturing-based, services are the "grease" that keeps the engine of an economy moving. The developmental impact of services reaches far beyond individual sectoral considerations.
Without transport services, you cannot get your goods to the market.
Without communication services, it's more difficult to strike a deal.
Without financial services, it's more difficult to close a transaction.
Let me provide a few more concrete examples.
Take cell phones.
Across urban-rural and poor-rich divides, cell phones connect people to their communities, to information, and to markets. As we've just heard from Minister Stenström, in Nigeria, fertilizer and seeds are now distributed via electronic vouchers.
In Ghana, farmers in far-flung villages can learn about corn and tomato prices in Accra via text. And in Malawi, those infected by HIV and AIDS can receive daily alerts to remind them to take their medicines.
Healthcare services can also be tools for development. As part of the "Pan-African e-Network" project, doctors in India are helping to remotely diagnose patients in 53 hospitals in Africa. And the same project makes it possible for African students to study medicine under lecturers at universities in India.
Banking services provide another good example. Equity Bank Kenya has successfully increased access to financial services by waiving property-ownership requirements and by allowing anyone with a national identity number to open an account. The bank has also made it easier for Kenyans to use personal belongings as an acceptable form of collateral. And in areas where there are too few customers to justify a new branch, the bank has dispatched trucks with satellite dishes to do the job.
So it's clear that the services sector can - and must - be part of growth and development strategies. But how?
I will here zoom in on three key takeaways - or policy conclusions for oustanding homework, if you will - from the report.
First, we must do more and better in enleashing the services sector as a key driver for structural transformation, which entails a shift from low- to high-productivity activities. But doing so will require greater efforts to create linkages between services and other potential growth sectors. In other words, prioritize those services that are strategically important.
As Minister Stenström put it just a few minutes ago, services and goods now "come in a package."
There is ample scope for African countries to position themselves as competitive services providers in manufacturing value chains. But to succeed, this would need to involve complementing basic infrastructure services, such as water and electricity, with services that add more value at the higher end, such as design, packaging and branding. If managed properly, this shift could yield greater productivity gains and thereby accelerate structural transformation.
In this respect, the service sector also offers enormous potential for more and better job opportunities.
As I already mentioned, the services sector accounts for 32 percent of total employment in Africa. In some countries, as much as two-thirds of the workforce is involved in services. However, in many countries, low-productivity and subsistence services (such as retail trade, restaurants, and transport) remain part of large informal sectors.
Our report makes the case for brining informal services into formal services. This will be critical for raising productivity. This goal is ambitious, as policies will need to address the fairness of tax systems, reduce corruption and regulatory burdens, and improve credit to small firms.
Policies will also need to facilitate greater accountability of public institutions and small business support services. But the payoff could be significant.
The second takeaway from the report is that we must tackle the fact that infrastructure services provision remains suboptimal and costly.
Various regulatory and policy shortcomings impede Africa from fully capitalizing on its services potential. Let me explain.
Infrastructure services (in the areas of transport, telecommunications, water, energy, or sanitation) are the backbone of economic growth. The absence or undersupply of these services raises production costs - reducing the competitiveness of a country.
Road freight, for instance, is more expensive in Africa than in any other region in the world. One study even estimated that international transport costs were nearly 13 percent of the delivered value of African exports - more than twice as high as the world average. For firms seeking to integrate into global value chains, better infrastructure could significantly boost competitiveness.
Further, improving basic infrastructure services is indispensable to the achievement of the sustainable development goals. Ensuring clean water and clean energy, for instance, will contribute to the achievement of SDG targets and create new opportunities for entrepreneurs in the services sector.
How can infrastructure services be improved?
Given the capital-intensive nature of provision, and due to constrained public finances, African Governments must consider options that encourage private investment where feasible.
In part this is about creating a more favourable business environment, slashing unnecessary costs to doing business. But, while necessary, it is unlikely to be sufficient. After all, investing in infrastructural services require very long investment horizons, and market failures are notorious in this context. Therefore, in addition, countries could, for instance, seek targeted investments aimed at redressing market failures, either in the form of equity or long-term loans.
To be clear: We are not making the case here for certain types of ownership structures. The type of infrastructure services ownership - whether public, private, or a mixture of both - may vary and is ultimately a national choice. Instead, what matters to get better provision of services, in our view, is the institutional framework.
African countries need, esp if they choose to liberalize its infrastructure services sector, independent regulatory bodies. And these authorities need to be vested with enough autonomy to govern access, affordability, and quality control.
A better regulatory framework for - and greater investments in - African infrastructure services can increase competitiveness and accelerate inclusive growth. So far, it is lacking in far too many places.
The third takeaway from the report is we need to put services at the front and center of economic policy-making for sustainable development. Currently, if thought of alltogether, services are often treated as an afterthought, or add-on. In fact, much of the services revolution in Africa seems to have happened more by default than by design. It has happened not thanks to governments' actions, but despite the lack of actions, or - worse - despite actions by governments.
The sector is "too little, too scattered." Let me elaborate.
One obstacle to a greater role for Africa's services sector is the disconnect between the national, regional, and global levels of policymaking.
For example, at the national level, though many African national development plans mention services, they do not clearly articulate what role the sector should play in the overall development vision. And even where services are mentioned, in several instances, the very same services that are promoted nationally by some governments do not figure prominently in their regional integration initiatives, or in their undertakings at the WTO.
Take the regional Tripartite initiative: During the negotiations, an agreement was reached to negotiate trade in goods first, relegating services negotiations to a later stage.
And, although there has been some progress at the continental level to bring a regional dimension into services trade, the African Union still lacks a comprehensive vision document or strategy.
In other initiatives, such as SADC and ECOWAS, members have been engaged in sectoral negotiations in the areas of transport and telecommunications, but a cross-sectoral plan for regional services openness is still missing. If anything, countries seem to tread carefully, opting for incremental and gradual approaches.
This tendency for "too little, too scattered" is not for free. Africa has huge untapped potential for regional integration. Intra-African trade amounts to around 14% of total African trade. Compare that with 50% or more for East and SE Asia, or some 60-65% for EU. But to capture these huge potential gains from trade in Africa, better connectivity between counties, markets and peoples must be ensured. And for this, services are crucial.
Simply put: The services sector is not being prioritized enough in the economic, development and trade policy agenda. This is unfortunate and it self-defeating. Services liberalization needs to be part and parcel of regional integration to support and enhance Africa's capabilities of harnessing the gains of greater intra-African trade, as well as to better integrate in regional and global value-chains.
Moving forward, and in preparation for the launch of the Continental Free Trade Area (CFTA), modalities will have to be developed, such as protocols dealing with trade in goods, rules of origin, NTMs, services, and movement of natural persons.
At the regional level, greater coherence may be achieved if the African Union makes use of the High Level African Trade Committee (HATC) to facilitate consultation and coordination of regional agendas. This would also strengthen bottom-up participation in negotiations in Geneva, Brussels, and Washington.
In conclusion, there are one promise and three lessons that I'd like to leave you with.
The promise is that Africa's services boom is vibrant, dynamic, fuelling economic development at large and looks likely to stay.
The lessons are:
First, services can support a process of structural transformation if policymakers promote more sophisticated services where there is potential for greater value addition and deeper linkages with other sectors of the economy.
Second, inadequate infrastructure services must be improved to remove obstacles to competitiveness and, for that, getting the regulatory framework right is ket.
And third, we must address the disconnect between national, regional, and global regulation to fully leverage the potential of the services sector in Africa.
And now, in the interest of brevity, I'd like to turn it over to Peter Stein. Thank you very much for your attention. I look forward to the enriching debate to follow.
