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Services sector vital to COVID-19 economic recovery

06 November 2020

By Bruno Antunes, Economist, UNCTAD

A woman wearing a facemask in an airport
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Tourism, which supports one in 10 jobs globally, has been hit hard by the pandemic / ©Kawee

A strong and better economic recovery from the COVID-19 pandemic requires governments to make the services sector a key element in their policy mix.

Services play a key role in increasing productivity, efficiency and effectiveness in the whole economy.

Globally, services represent two-thirds of economic output, more than half of the world’s jobs and about a quarter of direct exports.

But direct exports of services are just the tip of the iceberg. Services provide significant inputs to all economic sectors.

With their indirect contributions, including those produced in-house by non-services firms, services can account for almost two-thirds of the value-added of total exports.

Further, services make up two-thirds of total productivity growth in developing countries, making them a key element of these countries’ strategies for industrialization.

At the eighth session of UNCTAD’s multi-year expert meeting on trade, services and development, held in September, experts and policymakers underlined that services can help countries recover better from the COVID-19 crisis, and keep them on track towards the UN Sustainable Development Goals (SDGs).

Turning the tide on COVID-19

As countries reel under the pandemic’s economic impact, the services sector can help turn the tide by creating opportunities for greater income, food security, productivity, employment, investment and trade.

Servicification – putting a premium on the role of trade in services to power national economies – needs to be a key element of countries’ strategies for recovery from COVID-19.

But for services to serve societies and economies, countries need inclusive, coherent and fitting policies. In particular, developing countries and least developed countries need support to strengthen and upgrade their services.

With developing countries relying more on traditional services and developed countries depending on knowledge-intensive ones, the landscape is not even.

Dealing with the pandemic has underscored the need to mind the structural gap between developed and developing countries. It’s critical to promote key services inputs that transform the economy and trade in developing countries.

This calls for international cooperation, including South-South, on trade in services as a key element of the policy agenda.

Digital services transform economies

Services can be used strategically to facilitate economic transformation. These include ICT services that enable telework, digital financial services and e-commerce platforms, which have kept economies running amid COVID-19-induced lockdowns.

ICT services, which can increase efficiency and reduce costs, promote the digital transformation of farming, manufacturing and other sectors.

This services-enabled digitization improves supply and export capacity, enhancing countries’ economic resilience and recovery in the wake of the pandemic.

Digitization of services has helped creative industries cope with the pandemic, as many creatives have turned to digital platforms and technologies to connect with audiences and consumers.

The potential of digitization is equally important in other services that have been severely affected by the pandemic, such as tourism, the world’s third largest export sector (after fuels and chemicals).

A UN policy brief on the impact of COVID-19 on tourism, released in August, projected that export revenues from tourism, which supports one in 10 jobs globally, could fall by $910 billion to $1.2 trillion in 2020.

In July, UNCTAD estimated that the losses could be as high as $3.3 trillion or 4.2% of the world’s GDP, if the pandemic puts international tourism at a standstill for a total of 12 months, a projection becoming more likely in the face of a still unchecked pandemic.

For small island developing states, where tourism accounts for as much as 80% of exports, the impacts of the pandemic are devastating.

Supporting countries to recover through services

As countries leverage services for post-pandemic recovery, UNCTAD continues to provide much-needed support, based on its longstanding experience of working on services, trade and development.

Its range of support includes policy analyses, consensus-building, capacity-building, advisory services and technical assistance on services.

In addition, UNCTAD’s services policy reviews assess and provide recommendations on services policy, regulatory and institutional frameworks.

As the pandemic wears on, the need to strengthen the services sector has never been greater, considering its vital role in enhancing productive and export capacity, diversifying and upgrading production and trade.