Services for economic resilience and post-pandemic recovery

Ladies and gentlemen,

Services are a giant of the world economy, and for your economies in the Caribbean, they are a lifeline.

Services generate about two thirds of global GDP, half of all jobs, half of investment, and a fourth of global trade.  This is already a lot, but its weight in the economy keeps growing. In part, this has to do with the “natural” path of development when economies diversify from agriculture and manufacturing to services, and in part it is due to what we call the “servicification” of economies.

The latter reflects that services provide critical inputs for goods. They are embedded in goods and provided within firms.  Think about the apps on your phone, the software on your computer or your smart TV. When we account for all these services, they generate almost two thirds of the value-added of exports, and explain about two thirds of total productivity growth in developing economies.

And the importance of services is even more pronounced in the Caribbean.

In 2019, services accounted for 70% of GDP in your region. Between 2008 and 2018, your services exports grew more than 3% annually while your exports of goods declined. Exports of travel services represented 62% of these total services exports in 2018.

This mirrors the fact that the Caribbean has a natural beauty that is an enormous asset for the tourism industry, but also the limitations that countries with small economies of scale face in terms of agriculture and manufacturing.

Precisely this reliance on tourism resulted in a big blow to your economies in the COVID-19 crisis. The pandemic has had an unparallel impact on the tourism sector. Last year we estimated that in Jamaica, for instance, the impact of COVID-19 on tourism could cost its economy about 11%. Globally, we estimated that the cost could be between 2.8% and 4.2% of GDP.

The upper bound was the pessimistic scenario at that time, but unfortunately it has become the more realistic scenario.

The importance of tourism services is the key factor behind the deep slump and slow recovery of total services trade from this crisis. While trade in goods started recovering in the second half of 2020, services continue to be in a dire state. In the first quarter of 2021, services trade was 9% lower than in the first quarter of 2020.

This brings me to the critical role that services must play in building economic resilience and recovering from COVID-19.

The pandemic accelerated two trends: “servicification” and digitalization. They both facilitated connectivity and offered means to overcome restrictions on physical mobility.

The “servicification” means that improvements in services are crucial for productivity and competitiveness. For example, the competitiveness of the automotive industry depends on access to good software, or digital financial services are a key component for a successful banking industry.

The Barbados Coalition of Service Industries has shown how services could contribute to strengthen other activities. For instance, marketing services are used to promote the “rum trail” which incentives tourists to stay more time on the island and increase their demand for rum.

ICT services and digitalization deserve special attention in the recovery, as they increase tradability, reduce trade costs and increase productivity. They are drivers for future trade growth.

Another aspect of the services economy that is valuable for an inclusive recovery is that it employs many women. Women occupy about 45% of all services jobs. Given that the COVID-19 crisis has had a disproportionate impact on women, rebuilding and strengthening services is an important opportunity to support women and their critical contribution to the economy.

But there are challenges for the development of the services sector and for tapping their export potential.

For instance, many developing countries struggle with tapping the opportunities of ICT services owing to capacity, technology, and skill gaps. In your region, this is reflected in the fact that ICT services exports accounted for less than 1% in 2018.

Also building resilience of the tourism sector will require increasing ability to use ICT services. This is needed to boost efficiency in tourism activities, connect providers to consumers, or provide online travel agency services.

But this is not enough. To build resilience, countries in the Caribbean need to further diversify and upgrade their economies. This requires coherent and supportive policies and regulations, such as:

• Trade policies to reach foreign markets and benefit from foreign inputs.
• Industrial policies to address structural gaps and support diversification and upgrading strategies.
• Use of a holistic government approach and coordination with civil society and critically the private sector, including business and professional associations.

Organizations, such as the Barbados Coalition of Service Industries, are important to foster coordination among MSMEs and achieve economies of scale. Coordination is needed, for instance, for trade promotion, provision of inputs to trade negotiations, sourcing inputs from providers, or investing in training.

These endeavours are challenging for many developing countries. In this process, we are here to support you, either with tailor-made policy analysis, technical assistance or with deepening dialogue on the challenges and opportunities in front of you. As concrete example I can mention our eTrade readiness assessments which provide countries a tool to assess and address gaps for participating effectively in digital trade.  

With this in mind, I close my intervention and I welcome to have another opportunity to discuss with you at UNCTAD 15, which is being co-hosted with Barbados in October.