Building capacity to help Africa trade better

Services key to revving up economic growth and development


Services key to revving up economic growth and development

Services key to revving up economic growth and development
Photo credit: Riccardo Gangale | Bloomberg

The services sector accounts for more economic activity than any other and its contribution to gross domestic product, trade and employment is ticking up.

Enhancing the services sector can boost the economies of developing countries and fast-track their progress towards meeting global goals on sustainability, attendees at the seventh session of UNCTAD’s multi-year expert meeting on trade, services and development heard on 1 May.

“The services sector is responsible for two thirds of total productivity growth in developing countries,” said UNCTAD Deputy Secretary-General Isabelle Durant while opening the meeting at the UN’s European headquarters in Geneva, Switzerland.

Ms. Durant said services are key to building productive capacity as they are the main contributors to economic output, accounting for 56% of total output in developing countries.

UNCTAD defines productive capacity as “the productive resources, entrepreneurial capabilities and production linkages which together determine the capacity of a country to produce goods and services and enable it to grow and develop.”

Services also account for 51% of global employment, are the main source of job creation and of female employment, and the main destination for foreign direct investment, constituting about 50% of the world total.

In trade, though services account for a smaller share than goods in total direct exports, they are important as their exports have grown more than goods’ exports in recent years, especially in developing countries.

However, Ms Durant warned that inequalities between developed and developing countries persist when it comes to benefiting from services.

“In addition, the emergence and spread of new technologies, such as artificial intelligence or blockchain, will have an impact on services,” said Ms. Durant, urging appropriate policy responses.

Services in the digital era

UNCTAD’s director of the division on international trade and commodities, Pamela Coke-Hamilton, said digitalization of economies would dramatically transform the services sector. “With the rise of new technologies, there are new ways of trading,” she said.

Digitalization reduces production, transaction and trade costs, notably in e-commerce and digital financial services, which foster financial inclusion. It also gives real market access, Ms. Coke-Hamilton said.

“Mobile phones have completely changed our ability to buy and sell. Services have been completely revolutionized,” she said.

She cited the example of the music industry, in which digitalization has given musicians the power to own and reap more benefits from their works.

More action needed on data and linkages

Ms. Coke-Hamilton drew attention to the data limitations that persist in the services sector. “Having eight-year-old data is a problem. We have to address the huge data vacuum,” she said.

She also underscored the importance of strengthening linkages between services and other economic sectors. Linkages are apparent in infrastructure services such as telecommunications and information and communications technology, enabling cooperation between different activities and participants in the production process.

“The longer we take to incorporate new technologies and innovations into production processes is going to mitigate against how well we do in the new economy,” she said.

Ms. Coke-Hamilton also called for the strengthening of policy, regulatory and institutional frameworks for services in developing countries to harvest more benefits for development.

Services as critical inputs

International University in Geneva’s Christian Pauletto said services are critical inputs powering various sectors. “For example, in tourism, you find services such as transportation, entertainment, telecommunication, financial services, construction, waste management, water and electricity supply,” he said.

In another example, the Chevy Volt vehicle model had 10 million lines of software codes and the value of its software and electronic components amounted to around 40% of the total value of the car, according to a 2017 study by the European Commission’s Lucian Cernat.

Services are driving profitability in manufacturing, said Murat Yülek, rector of Ostim Technical University in Turkey. “Today we cannot separate industrialization from services. If you wish to make good profits in manufacturing, you have to embrace services,” he said.

University of London’s Antonio Andreoni, a senior lecturer in economics at the School of Oriental and African Studies, said more should be done to bolster solutions created for services in developing countries.

“When I move around Africa, I see so many innovations. We need more policies and actions to promote them,” Mr. Andreoni said.

The multi-year expert meeting on trade, services and development took place on 1 and 2 May at the Palais des Nations.

Policy recommendations from the meeting are expected to inform the review of progress made towards achieving the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals at the a high-level  political forum focusing in the issue, in New York in July.


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