The services sector contributes almost half of the African continent’s economic output, and it has been growing at about twice the world’s average, signifying its transformative potential for the entire continent. This volume is a compendium of five case studies of successful services exports in Africa.

It highlights Air Transport Services in Ethiopia, Banking Services in Nigeria, Business Processing Outsourcing/ICT Services in Senegal, Cultural Services in Burkina Faso, and Higher Education Services in Uganda. The studies are an examination of possible best practices in services exports on the continent, as seen from the suppliers’ point view, with a review of the role of government policy and other factors that may have shaped their success. The countries and sectors were selected on the basis of their service sector performance.

In some cases (such as for Cultural Services in Burkina Faso), the authors have looked for non-traditional service sectors, especially where the private sector’s role in exploring the foreign market has been a critical success factor. Policy makers will find in this volume a gold mine of effective strategies that can be valuable in stimulating their services exports. Services firms can also learn from these case studies, while researchers and students can benefit from a trove of information to further stimulate research on African trade in services. Further, this compendium clearly demonstrates how public-private partnerships are critical to the growth of the services sector.

The studies find that most of the services exports from African Union members at present go to the regional market but some African countries have already diversified beyond the continent. In addition, they find that while certain initial factors have been key to the competitiveness of services sectors, supportive government policies and a conducive business-enabling environment have also been critical to their growth.

This report concludes that the services sector has the potential to become a significant driver of sustained economic growth and structural transformation in Africa. This is a very important finding in light of our Agenda 2063 aspirations.

Overview of services exports for growth and development: Case studies from Africa

In the current context of globalised trade, African economies must improve their competitiveness and diversify their economic base. Trade in commodities, though still the prime generator of employment and foreign exchange earnings, can no longer by itself power Africa’s development. Export preferences for traditional products such as bananas, sugar, and clothing are eroding; African economies must focus on new, sustainable sources of employment, exports, and growth. The increasingly competitive services trade is an important emerging opportunity to explore.

In January 2012, the African Union Summit of Heads of Government adopted an Action Plan for Boosting Intra-African Trade and a framework to fast track the proposed Continental Free Trade Agreement (CFTA). The plan highlighted trade in services as a promising approach to enhance intra-African trade and increase competitiveness.

African services trade has been largely underexploited to date; therefore, the African Union Commission has undertaken five case studies highlighting successful service export strategies. The papers are designed to raise awareness of the service industry’s export potential, and are particularly timely given the decision by the African Ministers of Trade to negotiate services in 2015 in pursuit of CFTA implementation. These case studies are part of an ongoing effort by the African Union Commission to increase awareness of the contribution of services to individual African economies.

The general objectives of these services case studies are threefold:

• To promote knowledge of services trade and of the actual and potential contribution of services exports to economic development and regional integration in Africa

• To obtain data on service sectors and exports for inclusion in a repository of services ‘best practices’ in Africa and an African Trade Observatory services database

• To illuminate the critical impact of policy choices on successful services sector development and export growth across Africa.

Many are not aware that all African economies already export services in some form. The contribution of these exports to economic growth and trade profiles are even less understood. International trade is now characterised by global value chains, in which services play a key role; Africa has yet to realise its full potential in this arena. Understanding how to successfully promote and leverage services exports may encourage African leaders to shape policies that are service-provider friendly and boost participation in regional and global trade.

Scope and Coverage of Case Studies

Little is written specifically about individual services sectors in African economies. This is a challenge for policy makers; to make better informed decisions on appropriate service-sector policies, they need more information on services and the role they play in national development and international trade. We analyse five services sectors in five African countries in order to begin to fill this knowledge gap:

• Air Transport Services: Ethiopia

• Banking Services: Nigeria

• Business Process Offshoring (BPO) and ICT Services: Senegal

• Cultural Services: Burkina Faso

• Education Services: Uganda

All but Nigeria are least developed countries, significant because the case studies highlight least developed AU members’ active engagement and comparative advantage in certain service export markets. This is contrary to the widely held perception that African countries at lower levels of development cannot export services. That is simply not true; services exports often add significantly to national output, employment, and foreign exchange earnings, including in least developed countries.

For each case study, a local expert worked in tandem with an international specialist. A questionnaire tailored to the specific structure of the service sector in question was used as the basis for interviews with national counterparts in each country. The case study research was made possible through the support of international donors, including the European Union (EU), the U.S. Agency for International Development (USAID), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and the United Nations Development Programme (UNDP).

All five case studies follow a similar outline so their findings are as comparable as possible. Content includes:

• Basic data on services in the selected country

• Overview of the selected service sector: market structure and contributions to gross domestic product (GDP), employment, growth, and trade

• Policy and institutional framework for the service sector

• Success stories in exporting the service in question

• Factors affecting comparative advantage in the selected service sector, including skill availability; literacy and training; financial attractiveness; business environment; infrastructure quality, especially in the telecommunications sector; and ease of doing business

• Government policies affecting successful services exports, including how services policy has been incorporated into national economic objectives and strategic planning, and what types of incentive policies the government has adopted to promote the services sector in question

• Analysis of strengths, weaknesses, opportunities, and challenges (SWOT) to encourage service sector development and exports

• Lessons learnt and best practices.

Although covering very diverse sectors, including two traditionally considered non-traded, the five case studies all underline how services markets developed and which policies enabled their success.

Main Conclusions and Policy Lessons from the Case Studies

The five case studies set out conclusions and recommendations for how governments can develop a more effective services trade policy framework. Best practices in these export success stories, and also less successful outcomes, are highlighted in the studies. Below are the main conclusions and policy lessons under six headings.

1. Most services exports from these five sectors are directed at the regional market, but some exports have already been diversified beyond the continent.

The five countries have had notable success in exporting services in the respective sectors studied. In the case of education services and cultural services, most of these exports have been directed to the regional market within Africa. However, banking services, BPO/ICT services, and air transport services have travelled not only within, but also beyond African borders. BPO/ICT exports from Senegal are going to France and other Francophone locations in Europe. Ethiopian air transport services are directed all over the world, with destinations in Europe, the Americas, and Asia. Banking services from Nigeria are present in international operations in six countries outside of Africa. Exporting services typically begins at the regional level and moves further afield if successful.

2. Successful exports in one mode of supply have generated services exports in other, complementary modes.

It is striking to observe that when one mode of supply has generated successful services exports, exports in complementary modes of supply often followed. For example, the successful export of Ugandan higher education services through attracting foreign students has led to three universities establishing branch campuses abroad. EAL’s successful export of air transport services has led to the establishment of local training schools for pilots and air transport personnel. Successful Nigerian banking services exports have led to the establishment of foreign branches and subsidiaries, accompanied by the movement of skilled Nigerian banking personnel. This underlines the importance of implementing policies favouring modal neutrality both at home and in common export markets, so that firms can choose the most effective and efficient mode of service delivery.

3. Initial advantage in the services sector was due to specific factors, in many cases leveraged into bigger export growth and success over time.

In all five cases certain factors gave each country an initial advantage in their particular sector: location, size, factor endowment, or historical development, as follows:

• Air transport services in Ethiopia: First mover advantage with the establishment of Ethiopian Airlines in 1945, and its geographical hub location

• Banking services in Nigeria: Inflow of petroleum foreign exchange, providing a surplus of capital in the domestic market to leverage for investment abroad

• BPO/ICT services in Senegal: Skilled entrepreneurs with good knowledge of, and connexions to the French market

• Cultural services in Burkina Faso: Numerous creative artists and a historical tradition of cultural festivals and activities

• Education services in Uganda: Unique position of Makerere University after its 1935 transformation into a Centre for Higher Education in East Africa to serve the needs of the East African region.

All five countries have been able to parlay or leverage these initial advantages into bigger growth and export success over time, some more successfully than others.

4. Government policy has been critical in helping initial advantages to grow; conversely, the lack of supportive government policy has hampered further growth in services exports.

In some of the cases studied, the government was proactive in helping initial advantages grow for the specific service sector; in other cases government policy has been neutral or inactive. In the latter cases it is questionable whether the sector’s initial success is sustainable.

Whilst government policies were not present during the Senegalese BPO/ICT industry’s infancy, the government soon actively targeted the sector with a number of directed support policies. In Burkina Faso the government has been consistently involved from the outset, providing targeted policies and financial support for the cultural services sector.

In other cases, the respective government has developed an appropriate regulatory framework enabling the sector’s success. This is the case for air transport services in Ethiopia and banking services in Nigeria where the government has not provided direct support, but has ensured both an open and competitive domestic environment as well as sound regulatory structures.

In the case of higher education services, the Government of Uganda has identified the sector as a policy priority following its initial reform, but has not implemented any specific support policies, putting the further growth of education services exports somewhat into question.

5. For cases where government policy has actively supported services sector development, services exports have grown impressively.

Various types of proactive policies have been shown to play a positive role in this regard. For all sectors studied, when government policy proactively targeted services development (whether it be through positive incentives including subsidies, training programmes, and tax incentives; key trade policy decisions and engagement; or sectoral regulatory reform and liberalisation), the sector in question grew substantially.

Exports of Senegalese BPO/ICT services were strongly facilitated by liberalisation and trade commitments in the telecommunications sector in concert with other facilitating policies and investment incentives. Likewise, the liberalisation of an “open skies” policy in the Yamoussoukro Decision provided an impetus to develop Ethiopian air transport services and also served to design a liberal and open regulatory framework. Similarly, regulatory reform, accompanied by strong fiduciary principles and guidelines, created a sound financial environment in which Nigerian banks could first consolidate their capital base and subsequently expand to foreign operations. Targeted policy interventions and governmentsponsored private-public partnerships for cultural activities have allowed cultural services to continue to thrive in Burkina Faso. Reform and liberalisation of the Ugandan education sector allowed the establishment of private universities and has enabled the country to attract numerous foreign students, thereby stimulating higher education service exports.

The five case studies demonstrate that supportive government policies and/or an adequate regulatory framework significantly impact the success of services exports.

6. Constraints and weaknesses of other service sectors threaten to inhibit expansion of successful services exports in the cases studied.

The future expansion of successful service export sectors is threatened by the weaknesses of complementary service sectors in the home market. In the case of Senegalese BPO/ICT services, a weak education sector limits a sufficient supply of skilled human resources in the form of trained engineers and computer specialists. Inefficiencies in the financial services sector constrain EAL’s ability to raise capital and take out loans to expand the air transport services sector. The lack of low-cost Internet in the Ugandan telecommunications sector severely constrains further expansion of education services. Exports of Burkinabe cultural services are negatively impacted by the small size and weak infrastructure of the tourism sector; it is difficult to attract larger audiences to various cultural fairs and shows. Thus the entire services environment and the viability and efficiency of related services sectors play a decisive role in the export success and sustainability of each specific service sector examined.