Trade in Services is Untapped

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The World Bank Group’s Analysts on African economies have observed that African governments and private investors are yet to take advantage of or invest meaningfully in the provision of traditional and modern services. The Africa Pulse report indicates that Africa’s trade in services is still untapped.

In its twice-yearly published report, Africa’s Pulse, which came out recently, the World Bank experts noted that globalization of services is a potentially important source of growth for developing countries, but Africans investors are yet to venture into the sector in order to realize its full potentials.

World Bank Lead Economist in the African region, Ms. Punam Chuhan-Pole, said technology and outsourcing, which are considered as modern services, are enabling traditional services such as transportation and travel to overcome their old constraints such as physical and geographic proximity.

The World Bank Lead Economist was providing analytical views on the report at a discussion on “Africa’s recent economic progress and future challenges in sustaining the continent’s economic growth in a changing global environment,” in Washington D.C. the event was webcast live at the World Bank Group’s Country office in Monrovia.

It was also viewed in several other African countries including Nigeria, Ghana, Sierra Leone, Ethiopia, amongst others. Journalists from the continent had the opportunity to interact with the two discussants, Ms. Chuhan-Pole, and World Bank Chief Economist for the region, Franscisco Ferreira through questions and answers.

The bank Lead Economist said that modern services, such as software development, call centers, and outsourced business processes, can be traded like value-added, manufactured products, enabling developing countries that focus on such services, innovation, and technology to leverage services as an important driver of growth.
“Has Sub-Saharan Africa tapped this potential? At over $50 billion, the region’s services exports trail all other developing regions; however, it is expanding annually at about 12 percent, on average.

Traditional services such as transportation and travel have declined from 73 percent of total services exports in 2005 to less than 64 percent in 2012, while modern services exports in the region have increased their share by nearly 10 percentage points from just over 26 percent of total services exports to about 36 percent over the same period,” the Africa’s Pulse reported records.
It said in some countries such as Mauritius, Rwanda, and Tanzania, modern services exports recorded annual growth rates of over 10 percent between 2005 and 2012, with Rwanda starting from a low base of less than $40 million in services exported in 2005 to over twice that amount at almost $85 million by 2012.

In both Mauritius and Rwanda, rapid expansion in modern services is a result of increased activity in tradable business and financial services. Over 60 percent of those employed in large companies in Mauritius work in the service sector, which offers more employment opportunities than either agriculture or manufacturing.
“While Mauritius, Rwanda, and Tanzania have experienced a rapid increase in modern services, others like Kenya are also emerging as places where modern services are becoming drivers of growth and development. This is exciting news for other African countries looking to expand into the globalized services business.” says Punam Chuhan-Pole, who is also the author of Africa’s Pulse.

In a special analysis of the region’s growth and trade patterns in Africa, the report says that export diversification remains a tough challenge for many African countries, especially amongst the oil producers.
“Although Sub-Saharan Africa’s exports remain concentrated in a few strategic commodities, the region’s countries have made substantial progress in diversifying their trading partners,” says Francisco Ferreira, Chief Economist, World Bank Africa Region. “Over the last decade, exports to emerging markets such as the BRICs—Brazil, Russia, India, China—have grown robustly, primarily due to the prolonged boom in commodities demand. The BRICs received only 9 percent of Sub-Saharan Africa’s exports in 2000 but accounted for 34 percent of total exports a decade later.”
Ferreira says total exports to the BRICs surpassed the region’s exports to the European Union (EU) market in 2010 and continue to grow. In 2012, the region’s exports to the BRICs reached $145 billion. China alone accounted for about a quarter (23.3 percent) of the region’s total merchandise exports. Of course, this shift in trading partners also underscores the region’s vulnerability to any slowdown in the BRICs, particularly China.

 

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