Source: NESA by Makers
The COVID-19 pandemic has left many traditional services sectors devastated due to travel restrictions, border closures, and social distancing protocols, from tourism and food services to retail and healthcare industries. But the pandemic has also highlighted opportunities for future growth in services, including cross-border consulting and computer services for telehealth, and movement of other professionals across the continent.
As trading under the African Continental Free Trade Area (AfCFTA) is now set to kick off on 1 January 2021, it is critical that African countries re-double their efforts to liberalise trade in key services sectors to boost investment and catalyse growth. When coupled with policy reform, infrastructure investment, and cross-border cooperation, services’ competitiveness can spur inclusive sectoral and regional economic growth and bring increased trade and resilience to the region.
Globally, trade in services, such as communications services, education, energy, and health and social services, makes up 7% of global GDP and is valued at more than USD13 trillion. Trade in services has been increasing at a rate faster than that of trade in goods and makes up approximately 50% of developing countries’ GDP. Despite the importance of trade in services in the global economy, Africa represents a fraction of that total, with more traditional services such as transportation and tourism dominating services trade, while non-traditional sectors, such as business, communication, or distribution services, are often overlooked by investors and governments alike.
The COVID-19 pandemic, particularly in Africa, has put into focus the economic urgency of investing in key services sectors. Here are five reasons to increase the level of ambition in AfCFTA services negotiations and for Africa to invest or attract further investment in tradable services sectors.
1. Increased Agriculture Competitiveness and Food Security
Globally, over 30% of all workers are involved in agriculture, while 70% of the population in Africa is either directly or indirectly involved in services. Trade in services plays a vital role in the global food trade just as it does in the manufacturing, assembly, and distribution of critical medical equipment. In agriculture, more competitive food value chains are a result of efficient transportation and logistics, ICT, and financial services.
Comparatively, in Latin America and the Caribbean, where transportation and logistics costs make up 16-26% of regional GDP, improvements in road haulage, inventory practices, warehousing, customs clearance, and port efficiency could lower food costs by 5-25%. In Africa, where transportation and logistics costs are an even higher share of GDP, improvements in these services could lower overall food costs and improve cost-competitiveness for traded goods by as much as a third.
2. Improved Resilience to Shocks and Stressors
Compared to trading goods, the services trade tends to be more cyclical in nature and less dependent on external financing, which is why it was found to be more resilient to economic shocks following the 2008 financial crisis.
Today, COVID-19 has left companies and business globally at a standstill in most productive sectors, whether in developing or developed economies.
Yet, several subsets of trade in services, such as ICT, insurance, audio-visual services, and telemedicine have expanded in popularity as the world shifts to socially distant online-based marketing and markets.
As of March 2020, Zoom’s daily active user count was up 378% from a year earlier, while Microsoft Teams has reported a 775% bump in usage of its cloud services as a result of an increase in remote work. With about a 40% internet penetration rate in Africa (versus 54% in Asia), weak ICT infrastructure and internet shutdowns prevent crucial communication and connection within Africa and to the global market, ultimately hindering economic growth on the continent. The COVID-19 crisis has shown the importance of these infrastructure support services and the resilience they provide.
3. Greater Women’s Economic Participation
Gender equality and women’s participation in the workforce are prerequisites to a strong economy, rising GDP, and improved productivity and competitiveness. Globally, traded services engage more women than agriculture and manufacturing, employing 62% of women in the workforce, primarily in fields such as tourism, finance, health, and education.
Services trade offers a unique opportunity to engage women and marginalised populations in the workforce through remote options, flexible hours, and part-time opportunities. However, as trade in services opportunities grow, research has shown that women do not always benefit at the same rate as men, with a majority of women in Africa working in low to moderately skilled positions. To unlock the potential for service sectors to drive inclusive economic growth, it is critical to ensure that polices and regulations do not discourage women’s active participation in these sectors, particularly for services that are traded across borders.
4. Achievement of Global Sustainable Development Goals
The U.N. Sustainable Development Goals (SDGs) outline 17 multifaceted international standards for global wellbeing. While SDGs such as improved healthcare (SDG3) and education services (SDG4) depend directly on trade in services for their success, 11 of the SDGs are indirectly affected by trade in services. Those SDGs contain sub-goals related to trade in services, such as access to finance, ICT, and transportation services, which serve as force multipliers or catalysts and promote a healthy business enabling environment.
5. Fostering Cross-Border Cooperation
Trade in services offers an increased opportunity for improving intra-regional trade, enabling landlocked countries access to regional and global markets for their products. Throughout Africa, agricultural trade has suffered from the deterioration or simple lack of the necessary infrastructure, forcing farmers to sell crops to the closest markets, often at lower values, leaving some regions with food surplus while others suffer shortages. This fragmentation of African countries’ markets has prevented local economies from realising their full potential and farmers from raising their incomes.
To help increase cross-border trade and cooperation, the African Union has identified several priority services sectors for the AfCFTA negotiations, namely financial services, transport, professional services, and ICT. Raising the level of commitment in these sectors will attract investment, increase access to higher-quality, more varied, and reliable services, improve transportation efficiencies within the region, and improve overall regional cooperation on the continent.
While the pandemic has devastated economies globally, it also presents a unique opportunity for African nations to take an aggressive approach to their own development and self-reliance. By freeing up key services sectors and removing regulatory obstacles, African nations will attract much-needed investment, which will in turn promote competitiveness, inclusivity, raise wages, improve labour participation of women, and increase sustainability, resilience, and cross-border cooperation.