i.) professional services – east and central Africa focus, ii.) non-banking financial services – EAC region, IT/ ITES – International focus
Trade and Regulation inServices in Africa: Kenya’sExperiences – Export of Professional Services& Education ServicesRichard Gicho, Economic Consultant – Karia Capital Ltd.Addis Ababa, 5-6 June 2013
The Service Elevator?The Service Elevator: Can Poor CountriesLeapfrog Manufacturing and Grow Rich on Services? (TheEconomist, 05.19.2011)Conventional Industrial Modernization Wisdom: Countries movefrom agriculture (unskilled labour), to manufacturing (semi-skilledlabour) and later to services (skilled labour). E.g. Japan, SouthKoreaTraditional manufacturing exports build specialization (skilledworkers), exploit economies of scale and are exportable. Just likemodern services! E.g. call centres, data transcription, softwaredevelopment etc in IndiaIndia’s IT software & services revenue ($88bn, 2011) is 2times Kenya’s GDP ($34bn, 2011)!
AgendaExamine the link between NationalDevelopment Strategies, Education Servicesand Professional ServicesEducation Services in Kenya“Strategy for Export Promotion of ProfessionalServices in Kenya”Conclusion
EXPORT IN EDUCATIONSERVICES KENYAWhere do Professionals Come From?
National Visions for EducationTo achieve national development strategies and attainmiddle income country levels countries in the EACrequire more investment in education services Uganda Vision 2040, Kenya Vision 2030, Tanzania Vision2025, Rwanda Vision 2020, Less developed nations abound with unskilledworkers but modern services require skilled workersKenya: Main Sectors Agriculture Manufacturing ServicesRequired Level of EducationUnskilledLabourSemi-skilledLabourSkilledLabourSector Contribution to GDP (est.) 25% 15% 60%% of Labour Force 75% 25%
Rise of the “paper engineer” Imbalances in skills shortages and skillsmismatching prevalent in the EAC region. “Political Economy Issues: ad-hoc regional centresof excellence (60s to early 80s); Gov’t Civil works &The Paper Engineer” Intuitively development of Services Sector isinexorably linked to education services sector“Professionals are crafted, not born that way”
Structure of Education Services in Kenya• Adult Basic Education and Training (ABET)/NFE (6 years; +18) Increased government spend has with Free Education policies has seen an increase inenrollments in Primary and Secondary Levels, 30% and 89% respectively (2005-2011) There has also been an increase in the number of public secondary and private universityeducation institutions, 47% and 59% respectively (2005-2011)EducationalInstitutionsNo. of Years AgeNo. ofEducationalInstitutionsNo of Students EnrolledPre-PrimaryNot formallyintegrated-39,500 2,370,049Primary Schools 8 years 6 – 13+ 28,567 9,857,900Secondary Schools 4 years 14 – 17+ 7,297 1,767,720Technical InstitutionsFlexible andVariable.FormallyintegratedFlexible andVariable629 104,173Universities 4 years 18- 21+ 34 198,200Total 76,027 14,298,042
Education the Great Equalizer:drivers of cross border trade Population demographics: ages 0-24 accountfor 64% of total population Kenya government education sector reforms& increased expenditure Perceived low quality of education Ability to select course of choice (in privateuniversity institutions) High cost of private education Lower regional university entry requirements Introduction of Broadband!
Education the Great Equalizer:drivers of cross border trade Limited Enrolment CapacityNumber of Students Total (%)Total KSCSE Students 2011 410,586 100%Did NOT Attain Entry Qualification to University (C+) 290,928 70.86%Attained Entry Qualification to University (C+) 119,658 29.14%Available Public University Spaces 32,600 27.24%Attained Entry Qualification to University (C+) but no spaceavailable 87,058 72.76%Attained Entry Qualification to University (C-) in Tanzania &Uganda 108,810 26.50%Total Seeking Alternative Higher Education Channels 195,868 47.70%
Trade in Education ServicesMode of Trade in Services Education Services Sector Kenyas ExampleMode 1Cross-border supply: distanceeducation, virtual educationalinstitutions, education softwareand corporate training throughICT delivery-21 universities with distance learning programs- Kenyans with access to distance learningprograms from international universities- Multinational institutions e.g. UNEP, conductcontinuous training of international staff through ICT- International entry examinations e.g. TOFEL,GMATMode 2Consumption abroad: studentsstudying abroad- Catholic University of East Africa (CUEA) MastersEducation 2006/7 foreign students 41.4%, 2007/8foreign students 34.8%- Strathmore University CPA 2002-2007 had 18Ugandan students, ACCA commenced 2007, 70Tanzanian students.- There is a large Kenyan Diaspora population inUS and UK that grew largely out of migration duefor education purposes rather than labour migration.
Trade in Education ServicesMode of Trade in Services Education Services Sector Kenyas ExampleMode 3Commercial presence orprogramme or institutionalmobility: local university orsatellite campus, languagetraining companies, privatetraining companies-Australian Studies Institute (AUSI) based in Kenya since 2000offer degrees from Edith Cowen University, Perth and PerthInstitute of Business and Technology- International schools providing international curriculum e.g.French School, German School, International School of Kenya- International language institutes: e.g. Alliance Francis- international research institute that are part of TheConsultative Group on International Agricultural Research(CGIAR), namely International Livestock Research Institute(ILRI), and World Agroforestry Centre (ICRAF).Mode 4Presence of naturalpersons: professors,teachers, researchersworking temporarily abroad-University exchanges and Joint research e.g. UoN & MITJoinAfrica Project, HBS professors lecturing at StrathmoreBusiness School-Research exchanges e.g. ILRI, ICRAF, Primate ResearchCentre, KARI etc- Short Course held by international experts
Cross-cutting Constraints/ OpportunitiesCross-cutting Challenges• Regional differences in educationsystem (8.4.4 and 184.108.40.206)• Poorly maintained infrastructureespecially in public institutions• Recognition of qualifications –bridging courses required• Access to FinanceCross-Cutting Opportunities• Growth in demand for regionaleducation services• Potential to increase humancapacity skills base• Potential to reduce / eliminatecurrent barriers (with EAC CommonMarket Protocol & MRAs)• Potential for governments to drivedemand of education services (e.g.government sponsored study abroadprograms for civil servants)
Kenya’s Trade in Professional ServicesKenya’s Population is 41m with a GDP in 2011 of$34bn.60% is accounted for by the services sector including:Government (civil servants; education; health)Travel & tourism (airline seats; hotels)Transportation (movement of goods)Telecoms (provision of calls / post)Manual semi-skilled work (examples include: restaurant work;construction, road building, retail and cleaning).Professional Services accounts for less than $2bn (est.2010) Included are those services provided on a private sector basiswhere a high level of skills (usually certified) are required. (excludingTourism and Remittances)Exports in Professional Services account for less than3% (est. 2010) of total sector size
Kenya Service Sector MarketStructure“Strategy for Export Promotion of Professional Services in Kenya” wascompleted in 2008, with the aim of diversifying Kenya’s exports. Some findingsincluded:Modest size for a country the size of Kenya, accounting for approximately10% of the GDPKenyan professional service providers are considered to be the keyplayers in East African regionGenerally dominated by a few large players, particularly in banking,accounting, insurance and advertising sub-sectors. Many small localplayers in the other sub-sectorsBased upon the UK model, with many UK influencesHighly fragmented many specialist trade bodiesNairobi centric, followed to a much lesser extent by Mombasa.Increased Services Exports driven by introduction of Broadband!Exports of services private sector led
Selected Service Sub-sectors for ExportsFocusFive sub-sectors were initially selected as areas of focus (Accounting; Insurance;Non Banking financial services, BPO, & ICT/ ITES) and three thematic areasidentified. i) Professional services, ii.) Financial services and iii.) IT & IT EnabledServices.
Cross-cutting Constraints/ OpportunitiesCross-cutting Challenges• Scale• Infrastructure• Regional Non-Trade Barriers• Brand Recognition• Access to Finance• Skills Base (shortages &mismatch)• Low levels of FDI• Access to Opportunities• IPR / Data Protection LawsCross-Cutting Opportunities• Growth in demand for professionalservices (regional skills shortages &mismatches)• Potential to reduce infrastructure &transaction costs• Potential to reduce / eliminatecurrent barriers (with EAC CommonMarket Protocol)• Potential for governments to drivedemand of professional services (e.g.engineering services)
Are Services “the new boat” fordevelopment? Services Matter forDevelopment Provide inputs to other sectors: Important inputs for othersectors that are key for national development Engineering services contribute to the development of infrastructureand are essential to the productivity of economic activities High skill base of professional services sectors contributes toexpansion of human capital which is a crucial pillar in growthstrategy of most African countries (e.g. education services) Reduce Transaction Costs: Accounting and legal services can helpreduce transaction costs which are a significant impediment to growthin Africa Increase Firm-level Productivity: Average labor productivity ofSouthern African firms that use (accounting, legal and engineering)professional services is 10-45% higher than of firms that do not. Professional services can become an important source forexport diversification in EAC
Services: The wind beneath my wings! Services may not enable Kenya to leapfrogmanufacturing but tandem investment in bothsectors will enable faster development growth “Build the Concrete Engineer” Investment isrequired in regional trade in education services,professional education (especially mid-leveltraining), Kenya’s demographics show there will becontinued pressure on the education system toproduce more professionals capable of meetingits national developmental goals