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  • i.) professional services – east and central Africa focus, ii.) non-banking financial services – EAC region, IT/ ITES – International focus

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  • 1. 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
  • 2. 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, SouthKoreaTraditional 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)!
  • 3. AgendaExamine the link between NationalDevelopment Strategies, Education Servicesand Professional ServicesEducation Services in Kenya“Strategy for Export Promotion of ProfessionalServices in Kenya”Conclusion
  • 4. EXPORT IN EDUCATIONSERVICES KENYAWhere do Professionals Come From?
  • 5. 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%
  • 6. 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”
  • 7. 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
  • 8. 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!
  • 9. 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%
  • 10. 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.
  • 11. 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
  • 12. Cross-cutting Constraints/ OpportunitiesCross-cutting Challenges• Regional differences in educationsystem (8.4.4 and 7.4.2.3)• 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)
  • 13. EXPORT OF PROFESSIONALSERVICES IN KENYA
  • 14. 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
  • 15. 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 GDPKenyan professional service providers are considered to be the keyplayers in East African regionGenerally dominated by a few large players, particularly in banking,accounting, insurance and advertising sub-sectors. Many small localplayers in the other sub-sectorsBased upon the UK model, with many UK influencesHighly fragmented many specialist trade bodiesNairobi centric, followed to a much lesser extent by Mombasa.Increased Services Exports driven by introduction of Broadband!Exports of services private sector led
  • 16. 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.
  • 17. 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)
  • 18. 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
  • 19. 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
  • 20. Thank you!Richard GichoDirector, Consulting & Research*Karia Capital Limited*Suite No B12, Branton Court,Ndemi Lane, Nairobi, KenyaEmail: <gicho@karia-capital.com>Tel: +254 723 996 628