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Africa's Service Sector Growth and Development
1. Source: CTBUH / RoMF
Service with a Smile
Learning Event on “Trade and Regulation in Services in Africa” Ethiopia, June 5, 2013
Ejaz Ghani & Arti Grover
2. An outline
• Can services contribute to growth, jobs and
poverty reduction in low income countries?
• Is tradability of service increasing?
• How important is service sector for Africa’s
development? Can Africa take advantage of the
globalization of service?
• Policy toolkit: Institutions/regulation; Infrastructure;
International business engagement (trade and
investment); Innovation and education.
3. Can service be a driver of growth in low income
developing countries?
5. Can labor productivity grow in services
sector?
Industry, Developed
Industry, Low Developing
Services, Low Developing
Services, Developed
-5
05
10
1990 1995 2000 2005 2010
Year
Comparing Labor Productivity Growth across sectors
6. Is service productivity contingent on the stage of
development? Ethiopia, and Lesotho are just as likely to excel in services, compared to
industry, as rich countries like Hong Kong and Bulgaria.
ALB
ARG
ARM
AUS
AUT
AZE
BEL
BGR
BLZ
BOL
BRA
BWA
CAN
CHE
CHL
CHN
COL
CRI
CYP
CZE
DEU
DNKDOM
DZA
EAP
ECA
ECU
EGY
EMUESP
EST
ETH
FIN
FRA
GBR
GEO
GRC
HIC
HKG
HND
HRV
HUN
IBDIDN IRL
ISLITA
JAM
JOR
JPN
KAZ
KGZ
KOR
LAC
LKA
LSO
LTU
LUX
LVA
MAR
MDA
MEXMKD
MNG
MUS
MYS
NIC
NLDNOR
NZL OEC
PAK
PAN
PER
PHL
POL
PRT
PRY
ROM
RUS
SAU
SGP
SLV
SUR
SVK
SVN
SWE
SYR
THA
TJK
TTO
TUR
UKR
UMC
URY
USA
UZB
VEN
VNM
YEM
ZAF
-5
05
10
6 7 8 9 10 11
Log of real per capita income, 1990
Development Level and Productivity Difference Across Sectors
7. Is tradability of services increasing in low
income countries?
Low Developing
Developed
68
1012
1990 1995 2000 2005 2010
Year
Services Tradability
8. Can low income countries trade Modern
ICT intensive Services?
Developed
Low Developing
303540455055
1990 1995 2000 2005 2010
Year
Modern Services Tradability
9. Can services be as sophisticated as
goods?
M odern S ervices
G oods
T raditional Se rvices
5000
100001500020000
PRODY
1 990 1995 2000 2005 2010
Year
T re n d in P R O D Y
16. Is Africa doing well in modern and
traditional services export?
17. There is a new boat in town.
• The marginalization of Africa during a period when China, India, and other
East Asian countries grew rapidly has led some to wonder if late-comers to
development like Africa are doomed to failure. Many considered the
“bottom billion” to be trapped in poverty (Collier 2007). The process of
globalization in the late 20th century led to a strong divergence of incomes
between those who industrialized and broke into global markets and a
bottom billion” of people in some 60 countries where incomes stagnated for
twenty years.
• In both developed and developing countries the services sector is now the
dominant source of economic growth and job creation.
• Service offers several advantages over manufacturing. They can more
readily employ women and are less likely to despoil the environment.
Located in big cities, they accelerate urbanization.
• Modern services are less vulnerable to protectionism than either traditional
services, such as lawyers, or goods, both of which require physical entry to
the foreign market.
• A toolkit of policies to rapidly improve developing countries’ services
productivity exists.
18. Service-led growth can be sustained
• Service-led growth is sustainable because the globalization of services is just
the tip of the iceberg (Blinder 2006). Services are the largest sector in the
world, accounting for more than 70% of global output. Developing countries
can sustain service-led growth as there is a huge room for catch up and
convergence.
• The Services Revolution could upset three long-held tenets of economic
development. First, services have long been thought to be driven by
domestic demand. They could not by themselves drive growth, but instead
followed growth. Second, services in developing countries were considered
to have lower productivity and lower productivity growth than industry.
Third, services jobs in developing countries were thought of as menial, and
for the most part poorly paid, especially for low skilled workers. As
such, service jobs could not be an effective pathway out of poverty.
• The promise of the service revolution is that countries do not need to
wait to get started with rapid development. The globalization of service
provides alternative opportunities for developing countries to find
niches, beyond manufacturing, where they can specialize, scale up
and achieve explosive growth, just like the industrialisers.
19. But don't skip on jobs
• Modern services require skilled workers, not the unskilled type that poor countries
have in abundance. In South Asia, service workers typically have one to three
more years of education than industry workers. In modern services, school grades
or a university degree are often necessary. The flip side of their high productivity is
that modern services employ relatively few people. Just 2m of India's population
of 1.2 billion work in information technology; in the rest of South Asia, only 100,000
do. That is one reason why India is still keen to promote manufacturing, which is
also booming.
• For many countries, the success of services can be an indictment of their failure in
manufacturing. In India and Sri Lanka, restrictive labor laws have hamstrung the
emergence of a more competitive manufacturing base. In contrast India helped
its information-technology sector by declaring it an essential industry and lifting
the prohibition on operating around the clock in some states. In South Asia
services have benefited from investment in telecoms infrastructure, as measured
by the number of phone lines and personal computers per 100 people, whereas
manufacturing is held back by a shortage of paved roads.
• Manufacturing still holds the most promise for millions of reasonably well-paying
jobs. For those not so lucky, at least there's an alternative.
20. So what should Africa do? Is there a
Toolkit?
• Develop Service Export Strategy
• Develop the infrastructure needed to promote service export. Although the same set of
general non-distortionary policies is as important for modern services as for
goods, specific strategies for services matter. Modern services need a strong
telecommunications backbone and more advanced education (secondary and
higher).
• Specialization, outsourcing, privatization, disintermediation, supply
chain, interoperability, performance based standards, deregulation
• Reduce the barriers that African service firms face in regional service trade.
• Increase engagement by business in the delivery of services, including „essential
services‟ formerly delivered by government
• Competition policy and interoperability
• Globalization of services provides many opportunities for late-developing countries to
find niches where they can be successful. Taking advantage of these opportunities
requires a government that energetically takes steps to accelerate services
growth, through a variety of active policies. Services may provide the easiest and
fastest route out of poverty for many poor countries.
21. Reference
• Economics focus: The service elevator | The Economist
• http://siteresources.worldbank.org/INTAFRREGTOPTRADE/Resources/Can_Kenya_become_global_exp
orter_business_services_31May.pdf
• Oxford University Press: The Service Revolution in South Asia: Ejaz ...
• Determinants of Competitiveness and Factors affecting Productivity
• Services-led growth in India: A new hope for development late ... – Vox
• Economic Premise – Promoting Shared Prosperity in South Asia.
• The Service Revolution - World Bank Internet Error Page AutoRedirect
• Developing the Services Sector as Engine of Growth for Asia
• Are China and India Converging? « The Global Dispatches
• The Service Sector in Lower-Income Asian Economies
• The Spatial Development of India - Princeton University
• Export Promotion Council (EPC) & World Bank (2009). Services Exports Study: Assessment of Kenya‘s
Export Potential and Supply Capacities in Selected Professional Service Sectors.
• Government of Kenya (GOK) & Export Promotion Council (EPC) (2008). Strategy for Export Promotion
of Professional Services in Kenya.
• World Bank (2010a). Reform and Regional Integration of Professional Services in East Africa: Time for
Action.
• World Bank (2010b). Towards a Regional Integration of Professional Services in Southern Africa.
