Policymakers have traditionally focused on manufacturing-led development as the means to improve incomes and reduce poverty. But services are now taking center stage.
Services account for about half of the workforce in low and middle-income economies, up from about 40 percent in the 1990s. That increase has almost offset the decline in the share of workers in agriculture. The share of workers in manufacturing, meanwhile, has remained almost unchanged.
They account for a predominant share of women’s employment and a large share of small firm activity.
Increasingly, services are delivered across borders, and trade in services is becoming a key path for development – think India’s IT sector. Nevertheless, many countries retain multiple restrictions on cross-border trade in services, investment, and consumer and labor mobility.
Before such barriers are removed, they must be identified. That is what the World Bank and World Trade Organization (WTO) have done in conjunction with the secretariat of the African Continental Free Trade Agreement (AfCFTA) and with the financial support of the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), the European Union, and the International Trade Centre (ITC).
Identifying restrictions on trade in services is difficult because unlike tariffs on goods, they are embedded in domestic laws and regulations that pursue legitimate public policy objectives. For instance, to prevent money laundering, many countries may require financial institutions to comply with a set of reporting requirements. Such measures in themselves do not hinder trade in services. However, they would become a barrier if applied only to foreign financial institutions on the mistaken assumption that the nationality of the service providers would be relevant for anti-money laundering controls.
For the first time, African countries will be able to undertake a sector- and measure-specific dialogue with their stakeholders and examine whether there are less trade-distortive ways to pursue legitimate public policy objectives while promoting progressive trade liberalization. The project is part of the AfCFTA’s larger effort to reduce trade barriers among African countries and so spur economic growth.
At the beginning of AfCFTA trade in services negotiations in 2018, only a handful of countries had undertaken such an exercise; and for those that had, data were available for only a few sectors and only until 2012. This lack of data is precisely why most African countries do not appear in widely used indexes measuring the level of openness of trade in services and investment.
Services are services traded in many ways.and contributing 10.4 percent of GDP and one in 10 jobs worldwide in 2019.
Services – typically professional services like financial consultancy or tele-medical advice – can also be transmitted digitally across borders. And services are traded when companies in one country invest in another and when workers move abroad to take temporary jobs.
Services also go into the making of goods and other services – for example in the form of research and development, or design and marketing – and can add a lot to the final value of the product. In fact, more than a third of the value-addition of exported manufactures comes from the services that have gone into them.
Furthermore, the share of services trade in total trade in the region has increased, accounting for approximately 17 percent in 2021.
The database of regulatory restrictions on services trade in Africa was released last November at the AfCFTA Summit in Niamey, Niger.