Manufacturing has been the surest way for low- and middle-income economies to reduce poverty and create good jobs. But developing nations have increasingly been redirecting their focus to the services sector to catch up with their developed counterparts.
Will the shift work?
Our research shows it can—provided countries expand trade in services, accelerate the adoption of new technologies, upgrade the skills of their workers, and pay special attention to services that can also boost manufacturing.
75 percent on average. A few low- and middle-income countries were among the top 10 global exporters of services between 2005 and 2017.In the past three decades, the services sector has grown faster than manufacturing in many developing economies. By 2019, services accounted for 55 percent of GDP and 45 percent of employment in developing economies. In developed economies, services account for an even larger share of economic growth—fully
Services-driven economic transformations offer new opportunities for scale, innovation, and spillover effects similar in scope to those that made manufacturing more productive in the past. Remote delivery, branching, and franchising enable service providers to tap larger markets and providers who offer services digitally are no longer restricted to face-to-face engagements with their customers.Far more R&D is now happen in services than in industry: big data is enabling the improvement of transportation systems and it also is spurring retail outlets to improve their offerings.
A vibrant services sector is also increasingly important for manufacturing competitiveness: manufacturers bundle goods with services (such as financial credit, advertising, and warranties), which increases value for customers. As the demand for services rises from manufacturing, agriculture, and other sectors, more workers benefit from growth.
—all countries that offer a pool of relatively low-wage English-speaking workers. Today, around 68 percent of all online freelancers worldwide are based in lower- and middle-income countries.
The increasingly blurred lines between manufacturing and services are making exports more competitive for many countries. This process—known as servicification—is illustrated by the remarkable success of Amazon Echo, a music player powered by artificial intelligence that can also perform a host of other functions, such as allowing users to order groceries with a voice command, acting as a personal assistant by keeping track of its owner’s schedule, and calculating the length of a commute. The manufactured device is even more valuable when bundled with service.
So, what can governments do to supercharge this force for employment and boost to economic recovery?
Our study recommends relying on “4Ts”: expanding services trade, fostering technology adoption, training workers to upgrade skills, and targeting services that provide benefits to the wider economy for public support.
Second,Digital technologies expand the potential for services even more than they do for manufacturing and farming. Consider, for example, how much the pandemic has accelerated the move to more remote work and online delivery of many services.
Third,In low- and middle-income countries, job creation tends to be concentrated in low-skilled work, although productivity growth is rising in high-skilled occupations.
Fourth, a policy approach that addresses the constraints faced by all the relevant activities in a particular manufacturing value chain will be more fruitful than just picking manufacturing industries for attention. In fact,
Finally,. Given the contribution of services to development, being unaware of this agenda is no longer an option.
To learn more, download the full report: At Your Service: The Promise of Services-led Development