Services Sector Provides Potential For Growth

Services Sector Provides Potential For Growth

A burgeoning services sector is fueling economic expansion in many African nations. Services contribute substantially to GDP, absorb a large proportion of youth employment, improve gender parity, and offer promising opportunities for export diversification. 

Services are also key inputs in the production of important exports and food staples.  Inefficient services can be partially responsible for high prices. But there are many obstacles to trading in services among African countries that make it difficult to take advantage of these opportunities.

A new World Bank Group report From Hair Stylists and Teachers to Accountants and Doctors - The Unexplored Potential of Trade in Services in Africa sheds light on uncharted opportunities for services trade in Africa and invigorates the discussion about the role of services in trade diversification and economic upgrading on the continent.

Africa’s export potential in traditional services, such as tourism, is clearly recognized, but the emerging success of exports of nontraditional services, such as business services, is often overlooked.

For example, according to the firm-level surveys on professional services presented in the book, more than 16 percent of the interviewed accounting, architectural, engineering and legal firms in the Common Market for Eastern and Southern Africa (COMESA) countries are already engaged in exports, mainly to neighboring countries.

This contradicts official statistics, which assert that professional services exports for several countries are negligible or nonexistent.

Likewise, many hospitals in Sub-Saharan African countries are treating foreign patients and are using tele-medicine; yet official statistics often do not record such trade flows in medical services.

At the other end of the spectrum, Africa witnesses widespread transactions in informal services ranging from hairdressing, construction, and housekeeping to education, health and finance.

Such services trade flows seem to flourish on the African continent—despite the many barriers to the movement of services providers.

Tanzanian Maasai hair braiders are in high demand in Zambia, while Congolese, Kenyan, and Ugandan hairdressers are sought after by Tanzanian women from all walks of life, from the girl next door to the wife of the minister.

All these hairdressers are crossing borders, usually helped by facilitators and fixers to provide their services in a foreign country. And the earnings they receive by working in foreign countries (export earnings) often remain their main source of income, contributing to significant improvements in their livelihoods.

Opportunities and Challenges

While trade in services presents African countries with opportunities for growth, there are still challenges to the sector. Domestic regulatory hurdles and trade barriers continue to fragment the services markets on the continent; and the cost of trading in services is high.

For instance, education and health services in East Africa are hindered by restrictions on using telemedicine or e-learning.

Medical tourism remains restricted by the non-portability of insurance policies. Restrictions on the legal forms of entry to hospitals in countries such as Tanzania and Uganda or limits on the repatriation of earnings in Kenya and Uganda constrain the establishment of foreign hospitals in the region.

Finally, the high cost of visa and work permits in many countries impose stringent restrictions on the movement of health and education professionals to provide services abroad.

The Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the South Africa Development Community (SADC) have taken steps to reduce trade barriers and countries are beginning to discuss practical solutions to trade impediments.

Knowledge platforms on professional and tourism services are good examples of tools for translating policy recommendations into action.

For example, the East Africa Tourism Platform has recently shown leadership in championing a coordinated approach to enhance the region’s travel and tourism competitiveness.

Such platforms were designed for practitioners, policy makers, and regulators to engage in meaningful dialogue about the critical issues that are currently transforming these services in Sub-Saharan Africa.

Join discussion