Domestic needs must inform Africa's approach to services trade liberalisation
Peter Draper
Published: 21-MAY-07

The services sector plays a pivotal role in the economic development of many developing countries. On average it contributes more than 50 percent of GDP and employment and accounts for a huge proportion of foreign direct investment. Services cover a wide variety of economic and social activities embracing communications, transport, finance, energy distribution, construction and business services as well as final demand services like tourism, recreation, education, health and environmental services.

The availability, affordability and quality of key infrastructure services like communication, transport, energy, construction, and financial services fundamentally influences a country�s trade competitiveness and its concomitant economic growth and human development. Inefficiencies and inadequacies in the supply of these services severely cripple the capacity of many Sub-Saharan African countries to produce products and services of sufficient quality and quantity to meet both the needs of domestic operators and export markets.

Yet, it must be recognised that the development of competitive service industries requires financial, human, and technological resources that are often not available in African countries, where markets are too small, and financial and human resources too limited. It therefore becomes crucial for these countries to introduce or strengthen policies that take into account the complementary role that market forces and private sector initiative can play in the development of services. This may require the opening of domestic markets to foreign competition through trade and investment, in order to increase both the quality and quantity of available services.

Ultimately it is up to each individual country to make a careful assessment of its services needs and export interests and then decide which sectors to liberalise in order to address such needs.

Failure to do so often results in a country finding itself in a quandary when negotiating trade liberalisation issues in the WTO and regional negotiationsespecially in critical areas such as services. This problem largely affects poor countries as they are the ones that are prone to engage and make liberalisation commitments which are not in sync with their domestic economic growth policies if they do have them at all. In other words, instead of domestic policies shaping their external engagements the reverse happens hence the usual defensiveness and feelings that things are being forced down their throats by the powerful especially when negotiating under the WTO�s General Agreement on Trade in Services. This is primarily the reason why most of these countries are reactive and not proactive in the WTOtrade negotiations

As far as domestic policies are concerned South Africa seems to have put its right foot forward. In February 2006 its most promising economic growth initiative � the Accelerated and Shared Growth Initiative of South Africa (ASGISA) � was launched. ASGISA was developed after consultations among various stakeholders and enjoys the support of business, labour, government, and entrepreneurs amongst others. Its objective is to halve unemployment and poverty by 2014 and it recognises that this can only be done if the country�s average economic growth consistently increases to about 6 percent by 2010. Yet coming up with such a clearly articulated economic growth strategy is only a good first step. More needs to be done to align the agreed domestic economic policy strategies to a South Africa�s overall trade policy or strategy.

Again the importance of the services sector cannot be over-emphasised. For instance, at least three of the six �binding� constraints to growth identified by the ASGISA report (which the initiative seeks to address) concern the services sector and trade in services. They include: inadequacies and efficiencies of the �national logistics system� (which covers infrastructure services); shortages of suitably skilled labour; barriers to entry, limits to competition and limited new investment opportunities. It should be noted that different services modes and sectors are very interrelated and supportive of one another such that the liberalisation of core infrastructure services would in most instances call for reforms in immigration policies to allow skilled natural persons services providers to complement it. This is because a shortage of human skills can cripple efforts to develop the targeted core infrastructure services sectors. South Africa itself still has a long way to go in putting up an immigration policy that tallyies with the ASGISA vision. Having identified these obstacles it is now imperative for South Africa�s stances or commitments in services trade liberalisation to reflect efforts to address its domestic needs. In services (which in WTO terms covers skills) for instance, ASGISA can be promoted through more liberalization in identified sectors in the WTO. Such a process, however, should not be tied to the WTO where most countries negotiate with a mercantilist mindset. Other avenues like unilateral liberalisation would perhaps best promote ASGISA. Such a move would clearly offend the mercantilist spirit which will see it as simply �giving� trade partners market access for free but would nonetheless push South Africa�s domestic agenda in a multilateral setting. However, as already mentioned above, most developing countries end up putting the cart before the horse with dire consequences. The golden rule for liberalising trade in services is that before opening your services sectors; your house must be in order for you to reap the desired benefits. Therefore, before engaging in all manner of trade liberalisation initiatives (multilateral, regional, bilateral, and unilateral) there is need for extensive national consultations involving the business sector, various Ministries responsible for regulating services, civil society and non-governmental organisations, aimed at assessing the implications of opening particular sectors. Some severely under-resourc-ed Sub-Saharan countries may require technical assistance and capacity building in order to properly do such an exercise. But it is up to them to take the initiative like what South Africa has done. Besides, external aid works only for those who know what they want to do. Finally it must be emphasised that if key infrastructure services are poor, then chances for African countries to actively participate in international trade would remain limited. Opening up these sectors may stimulate investment and much needed competition and hopefully supply efficiency. But the pre-condition for success would be crafting a robust domestic reform strategy which will in turn give guidance on which sectors to liberalise and at what pace. In other words liberalising services trade has the potential to increase the competitiveness of African countries provided the right conditions are in place. -Business in Africa Magazine

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