Learning event, Addis AbabaJune 5-6, 2013

Trade and Regulation of Services in Africa

• Services matter for growth, employment and poverty reduction

• Exports of services can drive diversification

• Imports of services and FDI can lead to more competition, lower prices, higher quality and greater variety

– Access to competitive services matters for competitiveness!

Why services and trade in services in Africa?

…. Traditional exports undermined by lack of access to services along the whole value chain

Lack of finance limits access to seeds and fertilisers

Transport cartels result in high costs

Logistics and customs brokerage are poor quality and expensive

Distribution services are not linking poor producers to poor consumers

Farmers typically receive less than 20% of consumer price

High cost professional services constrains productivity

Communications are key in linking buyers to sellers

Competitive services matter for returns to infrastructure investments

• Inefficiencies in port of Dar equivalent to a 22% tax on container imports and 37% on energy

• Need to link infrastructure and regulatory reforms of services– Eg road building and removing transport cartels

But low profile in Africa for services trade

• How can we raise awareness about the services trade potential of African countries?– In clients/in the Bank/in other development agencies

• What are the main lessons that Africa could derive from successful services exporters?

• How can we mainstream trade in services into our country programs

• Need for better indicators!

A complex process

• Heterogeneity of services sectors

• Multiple modes of supply

• Nature of services barriers

Opening up to trade in services

Source: Stern et al (2012)

Scope of services covered in the General Agreement on Trade in Services (GATS)

1. Business service

2. Communication services

3. Construction services 4. Distribution services 5. Educational services 6. Environmental

services

7. Financial services

8. Health-related and social services

9.Tourism and travel-related services

10. Recreational, cultural, and sporting services

11. Transport services

12. Other services not elsewhere included

A synthetic view of modes of supply

Source: Manual on Trade in Services Statistics, 2012

Entry/Establishment Operations

Non-discriminatory Licensing procedures Safety, quality, environmental standards prudential measures in banking

Discriminatory Nationality or residency requirements

Limitations on operations applicable to foreigners

Source: Stern et al (2012)

Explicit services barriers

Market failures Services sectors Policy action at the national level Monopoly/ Oligopoly

Network services: telecommunications; transport (terminals and infrastructure), environmental services (sewage) and energy services (distribution networks)

Developing procompetitive Regulation to protect consumer interests where competitive market structures do not exist

Asymmetric information

Intermediation and knowledge based services: financial services, professional services, etc.

Strengthening domestic regulation to remedy market failure in an economically efficient manner.

Externalities Transport, tourism, etc. Social objectives: Universal service

Transport, telecommunications, financial, education, health

Devising economically efficient means of achieving social objectives in competitive markets.

Source: Mattoo and Sauve (2003)

Regulation and services

• Increased competitiveness and efficiency of the domestic market provided by services liberalization

• Direct gains to consumers and user industries, but also indirect impact on the overall competitiveness of economies

• Risks and potential costs given the need to regulate many services sectors

Benefits and risks

• What are the economic opportunities generated by reform and regional integration and the cost of maintaining the status quo?

• What triggered regulatory changes in reforming countries? Why were some industries reformed earlier and more deeply than others? Why did politicians commit their capital to push forward the reform?

• What can we learn from the experience of countries and regions that have successfully engaged in reform and cooperation?

Political economy of services reforms