Matthew Stern and Natasha Ward
As tariffs on goods become less onerous, trade negotiators have shifted their attention to the services sector, where international trade is growing rapidly and barriers to trade are much more complex. Whereas the interests of developed countries in services negotiations are usually substantive and clear, it has been much more difficult to identify how developing and least developed countries (LDCs) might benefit from a more open services environment.
DNA Economics was commissioned by the iDEAS Centre in Geneva[1] to identify the potential offensive (export) interests of African LDCs and LDC-like member states (mainly in the Southern African region) across the services sector. This research was premised on the outcome of the 8th WTO Ministerial Conference (December 2011), which adopted a waiver to allow developing and developed countries to provide preferential market access to LDCs in trade and services negotiations. This decision stands to benefit 31 LDCs, 25 of which are located in Africa. In short, we were tasked to assess how poor African countries might make the most of this apparent concession.
The results from this research are not encouraging. There is no evidence to suggest that African service providers have a clear comparative advantage, globally, which is constrained by known barriers in any one foreign country. And there is no ex-ante reason to expect African service providers to pursue external investment opportunities, when they are generally constrained by skills and capital at home. That said, it would seem that there are two broad means by which African countries could seek to use this waiver to raise services exports:
• Encouraging foreign companies to outsource work to businesses and individuals in Africa. This is not limited to call centre services, but could extend across a wide range of service sub-sectors, such as legal and engineering drafting, basic accounting, the processing of insurance claims, and many other back-office and administrative support functions.
• Enabling semi-skilled workers from Africa better access to work opportunities in developed markets. African LDCs have already expressed an interest in making it easier for individuals, across a very wide range of services, to work in more developed markets. These interests are likely to differ significantly by country, making it difficult to derive a definitive list of sub-sectors or skills, and the more open this is left the better.
In both cases, market access is important but may not be sufficient. To attract foreign investment in this sector, either directly or through outsourcing, will require significant improvements to the business environment and substantially lower transaction costs (most notably in telecommunications) in most African LDCs. Moreover, to enable African workers to find decent employment in foreign markets, serious attention would need to be given to raising skills and improving the recognition of African qualifications.
These conclusions are intentionally general and do not account for the fact that African LDCs are very different in size, income and industrial structure and their trade. Further in-country work is clearly required to assess the export interests of specific African service providers (countries, companies and individuals) and identify the actual barriers they face in foreign markets.
Download the paper here.