Five ways to ignite intra-African trade in services to support growth

When you google the words “Africa’s economy,” images of women balancing baskets on their heads, men picking cotton in the fields, and young children toiling in the mines pop up on the screen.

Yet these traditional representations obscure the truth of Africa’s rise. A burgeoning services sector is fuelling economic expansion and investor interest.

Given its central role in a modern economy, the services sector can — and must — be part of growth and development strategies. Recent research shows that services contribute nearly half of the African continent’s output and account for half of its share of foreign direct investment.

Clear examples of booming service sectors are mobile banking in Kenya; tourism in Mauritius and the Seychelles, financial services in Morocco, Nigeria and South Africa and transportation in Djibouti, Ethiopia and Kenya.

Yet this services revolution has happened more by default than by design. The sector is “too little, too scattered.”

Take infrastructure services, for example, where Africa lags behind. Infrastructure services include roads, power plants, water pipelines, telephone lines and ports. These services form the backbone of commerce, enabling traders, manufacturers or agricultural producers to flourish.

So far, few African countries have emphasised the growth and promotion of services as a key priority for their infrastructure development needs.

Seventy-four per cent of Africans do not have regular access to electricity, for instance.

In order to move from a booming services sector that has arisen by default to one that is booming by design, effective regulation of service delivery is a must. Many investments in infrastructure services are long-term, and for that a solid, clear, pro-competitive regulatory landscape, including independent regulatory agencies, is needed.

The regulatory and policy shortcomings that impede Africa’s services sector also hamper regional trade at a time of flagging global demand. Intra-regional trade represents only 14 per cent of the total trade of African countries.

To ignite intra-African trade in the services sector, there are five key policy steps that African leaders can take at local, national, regional and global levels.

• Policymakers and negotiators need to make use of multi-stakeholder consultations for policy processes at all levels. The end-users of services and those who provide them are a diverse group. Real effort needs to be made to include all those affected by service delivery in decision-making.
• Policymakers and negotiators must increase efforts to operationalise and implement existing African Union decisions and institutions on trade. Too often agreements that have already been signed and bodies that have already been set up seem to languish in the background.
• Services trade should be included in any continental free trade area. Ongoing regional negotiations for this will backfire if services trade is ignored.
• Structural impediments to finance must be addressed. Cross-border banking is key.
• Regional and multilateral regulatory frameworks for financial services need to be aligned. Linked-up thinking will benefit all concerned.

Services are the lubricant that makes economies work. If you are a farmer that has a mobile phone that connects you to world market prices, your skill in negotiating an appropriate price is enhanced. Transportation services get products through ports, and bring goods to market, increasing the productivity and the competitiveness of all sectors of the economy.

Specific services sectors such as tourism, education and healthcare are also vital for the future wellbeing of all Africans.

This is why it is more important than ever that Africa’s leaders think seriously about the trade policies they put in place, and turn their attention to the central role that services will play in the continent’s future.

Mukhisa Kituyi is a United Nations Under-Secretary-General and Secretary-General of the United Nations Conference on Trade and Development