Presentation on theme: "Role of Services in Economic Development"— Presentation transcript:
1 Role of Services in Economic Development Geneva, July 2012
2 Coordinated regulatory reform and liberalization of services Main pointsServices and trade in services matter for economic development, employment and competitivenessConcrete examples for AfricaCoordinated regulatory reform and liberalization of servicesThe role of Services Knowledge PlatformsWorld Bank database on Services Trade Restrictiveness Indices
3 Services matter for growth Since the services sector is often the largest contributor to GDP, improvements in productivity in services have a substantial impact on overall GDP growth. This figure compares the relationship between growth in services and GDP growth with that of growth in manufacturing and GDP growth for 136 countries during the period of 2000 to 2008.While it is not possible to infer causality it is clear that while the growth of both services and manufacturing is positively related to GDP growth, the relationship is much stronger and higher for services than for manufacturing. This reflects that in most economies services are the largest part of the economy so that growth of services will tend to dominate overall GDP growth.Growth driven by increases in the quantity and productivity of capital and labor inputs. Services are determinants of the productivity of these inputs: Financial sector (intermediation across time), and Human capital (education, health….); “Producer” services underpin specialization: allow “splintering” of value chain and TFP through their intermediation role and coordination and communication across time/spaceNevertheless, in the past services have often been put to the periphery of discussions over growth and there is still a presumption by many policy advisers and officials that growth and development can be achieved only through an expansion of the manufacturing sector. The fixation on manufacturing perhaps reflects old views that productivity growth in services is limited. However, the recent experience of India and a number of other Asian countries shows that labor productivity in services can be higher than that in manufacturing and that growth of productivity in services has matched growth of productivity in manufacturing in China. Experience from across the world shows that growth of the services sector contributes more to poverty reduction than does growth of agriculture or growth of manufacturing. This is because services have been the main source of employment growth and reflects that the proportion of women employed is services is typically higher than that in manufacturing and increasing employment opportunities for women is closely associated with poverty reduction.Source: World Bank, 2010
4 Services matter for employment Shares of employment in agriculture, manufacturing and servicesThe figure shows that over the 10 years from 1997 to 2007 and across all major regions, growth in employment in services has been the dominant feature of changes in the labor market. In Africa, the share of employment in agriculture has fallen quite sharply from over 72 percent of the total to less than 65 percent, although it still remains considerably higher than in other regions. Employment in industry increased by just 1 percentage point to just under 10 percent, while employment in services increased by more than 6 percentage points from around 19 to almost 26 percent.Source: ILO Global Employment Trends
5 Trade in services plays key role Increased tradability of services and global value chainsExports of services can drive diversificationPotential 18 million new jobs in developing countries from offshoring of services (each job generates a further 3 jobs)Exports of services from land-locked LDCs have been growing faster that exports of goodsfor countries such as Rwanda and Ethiopia services account for more than half of total exportsAccess to cost-effective services affects competitivenessImports of services and FDI can lead to greater competition, lower prices, higher quality and more varietyThere are a number of reasons why services are becoming dynamic sources of growth in developing countries. Most important is that many services once thought to be non-tradable, such as banking, insurance, telecommunications and also business services, education and health, but can now be exchanged across international borders. Healthcare is just one example of how technology is changing the nature of the sector and its growth prospects. For many healthcare is a personal service requiring face to face interaction between care giver and patient. However, trade in healthcare services has emerged through the movement of persons to consume healthcare abroad and through the movement of professionals to provide care overseas. We are also seeing the emergence of telemedicine whereby communications and information technologies are allowing health professionals to provide advice and even consultation across borders.
6 Access to professional services matter for productivity Higher labor productivity (sales/employees) is associated with greater usage of professional services in all East African countries, especially for small firmsProductivity of Users and of Non-Users of ProfessionalServices – Average across firms in East Africa
7 Productivity of users vs Productivity of users vs. non-users of professional services – Ethiopia’s exampleSource: World Bank Survey of Users of Accounting, Legal, Engineering and IT Services in Ethiopia, 2011.
8 Professional services in Eastern and Southern Africa World Bank research - one step towards facilitating more informed choices as East African governments develop a strategy for coordinated reform and liberalization of professional servicesCollection of extensive information - hitherto missing - on market conditions, policies and regulatory regimes in accountancy, engineering, and legal services in East AfricaKey findings:national markets for professional services in East Africa remain underdevelopedregional market is fragmented by restrictive policies and regulatory heterogeneityPolicy recommendations:For professional services to make a meaningful contribution to growth in East Africa policy action is required in four areas: domestic regulatory practices, trade policy, international labor mobility, and educationImproving and expanding professional services will require both national reform and international cooperationRegulatory issues must be addressed to allow for effective competition in an integrated regional marketNational level reforms could include:Relaxing entry requirements, e.g. by eliminating multiple licensing requirementsEliminating restrictions on competition, e.g. price regulation; advertising prohibitionsReduce costs of access to & improve quality of educationAnd at the regional level:Removing trade barriers, e.g. allowing commercial presence, movement of natural personsIncreased regulatory cooperation, e.g. mutual recognition of qualifications; development of appropriate regional standardsCreation of regional education and training hubs
9 Summing up: Services and trade in services matter For growth and competitivenessMany services are inputs into production and trade - economy-wide impacts from improvements in servicesLowering costs for firms requires better and cheaper servicesFor employmentServices largest contributor to job creationHigh employment rates for womenFor poverty reductionPoverty reduction more strongly correlated with growth of services than with growth of manufacturingCoordinated reform and liberalization of services
10 Professional services knowledge platform Challenge: integrating markets (expanding trade) while achieving regulatory objectives efficientlyFilling information gapsCollect and analyze data on:- Availability of professionals, prices- Market structure and trade flows- Domestic regulation- Trade barriers- Education requirements- Immigration rulesAddressing knowledge gaps- Provide information on regulatory experiences and regulatory impact assessments- Propose guidance on trade and regulatory reforms, including good practice- Facilitate networking and information exchanges, especially South-South exchangesAddressing political economy constraints- Translate knowledge into policy choices- Identify interests and preferences of various actors- Facilitate direct engagement of stakeholders- Provide platform for national and regional dialogues
12 Regulation of legal services Entry RegulationConduct RegulationUniversity degree and practical training requiredBar exam requirement and Continuing education obligationCompulsory membership in the professional barScope of exclusive rights: 9 out of 10Price regulation : Binding minimum and maximum pricesAdvertising is prohibitedRestrictions on type of corporationAbsence of quality control instruments
13 Explicit barriers to trade in accounting services Not permitted since commercial presence required to perform most accounting and auditing activitiesMode 1(cross-border delivery)Foreign ownership restrictions: ownership by non-locally licensed professionals not allowedRestrictions on activities that can be performed by foreign accounting professionalsMode 3(commercial presence)Discretionary limits (labor market tests & econ. needs tests) for foreign-licensed accountantsMode 4(presence of natural persons)commercial presenceWorld Bank Services policy database :
14 How will the knowledge platform work? Mechanism that brings together regulatory expertise, trade policy makers, the private sectors, think tanks, universities and regional bodiesAnalytical work and advisory services disseminated through:Online platform with transparent, easily searchable databases, and social networksFace-to-face interactions between practitioners, policymakers, think tanks, regional secretariats
15 Africa Region - Poverty Reduction and Economic Management Unit Thank you!Nora DihelAfrica Region - Poverty Reduction and Economic Management Unit