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close this bookThe Courier N 156 - March - April 1996 - Dossier: Trade in Services - Country Report : Madagascar (EC Courier, 1996, 96 p.)
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View the document(introduction...)
View the documentA trailblazing project for services in Africa
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View the documentWhat do ACP nations have to win or lose from global liberalisation of services?
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A trailblazing project for services in Africa

by Norbert Lebal

The United Nations Conference on Trade and Development (UNCTAD) has pioneered a project to stimulate growth in service industries in Africa. Known as the 'Coordinated African Programme of Assistance on Services' (CAPAS), it has already succeeded in focusing the attention of African governments on the potential for trade in services on the continent.

Launched in 1992 at the request of a number of African nations, Phase II has just begun. The initial stage involved the preparation of 10 national studies on services to draw the attention of African decision makers to this growth area. According to UNCTAD economist, Norbert Lebalwho explains the details of the project in this article, CAPAS has already been used in many ways by the nations involved. In particular, it has prompted fresh dialogue between government and private sector on policy-making in the field.

'Until recently' says Mr Lebal'international trade policy-making in African countries too often received only scant attention from the government machinery. And with a strong traditional reliance on natural and agricultural commodities for export earnings, this was even more true of services. With the increasing integration of individual economies in the international training system, that lack of proper attention is a luxury that countries can no longer afford.' Phase II, which has just got off the ground, will look at the potential for African trade in certain sectors which are part of the General Agreement on Trade in Services (GATS) such as telecommunications and the movement of people.

Objectives

There has been a growing understanding of the role of services and trade in services in development during the last decade. In particular, deficiencies in infrastructural services revealed by structural adjustment programmes and recovery plans, the Uruguay Round negotiations on a multilateral framework agreement on trade in services, and the inclusion of services in LomV, have all served to draw the attention of African decision-makers to the importance of this topic. It was in this context that the Coordinated African Programme of Assistance on Services (CAPAS) was launched in April 1992, subsequent to the Dar-es-Salaam meeting organised jointly by UNCTAD and the Eisenhower Center of New York's Columbia University. CAPAS is financed by the French Government, the Carnegie Corporation (New York) and IDRC (Canada). It is an effort to strengthen national capacities in a way which implicates government decision-makers, representatives from parastatals, the private sector, academics and the consulting community.

In the initial phase of the programme, the 10 African countries taking part (Benin, Burundi, Ghana, Guinea, Kenya, Nigeria, Uganda, Senegal, Tanzania and Zimbabwe) each set up a government-organised inter-institutional working group (IWG) which included government decision-makers, those in positions of responsibility in the parastatal and private sectors and a national research team from a local research institute to draw up a national survey of services, relating principally to policy analysis and the promotion of research.

The general objective of CAPAS is to assist the participating countries in developing their knowledge of services, trade in services and economic development, as well as research and decision making capacity in these areas. In so doing, CAPAS relied partly on the information and resources developed by the trade negotiators during the Uruguay Round negotiations or to be raised during the talks on services within the framework of LomV. At the same time, Governments have come to appreciate better the need to increase their information-gathering capacity in order to meet the requirements of future negotiations.

The importance of services in the economy

Despite the fact that the economies of the ten countries are based mainly on primary commodities, the review of their production structure and their recent development plans reveals that the services sector has made a significant contribution to the growth process of those countries in recent years.

Two indicators point to the importance of services in the economies of African countries: their contribution to the Gross Domestic Product (GDP) and the amount of service employment as a proportion of total employment. As Table 1 shows, during the period 19801990, the contribution of services to GDP fluctuated between a third (Nigeria, Burundi, Uganda) and more than 50% (Senegal, Kenya, Zimbabwe). Employment in the formal service sector ranged from 6% in Burundi and 10% in Uganda to over a fifth in Benin, Ghana and Zimbabwe.

In most of the countries, services produced are mainly commerce activities (retailing and wholesaling) and non-market services such as education and health. The contribution of producer services - in other words, those provided as inputs to other firms such as insurance, industrial engineering, legal services, accounting and management services, remain very low as a proportion of overall services production. The contribution of logistical services (transport) also appears to fall short of requirements.


Services in the economy: Production and employement (%)

This weakness in services production is also reflected in the significant balance of payments deficit that the ten countries have in the services field - including in shipping and transport. In short, the states concerned are all highly dependent on other countries for services (see Table 2). In the field of freight transport, landlocked nations such as Burundi and Uganda show a particularly large debit balance relative to their overall service deficit.

Tourism and migrant workers' remittances are the main sources of service receipts. The level of income derived from labour abroad is particularly high in Uganda, Tanzania, Ghana and Benin. It should be stressed that unlike migration In other parts of the world, intra-regional mobility of workers seems to be the main source of labour income. Finally, for some countries such as Kenya or Tanzania, transport services (particularly port activities), are also a source of revenue.

In spite of an expanding services sector, the ten countries show a growing dependence on imports. This underscores the need for a consistent policy to promote the development of a national production and export capacity for services - if only to reduce this dependency somewhat.

The informal sector

Services in the informal sector cover a wide range of activities ranging from retailing and transport of passengers to financial services, tourism and some producer services such as research departments and consulting.

Despite the scarcity of reliable data to measure the size of the informal sector, the national reports give some estimates of its importance, especially in terms of employment and occupational structure (notably as far as women are concerned). In Benin, for example, employment in the informal sector other than agriculture involves about 20% of the working population, distributed mainly in catering, construction and transport. In Ghana, commerce (retailing and, to a certain extent, the wholesale trade) and the financial sector are almost entirely in the informal sector.

In most of the countries under study, the informal sector guarantees the adjustment of supply and demand among the range of economic actors. Therefore, this area cannot be ignored when drawing up policies for the service sector - in spite of the many issues that this raises, including the absence of social protection, lack of training of personnel and losses in tax revenue.

The costs of dysfunction

Services are linked to the rest of the economy in a number of ways. Services such as transport, telecommunications and public utilities (water, electricity, gas) are parts of the overall infrastructure of a country. They are often used as inputs in other sectors and their smooth or bad functioning affects the economy as a whole. The national reports highlight the point that dysfunctions in those sectors may result, in particular, in significant extra costs for the wider economy. However, services are also a major component of final consumption. Under-production poor quality and overpricing are all factors which contribute to under-consumption. This in turn has adverse effects on the formation of human capital.

Most national reports note, for example, that the different modes of transport suffer from a lack of interconnection. National policies do not take these interconnections specifically into account nor do they seek to provide for them. For example, the report from Nigeria suggests that, were Lagos to have an efficient telephone system, this would significantly reduce the city's traffic congestion by reducing the number of people on the move, especially during office hours.

The decline of the public sector and emergence of new actors


International exchange of services in 10 African countries (1991) (in millions of dollars)

The decline of the role of the public sector and the emergence of new actors in the field of services are mentioned in the ten reports. The transformation of the existing regulatory system (somewhat mistakenly referred to as 'deregulation') to allow for greater competition in the service sector is an increasingly important phenomenon in African countries. This can be attributed to some extent to the dynamic effect of the structural adjustment or recovery programmes that have been launched by governments. It is also a result of increasing awareness of the distortions caused by too much regulation and direct state intervention in the operation of the market, and by mismanaged public enterprises which are important sources of fiscal deficit.

The regulatory framework that is being promoted often attempts to maintain a public sector presence in a number of activities, to create an environment that allows for the expansion of dynamic and highly efficient firms and, if necessary, to strengthen protection for users and consumers. National polices are moving in two directions: total or partial privatisation and the restructuring of firms that remain in the public sector to make them more responsive to market pressures.

While privatisation has progressed well in some countries, in others it is only beginning, and it faces obstacles. The problems arise from the fact that the firms proposed for privatisation are not economically or financially attractive. Restructuring is therefore needed before privatisation.

Some sectors remain publicly controlled. These are, typically, the utilities (electricity, water, gas, education), rail and air transport, and banks. In most cases, there is a move towards at least partial privatisation. Outside the railway and telecommunications sectors, there are fewer and fewer public monopolies.

The need for a consistent regulatory framework

The national reports emphasise the increased participation of national and foreign private sector interests in the service sector. However, this development is not always accompanied by the formulation of a consistent and relevant regulatory framework.

Services are often regulated by old laws that have bean revised over time. Revisions have often bean carried out in two stages. First, immediately following independence, changes were introduced to favour nationals. Then, frequently in the framework of structural adjustment programmes, more liberal changes have been promoted.

Even if services are governed by specific laws and regulations, these are not always understood by the various economic actors. Nor are they sufficiently flexible to be adapted to the new developments (international deregulation, new technologies) that characterise service activities. A great many countries are trying to simplify administrative procedures in order to facilitate new investment.

The financial sector

The financial sector is of significant concern in all of the countries participating in CAPAS. In these states, the financial system is rapidly changing through restructuring, privatisation and open participation of foreign capital.

The report on Benin indicates that the restructuring of the banking sector following its collapse in 1988-89 has led to the creation of new institutions. This is how it was possible gradually to restore confidence in the system. However, the sector has trouble meeting the financing need of small and local firms (notably, financing of the private rural sector and housing). In Kenya, the authorities have opened up the system to foreign capital, allowing for minority-owned businesses or joint ventures.

Inherent in this development are difficulties stemming from issues relating to management, the training of personnel and the modernisation of financial procedures. The sector has also had to respond to pressures generated by the new economic orientations which promote the demands of free enterprise. While in the past, lending went first to public bodies, today, banks must first give priority to the private sector.

In Ghana, the transition occurred relatively smoothly. Between 1980 and 1987, most loans from the banking system were granted to the public sector (about 62%). However, in order to promote the private enterprise as the 'engine of growth' in the framework of the structural adjustment programme, it proved necessary to reverse the trend. In 1991, private concerns were granted more than 70% of all loans distributed by the banking system. By the third quarter of 1992, the proportion exceeded 80%.

The formal financial system coexists with a dynamic informal one. The latter collects savings diverted from the formal sector and finances most consumer credits and micro-invesiments in the productive field (tontines in Benin, su-su in Ghana). In many countries, such as Ghana, Benin and Burundi, there is also a trend towards 'formalising' the sector, with informal institutions being converted into credit cooperatives.

The absence of a relevant service policy framework

As a general rule, a reading of the ten reports suggests an almost total absence of a relevant policy framework for services that takes into account, in particular, the significant role of infrastructure services in economic development and the potential of export services.

There are two major exceptions here: tourism and transport related services. Because of tourism's capacity to generate foreign exchange quickly, all the countries under study have adopted national policies to promote it. However, in most cases, a lot remains to be done before the industry truly takes off.

Services related to transport are strategic for landlocked countries and offer earning possibilities to states that have access to the sea. Benin, Kenya, Senegal and Tanzania all offer such services to their neighbours. Kenya's report mentions the noticeable fall in the quality of services provided by the sector in this country because of the degradation of the infrastructure and management. On the other hand, the reports from Senegal and Benin take note of the awareness of the export potential of these services at the national level, and of the efforts being made to renovate the infrastructure and create greater complementarily between different modes of transport.

Lessons to be learned from regional cooperation

The importance of regional economic cooperation and integration as a way of accelerating and consolidating the process of economic and social development has long been recognised by African decision-makers. This is reflected in the existence of several subregional groupings that were set up prior to the creation of the much wider Economic Community (the Abuja Treaty, signed in June 1991).

As a general rule, treaties and institutions of economic cooperation and integration should affect all areas of economic activity. In fact, however, cooperation and integration in services remain marginal in regional integration programmes linking African countries.

Most of the regional and subregional agreements examined by the national reports deal with the simple facilitating of services among countries. Cooperation among member states is limited, for the most part, to measures aimed at coordinating and harmonising rules and regulations affecting services activities, the harmonisation of institutionalised mechanisms for the exchange of information and experiences, and initiatives promoting joint research and training programmes on services.

Thus, for example, there are several regional and bilateral agreements that aim to facilitate services in the various modes of road and rail transport. ECOWAS has enacted a number of decisions with this in mind within the region. These include the Convention on Inter-State Road Transport, the decision on the harmonisation of highway legislation, and measures such as the creation of liability insurance for transit and transport operations.

A similar number of agreement exists with a view to facilitating the joint provision of services. These mainly involve infrastructure services. One example is the creation in 1985 within the PTA (Preferential Trade Area for Eastern and Southern African States) of the Bank for Trade and Development. Its mission is to secure financing for multinational projects and to promote trade among the 19 member states.

Finally, a smaller number of agreements deal with collaboration among corporations and other professional interests from the same sector of activity in several countries. This usually translates into the creation of sector specific associations (bankers, restaurant-owners, hotel-keepers, journalists etc). The creation by ECOWAS of ECOBANK, a private offshore bank, is an example of translational business colaboration.

The three types of measure mentioned thus far all fall under the heading of simple cooperation. They differ from integration policies per se. The latter are oriented towards the creation of a wider economic space for service providers at the regional or subregional level, by means of mutual market opening and preferential treatment among member states. The CAPAS programmes implies the progressive implementation of liberalised transaction principles, non-discrimination and coordination of member state policies and legislation.

The African Economic Community Treaty, the revised ECOWAS Treaty and the COMESA (Common Market of Eastern and Southern Africa) Treaty which is designed to succeed the PTA, all have explicit provisions relating to national treatment, the right of establishment, the free movement of capital or the free movement of labour. These form the legal basis through which effective integration of services can be achieved.

In spite of the multiplicity of regional agreements, there remain numerous barriers to trade, and national reports generally underline the low impact that these agreements have had so far. However, the experience of some countries reveals situations where the removal of trade barriers has brought about positive effects on trade among regional trading partners.

The harmonisation of freight rates within the framework of the PTA, the introduction of travellers cheques to facilitate trade and tourism among PTA countries, and the removal of restrictions on the free movement of people and capital among ECOWAS countries, constitute initiatives that reflect the will to eliminate obstacles to regional trade, including trade in services.

Political barriers are often an important factor which reduce the expected impact of African regional cooperation agreements.

The most significant example was the failure of the East African Community which included Kenya, Tanzania and Uganda. This Community was created on the basis of developing and jointly managing main services such as railways, air transport, posts and telecommunications, ports and maritime transport.

Besides political barriers, the limited impact of regional integration agreements can be attributed to the internal weakness of national economies, including infrastructural constraints, a non-existent or weak private sector, and deficiencies in countries' regulatory systems.

Finally, conceptual inadequacies in cooperation agreements also play a part in reducing their impact. Most of the earlier treaties did not include provisions relevant to the integration of services such as the free movement of capital and labour, the right of establishment or national treatment.

Conclusion

A general observation seems appropriate by way of conclusion. The link between the analyses presented in the national reports and the policy recommendations needs to be sharpened. In this first phase of CAPAS, the national reports have failed to go from the descriptive to the prescriptive.

Indeed, one of the limitations of most reports lies in the failure to distinguish between legal and regulatory provisions as they exist 'on paper' and the enforcement of such provisions. For example, the reports stress the seemingly paradoxical tendency towards more deregulation and competition in the service sector at the same time as the continuing protection of public service monopolies.

The second phase of CAPAS, concentrating on sectors which are still under negotiation within the GATS such as telecommunications, financial services and the free movement of individuals, will enable each country better to define its negotiating basis and its commitments in the services sector within the World Trade Organisation.

When all is said and done, the aforesaid demonstrates that the services sector is an element of considerable importance in economic activity and that it has much more impact on both the domestic and foreign status of African countries than is generally admitted.

For a number of these countries, the services sector is the most important area of the economy, sometimes accounting for more than half of GDP. In the majority of cases, however, it represents only a traditional, undynamic and inward-looking element.

In terms of commercial exchanges, African countries overall are largely in deficit, particularly as regards investment income and the maritime freight sector.

The few countries with a positive balance of payments are those deriving income from tourism or from work by migrants. Some countries also earn considerable income from services in the field of transport, particularly in the ports sector.

Although African decision makers acknowledge that economic cooperation and integration are decisive factors in accelerating the process of development in that continent, joint initiatives in the services sector still require further attention and fail to operate in many integration programmes.

In the context of current multilateral discussions, which acknowledge the right of African countries to define and adopt rules relating to regional or subregional integration and cooperation, it is high time that these countries seized the opportunities available in the form of international aid. In this way, they can develop programmes in the services sector that support the process of regional integration. N.L.