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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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Open this folder and view contentsTrade in services

(introduction...)

Talk about trade in services and the likelihood is you will draw a blank with anyone who is not well versed in macro-economic speak. It covers anything from tourism to architecture and accounts for a substantial share of global trade (see table). Developing countries and, in particular, ACP states lag behind in services development, importing more than they export, although this obviously varies from country to country.

The writers featured in this dossier look at the potential - and obstacles - for building up service industries in ACP nations with a view to boosting investment and eventually their own exports of services. It appears to be a race against time. There are fears about their ability to compete as talks on global trade in services prise open the markets.

Bigger and better service industries are vital to the development of any economy. And an uncertain future for traditional commodity exports puts a bigger onus on developing services. As the EU, for instance, seals more and more free trade agreements around the globe, this will make it easier for 'new' trading partners to enter the EU market, inevitably whittling away the long standing 'traditional' trade preferences.

The World Trade Organisation (WTO) is leading the way. The General Agreement on Trade in Services (GATS), agreed by 125 nations in Marrakesh in 1994, is based on most favoured nation (MFN) treatment for foreign services established in a member country, although exemptions are possible for countries who do not want to subscribe to certain clauses or who have balance of-payments problems.

Its annexes pledge the continuation of talks on basic communications, financial services, professional services, maritime transport, air transport and the movement of persons.

Whereas 1995 brought a deal in financial services, 1996 promises to be the year of telecommunications and maritime services. At the time we went to press, 16 nations had put offers on the table to liberalise telecommunications.

Significantly they are all developed countries.

The danger is that developing nations might lose out in an open market, although they could benefit from the so-called 'free rider' principle insofar as a liberalised telecommunications market will bring down the costs of such services for all. As for maritime services, countries are putting offers on the table to eliminate existing cargo sharing and reservation practices.

The anticipated agreement should ensure that public authorities provide port facilities to foreign-owned ships on a non-discriminatory basis. And a push at getting nations to agree further commitments in the whole range of services will be made from 1 January 2000.

In keeping with the current shift to forming regional alliances, authors argue for regional moves to liberalise trade to facilitate participation in the GATS, an agreement which will obviously benefit the most competitive producers of services.

Africa

To learn more about the situation in Africa, we spoke to UNCTAD economist, Norbert Lebalwho also writes for us in the Dossier), an expert on the potential for African services. He points out that wheress 97% of the external revenue of the Seychelles comes from services (mainly tourism-related) the figure is just 5% for Nigeria which is a major oil exporter. Services alone accounted for more than 30% of the import expenditures of countries like Gabon, Cd'lvoire, Cameroon, Zaire and Zambla. As for African services, ports and tourism provide the main income, although labour services (migrant workers) are particularly important to Lesotho, Sudan and Mali, accounting for between 30% and 80% of total exports in 1988.

According to Mr Lebal'African countries that are structural importers of services are anxious to develop their own services industries, especially in the range of selective intermediate services that are useful for the launching of more elaborate lines of production. Liberalisation of imports - that is to say the reduction of trade barriers and easing of requlations - is one way for these countries to ensure the quality of such services.' The author adds that 'for African countries already exporting services to the world market (notably tourism and labour), the aim is to develop production of higher value products and to increase their exports.'

He calls for investment in infrastructure, and in human resources so as to turn an unskilled labour force into a skilled one. He points out that transport and communications inherited from the colonial era 'are still a bottleneck owing to their inadequacy, despite the constant increase in the overall demand for transport as a result of population growth and the rise in personal income in some countries. African transport networks,' he continues 'were built along the colonial routes penetrating into the interior, to link the seaports with the hinterland. They are often quite unsuited to the present day economic situation of African countries.'

And in the GATS talks themselves, African nations, he believes, should push for more tourism infrastructure - airlines, hotels, restaurants, travel agencies and guides. Currently, he states, 'African countries do not have the technological and managerial capacities to respond adequately to market changes. This situation poses a particular challenge to them as they try to increase their competitiveness'.

To get the most out of the GATS shipping talks, he recommends commitments on the increased participation of Africans, whether unskilled or professionally trained, in the manning of vessels. He speaks of attaching requirements for technology transfers and financial support, in return for giving developed country vessels more access to African countries.

Finally, he recommends that African nations should get more out of their comparative advantage in iabour. 'Over the last two decades', he notes, 'the continent has had a growing income from the activities of Africans working abroad' and the sums involved are now significant.

Successes in which the development of one service has had knock-on effects on others are highlighted by Mr LebalHe mentions, by way of example, the Port of Djibouti. 'Over the past few years, the role of the port in regional cooperation and in storage, transit and transshipment operations has become increasingly important. The integration of other transport services (roads, railways and air transport) has encouraged the expansion of a retail trade and banking activites, so that Djibouti can now entertain the hope of becoming a significant banking centre.'

Like many who study trade in services, Norbert Lebale argues that some extra political impetus would not go amiss. 'Political barriers', he claims, 'are often an important factor which reduces the expected impact of African regional cooperation agreements. The most significant example, he says, is the failure of the Eastern African Community. This was based on developing and jointly managing the main services such as railways, air and sea transport, and posts and telecommunications.

The Caribbean

Turning to the Caribbean, an EU-commissioned discussion paper 1notes that this region has 'good potential in the field of services' such as information technology, transport, finance, insurance, health and tourism. It suggests 'national studies' to identify this potential, as well as possible regulatory reforms to overcome constraints and promote investment. Even in tourism, the main services earner for Caribbean nations, there is potential for more growth. A 'tourism master plan' is mooted.

Within the region, there are certain legal barriers to land transport services which restrict competition. These include minimum tariffs and impediments to the mobility of companies across borders, which the authors suggest need to be dismantled. They also point out that most ports in Caribbean countries are 'government owned and operated' and in many cases, 'this has resulted in bureaucratic and monopolistic operations.' The report continues: 'Among the causes of poor maritime transportation services and low port productivity cited by various users is the nature of management policies and practices; excessive documentation requirements, time consuming processes to pay consular charges in the exporting country and weak security leading to high levels of pilferage of cargo.'


The structure of trade in services


The growth of trade in services

As for telecommunications, private and state-run monopolies tend to dominate. 'The result is that in countries such as Haiti, St Lucia and Barbados, the high cost of communications services is an obstacle to the competitive development of the information services sector. And there are no sector or general agreements to develop the regional integration of consultancy services, through a common registration system or the extension of national treatment to all regional firms. Regulatory restrictions and barriers are also imposed by the different national professional associations.'

The study focuses on the delays and bureaucratic procedures faced by local and foreign businesses in obtaining visas and work permits for their personnel. This is a problem even where the workers are from elsewhere in the Caribbean. At a recent meeting of Caricom heads of state, a decision was taken to allow free movement of Caricom nationals who are graduates of member state institutions from 1 January 1996. The effects of this decision are yet to be felt, and restrictions on the freedom of non-graduates remain, even in cases where it would aid in the development of the smaller islands, for example.

Finally, restrictions to foreign investment apply in the banking industry, in the form of licensing in Barbados, Jamaica and the Dominican Republic. In Trinidad and Tobago, obstacles exist making it difficult for foreign banks to offer their services. In short, while the Caribbean may have considerable potential for services development, much remains to be done before this can be fully exploited. Debra Percival

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.

Services potential in the Caribbean

by Dr Marie Freckleton

The rapid expansion of global trade in services currently being witnessed provides timely opportunities for Caribbean counties to diversify their exports, attract increased flows of foreign investment and create new employment opportunities. Exploiting these will require substantial investment in human resource development and the upgrading of physical infrastructures needed to support the service sector.

Diversification of exports is vital to the development of the region's small fragile economies and the services sector is a new growth area. Global trade trends are weighted against the Caribbean countries' traditional narrow range of exports. These include sugar, bananas, light manufactures, bauxite, petroleum products and tourism. Exports of sugar, bananas and manufactured products are dependent on preferential trade arrangements.

But these preferences, the mainstay of many Caribbean economies, are slowly being whittled away. The reduction of tariffs under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) has reduced the preferential margin enjoyed by Caribbean countries under various arrangements. These include the Lomonvention, the Caribbean Basin Initiative (CBI) and Caribcan, which grant preferential access to the European, United States and Canadian markets respectively.

In addition to the erosion of preferences, the region faces uncertainty over the continuation of preferential access to the European market for bananas. This follows attacks by the United States against the EU's banana regime, and doubts over whether the duty-free access for the Caribbean's Lomembers will remain in place after 2002, the expiry date for the EU's regulations on the Single Market banana arrangements. This is of major concern to countries such as St Lucia, Dominica, St Vincent and Grenada, where bananas are a major export crop. For example, in the case of St Vincent, banana exports accounted for 55% of total export earnings in 1994. Prospects for the region's agricultural and manufactured exports are not very good given the low likelihood that the region will be able to compete in the absence of preferential treatment. Caribbean countries therefore need to move quickly to develop new exports.

Future in services?

The potential for the development of services in the Caribbean region is quite good. The services with the most potential appear to be tourism, data processing and financial services (banking and insurance). Other services with some prospects include health care and consultancy services.

Tourism has grown rapidly in many countries of the region. In 1993, tourist expenditure in Caricom countries totalled $4.2 billion. In the case of Jamaica, earnings from tourism increased from 30% of total exports of goods and services in 1980 to 53% in 1994. There is scope for further expansion in the region. One possibility is the development of eco-tourism. Caribbean tourism has traditionally been marketed as 'sun, sand and sea'. Consequently, little attention has been paid to selling the other environmental features of the region. However, the physical beauty and diverse flora and fauna of countries such as Dominica, Guyana, Belize, Trinidad and Jamaica offer opportunities in this area. In addition to developing ecotourism, there is scope for increasing visitor arrivals from Europe and Japan. Presently, North America is the major source of visitors to the region.

Literacy rates in Caribbean countries are high, ranging from 90% in Belize to 99% in Barbados. These figures, together with good telecommunications services and relatively low labour costs suggest that Caribbean countries should have a comparative advantage in the development of data-processing services. Some countries - Barbados, Jamaica and Saint Lucia - have already embarked on the development of such services. This process has been assisted by investment incentives which have attracted foreign investors. Close proximity to the large United States market is an added advantage for the countries of the region.

Financial services, telecommunications and people

There are also prospects for the development of financial services based on a fairly well-educated workforce and good telecommunications services. Barbados and some of the smaller Eastern Caribbean islands have already attracted some offshore financial business while other countries, such as Jamaica and Trinidad & Tobago, have potential in this area. However, an important requirement for the development of financial services in the region is the strengthening of the regulatory framework governing the sector. This is necessary to promote investor confidence.

The region has a pool of well trained health care workers which offers opportunities for trade development in the sector. Caribbean countries have traditionally exported health care workers, mainly to North America. The development of trade in health care services could lead to improved earnings for workers in this field, thereby reducing the incentive to leave the region. There is also the possibility of establishing linkages between the tourism industry and the provision of health care services.

In addition, there is a growing pool of highly trained professionals offering services to international clients. This has already taken off on a small scale in Jamaica, Barbados and Trinidad & Tobago.

Constraints

A major factor holding back the development of trade in services in the region is the shortage of funds to upgrade the physical infrastructure (electricity, transport and water) and to invest in the development of human resources. A number of Caribbean countries are struggling with budgetary problems and low levels of private investment which will make it difficult to mobilise significant sums for the upgrading of dilapidated infrastructures.

The weak regulatory capacity of some Caribbean governments also poses a problem. Institutional and technical capacities to regulate economic activity are weak and underdeveloped in many places. However, effective regulation of monopolies is necessary to promote efficiency and competitiveness in the provision of services.

In the case of financial services, effective regulation is vital to promote investor confidence. Monopolistic practices in some service industries in the region threaten efficiency and competitiveness. The problem is most marked in the telecommunications sector which is dominated by monopolies. The cost of telecommunications is one critical factor in the competitiveness of services such as data-processing and banking. Caribbean governments therefore need to strengthen their regulation of monopolies as well as encourage competition, where possible. The establishment of a Fair Trading Commission in Jamaica is a step in the right direction.

Expansion of tourism is constrained by the threat of environmental degradation. This is particularly so in some of the smaller islands where rapid growth of the industry has placed pressure on the environment. In Dominica and St Vincent, there is also the problem of inadequate access by air due to the inability of small airports to accommodate long-haul jet aircraft. Insufficient hotel capacity and dilapidated infrastructures also militate against tourism expansion in Guyana.

There are other obstacles to the development of trade in services in the region. Restrictions on the movement of persons, on the granting of national treatment to foreign firms, and on entry of some service industries need to be eased in order to promote the sector.

Impact of future liberalisation

Liberalisation of trade in services offers potential benefits for the region. These include increased export earnings, higher foreign investment, greater competition and improved efficiency. In order to reap the full benefits of the future liberalisation of trade in services, Caribbean governments need to invest in upgrading the workforce's skills, strengthen competition policy, introduce legislation to protect intellectual property rights and modernise the physical infrastructure that is needed to promote the development of services. The main drawback of liberalisation is the possibility of inefficient producers going out of business due to their inability to compete with international firms. Caribbean producers of services therefore need to improve their efficiency in order to minimise this possibility. M.F

What do ACP nations have to win or lose from global liberalisation of services?

Renato Ruggiero, Secretary General of the World Trade Organisation (WTO), which is driving greater international liberalisation in the sector, relied in writing to our questions.

· What is encompassed by trade in services?

- In principle, all services which can be suplied outside the domestic market of the provider. This covers an enormous range of activities: architecture and design, telecommunications and data processing, accounting and management consultancy, banking and insurance, transport and the variety of services provided by the travel and tourism industry.

· Are services a global growth area

- Services exports, currently amounting to over one trillion US dollars or 21% of world trade, are growing fast and could equal or even overtake merchandise within ten years. According to International Monetary Fund (IMF) statistics, for example, the average growth in services trade between 1980 and 1992 was 8% compared with 596 for trade in goods.

· How far does the Uruguay Round's General Agreement on Trade in Services (GATS) go towards liberalising global trade in services?

- The GATS, which came into force on January 1 1995, not only provides for the first time a set of multilateral rules for the conduct of the services trade, but also simultaneously creates a framework for continuing liberalisation. At the end of the Uruguay Round, over 100 countries accepted schedules of legally binding commitments to ensure that services markets in the whole range of sectors will be open to foreign suppliers to compete on a fair and equitable basis. Where discrimination and market access restrictions still exist, they have been identified and catalogued, and will be subject to liberalisation in future negotiations with the aim of achieving progressively higher levels of liberalisation. The first such negotiations will begin before the year 2000.

· Were you disappointed by its apparent/y limited outcome?

- Not at all. GATS covers all trade in services. And because the market access negotiations involved well over 100 governments around the word, commitments to liberalise realistically had to take into account the individual economic and other priorities of countries of varying levels of economic development. Where there are limitations, these are clearly identified and multilaterally recognised. Moreover, there is a firm commitment by all governments to progressively eliminate these limitations through on-going negotiations. We made a good start, but only a start. As with trade in goods under GATT, we will need to work towards ever higher levels of competition and openness.

· It is commonly argued that trade in services benefits industrialised countries over developing ones. Is this true?

- The principal beneficiaries of the liberalisation commitments are efficient suppliers of services in both developed and developing countries who will gain from more open and secure markets that the commitments will produce. The specific gains to be derived by developing countries in terms of increased exports of services will, of course, depend on the level of development of their service industries. And the more sophisticated the service industries become, the more it will help to attract foreign direct investment for developmental needs. Tourism, for instance, is one sector which holds great potential for developing countries. The largest category of commercial services consists of international tourism receipts, accounting for more than one-third of total services trade.

· Will developing countries lose out for example in the liberalisation of trade in financial services?

- Developing countries should be among the biggest beneficiaries of the liberalisation of trade in financial services. It is this realisation which has induced certain ACP countries to participate actively in the Uruguay Round negotiations in this area and make significant commitments. Although it may take time for financial services suppliers in these countries to be able to take advantage of the more open and secure markets provided by the commitments of other countries, the opportunities are there. Meanwhile, users of the services will benefit from foreign suppliers entering the domestic markets, enhancing general economic efficiency. Foreign direct investment and other capital inflows will be induced through the greater stability and security that the Agreement provides. Technology from abroad should help in the development of efficient and sophisticated financial markets which will help in fulfilling the development needs of these countries.

· What potential is there for ACP countries to develop their trade in services under the GATS accord?

- There is significant diversity within the ACP group, so it is not easy to make generalisations. However, the creation of multilateral disciplines on measures affecting trade in services has created significant potential for all countries. First of all, the GATS has more or less eliminated the scope for discrimination between trading partners, so ACPs are now assured of 'Most Favoured Nation treatment in all export markets. Secondly, the trading environment has been made more secure thanks to the binding nature of many measures which affect market access and competitive conditions for services suppliers. Finally, the steps taken towards trade liberalisation are likely to encourage the development of services trade according to the pattern of comparative advantage.

· What are the minuses in that agreement for ACP nations?

- The only 'minus' that I can think of is that we have not made faster progress towards trade liberalisation under the agreement, which, I must emphasise, is already a step in the right direction Even though many restrictions on trade have been removed, a large number still remain in place. Furthermore, negotiations in important areas like basic communications and maritime services are still continuing. It is, however, important to remember that a country benefits not only from liberalisation with its trading partners, but perhaps more so from its own liberalisation. ACP countries are no exception.

· Will cultural monopolies surface in opening trade in the audiovisual sector such as the American audio-visual monopoly?

- No government is obliged to open its market for any particular service, so GATS members wishing to take measures to safeguard their audiovisual industries are perfectly free to do so. Countries can maintain and develop national measures to preserve pluralism in the media. At present there are 13 countries, including some of the largest, which have offered market access and national treatment in this sector.

· What is WTO's agenda to open up further trade in services, in particular to the benefit of ACP nations?

- Article XIX of the GATS calls for successive rounds of negotiation with a view to achieving a higher level of liberalisation. As I have said, the next such round is to begin no later than January 1 2000. Article IV of the GATS stipulates that increased participation of developing countries in world trade shall be facilitated through specific commitments. These relate to the strengthening of their domestic services capacity, improved access to distribution channels and information networks, and liberalisation of market access in sectors and modes of supply of export interest to them. Special priority is to be given to least-developed countries.

· Do you foresee ACP countries being able to compete in the field of services with industrialised nations as services are gradually liberalised. Which services have the most potential to increase export earnings of ACP states?

- Again, I hesitate to make broad generalisations for such a diverse group of countries. There is no doubt that in time ACP countries will be able to compete in the provision of a wide range of services. Meanwhile, there are certain services, such as tourism, from which many ACP countries are already obtaining significant export earnings. Interview compiled by D.P.

Implications for developing countries of liberalised financial services

The increased flow of foreign direct investment (FDI) into the developing countries in recent years was a powerful enough incentive to sustain the latter's interest in the long negotiations that led to the conclusion in July 1995 of the General Agreement on Trade in Services (GATS). The United States' reticence and final withdrawal did not prevent a large number of countries from making improved offers that helped clinch the deal. They were certainly encouraged by the EU's steadfastness but equally enticed by the gains they anticipated.

According to recent data issued by UNCTAD, the flows of FDI into developing countries between 1992 and 1994 rose, on average by 24% as against 8% for the developed countries. Although down from the 40% achieved in 1993, the boom is continuing - a trend that has also been observed by international fund managers in what has been described as 'the emerging stock markets' in the developing countries. The reasons are not too far to seek. Over the past 10 years, most developing countries have pursued a liberalisation policy under structural adjustment programmes, involving the relaxation of foreign exchange controls and privatisation of state enterprises. This has opened up their economies to foreign investment in an unprecedented manner. Furthermore, it has come at a time when transnational corporations (TNCs) are, in any case, increasingly choosing to move some of their activities to the developing countries, as part of their global strategies of production, distribution and cost-cutting.

These figures have to be taken with caution though. The flows have been and remain unevenly distributed. Asia accounts for nearly 60% of the investments with China alone responsible for as much as 33%. South America accounts for 30%. Africa's share remains dismal - 6% between 1991 and 1993 as against the 12% it achieved in the early 1980s. Between 1981 and 1992, only Nigeria in sub-Saharan Africa featured high in the league of developing countries host to foreign direct investment (11th with $5.1 bn of the total of $280.5bn). It should be acknowledged, however, that some smaller countries like Seychelles, Ghana and Equatorial Guinea attracted investments mensurate with the size of their econ omies. The least developed countries as a group have continued to fare badly. Their share of total developing countries' financial flows declined from an annual average of 2.1 % in 1986-1990 to 0.6% in 1992.

Lessons learned

Two fundamental lessons have, however, been learned in recent years: first that countries with stable economic growth like China, Singapore and Mexico attract more investment and second, that liberalisation for its own sake does not necessarily produce the desired results. This was clearly illustrated by the disastrous liberalisation experiments carried out by Chile, Argentina and the Philippines in the late 1970s and early 1980s. In these countries the changes resulted in huge capital outflows, contributing in no small measure to increases in their foreign debt. Their experience underscored the pernicious effect of financial deregulation in countries where there are high levels of corruption '. In such countries, local branches and subsidiaries of large multinational banks often serve as conduits for capital flight and other evasionary activities like 'back-to- back' loans.

Monetary control and credit allocations are essential tools of economic management, the sovereignty over which no developing country would willingly relinquish. At the same time, it is recognised that market forces are superior to quantitative restrictions as instruments of management and allocation of resources. As the basic tenet of the IMF, and one which also underlies the principle of the GATT, liberalisation in financial services appeared to be fraught with difficulties at the beginning of the Uruguay Round, when the OECD countries began advocating removal of restrictions on capital transfers.

The GATS reflected not only the positions of both the developing countries and the OECD in these areas, but also the complexity of the financial services issues involved - market access and non-discrimination, protection of infant industries, application of Most Favoured Nation (MFN) treatment, prudential regulation and so on. Two annexes to the Agreement, including an Understanding on Commitments, deal with the application of the GATS principles to financial services - the latter defined to include a range of activities in insurance, banking and securities as well as consulting and broking. The annexes give considerable autonomy and flexibility to countries in interpreting the rules. It is recognised, for example, that a country may take prudential measures to protect 'investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system'. It may also 'improve, modify or withdraw' any specific commitments it made on its schedules within the framework of the Understanding on Commitments in financial Services.

The USA's reluctance to accept a multilateral track in financial services, and its preference for MFN, led to members being given a deadline within which to indicate changes to their commitment schedules - six months after the entry into force of the World Trade Organisation (WTO) - with the hope that the US would by then have changed its stance and opted for multilateralism. American adherence was seen as vital if other nations were not to downgrade their offers. Indeed, many thought the survival of the agreement depended on the United States. These fears have proved unfounded. In June 1995, less than two months after negotiations resumed under the auspices of the WTO for new improved commitments, the US announced its definitive option for MFN for the whole of the financial services sector. The EU promptly intervened. At its suggestion the deadline for negotiations was extended and talks continued without the US until the end of July 1995 when a deal was clinched.

Some 76 WTO members made commitments in the financial sectors - 30 reportedly improving their offers during the later stages of the negotiations. Commitments may vary, but together they already represent a significant degree of liberalisation. There are commitments, in some cases, 'to increase the number of licences available for the establishment of foreign financial institutions; guaranteed levels of foreign equity participation in branches, subsidiaries or affiliates of banks and insurance companies; removal or liberalisation of nationality or residence requirements for members of the boards of financial institutions; and the participation of foreign banks in cheque clearing and settlement systems,' according to a WTO press release issued after the July 1995 agreement. And although the agreement initially lasts only until 1 November 1997, thereafter, member countries can, within 60 days, modify or improve their offers. More talks are envisaged and these are expected to provide opportunities for further liberalisation.

Expectations

In principle, the agreement enhances market possibilities for potential financial services exporters. In the coming years, more foreign banks, securities firms and insurance companies are expected to invest in developing countries. The advantages are obvious for those with relatively large economies. As well as increasing financial transactions, notably in the grant of loans, the presence of foreign institutions will lead to greater competition and better terms and services for customers. It will bring about new ways of doing things, for example, in popularising modern payment methods such as credit cards and cheques, and encouraging the use of the latest computer technologies. It will also create new complementary businesses for domestic banks.

The overall positive impact on international trade cannot be underestimated - not just in terms of banking but also in insurance. For one thing, it should lead to a reduction in premiums, particularly in countries where companies are currently required to take out commercial insurance from national firms. In these countries, insurance premiums are much higher than those available on the world market, and the policies are often inadequate, forcing traders to take out complementary insurance elsewhere. Indeed, national insurers themselves are sometimes forced to reinsure on the international markets to cover their own risks, thereby adding costs to goods. In the first half of the 1980s, nearly half the goods that entered and left the developing countries were insured twice, resulting in an additional cost of $3.7 billion, according to UN sources.

There is no doubt that if global liberalisation of financial services is to have its desired impact on the developing countries, and in particular on Africa, it must be accompanied by domestic policy changes - political, economic and institutional. The political environment must be right. It needs to be stable (preferably democratic) and characterised by transparency and accountability in order to avoid the kind of capital flight that was witnessed in the Philippines, Chile and Argentina in the 1980s. In this regard, the current wave of political reforms in Africa is welcome. The macro-economic indicators such as the inflation and exchange rates must also be right. A good number of African countries are, to a great extent, on the right track with their structural adjustment programmes.

An attractive fiscal regime and transparent, non-discriminatory investment codes must be adapted. These have proved inadequate in past, but a number of Africa countries are making renewed efforts with positive results. The Ghana Investments and Promotion Centre (GIPC), for example, reported recently that between January and September 1995, Ghana received foreign direct investments worth $125 million as result of a new investment code which saw the business sectors reserved for Ghanalans reduced from 22 to four and the minimum equity requirement for joint ventures between foreigners and Ghanalans fixed at only $10 000. The GIPC forecasts an annual financial inflow of $100 million. In Nigeria, similar incentives on foreign equity participation are on offer in a new investment code.

Portfolio equity investments in the developing countries as a whole, which barely existed in the 1980s, reached $14 billion in 1992. In subSaharan Africa, they are increasing appreciably as more and more companies are listed in domestic stock markets. Excluding South Africa, there are now some 14 stock exchanges in the region with a total capitalisation of $20 billion. South Africa is in a league of its own, with a stock exchange worth $236 billion. The hope is that this country could act as an investment pole for the whole of sub-Saharan Africa. It goes without saying that privatisation programmes on the continent must be pursued.

Finally governments need to improve infrastructures, particularly transport and communications, which are absolutely necessary if Africa is to be integrated effectively and profitably into the global economy.

Temporary movement of persons

by Professor Bimal Ghosh

As Western governments impose tougher restrictions on the hiring of temporary workers from developing countries, the author argues for greater open mindedness. The global economy, he suggests, is boosted and the urge to migrate is lessened.

Currently valued at over $1000 billion, commercial services account for some 20%of world trade. For over a decade, and until 1994, services have also been the fastest growing component of cross-border trade faring, better than trade in goods. And these figures will substantially increase if account is also taken of the services that are delivered by subsidiaries or affiliates of translational companies set up in foreign markets.

Trade in services will certainly receive a further boost in the coming years as the General Agreement on Trade in Services (GATS), an integral part of the Uruguay Round of trade accords, opens up prospects of a further expansion of world trade in services through market liberalisation. A crucial question facing developing countries is: will they benefit from the anticipated expansion of world trade in services envisioned under GATS; and if so, how and to what extent?

As of now, few developing countries are major actors in the services sector as producers or suppliers in the world market. In 1990 they accounted for 12.9% of the export of commercial services, compared to 83% for developed countries. The shares of both Africa and Latin America over the past 20 years have actually gone down. In 1970, Africa's share for example was a meagre 1.2%. In 1990, it took a further tumble to 0.9%.

Not surprisingly, there has been a general feeling among policy-makers in many developing countries, as was revealed for example during the earlier stages of the Uruguay Round trade negotiation, that these countries have little comparative advantage in the world market for service industries. The feeling, although less strong today, seems to persist.

The challenge for developing countries

But this pessimism is not borne out by the facts. Available balance-ofpayments data, for example, tend to suggest that many developing countries have a comparative advantage 1in a number of service industries, especially among those that are labour and skill or knowledge intensive.

Comparative advantage is not a static phenomenon. The experience of several newly-industrialised East Asian economies - among the leading service exporters in developing regions, shows that constant upgrading of the quality and technical capacity of labour of many developing countries can develop their potential comparative advantage in a wide variety of labour (including skill and knowledge intensive services). These include engineering, accounting, legal, management consulting, medical nursing, software development, data entry and processing and cleaning services.

The gains for developing countries from a dynamic use of such potential comparative advantage could be enormous. As an illustration, according to a recent estimate, by contesting only those skill and knowledge intensive services in the world market for which developing countries have a potential comparative advantage, and which can be delivered mainly through telecommunications, they can over time create anywhere between 6 million to 30 million new jobs and increase their export income by $350 million. These figures do not take into account the additional gains that can be secured by developing countries through, for example, the execution of specific labour service contracts in the absence of immigration restrictions. In 1990, despite immigration restrictions, developing countries earned a net income of $2.9 billion from the export of temporary labour services.

The challenge before developing countries is to take full advantage of their actual and potential comparative advantage in these categories of services exports. Two sets of measures are required.

The first concerns promotional and organisational measures needed to enhance the efficiency and competitiveness of developing country services exports. These include a favourable policy and regulatory regime, a sound and dynamic export trade organisation, a trained and flexible work force and an efficient telecommunications system. Much depends on the developing countries' own overall policies concerning services trade and industries, based on the acceptance of the view that increased interaction and competition within and between economies can be conducive to their economic gains.

The importance of temporary movement of persons


The world's main importers and exporters of labour

An equally important requirement is the removal of restrictions that impede access of developing countries' service exports to international markets. Market access through opportunities for temporary movement of persons has particular importance. For pure labour services, the mainstay of the service exports of several developing (including ACP) countries the movement is in fact inseparable from the content of the service itself. And for many labour and skill-intensive services, it serves as an important sub-mode or complementary mode of delivery. Movements of software consultants complementing cross border delivery of computer software and short visits of high level professionals or technicians to complement delivery through local subsidiaries or translational companies, are but a few examples.

Hence, even for the skill-intensive 'long-distance' services, which are mostly delivered through telecommunications and computer systems, a degree of direct interaction with the customer is often critically important - for example, to secure the contract, to hold technical consultations and to provide after delivery services and the like.

The GATS opens up a new window of opportunity in this direction. It seeks to expand world trade in services by liberalising all modes of delivery - not only through cross-border supply - such as telecommunications and transportation - and commercial presence abroad such as the branch of a banking company, but also through movement of persons both as service providers and consumers. Thus, for the first time, trade-related movements of natural persons have been brought into an agreed framework of multilateral disciplines and treated on a par with other modes of delivery. This is a significant achievement.

Gaps between goals and commitments

But none of this is automatic. The overriding reason for this is that the GATS allows considerable flexibility for the participating states in applying the general principles of liberalisation by listing limitations and exemptions to them. These are indicated in the 'specific commitment' of each government decided through negotiations among the contracting nations.

The liberalisation commitments of developed countries cover most service sectors. But they have shied away from lifting the often stringent restrictions on market access and national treatment they apply to the temporary movement of persons providing services, especially unskilled personnel. The gap between the goals of liberalisation and the depth of actual commitments is most striking in this area. As of December 1994, market access for such personnel was subject to limitations in 92% of all commitments.

Generally speaking, market liberalisation commitments of developed countries in services in natural persons amount to no more than what is already permitted under existing immigration laws in individual countries. These have remained limited mainly to executive and other senior level personnel in the form of intra-company transfers. Some limited improvements were brought about as a result of new offers made by five contracting parties - Australia, the European Union, Norway, Switzerland and India before the extended deadline for negotiation of the issue expired on 28 July 1995. But overall, the situation remains unchanged.

Nevertheless, negotiated commitments under the GATS have their special value in so far as they cannot be withdrawn in return for compensation and only under certain other conditions. The more predictable access thus opened for natural persons, even if limited mainly to intra-corporate senior personnel, should encourage dynamic developing countries to strengthen their knowledge and skill-intensive service industries and increase their exports through corporate and similar structures.

Since the negotiated commitments of developed countries offer little new by way of market access for unskilled workers, the immediate benefits for the least developed countries will remain limited. They will thus need special attention and assistance in negotiating wider market access for less skilled workers. Automation and technological change will in any case erode some of the comparative advantage of less skilled labour over time. It is hence particularly important that higher value added services are developed. Multilateral economic and technical cooperation, including the Lomonvention, can play a significant role in this context, especially during the transition. So too can the assistance envisaged under the GATS itself, notably for telecommunications.

Other avenues of action are possible. A number of commitments on services-providing natural persons, leave considerable discretion to immigration and labour ministries. This provides immediate scope for intensifying bilateral or plurilateral negotiations on further liberalising the regime for entry and temporary stay of foreign natural persons supplying services. The results of such negotiation can be multilateralised at a later date.

Another important point to note is that the present commitments under the GATS provide the basis on which to build progressive liberalisation through successive rounds of negotiations, beginning not later than the year 2000. Developing countries thus have a continuing opportunity to prepare for it, making full use, if necessary, of multilateral and bilateral technical assistance.

Trade-related movements and migration management

Increased participation of developing countries in services trade has important implications for migration management. As trade in services expands, improved foreign exchange earnings and increased capacity to import critical production inputs, combined with economies of scale and interaction with the outside world, would help these countries to further improve the performance of the services sector.

Manufacturing and other sectors of the domestic economy, in turn, gain in efficiency from an easier access to services inputs, especially those of producer and business services. More and better jobs are created, with the whole economy moving towards an upward swing.

When this happens and people have a more optimistic perception of the future performance of the home country economy, many of those who might have otherwise been compelled or induced to leave the country due to lack of jobs or better opportunities are likely to remain in the country. Pressure for disorderly migration, including skilled migration, declines. Some of the skilled migrants might even return, as is now happening in several East Asian countries.

True, increased trade in labour and skill-intensive services will imply increased temporary movement of persons. But this should not be confused or equated with longer-term migration for employment or permanent settlement.

The GATS (Article XVI and Annex) makes the point clear. Admittedly, there is a risk of some 'leakage' in the form of temporary service providers becoming permanent migrants, but the risk is limited and can be reduced through effective monitoring, including an internationally harmonised visa regime for trade-related movements, as distinct from long-term migration.

Trade-related temporary labour mobility not only enhances global economic efficiency but, on balance, it can also be largely a substitute for longer-term migration. Nations should give full consideration to both these aspects as they engage themselves in further negotiations on trade-related movement of persons. B.G.

New realities for national shipping in Africa

by John Prescott

In this article, the author, who is a staff feature writer for Lioyds List, the international shipping and trade daily, teaks at the future for Afriran shipping companies. He argues for a relaxation of state control in order to reap the benefits of the World Trade Organisation's (WTO) General Agreement on Trade in Services (GATS) and more specific liberalisations under the aegis of the World Trade Organisation.

There was a time when a national shipping line was an almost de rigeur adjunct for newly independent states of Africa and Asia. Fewer more visible and prestigious ways were available to assert one's new status in world commerce than by creation of a flag carrier, regardless of whether trade merited such huge investment or whether the necessary expertise was at hand. Too often, governments allowed themselves to be seduced in this way. There was more to it than pure status, however. A national shipping line was frequently seen as a useful foreign currency earner. It could also be an attractive source of employment for a struggling economy, and a carrier for national cargoes.

More questionable was the practice of using the national line as an instrument of patronage. Governments often dung to the idea that nationalised shipowning could be a panacea for any number of ilk and it has taken time for the reality - that little profit and less glamour is attached to shipping these days - to penetrate.

One of the cornerstones on which national lines hoped to build their future was the UNCTAD liner code, which promised protection from foreign competition under its 40-40-20 provision - 40% for the national flag fleet, 40% for the trading partner's fleet and 20% for others. But though the liner code might have helped some national carriers in the early years, it was disliked, especially by the industrialised world, as a barrier to free trade, and its cargo sharing ideals were often ignored or simply became irrelevant.

Ultimately, the code was swept out in 1992 by the Cartagena Commitment under which UNCTAD, the UN body, was told to foster competitive services in developing countries and encourage ideas of the open market and the private sector as the best way of helping Third World nations.

State carriers sinking

In Africa, the inefficiencies of state carriers and aid donors' reguirements for abolition of cargo preference have spelt the end for several nationalised companies. One of the latest to go has been the Nigerian National Shipping tine, which, after long decline is now in voluntary liquidation. It has been said that NNSL never even approached 10% cargo share, let alone 40%.

Another casualty, Societvoirienne de Transport Maritime (Sitram), was wound up as part of the restructuring and liberalising of Cote d'Ivoire's shipping industry. The company, whose cumulative losses reached $24 million last year, was liquidated by the debt-laden government under pressure from the World Bank, in return for a $100 million loan.

The position of Ghana's Black Star tine illustrates the other pressure that some state-owned shipping faces, namely the threat of having ships commandeered by government. Black Star is down to two ships anyway, but has had to cope with military requisitioning.

Where do thee discouraging experiences leave flag carriers and their governments as they try to wrest some benefit in international trading conditions that are, if anything, becoming more hostile by the year? It could be argued that the trading environment for developing countries has improved as a result of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). This gave rise to the creation of the World Trade Organisation at the beginning of 1995 and it is the WTO's intention that the new GATT agreements should benefit a much wider circle of nations than previously.

'The setting up of the WTO marks a giant step towards the full integration of all countries, whatever their level of development, into a global trading system of shared commitments, shared rules and shared opportunities,' said WTO Director General, Renato Ruggiero. The WTO says improving the trade of least-developed countries in Africa is a priority. According to Mr Ruggiero: 'I am confident that (WTO) is also creating new possibilities... to improve the participation of African and other least-developed countries in the fruits of economic growth.’

But while encouraging, such sentiment will take time to translate into real trade and then manifest itself in tangible results for the shipping industry. Taking the WTO's own figures, Africa's trade stagnated or declined in the years 1990-1994, while world trade - exports and imports 5% annually.

The question the WTO will have to address is if UNCTAD failed with a liner code aimed specifically at securing cargo shares for national lines, can the GATS do any better? One answer will almost certainly be that if shipping in developing countries is to see a resurgence, it will at least, have to have disciplined management and be capable of investment in modern tonnage.

Future in private hands

With a track record littered with failures, nationalised shipping in Africa, at first sight, seems to have an uncertain future. A more likely route is the emergence of private or part state owned shipping companies which will be more responsive to commercial demands and able to cope with competition and changing patterns of trade.

The process has already started in Nigeria where a new state shipping company, Nigeria Unity Line, has been created with the intention that 75% of the equity will be sold to Nigerian and foreign investors. A similar process is underway in Cd'lvoire where Nouvelle Sitram is being readied for eventual private investment.

As in many other industries, South Africa will be the powerhouse for shipping across much of the continent in the new millenium. It is almost certain that a major liner hub will be developed in the republic and flag carriers on both African coasts will have a golden chance to provide feeder services for national cargoes. They will be unable to capitalise on new opportunities, though, if they are shackled to governments which have other, political priorities. The day of the subsidised, cargo-protected national shipping line has passed. J.P.

Shipping and Fiji's sugar trade

by N. Singh

Fiji's long-standing sugar trade with the EU is now threatened by an ageing shipping fleet. For Fiji to get the most out of this commodity whose prices are aligned with the EU 'sown sugar price, a good, inexpensive shipping service from the far flung island is vital. Along with tourism sugar continues to be the country's economic mainstay. Sugar export revenue accounts for 30 40% of total foreign exchange earnings One quarter of the economically active population derives its income directly from sugar.

Fiji plans to develop and hold on to its long-standing market relationships, which include a special link with the EU. About 175 000 tons tel quel (mttq) of Fiji sugar is sold to the EU annually at preferential prices under the Lomugar protocol. Fiji is permitted to export an additional 50 000 mttq for the current delivery period to other EU countries, notably Portugal and Finland, under the Special Preferential Sugar Agreement, concluded on June 1 1995. And for the remaining five years of the six year accord, it will be able to export an annual minimum of some 30 000 mttq. It has also been agreed that ACP-EU discussions should be held before 1 January 2001 on the possible continuation of the Agreement. ACP signatories to Lom sugar protocol have already voiced concerns about the freight issue. The main worry is the increasing level of freight charges borne directly by ACP producers.

In 1992, the Commission's Transport Directorate General (DGVII) agreed to fund a study on ACP sugar transport costs. Undertaken by TECNECON, a British-based consultancy, its objectives was to 'identify, where possible, measures... to alleviate the burden of inland and sea transport costs on ACP sugar industries and which would respond to the present and future needs of the ACP-EU sugar trade.' ACP nations received the final report of the study in February 1994. It revealed that transport costs borne by ACP suppliers, represent an average of 15% of the total guaranteed sugar price. ACP ministers recently agreed that the findings of the study be updated. i Sugar cane is grown and milled in Fiji along its two main island coastal belts, minimising the need for land transport.

Both road and rail are used to carry the raw cane to mills for crushing and processing, as well as for transporting it to the bulk terminals near the ports. The cargo size for shipments from Fiji ranges between 18 000 and 20 000 tonnes. Most exports are to the UK. Physical restrictions, particularly at discharge ports, continue to play a major role in determining ship sizes. Of greater concern is the lack of replacement building of suitable cargo-size ships and this will continue to cause long term difficulties. The problem of the ships' age is becoming very serious for the two most famous industry 'workhorses', the SD 14 and the IHI Freedom Mark1/Mark 11 vessels. These are usually single deck bulk carriers ranging from 20 000 to 25 000 mt deadweight. Additional insurance is now routine for ships more than 15 years old and the cost doubles for those still plying the waters after 20 yeras. Basic economics will obviously decide how long such vessels can continue trading. Profits to the shipowner have to be adequate to cover escalating maintenance bills, insurance and running costs. If not, these old ships will rapidly disappear from service. The upshot is that charterers such as Fiji will have continuing freight problems for years to come. Much hinges on the ability of older vessels to keep trading and be adequately maintained. The long term solution entails improvements to discharge facilities to give Fiji access to larger and more modern ships. N.S.

State-owned airlines try to avert crash-lanclings

by Baffour Ankomah

As competition in the aviation industry becomes fiercer, African national carriers - once considered as essential to statehood as an anthem and a flag - are finding it increasingly difficult to stay in the skies.

Without massive cash injections, better management and sounder policies, several carriers are likely to follow Zambian Airways into liquidation, leaving the runways free for private companies. Its December 1994 collapse followed the seizure of three of its aircraft and other assets by international creditors fed up with its failure to settle outstanding bills.

Out of the ashes, a partly private phoenix has risen: Alliance, a collaboration between South African, Tanzanian and Ugandan interests, which will link the three member nations and London, Dubai and Bombay. Its maiden flight took off in July 1995 with a cabin crew trained by South A*ican Airways (SAA). Tanzanian Prime Minister, Cleopa Msuya, spelt out the lesson at the Alliance launch: 'With meagre resources, small national airlines are fast becoming a thing of the past. African nations can no longer afford to operate individual airlines in a highly competitive world market.'

With a few exceptions such as Ethiopian Airlines and SAA, African airlines are state-owned, badly-managed and hugely unprofitable. Many are run like government welfare agencies which survive on political patronage. The catalogue of woes also includes an ageing fleet which is increasingly expensive to maintain, lack of a common ticketing system and bizarre policies on fares which range from inordinately high (because of lack of competition in the home countries) to uneconomically low (demanded by governments because of poor conditions at home).

A recent United Nations aviation review was scathing about the continent's record: 'Airline companies are simply treated as an extension of the public administration or government departments under the control of politicians who allot key management posts as political favours without any consideration of merit. Africa's poor economic performance has further hindered the industry. Over the past 20 years, African airlines' share of global traffic has dwindled. In 1994, the continent's traffic volumes decreased by a further 4.2% even as the number of air travellers around the world increased by 7%.'

Some like Nigeria Airways, always a profligate spender, have tried to buy their way out of their problems by buying new aircraft. It purchased four Airbus A310s to augment its once impressive fleet of Boeings, but succeeded only in pushing the airline deeper into the red to a point where it can no longer pay its debts. The Nigerian government would like to privatise the loss-making carrier but cannot do so because of its 'massive debts', according to Aviation Minister, Aremu Yahaga.

Even Air A*ique, one of the continent's most respected carriers, ran into severe problems, stemming in part from interference and squabbling amongst the 12 francophone West African countries which own it. In 1993, France saved it from imminent collapse by putting up 80% ($20.4 million) of its re-capitalisation. ln the first ten months of 1994, it announced a $662 000 profit - the first for many years - in contrast with a deficit of $14 million in the same period in 1993. The international courier company, DHL, has acquired a 3% stake and a further $15.7 million is being sought from the private sector.

One reason to improve airline operations is to cash in on the World Tourism Organisation's predictions that Africa 'will be the region where tourism grows the fastest in the next few years.' But to capture the predicted increase in tourism traffic, African carriers will have to drastically revamp their operations. This will include mergers, the introduction of a common ticketing system, proper management procedures - and privatisation.

Cameroon is planning to privatise the loss-making Cameroon Airways, and Congo is its internal operator Lina Congo. Another privatisation candidate is Ghana Airways, whose day-to-day management recently passed to Speedwing Consulting, a British Airways subsidiary. The Ghanalan government was impressed with Speedwing's success with Kenya Airways. In the five years before the Speedwing takeover in 1992, Kenya Airways ran a debt of $57 million. Although Speedwing raised fares by 107%, traffic increased. In 1994, for the first time in many years, Kenya Airways showed a profit of $7 million. The airline is on course for a $10 million profit in 1995.

Perhaps taking a cue from Ghana and Kenya, Zambia has replaced its dead national airline with a private carrier, Aero Zambia, owned mainly by Belgian investors. Asking foreigners to manage their national airline may be a blow to African pride, but it is the reality of the free market. B.A.

Air Jamaica: the bride without dowry soars to new heights

by Wilberne H. Persaud

For anyone interested in state enterprises and privatisation, Air Jamaica presents an interesting case. A 'before and after' review will illustrate what is possible under the two different ownership/management types. It will also show why, if a state enterprise is to be viable, its Board and Management must be left strictly alone. once given broad and general guidelines, and perhaps even objectives by the Government.

From its inception in 1969, Jamaica's national carrier had its fortunes dictated by the twin tentacles of the tourism industry and government policy: Air Jamaica was a means to an end. Calculus of the 'end' never included the airline's economic, financial and organisational health. The box gives a brief summary of the fortunes of Air Jamaica since it was established.

One feature of its whole existence was under-capitalisation. Government, as stockholder, refused to capitalise the airline to a degree that would put it even close to comparable airlines, whether private or national. As late as the mid-1 980s, most of the world's airlines were not strictly commercial and the commercial ones were to be found mainly in the USA. Yet for several years running, Air Jamaica showed operating profits. Indeed, in one period, its ratios were better than the world industry average! Nevertheless, it chalked up huge losses overall while having to service externally-based debt in foreign exchange.

A second feature of state ownership was lack of freedom to determine internal policy. Certain routes were serviced simply to provide the tourism industry with fodder. Irrespective of the party in power, there always seemed to be some severe conflicts of interest in the relationships between the airline, the Jamaican Tourist Board, the Ministry of Tourism and hotel interests more generally. Indeed, whether taken consciously or not, the effective decision for Air Jamaica was that it would serve as the conduit for state subsidy to the tourism industry.

State ownership involved another negative aspect. Air Jamaica's Presidency became a matter of political correctness, its Board positions being seen as plums to give to party supporters. Board membership and potentially conflicting business interests were never acknowledged as a problem. In addition, being seen as a 'government' company meant that no-one was willing to take unpopular decisions regarding streamlining of staffing, and the introduction of integrated information processing systems which would perhaps exacerbate staff unrest. No shareholder was there to ask awkward questions about expenditure and income. The public, however, was not oblivious to this.

So for a considerable period of time, Jamaicans, while being unashamedly proud of their national airline, maintained a kind of ambivalent 'love hate' relationship with it. They loved the local food, the flight attendants and the 'Jamaican-ness'of the airline but simultaneously, it was widely believed that airline employees were abusing their low-cost travel privileges. There was also a feeling that certain politicians were being granted favours in travel and baggage allowances, especially at peak periods like Christmas. In other words, there were several significant and generally negative attitudes prevailing towards the airline. All one had to do to get a feed on this was to listen a while at one of the ticket counters or airports.

From a business and financial perspective, the airline was non-viable. Government, for some time, resorted to comfort letters to local commercial banks guaranteeing huge overdrafts with interest rates sometimes as high as 62%! In March 1994, Deloitte and Touche noted: 'The company has reported losses over the last 18 years... its current liabilities exceeded its current assets by J$1.29 billion and there was a capital deficiency of J$437 million. These factors raise doubts that the company will be able to continue as a going concern.'

Despite all this, Air Jamaica was potentially a very lucrative business - assuming it was allowed to operate purely for its internal 'bottom line', with the requisite capitalisation. It maintained an impeccable safety record and its maintenance department functioned very well (even if there was a certain volatility arising out of trade-union based responses to problems). It showed signs of having the potential to be efficient and profitable. Finally, Jamaicans, more of whom live abroad than at home, are a fiercely nationalistic people. They religiously come home to the 'rock' - and the rock begins with Air Jamaica ! So there was a lot to work with.

The fortunes of Air Jamaica

1969-1972 (Jamaican Labour Party administration)
Start-up, heavy debt, optimism, national istic sentiment

1972-1980 (People's National Party administration)
Heavy debt, ear/y operating profits - later disaster, socialism and the tourist slump

1980-0189 (JLP)
Heavy debt, deep decay, rallying, some operating profits, attemps at efficiency

1989.... (PNP)
Heavy debt, indecision, multilaterals dictate, suitors found, privatisation.

Privatisation

Selling an airline may seem a simple business. It is not. In the case of Air Jamaica, it was a convoluted procedure carried on in almost complete secrecy. Not many outside the political and economic inner circle had a clue about what was happening. In fact, the airline had very few tangible assets. It owned its headquarters building - an asset some thought to be of questionable value - hangers and spare parts, a logo and trade name of significance and some operating routes. It also had significant debts.

So was Air Jamaica a bride with no dowry? Would-be suitors came forward with this view and it seems that the government was of the same opinion. As it currently stands, the government has assumed all of the airline's debts and after several attempts at marriage, the ownership now breaks as shown in the table.

There were some initial rumblings about the privatisation. These, it seems, were based on the fact that the airline had always subsidised the tourism industry, yet it was now to be sacrificed in a 'fire sale' to those very interests. Criticisms along these lines failed to gain much momentum, however, and in November 1994, Air Jamaica began to function as a private company. The thrust of the new owners was to reverse the negative image of the airline. The slogan 'Soaring to New Heights' was adopted. The marketing vision was that of a first class carrier dedicated to serving its public. A second objective was to define a long-term vision for the airline. This would entail finding true partners and destinations, and determining the composition of the fleet. These are all integrally related issues which Air Jamaica confronted while it was still state-owned. Indeed, some tentative conclusions had been identified but there was a kind of paralysis that public ownership engendered. The difference today is that decisions have been taken and implemented. Whereas the government might suffer political fallout if some flight attendants were made redundant, or an accounting department was streamlined with resulting job losses, a private company could weather the storm. And it did. While a state owned entity may have objectives other than simply the financial health of the organisation, a private one cannot entertain such luxuries, certainly not in its initial effort to achieve viability.

Today, the fruits are beginning to show. The company has bought two Boeing 727s and four new Airbus A-320s for delivery in October 1996 at a cost of roughly US$50m each. They have also purchased a headquarters building in a prestige location in Montego Bay. All the terminal facilities have been completely overhauled. In effect, the image has been transformed in less than a year. Customer sentiment is improving although it is still not in accord with the wishes of the company's marketing and advertising gurus.

As for the business profile since privatisation, a profit was revealed for the first time in July and August - a dramatic improvement over previous years. However, the final 1995 figures are still expected to show a loss. There have been further problems. Competition from American Airlines has become fierce (something of a back-handed compliment, in fact) and the USA authorities denied landing rights for the new Airbus during the peak Christmas period on the grounds that Jamaica's rating (with respect to handling international traffic) was below requirement. Today, this problem has been ironed out and the company is moving ahead with plans to fly to new gateways in the USA and the UK. Profits are projected for 1996.

Air Jamaica may have had no dowry but its potential turned out not to be in question, at least among those 'in the know'. The trade name alone is a golden fleece. And if the present owners and operators have their way, it will soon rank beyond Bob Marley and Blue Mountain coffee. One of the Moo Young family stresses that Air Jamaica is not only about profits. Rather, it embodies central elements of Jamaica's development potential. Another partner, 'Butch' Stewart, a stickler for excellence, wishes to see Air Jamaica as a unique airline delivering consistent quality service. In an arena normally the stamping ground of the 'majors', who is to say that there is no room for a spirited 'minor'? W.H.P.

Global tourism

by Narcisse Banze Mukalay

Analysts are in agreement that the tourist trade is rapidly expanding worldwide, not only in terms of numbers of travellers, but also of amounts spent overseas. Governments, international organisations (including the World Tourism Organisation) and those monitoring talks on trade in tourism under the General Agreement on Trade in Services (GATS), concur that the industry is an important component of many developing nations' economies.

According to the World Tourism Organisation (Worid Tourist Market Trends 1994, WTO, Madrid), tourist arrivals worldwide rose to 537 million in 1994, representing a 5% increase over the previous year.

Greater inter-regional movements, particularly in Asia and Europe, and more long haul travel by European and US tourists are key aspects of this upward trend. In most of the world's regions, national tourism authorities have stepped up their promotional activities, which are now better targeted at the consumer. In 1994, over $2 billion was spent on promotion and advertising.

Tourism and the GATS

A WTO study on the Agreement on Trade and Tourism (The GATS and Tourism, WTO, Madrid 1995) highlights the aims of the GATS for the sector. Based on the principle that the free interplay of market forces is the best way to give the consumer the best possible product at the best possible price, it sets up a system which should lead to the progressive removal of certain obstacles to growth in tourism such as restrictions on the recruitment of foreign staff. It also aims to make it easier to create management units and set up franchising agreements.

In a nutshell, The GATS philosophy is that the easier it is for companies to compete and do business, the more trade will develop and the better will be the prospects for economic growth. The agreement's objective is to lift restrictions on trade in services by setting the same rules for all commercial partners, be these domestic or foreign, and by granting most-favoured nation (MFN) status to all GATS members and clamping down on any policy changes which hinder trade.

In the past, discriminatory practices, protectionism and a lack of transparency have greatly hampered international trade in all services. For tourism, the list of restrictions includes the posting of staff to a foreign country (transfer within companies), setting up and managing branches abroad, making payments and currency transfers and use of trademarks.


The 20 African countries with the highest income from tourism International tourism income (excluding transport).

GATS aims at streamlining trade in tourism in three ways. These are firstly, by providing a clear definition of general commercial rules and obligations (notably access to markets, domestic practices and MFN), secondly by defining ways of providing services or types of tertiary sector transactions to which the rules apply and finally by requiring governments to define their specific undertakings under general rules in the light of the universal scope of the agreement which applies to the whole range of services, including tourism.


Worldwide International Tourism arrivals and income: 1985-1994 (millions of arrivals, income in bn $, and %)

In future, signatories to the GATS accord will be obliged to give providers of foreign services complete access to their domestic market and will have to treat them on an equal footing with domestic service providers. For tourism and travel companies, this means that tour operators, hotel businesses and other companies involved in tourism and travel in one country will be able to operate in other countries. For example, in the hotel sector, GATS will facilitate franchising, management contracts and technical assistance agreements and make it easier to obtain licences and register patents.

Article IV of GATS advocates the increased participation of developing countries. This is of particular relevance to tourism where there is an imbalance in terms of revenue and cumulative economic advantage between developed and developing nations.

Under GATS, the need for developing countries to strengthen their domestic capacity to provide efficient and competitive services is recognised. They must offer better market access, improve their participation in distribution and information networks, and take advantage of the freer access to markets in those areas where they could be in a position to provide individual services. All these improvements can be negotiated through undertakings and the agreement calls on parties to begin contacts before December 31 1996 so that developing nations can achieve these objectives more easily.

Tourism trends in ACP countries

According to the World Tourism Organisation, 20 of the 50 countries on the African continent account for nearly 94% of tourist arrivals in the region. Ten of the top 20 country destinations are found in the continent's Eastern and Southern regions. A similar picture emerges if one looks at it in terms of revenue, which is heavily concentrated in certain geographical areas. The top 20 nations account for more than 95% of the continent's total tourism receipts.


The Caribbean: classification of tourist destinations in 1994

Regional Tourism

October 1995 saw the launch of the Regional Tourism Organisation of Southern Africa (RETOSA), as the tourism wing of the 12-member Southern African Development Community (SADC - Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe). The public sector, non-governmental organisations, quasi-state bodies, the private sector, airlines and other companies involved in tourism and travel are all represented in this Lesotho-based organisation, which is the fruit of two years of joint talks between the European Union and SADC. Its aim is to coordinate and facilitate tourism on a regional basis.

Future forecasts for Africa (again according to the WTO) are an annual increase in travel of 5.5% a year and annual income growth of up to $24.3 million in the period up to the year 2000. The opening decade of the 21st century should see a 4% per annum rise in the number of tourists and increased revenue of $36 million a year.

By way of conclusion, the words of WTO Secretary General, Antonio Enriquez Savignac, seem to fit the bill. At the Organisation's eleventh General Assembly in Cairo in October 1995, he stated: 'Tourism is, by its very nature, a translational activity. In order to make it work as well as possible, we need to be able to operate across frontiers. Only in this way can it bring prosperity, respecting both man and the environment and making a contribution to peace.'

The 'phone' phenomenon

Telecommunications nowadays have an essential role in economic development. The world is moving towards an 'information society'- but some regions are much further ahead than others. Developed countries are leading the way with the introduction of new and advanced technologies. As a result, they have been able to introduce better infrastructures, which help in attracting new hightech businesses.

Traditionally, the state was dominant in the telecoms industry. The system was essentially one of monopoly control with or no competition.

The result was that standards of service dropped while profits soared. Change was clearly required and today we find most governments opening up their markets through liberalisation and deregulation. The entry of new, private competitors has resulted in better value for money and improved customer service.

Newly-industrialised countries (NlCs) such as Hong Kong, Thailand, Malaysia, and Singapore are making great strides, linking to the global network and catching up with new technologies. This has contributed immensely to the wider economic development of these countries. In Latin America things have also bean moving fast. Indeed, this region is privatising and liberalising at a faster rate than any other part of the world. The process has attracted foreign companies eager to invest in the new opportunities. In Chile, for instance, the number of telephone operators has risen from two to nine while the big reduction in the cost of phone calls has resulted in a dramatic increase in demand. Another significant example is Turkey, which began upgrading its network in the 1 980s. The number of phone lines per 100 people rose from just 3.5 in 1983 to 16 in 1992 and the expansion is continuing. Today, the revenue generated is sufficient to pay for further development of the system without the need for foreign loans.

In short, emerging nations now realise that they cannot hope to compete in world markets without top notch communications systems. And with the global economy shifting increasingly towards services, countries that are not adequately wired up are acutely aware of the danger of falling further behind.

Africa's untapped need

In sub-Saharan Africa, with a few notable exceptions such as South Africa and Botswana, the technology gap vis-is the industrialised world is very wide indeed. Most countries lack the modern communications infrastructure that is vital for today's global markets. One of the problems is their continuing dependence on out-dated materials (such as inefficient copper wires). A change to digital systems and fibre optics is required. But this implies a massive infusion of investment, skills and technologies. Global telephone companies are scouring the markets for new opportunities and in Africa there is a big untapped need. So while the Third World may lack capital and technical know-how, they do offer potential for profitable investment.

In a typical deal, telecom companies investing in a country would fund the network and perhaps even run it for a number of years, getting in return, a guaranteed share of future revenues. This kind of arrangement is popular in many countries that cannot afford to upgrade their communications systems on their own. One problem is that some countries, perhaps understandably, are reticent about giving stakes in strategic resources to foreign companies. Plans are also currently being drawn up to lay an undersea cable to link Africa with the global telecommunications network. This should be up and running by 1999, giving African countries a direct terrestrial link to the outside world.

Despite signs of progress, there are a number of factors which make outside investors reluctant to commit themselves to sub-Saharan Africa. Many countries suffer from internal strife and serious economic problems. Even where the situation is relatively peaceful, there are risks involved. Long-term political stability can often not be guaranteed. A new regime that takes power may choose to suspend work on projects entered into by their predecessors, even where a contract has been signed. Other problems include currency depreciation, corruption, trade union disputes, upsurges in nationalistic sentiment and weak support infrastructures. Given these circumstances, and in an atmosphere of increasing competition for investment funds, Africa is tending to lose out to other parts of the world where there is a proven track record of growth and openings for new market entrants.

The responsibility for the future development of the telecommunications market in Africa lies firmly on the shoulders of national governments, and it is clear that they have a challenging task. There needs, in particular, to be a continuing reduction in legislative constraints in favour of a more open telecommunications market-place. Asia has shown the world that it is possible. If Africa can get its act together and welcome the new technological age with open arms, there is no reason why it should not become globally competitive as well. The Courier