AFRICA’S TRADE IN SERVICES AND
ECONOMIC PARTNERSHIP
AGREEMENTS
Paul Brenton
Africa Region, World Bank
Brussels, October 7, 2010
Overview
1
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The importance of services
Trade in services
Trade policy for services matters
The challenge of coordinating regulatory reform
and trade liberalisation
The opportunities and risks from an EPA
Context: Services in the modern economy
2
Figure A1. Infrastructure, Business, Logistics and Personal Services
Infrastructure and
Network Services
Households
Telecomms and ICT
Water
Personal Services
Education
Electricity
Labour Inputs
Finance
Outputs of goods
and services
Production
Health
Distribution
Material Inputs
Business Services
Design services
Engineering services
R&D
Logistics Services
Information
Customs brokerage
Accountancy
Freight forwarding
Legal services
Transportation services
Testing Services
Port services
Advertising
Storage and warehousing
Packaging
Certification
Context: Services matter
3
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For growth
Productivity growth can be higher than in manufacturing
 Technological change important for services
 Significant learning and knowledge spillovers through
clustering.
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For employment
Services largest contributor to job creation
 High employment rates for women
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For poverty reduction
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Poverty reduction more strongly correlated with growth of
services than with growth of manufacturing
See Ghani, E (ed) The Service Revolution in South Asia, World Bank-OUP, 2010
Trade in services plays key role
4
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Exports of services can drive diversification
 Potential
18 million new jobs in developing countries from
offshoring of services (each job generates a further 3 jobs)
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Imports of services and FDI can lead to greater
competition, lower prices, higher quality and more
variety
Trade policy for services
5
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Competition is essential to increase efficiency
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Competition leads to lower prices+better quality services.
Competition pushes service suppliers to reduce waste, improve
management and reduce operating costs
forces suppliers to pass on cost savings to consumers in the form of lower
prices.
Competition undermines costly rent-seeking activities
Trade liberalisation can increase competition + attract FDI
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Small national markets in Africa cannot generate level of competition
needed to drive efficiency and adoption of new technologies.
Small size means attracting investment from overseas is important for
key infrastructure services.
Many services require regulation
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Market failures in many services sectors can impact on
both efficiency and equity.
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Effective regulation and capacity
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natural monopoly, systemic risks, asymmetric information, and
externalities require regulation.
Regulation can be complex
Weak regulation leads to less competition and higher costs
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Must avoid regulatory capture
Effective regulation and capacity
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In electricity need to monitor and consider:
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Output and consumption (access levels, Consumption levels and growth, unsatisfied
demand);
Efficiency (Productivity levels and growth, Cost levels and changes, Capacity and
utilization, losses);
Quality of supply (Continuity, Quality, customer service)
Financial performance (Financial surpluses and losses, rates of return, indebtedness
and interest burden);
Capacity, investment, and maintenance (Capacity levels and margins , investment ,
maintenance expenditure);
Prices (prices and full economic costs, efficiency of subsidies Tariff design and
technical and economic efficiency);
Competition (Well-functioning bid auction markets , Well-functioning and competitive
generation and supply markets)
Social indicators (Affordability especially for low-income consumers, Impacts on
development)
Coordination of trade and regulatory reform

a dynamic process – no strict sequencing
 Appropriate
regulations may be necessary to
realize benefits of trade liberalization
emphasis on competition, sound regulation and wider access
 Trade brings new technology which may require change to
regulatory approach
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 Trade
opening with inappropriate regulations can
result in adverse outcomes
 Need for capacity to design and implement
appropriate regulations and monitor impact
Strategy for trade in services
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Improve data and initiate dialogue with stakeholders
Focus on priority services sectors
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Assess current regulatory policies and openness to trade
and FDI
Discuss appropriate forum for trade liberalisation of
services
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Offensive export interests
Domestic sectors where increase in FDI/competition essential for competitiveness
Unilateral, Regional, EPA or multilateral
Obtain technical assistance to increase capacity of
regulator and improve regulations
Services trade policies appear less
restrictive in Africa
GCC
48.2
SAR
41.6
EAP
39.4
MENA
39.3
AFR
LAC
ECA
OECD
29.6
20.7
19.9
18.9
W
Restrictiveness of services trade policy
Note: W is average STRI of total 102 countries
Source: Gootiz and Mattoo (2009)
But Africa has not bound openness at WTO
90
80
70
60
50
Actual policy
40
Doha offers
30
UR commitments
20
10
0
Eastern
Europe
OECD
Latin
America
Africa
Source: Gootiz and Mattoo (2009)
World
South Asia East Asia
Middle
East
Reticence to make commitments on
services at WTO
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Mercantilist bargaining approach not effective for
services
GATS/WTO not adequately addressed the issue of
regulatory reform and capacity building
Lack of clarity over technical assistance
Need forums/platforms of best practices and
lessons for successful trade and regulatory reform
Regional integration and services
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Risks from preferential liberalisation – MFN
dominates – especially in network industries
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But potential gains from mutual recognition
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Regional integration can allow for learning effects
But can give first-mover advantage to less efficient firm
Move faster at the regional level than in EPA or multilateral in sectors
with similar standards and regulatory approaches
Opportunities from regional regulatory cooperation
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Avoid regulatory capture
Can allow for faster reform
Pooling of technical capacities for regulation
Thick borders in Africa limit integration
14
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High trade costs
create “thick”
borders.
These are a key
barrier to regional
and global
integration.
Opportunities from a services EPA
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Provide credibility to reform process
Improvement in access to EU?????
 Especially
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Provisions on regulatory issues of particular
importance to Africa
 Tourism
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mode 4 beyond skilled workers
- Shipping?
Financial and technical assistance
Enhance regional integration
Risks of a services EPA?
Broad but shallow GATS type agreement
 Too much focus on market access
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 without
coordinated regulatory reform and capacity
building
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Preferential liberalisation
A development-oriented services
EPA for Africa
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A coordinated sector-by-sector regulatory-reform/tradeopening process
Flexible approach to timing of reforms and a phased strategy
towards implementation.
An emphasis on locking in non-discriminatory liberalization of
services imports
EPA can be a part of process not an end-point!
18
Africa Trade Policy Notes
http://go.worldbank.org/M8SXRN80G0
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