Importance of services in African and Asian economies

Services tend to account for smaller—but still considerable—shares of developing country economies as compared to developed economies. On average, services contribute between 51 and 55% of domestic value added in SAS, MENA, SEA and ESA and 44% in WCA (Figure 26) which is much lower than the 73% for the G7 grouping. However, in the last decade the sector has been growing three to four times faster in developing regions than in the G7 grouping, with SAS and SEA recording the highest growth rates, followed by MENA, WCA and ESA (Figure 27).

95. Considering the limitations of sectoral dimensions of the EORA dataset (see Technical Annex), we draw mainly the OECD TiVA dataset and focus our discussion on developing countries in Asia and Africa that are included in the database. This gives us fairly good country coverage in SEA but coverage in other regions is extremely limited: we have only India in SAS, only South Africa in ESA, only Saudi Arabia in MENA and no country from WCA.

Interestingly, the gross services trade figures⁹⁶ show that the five developing regions have also been expanding their services trade more dynamically than developed regions (Figure 28) and they now record higher services trade-to-GDP ratios⁹⁷ (Annex Figure 35). To a large extent, this reflects fast expanding imports of services and widening deficits on services trade account (Annex Figure 36).

Figure 26. Services value added as share of GDP Average across countries for the period 2000-2012

Source: Authors’ calculations based on the World Development Indicators database.

Figure 27. Services value added average annual percentage growth for the period 2000-2012 Percentages

Source: Authors’ calculations based on the World Development Indicators database.

96. These refer to sums of imports and exports of services which cover Modes 1 and 2 of services trade as recorded in the IMF Balance of Payments data and reported in the World Development Indicators database.

97. Services trade refers here to the sum of exports and imports of services.

0 10 20 30 40 50 60 70 80

WCA ESA SEA MEN SAS G7

0 1 2 3 4 5 6 7 8

SAS SEA MEN WCA ESA G7

OECD TRADE POLICY PAPER N°179 © OECD 2015

Figure 28. Trade in services average annual growth rate for the period 2000-2012 Percentage

Note: Trade in service represents the sum of service exports and imports.

Source: Authors’ calculations based on the World Development Indicators database.

There are some notable differences—but also commonalities—in the composition of services exports and imports across the five developing regions. The majority of African regions’ services exports—particularly in ESA—are accounted for by travel and transport while business services account for a relatively small share (Figure 29, Panel A). In SEA and SAS, travel and transport are still important but are overtaken by other business services which account for respectively 28% and 32%, a share which is actually higher than the G7 average. Moreover, driven mainly by India’s exports, in SAS computer and information services account for 30% of services exports—a share that is not matched by any other developing region or the G7 grouping. Interestingly, communication services account for a non-negligible 7% of services exports in WCA. Financial services are also an important export category, particularly in SEA and ESA.

On the import side, transport services are the largest category across the five developing regions accounting for 32% of total services imports in SEA to as much 49% in SAS (Figure 29, Panel B).

Travel is also important, but much less so than in exports, and business services account for consistently high shares ranging from 11% of services imports in MENA to 25% in ESA. Insurance accounts for between 3 and 5% of services imports, though this is still lower than the average 6% for the G7 countries. Royalties and licence fees account for 8% of services imports in SEA which is on par with the average for the G7 grouping.

While some traditional services categories such as transport and, particularly, travel account for a large share of services exports in the developing regions, the largest increases in exports in the period have actually occurred in other business services, computer and information services, financial services and insurance (Figure 30, Panel A). For example, the three fastest growing services exports were: in WCA personal, cultural and recreational services, royalties and license fees and computer information services; in ESA royalties and license fees and construction services; in MENA financial services and computer and information services; in SEA computer and information services and construction services; and in SAS royalties and license fees, personal cultural and recreational services and government services. As far as growth of imports is concerned, the picture is more varied but, in general, financial services and insurance, construction services, and other business services stand out, although transport and travel also show significant and consistent increases across the regions (Figure 30, Panel B).

0 2 4 6 8 10 12 14 16 18 20

SAS WCA SEA ESA MEN OTH G7

There appears to be a certain degree of geographical concentration taking place in these key regions (Figure 31). For example, South Africa, Kenya and Mauritius tend to dominate services exports in ESA whilst in MENA these concentrate in Egypt, Morocco and Lebanon and in WCA they concentrate in Nigeria, Ghana and Cameroon. In Asia, India dominates services exports across the board although Pakistan and Afghanistan are also contributing in some key sectors in the SAS region. In SEA the concentration across countries is not as pronounced but China, Hong Kong, China and Singapore play important roles in key service categories such as financial services, insurance and other business services.

Figure 29. Composition of gross imports and exports of services of African and Asian regions, 2012 A. Exports

B. Imports

Source: Authors’ calculations based on International Trade Centre data.

17

Computer and information Royalties and license fees Other business services Personal, cultural and recreational Government

36

OECD TRADE POLICY PAPER N°179 © OECD 2015

Figure 30. Growth rates of gross services trade by sector for the period 2007 – 2012 A. Exports

B. Imports

Source: Authors’ calculations based on International Trade Centre data.

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

ESA MEN SAS SEA WCA

Transportation Travel Communications services

Construction services Insurance services Financial services

Computer and information services Royalties and license fees Other business services Personal, cultural and recreational services Government services, n.i.e.

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45

ESA MEN SAS SEA WCA

Figure 31. Top exporters of services by region and services sector, average for the period 2007 - 2012

Source: Authors’ calculations based on International Trade Centre data.

7.2 Services-related engagement in GVCs