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Export of services — the future of international trade

19 Jan, 2020 - 00:01 0 Views

The Sunday Mail

Trade Focus
Allan Majuru

A few decades ago, most profitable companies had operations in the manufacturing sector, producing an array of products for consumption across the world.

However, with the advent of the internet, the 21st century has brought a paradigm shift in world economy, with companies that provide services — particularly information and communication technology — now topping the charts of most profitable companies.

Technology based businesses such as Microsoft, Facebook, Alphabet Inc, Amazon and Apple are amongst the largest companies in the world by market value, according to Statista, in supplying services across the world.

Arguably, the major implication of this is that the future of international trade will likely be skewed towards export of services and countries that are investing in development of services which will lead international trade.

When the topic of trade is brought up, very rarely do people think of service trade, yet trade in services has potential to impact on developing countries like Zimbabwe.

The World Trade Organisation (WTO) report of 2019 states that services have become the most dynamic component of international trade and its role will continue to expand in the coming decades.

The report further states that trade in services has grown 5,4 percent per year between 2005 and 2017, while trade in goods has grown at 4,6 percent on average, during the same period.

The services sector is made up of companies that earn revenue through providing intangible products such as banking, insurance, education, computer services, communications, recreation, transport and logistics among others.

Statistics from Trade Map show that export of services grew to almost US$6 trillion in 2018, up by 61 percent recorded in 2009.

The International Trade Centre states that the service industry now constitute the largest sector in the global economy, accounting for 70 percent of Global Gross Domestic Product, 60 percent of total global employment and 46 percent of global exports measured in value-added terms.

As the global trade has been showing a favourable trend in export of services, countries such as Japan, Singapore, China and Israel have been concentrating on developing their technological grounding in the quest of earning more from the sector.

What this means is that Zimbabwe must join the party and local companies in the service sector must increase their presence on the global market.

The country has recorded an increase in exports of services in the past few years and there is room to grow more.

Statistics from Trade Map indicate that in 2018, Zimbabwe’s trade in services amounted to US$502 million, which is a sharp increase of 104 percent compared to the 2009 figure of US$245 million.

In 2017, Zimbabwe services exports consisted of 47 percent commercial services, 21 percent transport, 19 percent travel, 6 percent government services and 2 percent ICTs with the remaining 5 percent split among other services.

The figures may be higher, given the general assumption that the nature of some services might not have been accounted.

The country has also been witnessing an increase in export of services, especially to countries in the Southern African region.

The need to increase export of services is noted in the National Export Strategy which envisages growth of exports from the sector by 15 percent yearly until 2023.

The National Export Strategy reveals that opportunities to generate significant foreign exchange through exports of services remain under-exploited in Zimbabwe services, highlighting the need to develop sector-specific strategies to improve the export readiness of local enterprises and make them competitive on the international market.

The African Continental Free Trade Area (AfCFTA) also contains a specific Protocol on Trade in Service, which has potential to open up markets for Zimbabwean businesses by, among other things, eliminating barriers to trade in services.

To achieve a growth in export of services and improve competitiveness of Zimbabwean businesses, ZimTrade — the national trade development and promotion organisation — is working with companies in easy-to-win areas such as construction, education and engineering to increase their exports.

Additionally, in pursuit of the thrust to promote the export of services, ZimTrade plans to increase the number of companies from the services sector that participate in international trade exhibitions.

This is designed to ease linkages of companies that have readily exportable services, according to market demand, with consumers in these markets.

For Zimbabwe, there is need to grow beyond “one-man-band” form of service provision where an individual runs all aspects of business.

Areas of considerations for service companies that wish to increase their earnings include trade in tourism, transport, education, medical, construction and engineering, finance and energy-related services.

ICTs, computer services, technology research and development as well as innovations are some of the viable areas for consideration.

Currently, it is becoming significantly easier to trade in services, due to digitalisation and the growing cross-border tradability of services is opening up new opportunities for national economies and individuals.

Taking a cue from countries in Africa, such as Rwanda, Kenya and Ethiopia, Zimbabwe enjoys competitive advantage anchored on vast knowledgeable human capital base that can easily adapt to the requirements of the service industry.

African countries that have been making strides in developing their services industry can also be used to benchmark local development initiatives.

For example, Kenya used the services sector in the context of trade opening or liberalisation to expand its financial services sector.

Through increased openness in the financial sector, the establishment of diversified financial hubs, technological advancements in mobile technology, and a modification of the tax regime, Kenya has expanded its financial sector, boosted trade in financial services, and become a hub for financial services in the East African region.

According to the WTO 2019 report, Kenyan reforms have made financial services an important part of the economy, as the sub-sector now accounts for 2,8 percent of Kenya’s total formal employment and 4,6 percent of total services exports.

In addition, Ethiopia has encouraged economic growth by increasing trade in transport services, becoming the hub connecting travellers in and out of the rest of the continent.

Due to a successful expansion of the Ethiopian Airlines regional network and abundant cargo capacity, high-value or time-sensitive Ethiopian exports can be transported much more cheaply and quickly than before.

For example, the improvement in transportation services has allowed the cut flowers industry to flourish in Ethiopia increasing exports of cut flowers to US$12 million in 2005 from US$662 million in 2014.

What this means is that if heavy investments are channelled towards the transport industry, not only will Zimbabwe earn more from smooth movement of goods out of the country, but will also earn more from becoming a flight connect hub in Southern Africa.

The development of transport services sector will also complement other efforts targeting at increasing inflows of tourists into the country.

Investment in technological advancement will also enable Zimbabwe to increase export of services as well as create more jobs.

With internet becoming faster, there is room for some local businesses to increase their reach in the regional market by offering marketing and communication services such as operating a remote regional call centre for global giants.

With faster internet in all parts of the country, a company in towns such as Zvishavane, Mutare, Gweru, Bindura or Chinhoyi will be able to offer services to global giants without needing to move its staff across the world or to the capital.

Riding on Zimbabwe’s stellar academic reputation, there are opportunities in the education sector for increasing Zimbabwe’s trade in services, with easy wins such as exports in study programmes and online learning targeting foreign students.

This can benchmark and model around existing frameworks used by leading online institutions such as University of South Africa which services over 130 countries globally.

Already, Zimbabwe has a decent pool of qualified professionals that can satisfy these demands.

For example, Zimbabwe has an opportunity to export teaching services to regional markets, particularly in subjects such as English, Mathematics and Science.

Markets such as Angola, Mozambique and Namibia have a high demand for English teachers.

Early childhood development skills are other services that Zimbabwe has potential to export to regional markets.

Further to this, the growing construction sector in countries such as Malawi, Zambia, Namibia and Botswana offers opportunities for Zimbabwe to supply engineering and construction services, given the mammoth human capital the country is endowed with.

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