Role of Services in Economic Development

1. Role of Services in Economic Development Geneva, July 2012

2. Main points • Services and trade in services matter for economic development, employment and competitiveness • Concrete examples for Africa • Coordinated regulatory reform and liberalization of services • The role of Services Knowledge Platforms • World Bank database on Services Trade Restrictiveness Indices

3. Services matter for growth Source: World Bank, 2010

4. Services matter for employment Shares of employment in agriculture, manufacturing and services Source: ILO Global Employment Trends

5. Trade in services plays key role • Increased tradability of services and global value chains • 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) • Exports of services from land-locked LDCs have been growing faster that exports of goods for countries such as Rwanda and Ethiopia services account for more than half of total exports • Access to cost-effective services affects competitiveness • Imports of services and FDI can lead to greater competition, lower prices, higher quality and more variety

6. Access to professional services matter for productivity • Higher labor productivity (sales/employees) is associated with greater usage of professional services in all East African countries, especially for small firms Productivity of Users and of Non-Users of Professional Services – Average across firms in East Africa

7. Productivity of users vs. non-users of professional services – Ethiopia’s example Source: World Bank Survey of Users of Accounting, Legal, Engineering and IT Services in Ethiopia, 2011.

8. Professional services in Eastern and Southern Africa • World Bank research - one step towards facilitating more informed choices as East African governments develop a strategy for coordinated reform and liberalization of professional services • Collection of extensive information - hitherto missing - on market conditions, policies and regulatory regimes in accountancy, engineering, and legal services in East Africa • Key findings: • national markets for professional services in East Africa remain underdeveloped • regional market is fragmented by restrictive policies and regulatory heterogeneity • Policy recommendations: • For professional services to make a meaningful contribution to growth in East Africa policy action is required in four areas: domestic regulatory practices, trade policy, international labor mobility, and education • Improving and expanding professional services will require both national reform and international cooperation • Regulatory issues must be addressed to allow for effective competition in an integrated regional market http://www.worldbank.org/afr/trade

9. Summing up: Services and trade in services matter • For growth and competitiveness • Many services are inputs into production and trade - economy-wide impacts from improvements in services • Lowering costs for firms requires better and cheaper services • For employment • Services largest contributor to job creation • High employment rates for women • For poverty reduction • Poverty reduction more strongly correlated with growth of services than with growth of manufacturing • Coordinated reform and liberalization of services

10. Professional services knowledge platform Challenge: integrating markets (expanding trade) while achieving regulatory objectives efficiently

11. Availability of professionals in Africa

12. Regulation of legal services Entry Regulation Conduct Regulation

13. Explicit barriers to trade in accounting services World Bank Services policy database :http://iresearch.worldbank.org/servicestrade/

14. How will the knowledge platform work? • Mechanism that brings together regulatory expertise, trade policy makers, the private sectors, think tanks, universities and regional bodies • Analytical work and advisory services disseminated through: • Online platform with transparent, easily searchable databases, and social networks • Face-to-face interactions between practitioners, policymakers, think tanks, regional secretariats

15. Thank you! Nora Dihel Africa Region - Poverty Reduction and Economic Management Unit ndihel@worldbank.org