Statement at the Global Services Summit, 30 Oct 2013, Washington, DC

30 October 2013
ITC News

Speech by Ms. Arancha González, Executive Director, International Trade Centre
Delivered on 30 October 2013 at the Global Services Summit, Washington, DC

Mme Chair, Ladies and Gentlemen,
Services in the developing world? It’s a powerful “good news” story.

Services average 50% of developing country GDP. They make a stronger contribution to overall growth than other sectors.

That growth is relatively more strongly correlated with poverty reduction than is growth in other sectors.

Services generate more than 60% of jobs worldwide; and make the strongest relative contribution to female employment and (to the extent the data are available) to male and female wages growth.

Services R&D and services innovation are accounting for an increasingly dominant share of global productivity growth.

On the trade front, developing countries’ share in world services exports has trebled over the last two decades to more than 30%, with increasing sophistication helping a shift from the traditional Transport and Tourism sectors to non-traditional Other Commercial services.

In 2010, services outsourcing activities generated US$ 250 billion in global export revenues, employing 4 million people globally, with developing countries being key participants in these new business opportunities. India of course is a star player.

As we heard from eBay, smallness, remoteness of location and distance from market have become less significant constraints to exports than was traditionally the case.

There is no need for a coastline, nor access to a super-highway corridor to participate effectively in these new IT- enabled services opportunities.

But the story doesn’t end there.

Not all developing countries are benefitting to the extent they could. Too few are taking advantage of the new opportunities to specialise in the export of services “tasks”.

ITC research shows that among Least Developed Countries, the strong growth performance in Other Business Services (the fastest growing component of world trade today), is still very largely a story about just one country, Bangladesh.

Despite strong growth, LDCs as a group account for only 0.6% of global services exports, compared with their 1% share in world merchandise exports.

And for some countries, there is evidence that their services market share may be declining. Within the African, Caribbean, Pacific Group of countries, for example, while South Africa is a stand out success, and Jamaica, Bahamas, Barbados, Mauritius, Kenya, Nigeria, Ghana, Tanzania and Uganda all have services exports between US$ 1 - 3 billion, the ACP group as a whole has been losing market share from about 3% in 1975 to under 2% in 2010.

The solution, of course, and also the single biggest challenge facing developing countries, is to become more competitive.

So what matters for services competitiveness?

The World Bank tends to talk about “getting the fundamentals right”. And ITC tends to talk about “getting export ready”. But I think that both institutions mean the same thing.

We all agree that human capital matters, in particular education and skills.

We know that investment in intangible assets matters, as does a supportive environment for services Innovation.

Enabling digital infrastructure is critical.

So, as our speaker from AIG pointed out, is the efficiency of domestic regulation ie the burdensomeness of regulatory compliance costs and the quality of regulatory and other institutions.

Connectedness with the international market is essential, i.e. openness to inwards and outwards trade as well as investment flows.

Other prerequisites include technical interoperability, mutual recognition and global standards conformity and assurance.

Luckily, none of these factors are givens. All of them can be adjusted by policy interventions. There is much that developing country governments can do to enhance their chances of successfully exporting services.

It is therefore important that developing countries are helped to understand this and to intensify their efforts to build a more enabling export environment.

This is the essential message in Aid for Trade in Services.

As both Walmart, Mme Chair, and eBay, have been highlighting, services are important not only in their own right but because efficient services enable trade in goods.

After this session, we have a presentation by the Swedish Board of Trade, which has famously coined the new expression “servicification” to describe the fact that the average agricultural or manufactured good contains roughly 35% of services value-add, with the percentage becoming very much higher for high technology goods.

What this teaches us is that no country can be competitive or join international value chains, even in the goods sector, if it does not have efficient domestic services or is closed to their importation.

This leads me to pause for a moment and reflect if I may on a question which Aaditya Mattoo posed in his presentation.

He asked, given that the economic gains from services trade reform have been repeatedly shown in quantitative studies, to be hugely more valuable than liberalisation of markets in agriculture and manufacturing, with stronger impetus for overall national productivity – why are developing countries so apparently reluctant to engage with the services reform agenda?

In fact I think we do understand the reasons.

Reluctance and risk aversion are normal rational responses to the lack of awareness of the importance of services, which results from the technical complexity and very poor availability of user-friendly services trade intelligence.

In many developing countries, there is no clear mapping available of the local services economy and woefully inadequate services trade data.

The former utilities are often highly concentrated and some are still government-owned or supported. Regulators are insufficiently exposed to international best practice.

Most services firms, apart from former utilities or large financial companies, are SMEs. Business is consequently poorly organised and the services stakeholder voice is weak. Vested interests in traditional sectors are often better organised.

So many Ministries are involved in services, and coordinating mechanisms barely exist. Mechanisms for public-private dialogue are under developed.

The inevitable outcome is a defensive posture based on uncertainty of where competitive advantage and commercial interest might lie.

The ITC programme on services focuses on addressing precisely these issues.

In Indonesia, in South Africa and in Uganda, we are currently working for example to help organise the business community better, including into coalition of services industry-type bodies.

We aim to equip them for the business research and advocacy role necessary for effective public engagement. We also aim to help them help their members by providing export-oriented services.

This is the nut and bolts of ITC’s core mandate, how do we deliver practical on the ground support for services SMEs?

Our new programme will include a variety of up-to-date mechanisms for the support of services exports, with an emphasis on achieving higher value-added.

There will be a focus on business matchmaking, with partners in both developed and emerging markets and on building the domestic frameworks needed to support clusters of export ready SMEs.

We have already done intensive business to business matchmaking between Bangladeshi exporters of IT and IT enabled services and buyers in Europe, resulting in hundreds of thousands of dollars in exports and durable relationships which will lead to many more transactions.

The programme helps trade promotion agencies, so often heavily goods focused, restructure and change their way of thinking to support services exporters, including through services business fairs.

There is also a focus on regional integration in services, for example in the context of CARIFORUM, and also ASEAN.

Our work on best practice regulatory benchmarking will extend to improving
regional coherence in regulation. ITC is already working with the East Asian Community to improve regional rules on mode 4.

The new programme will pilot technical assistance on facilitating, mentoring and incubating dynamic innovation for services export.

We will also pilot activities on improving financing for services SMEs, an issue identified as a priority across numerous studies both in the developed and developing world. We will be looking to collaborate with GSC members on this work.

While all services sub-sectors will receive attention as required, the initial focus is on Tourism (including health and well-being), IT and IT- enabled business services and Transport/Logistics/Distribution.

This suite of activities is informed by a close study of how services firms actually operate in the international market and their distinctive needs.

This brings me to another question, which Aaditya Mattoo also posed, that is, given that services export success is fundamentally tied up with services innovation, how do we help developing countries to adopt appropriate IP and innovation policies?

I want to go a step further and ask how do we mentor services SMEs in developing countries to become more innovative and how do we support the incubation and commercialisation processes involved.

Ultimately, as we consider how to design the right kind of services enterprise training, we realise we can’t do it alone.

We need the global business community to help out.

I’m not talking about technology transfer. I’m talking about the process of mentoring and incubation, which is so important to SMEs everywhere.

Individual services providers and small services enterprises in developing countries are often dependent, for these processes, on informal links with the far-flung diaspora.

We would like to put a bit more rigour into the process with a pilot project, with selected developing country services exporters and selected firms in more developed locations.

I look to the audience perhaps to develop this thinking and help us take forward such a pilot.

The services business community has made it clear how important it is that the environment be right for innovation, and we want to learn from you so that we can help get it right in the developing world.

Finally, as all three previous speakers have referred to emerging new “21st century” “GATS plus” rules for trade in services, particularly with respect to cross border data flows and e commerce, and the need to integrate the developing countries into these emerging new disciplines, let me make a couple of quick points.

It is true that because e-commerce does not figure on the Doha Development Agenda negotiations, despite the existence of a moratorium on e-commerce, negotiations on this topic have not been happening in Geneva.

Whereas many bilateral trade agreements have new rules in this area, as undoubtedly will some of the emerging mega-regionals such as TPP, and the purilateral Trade in Services Agreement.

Some of these agreements do of course include developing countries so they are not in fact “left out”. And the WTO, and the global Aid for Trade effort has not completely neglected this topic either.

Nevertheless, the point holds that we need to do more to ensure that developing countries can “keep up”.

Obviously the very best way is to for the GATS Council itself to embark on a process of consultations, as part of a solid post-Bali multilateral agenda.

Meanwhile, we need to find readily accessible ways in which developing countries can keep abreast of trends in the international governance.

As in the past, ITC remains willing whenever it is appropriate, to host transparency/briefing sessions for developing countries, and we would invite the business community to participate. The message is always best delivered by the business sector itself.

Meanwhile, on the ground, ITC is busy helping SMEs themselves to learn and to apply the basics of e commerce. And to pick up niche opportunities and investment partners in the services outsourcing market.

The expanding use of mobile phones throughout the developing world, the spread of social media and growth of cloud computing, have boosted the demand for new applications, content and services, and increased exportable skill sets.

Opportunities in the software sector are also expanding thanks to new tools, platforms and technology for collaboration and crowd-sourcing. Software developers from many developing countries are already delivering micro work over the Internet directly to clients by “freelancing”.

Many LDCs in Africa, for example Rwanda or Senegal, now have clear national policy strategies designed to expand their business opportunities in mode 1 services outsourcing activities.

I suspect they do understand the value of inwards and outwards cross border data flows!