Imperatives for the Development of Service Industries in St Vincent

and the Grenadines

Ramesh Chaitoornmsts@yahoo.cafc185627@skynet.be

Trade in Services Matters for countries’ competitiveness

• Cost and quality of services is a major determinant of how much countries can benefit from globalization

• Firms need efficient and reliable services to compete in the world economy – transport, telecoms, accounting, education, etc.

• Effectively integrating services markets is complex because it involves regulatory reform and cooperation wide

WTO 2010 Report on Services Trade Statistics

• Between 2000 and 2008, world Exports of commercial services rose by 13% on average per year, led by growing exports of Other Commercial Services (15%) and transportation (13%).

• Between 2000 and 2008, world Imports of commercial services rose by 12% annually.

• In the first half of 2010, world exports of commercial services increased by 11 per cent compared to the same period of 2009. Asia, in particular developing Asia, is leading the recovery process, recording 26 per cent average growth year-on-year.

• Over January-June 2010, China' exports of total commercial services expanded by 41%, followed by Taiwan (33 %), and Hong Kong (28%). Exports from India, the Republic of Korea and the Philippines rose each by a robust 18%. Within the region Japan lagged behind (7 per cent).

World Exports of Commercial Services by Region - 2008

World Exports of Commercial Services by Region, 2008

World Imports of Commercial Services by Region - 2008

World Imports of Commercial Services by Region, 2008

8

Structure of World exports of commercial services

1995

Travel 34%

Transport26%

Other commercialservices40%

2009

Travel 25%

Transport24%

Other commercialservices51%

Source: WTO estimates

9

0.0 5.0 10.0 15.0 20.0 25.0

Personal, cultural and recreational

Royalties and licence fees

Construction

Other business services

Financial services

Insurance services

Computer and information services

Percentage

services

12%

17%

17%

15%

14%

9%

19%

Average annual growth of World Other Commercial Services exports, 2000-2007

Source: WTO estimates.

Note: communications services not available

Trends to Note – New services

• In the period 2000-2008, the value of Africa's Travel/Tourism exports almost tripled and, starting in 2005, it exceeded the region's receipts from exports of agricultural products.

• In 2008, over 44 million international tourists visited African countries, up by 7 per cent since 2000.

• Mauritius Board of Investment indicated that more than 10,000 foreign patients visited Mauritius in 2010 for health/medical care of some kind.

• Health-related tourism is well developed in Tunisia. The country’s exports of this type of service increased by 26 per cent on average per year over 2000-8.

Determinants of Success in Services

Human capital and services exports

Electronic infrastructure and service exports

KEY MESSAGES

1. Services performance critically depends on human capital, the quality of telecom network, and institutions for cross-border services

2. Success in manufacturing does not seem to be a pre-condition for success in services

3. Importance of factors that are particularly relevant to services

4. Importance of complementarities among services and among “modes” of supply

                

                           

Essential Ingredients for Developing States

To develop a competitive services sector in a developing economy it is critical to have:

1. Clear & consistent policy framework for services or targeted sectors

2. Access to affordable finance in local economy3. Investment in people - skilled workforce &

standards4. Strategic partnerships to fit into global value

chains5. Efficient telecoms/ICT infrastructure6. Performance driven incentives for firms7. Public-Private sector partnerships

                

                           • Vision is key to setting goals and developing particular

services industries. Develop regulatory regimes.

• Except for the island states, most ACP states are not focused on growing service industries. Investment mainly in natural resouce extraction, manufacturing and agriculture. Few policy initiatives for services. In the Caribbean tourism, offshore finance, ICT and entertainment flaggged; but only tourism has legally based, predictable incentives.

• SVG needs to promote and develop service sectors that can become export-oriented.

• Decide where you want to fit in the global value chain of any service sector and exploit linkages between sectors (clusters).

• Vision is key to setting goals and developing particular services industries. Develop regulatory regimes.

• Except for the island states, most ACP states are not focused on growing service industries. Investment mainly in natural resouce extraction, manufacturing and agriculture. Few policy initiatives for services. In the Caribbean tourism, offshore finance, ICT and entertainment flaggged; but only tourism has legally based, predictable incentives.

• SVG needs to promote and develop service sectors that can become export-oriented.

• Decide where you want to fit in the global value chain of any service sector and exploit linkages between sectors (clusters).

1. Policy framework for services

Note:

• Mauritius has made significant progress from sugar to textiles, then tourism, finance and now growing in ICT.

• Kenya ICT & business process outsourcing (BPO) industry grew in a policy vacuum; now it is significant.

• Malaysia developed professional services with Public-private sector partnerships.

• Barbados has been successful in developing the offshore financial services sector; and professional services benefit as a result.

New level of collaboration needed

• Services development and regulation depend on many ministries and agencies

• Collaboration is critical; Get rid of silo mentality in ministries & agencies.

• Think of clusters of industries. • Need policy coherence across government

agencies – don’t tax technologies that increase labour productivity & efficiency

• Appreciate the link between services &

manufacturing & agriculture.

Total of Duties, Taxes & Charges Imposed on Selected Inputs to Creative Industries in CARICOM

                

                           

2. Access to affordable finance

• Services firms mainly SMEs - very difficult to get debt financing from banks or raise capital. Equity financing not feasible. Very high interest rate spreads.

• Assets of services firms are ideas not physical collateral - need innovative approaches to financing. But venture capital markets in ACP economies almost non-existent.

• India, Malaysia, Singapore’s Exim Banks have special window for services providers (Export Services Facilities; Working capital finance; Will finance services providers based on contracts; Export Overseas Guarantee Facility –through commercial banks)

• Nigerian government set up $200 million Creative and Entertainment Industry Stimulation loans scheme in 2007.

3. Investment in People & Standards

• People most critical factor in successful services activity. • Need to invest in training & constant skills upgrading. Many

firms in ACP say unavailability of technical staff affects growth and competitiveness

• Critical shortage of higher skills in ICT sector in recent years - inadequate training facilities.

• Education system must be in synch with needs of industry but in ACP states academic curricula are often outdated.

• Quality service standards are also key to competitiveness in global economy.

                

                           

4. Partnerships to fit into global value chains

• Developing economies must trade to create wealth. Services activities now being disaggregated around the globe and may involve various countries.

• Have to decide where to link into global value chains - ICT, animation, BPO, finance, audio-visual, design, energy, etc.

• Trade agreements help but business must seek & foster commercial linkages.

• Create strategic linkages with international firms to supply overseas markets based on use of local skills. Local content alone is not enough.

                

                           

5. Efficient ICT

                

                           

Information & Communications Technology critical to competitiveness of SMEs and services exports:

1. ICTs increase labour productivity & efficiency - incentivize don’t tax them

2. Need world class telecoms networks - cost & quality 3. E-commerce - to reach distant markets4. Broadband Internet is key

Information & Communications Technology critical to competitiveness of SMEs and services exports:

1. ICTs increase labour productivity & efficiency - incentivize don’t tax them

2. Need world class telecoms networks - cost & quality 3. E-commerce - to reach distant markets4. Broadband Internet is key

                

                           

6. Performance driven incentives for firms

Except for Tourism and offshore finance, very few incentives for services firms in developing countries.

• Need fiscal and other incentives to help services firms grow and attain scale; (Mainly manufacturing incentives now).

• Many inputs to services industries are still taxed because services were not thought to add significant value in terms of exports.

• Rethink bricks & mortar approach to industrial policy.• Reward firms that upgrade staff training & skills.• Reward firms that innovate• Develop performance-driven incentives for services firms that

export.

•

Except for Tourism and offshore finance, very few incentives for services firms in developing countries.

• Need fiscal and other incentives to help services firms grow and attain scale; (Mainly manufacturing incentives now).

• Many inputs to services industries are still taxed because services were not thought to add significant value in terms of exports.

• Rethink bricks & mortar approach to industrial policy.• Reward firms that upgrade staff training & skills.• Reward firms that innovate• Develop performance-driven incentives for services firms that

export.

•

                

                           

7. Public-Private sector partnerships

•Since most services firms are SMEs, size is major limiting factor. Private firms cannot do it alone.

•In lumpy investments it is critical for the State to play a role in supporting the development of local sub-sectors:

•Need to invest in infrastructural sectors to build basic capacity - and for design, R & D.

Summary of approachSummary of approachSummary of approachSummary of approach

                

                           

So, to recap ….

To develop competitive services sectors in developing economies it is critical to have:

1. Clear & consistent policy framework for services or targeted sectors

2. Access to affordable finance in local economy

3. Investment in people - skilled workforce & standards

4. Strategic partnerships to fit into global value chains

5. Efficient telecoms/ICT infrastructure

6. Performance driven incentives for firms

7. Public-Private sector partnerships

THANK YOU

RAMESH CHAITOOrnmsts@yahoo.ca

fc185627@skynet.be

28