The World Economic Forum and Saudi Arabia have launched a new initiative to support the implementation and development of trade in services, with a focus on the Middle East and Africa.
Better framework for trade in services
Trade in services represents enormous untapped growth potential. More precisely, services account for two-thirds of GDP and generate 6 out of 10 employments. Trade in services grew twice as fast as trade in goods between 2010 and 2019. Yet the costs associated with trade in services are twice those of trade in goods, including 40 % from opaque regulations and complex procedures.
It is worth noting that these restrictions have a disproportionate impact on small and medium-sized enterprises (SMEs). The fixed costs of complying with foreign regulations can represent up to 50 % of total export revenues in the first year a company starts exporting services. Restrictions on trade in services can reduce export costs by around 7.5 % more for small companies than for large ones.
Unleashing the potential of women: a lever for economic emancipation
The development of trade in services can particularly benefit women. In 2017, more than two-thirds of women in upper-middle-income and high-income countries were employed in the services sector. In emerging markets, however, the figure was less than two-fifths, suggesting that women in these markets could benefit more from services if the regulatory framework were improved.
Facilitating Trade in Goods between Africa and the Middle East
Barriers and costs associated with trade in goods have been reduced, in particular through the implementation of the World Trade Organization (WTO) Agreement on Trade Facilitation.
However, the regulatory burden in the services sector remains high, hampering the competitiveness of African economies. Service inputs are essential not only for the production of goods but also for the production of other services. For example, it is crucial to adopt effective fiscal policies to meet the needs of the sector.
New agreements as means to develop trade in services
To address these challenges, governments have recently concluded two new agreements. A WTO reference paper on domestic regulation of services was adopted by 70 economies, including Saudi Arabia. This is the first significant achievement in trade in services at the WTO in more than 20 years, covering more than 90% of global trade in services.
The agreement aims to simplify unnecessarily complicated regulations and reduce procedural barriers faced by service providers. It addresses areas such as transparency, safety and regulatory frameworks, quality, regulatory facilitation, and gender equality.
According to OECD and WTO estimates, the implementation of this new agreement could reduce trade barriers in participating economies by an average of 11 %, resulting in trade cost savings of about 135 billion USD. Significant savings are expected in heavily regulated sectors, including
- Financial services (47 billion USD)
- Business services (36 billion USD)
- Communications and transport services (each with savings of 20 billion USD)
Africa and the Middle East: Complementary Markets
There is enormous scope for trade complementarity between Africa and the Middle East, given Africa’s strong potential in financial services and capital needs. Establishing efficient logistics services between neighbors is essential to promote regional integration, thereby fostering stability and growth.
The growing trade in ICT services plays a critical role in the creation of larger regional digital markets, a trend much sought after by investors. There is strong evidence of the potential and benefits of trade between regional neighbors before gradually expanding to more distant markets.
These will be the first projects to focus on trade growth, thanks to the implementation of the new WTO and FTAA agreements. The benefits are expected to spill over to other economies, as streamlining services efficiently promotes trade and thereby increases global trade.
By facilitating trade in goods, services, investment, and e-commerce through the World Economic Forum’s Facilitation Framework, Africa and the Middle East can help unlock new value and stimulate global economic growth.
