logo logo

Services: to liberalize or not?

Southern Times, Namibia

Services: to liberalize or not?

By Southern Times Writer

31 May 2011

Harare - The Southern Africa Development Community and the Common Market for East and Southern Africa are currently in the process of liberalizing trade in services.

COMESA has since made indications that it has put in place common market customs management regulations and impetus has already shifted to the domestication process.

Economists contend that financial, communication and transport services – which provide vital inputs to the manufacturing and agriculture sectors – can help promote economic growth and development.

However, as much as there are benefits to be accrued from increased liberalization of trade in services, developments in this area also pose a number of threats to local economies.

A number of studies have shown that current trade liberalization rules and policies have led to increased inequality.

For instance, a 2001 United Nations Conference on Trade and Development study revealed that the poorest 49 countries, which make up 10 percent of the world’s population, account for only 0.4 percent of world trade and the disparity is growing.

It is important to note that notwithstanding South Africa, the majority of countries constituting SADC and COMESA have service industries that are still largely developing, therefore opening them up exposes them to competition that they may not be able to cope with.

In this respect there is need for the governments of the respective blocs’ members to effectively engage the private sector in their countries insofar as any arrangements entered into will have a significant impact on the business operating environment.

Some observers postulate that relative levels of protectionism are necessary for growing industries for economies such as those that typify Sub-Saharan Africa.

There are, however, contradictory perspectives in other circles.

Zimbabwe Economic Policy Analysis and Research Unit director Dr Gibson Chigumira says the liberalization of trade services in countries such as Zimbabwe offers them an opportunity to ’leap frog in development’.

Zimbabwe – a member of both SADC and COMESA - is in the process of reviewing the proposed roadmap and timelines for trade in services negotiations in view of the minimum liberalization proposals to be made based on the General Agreement on Trade in Services (GATS) commitment, which is meant to extend the multilateral trading system to the services sector.

Zimbabwe National Chamber of Commerce president and secretary-general of the COMESA Business Council, Mr Trust Chikohora, believes that opening up of economies at regional level, especially in respect of services, is critical for enhanced economic growth.

’The liberalization of the services sector in the region will greatly assist in improving efficiency and increasing benefits through the removal of obstacles to free movement of services in the region.

’The services sector is an increasingly important part of the trade of almost all economies and it presently accounts on average for around 50-60 percent of Gross Domestic Product in the COMESA region,’ he said.

The CBC is a private sector-led Comesa agency, which facilitates private sector strategic participation at the regional level.

Notably, Zimbabwe’s manufacturing sector has largely underperformed over the past decade as a result of an economic debility typified by hyper-inflation and constrained financing, the latter still prevalent to date.

This means that the services sector has played a critical role in buttressing the economy during that period and signs are pointing to an increased role for that economic sector.

Statistics from the Zimbabwe Investment Authority show that the country’s service industries yielded US$106 million in investment during the first three months of this year compared to US$5 million in the parallel period last year, a 2 000 percent increase.

The director of international trade in Zimbabwe’s Ministry of Industry and Commerce Mrs Beatrice Mutetwa notes the importance of liberalizing an economy’s trade in services, however she adds a caveat.

’Services are currently a significant contributor to Gross Domestic Product across the globe and we believe they can play a greater role in the local economy ...

’We however cannot open up all our service sectors because we would not be able to compete from the flurry of imported services,’ she said.

With both the positive and negative impact of liberalizing an economy’s trade in services widely publicized and critiqued; only time will tell whether the current regional drive to open up the sectors will be of benefit or a turn for the worse.