By Sunday Oghayei
The service sector is an indispensable pillar to any modern economy as it provides crucial inputs for the growth and development of other elements of a country’s economy. Some of the most essential foundations to improving the investment climate of a state include:
- Infrastructure services such as energy, telecommunications and transportation
- Financial services which facilitate transactions and provide access to finance
- Social climate factors such as health, education and tourism essential for achieving social development objectives
- Integration of services in manufacturing to boost a country’s industrialisation process.
In developing countries, trade in goods and services has grown rapidly in recent decades, constituting an increasingly greater share of world trade. The structural patterns of the Caribbean countries economies show that the region is concentrated more on services and little on industrial sector. Statistics reveal the services sector accounts for about 68.4% of GDP while manufacturing and agricultural sector accounts for 7.1% and 7.2%, respectively between 2000 and 2015 (figure 1). The dynamics has been stable within the period under review indicating that the services sector should be at the centre of inclusive development and trade negotiations in CARICOM. Overall, CARICOM hold a comparative advantage in the services sector but less in agricultural and manufacturing sector. However, there are variations across member countries in the region.
Figure1. Dynamics of CARICOM economic structure, sectoral contribution to GDP (%)
Source: World Development Indicator, 2016.
CARICOM Services Exports
In terms of services exports, CARICOM member states have varying degrees of performance in the global export market as shown in Table 1 below. The aggregate export data show a slight increase to USD $10,286,522 in 2015 from USD $10,220,074 in 2014. The regions export data however do not reflect the full services potential in the region. The emergence of global value chains (GVC) in international trade have created a new role for services in boosting participation in regional and global trade which potential is yet to be explored by CARICOM. In view of this, CARICOM needs to leverage on GVCs that would further contribute positively to the services sector development and sustainable economic diversification of the economies of CARICOM member states.
Table 1: CARICOM Services export in US$ Thousand
|Exporters||Exported value in 2011||Exported value in 2012||Exported value in 2013||Exported value in 2014||Exported value in 2015|
|Caribbean Community (CARICOM) Aggregation||10,315,320||9,570,566||9,773,447||10,220,074||10,286,522|
|Antigua and Barbuda||481,605||482,508||464,986||480,282||491,497|
|Saint Kitts and Nevis||174,837||194,429||236,172||252,916||281,019|
|Saint Vincent and the Grenadines||139,373||140,490||140,668||142,627||148,971|
|Trinidad and Tobago||1,024,475|
Source: ITC, UNCTAD, WTO trade in services database based on Eurostat, International Monetary Fund, Organisation for Economic Co-operation and Development (OECD) and relevant national statistical authorities’ statistics.
On the contrary, the services sector has the largest contribution to GDP in CARICOM with an average of 68.8% within the period 2000 – 2015. The prominent examples of services sector in the region are tourism and financial services. Many member states view the services sector as the only export product through which they can build comparative advantage however the sector faces a number of challenges:
- A lacking national services framework in some member states which could help to develop a coherent and broad strategic framework for the overall sector
- An inconsistent regulatory framework, providing the policy linkages between economic opportunities and competencies that deliver them.
Interestingly, Trinidad and Tobago, the largest economy in the region, has continued to slip down in its industrial sector contribution to GDP in order to gain higher weight in the manufacturing and services sector (see Table 2). Trinidad & Tobago is the industrial giant of CARICOM but the emergence of services trade would promote its desired economic development by creating more jobs in the economy which is expected to have spill-over effects on other sectors of the economy. Additionally, the linkage of industrialisation with the service sector through ‘Servicification’ will ensure the creation of extra wealth and income within industries as firms create and cater for the demand for new products in the form of services. This is however a bold step for Trinidad and Tobago, because the country recorded the highest real GDP and the second highest per capita GDP of US$22.71billion and US$16,696.03 in the Caribbean region in 2015.
Table 2. CARICOM Service Value Added Percentage of GDP
|Countries||2000 – 2004||2005 – 2009||2010 – 2014||2015|
|Antigua and Barbuda||82.6||76.9||79.9||77.6|
|St. Vincent and Grenadines||73.8||74.0||74.4||75.0|
|St. Kitts and Nevis||67.9||71.4||71.7||70.4|
|Trinidad and Tobago||48.4||38.4||45.3||58.9|
Source: World Development Indicator, 2016.
Regional Strategy and implementation Plan for Services
The lack of a harmonized Services Policy was identified as a challenge to the effective implementation of the Caribbean Single Market & Economy. The development of Regional Strategic Plan (RSP) and Implementation Plan for Services adopted by all participating Member States was considered critical to the effective operationalisation of the CARICOM Single Market and Economy (CSME) and to re-direct the Services Sector to exports growth and development. In order to boost services trade and export, CARICOM member states adopted a rights approach by preparing an RSP and Implementation Plan for Services. The plan and strategy was formulated through an all-inclusive process involving public and private sector stakeholders. These plans are now nearing completion.
Given the wide coverage and heterogeneity of the Services sector, priority was given to the following seven sub-sectors:
- Financial Services;
- Information and Communication Technologies (ICT);
- Professional Services;
- Health and Wellness Services;
- Cultural, Entertainment and Sporting Services,
- Tourism Services, and
- Education Services;
Approaches to private sector mobilisation
The private sector operators are important stakeholders in policy formulation, implementation and negotiations and often drive growth in the economy. According to Said & Krantz (2009, p.40), ‘’the private sector is in the most experienced position to support services business needs; to advise where and how the cost of doing business should be reduced; to explain the need to improve market conditions and add value’’. Consultations afford private sector organisations the opportunity to influence trade policy that would be of economic benefit to them but also have an effect on growth. These consultations were a critical element in the designing of the RSP.
Although the private sector is required to contribute in policy formulation, it is also necessary to engage such important stakeholders to ensure consensus on strategies. Mobilising the private sector could include:
- Sensitizing private sector operators on the Regional Strategies and Implementation Plans;
- Enhancing private sector utilisation of the strategies and Implementation Plans;
- Documenting private sector technical Assistance needs and make recommendations for their solutions.
Next Steps to increase Services exports in CARICOM
In order to increase services export growth, consideration must also be given to negotiating trade agreements as part of the over-arching framework to boost exports in the Caribbean Community. The private sector should be at the centre of an inclusive process from regulatory to partner markets through the following steps:
- Creating enabling business environment and improving the investment climate for the private sector;
- Generating business opportunities by considering the scope for private sector participation in policy formulation and negotiation processes;
- Organizing private sector dialogue for services sector providers and operators on regional initiatives, strategies and implementation plan;
- Resource mobilization- financing and partnership to support private sector development;
- Capacity strengthening and technical assistance to develop human capital and improve professional skills;
- Promoting good governance at various forms of public-private partnerships
- Negotiating Services sector trade agreements; and
- Articulating a ‘’specific timeline Action Plan’’ for all stakeholders, especially the private sector and government. It will set out accountability frameworks that will ensure that CARICOM takes advantage of the opportunities that exist to increase exports and boost CARICOM’s economy.
Since the economies of the Caribbean Community is service-based, efforts should be intensified
to its growth and development. Every policy should be designed with a robust private sector
engagement from formulation stages to implementation. Any policy that have the buy-in of the
private sector would have easy implementation.
Sunday Oghayei, Ph.D., Regional Trade Adviser, CARICOM Secretariat, Guyana