Services Trade: The Invisible Trade

The fastest growing component of trade, trade in services

Amar Breckenridge: Well, hello everyone and welcome to this edition of the Trade Knowledge Matters podcast. Our regular podcast on all things connected to international trade. Well, when you say the words trade policy these days a lot of people turn their eyes to Washington D.C. or to a certain person’s social media accounts. But as it happens, there’s a whole world of trade and trade policy outside of the D.C. bubble. And there is a part of trade which is the fastest growing component of trade, trade in services. Now, Trade in Services pervades the modern economy all the more so because it is heavily digitalized and can be traded through online means. Services also provide essential inputs that increase the competitiveness of manufactured goods. And they do this either by reducing the cost associated with getting goods to markets or by increasing the functionality and attractiveness of goods that are produced. Services trade can’t be tariffed, at least not directly. And that’s an important factor in a world where tariffs are back in vogue and where market access arrangements for goods, including through preferential market access schemes are under threat. Now, one part of the world where services trade is high on the agenda is the continent of Africa. Now Africa is something of a latecomer to services. Services exports from Africa, account for around 2% of world services exports according to the UNCTAD and services imports around 3% of global services imports. And for a number of countries services exports dominated by travel and tourism related services which are not necessarily big sources of productivity growth. That is the principal channel through which services deliver strong economic growth pathway. And at the same time recent growth and services across Africa been strong around 8% in 2023 again according to UNCTAD.

One way in which African trade and services can make contribution is through integration

Amar Breckenridge: Now one way in which African trade and services and the economic contribution that services can make to African countries is through enhanced regional and continent wide corporation and integration. That allows businesses to achieve competitiveness through scale and specialisation. And it also allows services to contribute to goods trade whether it’s through facilitation or by providing more competitively priced inputs. The African Continental Free Trade Agreement or AfCFTA was established in 2018 and it was the culmination of nearly two decades of work spearheaded by the African Union. The AfCFTA builds on various regional integration efforts such as the East African Community or the Economic Community of West African States. There are several others across the African continent. So to join me today and to discuss these issues are two eminent experts on the subject who I’m pleased to welcome to this podcast. Prachi Agarwal is a fellow in the International Economic Development Group at ODI Global in the last decade he has worked extensively on empirical analysis of trade policy, digital trade, regional trade agreements and sustainable growth to inform better policies globally. A recent research work includes the impact of COVID-19 pandemic on trade in value chains in Sub-Saharan Africa as well as in countries of the Asia Pacific and Latin American region. Also with me is Beatrice Chaytor who is the head of Division for Trade in Services at the AfCFTA Secretariat. She works on the negotiation and implementation of the agreement on establishing the African Continental Free Trade Area and she’s an international trade lawyer. She’s called to the bar in England and Wales as well as Sierra Leone. She has around 30 years of experience in providing advice and support to African governments in their engagement with regional and international trade policy processes. She is also held senior positions in the government of Sierra Leone and she has run her own law firm, making her both an expert in services policy but also a provider ah, of a traded service so. Beatrice and Prachi, welcome to this podcast. It’s a pleasure to have you here.

Trade in services is an important part of the structural transformation in African trade

Amar Breckenridge: So I might start with just a broad question. Trade in services is an important part of the structural transformation in African trade and the process of diversifying the trade structure of many African countries. Could you just explain in that context why services is such an important part of trade and development in Africa? And I might start with you Prachi on that.

For Africa, prioritising services trade essential to reducing dependency on commodity exports

Prachi Agarwal: Thank you Amar and thank you for having me on this podcast. I’m very happy to be here to discuss key components of international trade which is especially important in the African context. And for this question I just want to set the stage of what we’re discussing today. So trade in services is a key driver of Africa’s structural transformation because it enables economic diversification, enhances productivity, creates more formal employment and unlike traditional commodity exports which are often volatile and offer limited

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Prachi Agarwal: value addition, services such as finance, technology, logistics and tourism provide more sustainable and dynamic growth pathways, especially for those African countries that do not possess natural endowments. So as global trade evolves, I believe African economies must enhance their competitiveness and reduce reliance and commodities whose export preferences are currently eroding. While commodities remain important for employment and foreign exchange, they alone cannot power long term development. And in my opinion to build resilience, African nations need to invest in high value sectors which trade in services emerging as a critical opportunity and a great leveller, you know, across countries in Africa. So a strong services sector can transform economies in Africa by fostering job creation, particularly for women and youth as well as by supporting micro small and medium sized enterprises, what we call MSME which today dominate Africa service sector.

Prachi says services trade is critical to Africa’s development

Prachi Agarwal: It also plays a vital role in formalising the informal sector and the economy and strengthening the massive gig economy that exists. Beyond that services as you rightly pointed out, also improved efficiency across manufacturing industries, enhancing agriculture and manufacturing to better infrastructure, digital solutions and fintech solutions which also are going to help African countries to integrate into global value chains where services do play a very big role. So for Africa, prioritising services trade essential to reducing dependency on commodity exports, fostering innovation and ensuring long term economic resilience. With the African Continental Free Trade Area which you have talked about already in place, expanding trade and services can boost into intra-African trade, strengthen regional value chains and drive inclusive growth. So by improving policy frameworks in Africa, by investing in digital infrastructure, enhancing skill development, African governments can actually unlock the full potential of this sector. Or position the continent for a more prosperous and sustainable future.

Amar Breckenridge: Thank you. And position the content for more sustainable and prosperous future. Beatrice, do you have anything to add to Prachi’s just said in terms of the big picture and services contribution to African growth and development?

Beatrice Chaytor: Well certainly I agree with everything that Prachi has said. You know she given a very comprehensive response to the reason why services trade is so critical for Africa’s development. In fact that was the recognition by the countries themselves because they included trade in services as part of the first phase of trade liberalisation under the agreement, Protocol on Trade in Services, was one of the first protocols that was agreed at the time when the agreement was being developed. So the recognition comes with the fact that services trade is already happening in Africa. It already contributes a huge contribution to GDP on average around 50%, in some countries it’s as high as 80%. and so there’s that recognition, there’s the recognition that most of value added comes from services trade and the fact that the structures of many modern economies are changing, moving towards technological advancement. Most of that is in the services sector. And also the fact that services such as tourism were already low hanging fruit for many African countries where there had been some considerable liberalisation. And so therefore that as well as the impact that services can make for groups such as women, youth, even marginalised groups like physically disadvantaged people, all of that I think helps to just cement the idea that there is enormous potential for services trade in Africa.

Amar Breckenridge: So services trade clearly has the potential to deliver broad based growth as you’ve just pointed out Beatrice And that explains why the trade in services protocol is such an important part of the AfCFTA. Could you just explain in a bit more detail how that protocol works in practice?

The Protocol on Trading Services aims to boost intra Africa trade

Beatrice Chaytor: So the agreement is established, when it was set up, it establishes this free trade area. It brings together all the African countries and there are already 54 signatories and they’re up to today there are 48 state parties. So the majority of African countries have basically signed on. Not only signed on, but also said we are intending to be bound. And it creates this single market. It takes advantage of the demographic dividend. The fact that about 60% of the working population of the globe will be in Africa by 2060, creates an opportunity and environment for the free movement of goods, services, capital and investment across the continent. As Prachi mentioned, it seeks to develop regional value chains, sustain industrialization and ensure that the socio-economic transformation of the continent. Now, as I mentioned, it not only covers goods and services, but it also encompasses investment. So there are

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Beatrice Chaytor: protocols right now on investment, competition policy, digital trade and women and youth in trade. The recognition again that the agreement is designed to be very inclusive. At the heart of it, the AfCFTA is designed to just bring down the cost of trade. So reducing barriers to trade that tend to be sort of taxes and high charges, the costs of various business transactions, it’s just to make things as seamless as possible in terms of the movement of goods, services, people, capital, etc. And so the conditions for trade, effectively, as you probably know, in the context of the Protocol on Trade in Services, for instance, the idea is to boost intra-Africa trade because there was a recognition that through the fragmentation into these different RECs that you mentioned, most of the time African countries were doing better trade with other regions than with each other. Yet there were some components of African trade, such as the informal trade, where there was a lot of trade going on but wasn’t really captured in official statistics. So the idea really is to ensure that businesses, African businesses, have access to the markets of all state parties on terms that are no less favourable than those that are provided to their domestic suppliers. In that respect, it’s this free trade area where there are concessional conditions for trade. In the case of the Protocol on Trade in Services, we’ve sort of divided the liberalisation agenda into sort of two slots. So the first set of liberalisation will happen in five priority sectors. Those are, business, communication, financial, tourism and transport services. But there is recognition that the additional seven that comes, such as education, health, construction, logistics, are equally important, but just that these, the first five were considered sort of backbone services. That were are really critical for modern economies. And so this is currently under the protocol and Trade in services which is the focus is on progressive liberalisation and that’s important to remember that in fact things aren’t going to be happening like immediately or like tomorrow but that there will be a gradual opening of markets, reducing of restrictive business practises, reduce seamless procedures for business. So this is really the idea, it’s more or less structured like the GATS, the General Agreement on Trade in Services, under the WTO with just one distinction. In the GATS the way in which countries sort of signal that they will open markets is through these schedules of specific commitments which tell through the modes of supply, modes 1 to 4 where markets will be open. But in addition under the AfCFTA you provide not just your schedules but also the countries come together to decide on regulatory frameworks that seek to support the market access and the national treatment that are signalled in the schedules of specific commitments. So in a way it’s to ensure that there isn’t so a sort of backsliding. You give with one hand and you take with the other through really sort of loss of bureaucracy or red tape or sort of things, processes that are not very transparent. So that’s really the idea. And slowly, slowly there’s a gradual movement. Right now we have 24 countries that have adopted schedules of specific commitments. When I say adopted that means adopted by the heads of state. Those countries are in East, Central and West. Sorry, I beg your pardon, Southern Africa. We’re still waiting for West Africa to come on board. But yes, this is, you know the train is slowly moving in that direction towards implementation of these schedules.

Amar Breckenridge: Thank you. So there’s a comprehensive architecture then on a continent wide level and as you alluded to one of the issues also that the implementation of the AfCFTA has to face is the regional or sub regional dimensions of trade with within Africa and the coordination of the RECs, the Regional Economic Communities, which have been operating for some time and predate the AfCFTA. How does that coordination work and how is it geared to achieving the objectives of the protocol? Beatrice again to you.

RECs can play a significant role in the AFCFTA integration agenda

Beatrice Chaytor: Yeah, in the agreement the RECs are said to be the building blocks of the AfCFTA. In other words that there is already recognition that in some of the RECs certainly there has been a certain liberalisation agenda and we build on that, we don’t reinvent the wheel. So there is this kind of recognition that certain depths of liberalisation and regulatory coherence have taken place at that sub regional level and that can then be built on at the continental level to further deepen integration

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Beatrice Chaytor: and advance trade. So in this way the RECs can really play a significant role in the AfCFTA integration agenda, basically ensuring that regulatory reforms are kind of locked in and preserved as a key. And in fact in the agreement it’s kind of recognised that, now, there are already about 8, I think AU, yes, 8 recognised RECs. Some of them have trade liberalisation agendas, others have kind of like broad systems for cooperation etc. So on the liberalisation and you have like the EAC, the East African Community, SADC, COMESA and of course ECOWAS that have broad liberalisation agendas. That said some of the progress has been sort of a little static or slow and you have some cases of non-implementation of some commitments, some persistent restrictions on services trade for instance discrimination against some service suppliers and then of course the irregular attention to MFN, certain maybe anomalies like say in the MFN. So there’s an opportunity now under the AfCFTA. So now we have the five priority sectors now that there is movement towards having these schedules. The RECs could actually be allies of the AfCFTA in one coordinating the sort of ideal sequencing of the process of the liberalisation even under their schedules. Because there are some sensitivities to openness for instance in some of the various sectors, especially on finance etc. And that emphasis on progressive liberalisation that’s in the protocol can be therefore kind of managed and massaged. They can also help to determine the next level of sectors to be liberalised. Amongst the seven that are coming on board they can provide surveillance and monitoring of the implementation of the regulatory frameworks. For instance, we now have advanced texts in regulatory frameworks for communication and financial and we have transport and tourism coming on board. We’re also going to start working on things like mutual recognition for professional services. And so a similar approach can be taken for mutual recognition where the RECs can be allies with the AfCFTA to ensure smooth transparent certification of service suppliers. So for instance EAC that has already established a number of MRAs in various professional services like accounting or architecture could assist in this. So in this way the AfCFTA could focus on the sort of complementary regulatory environment through the development of the regulatory frameworks, kind of gets legs in a way through the REC action. So the coordination could be at two levels. One for the RECs to coordinate and sequence the implementation of the liberalisation commitments under the Services Protocol starting with the 24 adopted schedule and the regulatory frameworks and then secondly for the RECs and the AfCFTA to sort of coordinate oversight, monitoring and evaluation of the compliance with the Protocol on Trade in Services. In this way I think we can get to sort of a smoother and consistent process for implementation of the Protocol on Trade in Services.

The AfCFTA Trade in Services Protocol offers huge opportunities for services trade

Amar Breckenridge: Ok, thank you. And I think that sets the scene quite nicely as to how the policy and institutional landscape works. Now let’s drilled down a bit more into the detail of services trade. So one of the particularities of the AfCFTA is that it’s the largest regional grouping of countries under a trade agreement outside the WTO. So it encompasses a wide range of countries of different characteristics. Concretely what are the opportunities that exist for services trade on a country basis and across the AfCFTA and how does that, how does that work within the broader context of African trade? And Prachi I might turn to you to that.

Prachi Agarwal: Yeah, thank you Amar. I want to say a few things there. I’m going to give you three or four different examples based on some studies we’ve done at ODI Global over the last few years while we’ve been supporting the AfCFTA Secretariat on implementation of some of the protocols. I believe that AfCFTA can unlock significant opportunities intra-African trade in services. With a market of over 1 billion people, countries have the potential to diversify their economies beyond traditional export services or export sectors under the AfCFTA Trade in Services Protocol. As Beatrice has already explained that Member States have prioritised five key sectors tourism, transportation, financial services, business services and telecommunications. However, the agreement also opens the door for other kind of services like E commerce, digital services and expanded investment across African borders in the services sector. So at ODI Global we conducted a piece of analysis to assess the demand on the continent for certain types of services,

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Prachi Agarwal: essentially banking, financial services and business services, which includes professional services as well, such as technical services, architectural, advertising, marketing, research and development, etc. So we found that in the decreasing order of size South Africa, Kenya, Angola, Morocco, Ghana and Côte d’Ivoire are some of the largest consumers of these services on the continent. So to match them we also found that Mauritius, South Africa, Egypt and Nigeria were in fact the largest exporters. So these kind of bilateral relationships that will need to be formed between these countries. Interestingly both of these services are traded mostly under Mode 1 which is via online or digital cross border trade as well as under Mode 4 which is through presence of service providers and professionals in the partner country. So I see this opportunity to really expand Mode 4 and Mode 1 services and there’s a lot to be done by the African governments and AfCFTA, the Secretariat, to enhance this kind of modal delivery of services. I also see an opportunity to expand exports of IT-enabled services in say, Senegal, Tunisia, Nigeria and Ghana. In fact, Nigeria was recently recognised as a champion of digital trade by the African Union just last week. So it’s a very big opportunity for them to unlock massive amounts of opportunities on the continent under the AfCFTA. So as Beatrice also said that such trends, however, underscore the need for regulatory transparency. So harmonising digital trade laws on issues like cybersecurity, digital payments and protection, as well as simplifying visa procedures for intra-African travel, are definitely going to be critical to unlocking these types of services.

The AfCFTA is paving the way for a more connected and prosperous Africa

Prachi Agarwal: Now, moving on, there are of course other opportunities that exist in more traditional service sectors. So if you see tourism, there’s massive growth opportunities in Egypt and Morocco and I mean not just international tourists arriving in these countries, but African tourists arriving in these countries. There’s air transport services in Ethiopia and Egypt again that has the ability to connect African countries and in a completely unprecedented way. So today if you have to travel from East Africa to West Africa or vice versa, a lot of times you need to take a connecting flight from Paris, from London or from Qatar or Dubai. You can’t just travel from East Africa to West Africa with a direct flight. So that is something that is really going to be revolutionised and changed, in the course of time. But there are also some niche service areas which are available which are usually overlooked in data collection and policy making altogether because of that. So this includes cultural services, especially from emerging centres in Burkina Faso, Côte d’Ivoire and Sierra Leone. So we’ve done some analysis to identify them as the upcoming hubs for creative sectors, especially services and as well as in more established hubs which already exist in Kenya, Nigeria, South Africa. But they have obviously the potential to reach new horizons, especially if there’s going to be 1 billion more new consumers their of their services. So overall I think AfCFTA is really paving the way for a more connected and prosperous Africa by opening new avenues and trade and services. Thank you.

Many African countries have domestic regulations that restrict market access for foreign service providers

Amar Breckenridge: Great. Just building on that panorama that you set out for us, clear a lot of opportunities. What are some of the challenges and impediments that might affect the realisation of these opportunities? And you said particularly Mode 1 and Mode 4, there are specific barriers that might Enter into play there. What are your views, Prachi, on what some of those challenges might be?

Prachi Agarwal: Yes, thanks Amar. There are mainly four challenges. And I’m going to talk about four challenges. There are several, several others that exist. So first, we’ve already talked about this a little bit that many African countries have domestic regulations that basically restrict market access for foreign service providers in their country and they raise the cost of doing business in those countries. So these regulations range from data flow restrictions and limitations on foreign investment to stringent licensing requirements and visa quotas for professionals, like legal, architectural, or marketing service professionals that may want to travel to another country to provide their services. Additionally, in some cases, there are also constraints on participation of foreign firms in public procurement and barriers to competition from government-owned enterprises. So you can’t, as a foreign provider of services in a country, you can’t really compete with government-owned enterprises. There are massive restrictions. One, you can’t compete with them, and two, there are restrictions in place by the government itself. So all of this makes it more expensive and complicated for exporters to operate across borders. Second, I’ve observed over the course of my work that there’s a general lack of awareness about the importance of the services sector in Africa. So this is true for both the public and private spheres. So too often, businesses simply don’t know

what demand or opportunities exist in other African countries. So that’s why I believe that governments have a crucial role to play in collecting and sharing market information and actively engaging with the private sector to learn about the challenges they face and actually tackling them head on. So this kind of support essentially can build trade

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Prachi says there is a lack of understanding of trading services among policymakers

Prachi Agarwal: capabilities right with the services firms and foster strong bilateral links as I’ve already talked about previously. Third, which builds on the first point essentially, is that there’s an issue of inconsistent domestic regulatory frameworks across African countries. So for example, rules on foreign entry, business registration and other procedures can be quite confusing and unclear, leading to asymmetry of information between foreign players and domestic players. And this raises the risk for service exporters. So harmonizing these regulations, and this is what where the AfCFTA protocols come in, harmonising these regulations alongside mutual recognition of skills that we’ve talked about, an easier movement of professionals between countries and across borders would significantly reduce these barriers. So as Beatrice said, the AfCFTA is essentially a key drive of, for promoting these kinds of reforms in the regulatory space. And finally, my fourth point, so I want to point out that one of the many – most of these external challenges are also compounded by internal ones. So for example, in my view, limited access to skilled labour, inadequate education and skill training available, lack of access to finance, variable infrastructure, quality, whether physical or soft infrastructure, and an uneven institutional support, whether that’s from the government or from the regulatory agencies themselves. So all of these internal issues tend to hold back growth and services sector. And they, like I said, are compounded by the external ones that already exist between countries. So if you are going to address domestic issues, that is the way to actually unlocking what you can do with other countries in terms of trade and service.

Amar Breckenridge: Thanks Prachi. You alluded to some of the mechanisms within the AfCFTA to address some of these impediments and barriers to trade. Building on that might turn to you Beatrice. Can it work to address some of these barriers and in practise what efforts have been made at the regional and continental levels to address some of these barriers that impede the free flow of services between countries?

Beatrice Chaytor: First, I want to just say again I agree with what Prachi has said about the challenges. And the thing about it is that for every challenge there’s a potential solution within the framework of the AfCFTA. And that’s the beauty of the AfCFTA In fact, let me start with the general lack of understanding of Trade in services and how services can be traded amongst policymakers and the business community. We are trying to, through our work you may know that following the establishment of these legal instruments and their for the schedules, both the tariff concession schedules and the schedules of specific commitments for services, the Secretariat set up something called the Guided Trade Initiative. Basically the idea is to say look, those that are ready start Trade in without waiting for everybody to be ready. If you can imagine m. You mentioned the largest trade area by countries. We have 54 signatories. Imagine if everybody waited for the last person to be ready, you know, we would wait forever. So the idea is that those who are ready, you have the legal basis to start Trade in through your schedules, gazette them and start Trade in And so for instance on our part we have provided policymakers with summaries of the schedules, what the schedules say for each country in those five priority sectors, for instance. And we’ve encouraged them to then make that available to their chambers of commerce, their private sector, in whichever way they see fit. We have also worked hard to communicate the value and increase understanding about Trade in services and how it can be realised using the protocol and Trade in services through webinars, capacity building workshops to policymakers at the highest level. So we’re constantly getting, for instance the senior trade officials in the room to say here, look at your tourism potential, look at the potential for financial services liberalisation, etter etc. So that’s the first thing is increasing understanding about Trade in services. I mean I personally even have written when a colleague of mine in UNDP and I saw that we hadn’t, there was not really any movement since some of these schedules have been kind of adopted since 2022. We decided to write a paper and it came out as a UNDP policy brief. So sorry to plug it but just to say that we just wanted to find any means necessary to get the word out to say here is where the market is. Look for instance at Ethiopian Airlines. They deliver Trade in services from Mode 1 to Mode 4. And we set out also how statistics on Trade in services can be developed. So there’s like a whole range of things that we kind of break down. We call it clarifying the

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Beatrice Chaytor: rules on services trade under the AFCFD or something like that. But so the first thing was about increasing understanding. And then also we’ve tried to even be a sort of matchmaker in terms of, or an interlocutor between the policymakers and their business community to say look, we can help you speak to your business community about Trade in services. So we have actually had some of these more sort of national level workshops and capacity building meetings focused on various themes like for instance tourism, where we get everyone and all the stakeholders in the room, including the private sector, to say here is the opportunity, here is where the market is, here is your potential, but here is not just your potential in terms of growth in the sector but also where you can export services. And in a way it serves two purposes. It raises the profile of services and increases understanding. But it also helps with things like implementation gaps. Where for instance we’re seeing where you know, these countries, even under gaps, you know, a lot of the implementation didn’t take place. So the Guided Trade Initiative is there to say, start Trade in We can help you, we can provide support to you, others can provide support to you, whether it’s through your bilateral programmes or plurilateral programmes. And then this hybrid approach. Prachi mentioned, the lack of regulation. That’s why the regulatory frameworks were designed to try to provide a way in which there can be more synergy. We’re not focusing on harmonisation directly now because it’s a free trade area, but we are saying there are ways in which you can simplify processes. There are ways in which you can provide more transparency, there are ways in which you can show some commonality using best practise already on the continent. And so these regulatory frameworks are designed to do that in terms of institutional, capacity gaps that we cannot fix. But we emphasise that wherever we go we talk about how it’s important for both the public and the private sector to develop their capacity to trade, of course on the public sector side to coordinate with each other. Because trade, although it’s the AfCFTA, covers so many areas that are not just the province of the Ministry of Trade. and there are other things coming down the pike. Prachi mentioned education. So for instance, construction. All of these services will come on board later. You, the Ministry of Trade officials will have to speak to your health professionals, your sector specialists across the board to make sure that you are, you coordinating your approach to services trade. And the Secretariat has also done its best to support countries in developing their AFCFTA national strategies and also their National Implementation Committees. That would help again to have the conversations at the national level about what needs to happen, how the progressive liberalisation should be sequenced, how it should connect with other policy priorities at the national level, at the regional level, and then of course issues to do with statistics that I mentioned before, how to gather the statistics, how those statistics and data can help inform policy development, etc.

Infrastructure deficits around digital trade

Beatrice Chaytor: And then lastly, I just want to talk about infrastructure deficits, especially now because digital trade is coming on stream and so quickly. It’s very important that attention is focused not just on the hard infrastructure, but also the soft infrastructure. All the relevant infrastructure gaps have really got to be plugged and plugged soon to ensure that countries can really take advantage of the opportunities under the AfCFTA. So what I can mention, of course transport and logistics that would then help with getting out, manufacturing that will move people, that will move goods, energy, telecoms, but also the soft infrastructure like skills development that Prachi mentioned, all of that will help. And so education services that are coming on stre for the additional round is going to be critically important. So the Secretariat works with other agencies such as the African Union Commission, continental institutions such as the African Civil Aviation Commission, to push and align the implementation of the single African air transport market alongside the protocol and air transport liberalisation under the Protocol on Trade in Service. This is the African Development Bank, AFREXIM Bank Outer need, that are focused also on the Programme for Infrastructure Development in Africa, PA and of course the Pan African Payment System, because again Financial services and financial services infrastructure is also going to be critical payment systems. And this is also coming

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Beatrice Chaytor: under the digital trade protocol. There’s an annex under the digital trade protocol on payment systems, etc. So as much as there are challenges, you will find that some of the solutions lie in implementation of the provisions of the Protocol on Trade in Services or some other aspect of the AfCFTA agreement.

Prachi Agarwal: O, thank you.

One of the perennial challenges economists and lawyers working on trade and services face

Amar Breckenridge: Thank you. that’s a very comprehensive answer. Just building on the question of challenges. One of the perennial challenges economists and lawyers working on trade and services have to face is that it’s a rapidly evolving field and the way enrich services developed have often outstripped the way we’ve understood them and the way we’ve translated that understanding into trade protocols. So even modes of services now look very different to what they look like when the gapss is negotiated. The distinctions between them are not particularly watertight need. The distinction between services and goods is no longer nearly as watertight as it used to be at the time of the gas. So how does, or how can our current understanding of trade in services keep up with these changing dynamics and especially in the light of the emergence of new technologies in digital? And is there a sense in which we need to redefine services? And how does the institutional architecture keep up with that?

Beatrice Chaytor: Yes, well, I can point to a few things. So for instance, the first thing is there’s a blurring of goods and services, as you know, because of the rise of digital trade. So the traditional view is that, oh, services are distinct from goods. They’re often intangible, they require physical presence, for instance, banking consulting. Now with digitalization you’ve got a blurring of this distinction. So you’ve got software being delivered as a service, you’ve got 3D printing that allows goods to be serviceified. So a design file can be traded as a service and then the good can be printed and then sold as a good. You’ve got all these streaming services that have kind of like, you know, given cinemas a run for their money or given even the local TV station a run for their money. So you’ve got these like Netflix or whatever digital service, but then its content creation and distribution involves both goods and services. You’ve got the servers, the hardware services, data transmission, licencing, that sort of thing. Then you’ve got the rise of digital services. So there you’ve got the traditional view of Trade in services largely limited to the four modes of supply under gas, but now with the new dynamics you got digital services, cloud computing, AI, FinTech, et cetera, E commerce. And they operate sometimes in just a purely digital cross border manner, making it very difficult to categorise them. So for instance what we’re doing right now, you have video conferencing without requiring physical presence or movement of people. And that kind of challenges the traditional Trade in services framework. Where do you, where does that sit? Then you’ve got data as a critical input. So the traditional view is data is not really a significant factor, but now it’s the factor in many services such as AI, big data analytics, et cetera. Personalised marketing has become a thing. And so you’ve got some services being offered freely, but then they monetize the user data, I mean advertising. And then you begin to think, so how should these data flows be regulated under something like the afcfda? And that then helps with the emergence of new business models. So you’ve got the traditional view where services delivered through established channels like banks, airlines, hotels, but then you have Uber, you’ve go to Airbnb. All of these now have disrupted that traditional service delivery model. That creates some new challenges for regulation and trade policy that again emphasises that issue of a full understanding of just how services can work and therefore the regulation has to keep up. And there might be some regulatory challenges because those regulations that were structured for those modes of supply were focused on physical presence, focused on licencing qualifications, etc. Now you’ve got maybe to nuance things a bit, have some new regulatory approaches. You might need to now focus on things like data privacy laws, cybersecurity standards, rules for AI ethics, you know. So along with this sort of increased proportion of the services and the production of goods and other services, so the serviceification, you’ve got these increased complexities of addressing and contextualising Trade in services. So Trade in services certainly needs to be redefined in this new context to reflect the realities of the digital economy and the new technologies. I believe

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Beatrice Chaytor: we may need to broaden the definition of services and I believe maybe Prachi can speak more about that, but then maybe expressly include digital tech driven services more expressly.

Digital trade includes three main components: digitally traded goods, digitally enabled services

Amar Breckenridge: So clearly digital is a big challenge and it’s a big opportunity. First of all, it’s causing us to rethink services trade and because it has s been going on for some time. So in Prachi, can you give some examples of how this digital trade, trade and services interface actually works and what some of the implications are for policymakers and trade negotiators?

Prachi Agarwal: Sure. Thanks. Summer I think LUS has already done an excellent job of summarising all of those things but let me give my two cents. So Varian services and digital trade are in instriinkly linked we already know that more like paid and services. Digital paid is actually a subset of cadance services. So for the benefit of listeners let me just break it down. Digital trade includes three main components. One, digitally traded services like E learning platforms, cloud computing, digital marketing that do not need any physical infrastructure to operate. Second would be digitally enabled services. So these are services such as your apps of Cober, Airbnb, Eourism and Fintech whose efficiency is enhanced through digital intervent but they still need physical infrastructure and the background which is working the third is digitally delivered goods are what we call E commerce today such as Amazon or Alibaba that replace your traditional brick and mortar ste. So with that background what is important to understand is that all of these three things are important for the African continent and here’s why. So some of these services can be developed and exported to the region and globally without much physical infrastructure. Of course they need power and stable Internet connectivity. I mean that’s the basics. So countries like Uganda is already making strides in E education and Kenya in Fintech is with this largely popular fintech app called MPESA. Other types of services help formalise. Informal service providers like your local taxis can now be integrated with Uber or similar apps and this can help increase access to transportation. But the other but also other critical services like e-healthcare now where you can quickly consult with a doctor remotely without leaving your home. So that’s revolutionising the space. Finally the benefits of E commerce in Africa cannot be talked about enough to be honest. With Jumia, the Amazon of Africa quickly taking over the continent in the last decade the AfCFTA moving on to a more formal space. The AFCFTTA also attached a very has also attached a lot of importance to digital trade through his digital trade protocol that Beatrice has spoken so a little bit about this protocol. It aims to promote inter African cross border trade through E transactions, paperless Trade in and digital payments across Africa. It also aims to increase the interoperability of digital regulations and payment systems as highlighted by Beatrice. It’s part of their annexures across countries with an emphasis on developing digital infrastructure and elimination of barriers to trade building on mainlusion and fostering digital innovation surprisingly and insistingly all of these, all of these are also covered under trade in the protocol and trade and services in some form of the Other. So when this overlaps means that African countries can pool resources to implement both of these protocols simultaneously without computing priorities, with the potential to create thousands of jobs, development and regional integration. So interestingly, all of these, all of this digital trade particularly boomed during the pandemic. We already know that. But it now face these new challenges, such as you’ve already highlighted Amar and so has Beatrice.

AI presents both challenges and indirect opportunities for digital services or digital trade

Prachi Agarwal: And this brings me the to the idea that the new emerging technology in the form of machine learning, AI, including large language models and automation, they present both challenges and direct and indirect opportunities for digital services or digital trade. For instance, while AI is likely to take or take over most back office and offshore operations like customer support and data, entity operations redundant, it also presents a very big opportunity to improve efficiency and reduce costs by integrating your BPO services for what we call them with AI. So AI tools can now also efficiently process large data sets, create analytics, create visuals, written content for marketing and copywriting purposes, as well as enable rapid software development. So what we used to spend hours doing can now be done literally by a click of an mos. So, but AI has its own challenges and I believe, and this is something that I’ve been trying to develop, that the challenges of AI itself can lead to several niche services that can be offered in terms of digital services. So this will help address the issues that AI throws up itself. So for example, firms can provide something called data, something called governance M. They can provide data quality assurances, data integration and security.

00:45:00

Prachi Agarwal: So data security as a service is something that is going to be big in the future and this is going to help firms position themselves as leaders in innovation. So obviously this requires very clear policies and regulatory support to ensure that firms can comply with ethical standards of AI. There needs to be new investment in cloud infrastructure and the, the big thing. Then there’s going to be massive upskilling and training of existing workforces, as well as connection with universities to ensure STEM programmes are being integrated with what the industry needs, especially because it’s moving in such a rapid pace. And obviously the second big thing, data privacy and cybers security. So all of these things are, mandated or not mandated. Sorry, I’m not going to use that word. All of these things are already present under the protocols and countries are hoping to implement all of these different protocols of the AfCFTA And the big question, however, does remain, which is how are we going to translate this to domestic policies? That’s one. The first step, the first hurdle, rather the second hurdle will be how do you translate national policies into or domestic policies into local practises or how do local governments actually take this up? So we’ve been noticing, I mean what with the work we’ve been doing and I’ve been doing for the last few, few years, we’ve been noticing that there is the sense tends to be a massive disconnect between what the central government is trying to do and what local governments understand. We’ve already talked about this and BTS has spoken to this issue that we need to increase awareness about what AFCFA can do for your business. How do you actually stay under the afc fda? Ah. And as you rightly pointed out, the Guided Trade Initiative was already, is already happening. The second iteration of that is going to start I suppose, which the news is that it’s going to include pay and services this time. So essentially that is all great. You are basically hand telling them whom to trade with, doing an exporter, importer connect sort of thing and your national implementation agencies or committees are helping you through that process. So one, what happens after that? Two, how do you make sure that your local governments are able to adopt that, actually internalise this? And that’s where the disconnect is. The AFCFTA is doing an excellent job to do the first part where they’re trying to, to help regulatory confirmation, their confirmation. They’re trying to ensure that countries talk to each other, they have a common platform to come and have conversations about these things, to negotiate and to implement. But the second part which I highlighted is going to be key. Everyone signed on, the national governments know what to do. But do businesses really know what to do? And that’s why I recommend that it is so important to print very simplified print the terms of the agreements, how they can benefit you, what can you do to do, you know, be benefits that needs to be broken down into very simple things, into very simple language, probably in local languages. So there are thousands of languages on the African continent. It’s not justlish, English, friends, Portuguese to name a few. There are thousands of local languages. So all of that content needs to be broken down into those local languages, into simple toolkits, into simple information packages that people will understand. And there will have to be massive work that will need to be conducted at every level so that even local governments can explain to their constituencies. And when I talk about inclusivity, women in youth and SMEs, they don’t even understand what is happening when you talk to them. You go out in the field and you talk to them they don’t even know what AFCFD is today. So I know it’s only been few years, but we have a lot on our agenda when it comes to the implementation of the fcfda. It is going to take some time to actually come to fruition, but a lot needs to be done. And I’m really glad we’re having this conversation because Africa is the next big thing. it is, it is time for it to get its view and tradeing services is going to be a great leveller. As I said in the beginning, you may not have the money to build infrastructure, you may not have natural endowments or oil money or critical minerals or things like that, but you are going to be able to do service in a much easier way. So thank you for having us on the podcast and I’m so glad that we were able to have this conversation.

Amar Breckenridge: Thank you very much. I think that’s, an excellent note on which to finish.

Beatrice and Prachi thank you for your time on Trade Knowledge Matters

00:49:48

Amar Breckenridge: Thank you both Beatrice and Prachi for your time. It’s heartening to remind listeners that there are lots of things happening in the broad world of trade and people who are working very hard to make trade great again, despite what other parties might be trying to do. So once again, thank you for your participation. To, our listeners out there, we hope you enjoyed this podcast. Remember to review, rate and share on your favourite platform, and we look forward to joining you again on our next edition of the Trade Knowledge Matters.