2020-11-06_Services-blog_1200x675
UNCTAD
Share on facebook
Share on twitter
Share on linkedin

Services sector vital to COVID-19 economic recovery

By Bruno Antunes, Economist, UNCTAD

A strong and better economic recovery from the COVID-19 pandemic requires governments to make the services sector a key element in their policy mix.

Services play a key role in increasing productivity, efficiency and effectiveness in the whole economy.

Globally, services represent two-thirds of economic output, more than half of the world’s jobs and about a quarter of direct exports.

But direct exports of services are just the tip of the iceberg. Services provide significant inputs to all economic sectors.

With their indirect contributions, including those produced in-house by non-services firms, services can account for almost two-thirds of the value-added of total exports.

Further, services make up two-thirds of total productivity growth in developing countries, making them a key element of these countries’ strategies for industrialization.

At the eighth session of UNCTAD’s multi-year expert meeting on trade, services and development, held in September, experts and policymakers underlined that services can help countries recover better from the COVID-19 crisis, and keep them on track towards the UN Sustainable Development Goals (SDGs).

Turning the tide on COVID-19

As countries reel under the pandemic’s economic impact, the services sector can help turn the tide by creating opportunities for greater income, food security, productivity, employment, investment and trade.

Servicification – putting a premium on the role of trade in services to power national economies – needs to be a key element of countries’ strategies for recovery from COVID-19.

But for services to serve societies and economies, countries need inclusive, coherent and fitting policies. In particular, developing countries and least developed countries need support to strengthen and upgrade their services.

With developing countries relying more on traditional services and developed countries depending on knowledge-intensive ones, the landscape is not even.

Dealing with the pandemic has underscored the need to mind the structural gap between developed and developing countries. It’s critical to promote key services inputs that transform the economy and trade in developing countries.

This calls for international cooperation, including South-South, on trade in services as a key element of the policy agenda.

Digital services transform economies

Services can be used strategically to facilitate economic transformation. These include ICT services that enable telework, digital financial services and e-commerce platforms, which have kept economies running amid COVID-19-induced lockdowns.

ICT services, which can increase efficiency and reduce costs, promote the digital transformation of farming, manufacturing and other sectors.

This services-enabled digitization improves supply and export capacity, enhancing countries’ economic resilience and recovery in the wake of the pandemic.

Digitization of services has helped creative industries cope with the pandemic, as many creatives have turned to digital platforms and technologies to connect with audiences and consumers.

The potential of digitization is equally important in other services that have been severely affected by the pandemic, such as tourism, the world’s third largest export sector (after fuels and chemicals).

A UN policy brief on the impact of COVID-19 on tourism, released in August, projected that export revenues from tourism, which supports one in 10 jobs globally, could fall by $910 billion to $1.2 trillion in 2020.

In July, UNCTAD estimated that the losses could be as high as $3.3 trillion or 4.2% of the world’s GDP, if the pandemic puts international tourism at a standstill for a total of 12 months, a projection becoming more likely in the face of a still unchecked pandemic.

For small island developing states, where tourism accounts for as much as 80% of exports, the impacts of the pandemic are devastating.

Supporting countries to recover through services

As countries leverage services for post-pandemic recovery, UNCTAD continues to provide much-needed support, based on its longstanding experience of working on services, trade and development.

Its range of support includes policy analyses, consensus-building, capacity-building, advisory services and technical assistance on services.

In addition, UNCTAD’s services policy reviews assess and provide recommendations on services policy, regulatory and institutional frameworks.

As the pandemic wears on, the need to strengthen the services sector has never been greater, considering its vital role in enhancing productive and export capacity, diversifying and upgrading production and trade.

Share on facebook
Share on twitter
Share on linkedin
Previously posted at :

Related News

AfDB

The AfCFTA will not in one dramatic swoop alter existing commercial and economic realities on a vast scale, but its implementation could lead the recovery efforts from the COVID-19 crisis – Solomon Quaynor, VP African Development Bank

Industry experts meeting this week for a virtual discussion focused on resetting, retooling and restarting regional integration in Africa in the wake of the COVID-19 pandemic, underscored the importance of putting small scale traders at the heart of any initiatives.

The joint webinar, organized on Tuesday by the African Development Bank and Korea Customs Service(KCS), looked at service sectors, e-commerce, digital platforms and value chain development as critical factors for accelerating trade and investment in Africa against the backdrop of the global pandemic. The webinar was delivered in three sessions, moderated by Stephen Karangizi, Director, African Legal Support Facility; Dr. Stephen Karingi, Director at Regional Integration and Trade Division of UNECA and Acha Leke, Senior Partner at McKinsey

History has demonstrated the success of countries and businesses that seize new opportunities during times of crisis, said Sukhwan Roh, Commissioner of the Korea Customs Service. “The COVID-19 pandemic has completely changed health and livelihoods of individuals across the world in less than a year,” he said. “Korea wishes to share all the achievements in system enhancement utilizing new technologies with African countries.”

The workshop’s audience heard how regional integration is increasingly central to the continent’s future economic prospects and to attracting foreign direct investment. The African Continental Free Trade Agreement, (AfCFTA), already ratified by 30 countries, is expected to come into effect on 1 January, 2021. Uniting all 55 member states of the African Union, the pact will create a market of more than 1.2 billion people, including a growing middle class, and a combined gross domestic product (GDP) of over $3.4 trillion

COVID-19 has deepened pre-existing trade frictions within the continent yet offers important growth opportunities and great stories of innovation and highlights the importance of protecting Africa’s place in local value chains, said Anabel Gonzalez, Senior Fellow, Peterson Institute for International Economics, with the need to “put small scale traders at the heart of the effort.” She urged governments to strengthen national agencies to provide support to small traders.

“AfCFTA creates a new trade and integration reality…integrating unequal partners across the continent,” said Trudi Hartzenberg Executive Director of the Trade Law Center (TRALAC). Trade facilitation enjoys specific focus within the AfCFTA, with digital, e-payments, and e-commerce particularly important, she added, citing a 2020 WTO report that emphasized education and healthcare as fundamental to industrialization.

From the outset, the African Development Bank has lent strong support to the AfCFTA, financing the set-up of its secretariat as well as supporting member countries with technical assistance to comply with a range of AfCFTA regulations, said Bank Vice President, Infrastructure, Private Sector & Industrialization, Solomon Quaynor in his introductory remarks read by Abdu Mukhtar, Bank Director, Industrial and Trade Development Department.

Still, Quaynor warned, post-crisis recovery efforts are likely to be slow. “The AfCFTA will not in one dramatic swoop alter existing commercial and economic realities on a vast scale. However, through strategic measures and the right investments, policy frameworks and political backing, intra-African trade will be enhanced.“

African countries innovate to enhance local value chains

Presentations provided examples from Ghana and Zambia of strategies the private sector can adopt to leverage the AfCFTA within the context of the pandemic.

Ghana previously imported most of its Personal Protective Equipment or PPE, but, since the pandemic, the government galvanized 14 local garment firms to manufacture PPE. These firms now produce 1,000 items daily, according to Ghana’s deputy trade minister, Robert Ahomka Lindsay. The development has created 10,000 jobs.

“ Traditional value chains have been challenged… it made us realise that we cannot rely on those value chains,” Lindsay said.

Some of the worst-affected sectors in Africa such as tourism, aviation and education, had shown resilience, for example, in the food industry, which harnessed e-commerce for marketing during the pandemic, noted Kenneth Baghamunda, Dir. General, Customs and Trade, East African Community Secretariat. Zambia’s success with cashless payment solutions at its border and other innovations since COVID-19 was another example of favourable results.

“We need to see which value chains need to be developed and we need to interconnect our policies with the right institutional framework,” he said.

The AfCFTA will not in one dramatic swoop alter existing commercial and economic realities on a vast scale, but its implementation could lead the recovery efforts from the COVID-19 crisis – Solomon Quaynor, VP African...

UNCTAD

The coronavirus pandemic is impacting actors in the digital economy differently. While some digital businesses are showing resilience, costs are rising for others, a new UNCTAD survey shows.

Even though COVID-19 has pushed more consumers in developing countries to buy online, many e-commerce businesses in these nations have seen a slump in sales, according to an UNCTAD study published on 17 November.

Presenting hard-to-collect data from 23 countries, mainly in Africa and Asia, the research shows a stark divide between the pandemic’s impact on different actors in the digital economy.

While 58% of businesses selling their own products or services online have recorded a drop in monthly revenue, about 64% of third-party marketplaces have seen a spike in sales, according to data collected between March and July 2020 from over 250 companies, most of which have less than 10 employees.

“We found that wholly digital businesses, especially third-party online marketplaces, have been more resilient during the current crisis,” said Shamika N. Sirimanne, UNCTAD’s technology and logistics director.

“Even with growing demand for e-commerce, most businesses have struggled to adapt and scale-up their operations online.”

Despite new, coronavirus-induced opportunities for digital business models, the outlook looks challenging for many of the e-commerce businesses surveyed. Two-thirds reported rising operational costs since the outbreak, and 44% expect to cut their workforce.

E-payments up, but cash on delivery stays on top

The study reports a notable increase in digital financial services in the nations surveyed – predominantly least developed countries (LDCs) – as consumers tried to limit exposure to the virus while paying for food, medicine, health and hygiene products and other goods.

Some 64% of the e-commerce businesses that took part in the study reported an uptake in payments primarily through mobile money, followed by online and mobile banking, credit cards and other digital payment platforms.

Yet cash-on-delivery remains by far the preferred form of payment for e-commerce transactions in LDCs, the survey confirms.

Tackling digital divides still as urgent

The study highlights the range of challenges e-commerce businesses have faced during the pandemic, notably disrupted supply chains, logistical problems arising from restrictions on the movement of people, and high broadband costs.

In LDCs, only 19% of the population use the Internet – compared to 87% in developed countries – and only 40% have access to a high-speed mobile broadband network.

“The existing divides in terms of digital readiness underline the need to accelerate policy reforms and mobilize support to build the capacity of developing countries to leverage e-commerce in their COVID-19 recovery plans” Ms. Sirimanne said.

“Digitalization must be placed at the heart of the development debate,” she added. “The current changes in consumer and business behaviour will have lasting effects when the world economy starts to pick up again.”

Response efforts and recovery plans

Close to half of the survey participants said governments had not prioritized the e-commerce sector sufficiently in their COVID-19 response efforts and recovery plans.

The pandemic has further exposed gaps in policy areas central to improving digital readiness in developing countries, such as weak e-commerce regulatory frameworks and bottlenecks in financing digital entrepreneurs and start-ups.

But the surveyed businesses did acknowledge that some measures taken by the public and private sectors have helped lower hurdles for businesses and consumers to use e-commerce services.

Increased public awareness campaigns on the benefits of e-commerce, more digital skills training opportunities, and reduced e-payment transaction costs were cited as the most impactful.

The report highlights several successful initiatives:

  • In Cambodia, the government has passed an e-commerce law to ease the registration of e-commerce businesses.
  • In Kiribati, digital solutions implemented to combat the spread of COVID-19 have given fresh impetus to efforts to harness the development gains of ICT and e-commerce.
  • In Myanmar, e-commerce and the digital economy are featured in the government’s COVID-19 economic relief plan
  • In Rwanda, the Central Bank suspended mobile money fees for three months and waived charges on push and pull services between bank accounts and mobile wallets
  • In Senegal, collaboration aimed at onboarding new businesses and supporting local produce providers has proven successful (examples include the e-KomKom and the e-commerce Sénégal platforms)
  • In Uganda, e-commerce platforms have been fast to promote contactless payments and logistics and nurture new partnerships with development partners
  • In Tunisia, the “label de confiance” initiative has helped build trust across the e-commerce ecosystem

Readiness assessments and national strategies

Most of the surveyed businesses said a “a well-defined national e-commerce strategy” should be the top priority for COVID-19 recovery plans. Reduced costs for internet and broadband access, as well as for mobile and other electronic payments were the other measures recommended most.

UNCTAD and partners are working with many developing countries to help them put in place relevant measures and strategies.

The countries that took part in the survey have benefited from UNCTAD’s support in devising a national e-commerce strategy or conducting an eTrade readiness assessment, which gives a comprehensive diagnostic of a nation’s ability to benefit from opportunities in the global digital economy.

So far, 27 developing countries, mostly LDCs, have benefited from such an assessment, and the organization is now working with eTrade for all partners to fast-track the implementation of the recommendations, with financial support from the German and Dutch governments.

UNCTAD is also working with partners, including United Nations resident coordinators, to ensure e-commerce is mainstreamed into national development plans and development partners’ cooperation frameworks.

The coronavirus pandemic is impacting actors in the digital economy differently. While some digital businesses are showing resilience, costs are rising for others, a new UNCTAD survey shows.

Even though COVID-19 has pushed more consumers in...

IDB

The VI E-Goverment Ministerial Meeting of Latin America and the Caribbean ended today with a pledge by ministers and other high-ranking officials from 33 nations to promote digital transformation to help with the region’s social and economic recovery in the post-COVID-19 era, with a special emphasis on transborder digital services. In addition, authorities from participating countries designated Colombia as President of the Gealc Network. Colombia will hold this position in 2021 through its Ministry of Information Technologies and Communications (MinTIC).

In a joint statement issued at the end of the meeting, the ministers and other authorities said: “Digital transformation is of the essence to promote the region’s inclusive economic and social reactivation in the face of the COVID 19 crisis. The colossal challenge posed by the COVID-19 virus pandemic has demanded extraordinary innovative efforts from the digital government agencies in the region in order to develop e-government tools to tackle the healthcare and social crises, while at the same time supporting the continuity of government operations, adapting to the different physical distancing methodologies adopted by each country.”

The statement also stressed “the increasingly important role of digital technologies and e-government tools to provide sustainable, inclusive and equitable services,” as well as “the transformative power of digital government to enable more efficient, transparent, and participative administrations in the region.”

The meeting’s inaugural session featured the participation of Costa Rica’s President Carlos Alvarado, whose country hosted the virtual event; Inter-American Development Bank’s (IDB) President Mauricio Claver-Carone; and Organization of American States Secretary-General Luis Almagro. All in all, more than 800 high-ranking authorities, government officials, digital government experts, and speakers participated in the two-day event.

In addition, more than 350 e-government officials took part in a series of thematic meetings on a number of relevant e-government issues such as cybersecurity , innovation, open data, and emerging technologies. Experts from Spain, Estonia, France, Israel, Portugal, and the United Kingdom also participated. Digital government directors approved an ambitious collaborative work agenda for 2021 focusing on key areas for digital transformation such as interoperability, digital signature, cybersecurity, and digital ID.

The event also included a successful test of digital certificates’ validation operation between Brazil, Chile, Colombia, Peru, and Uruguay. This was made possible by the collaborative work of officials from these countries, with technical and financial support from the IDB. The exercise was complemented with the signing of a document promoting the transborder digital signature – a feature that will boost the validation of the digital signature among countries in the region.

Also, the ExcelGOB 2020 edition prizes were awarded to the best e-government solutions in the region. The ExcelGOB awards are presented by the Inter-American Digital Government Network (Red Gealc), with support from the OAS and the IDB. The delegations of the countries that took part in the VI Digital Government Ministerial Meeting used an online tool to pick the winners of this year’s edition. They were:

WINNERS

  • Brazil – digital transformation category, with a solution to digitalize procedures and transactions
  • Panama – digital government in the face of COVID-19 category, with the Plan Panamá Solidario solution.

SPECIAL MENTIONS

  • Argentina – gender focus, with App 144 against gender violence
  • Peru – open data focus, with single work certificate for young workers-CERTIJOVEN
  • Colombia – emerging technologies focus, with a special mention shared by blockchain for land adjudication, and artificial intelligence for the Sustainable Development Goals.

The ExcelGOB 2020 edition received 53 proposals from 14 countries. This year the contest made it possible to know and systematize the most innovative solutions in the region in terms of digital government in the face of the COVID-19 crisis.

Lastly, the meeting announced that Panama will host the XV Gealc Network Conference and Annual Meeting in 2021, whereas Peru will host the VII Digital Government Ministerial Meeting of Latin America and the Caribbean in 2022.

The VI E-Goverment Ministerial Meeting of Latin America and the Caribbean ended today with a pledge by ministers and other high-ranking officials from 33 nations to promote digital transformation to help...

UNCTAD

Inequalities and vulnerabilities risk worsening long after a vaccine becomes available. UNCTAD charts a roadmap for a more inclusive and better recovery, emphasizing the need to reshape global production networks.

Global markets and spirits are up with the news that two COVID-19 vaccines have shown to be more than 90% effective in late-stage clinical trials.

But while there is growing confidence that an end to the health pandemic is in sight, an UNCTAD report published on 19 November warns that a viable vaccine will not halt the spread of economic damage, which will be felt long into the future, especially by the poorest and most vulnerable.

The report, Impact of the COVID-19 Pandemic on Trade and Development: Transitioning to a New Normal, provides a comprehensive assessment of the economic knock-ons, projecting that the global economy will contract by a staggering 4.3% in 2020 and warning that the crisis could send an additional 130 million people into extreme poverty.

The way the world economy is set up is partly to blame for the disproportionate impact on the world’s poorest, who lack the resources necessary to respond to shocks such as COVID-19, the report says.

“The COVID-19 pandemic has gravely wounded the world economy with serious consequences for everyone,” UNCTAD Secretary-General Mukhisa Kituyi said.

“Moving rapidly across borders, along the principal arteries of the global economy, the spread of the virus has benefited from the underlying interconnectedness – and frailties – of globalization, catapulting a global health crisis into a global economic shock that has hit the most vulnerable the hardest.”

The report finds the United Nations’ Sustainable Development Agenda 2030 will be derailed unless immediate policy actions are taken, especially in favour of the poorest. A better recovery must centre on renewed trade policy that tackles the twin challenges of market concentration and environmental impact, the report says.

It also notes there is a pressing need to reshape global production networks to be more green, inclusive, and sustainable while simultaneously resetting the multilateral system to support the most vulnerable and deliver on climate action.

A crisis of uneven impacts…

In the report, UNCTAD tracks the deepening impact of the virus on all areas of the world economy and maps how the crisis has affected global trade, investment, production, employment and, ultimately, individual livelihoods.

It finds that the pandemic’s impact has been asymmetric and tilted towards the most vulnerable, both within and across countries, affecting disproportionately low-income households, migrants, informal workers and women, the report says.

Global poverty is on the rise for the first time since the 1998 Asian financial crisis. In 1990, the global poverty rate was 35.9%. By 2018 it had been curtailed to 8.6% but has already inched up to 8.8% this year and will likely rise throughout 2021.

Additionally, COVID-19 has had an excessive effect on two sectors – tourism and micro, small and medium-sized enterprises – which employ many vulnerable groups.

For example, while older men may have suffered more from the health emergency, females and young people are most affected by the economic crisis. Across the 32 countries for which gender-disaggregated data are available, the countries with higher COVID-19 incidence have seen greater increases in female unemployment than male.

These and other setbacks, such as school closures that threaten 20 years of progress in expanding access to education, especially for girls, will have strong negative impacts on the productive capacity of countries well into the future, the report finds.

…and uneven responses

The disparities caused by the COVID-19 crisis are glaring, and vaccine production and delivery will likely underscore the limited capacity of most developing and least developed countries (LDCs) to respond to the crisis.

For example, the report highlights that the median additional spending per capita on fiscal stimulus or foregone revenues in developed countries and economies in transition has been $1,365 since the outbreak, compared to just $18 in least developed countries and $76 in other developing nations.

Figure 1: Fiscal measures in response to COVID-19 by country group.
Fiscal spending on COVID19

Source: UNCTAD calculations, based on data from International Monetary Fund, 2020, and the UNCTADstat database.

 

In addition, most poor nations simply do not have the needed safety nets in place to support their populations.

The report estimates that about 79.4% of workers in sub-Saharan Africa and 84.5% of workers in LDCs do not have access to any social protection or labour programmes.

The report calls for stepped-up international assistance, which would include offering debt relief to many poorer nations so they have the fiscal space needed to address the pandemic’s economic impacts on their populations.

A roadmap for better recovery
In the report, the UN’s trade and development body provides a roadmap for recovery that requires an overdue and opportune shift in the structure of global trade and cooperation.

“COVID-19 has been painful and course-altering, but it is also a catalyst for needed change,” Dr. Kituyi said. “We need to reshape global production networks and reset multilateral cooperation for the better.”

Global production networks will play a critical role in producing and distributing the new vaccine, as they have in moving critical medical supplies during the crisis.

But vaccine deployment will likely expose long-entrenched inequalities in the global trading system that the report says must change to “recover better”.

“Now is the right time to address the weaknesses of globalization that led to the rapid spread of the virus around the world and its uneven economic impacts,” Dr. Kituyi said.

“Such efforts must go hand in hand with the arrival of potential vaccines to market, otherwise we risk reinforcing those inequalities that turned this health emergency into an economic crisis in the first place.”

The report says the crisis can be a catalyst for new, more resilient production networks based on value chains that are shorter, and more regional, sustainable and digital.

It is also a chance to make production greener. Global CO2 emissions are on track to decline by 8% this year, or 2.6 gigatons. This is roughly the same reduction that is needed annually for the next 10 years to maintain progress to just a 1.5-degree Celsius rise in global temperatures. As economies open back up, more needs to be done to ensure international production is in sync with the climate emergency.

“Much will depend on the policies adopted and ability to coordinate, both at the international and national levels,” Dr. Kituyi said. “Thus, despite the grim outlook, it is still possible to turn COVID-19 into the finest hour of the United Nations and build a more inclusive, resilient and sustainable future.”

Figure 2: Greenhouse gas emissions and target reductions.
Greenhouse gas emissions and reductions targets

 Source: UNCTAD calculations, based on Netherlands PBL (2019) and United Nations Environment Programme (2019).

Inequalities and vulnerabilities risk worsening long after a vaccine becomes available. UNCTAD charts a roadmap for a more inclusive and better recovery, emphasizing the need to reshape global production networks.

Global markets and spirits are up...