Can Services Drive Africa's Development?

Map of eastern hemisphere highlighting Africa
Map of eastern hemisphere highlighting Africa

The conventional map of Africa's development path went more or less like this: transfers of capital and technology would ease people out of farming and into factory jobs around cities, while income from the extraction of oil, gas, and minerals would help governments pay for education, health, and infrastructure. At the end of it, most workers would manufacture goods that the world would want to buy--at salaries that workers in richer parts of the world would shun. The problem with this march towards "industrialization" is that it has not happened. Africans did move, and are still moving, into cities. But once there, they are stuck in producing services, not goods, mostly informally. The talk is of "premature deindustrialization". Not even the prospect of China shedding millions of low-skill manufacturing jobs has changed that.

There are of course many reasons why Africa has not yet industrialized big time, like poor governance and bad logistics. It will take decades to fix those. So, the question is: can services be the next engine of economic growth for the continent? Can Africans export enough services to each other and to the world? There is no data to answer these questions with precision. But Nora Dihel and her team at the World Bank had a brilliant try at it. They went directly to the source. Through thousands of old-fashion, face-to-face interviews and some cool, new methodologies--like crowdsourcing and "mystery shopping"--they amassed a wealth of information on African service providers. They talked to street-vendors, hairdressers, housecleaners, doctors, nurses, teachers, bankers, accountants, lawyers, and just about everyone else making a living in the service sector. And they did it all across sub-Saharan Africa. What they found, presented in a just-published book, challenges deep-rooted preconceptions. [You can download their book for free here.]

The first surprise is that virtually all services can be--and are--traded among and beyond African countries--even the most seemingly menial. Sure, local barbers stay local. But Tanzanian Maasai hair braiders travel to Zambia where their skills are in high demand--they have a brand on what they do. Sometimes, it is service companies that open branches in another country--South African banks come to mind. Other times, it is the consumer of the service who travels--think tourism. And, increasingly, it is the product of the service that gets digitally shipped abroad, like a draft tax return prepared in Zambia for a South African client. The level of technical sophistication ranges widely; there are house-keepers and there are software designers.

Trade in African services is not just varied--it is also huge and booming. Much of it goes unrecorded--more on this later--so it is difficult to come up with a dollar estimate. But interviews with cross-border service providers--from gardeners to programmers--suggest that these are well-paying jobs that are lifting and keeping people out of poverty. They also suggest that providing services to or in another country is a great way for female and the young to make a better living. The fact that most respondents see their trade as a long-term occupation speaks for itself.

To Africans' credit, all this trade happens in spite of a cobweb of laws, regulations, and policies put up over the years by their governments, ironically, to protect national sectors and professions from foreign competition. In many countries, getting a work permit approved, a university degree recognized, or a branch licensed is virtually impossible for a foreigner. So plumbers, doctors, and insurers have to work in informality or recruit local partners. Inevitably, corruption pops up and bribes are paid--those Maasai hair braiders can tell you a story or two about how expensive crossing a border can be. Add to that the problem of cooperation: you need coordinated action on both side of the frontier, and that rarely happens. The result is much less trade in service, fewer jobs, and more poverty than could be possible. Africa's recorded exports of services is a mere two percent of the world's total. This shows both that much of it happens under the radar of official statistics and how big the potential for doing more is.

In fairness, African leaders have in recent years tried to remove the barriers that hinder trade in services. They have signed plenty of regional agreements to make things easier. Two trading blocs--the East African Community and the Common Market for Eastern and Southern Africa--have shown the way. But one thing is laws and regulations, and another is practice. Actual traders report little change in how tough it is to do business across countries. [NB: just to get change on the ground quickly, in their book Dihel and her colleagues advocate for a pan-African "Charter of Traders Rights", a kind of public promise by all governments in the region which, in essence, would say: "If you come to any of our borders, we won't stall you, rob you, or harass you". That could work, if monitored by civil society organizations.]

All this has, of course, a not-so-rosy side. Exporting services sometimes means exporting your best and most dynamic people--those who you need to build your country. Yes, they send remittances back home. But the "brain-drain" is large and painful. By some calculations, one quarter of doctors trained in Africa eventually migrate to developed countries. Something similar probably happens to nurses, architects, and academics. But blocking their way out with legislation and bureaucracy is a self-defeating proposition--it just pushes migrants underground and leaves them unprotected abroad.

So, with all its pros and cons, is trade in services the future engine of Africa's development? Probably not the engine, but one of them, and one that can power up others--agriculture, industry, and natural-resource extraction will do better if cross-border services do better. Remember: when you import a service, you are importing knowledge, and that makes you more productive. If the engineers in your neighboring country are better than yours at running the electrical grid, or its businesses use better processes, why not learning from them? The beauty is that, for all its recent vigor, trade in services remains an unexploited source of economic growth, and policy-makers have the key to tap into it. They just need a bit of leadership and a lot of coordination.