Services

The Importance of the Services Sector in Developing Countries

The services sector plays an increasingly important role in the global economy and the growth and development of developing countries. The importance of the services sector in developing countries is growing as many economies are realizing that services, unlike goods, can create greater wealth generating opportunities and lead to higher value creation.

 

The importance of the services sector in developing countries has bearing on key elements, such as poverty reduction, greater trickle down effects to far reaching communities, particularly in the case of tourism and gender equality.

 

While services are gaining prominence, international trade in goods and commodities continue to dominate global trade, valued at US $16.48 trillion in 2015. However, trade in services is making significant inroads and is growing faster than trade in goods. In 2000, the World Trade Organisation valued exports of commercial services at US $1.49 trillion, representing 18% of global commercial trade. By 2015 trade in commercial services grew to US $4.75 trillion, representing a compounded average annual growth rate of 8.0% between 2000 and 2015 and 22.4% of global exports. In the period 2000-2015, merchandise exports experienced average growth of 6.4% per annum. Services today represent approximately 70% of global GDP. The sector accounts for 70% of jobs in developed countries, but only a third of jobs in developing economies (but growing in importance).  See chart below.

 

global trade in services
Source: http://stat.wto.org

 

The services sector also employs a large percentage of women, positively contributing to the empowerment of women and poverty alleviation. According to the United Nations Department of Economic and Social Affairs, the services sector in developing economies employ a large percentage of women. For example, in Latin America and the Caribbean the services sector is made up of 80% women. This compares to 56% in Asia (excluding China) and 46% in Africa. This clearly demonstrates the importance of the services sector in developing economies.

 

Developing economies have expanded their service exports at a rate exceeding that of developed countries. Services are essential inputs for many activities and play a crucial role in increasing economic growth and productivity by improving financial intermediation, infrastructure, and the use of information and communication technologies (ICTs), education and health.

 

A notable global trend is that the world economy is increasingly knowledge-based. In terms of economic activity, the world’s major economies have already moved from being dominated by the primary and secondary sectors to tertiary services, with these now accounting for between 60-70% of the GDP of developed nations. The dawn of the 21st century has coincided with a move from process-oriented services such as transport and travel or wholesale and retail trade to knowledge-based services. This has significant implications for developing economies.

 

It is difficult to imagine businesses today operating without efficient services, such as telecommunications, outsourcing, Internet, finance, accounting, legal services and transportation and logistics. And sectors such as IT, ITES, tourism, and e-commerce are critical for the growth of developing economies. Services will continue to play a key role for the growth of developing countries and information will be the heart of that growth.

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