The Unexplored Potential of Trade in Services in Africa From Hair Stylists and Teachers to Accountants and Doctors The Unexplored Potential of Trade in Services in Africa Edited by Nora Dihel and Arti Grover Goswami Cover Art: I Get Out of All Your Boxes by Richard Gicho iii Contents Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Acknowledgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvi Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Services Trade in Africa: A Primer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 How Well Do We Understand Trade in Services in Africa?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Services in Africa: Marginal or Transformational?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Modern and Traditional, Formal and Informal: Which Services Does Africa Trade? And How?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 What Drives Africa’s Regional Trade in Services? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 What Hinders Africa’s Regional Trade in Services? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 What Can Policy Makers Do? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Conclusions and Areas for Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 PART I: CHALLENGES TO TRADE IN SERVICES IN AFRICA: DATA, METHODS AND ISSUES Chapter 1: Informal Trade in Services in Sub-Saharan Africa— Unchartered Territory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Characteristics of Informal Trade in Services.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Constraints to the Movement of Service Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Steps to Facilitate Cross-Border Trade in Services in Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Annex 1A: Permit Requirements in Tanzania. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 iv From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Chapter 2: Measuring Regional Trade in Services in Sub-Saharan Africa: New Monitoring Indicators from Innovative Survey Methods. . . . . . . . . . . . . . . . . . . . . . . 47 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Survey Design and Objectives.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Data and Sample Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Key Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Conclusion and Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 PART II: UNEXPLORED SECTORS IN AFRICA’S TRADE IN SERVICES Chapter 3: Internationalizing Sub-Saharan Africa’s Education and Health Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Education and Health Services in Sub-Saharan Africa: How Can Regional Integration Help?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Determinants of Trade in Education and Health Services .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Regulatory Hurdles and Explicit Trade Barriers Affecting Trade in Education and Health Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Policy Action .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Annex 3A: Trade in Education and Health Services: Modes of Supply and Examples.. . . . . . . 92 Annex 3B: Volume of Education Services Trade Recorded in IMF Balance of Payments Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Annex 3C: Volume of Health Services Trade Recorded in IMF Balance of Payments Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Chapter 4: Trade in Mining Services in Zambia.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Zambia’s Local Mining Supply Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Trajectory of Local Service Providers in Zambia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Policy and Regulatory Framework for Mining Services in Zambia.. . . . . . . . . . . . . . . . . . . . . . . . 107 Conclusion and Policy Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Annex 4A: Upstream Linkages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Annex 4B: Market Diversification Strategies for Selected Service Providers.. . . . . . . . . . . . . . 115 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 contents v PART III: INNOVATIVE POLICY SOLUTIONS Chapter 5: Professional Services Knowledge Platform for Sub-Saharan Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Filling Information Gaps on Regional Trade in Professional Services: Results from Survey Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Applied Regulatory Policies and Barriers to Professional Services Trade.. . . . . . . . . . . . . . . . . 124 Filling Knowledge Gaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Removal of Explicit Trade Barriers.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Regulations and Participation in Trade: An Impact Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . 129 Firm-Level Determinants of Trade in Professional Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Technical Assistance Activities to Disseminate Knowledge and Provide Training. . . . . . . . . . 131 Key Lessons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Annex 5A: Countries in the Survey Sample.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Annex 5B: Methodology for the Impact Evaluation Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Chapter 6: Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Professional Services Regulation in the EAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 MRAs in Professional Services Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 How EAC MRAs Benchmark against Best Practice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Lessons from Other Parts of the World. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Action Plan for Professional Services MRAs in Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Challenges for MRAs in Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Policy Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Chapter 7: Trade in Tourism Services and Regional Integration in Southern and Eastern Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Potential of Tourism as a Key Economic Driver in Africa.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Growth of Multi-Country, Cross-Border Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Role of Regional Cooperation in Tourism Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 vi From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Key Regional Initiatives for Tourism Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Quality: Improving the Value and Diversity of the Touristic Offer . . . . . . . . . . . . . . . . . . . . . . . . 174 Communicating the Value Proposition and Impacts of Tourism. . . . . . . . . . . . . . . . . . . . . . . . . . 180 Critical Success Factors and Practical Strategies for Increased Effectiveness in Regional Tourism Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Figures Figure I.1: Services Trade Openness: Exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure I.2: Services Trade Openness: Imports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure I.3: Composition of Services Exports in Selected African Countries, 2006 and 2013 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure I.4: Proportion of Exporting Firms in COMESA Countries by Professional Services Subsector, 2011.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure I.5: Frequency of Use of Telemedicine in Selected Countries in Sub-Saharan Africa, April–July 2014.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure I.6: Services Trade Restrictiveness Index by Sector and Region . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure I.7: Services Value Added in GDP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure I.8: Youth Employment by Occupation, 2010.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure I.9: Proportion of Full-Time Female Employees, by Services Subsector. . . . . . . . . . . . . . . . 10 Figure I.10: Proportion of Firms with Female Top Managers, Manufacturing versus Services. . . . . 11 Figure I.11: Relation of Labor Productivity to the Use of Professional Services in COMESA Countries, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure I.12: Exports of Commercial Services versus Exports of Non-Mineral Goods, 2013. . . . . . 13 Figure I.13: Destinations of Exports from COMESA Countries, 2012 (%). . . . . . . . . . . . . . . . . . . . . . . 17 Figure I.14: Reasons Consumers in the Democratic Republic of Congo Prefer to Buy Services from Foreign Providers, March to May 2015 (%) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure I.15: Reasons Foreign Patients Seek Treatment in Selected Countries in Sub-Saharan Africa, April to July 2014.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 1.1: Average Number of Border Crossings per Year into the Democratic Republic of Congo, March–May 2015.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Figure 1.2: Average Number of Days Spent Abroad to Provide Services in the Democratic Republic of Congo, March–May 2015.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figure 1.3: Average Export Value of Informal Services in the Democratic Republic of Congo (CGF, thousands). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figure 1.4: Average Revenues from Informal Services Exports as a Share of Providers’ Total Income in the Democratic Republic of Congo (%). . . . . . . . . . . . . . . . . . . . . . . . . 34 contents vii Figure 1.5: Usage of Export Income in the Democratic Republic of Congo, March–May 2015 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Figure 1.6: Reasons Consumers in the Democratic Republic of Congo Prefer to Buy Services from Foreign Providers, March–May 2015 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Figure 1.7: Top Constraints Affecting the Movement of Services Providers from the Democratic Republic of Congo, March–May 2015 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Figure 1.8: Average Total Cost for Remittances by Region, 2008–15. . . . . . . . . . . . . . . . . . . . . . . . . 39 Figure 1.9: Reasons for Informality in the Democratic Republic of Congo, March-May 2015 (%).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Figure 2.1: Use of Telemedicine in Selected Countries of Sub-Saharan Africa, April–July 2014.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Figure 2.2: Proportion of Foreign Patients Treated by Hospitals in Selected Countries in Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Figure 2.3: Job Destination Choices of Foreign Students in Selected Countries in Sub-Saharan Africa, April–July 2014.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Figure 2.4: Reasons Foreign Patients Seek Treatment in Selected Countries in Sub-Saharan Africa, April–July 2014.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Figure 2.5: Cost of Travel and Visa for Foreign Patients Seeking Treatment in Selected Countries in Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Figure 2.6: Cost of Travel and Visa for Domestic Patients Originating in Selected Countries in Sub-Saharan Africa Seeking Treatment Abroad, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Figure 2.7: Weeks Required to Recognize Medical Degrees Obtained Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Figure 2.8: Weeks of Additional Training Required for the Recognition of Degrees Obtained Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . 55 Figure 3.1: Use of Telemedicine in Selected Countries in Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Figure 3.2: Frequency of Use of Telemedicine in Selected Countries in Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Figure 3.3: Imports from the Top Four Destinations for Select African Countries, 2011. . . . . . . 67 Figure 3.4: Top Three Source Countries of Foreign Students in Selected Countries in Sub-Saharan Africa, April–July 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Figure 3.5: Foreign Student Enrollment in South African Universities, 1994–2011 (%). . . . . . . . . 68 Figure 3.6: Proportion of Foreign Patients Treated by Hospitals in Selected Countries in Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Figure 3.7: Motivations for Medical Travel Abroad from the United States. . . . . . . . . . . . . . . . . . . . 74 Figure 3.8: Cost of University Tuition in Sub-Saharan Africa, 2014 (US$). . . . . . . . . . . . . . . . . . . . . 75 Figure 3.9: Cost of Treatment Received by Foreigners in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 viii From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 3.10: Cost of Treatment Received by Patients Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Figure 3.11: Reasons Domestic Patients Seek Treatment Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Figure 3.12: Reasons for Medical Professionals Working Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Figure 4.1: Firms Populating Local Upstream Linkages to Zambia’s Copper Mining Sector.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Figure 4.2: Dynamic Trajectory of 14 Service Suppliers by Type and Frequency of Upgrading Processes, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Figure 4.3: Declining Trajectory of 13 Zambian Suppliers by Type and Frequency of Upgrading Processes, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Figure 4A.1: Copper Mining Global Value Chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Figure 5.1: Usage of Professional Services in COMESA Countries, 2012 (%). . . . . . . . . . . . . . . . . . 120 Figure 5.2: Relation of Labor Productivity to Use of Professional Services in COMESA Countries, 2012 (US$ per employee). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Figure 5.3: Average Monthly Salary of Senior Professionals in COMESA Countries, 2012 (US$).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Figure 5.4: Proportion of Exporting Firms in COMESA Countries by Sector, 2011 (%). . . . . . . . . 122 Figure 5.5: Proportion of Exporting Firms in COMESA by Country, 2012 (%). . . . . . . . . . . . . . . . . 123 Figure 5.6: Submodes of Export in COMESA Countries, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Figure 5.7: Destinations of Exports from COMESA Countries, 2012 (%). . . . . . . . . . . . . . . . . . . . . 124 Figure 5.8: Share of Foreign Ownership and Foreign Employees in COMESA Region Firms, 2012 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Figure 5.9: Firms in the COMESA Region Citing Foreign Regulations as a Constraint, by Sector, 2012 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Figure 6.1: Steps toward Free Movement of Professional Service Providers. . . . . . . . . . . . . . . . . 146 Figure 6.2: Legislative Tools for Enabling Free Movement of Professional Service Providers in the EAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Figure 7.1: Africa Foreign Visitor Exports and International Tourist Arrivals, 2004–14 . . . . . . . . 161 Figure 7.2: African GDP Impact by Industry as a Share of Total Economy GDP, 2013 (%). . . . . . 162 Figure 7.3: Typical Mix of Passengers on African Carriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Figure 7.4: Three Key Areas in Which Regional Integration Can Increase Tourism Competitiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Figure 7.5: One-Way Average Airfares in Africa versus Other Regions, 2010 (US$). . . . . . . . . . . 171 contents ix Tables Table I.1: Employment Share by Sector, 2005–12 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Table 2.1: Sample Distribution of Health Services in Selected Countries of Sub-Saharan Africa, April–July 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Table 2.2: Sample Distribution of Education Services in Selected Countries of Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Table 2.3: Sample Distribution of Services Providers in Selected Countries of Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Table 2.4: Sample Distribution of Services Users in Selected Countries of Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Table 2.5: Main Source and Destination Countries for Trade in Health Services in Selected Countries in Sub-Saharan Africa, April–July 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Table 2.6: Level of Engagement with Micro Enterprises in Selected Countries of Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Table 2.7: Level of Engagement with Small Enterprises in Selected Countries of Sub-Saharan Africa, April–July 2014 (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table 2.8: Services Offered by Banks in Selected Countries of Sub-Saharan Africa, April–July 2014 (%) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Table 2.9: Services Offered by Insurance Companies in Selected Countries in Sub-Saharan Africa, April–July 2014 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table 2.10: Prices for Selected Domestic Transactions in Selected Countries of Sub-Saharan Africa, April–July 2014 (US$ per transaction). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table 2.11: Annual Premia Charged by Insurance Companies in Selected Countries of Sub-Saharan Africa, April–July 2014 (US$) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Table 2.12: Fees for Accountancy Services Offered to Clients with a Turnover of US$5,000 in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$).. . . . . . . . . . . . . . 59 Table 2.13: Fees for Accountancy Services Offered to Clients with a Turnover of US$100,000 in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$). . . . . . . . . . . . 60 Table 3.1: Top Education Service–Exporting Countries in Africa, 2010–12. . . . . . . . . . . . . . . . . . . . 69 Table 3.2: Top 10 Ranked Universities in Africa, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table 3.3: Regulations Affecting Distance Learning (Mode 1) Table 3.4: Regulations Affecting Telemedicine (Mode 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table 3.5: Regulations Affecting the Establishment of Universities Abroad (Mode 3). . . . . . . . . . 82 Table 3.6: Regulations Affecting the Establishment of Hospitals Abroad (Mode 3). . . . . . . . . . . . 83 x From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 3.7: Regulations Affecting the Temporary Movement of Health Professionals (Mode 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table 3.8: Regulations Affecting the Temporary Movement of Education Professionals (Mode 4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Table 3.9: Regulations of Visas and Immigration Requirements Affecting Education and Health Professionals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Table 3.10: Regulations Affecting Education and Health Professionals . . . . . . . . . . . . . . . . . . . . . . 86 Table 3B.1: Volume of Education Services Exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Table 3B.2: Volume of Education Services Imports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Table 3C.1: Volume of Health Services Exports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Table 3C.2: Volume of Health Services Imports.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Table 4.1: Characteristics of Selected Service Providers to Zambia’s Mining Sector, 2009.. . . . 102 Table 4.2: Summary of Procedures and Documents for Trading across Borders in Zambia, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Table 4.3: Dynamic Trajectory of 14 Service Suppliers by Frequency of Ownership and Linkages, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Table 4.4: Declining Trajectory of 13 Service Suppliers by Frequency of Ownership and Linkages, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Table 4.5: Zambia GATS Schedule of Specific Commitments for Selected Subsectors, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Table 5.1: Restraints Imposed by Domestic and Foreign Regulation on COMESA Countries, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Table 5.2: Comparison of Exporters and Nonexporters in COMESA Countries, 2012. . . . . . . . . 131 Table 5A.1:Reporter Countries in the COMESA Region .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Table 5A.2: Partner Countries for the Impact Evaluation Study. . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Table 6.1: Suppliers of Professional Services in Selected East and Southern African Countries, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Table 6.2: Accounting Services Restrictions in East and Southern Africa, 2010. . . . . . . . . . . . . . 145 Table 6.3: Annual Comparative Experience of MRAs, 2007 and 2013. . . . . . . . . . . . . . . . . . . . . . . 150 Table 6.4: A Cost-Benefit Analysis of the EAC MRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Table 7.1: Tourist Arrivals and Receipts in Africa by Region, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Table 7.2: Global International Tourist Arrivals from the Same Region versus Other Regions, 1990–2013 (millions). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Table 7.3: GATS Tourism Commitments by SADC and EAC Countries. . . . . . . . . . . . . . . . . . . . . . . 177 contents xi Boxes Box I.1: Schubert and Monitoring of Services Reforms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Box I.2: Experimental Data Collection to Monitor the Opening of Selected Services Markets in Sub-Saharan Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Box I.3: East Africa Tourism Platform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Box I.4: Charter for Cross-Border Traders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Box 1.1: Case Study—Obtaining a Class A Permit for Self-Employment. . . . . . . . . . . . . . . . . . . . . . 40 Box 1.2: Charter for Cross-Border Traders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Box 3.1: Virtual University of Uganda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Box 3.2: India’s Partnership with Africa on e-Health and More. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Box 3.3: Encouraging Medical Tourism within Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Box 3.4: Intra-African Linkages: Kampala International University and Dreamline College, Nairobi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Box 3.5: Global Linkages: Carnegie Mellon University in Rwanda. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Box 3.6: South-South Linkages: Dr. Agarwal’s Eye Hospital in Rwanda. . . . . . . . . . . . . . . . . . . . . . . 72 Box 3.7: Expansion of Private Education Institutes: Are They Diluting Quality?. . . . . . . . . . . . . . . . 89 Box 4.1: Direct Cooperation, Low Supplier Capabilities, and Upgrading in Zambia. . . . . . . . . . . 105 Box 6.1: Article 11 of the Common Market Protocol on Mutual Recognition Agreements. . . . . 146 Box 7.1: The GATS Modes of Supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 Box 7.2: Constraints to African Tourism Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Box 7.3: International Examples of Regional Cooperation for Tourism Development. . . . . . . . . 167 Box 7.4: South Africa’s Intraregional Tourism Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Box 7.5: The Economic Impact of Air Service Agreements in the European Union.. . . . . . . . . . . 172 Box 7.6: The European Experience with the Schengen Visa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Box 7.7: The European Union’s Regional Development Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Box 7.8: The Greater Mekong Subregion Sustainable Tourism Development Project. . . . . . . . . 175 Box 7.9: Liberalization of Tourism under the General Agreement on Trade in Services. . . . . . . 176 Box 7.10: RETOSA Regional Tourism Quality Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Box 7.11: Labor Mobility in the Caribbean Region. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 Box 7.12: East Africa Tourism Platform (EATP). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 xii From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa List of Maps Map 7.1: The State of Free Trade in Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Map 7.2: Visa Requirements for Intra-Africa Travel, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 xiii Abbreviations ACE African Centers of Excellence ADB Asian Development Bank AfDB African Development Bank ASEAN Association for South East Asian Nations AVU African Virtual University B2B Business to Business BCOM Bachelor of Commerce BOPS Balance of Payments Statistics CARICOM Caribbean Community and Common Market CARIFTA Caribbean Free Trade Association CHE Commission for Higher Education CITES Convention on International Trade in Endangered Species CMP Common Market Protocol CNMC China Non-Ferrous Metals Corporation COMESA Common Market for East and Central Africa CPC Central Product Classifications CPE Continuous Professional Education CUE Commission for University Education CTO Caribbean Tourism Organization CSO Civil Society Organization DMO Destination Management Organizations DRC Democratic Republic of Congo EABC East Africa Business Council EAC East African Community EAIA East Africa Institute for Architects EATP East Africa Tourism Platform EATWCA East African Tourism and Wildlife Conservation Agency EPA Economic Partnership Agreements EPCM Engineering Procurement Construction and Management EU European Union FDI Foreign Direct Investment FIDIC International Federation of Consulting Engineers FTT Fair Trade Tourism GAMA Group of African Member Associations xiv From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa GATS General Agreement on Trade in Services GATT General Agreement on Trade and Tariffs GCI Global Competitiveness Index GDP Gross Domestic Product GLTFP Great Lakes Trade Facilitation Project GVA Gross Value Added IASB International Accounting Standards ICPAK Institute of Certified Public Accountants of Kenya ICT Information Communications Technology IFAC International Federation of Accountants IFC International Finance Corporation IFRS International Financial Reporting Standards IGAD Inter-Governmental Authority on Development IHK International Hospital Kampala IGSCE Cambridge International General Certificate of Secondary Education IUCEA Inter-University Council for East Africa IMF International Monetary Fund IMG International Medical Group IOC Indian Ocean Commission ISO International Standards Organization ITC International Trade Centre JKUAT Jomo Kenyatta University of Agriculture and Technology KASNEB Kenya Accountants and Secretaries National Examinations Board KCM Konkola Copper Mines KIU Kampala International University LDC Least Developed Country LSTK Lump-Sum Turn-Key M&E Monitoring and Evaluation MDG Millennium Development Goals MFN Most Favored Nation MRA Mutual Recognition Agreements MSE Micro and Small Enterprises MSME Micro, small, and medium-sized enterprises MTDP Mekong Tourism Development Project NAFTA North American Free Trade Agreement NCHE National Council for Higher Education NFCA Non-Ferrous China Africa NTR National Tourism Roundtables OECD Organization for Economic Cooperation and Development OEM Original Equipment Manufacturer PAFA Pan African Federation of Accountants Abbreviations xv PAO Professional Accountancy Organizations PPE Personal Protective Equipment PPP Purchasing Power Parity R&D Research and Development REC Regional Economic Communities RETOSA Regional Tourism Organization of Southern Africa RIIO Rwanda International Institute of Ophthalmology RSA Research Solutions Africa RTGS Rwandan real time gross settlement SACE South African Council of Educators SADC Southern African Development Community SAMP Southern African Migration Project SASAC State-Owned Assets Supervision and Administration Commission SH&E ICF International Company SME Small and Medium Enterprises SRO-EA Sub-Regional Office for Eastern Africa SSA Sub-Saharan Africa STDP Sustainable Tourism Development Project STEM Science, Technology, Engineering and Mathematics STR Simplified Trade Regime TaESA Tanzania Employment Services Agency TCU Tanzania Commission for Universities TEVETA Technical Education, Vocational and Entrepreneurship Training Authority TFCA Trans Frontier Conservation Area TIN Taxpayer’s Identity Number TTCI Travel & Tourism Competitiveness Index UIA International Union of Architects UNECA United Nations Economic Commission for Africa UNCTAD United Nations Conference on Trade and Development UNESCO United Nations Educational, Scientific and Cultural Organization UNISA University of South Africa UNWTO United Nations World Tourism Organization USD United States Dollar VAT Value Added Tax VLE Virtual Learning Environment VUU Virtual University of Uganda WEF World Economic Forum WHO World Health Organization WTO World Trade Organization WTTC World Travel & Tourism Council ZCCM Zambia Consolidated Copper Mines   ZMLCI Zambian Mining Local Content Initiative xvi Acknowledgments This book is the result of an extensive agenda of analytical work on trade in services in Africa involving staff from various units of the World Bank and external contributors. The contributions to this volume seek to shed some light on uncharted opportunities for services trade in Africa, and invigorate and deepen the discussion about the role of services in trade diversification and economic upgrading on the continent. The focus is on less explored areas such as informal trade in services or trade in more sophisticated but equally neglected sectors such as professional services, education and health services, and services related to mining that are rarely associated with services trade in Africa. The aim of this volume is to provide the key messages from this work to a wide audience—the private sector, civil society, key ministries, relevant agencies—that is necessary to provide the broad base for successful implementation of reforms. We are very grateful to the authors of the chapters in this volume for making their work available for a wider audience. We would also like to thank the following for providing peer review comments on the volume: Marcelo Giugale (Senior Economic Adviser, Cluster of Global Practices for Equitable Growth, Finance & Institutions, World Bank), Bernard Hoekman (Professor and Director, European University Institute in Florence, Italy), Massimo Geloso Grosso (Trade Policy Analyst, OECD), Josaphat Kweka (Country Director for Tanzania, Trade Mark East Africa), Sebastian Saez (Lead Economist, Trade and Competitiveness Global Practice, World Bank), Apurva Sanghi (Lead Economist & Program Leader, Kenya, Rwanda, Uganda and Eritrea), and Markus Jelitto (Counsellor, WTO Trade in Services Division). Thanks for comments and advice is also due to Paul Brenton, Andreas Blom, Shawn Cole, Thomas Farole, John Keyser, Hannah Messerli, Vijay Pillai, Ganesh Rasagam, Miriam Schneidman, Karima Saleh, Carmine Soprano, and Michel Zarnowiecki. Special thanks to Sylvia N. Gichia, Director, Kuona Trust Centre for Visual Arts in Kenya, and the artists who agreed to showcase their art work in this book. The projects underlying the chapters in this volume were funded by the Multi-Donor Trust for Trade supported by the governments of Finland, Norway, Sweden and the United Kingdom. The views expressed in this collection reflect solely those of the authors and not necessarily the views of the funders, the World Bank Group or its Executive Directors. Nora Dihel and Arti Grover Goswami March 2016 Nora Dihel is a Senior Economist in the World Bank’s Macroeconomics and Fiscal Management Global Practice. Arti Grover Goswami is a Senior Consultant Economist with the World Bank. xvii Foreword A burgeoning services sector is fueling economic expansion in many African nations. In these coun- tries, services already contribute substantially to GDP, absorb a large proportion of youth employ- ment and matter substantially for gender parity. While at this stage it remains difficult to determine the exact contribution of services and services trade to Africa’s growth and development, recent evidence points to the transformational nature of services trade in promoting economic growth through enhanced productivity, larger employment opportunities, improved gender parity as well as a reduced incidence and severity of poverty. There is also ample evidence to support the resilience of services trade during the recent financial crisis. For some African countries, a range of modern services exports grew even faster than trade in goods. Services not only offer promising opportunities for export diversification, but are also key inputs in the production of most exportable goods and services. Importing services can enhance the accessibility and the quality of certain inputs and improve the overall productivity of firms. For many decades, services have been playing a critical role in a traditional as well as a modern set-up, yet their importance is downplayed in growth and development narratives. As oil and commodity prices tumble globally, diversification into services exports will be critical for maintaining future growth in Africa. In fact, trade in both formal and informal services would create an opportunity for growth and poverty reduction in Africa. In this context, this book is extremely pertinent and timely in raising the profile of services in the Africa region. Very little is known about trade in services in Africa and its prospective impact. The continent’s potential to engage in trade in services, especially in dynamic knowledge-intensive activities remains neglected. Africa’s export potential in traditional services, such as tourism, is clearly recognized, but the incipient dynamism in exports of nontraditional services, such as business services is often overlooked. This book broadens our understanding of services trade for Africa by opening up some unexplored opportunities to invigorate and deepen the discussion on the role of traditional and modern services in economic transformation, trade diversification and upgrading. The book provides estimates on the magnitude of such flows and discusses the regulatory hurdles that prevent the emergence of a services-led transformation as observed in some other regions of the world. An important challenge to exploring Africa’s potential in trade in services is the paucity of data. Poor availability of data and huge discrepancies between official statistics and firm-level data make analyses of services trade misleading. Informal trade in services flourishes across the continent, yet data on such flows remain totally absent. Comprehensive comparisons across sectors and regions are ambiguous or not possible. Furthermore, despite growing opportunities for African services firms to export to neighboring countries, limited data on trade in services by partner country and sparse information on regulatory policies and their application hamper the monitoring of progress in services liberalization and regional integration. To draw attention to the available assessment tools and policy instruments for possible refinement and broader application across sectors, this book proposes novel data collection methods, such as crowdsourcing and mystery shopping, pioneering knowledge transfer practices, and experiences with innovative policy reforms. xviii From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa To realize the potential from services trade-led growth, trade in services, both formal and infor- mal, needs to be high on the African policy agenda, with efforts to facilitate such trade flows by eliminating harassment of services traders at the border or in the country of destination, simplifying visa requirements, easing and clarifying residency requirements, and improving the work permit application process. Further, greater support on coordinated trade and regulatory reforms, that puts special emphasis on reform of immigration rules and regulatory cooperation at the regional level, is much needed. We hope that this book will generate a frank debate about the policies and actions needed to strengthen Africa’s services sector and increase the continent’s participation in services trade. Mak- ing more information available to traders, ensuring greater transparency of rules and regulations, and pursuing regional regulatory cooperation would go a long way in integrating the fragmented services markets in Africa. Punam Chuhan-Pole Acting Chief Economist, Africa Region, World Bank Voices by James Njoroge 3 introduction Nora Carina Dihel and Arti Grover Goswami Nora Dihel is Senior Economist, Macroeconomics and Fiscal Management Global Practice, World Bank and Arti Grover Goswami is Senior Consultant Econo- mist, World Bank. Services Trade in Africa: A Primer movement of people1—drive many suppliers into informality or force them to engage in less productive transactions. Belvie, a hair stylist from the Democratic Republic of Congo, The cases also clearly illustrate the creativity of services crossed the Tanzanian border without a valid visa or a work suppliers in circumventing the many barriers that affect permit to provide hairdressing services in Dar es Salaam. trade in services. The good news is that these innovative At the border, she faced many hurdles and harassment, suppliers are often successful in responding to the sub- but after bribing the officials she managed to cross into stantial demand from consumers in spite of many trade Tanzania and provide hairdressing services abroad, albeit and regulatory barriers. But the flows are probably much informally. Francis, a Zambian accountant based in Lusaka, smaller and slower than in a barrier-free landscape. In all cannot provide cross-border accounting services to clients these cases, part of the gains from trade is lost in bribes to in South Africa because his Zambian degree is not recog- authorities—as in the case of informal trade in hairdressing nized there. However, he has found a unique solution to his services—or to providers in the importing countries—as problem. He has partnered with local firms in South Africa in the case of informal trade in accounting services—who to whom he sends draft tax returns digitally. The local firms in South Africa certify conformity with local standards and sell the tax returns to domestic customers, splitting the 1 A complete picture of a country’s trade in services would need revenues with Francis. After overcoming more than a few to cover all four modes of services supply. (i) Cross-border (mode 1): services supplied from the territory of one member in the territory regulatory obstacles, MeCure Healthcare Limited, an Indian of another. An example is software services provided by a supplier provider, has managed to set up several diagnostic centers in one country through mail or electronic means to consumers in in Nigeria. However, because of the lack of skilled health care another country. (ii) Consumption abroad (mode 2): services sup- professionals, coupled with heavy licensing and recogni- plied in the territory of one member to the consumers of another. tion requirements for foreign medical qualifications in the Examples are where the consumer moves, for example, to con- country, the company is unable to offer the whole range of sume tourism, education, or medical services in another country. (iii) Commercial presence (mode 3): services supplied through any services it provides in India. MeCure Healthcare Limited’s type of business or professional establishment of one member in management came up with an innovative solution—instead the territory of another. An example is an accounting firm owned of treating patients in Nigeria, the company offers medical by citizens of one country establishing a branch or subsidiary by tourism, arranging for the transport of patients to India for means of foreign direct investment in another country. (iv) Presence super-specialty surgical procedures and treatment it cannot of natural persons (mode 4): services supplied by nationals of one member in the territory of another. This mode includes independent provide in the country for life threatening diseases. service suppliers and employees of the services supplier of another What do these cases have in common? They show how member. Examples are a doctor of one country supplying through barriers affecting trade in services—be it cross-border sup- his or her physical presence services in another country, or foreign ply, through a commercial establishment, or through the construction workers providing services on a temporary basis. 4 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa extract high rents given discretionary power or simply by services suggests that Africa is a marginal player in global virtue of being established in a given country. In the case of services exports and imports. In 2012, Africa accounted MeCure Healthcare Limited, the deadweight loss is caused for only 2.2 percent of the world’s total exports of services by the additional costs imposed by excessive regulation that and 4 percent of the world’s total services imports. Many results in unnecessary travel for medical purposes. Without African countries export and import less than countries at such burdensome regulations, welfare could be much higher similar levels of development (figures I.1 and I.2). But very and trade flows much larger. often such results are based on patchy data and incomplete information about the actual situation on the ground. How Well Do We Understand Trade Data Limitations Severely Hamper Meaningful in Services in Africa? Analyses of Services In Africa The Significance of Services Trade for Africa’s Poor availability of data and huge discrepancies between Development Is Generally Little Understood official statistics and firm-level data make rankings of openness and analyses of services trade and their role as Trade in services and related regulatory reforms are critical intermediate inputs misleading. Informal trade in services for growth and economic development in Africa. Services not flourishes across the continent, yet data on such flows only offer promising opportunities for export diversification, remain totally absent. Comprehensive comparisons across but are also key inputs in the production of most exportable sectors and regions are ambiguous or not possible. Further- goods and services. Services imports are important because more, despite growing opportunities for African services they can improve the availability and quality of services firms to export to neighboring countries, limited data on inputs through increased competition, better technolo- trade in services by partner country and sparse informa- gies, and access to foreign capital. This, in turn, can have tion on regulatory policies and their application hamper a strong impact on the domestic business environment the monitoring of progress in services liberalization and and broaden access to essential services, such as health, regional integration. education, and financial services. Although work examining As an example, the evidence on the specific exports and the role of services trade in Africa has emerged recently, the imports of services from Africa collected by the International services sector still has a lower profile than the manufactur- Monetary Fund Balance of Payments Statistics (IMF BOPS) ing and agricultural sectors in the trade, development, and may not be completely accurate. In particular, the broad growth narratives. Indeed, existing evidence about trade in Figure I.1: Services Trade Openness: Exports Figure I.2: Services Trade Openness: Imports 30 30 Average exports of services as Average imports of services as % of GDP, 2012–13 % of GDP, 2012–13 20 20 10 10 Uganda Ghana Kenya Uganda Burundi Rwanda Tanzani Tanzani Burundi Rwanda Ghana Nigeria South Africa South Africa Kenya Zambia Zambia 0 Nigeria 0 6 8 10 12 6 8 10 12 Log Average GDP per capita PPP, 2012–13 Log Average GDP per capita PPP, 2012–13 Source: World Development Indicators 2015. Note: GDP = gross domestic product; PPP = purchasing power parity. introduction 5 Figure I.3: Composition of Services Exports in Selected African Countries, 2006 and 2013 (%) 100 80 60 40 20 0 06 13 06 13 06 13 06 13 06 13 06 13 06 13 06 13 06 13 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Kenya Rwanda Uganda Tanzania S. Africa Burundi Ghana Nigeria Zambia Other Commercial Services Transport Services Travel Services Source: World Development Indicators 2015, from International Monetary Fund Balance of Payments Statistics. contribution of services exports from transport, travel, and outsourcing services from Kenya that are catching recent other commercial services2 to total services exports depicted attention in services trade? This book attempts to cover some in figure I.3 shows that Burundi is dominantly exporting of the patches where IMF BOPS misses out. The chapter on other commercial services, which comprise primarily modern professional services, for instance, presents evidence from services. This in itself is difficult to imagine for a country like firm-level surveys that over 35 percent of firms in Kenya Burundi, which lacks the human capital required to export export professional services, which challenges the IMF BOPS such services. A closer look at Kenya’s other commercial results. Although these firm-level exports cannot be used to services components reveals another surprising fact, namely extrapolate estimates of the country-level exports of other that Kenya does not export other business services at all. business services, given the small and non-representative So, where do we fit all the exports of business process sample size, the exports nonetheless not zero as recorded in the IMF BOPS. 2 Other commercial services correspond to the following com- ponents defined in the fifth edition of the Balance of Payments The Continent’s Potential to Engage in Trade Manual: (i) communication services (telecommunications, postal, and in Knowledge Intensive Services Remains courier services); (ii) construction services; (iii) insurance services; (iv) financial services; (v) computer and information services (includ- Neglected ing news agency services); (vi) royalties and license fees, covering Africa’s current recorded services flows are dominated by payments and receipts for the use of intangible nonfinancial assets traditional services, such as transport or tourism. At the same and proprietary rights, such as patents, copyrights, trademarks, industrial processes, and franchises; (vii) other business services, time, exports of nontraditional services, such as business comprising trade-related services, operational leasing (rentals), services, show an incipient dynamism (figure I.4) and are and miscellaneous business, professional, and technical services expected to continue to grow. Few people would think of such as legal, accounting, management consulting, public relations cross-border trade in services in Africa as being provided services, advertising, market research and public opinion polling, via sophisticated information technology means such as research and development services, architectural, engineering, and other technical services, agricultural, mining and on-site process- the delivery of lectures through distance learning programs ing; and (viii) personal, cultural, and recreational services, including or the provision of medical advice abroad over videocon- audiovisual services. ferencing. Yet there is evidence that distance learning and 6 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure I.4: Proportion of Exporting Firms in COMESA Figure I.5: Frequency of Use of Telemedicine Countries by Professional Services Subsector, 2011 in Selected Countries in Sub-Saharan Africa, April–July 2014 25% exporting firms (%) Proportion of 20% 100 8 13 15% responding to a given choice 23% 8 33 33 % of hospital officials or 10% medicare professionals 80 17% 23 50 44 5% 12% 11% 0% 60 6 63 e g y 33 l ur ga nc rin ct ta Le e ite 40 17 ne un 67 ch gi co En Ar 62 Ac 13 50 Type of firm 20 33 20 25 Source: Calculations based on the results of the business surveys described 0 in chapter 5. ya i ia da ia a aw nd er an n an al Ke ig ga nz w M N U R Ta Once a month 2–4 times a month Once a week At least twice a week telemedicine are on the rise (figure I.5). But very often such flows are not captured in official statistics. Source: Calculations based on the results of the mobile phone surveys described in chapter 3. Limited Knowledge about the Role and the budgets, and often lack qualified staff members (UNCTAD Impact of Services Liberalization on Services 2015), the evidence on the restrictiveness of explicit trade Performance and Jobs policies is less clear. The World Bank’s database on the Services Trade Restrictiveness Index for overall services Often policy makers discount the potential of services trade and across the five disaggregate services covered by the because they still regard services as nontradables, and many survey—financial, professional, retail, telecommunications, services seem intangible because they are embodied in manu- and transportation—shows that Sub-Saharan Africa is quite facturing exports. Thus, services are not seen as an avenue for restrictive in professional services (figure I.6). Nonetheless, trade diversification and job creation. Awareness about the Sub-Saharan Africa is less restrictive than its counterparts potential of services in export diversification is just beginning in Asia. And financial, transport, and retail services in Africa to emerge. Furthermore, indicators that adequately capture seem much less restrictive than in most other regions, the implementation of policy reforms and assess the impact denying common expectations about Africa’s restrictive of such reforms on trade transaction costs for ordinary trad- services trade policies. All in all, it remains difficult to link ers and on services performance indicators, such as prices Africa’s restrictiveness measures to the observed poor trade and quality of and access to services, remain largely absent outcomes.3 More in-depth regulatory assessments would be (box I.1). The available piecemeal data typically come from case studies of particular sectors in selected regions and remain insufficient to guide serious services policy reforms. 3 To illustrate this difficulty at the individual level, an example would be Zambia’s financial services. A striking feature of Zambia’s services trade policy is its relatively high level of openness in financial Africa’s Limited Participation in International services. The results of the Services Trade Restrictiveness Index Services Transactions Can Be Explained World Bank survey of applied trade policies suggest that Zambia to a Certain Extent by Regulatory is completely open in banking services. But despite liberalization and Policy Shortcomings and regulatory reform, Zambia’s financial services remain shallow and concentrated. Real lending rates remain high and the penetra- Regulatory weaknesses and poor governance as well as tion of financial services is low. In general, access is low in Zambia services trade restrictions pose significant challenges to and concentrated around the urban areas or the mining towns. efficient services provision and trade in services. But evidence Access to financial services and penetration levels have remained on regulations and trade policies in Africa is mixed. Although largely unchanged since 2005. According to Finscope, in 2012, only 21.1 percent of the Zambian population does business with a bank there is general agreement that Africa ranks low in regulatory and 23.3 percent of the population has access to banking services. independence across all sectors and many African regulatory In Zambia 13.6 percent of the population has access to insurance bodies are at an early stage of development, have modest services, with only 4 percent being insured. introduction 7 Box I.1: Schubert and Monitoring of Services Reforms Trade negotiators appear to overlook the purpose of commitments exist only on paper, without tangible the General Agreement on Tariffs and Trade, which improvements for providers or consumers. is to provide a stable institutional environment for Although it is true that more governments in Africa the conduct of international trade. The negotiators are becoming aware of the growing importance of seem to focus instead on irrelevant discussions and services in regional integration, and services chapters bureaucratic processes “created for their pleasure, or protocols have been added to most existing regional or at least, to provide them with a purpose in life.”a trade agreements to supplement goods liberalization, Bhagwati (1984) likened the behavior of the negotiators most regional economic communities tend to focus to the ignorance exhibited by a well-known manage- on de jure compliance with integration commitments, ment consulting firm when assessing the commercial while de facto implementation is rarely taken into difficulties of a famous symphony orchestra. The part account. For instance, in the East African Community of the consultant’s report that dealt with the concert (EAC), a framework for monitoring and evaluating the orchestra’s performance of Schubert’s Unfinished implementation of the EAC Common Market Protocol, Symphony is quite telling:b including services commitments, was established in (a) For considerable periods, four oboe players had 2012. This framework calls for the periodic preparation nothing to do. The number in this section should be of reports on the de jure implementation of protocol reduced and their work spread over the whole of provisions for submission to the Council of Ministers, the orchestra, thus eliminating peaks of inactivity. which then assesses the progress made toward the original schedule. This has been complemented by (b) All twelve violins were playing identical notes. This the EAC Common Market Scorecard, produced by seems to be unnecessary duplication and the staff the World Bank Group for the EAC Secretariat, which in this section should be drastically cut. If a large assesses progress toward a common market in capital, volume of sound is really required, it could be services, and goods across the partner states. The obtained through an electronic amplifier. scorecard considers each EAC partner state’s laws and (c) Much effort was absorbed in the playing of demi- regulations with regard to conformity to commitments semi-quavers. This appears to be an excessive under EAC Common Market Protocol. The 2014 reportc refinement and it is recommended that all notes reviews 683 laws and regulations relevant to the com- should be rounded up to the nearest semi-quaver. If mon market (124 in capital, 545 in services, and 14 in this were done it would be possible to use trainees goods) and several legal notices, reports, and trade and low-grade operators. statistics. Although monitoring of legal compliance (d) No useful purpose is served by repeating with is important, it is not sufficient, as it tells us nothing horns the passage that has already been handled about implementation and whether there are concrete by strings. If all such redundant passages were benefits for traders and consumers. eliminated, the concert could be reduced from A laudable exception is the proposal by the Com- two hours to twenty minutes. mon Market for Eastern and Southern Africa Secretariat for a set of regional integration indicators that is com- (e) Finally, if Schubert had attended to all these mat- prehensive and covers all the new trade integration ters, he would probably have been able to finish areas, such as nontariff measures, trade facilitation, his symphony. and services trade (COMESA 2002). Yet, even in this Just as the consultants overlooked the purpose proposal, more than two-thirds of all the indicators of the orchestra, trade negotiators often appear to that concern trade are compliance indicators, and overlook the purpose of liberalization agreements. trade integration outcomes are only considered in And so do many of the monitoring mechanisms of some of the categories (World Bank 2015). reforms in place. The discordance, brilliantly illustrated a Extract from an address by Hugh Corbet, Director of the in Bhagwati’s article, can easily be extended to the Trade Policy Research Centre, on “Prospects for Reducing operationalization and monitoring of liberalization Protectionism,” to the Overseas Committee of the Confedera- reforms in the area of services. Very often, the opera- tion of British Industry, London, March 15, 1984. b Bhagwati (1984), pages 143–144.; c. https://www.wbginvest- tionalization and monitoring of services reforms and mentclimate.org/publications/eac-market-scorecard-2014.cfm. 8 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure I.6: Services Trade Restrictiveness Index by Sector and Region 70 60 50 40 30 20 10 0 GCC SAR MENA EAP AFR LAC OECD ECA Financial Telecom Retailing Transportation Prof. Services Source: Borchert, Gootiiz, and Mattoo 2012. Note: AFR = Africa; EAP = East Asia and Pacific; ECA =Europe and Central Asia; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA = Middle East and North Africa; OECD = Organisation for Economic Co-operation and Development; SAR = South Asian region. needed to complement these policy indicators to provide a promotes growth through enhanced productivity resulting more realistic picture of the situation on the ground. from increased access to backbone services such as financial, telecom, transport, and so on (see Hoekman and Mattoo 2008 for a review of such studies). Higher growth from Services in Africa: Marginal trade in services also diminishes the incidence of poverty or Transformational? via the trickle-down channel. For example, the increased per capita income from services exports in India is associ- At this stage, it remains difficult to quantify the contribution ated with a rise in per capita income and a decline in urban of services and services trade to Africa’s growth and develop- and rural poverty head count ratios (De and Raychaudhuri ment. However, the available evidence seems to suggest that 2008). Research suggests that if the regulatory environment services matter for growth, productivity, poverty reduction, guarantees competition, liberalization of services would be and jobs in Africa. welfare enhancing (for example, Konana and Assche 2007 and Jouini and Rebei 2014 for the case of Tunisia). In com- parison with the goods sector, services liberalization tends Formal and Informal Services Create to push economic activity in all sectors while inducing low an Opportunity for Growth and Poverty adjustment costs (for example, Konan and Maskus 2006; Reduction in Africa Arnold, Javorcik, and Mattoo 2011). The literature suggests that liberalizing trade in services Thus, at the conceptual level there is basic evidence to promotes economic growth (for example, Khoury and Sav- support that services liberalization brings significant welfare vides 2006). Recent works indicate that services liberalization benefits in addition to aggregate and sector growth gains. introduction 9 Empirical studies focusing on Africa estimate significant gains Figure I.7: Services Value Added in GDP from services reforms (e.g., Balistreri et al. 2009). Kenya and Tanzania is expected to reap substantive welfare effects, 80 Average services value added as especially in banking and maritime and road transporta- tion, with the largest gains coming from liberalization of South Africa % of GDP, 2005–06 nondiscriminatory regulatory barriers (Balistreri and Tarr 60 2011; Rutherford and Tarr 2010). Going beyond the formal Kenya Uganda Zambia services sectors, chapter 1 in this book documents that in Rwanda Africa services trade contributes to significant improvements 40 Tanzani Ghana in the livelihoods of services providers engaged in informal Burundi cross-border transactions such as hairdressing gardening, education, health, construction, and housekeeping. Nigeria 20 6 8 10 12 Services Matter for Jobs and Gender Parity Log Average GDP per capita PPP, 2005–06 in Many African Countries Note: GDP = gross domestic product; PPP = purchasing power parity. Employment data from the International Labour Organization (ILO) show that post-2005, several African countries, such as added as a percentage of gross domestic product (GDP) for Botswana, Gabon, Ghana, Mauritius, Namibia, the Republic 2005–06 (the year close to the employment data) against the of Congo, Senegal, and South Africa, record a dominant log of GDP per capita. It could be inferred that, for instance, services sector in jobs (table I.1). Most notably, in Gabon, 16 percent of the total employed (that is, services sector Mauritius, and South Africa, over 60 percent of the jobs are employment) in Rwanda contributes to about 50 percent in the services sector. of GDP. Thus, a small increase in employment by way of Although Kenya, Rwanda, Tanzania, Uganda, and Zambia greater openness to trade in services could have a huge have lower shares of jobs in services, the contribution of impact on the GDP of these countries. services value added in these countries is not only more Firm-level data confirm the importance of services for than their contribution to employment, but also above that jobs. A Gallup firm-level survey conducted in 15 Sub-Saharan of an average country with comparable per capita income. African countries shows that in 2010 services employed a Figure I.7 shows this by plotting the average services value considerable proportion of youth (figure I.8). Table I.1: Employment Share by Sector, 2005–12 (%) Employment shares in Year (latest Country available) Agriculture Industry Services Botswana 2006 29.9 15.2 54.9 Congo, Rep. 2005 35.4 20.6 42.2 Gabon 2005 24.2 11.8 64 Ghana 2010 41.5 15.4 43.1 Kenya 2005 61.1 6.7 32.2 Mauritius 2012 7.8 27.6 64.7 Namibia 2012 27.4 13.8 58.7 Rwanda 2005 78.8 3.8 16.6 Senegal 2006 33.7 14.8 36.1 South Africa 2011 4.6 24.3 62.7 Tanzania 2006 76.5 4.3 19.2 Uganda 2009 65.6 6 28.4 Zambia 2005 72.2 7.1 20.6 Source: World Development Indicators. 10 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure I.8: Youth Employment by Occupation, 2010 40% 30% 20% 39% 29% 10% 11% 14% 6% 1% 0% Business Sales Construction Farming Other Services owner worker and manufacturing Source: Gallup World Poll 2010. Figure I.9: Proportion of Full-Time Female Employees, by Services Subsector 50% 47% 44% 42% 35% 31% 31% 29% 27% 20% 21% 22% 23% 16% Construction Maintenance Wholesale Hotels Transport Computer Other and repair of and retail and and IT services motor vhicles trade restaurants related services All countries SSA Source: Coste and Dihel (2013), using enterprise survey data. Note: IT = information technology; SSA = Sub-Saharan Africa. The links between service sector employment and South Asia and the Middle East, and North Africa, services gender equity are even more difficult to identify in African firms in Africa have a higher percentage of female top man- countries, given acute information and data gaps. ILO (2012) agers than manufacturing firms (figure I.10). shows that in low- and middle-income countries, including Overall, the percentage of females in top positions in in Africa, women’s employment in services is most heavily Africa’s services sectors is comparable to the percentages concentrated in low- and mid-skill occupations such as in low- and middle-income countries in other regions (fig- “clerks and services workers” and “shop and market sales ure I.10).4 Going deeper, a World Bank business survey on workers.” Furthermore, it is worth noting that hotels and restaurants and wholesale and retail trade perform best in female employment, female participation in ownership, and 4 The results on the gender aspects of trade in services are taken female top managers (figure I.9). Similar to Eastern Europe, from Coste and Dihel (2013). introduction 11 Figure I.10: Proportion of Firms with Female Top Managers, Manufacturing versus Services 31% 29% 24% 18% 17% 16% 15% 13% 8% 5% 2% 0% AFR EAP ECA LCR MNA SAR Manufacturing Services Source: Coste and Dihel (2013), using enterprise survey data. Note: AFR = Africa; EAP = East Asia and Pacific; ECA = Europe and Central Asia; LCR = Latin America and the Caribbean Region; MNA = Middle East and North Africa; SAR = South Asia region. professional services reveals that Comoros, Madagascar, services contribute directly and indirectly to economic Rwanda, Swaziland, and Zambia are among the best perform- growth, including by lowering transactions costs and creat- ers in reaching gender balance in management positions in ing spillovers of knowledge to other sectors. For example, professional firms, with more than 15 percent women at the low-cost and high-quality telecommunications will generate top management level relative to 12.5 percent of females economy-wide benefits, as this service is an intermediate in corporate boards of Financial Times Stock Exchange input as well as a tool for the diffusion of knowledge and 100 companies. Such findings seem to indicate that the a transport mechanism for information services and other overall conditions that enable the participation of women products that can be digitized. Transport services affect the in professional activities are sometimes more favorable in costs of shipping goods and the movement of workers and Africa vis-à-vis those in high-income countries; thus, trade services providers within and between countries, while retail and regulatory reforms in professional services in Africa may and wholesale distribution services are a vital link between have an important positive effect on women. However, the producers and consumers (Hoekman and Shepherd 2015). potential for trade in services to mitigate barriers to achiev- Business services can have significant positive spillover ing gender equity in Africa requires a more systematic data effects throughout the economy. For instance, accountancy collection effort to fill the huge information gaps. is critical for accountability, sound financial management, and good corporate governance (Trolliet and Hegarty 2003), while effective legal and justice systems and access to legal Services Are Important Intermediate Inputs services improve the predictability of the business environ- and Boost Productivity in Africa ment, facilitate engagement in contracts, and mitigate invest- Although the importance of services for development is ment risks (Cattaneo and Walkenhorst 2010). Engineering widely recognized, the role of services, tradable and non- and information technology services are knowledge-intensive tradable, in growth and structural transformation (broadly sectors that are essential to the productivity and sustainability defined as the shift from lower to higher productive activi- of other economic activities. For example, civil engineering is ties) is generally less understood. Many services are crucial critical for the development and maintenance of a country’s inputs into the production of other services and goods for physical infrastructure, while electrical engineering is impor- export and domestic consumption. Services such as tele- tant for the operation of public networks such as utilities or communications, energy, transport, financial, and business commercial facilities and communications systems (Cattaneo 12 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure I.11: Relation of Labor Productivity to the Use of Professional Services in COMESA Countries, 2012 20,000 18,000 16,000 Labor Productivity (US$) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 . ep a di ep a r i us n da s nd a e aw ca lle ric ny da nd bw n .R i R an ila rit ru as al he Af Ke Su ga ba ab au az em Bu w M ag yc U n R m Sw Ar M ra ,D ad Se Zi ha t, M go yp Sa on Eg b- C Su Users Nonusers Source: World Bank Survey 2012. et al. 2010). Finally, health and education services are key defined as the increased use of services in manufacturing inputs into and determinants of the stock of human capital. in production processes and sales, looks at services as Our work confirms that the use of professional services intermediate inputs, but also discusses the role of services is associated with higher labor productivity in several African as tasks in value chains, and their impact on upgrading and countries. Firms that use accounting or engineering services, moving up the value chain.7 whether internally or externally or via employing internal and external professionals, perform better compared with concept; Bryson and Daniels (2010), who made reference to the nonusers (figure I.11).5 “manuservice economy;” and Vandermerwe and Rada (1988), who introduced the “servitization” concept. Services and Upgrading in Global Value Chains 7 First, many examples illustrate how services act as “connec- tors,” play an important intermediation role, and generate strong Initial attempts to explore the role of services in changing complementarities across all types of markets. For instance, Low the features of global value chains (GVCs) evaluated the role (2013) describes how modern communication and transport tech- of services as intermediate inputs. Over the past decade, an nologies have enhanced the tradability of services, leading to their incorporation into supply chains as traded inputs and bundling extensive literature has documented the cost and quality into composite products, such as “business functions.” Kommerkol- impacts of services inputs on the competitiveness and growth legium (2013), based on evidence from the OECD, identifies the performance of the economy (see Francois and Hoekman business services sector as a good example for the fragmentation 2010 for a summary of key findings). The Swedish National of production, with an important role for enabling GVCs in goods Board of Trade (2013, 2010) considers the role of services and services. Second, services tasks are important for upgrading in enabling GVCs: the “servicification”6 of manufacturing, and moving up the value chain. Saez et al. (2014) and Taglioni and Winkler (2014) show that the complexity and transaction intensity of GVCs requires high-quality intermediate inputs, including services 5 We use the market exchange rate from the World Development inputs, for effective coordination. Maglio et al. (2010), Demirkan et Indicators and World Economic Outlook to derive the sales figures al. (2011), Allee (2008), and Low (2013) complement this approach in U.S. dollars for the countries covered by the survey. by considering the role of networks, technology, entrepreneurship, 6 This is a term coined by the Swedish National Board of Trade. and intangible assets such as human knowledge, more efficient Earlier attempts to define the evolving role of services were under- internal structures and processes, business relationships, trust, or taken by Reisken et al. (2000), who introduced the “servicizing” reputation in generating innovation and creating GVCs. introduction 13 Since supply chains are a series of linked international make a high use services as intermediate inputs. Lead markets for goods and services, with policies in one market firms seem to face serious challenges in access to quality provoking ripple effects in the markets along the whole services locally. value chain (Low 2013), participation in GVCs has important implications for policy interventions. One, policy formula- Services Are Already a Good Source of Export tion needs to treat goods and services together, as there Diversification in Many African Countries are significant linkages between the two sectors. Two, such linkages call for modal neutrality—trade and regula- Services offer promising opportunities for export diversifi- tory policies that enable services firms to provide services cation. For example, in 2013, commercial services exports through all modes of supply without impeding a switch from (all services, excluding government services) in countries one mode of supply to another. Three, regulatory coher- such as Rwanda and Tanzania far exceeded the countries’ ence, simplicity, and efficiency need to be maximized to non-mineral goods exports (figure I.12). In Uganda as well, enable countries and firms to become competitive at the such services stand at over 80 percent of non-mineral goods task level. Four, since there has been a recent increase in exports. By contrast, countries such as Burundi, Ghana, the importance of value chains organized at the regional, Nigeria, and Zambia have much scope to diversify into the rather than global, level in driving GVC participation and services sector. upgrading in a handful of industries (Staritz, Gereffi, and Against this background, the contributions to this volume Cattaneo 2011), addressing integration at the regional seek to shed light on uncharted opportunities for services level is critical. trade in Africa, and invigorate and deepen the discussion African countries could use services as a means to about the role of services in trade diversification and eco- upgrade their involvement in value chains, but data- nomic upgrading on the continent. The focus is on less related and analytical issues regarding the incorporation explored areas, such as informal trade in services, and trade of services into composite products make it challenging in more sophisticated but equally neglected sectors, such to assess whether this has already happened. To shed as professional services, education and health services, and some light on the role of services in regional value chains services related to mining, which are rarely associated with (RVCs) in Africa, a forthcoming World Bank report explores services trade in Africa. Novel data collection methods, such as the nature and degree to which access to competitive crowdsourcing and mystery shopping; pioneering knowledge services allows suppliers to participate in RVCs and oper- transfer practices; and experiences with innovative policy ate efficiently, and leads firms to build competitive RVCs reforms applied to modern and traditional services sectors and encourage the participation of local suppliers in these are explored to draw attention to the available assessment international value chains. Preliminary findings show that tools and policy instruments for possible refinement and all firms participating in agribusiness and apparel GVCs broader application across sectors. Figure I.12: Exports of Commercial Services versus Exports of Non-Mineral Goods, 2013 160 140 120 100 80 60 40 20 0 Rwanda Tanzania Uganda South Ghana Zambia Burundi Nigeria Africa Source: World Development Indicators 2015. 14 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Modern and Traditional, Formal sectors, such as construction, agricultural services, tailoring, education, and health. and Informal: Which Services Does The chapter examines “up-scale” services, such as edu- Africa Trade? And How? cation, and “down-scale” services, such as hairdressing and housekeeping. Interestingly, participants in informal trade in Trade in Traditional Services: Challenging services include young female and male traders as well as the “Haircuts” View of Nontradability uneducated and more sophisticated traders. These suppli- The book opens with the story of Tanzanian Maasai hair ers, most often, offer a broad range of services, sometimes braiders in the informal sector who frequently cross the coupled with small-scale trade in goods. For most services border to provide hair-dressing services in Zambia. Chap- suppliers, informal trade is a long-term business, with fre- ter 1, on informal trade in services, draws attention to an quent, longish stays abroad. Income from such transactions area that, despite its enormous importance in Africa, has seems to be the main source of their livelihood; therefore, remained neglected by economists and policy makers informal traders maintain a long-term engagement with alike. Despite widespread transactions in sectors such as their foreign customers. hairdressing, education, health, construction, housekeeping, entertainment, and finance, informal trade in services does Trade in Modern Services: Crowdsourcing not feature on the policy agenda of any African country. To and Traditional Surveys Confirm the our knowledge, this is the first attempt to raise awareness Prominence of Regional Flows about the importance of informal services flows in multiple services sectors across the continent. As with informal trade in services that are traditionally seen Using evidence from a novel data set collected by the as nontradable, it is little known that Africa also trades in World Bank, chapter 1 challenges the old-fashioned “haircuts” modern services. Filling data gaps is the next big focus of view of selected services, which implies the nontradability of the book. Chapter 2 presents the results from novel data services that are assumed to require face-to-face interaction. collection methods to monitor the opening up of services The chapter documents the existence of trade among African markets and regional integration for selected modern, countries in sectors that are typically considered nontradable. high-skilled services in Sub-Saharan Africa. The examined The case of hairdressing services is particularly revealing, services sectors are education, health, banking, insurance, because informal trade in hairdressing services is far more and accounting services. To our knowledge, this is the first extensive than many would expect. Economists often use attempt to explore the potential of new data collection meth- haircuts as a typical example of a nontradable service. The ods such as crowdsourcing and mystery shopper surveys to argument goes that the ubiquity and limited value of such obtain data on performance indicators in services sectors low-skill, low-wage services, which cannot be rendered at in Africa (box I.2). a distance, coupled with the high cost of transporting the Chapter 3 delves deeper into trade in health and educa- suppliers or consumers, make it unlikely that international tion services. It shows that Sub-Saharan Africa is witnessing trade will play a role in the provision of hairdressing services. high international mobility of students and health profes- Yet, such services trade flows seem to flourish on the African sionals. The latest United Nations Educational, Scientific, and continent—despite the many barriers to the movement Cultural Organization (UNESCO) data suggest that, in 2012, of services providers. Tanzanian Maasai hair braiders are the outbound mobility ratio of students from the region in high demand in Zambia, while Congolese, Kenyan, and reached 4.5 percent—more than two times higher than the Ugandan hairdressers are sought after by Tanzanian women world average of 1.8 percent.9 In health services, the outflow from all walks of life, from the girl next door to the wife of of middle- and high-skilled professionals is significant in all the minister.8 All these hairdressers are crossing borders— African countries. The World Health Organization estimates usually helped by facilitators and ­ fixers—to provide their that across 10 Sub-Saharan African countries, almost one- services in a foreign country. Anecdotal evidence suggests quarter (23 percent) of the locally trained doctors emigrated that informal transactions are significant in other services to various Organization for Economic Co-operation and Development (OECD) countries (WHO 2012). Views regarding the mobility impacts of African students and academic staff 8 A short film that documents the experience of several for- eign hairdressers in Tanzania can be accessed at https://vimeo 9 http://www.uis.unesco.org/Education/Pages/international- .com/125977419. student-flow-viz.aspx. introduction 15 Box I.2: Experimental Data Collection to Monitor the Opening of Selected Services Markets in Sub-Saharan Africa Crowdsourcing is the process of soliciting contribu- sample size to obtain meaningful results also need tions from a large group of people—often an online to be carefully addressed. While keeping these chal- community or a group of mobile device users. The lenges in mind, the cost advantage and the capacity technique relies on the efforts of many volunteers to deliver new and timelier data relative to traditional to assemble data and information that are then pro- face-to-face surveys are such that crowdsourcing cessed and aggregated to provide an overall situational holds substantial promise for enriching the indicator assessment. Crowdsourcing can generally provide data set available to monitor regional integration and fill quicker and cheaper than other survey approaches, important information gaps in Africa. as the information is digitalized from the point of user Mystery shopping involves enlisting individuals input and then immediately transmitted to the data who act as prospective customers to gather specific management center. There is no need for interview- information about products and services. The mys- ers, as the information is user provided via their digital tery shopper’s identity and purpose is therefore not device. Crowdsourcing seems to be increasingly well known by the establishment that is being evaluated. suited for use in Africa, as the prevalence of social Mystery shoppers inquire about a predetermined set networking and mobile applications is expanding rap- of products and services and report their experiences idly. For example, although the penetration of mobile in a consistent and comparable way. This technique is broadband in Africa is still lower than in other regions commonly used by corporations that want to ensure of the world, the growth in connectivity far outpaces compliance with internal regulations and high-quality the expansion rates elsewhere. Hence, a growing customer service, but it can equally be applied to population of potential contributors to crowdsourcing obtain information on the availability and pricing of surveys exists. particular products and services. In comparison with Crowdsourcing was used to gather information traditional survey instruments, mystery shopping has from providers and consumers of education and health the advantages of not requiring an appointment with a services. We surveyed trade patterns, determinants of contact person in the target organization and not being trade, quality of and satisfaction with various services, subject to survey-induced bias in the responses, as the and barriers to trade. Data on performance indicators counterpart is not aware of the survey. In principle, in health and education services were collected for nine mystery shopping surveys have the potential to help Sub-Saharan African countries, namely, Cameroon, fill important information gaps for regional integration Ghana, Kenya, Malawi, Nigeria, Rwanda, Tanzania, monitoring. For example, the surveys could be used to Uganda, and Zambia. The data cover about 2,000 assess whether services sector integration leads to a providers and consumers of cross-border education convergence in prices across the region. Similarly, the services and more than 2,000 health professionals surveys could provide insight into whether promises to and patients engaged in trade in medical services. remove regulatory barriers are indeed implemented, The mobile phone surveys confirm the potential so that the costs of services decline over time. of crowdsourcing techniques to generate new indica- The mystery shopping method was used in combi- tors of trade integration. Some of the data generated, nation with visits and traditional interviews to obtain such as information on product prices and the costs data on performance indicators in banking, insurance, of services trade barriers, are directly relevant for and accounting services in six Sub-Saharan African regional integration monitoring. The large number countries, namely, Kenya, Malawi, Rwanda, Tanzania, of outliers in the raw data, caused by input error, Uganda, and Zambia. A total of 216 interviews were calls for a careful verification and cleaning of the data conducted with services providers across these six sets. The approach naturally lends itself only to issues countries. that can be assessed through simple, clear questions that do not need explanation. Issues concerning the representativeness of the sample and the necessary (continued) 16 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box I.2: Continued The survey responses provide broad informa- across countries (and across time) based on this tion on the most common banking, insurance, and data set. Moreover, the comparability of insurance accounting services offered. The responses also rates across the examined countries suffered from provide information on price ranges of standardized the presence of government subsidies for insurance services. In banking, for example, data on the costs coverage in some of the countries, which obviously to customers of domestic transactions, foreign funds distorts the prices. In the accounting sector, services transfers, and business account transactions in the are highly customized to the individual situation of examined countries were obtained. However, the and relationship with the client, so that standardized, information on prices for banking transactions shows self-standing service quotes are not easily and reliably strong variability within and between countries. The available. Hence, the generated information has to be pronounced variation in the sample raises questions treated with care. about the reliability of the data and the usefulness of Source: World Bank 2015. calculating average prices to undertake comparisons are mixed—ranging from reports that point out the benefits traditional paper-based surveys of professional services in from “brain circulation” to views that emphasize “brain drain.” chapter 5 reveal several interesting and sometimes unex- Nonetheless, there is general agreement that the massive pected results about these sectors. Some surprising findings outflows of health professionals exacerbate Africa’s health include the high usage rate of accountancy and legal services, workforce crisis. even by small firms, and the high percentage of firms that The mobility of African students and health professionals are already engaged in exports of professional services. The has been complemented recently by the mobility of edu- latter contradicts IMF BOPS, which assert that professional cational and medical programs and institutions. Innovative services exports for several countries covered by the busi- cross-border institutional arrangements create new com- ness surveys are negligible or nonexistent. Furthermore, mercial opportunities, such as franchising and twinning of the survey results clearly indicate that Sub-Saharan Africa academic programs and health services. There are also new is by far the main destination of professional services firms forms of private sector involvement and increased foreign in Common Market for Eastern and Southern Africa participation in the provision of medical services. Tech- (COMESA) countries, accounting for almost half of all the nological progress is facilitating various forms of distance export relations reported in the survey (Figure I.13). education or health services supply, such as telemedicine. These relatively new forms of trade are beginning to gain in importance in Sub-Saharan Africa and have high potential for further expansion, but data on such flows remain scarce registers in the COMESA countries. In each of the professional services on the African continent. sectors, the distribution of firms across size categories in the sample was chosen to be proportionate to the universe distribution, within In contrast to chapters 2 and 3, chapter 5 relies on more the constraints of a fixed number of firms to be covered per sector traditional business surveys carried out for the first time and country. The surveys covered 1,182 firms providing professional in professional services such as accounting, architectural, services, distributed approximately as follows: 100 firms in the Arab engineering, and legal services in 17 African countries.10 The Republic of Egypt, Ethiopia, Kenya, Sudan, and Uganda; 60 firms in the Democratic Republic of Congo, Madagascar, Malawi, Mauritius, South Sudan, and Zambia; and 40 firms in Burundi, Comoros, Dji- 10 More than 2,200 users and providers of professional services in bouti, Eritrea, Rwanda, Swaziland, and Zimbabwe. To evaluate the Sub-Saharan Africa were surveyed during the first half of 2012. The usage of professional services, the survey covered 1,100 firms in five sample design was developed to cover the accounting, architectural, industries distributed approximately as follows: 80 firms in Egypt, legal, and engineering services sectors and all size categories (mea- Ethiopia, Kenya, Sudan, and Uganda; 60 firms in the Democratic sured by number of employees) within those sectors. The sample Republic of Congo, Madagascar, Malawi, Mauritius, South Sudan, universe was comprised of the most recently available lists of firms and Zambia; and 40 firms in Burundi, Comoros, Djibouti, Eritrea, from official sources, such as local statistical institutes or business Rwanda, the Seychelles, Swaziland, and Zimbabwe. introduction 17 Figure I.13: Destinations of Exports from COMESA Going Traditional Again: Intraregional Countries, 2012 (%) Tourism Flows Are Driving the Development of the Sector Sub-Saharan Africa 47% The final chapter of this book is devoted to trade in tourism Europe 16% services in Eastern and Southern Africa. The chapter con- firms that tourism, in particular intraregional tourism, has a Middle East and North Africa 13% substantial and growing impact as a key economic driver in North/South America 10% both subregions. In Sub-Saharan Africa, tourism attracted 33.8 million international visitors in 2012. This was a more Russian Federation/India/China 8% than 500 percent increase compared with 1990, generating Other Asia 5% US$36 billion in tourism receipts, with a total contribution of 7.3 percent to regional GDP in 2012. Southern Africa, domi- Australia/New Zealand 1% nated by South Africa, is the region with the greatest share of tourism arrivals and receipts, as well as the greatest variances Source: World Bank Surveys 2012. between countries; East Africa has greater homogeneity in destinations and a dynamic regional community. Intraregional tourism is the mainstay of the tourism industry in Southern Trade in Embodied Services: Bundling and Eastern Africa, driving the international growth and of Services Tasks, Invisible Assets, development of the sector. However, at this stage, tourism and Internal Processes—the Case in Africa is still highly fragmented and globally uncompetitive, of Services Related to Mining with greater restrictions than the world average. Many services are crucial inputs into the production of other services and goods for export and domestic consumption. It is widely recognized that sectors such as telecommunica- What Drives Africa’s Regional Trade tions, energy, transport, and financial and business services in Services? contribute directly and indirectly to economic growth, includ- ing by lowering transactions costs and creating spillovers The prominent role of regional services transactions is a of knowledge to other sectors. In an attempt to go beyond common denominator across the chapters of this book. sectors, chapter 4 studies the nature and degree to which What drives such intraregional services flows? And are there access to competitive services tasks (in the form of bundling differences among the examined sectors? In a nutshell, this of services into composite products or access to invisible section presents what we find. assets that include human knowledge, more efficient internal structures and processes, business relationships, trust, or Cost Differences Are Important for Traditional reputation) allows manufacturing firms to upgrade, participate Services Trade in higher value-added activities, and operate more efficiently. The chapter looks at services related to mining. Considering Differences in the cost and quality of services are typical deter- the example of Zambia, the chapter describes in detail the minants of trade. Chapter 1, on informal trade in services, country’s local supply chain, including an outline of local confirms that the cost differential is the main driver for the service providers and their response to the privatization provision of services by foreign hairdressers, housekeepers, process and the 2008 economic downturn. The chapter gardeners, agricultural workers, healers, and teachers. The shows that over three periods—pre-1990s, 1990s, and reasons given for seeking to provide services across the 2000s—services providers to Zambia’s mining sector were border are mainly economic in all the examined countries. on a dynamic trajectory, providing tasks and activities ranging For example, Tanzanian and Ugandan housekeepers in from engineering, repair and maintenance, or installation of Kenya pointed out that although the cost of living is higher equipment, to specialized transport, construction, drilling, and in Kenya than in their countries of origin, they are able to laundry services. All these dynamic firms pursued different earn substantially higher wages in Kenya than in their home forms of upgrading, such as process, product, functional, countries. In the Democratic Republic of Congo, the lower or value chain upgrading. price is decisive when choosing a provider (figure I.14). 18 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure I.14: Reasons Consumers in the Democratic Republic of Congo Prefer to Buy Services from Foreign Providers, March to May 2015 (%) 40 % of domestic consumers 34 reporting a given reason 35 30 27 25 20 18 15 14 10 5 2 3 0 Cheapest Easily Accessible Familiar Good Not available available links quality domestically Source: Interviews conducted from March to May 2015 at the following border posts between the Democratic Republic of Congo and Rwanda and Uganda: Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. Quality Differences and the Non-Availability Proximity Matters of Services at Home Crucial for Trade Distance is important in explaining bilateral services trade in Knowledge-Based Services flows. The studies in this book reveal a strong regional The experimental surveys in education and health services dimension to trade in services in Africa. Starting with chap- described in chapter 3 suggest that cost is not decisive for ter 1, we find that suppliers from the Democratic Republic such trade; rather, the availability and quality of services of Congo travel to bordering countries such as Tanzania seem to be more important for trade in education and and Zambia to offer their hairdressing or housekeeping health services. Furthermore, although differences in the services. Likewise, the crowdsourcing surveys in chapters 2 quality of services may explain educational exchanges and and 3 reveal a regional element to medical tourism and medical tourism within Africa, the non-availability of certain international student flows. Chapter 3 suggests that the top specialized services could be an additional explanatory factor source countries for foreign students in all the examined for trade in such services (figure I.15). countries are neighboring states, usually states that share Figure I.15: Reasons Foreign Patients Seek Treatment in Selected Countries in Sub-Saharan Africa, April to July 2014 100 % of foreign patients responding 19 18 80 39 4 37 39 to a given choice 56 60 66 86 60 20 51 31 26 78 40 11 20 9 34 20 23 31 32 20 1 26 20 13 0 3 1 7 2 3 4 Cameroon Ghana Kenya Malawi Nigeria Rwanda Tanzania Uganda Zambia Unavailable at home Higher quality of doctors and treatment Lower cost of treatment Other Source: Calculations based on survey responses. World Bank Surveys 2012. introduction 19 a border with the receiving country. Using more system- Trade and Regulatory Hurdles Drive Services atic data on international flows of students from UNESCO, Providers into Informality chapter 3 also shows that most foreign students in South Despite strong demand for services provided by foreign Africa originate from within Sub-Saharan Africa, especially suppliers, undertaking trade is not easy. Chapter 1 suggests Lesotho and Zambia, that share a common border with that multiple barriers are placed on the physical movement South Africa. The regional aspect of trade in services is also of suppliers, including high-priced visas, difficulties obtaining evident in chapter 5, where trade in professional services is work permits, and elusive residence status. To circumvent observed to have a regional character, that is, most clients such barriers, most services providers form networks. For of firms exporting such services are located in the region. instance, Tanzanian Maasai hair stylists organize themselves to avoid these restrictions and provide services informally abroad (in Zambia). But the braiders have to pay a fee to a What Hinders Africa’s Regional “coordinator” who facilitates their travel and accommoda- tions, connects them with beauty shops or markets where Trade in Services? they provide services informally, and helps them send money Trade in professional and education and health services to their families in the home country. Similar arrangements features high on the agenda of policy makers and regional are observed in other services sectors. While services organizations in Sub-Saharan Africa. For example, all five providers remain trapped in informality, governments lose EAC countries have committed to removing the most explicit the beneficial interactions and linkages that would come barriers to trade in education and health services as part of from greater integration into the domestic economy, such the 2010 EAC Common Market Protocol. Furthermore, the as the employment of locals in foreign-owned businesses, Southern Africa Development Community (SADC) countries transfer of skills and technology, and increased access to included student and staff mobility in the 1997 SADC Protocol more efficient services inputs. on Education and Training. Several EAC countries have placed professional services at the top of the list to be integrated in the EAC Common Market. But despite progress in recent Trade and Regulatory Hurdles Hamper Flows years, most regional services markets remain fragmented of Traditional and Modern Formal Services by restrictive policies, such as nationality requirements, and Chapter 3 shows that trade in education and health services regulatory heterogeneity for licensing, qualification, and is hampered by the high cost of travel and visas and limited educational requirements. availability of insurance, and the movement of education and health professionals is limited by the lengthy and costly process of recognition of degrees obtained abroad. Typical Skill Shortages Hinder Trade in Knowledge- barriers to the provision of cross-border education and health Based Services services are restrictions on the electronic transmission of For knowledge-based services, such as education and health educational materials and medical services or telediagnosis, services, chapter 3 shows that although a large percentage restrictions on the types of courses and treatments that may of students move to South Africa for education services, be offered, quotas and economic needs tests that restrict the France, the United Kingdom, and the United States feature number of suppliers of education and health services, restric- as the top destinations for such students. This is because tions on payments and transfers of funds abroad, and local of the higher quality of services in these countries rela- accreditation and recognition requirements. Consumption tive to those available in the region. Thus, skill shortages abroad in education and health services is usually constrained that constrain the provision of higher-quality services in by barriers imposed by the home and host countries on the the region motivate students to look abroad. Similarly, for mobility of students and patients, and restrictions on the medical services, some patients seek treatment outside the portability of scholarships or medical insurance schemes. For region, especially for life-threatening diseases. Chapter 5, establishment abroad, there are limitations on the number on professional services exports, tells a similar story, where of permitted suppliers of education and health services limited capacity to train professionals or the lack of proper and their legal form (including joint venture requirements), training institutes contributes to skill inadequacy and hence foreign equity capital limits, and discriminatory tax and lowers trade in knowledge-based services. fiscal measures. Burdensome immigration requirements, 20 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa quotas on the numbers of service suppliers, nationality or another East African country, significant efficiency would residence requirements, and labor market tests (horizontal be gained.11 measures or specific restrictions that apply to education and health professionals traveling across national borders Inadequate Standards Inhibit Trade in Services to provide services) often impede the movement of health and education professionals. Inadequate standards often stifle demand for services. In the case of professional services trade, the hurdles Although uniformity of standards may improve the quality, range from the cost and quality of education to domestic completeness, and comparability of the reported informa- regulations and trade barriers. For example, domestic regu- tion, and international standards remain appropriate in lation on the entry and operations of professional services specific cases, it seems that applying common standards to firms often undermines competition and constrains the large firms and small and medium enterprises can prevent growth of strong professional services sectors in Africa. some smaller firms from using services. Indeed, a single Trade barriers include restrictions on cross-border trade in standard may be appropriate if there is little demand for services. For example, foreigners cannot provide advice on service variety, network effects are unbounded, and there domestic law and audit and tax advice. And there are immi- is no anti-competitive risk from having a single standard. gration policy and other restrictions on the entry of foreign However, if the market requires variety to satisfy different professionals, such as Kenyan and Tanzanian nationality types of users, then a single standard may not be appro- requirements to practice domestic law. Foreign ownership priate. For example, complying with International Financial controls and public procurement restrictions, including Reporting Standards for corporate accounting may be too Kenyan and Ugandan limits on foreign firms’ provision costly for certain types of firms, even taking into account of legal services to government agencies or international the provision for small firms to use a simplified standard. organizations, further segment the professional services Several small and medium-size firms—particularly in Tan- markets in East Africa. zania and Uganda—noted the excessive costs of complying with international standards. In such cases, dual standards tailored to the specific needs of firms by size may be worth Regulatory Heterogeneity Impedes Trade considering in East Africa. Differentiated services provided in Services to different types of firms—say, large firms versus small and medium enterprises—may be best delivered by different Regulatory requirements vary across countries in Africa either classes of accounting professionals. because of differences in institutions or differences in social By contrast, international standards may be useful in preferences (for example, stringency of financial or privacy certain segments of tourism services. Chapter 7 docu- regulations). The result of pure regulatory heterogeneity is ments that only 10 percent of the region’s hotel rooms the segmentation of international markets (Mattoo 2015). are estimated to meet international standards. Adopting The studies on education and health services in chapter 3 international standards on a broader basis could help boost and on professional services in chapter 5 point to such tourist inflows from OECD countries. heterogeneity in regulations. Services providers usually face qualification requirements or licensing procedures, which generate fixed costs that are incurred by firms before enter- ing the market. Regulatory heterogeneity prevents services What Can Policy Makers Do? providers from realizing economies of scale from a larger This book highlights that to strengthen services in Africa, regional market. policy makers need to consider a holistic approach that An example is professional services in East Africa. Given that each country in East Africa has its own qualification cri- 11 For example, Kox, Lejour, and Montizaan (2004) estimate the teria, the compliance costs are country-specific and cannot increase in trade and investment flows in the European Union be spread through the provision of professional services in determined by a reduction in regulatory heterogeneity. They show other East African countries. Such fixed and country-specific that the stock of foreign direct investment in the European Union regulation costs can have a serious impact on entry deci- could increase by 20–35 percent if bilateral variation was reduced as a result of a common services regulation directive. Kox and Nor- sions by small and medium-size firms—especially if the firms das (2009) also look at the impact of regulatory heterogeneity (and do not expect large sales in the foreign market. If the East regulatory intensity) on services trade flows, and find large negative African countries adopted common criteria for qualifications effects on market entry, trade flows, and the export performance or recognized the qualifications and licenses obtained in of firms. introduction 21 looks beyond simply signing agreements. The focus should Policy makers can make an effort to work with relevant be on effective implementation of coordinated regulatory data collection agencies and donors to integrate such meth- reform and liberalization of trade in services informed by ods into existing data collection frameworks and carry out systematic and well-coordinated data collection efforts and monitoring exercises on a regular basis.12 knowledge-sharing platforms. Support Knowledge Sharing Be Serious about Data Collection Although an important objective of the book is to fill informa- and Monitoring of Services Reforms tion gaps, most of the chapters go beyond data issues. For Systematic data collection efforts and comprehensive moni- instance, chapter 5 presents an innovative knowledge-sharing toring of services integration that focuses on the impact of tool, a professional services knowledge platform13 that was reforms on lowering trade costs and facilitating cross-border implemented jointly by the World Bank and the COMESA operations should be a priority for policy makers in Africa. Secretariat. The platform was designed for practitioners, The chapters in this book show that traditional surveys as well policy makers, and regulators to engage in meaningful dia- as innovative data collection methods can be used to gather logue about the critical issues that are currently transforming information on services trade transaction costs and outcome professional services in Sub-Saharan Africa. The aim of the indicators. Firm-level data on trade flows, characteristics of platform is to promote the development of strategies to exporters, or the cost of barriers can usefully complement facilitate the training and movement of professionals, as well existing data sources compiled by central banks, statistical as trade and investment in professional services in Africa. In offices, various ministries, or other government bodies. addition to filling information gaps on professional services The experimental surveys based on crowdsourcing and markets, trade flows, regulatory measures, and trade poli- mystery shopping confirm that such methods are not only cies affecting professional services in Sub-Saharan Africa, feasible but also useful. They enable the collection of new the platform aims to promote the spread and exchange of data sets on the time and cost to obtain a license, visa, or ideas on trade in professional services on the continent. work permit, and perhaps in a way often superior to more Similar knowledge platforms in professional and tourism costly traditional data collection methods based on field services have been put in place by governments, regional interviews. Despite their usefulness in generating new institutions, and other stakeholders from the public and knowledge, there remain several challenges related to the private sectors in East Africa (box I.3). implementation of these innovative surveys to collect data on transactions in services: Put Informal Trade in Services on the African Policy Agenda ■■ First, sampling issues need to be clarified. For instance, sampling from available lists of mobile phone users is Chapter 1 offers several recommendations that focus easily justifiable for the providers and users of educa- on facilitating trade in informal services and emphasize tion and health services, given that phone ownership is changing behavior and more liberal immigration policies. almost universal within this category. However, it has The recommended improvements in behavior include proven difficult to reach certain target groups, such eliminating harassment of traders at the border or in the as professionals with foreign degrees, resulting in very country of destination, easing visa requirements, easing and small sample sizes for several categories of respondents. clarifying residency requirements, and improving the work permit application process. The Charter for Cross-Border ■■ Second, data quality issues have hampered the imple- Trade in Goods and Services provides a useful template for mentation of the surveys. For example, despite formulat- the implementation of these solutions (box I.4). The charter ing short questions and requesting the answers in local enshrines a basic set of rights and obligations for traders and currency, the data set contained many outliers. In the officials and aims to improve behavior at the borders and case of the insurance and accounting surveys, there was wide variation in the responses of accountancy firms, possibly driven by different underlying assumptions regarding the services offered to clients. To increase 12 A detailed framework for monitoring regional integration is provided in World Bank (2015). the reliability of the data, these challenges have to be 13 The “knowledge platform” concept was originally coined by addressed before the methods can be confidently used Feketekuty (2010) and is described in more detail in Hoekman and to track progress on regional integration. Mattoo (2011). 22 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box I.3: East Africa Tourism Platform The East Africa Tourism Platform (EATP), the private sec- Policy reforms that support eVisa programs at the tor body for tourism in East Africa, has recently shown EAC and national levels need to be implemented. leadership in attempting to champion and facilitate a Finally, air transport needs to be liberalized to collective, coordinated, and simultaneous approach to enhance destinations’ competitiveness in tourism. enhancing the region’s travel and tourism competive- (ii) Price competitiveness in taxes, levies, and charges. ness. In a pilot program launched in November 2014, The tourism segment is very sensitive to any price EATP uses aspects of the World Economic Forum Travel increases and thus changes in prices crucially and Tourism Competitiveness Index as a comprehen- impact competitiveness in this sector. There is a sive, strategic tool, and employs a collaborative and need to study each partner state’s and by exten- participatory approach that will enhance each partner sion the region’s price competitiveness in taxes, state’s tourism competitiveness while mainstreaming levies, and charges, to inform policy reforms. And regional integration. This program places emphasis on there is a need to lobby continuously to mitigate building strong, multi-stakeholder dialogue forums at any negative impact on the sector. the national level, which are referred to as National (iii) Tourism services export capabilities. Private partici- Tourism Roundtables (NTRs). NTRs would address the pation in promoting tourism as an export activity is following challenges: very low. Preparing the EAC tourism supply chain (i) Policy reforms and regulation in tourism and other stakeholders for intraregional and interregional spheres relating to monetary, fiscal, and trade tourism and presenting the regional strategy as a policies. The platform seeks to address issues business proposition are keys for growing supply related to illegal trade in wildlife products that and demand. Broadening and deepening business impede tourism flows. NTRs also aim to foster linkages to regional and international markets tourism growth by simplifying visa services, put- will secure improved opportunities for the EAC’s ting in place visa-on-arrival policies, issuing single tourism sector. As tourism services revolve around tourist visas, offering waiver of visa fees for most relationships between inbound and outbound tour regional tourists, and so on. There is a need for full operators, effective facilitation of business-to- adoption and implementation of the East African business linkages is needed to expand intraregional Community (EAC) Single Tourist Visa pursued by and interregional tourism. the EAC Secretariat and inclusion of additional visa categories, such as the EAC foreign resident visa. Source: TradeMark East Africa 2015. promote the gradual formalization of informal cross-border establishment of foreign companies, and cross-border trade. The charter has been extended to include trade in supply of services. Specific changes could include minimiz- services by requiring the simplification and transparency ing the restrictions on the kinds of businesses permitted, of immigration and health-related procedures for crossing developing a transparent and consistent framework for borders to provide or consume services. accepting foreign-qualified professionals, and relaxing bars to foreigners participating in partnerships. Easing discrimi- natory procurement regulations and reforming immigration Bringing It All Together: Trade and Domestic laws could complement these steps. Domestic regulatory Regulation reform includes easing professional entry requirements and An effective reform agenda will require national actions and eliminating disproportionate restrictions on competition, such international cooperation. Trade and other policy changes are as price regulations, restrictions on business organization, necessary to promote development and integration of the and advertising prohibitions. region’s services market. For example, in the case of profes- Removing such barriers to trade would open immense sional services, chapter 5 describes the steps that include opportunity for filling the skill gap between countries in the easing restrictions on the entry of foreign professionals, region. In addition to these General Agreement on Trade introduction 23 Box I.4: Charter for Cross-Border Traders Basic rights and obligations for traders and officials a receipt for any payments made to an official. at the border: Traders shall not attempt to bribe any official to 1. All individuals shall be able to cross the border avoid payment of duties or obtain preferential without verbal or physical abuse or harassment, treatment in any way, including avoiding queues. including but not limited to sexual and gender- With the support of the international community, gov- based violence. ernments commit to the following: 2. Traders shall be processed at the border in an 1. That by [agreed time] these basic rights and obliga- efficient and timely manner without discrimina- tions governing cross-border movement of goods tion. A receipt must be provided to the trader for and people are clearly stated in the local language any payment made and the payment must be and visibly apparent at all border crossings. properly recorded. 2. By [agreed time] at every border post, there is at 3. Only officials of the approved agencies are present least one agent that has received gender aware- at the border and all border officials wear uniforms ness training. All senior officials at the border have or ID badges that allow the identification of their received gender awareness training by [agreed respective agency. time]. Ensure that 50 percent of officials at any 4. Physical checks of traders must be recorded with border post have received gender awareness the reason and outcome provided. Female traders training by [agreed time]. have the right to receive a physical check by female 3. 3. At all border posts, traders have recourse to officials in a private but regulated and accountable an independent and confidential mechanism to environment. register the violation of any of these basic rights. 5. All duties, fees, and taxes and the basis for their Female traders must be able to register the viola- calculation are publicly available at the border. Any tion of any basic rights with a female staff. change to duties, fees, and taxes must be publicly 4. Apply strict disciplinary measures against officials announced at the border, with reasonable time for found to have violated the rights of a trader. traders to prepare, before their application. No 5. Support organizations of informal cross-border unpublished fees or charges should be demanded traders in disseminating information on these rights at the border. and obligations and in delivering advice and infor- 6. Documentary requirements should be clearly mation to enhance the capacities of the traders. stated and publicly available at the border. Any 6. Continue to improve the quality of infrastructure change in the documents required must be pub- at all border crossings to provide an open and licly announced at the border with reasonable safe environment for traders, with attention to the time for traders to prepare before implementa- specific needs of women traders, and appropriate tion. Simplified procedures should be applied to facilities for officials to undertake their work. small-scale traders. 7. Improve the quality of data collected at all border 7. Traders should be aware of their rights and obli- posts on small-scale traders, including the num- gations when crossing the border. Traders must ber passing through the border each day and the present the required documentation and pay nature of the goods carried. the appropriate duties at the border and obtain 24 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa in Services (GATS)14 type reforms in different sectors, policy of trade in such services. For instance, the medical boards makers should also consider liberalizing air space, a sec- or councils in the EAC have started to collaborate and share tor that is missing in the GATS World Trade Organization registers to recognize licenses from other EAC member schedule of services. This would not only help in promoting countries. In addition, nurses and midwives, pharmacists, tourism services exports (as suggested in chapter 7), but also medical doctors, and veterinarians are currently develop- open possibilities for other services trade through efficient ing a road map for the preparation of mutual recognition movement of people. agreements (MRAs) of professional qualifications to deepen Regulatory reforms and liberalization needs to be regional integration. This issue is addressed in chapter 6. complemented with regional regulatory cooperation, so The book also explores innovative options for Eastern and firms could benefit from more homogenous regulations, Southern African countries to grow their multi-country and leading to an increase in the volume and variety of services intraregional tourism (chapter 7) through regional coopera- offered. In professional services sector, for instance, regional tion. It shows that regional cooperation initiatives in tourism cooperation to decrease regulatory differences among EAC can help increase the regional and national competitiveness countries is particularly important in the following areas: of the sector. Destinations in Southern and Eastern Africa mutual recognition of professional qualifications and licens- have recognized the importance of regional cooperation ing requirements and establishment of appropriate regional in tourism and have included many tourism objectives in standards, such as those on training. Furthermore, coopera- the charter protocols of their regional blocs. The EAC has tion on the removal of labor restrictions and cooperation to created the East African Tourism and Wildlife Conservation improve the financing and capacity of professional education Agency to implement regional tourism initiatives; similarly, is desirable. the Regional Tourism Organization of Southern Africa is SADC’s tourism arm. Each agency has undertaken various activities, such as formulating regional tourism strategies, Prioritize Regional Regulatory Cooperation creating shared visas, undertaking regional promotion, The basic case for regulatory cooperation that arises is that establishing quality standards, and defining trans-frontier regulatory heterogeneity segments international markets in conservation areas. a way that prevents the exploitation of economies of scale. Regulatory heterogeneity is associated with significant eco- Mutual Recognition Agreements: A Success Story nomic cost, because each country independently chooses for Africa? its regulations without taking into account the negative Regulatory innovations in the form of MRAs occupy the center impact on foreign producers and hence on competition. stage in chapter 6. A particular emphasis is placed on the Therefore, there are potential gains from international MRAs introduced in the EAC in accounting, architectural, cooperation where each country trades off the benefits of and engineering services through the Common Market maintaining different nationally optimal regulations against Protocol. The chapter considers how such instruments the benefits of integrating markets through some form of might be designed and draws lessons from this recent regulatory convergence. experience in the EAC. This book examines education and health services in The chapter underlines some of the shortcomings of greater detail (chapter 3) and suggests that deeper regional the current frameworks of MRAs. First, although the three integration, through regulatory cooperation with neighboring concluded MRAs in the EAC were negotiated and agreed by partners who have similar regulatory preferences, can usefully stakeholders in the sectors, in certain instances they have complement non-preferential trade liberalization. Admission been signed without any significant preparatory work on requirements and policies on the transfer of academic credits equivalence or national regulatory bodies have not been in and recognition of academic and professional qualifications the driver’s seat for subsequent implementation. Second, for education and health professionals are equally important more importantly in each of these cases, the agreements for the mobility of consumers and providers of education were not initiated formally at the regional level. This has and health services. Cooperation among countries on such left the instruments resulting from these agreements in a regulations could have a substantial impact on regional flows legal limbo. Although the parties involved have competence in relation to professional qualifications and licensing at 14 GATS entered into force in January 1995 and is the first mul- the domestic level, they were not granted the power to tilateral, legally binding set of rules covering international trade in conclude these international agreements. The lack of true services. “treaty” status for the MRAs means that they cannot require introduction 25 competent authorities to ignore existing domestic provisions an appropriate governance framework derived from trade (such as nationality requirements) that clash with the MRA agreements and supported by a strong competition policy. requirements. Governments should also be aware that to realize their full Issues arising from such lack of legal recognition have potential, MRAs may require other legislative measures to subsequently become apparent, leading to key implemen- be put in place. Nationality or joint venture requirements tation challenges. First, although the signed agreements may need to be removed from related legislation. More- have all been presented to the EAC Council of Ministers, over, more flexibility may be introduced into the powers they have not yet been given any formal recognition as legal delegated to the competent authorities to enable them to instruments of the EAC. Competent authorities are unable implement MRAs effectively. For example, this could include to deal with instances where national legislation obstructs an extension of powers to cover the regulation of technical- the commitments made in the MRAs (such as abolishing level qualifications. The authorities could also be allowed to a requirement to enter a joint venture when establishing recognize and act on the possible need for temporary foreign a commercial presence). Unless the MRAs are formally professional practice. Finally, EAC experience illustrates that adopted by the Council of Ministers and in effect become the transparency of MRAs is a key to their success. Potential treaty commitments, this will remain a problem. Second, the users and their clients need to know and understand what negotiations did not take account of other elements of the the agreements involve. Common Market Protocol, such as Annex V market access commitments and Annex II commitments on free move- Reform Immigration Rules ment of workers. Therefore, there is uncertainty about what at the Regional Level services a migrant professional may provide in other EAC states. Third, there is ongoing sensitivity among the partner Regulations on the movement of natural persons for states over free movement of people. Several sectors using providing services affect highly skilled professionals such MRAs have reported significant delays in processing work as accountants, engineers, doctors or teachers as well as permits. Moreover, the significant differential in charges lower-skilled providers offering hair braiding or housekeeping imposed by partner states for work permits is a source of services. To help retain some of the scarce health workers complaint among businesses trying to use the MRAs for in the region and enhance the region’s competitiveness in cross-border employment. providing education and health services, chapters 2 and 3 All these issues highlight that MRAs should not be seen suggest that African countries should allow for freer mobility as a stand-alone solution to professional services trade. of teachers and health care professionals across borders in They are simply one element of a sophisticated framework Africa. Chapter 5 highlights that the trade-migration linkage of interrelated measures that need to be implemented if is an important part of the debate on migration reform in cross-border work in professional services is to grow. In Africa, COMESA. Trade policy officials should not neglect the immi- central government and regional administrative resources gration and labor market perspectives when considering are stretched; in this context, it is particularly tempting to temporary entry and issues affecting services supplied by see MRAs as a task that can be left entirely to the compe- nationals of one country in the territory of another. Policies tent authorities, as in the EAC. The risk of this approach is related to visas, work permits, and treatment of foreign that MRAs will become minimalist agreements that simply workers must be considered. Similarly, chapter 7 argues that address the needs of individuals who wish to move between for promoting tourism services exports, countries should countries. Such a reductionist approach risks missing out on further reduce visa requirements. the significant benefits of unlocking regional integration in professional services markets—for consumers, businesses, Put in Place Complementary Policies If Needed and even the professionals themselves. The EAC experience suggests that much could be done to Our analysis of education and health services shows that improve the design and operation of the MRAs implemented policy action is required not only in coordinating trade and already, before this experience is shared with other African regulatory reform and bringing about immigration reforms regional economic communities. For example, more needs to and regulatory transparency. Complementary policy changes be done to raise the awareness of national governments and in the areas of education and information and communi- regional economic communities on the role of MRAs, their cations technology at the national and international levels uses, and their shortcomings. There should also be discussion would go a long way in addressing Africa’s skill and resource of the importance of ensuring that MRAs are embedded in shortages. 26 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Similarly, the work in chapter 4 on embodied exports other services as well as goods for export and domestic of services in the mining industry suggests that although consumption. Services contribute directly and indirectly Zambia’s copper mining sector has expanded significantly to economic growth, including by lowering transactions in the past decade, creating demand for mining-related costs and creating spillovers of knowledge to other sec- goods and services, local suppliers have not been able to tors. Opening these sectors to trade would make them benefit much from this demand. The chapter recommends more competitive and efficient and contribute to the overall that Zambia’s government and the private sector have an productivity of the Africa region. This book speaks volumes effective dialogue on the appropriate institutional framework about the latent potential for trade in services in Africa and for the effective participation of local services suppliers in the regulatory hurdles that providers face in materializing copper mining. Participation should be broadened to a wider such flows. However, we have observed that despite the group of stakeholders and programs to tackle the structural many obstacles, services and services providers are still factors affecting supplier development. The Ministry of Sci- finding ways to cross the borders, although at a smaller ence, Technology, and Vocational Training and the Techni- scale and at a slower pace. A large part of the gains from cal Education, Vocational, and Entrepreneurship Training trade is thus lost because of regulatory challenges. Making Authority, in collaboration with the mining companies and more information available to traders, ensuring greater services providers in mining, should develop training and transparency of rules and regulations, and pursuing regional vocational institutes and ensure that their curriculum matches regulatory cooperation would go a long way in integrating the market demand for specific skills. These national efforts the fragmented services markets in Africa. could be complemented with international collaboration and Although the book covers some unexplored sectors of information sharing with countries that have more experi- services exports from Africa, it does not cover many dynamic ence in the design and application of such training programs. services that are currently emerging. These services may Finally, the last chapter suggests that to promote tourism have unrealized potential in Africa. For instance, observers services exports, policy makers should not only liberalize have pointed to the potential for trading banking services, in their airspace and further reduce visa requirements, but particular e-banking services, in many African countries. The also implement complementary policies that promote invest- information on the use of mobile money services available in ment in access and tourism infrastructure, rationalize tax the World Bank’s Enterprise Survey data could be tapped in systems, set and implement quality standards, cooperate estimating the potential for such trade. A careful analysis of on tourism and hospitality workforce development, and the potential and barriers to exporting such dynamic services undertake unified regional promotion. from and within the continent requires tremendous effort with respect to data collection. Furthermore, the role of services as intermediate inputs, Be Transparent the potential of services for promoting exports, and the Most often providers enter neighboring countries without transformational effect of services in the economy is terri- a visa or work permit only because of the lack of complete tory that is less explored in this book. Although we consider information. Chapter 1 suggests that the EAC Common the mining industry as a case in point, many other sectors Market Protocol and other regional or bilateral agreements where services are embodied in goods or agricultural exports could provide a platform for gradually formalizing services need careful examination. Relatedly, services are playing an flows by making available information on the visa and work increasingly important role as inputs in several international permit processes. Further, an aggressive dissemination production networks. Future work should focus on the role campaign, including seminars for traders and officials, of services in enhancing the participation of African countries would be needed to familiarize all players with the existing in global value chains. opportunities and options. Finally, trade policies and regulations play an important role in the development of the services sector in Africa. Although this book covers new ground in analyzing the poli- Conclusions and Areas cies that are essential in addressing the challenges faced for Future Research by service exporters, we are still leaving a lot on the table. For instance, the book covers novel ways of dealing with The potential for services in promoting growth, trade diver- incongruous domestic and foreign regulations by clearly sification, and structural transformation in Africa is generally discussing the implementation challenges of MRAs that have underestimated. Services are inputs into the production of to be addressed to ensure that regulatory changes indeed introduction 27 have the desired effect. Such in-depth sector analyses of Borchert, Ingo, Batshur Gootiiz, and Aaditya Mattoo. 2012. experiences with the implementation of policies across “Policy Barriers to International Trade in Services: New various sectors would be exciting for future research and Empirical Evidence.” Policy Research Working Paper would usefully complement recent analyses on the politi- 6109, World Bank, Washington, DC. cal economy of regional integration.15 For example, why do Brenton, Paul, and Barak Hoffman (eds.). 2015. Political regional initiatives and government policies lag behind the Economy of Regional Integration in Sub-Saharan Africa.” market forces that have stimulated cross-border investments Washington, DC: World Bank. in services sectors? Which structural, institutional, sectoral, Bryson, J. R., and P. W. 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Bucekuderhwa, Richard Gicho, Kunda Mando, RuralNet and Tertula Swai1 Nora Dihel is Senior Economist, Macroeconomics and Fiscal Management Global Practice, World Bank, Arti Grover Goswami is Senior Consultant Economist, World Bank, Celestin Bashinge Bucekuderhwa is from the Catholic University of Bukavu, Kunda Mando is Media Consultant in Zambia, Richard Gicho is a Consul- tant with the World Bank in Kenya, RuralNet Associates Limited a private development consultancy firm in Zambia, and Tertula Swai is a Consultant in Tanzania. Introduction1 movement. The movement of providers of such services, although not infrequent, is substantially Informality in general—and informal cross-border trade constrained by restrictions on immigration. Fur- in goods and services in particular—is a major feature of ther, as the providers’ movement is likely to be for the economic and social landscape in Sub-Saharan Africa. an extended period, the resulting economic activity Given the normality of informality, informal trade in goods will not appear in statistics counting trade in ser- is starting to feature on the policy agenda of several African vices (Cass and Noam, 1990, pp. 57–58).2 countries (Brenton et al. 2011, 2014; Cantens et al. 2014). Nonetheless, despite widespread transactions in sectors Yet, such services trade flows seem to flourish on the such as hairdressing, education, health, construction, African continent—and that despite numerous barriers on housekeeping, entertainment, and finance, informal trade in the movement of service providers. Maybe it is time that we services remains largely neglected. This chapter attempts to change our views about the nontradability of certain services, underscore the importance of such informal regional trade as this traditional, “haircuts view”3 of services is increasingly among African countries using evidence from a novel data contradicted by realities on the ground. Tanzanian Maasai set collected by the World Bank. hair braiders are in high demand in Zambia, while Congo- Particularly interesting is the case of hairdressing ser- lese, Kenyan, and Ugandan hairdressers are sought after by vices. Informal trade in services goes beyond tradability. Tanzanian women from all walks of life, from the girl next For instance, economists often use haircuts as a typical door to the wife of the minister. All these hairdressers are example of a nontradable service. The argument goes that crossing borders—usually helped by facilitators and fixers—to the ubiquity and the limited value of such low-skill, low-wage provide their services in a foreign country. services, which cannot be rendered at a distance, coupled Anecdotal evidence suggests that informal transactions with the high cost of transporting the suppliers or consum- are also beginning to emerge in other services sectors such ers, make it unlikely that international trade will play a role as construction, agricultural services, education, and health. in the provision of hairdressing services. Cass and Noam Regulatory barriers such as costly visas, restrictions on get- (1990) suggest that many services that require low-skilled ting residency and work permits, and other immigration labor such as hairdressing, housecleaning, or other domestic work, are “extraordinarily improbable candidates for trade”: 2 Feketekuty (1998) also suggests that “Perhaps we should say The lower price of these services in countries with that international trade generally does not play a significant direct abundant low-skilled labor will not be sufficient to role in the provision of such services. It may play a much more substantial role indirectly through the international transporta- induce substantial movement of potential consum- tion of information about these services, including international ers of these services, as the consumers seldom will transportation of individuals who have acquired knowledge about value the services highly enough to warrant such the service abroad, for instance the “cordon bleu” trained chef or the Paris-trained hairstylist.” 3 The “haircuts view of services” is described in Bhagwati (1996) 1 The authors thank Paul Brenton, John Keyser, Carmine Soprano, as the older, traditional perception that considers several services and Michel Zarnowiecki for useful comments on an earlier draft. that typically cannot be obtained long distance as nontradable. 32 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa hurdles force service providers into informality. These originated from the Democratic Republic of Congo and 15 trade flows remain largely unreported as various service were from Rwanda and Uganda. In addition, in-depth inter- providers travel on tourist visas. Tourist visas facilitate avoid- views with cross-border traders associations as well relevant ance of transactions costs and documentation required to institutions, such as ministries of home affairs or employ- supply services (for example, proof of qualifications) and ment services agencies, were carried out in the examined allow circumvention of entry barriers (for example, certain countries. Finally, focus group discussions with about 10 service providers are unable to obtain a work permit in the hairdressers and 30 traditional healers were organized in destination country). While service providers remain trapped Dar es Salaam in September 2014. in informality, governments lose the beneficial interactions and linkages that would come from greater integration into Young Female and Male Traders Participate the domestic economy, such as employment of locals in the in Informal Services Transactions foreign-owned businesses, transfer of skills and technology, increased access to more efficient services inputs, etc. The majority of traders are young. The average age of trad- This chapter sheds some light on the key characteristics ers is 36 in Zambia and 34 in the Democratic Republic of of informal trade in services in Sub-Saharan Africa. Both Congo and Tanzania. Although women play an important upscale services, such as education, and downscale services, role—between 33 and 42 percent of the respondents were such as hairdressing and housekeeping, are examined. We women—men tend to be equally involved in small-scale bring together perspectives from providers and consumers services trade, as opposed to informal trade in goods. Men to better understand the value of informal services and the venture into braiding and housekeeping, thereby challenging benefits to suppliers and customers. The chapter then dis- traditional stereotypes that view these activities as exclusively cusses the obstacles that service providers face in foreign female professions. countries and proposes solutions to remove such barriers and gradually formalize these services flows. Both Uneducated and More Sophisticated Traders Provide Services across the Border Characteristics of Informal Trade As with small-scale trade in goods, a significant proportion in Services of service providers do not have education or have only primary education. For example, in Zambia, 8 percent of the The discussion in this chapter is based on interviews with respondents do not have education, while about 50 percent service providers and consumers. The snowball sampling have primary education. In Tanzania, 5 percent of the respon- technique4 was used to conduct the interviews, which were dents had no education at all and 34 percent had primary carried out in the Democratic Republic of Congo, Kenya, education; in the Democratic Republic of Congo, 10 percent Tanzania, and Zambia between September 2014 and June had no education and 18 percent had primary education. 2015. A total of 197 providers and consumers were inter- Twenty-eight percent of the respondents in Tanzania and viewed in the Democratic Republic of Congo, 16 in Kenya, 63 35 percent of the respondents in the Democratic Republic in Zambia (25 in Lusaka and 38 at the Kasumbalesa border of Congo and Zambia had secondary education. However, crossing), and 40 in Tanzania. Respondents in each of these people with higher (tertiary) education are also involved in countries mainly originated from the Democratic Republic informal services trade. About 33 percent in Tanzania, 17 per- of Congo, Rwanda, and Uganda. For example, of a total of cent in the Democratic Republic of Congo, and 8 percent in 115 providers, 39 came from the Democratic Republic of Zambia had a high school degree or tertiary education. In Congo, 42 were from Rwanda, and another 34 were from general, these respondents are engaged in the provision of Uganda. Of the 82 domestic consumers interviewed, 67 education and health services. 4 Snowball sampling is a nonprobability sampling technique that Informal Trade Flourishes across a Broad uses a small pool of initial informants to nominate, through their Range of Services Sectors, Sometimes Coupled social networks, other participants who meet the eligibility criteria with Small-Scale Trade in Goods and could potentially contribute to a specific study. Applied in sociol- ogy and statistics research, the technique more recently has been Most of the interviewed traders were engaged in services used in social network analysis. See, for example, Walther (2014). such as hairdressing (braiding), housekeeping and gardening, Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 33 construction, clergy, tailoring, agricultural services, education, Informal Trade in Services Is a Long-Term and health, including traditional healing. Interestingly, the Business, with Frequent, Longer Stays Abroad provision of services abroad is often combined with infor- The majority of the interview respondents have been engaged mal trade in goods. The services traders cross the borders in informal trade in services for a substantial number of years. with a few goods, to increase their income or appear to For example, 24 percent of the respondents in Lusaka have border officials as small-scale goods traders. For example, been trading services informally for more than 12 years, Ana5 (32 years old, no education, Congolese hairdresser and 36 percent for more than 6 years. In the Democratic interviewed in Zambia) indicated that she not only does Republic of Congo, informal foreign service providers have hairdressing, but also sells women’s slippers and hair wigs been in business for an average of 6.7 years. Our surveys in an effort to maximize her income. John (50 years old, in the Democratic Republic of Congo also show that provid- educated to grade 12, Congolese clergyman interviewed ers enter the country rather frequently (between 100 and in Zambia) indicated that apart from pastoral services, 230 border crossings per year), with agricultural workers he trades informally in clothes, assorted groceries, and and housekeepers traveling more often than other service shoes. Another respondent, Dennis, a teacher by profes- providers (figure 1.1). Providers of almost all services spend sion (50 years old, degree holder, Congolese interviewed in more than one night abroad (figure 1.2)—a situation that Zambia) who has been offering his services on a contractual is very different from cross-border trade in goods. Goods basis with different schools in Lusaka, indicated that he also traders typically leave in the morning and return the same trades in goods on a small scale at the Common Market for day (see Brenton et al. 2011 and 2014 for details on informal Eastern and Southern Africa (COMESA) market in Lusaka. At trade in goods). Kasumbalesa, 55 percent of the respondents indicated that the provision of services abroad is coupled with small-scale trade in goods. Although the snow-balling technique does not permit an estimation of the magnitude of informal services flows, information from various respondents, such as key infor- mants and representatives of relevant institutions (govern- ment agencies and high commissions), helps to shed some Figure 1.1: Average Number of Border Crossings light on such services transactions. For example, according per Year into the Democratic Republic of Congo, to a cross-border report from the Tanzania Employment March–May 2015 Services Agency under the Ministry of Labor, the number of 250 233 domestic workers that left for Oman was 153, 357, and 794 in 2011/12, 2012/13, and 2013 to June 2014, respectively. 205 194 According to the Malawian High Commission in Tanzania, 200 Average no. of border crossing in a year it is estimated that there are 10,000 Malawians in Dar es 149 139 Salaam alone, 90 percent of whom come from the same 150 district of Nkhata Bay. They are informally involved in various 106 occupations, such as domestic work, watchmen, gardening, 100 teaching, and so on. Among the Tanzanians proving infor- mal services abroad, Maasai providers operating in Zambia 50 reported that they have networks in different cities, with a 11 total of 420 Maasai people operating in Lusaka, Solwezi, and 0 Kitwe. Nevertheless, such information is patchy and insuffi- n g th ce n ld re io in io ho l tu ea n at ss ct cient for making generalizations. Further systematic statistical na ul se ru uc H re ric Fi ou st Ed rd Ag surveys are needed to get a more accurate picture of the on H ai s/ H C er magnitude of informal trade in services in Sub-Saharan Africa. en d ar G Source: Interviews conducted from March to May 2015 at the following border posts between the Democratic Republic of Congo and Rwanda and Uganda: 5 The names mentioned in this chapter are not real names. Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. 34 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 1.2: Average Number of Days Spent Abroad Figure 1.3: Average Export Value of Informal to Provide Services in the Democratic Republic Services in the Democratic Republic of Congo of Congo, March–May 2015 (CGF, thousands) 14 3000 12 2600 Average no. of days spent abroad 12 2500 Average export value by service, in ’000 10 2000 to export service 8 1500 1073 6 5 1000 884 494 500 4 3 3 500 347 3 2 217 1 2 0 ld re n ng e lth n tio nc io ho 0 tu ea si at c na ul s se ru H uc re ric Fi ou st rd Ed ng re n n ld e lth g on io tio nc H /A ai ho tu ea si at C H c na rs ul s se ru uc H re ne ic Fi ou st rd gr Ed de on H ai /A ar H C rs G ne de ar Source: Interviews conducted from March to May 2015 at the following border G posts between the Democratic Republic of Congo and Rwanda and Uganda: Source: Interviews conducted from March to May 2015 at the following border Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. posts between the Democratic Republic of Congo and Rwanda and Uganda: Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. Figure 1.4: Average Revenues from Informal Informal Export Earnings Are Often the Main Services Exports as a Share of Providers’ Total Source of Income for Service Providers and Income in the Democratic Republic of Congo (%) Contribute to Significant Improvements in Livelihoods 120 Average % revenue from export 100 In Lusaka, almost two-thirds of the respondents indicate that 100 earnings derived from informal services exports represent 76 80 the main source of income. Most traders (about 90 percent) 64 67 61 also report that household income is heavily dependent on 60 50 46 their trading activity. For instance, some of the respondents 40 echo Helene: “This is the only way I earn an income. I have been able to take care of my family” (Helene, 38 years old, 20 Congolese hairdresser in Zambia). Musumba (26 years old, 0 Tanzanian hairdresser interviewed in Zambia) says that, re g n n lth e ld in io io nc “My friend was able to build a house so I thought if I came tu ea ho ss ct at na ul ru uc H se re ric Fi here I would also be able to make money quickly for going st rd Ed ou Ag on ai H s/ H C back to school. . . . I am also able to look after my parents er en in Tanzania.” At Kasumbalesa, service providers claim that d ar G they support on average 7 dependents. In the Democratic Republic of Congo, the average monthly Source: Interviews conducted from March to May 2015 at the following border export value of informal services ranges from CGF 217,000 (or posts between the Democratic Republic of Congo and Rwanda and Uganda: Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. about US$234) for household services to about CGF 2,600,000 (or about US$2,800) for education services (figure 1.3). For most service providers the average revenue derived from In Tanzania, most interviewees, especially the Maasai who informal services exports is substantive—very often above provide braiding services abroad, reported that informally 60 percent of total income, while for hairdressers it reaches exporting services brought numerous benefits that were 100 percent (figure 1.4). At Kasumbalesa, the average income very appealing in their culture. For instance, the interviewed from informal services exports is US$225. braiders were able to buy assets (such as land plots, farms, Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 35 and cows), upgrade their houses, pay dowry, and pay for Differences in Cost and Quality as Well cultural ceremonies. In addition to making more money as Network Effects Explain Informal for themselves and their families, some braiders reported Services Transactions that they were provided with medical care and small loans Differences in the cost and the quality of services are typi- from their employers. Finally, enhanced social status and cal determinants of trade. Our interviews confirm that the self-esteem were some of the intangible benefits prized by cost differential is a key determinant of such trade flows. these providers. As quoted by Loserian Kali, a Maasai from The reasons given for seeking to provide services across the Simanjiro District, “When I informed my family in Simanjiro border are mainly economic in all the examined countries. that I was going back for a short break, the whole family For example, Ugandan and Tanzanian housekeepers in and neighbors gathered at the village bus stop for a whole Kenya pointed out that although the cost of living is higher day waiting for me. What I have achieved from the money I in Kenya than in their countries of origin, they are able to made in Zambia has elevated my status in the community.” earn substantially higher wages in Kenya than in their home Most Malawian exporters of housekeeping services countries. The average pay for household help in Kenya interviewed in Tanzania are school dropouts or single ranges from K Sh 7,000 to K Sh 15,000 per month (about mothers. Therefore, they are proud of being able to remit US$70 to US$150), with accommodation and food provided money back home to educate their children. They stressed to live-in housekeepers. Those working part time mainly live that the presence of mobile banking has been very useful in informal settlements where the cost of housing is cheaper. in facilitating transfers of money to their families in Malawi. However, they tend to charge higher daily rates and provide About 50 percent of the respondents reported that they services to more customers per day. Most would serve two enjoyed the exposure to foreign countries, learned new to three customers per day, earning K Sh 300 to K Sh 500 skills, and discovered new business opportunities. (US$3 to US$5) per customer. A part-time housekeeper may In the Democratic Republic of Congo, more than 60 per- earn K Sh 15,000 to K Sh 30,000 (US$150 to US$300) per cent of services exporters reported using the majority of month, which is sometimes twice what they can get at home. their export income to buy food, while 22 percent used This allows them to save more and send money back home, the majority of earnings to pay for education. Health and mainly for education and housing. However, this income housing expenses are also among the top items financed fluctuates and work is never guaranteed. from services export revenues (figure 1.5). Our interviews also confirm that there is high demand for the services offered by foreign hairdressers, housekeep- ers and gardeners, tailors, agricultural workers, healers, and teachers. For example, “Maasai braids” are in high demand Figure 1.5: Usage of Export Income in the in Zambia. Maasai male warriors (known as Moran) are Democratic Republic of Congo, March–May 2015 (%) famous for their historical techniques of twisting tantalizing 70 braids using red ochre, animal fat, and clay, and they have 62 influenced many modern, flowing braid designs. Interviews % of respondents reporting a given 60 at Kasumbalesa revealed that Zambian consumers travel use of export earnings 50 to the Democratic Republic of Congo to purchase tailoring, medical, hairdressing, entertainment and repair services. 40 In Tanzania, there is high demand for Kenyan and Ugan- 30 dan teachers who have a better command of English and 22 stronger science, technology, engineering, and math skills 20 than local teachers. Tanzanian parents are willing to pay 10 7 7 the higher schooling fees to the private educational institu- 3 tions that employ foreign teachers and lecturers. In Kenya, 0 Tanzanian and Ugandan household workers and Ugandan ns g lth n od agricultural workers are preferred, as they are perceived as in io tio ea Fo s at ou la H uc hardworking and honest, in addition to accepting lower sala- re H Ed g in ries than local workers. Although opponents of liberalization ild Bu complain about jobs taken away from local workers, propo- Source: Interviews conducted from March to May 2015 at the following border nents point out the trade-offs and the multiple dimensions posts between the Democratic Republic of Congo and Rwanda and Uganda: involved in deeper services integration. Maintaining barriers Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. 36 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa to services would prevent the beneficial impact generated Figure 1.6: Reasons Consumers in the Democratic by foreign service providers, such as access to better quality Republic of Congo Prefer to Buy Services from and less expensive services as well as transfer of know-how. Foreign Providers, March–May 2015 (%) Strong demand for traditional healing services6 comes 40 from rural communities in the Democratic Republic of Congo, South Sudan, Tanzania, and Uganda. The World Health 35 34 Organization (WHO) estimates that about 80 percent of the % of domestic consumers 30 reporting a given reason population in developing countries depends on traditional 27 medicine for their primary health care needs. In Sub-Saharan 25 Africa, informal health service providers offer traditional 20 18 medicine and health remedies to those who cannot afford conventional medicine and/or have stronger cultural beliefs 15 14 about the efficacy of traditional medicine. Traditional healers 10 travel and follow the spread of diseases that they can cure, such as lake malaria, typhoid, or pneumonia. Traditional 5 3 2 healers often have to travel long distances between markets 0 when tracking disease patterns. t e le ks ity ly es In general, consumers of the examined services choose bl al ib in al ap la tic ss rl qu ai he es ce ilia providers on the basis of their commitment to their work, av d m C Ac oo m ly do Fa G si professionalism, and positive attitude. In the Democratic Ea e bl la Republic of Congo, the good quality of services came second ai av after the lower price when choosing a provider (figure 1.6). ot N Despite strong demand for service provided by foreign suppliers, they cannot operate easily. Multiple barriers are Source: Interviews conducted from March to May 2015 at the following border posts between the Democratic Republic of Congo and Rwanda and Uganda: placed in their way, including high-priced visas, difficulties Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. obtaining work permits, or elusive residence status. To circumvent such barriers, most service providers form net- works. For instance, Tanzanian Maasai organize themselves subcontracting of providers in the formal sectors, such as to avoid these restrictions and provide services informally education and personal services.7 abroad (in Zambia). But the braiders have to pay a fee to a Because hairdressers, healers, and many teachers remain “coordinator” who facilitates their travel and accommoda- trapped in informality, the state loses many benefits, such tions, connects them with beauty shops/markets where they as the transfer of knowledge or employment of locals in the provide services informally, and helps them send money to foreign owned businesses that could be generated if these their families in the home country. Similar arrangements providers were formalized. The removal of barriers to the are observed in the traditional health sector. Furthermore, movement of providers would be a win-win solution. most housekeepers get work through referrals and informal networks. In general, we observe that networks are well adapted to the uncertainties induced by such trade and are Constraints to the Movement useful for penetrating the markets and reducing transactions costs. In addition, such networks are used to facilitate the of Service Providers Typical barriers affecting the movement of service providers include barriers related to crossing the borders, such as the cost of acquiring a passport, visa fees, or corruption and 6 The varied cultural practice of traditional healing is generally a holistic approach to patient well-being, considering physical and spiritual welfare. These traditional healing practices are different 7 Similar findings are presented by Ghani, Kerr, and Segura (2015), from Western medicine. The healers are trained through word-of- who show that the rapid urbanization of the informal sector plays mouth apprenticeship by elder healers. Medicinal ingredients are the strongest role in explaining the substantive growth of employ- commonly wild-harvested by healers or traders and transported by ment in informal tradable industries in India. Subcontracting by foot or informal mini-bus taxis, and medicines are traded in cash the formal sector and a “push” entrepreneurial story also play an from street or home-based treatment rooms (Petersen et al. 2014). important role in this development. Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 37 bribes to be paid at the borders. Other barriers applied by A similar situation is observed in all the examined the host country include burdensome residency permits, countries. For example, the interviewed providers in Zam- licensing requirements, or work permits. bia described how they routinely encounter verbal abuse, threats, demands for bribes, and sexual harassment from the many customs, immigration, and other government Corruption and Harassment Are the Top officials at the border. John (50 years old, grade 12, clergy, Barriers Affecting the Movement Congolese interviewed in Zambia) said, “Yes, there is a lot of of Service Providers verbal abuse, sometimes I am arrested for no reason. You The providers’ survey conducted for this chapter in the may have a visa or passport but you are still harassed or Democratic Republic of Congo reveals that corruption and asked to pay a bribe.” Two-thirds of the respondents said harassment are the top barriers affecting the movement that they are often subjected to corruption and bribery. The of service providers. About 35 percent of the respondents payment of bribes is a regular occurrence for the majority complained about the bribes that they have to pay to be able of traders. One of the respondents said that, “they harass to cross borders, while 20 percent reported being harassed us especially if you have money, if you don’t pay anything; by border authorities. These are followed by complaints they even reduce the number of days in Zambia.” The related to the high cost of work and residency permits and majority of the traders interviewed in Zambia indicated high visa fees (figure 1.7). that they have to pay unofficial fees and bribes, and often experience physical harassment at the border. Despite these challenges, these traders continue to cross the border, as their families depend on the income from such informal trade for their livelihood. Figure 1.7: Top Constraints Affecting the Movement Harassment by immigration officials and police can of Services Providers from the Democratic Republic extend beyond the borders to the locations where services of Congo, March–May 2015 (%) are provided. Several foreign service providers interviewed in 40 Tanzania also faced threats of deportation from immigration 35 officials, a situation that caused them to leave in fear after 35 spending their meager wages to bribe the officials. Hairdress- 30 % of respondents reporting 30 ers from Burundi, the Democratic Republic of Congo, and Uganda operating in Dar es Salaam reported being harassed a given constraint 25 by immigration officials; some were jailed and others were 20 20 deported because they did not have money for bribes. As one of the foreign hairdressers in Dar es Salaam reported, 15 he would be approached as often as four times per month by 9 10 immigration officers and each time he had to pay a bribe. A few respondents could not afford to go back to their country 5 3 3 1 of origin for a long period and remained disconnected from 0 their families until they managed to obtain the necessary resources to travel back. For teachers providing education er sa it it t er n en rm rm io f th vi ns pt sm pe pe O of ru tra services informally, their employer would often pay the bribe as e k or t os or nc ey ar C fw C if they were caught. de H on to i m es os of Comparable experiences were described by Tanzani- fr C to st co os ans providing services abroad. Several Tanzanian (Maasai) C h ig H hairdressers were jailed in Zambia for three to six months Source: Interviews conducted from March to May 2015 at the following border and finally deported after completing their jail term. As a posts between the Democratic Republic of Congo and Rwanda and Uganda: result, most of them lost their money and their business. Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. However, since the demand for hairdressing services Note: The category “other” complaints consists of a variety of barriers, ranging remains high in Lusaka and Solwezi, many returned to from inadequate opening hours for border agencies, language issues, delays caused by the presence of too many services at the borders or slow Zambia to start afresh. processing caused by inexperienced border agents, to armed conflicts and general hostility from locals toward foreign service providers because of cultural/tribal reasons and fear of competition. 38 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa High Cost of Visas and Work Permits and from their respective countries and then into the domestic Cumbersome Requirements Hamper the currency of the host country. By doing so, traders face many Movement of Service Providers risks, including theft, exchange losses, and other conver- sion costs. The lack of financial and payment services has In Tanzania, the cost of acquiring a passport is US$30, while not only hindered service providers, but also has led to the visa for Zambia ranges from US$20 for a day tripper to the establishment and entrenchment of parallel currency US$50 for a single entry and US$80 for a double or multiple markets at the borders. entry. These costs come on top of the US$30 to US$70 in Furthermore, the cost for remittances services remains bribes that service providers have to pay to immigration prohibitively high in Sub-Saharan Africa (figure 1.8). Although officials and police at border crossings and every time they the cost of sending remittances has declined over the past are caught without the proper documents within the host few years, Sub-Saharan Africa still remains the most expen- country. Some traders, especially those who work in salons sive region in this regard. in public marketplaces, reported that sometimes they were questioned by authorities more than three times per month, and each time they had to pay a bribe. Abuse at the Workplace While According to Tanzanian law, the fees for acquiring a Providing Services residence permit range from US$200 for missionaries to Most of the challenges described in the surveys were exacer- US$3,000 for miners. Depending on whether providers are bated by the fact that the respondents were illegal migrants. employed or self-employed, the law is clear about these For example, in Tanzania about 50 percent of the respondents requirements in both cases. The current rates for permits in the domestic work category reported working more than range from US$1,000 to US$3,000, and the permits are valid nine hours without adequate pay. Often they were paid less for two years only. Annex 1A details the requirements for the than the agreed salary. In addition, since employers were not two types of residence permits that the traders interviewed willing to provide them with job contracts, they sometimes would need to operate formally. Employers interviewed in did not pay them at the agreed times (for example, the end Tanzania reported that apart from the cumbersome pro- of the month). Some employers paid for their housekeeper’s cedures and requirements, sometimes it would take up to work permits, but kept their passports, preventing them 60 days to acquire permits. In addition, fees for traders and from working elsewhere or going back home. businesses ranged from US$2,000 to US$3,000, and employ- ers had to pay US$2,050 to obtain a class B permit if they wanted to hire a foreigner. Religious/missionary schools pay Reasons for Informality US$500 per work permit for foreign teachers. The required Despite these obstacles, a significant number of workers documents also cost time and money to obtain, and compli- continue to cross borders and provide their services abroad ance with requirements is often determined subjectively by informally. Respondents in all the examined countries an immigration officer. indicated that the main reasons for engaging in informal In Zambia, the cost of a visa ranges from US$20 to US$80, cross-border transactions included poverty and lack of depending on the number of entries. Members of cross- opportunities in their home countries, complex require- border traders associations can use a cross-border permit ments and procedures for formal employment, lack of that costs about US$130 and is valid for three months. Most information on relevant rules and regulations to provide the services traders do not belong to such associations; there- services legally, and difficulties in obtaining visas and permits fore, they are unable to use the permit to cross the borders. (see figure 1.9 for the interview results in the Democratic A residency permits costs US$525, while an employment Republic of Congo). permit costs about US$400. In addition to the high costs, Cumbersome requirements and complex procedures there are many requirements for obtaining such permits that seem to pose a particularly serious problem for service are almost impossible for the interviewed traders to fulfill. providers. For example, interviews in Tanzania revealed that All these costs and regulations push traders and employ- in most cases educational institutions prefer to hire foreign ers (especially schools) into informality. teachers on a temporary basis under a legal contract. How- ever, employers often opt for illegal arrangements, due to Cost of Money Transfer a quota limit of 20 percent that prevents them from hiring Traders from both sides of the border are forced to carry more foreigners, or complex bureaucratic procedures for cash and often must first convert funds into U.S. dollars obtaining residence and work permits. Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 39 Figure 1.8: Average Total Cost for Remittances by Region, 2008–15 14% 12% 10% 8% 6% 4% 08 09 09 10 10 11 11 12 12 13 13 13 13 14 14 14 14 15 15 15 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 1 3 1 3 1 3 1 3 1 2 3 4 1 2 3 4 1 2 3 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q EAP ECA ECA (excl Russia) LAC MNA SA SSA Gobal Source: World Bank 2015. Note: Remittance cost is in percent of total value. EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SA = South Asia; SSA = Sub-Saharan Africa. The hurdles faced by service providers are amplified by language barriers that constrain access to information by their lack of knowledge and understanding of customs on proper procedures. procedures and applicable rules and regulations. In Zambia, Because of the informal status of the traders, most of two-thirds of the respondents showed a lack of awareness of them find it risky to go to the relevant offices and authorities any existing regulatory or policy frameworks that applied to where they could access the right information about the rules trade in services. Therefore, they rely primarily on informa- and regulations governing trade and residence. Anecdotal tion from peers, much of which may be incorrect and may evidence suggests that foreigners are often harassed when possibly lead to legal trouble. In Tanzania, there is ambiguity seeking information. In addition, high wait times, ranging from concerning the legal duties and rights of foreigners regard- 9 to 18 hours or more, are imposed on foreigners trying to ing trade and residence requirements. As a result, most obtain the required documents; this is perhaps an attempt informal traders are unaware of the customs requirements. to extract bribes. Because of lack of awareness, informal For instance, some traders stated that “there’s no clear cross-border traders face regular losses in the form of the information” and there is “not enough information.” This almost mandatory payment of bribes and are often subject is compounded by the high levels of ignorance on the to harassment and physical abuse. Nonetheless, there are proper procedures for getting the right documentation. For rare testimonies of traders who started operating informally, instance, one trader clearly highlighted that “most of us are faced a number of hurdles, and gradually met the require- uneducated” and “sometimes don’t know where to obtain ments for obtaining a class A permit for self-employment the right documents.” Given the low education levels of the (see box 1.1). Such cases are rare, as lack of information traders, this is expected. The situation is further complicated hampers the gradual formalization of these services. 40 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 1.9: Reasons for Informality in the Democratic Republic of Congo, March-May 2015 (%) 60 49 % of providers reporting a given 50 reason for informality 40 30 20 16 12 5 10 8 7 2 0 Difficulty Difficulty Difficulty Poverty No clarity of Informal is Other obtaining obtaining obtaining information convenient visa residence work permit permit Source: Interviews conducted from March to May 2015 at the following border posts between the Democratic Republic of Congo and Rwanda and Uganda: Goma/Gysenyi, Bukavu/Cyangugu, Bunagana, and Mpondwe/Kasindi. There do not seem to be deliberate efforts by authori- Box 1.1: Case Study—Obtaining a Class A ties to educate the public on trade rules and regulations. Permit for Self-Employment In addition, these service providers are considered illegal and unregulated in all the examined countries and across In 2003, Jonathan John from Uganda came to Tan- the continent. As opposed to informal goods traders who zania as an employee in a salon in Mwanza. After have started to feature on the policy agenda at the national working for five years, he saved enough capital to and the regional levels, informal service providers remain start his own salon business in Dar es Salaam where largely neglected by policy makers. he employed 10 staff members. The police discov- ered that Jonathan lacked the required business documents and sent him back to Uganda. Given Steps to Facilitate Cross-Border that demand for beauty services was growing very Trade in Services in Africa fast in Tanzania, he decided to invest again in the business. In 2011, he was issued a work permit Strengthen the Rights of Service Providers and valid for two years at a fee of US$2,050. He has Facilitate Their Cross-Border Transactions since been running his business smoothly without To strengthen the rights of small-scale goods traders, any disturbance and recording excellent profits. the World Bank developed a Charter for Cross-Border Such opportunities can only be seized by those Trade (see box 1.2). The Charter enshrines a basic set of who know the requirements, follow the rules, and rights and obligations for traders and officials and aims to can afford to pay the required fees. improve behavior at the borders and promote the gradual Source: World Bank interviews in Dar es Salaam, 2014. formalization of informal cross-border trade. The Charter has been extended to include trade in services, by requiring Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 41 Box 1.2: Charter for Cross-Border Traders Basic Rights and Obligations for Traders Traders shall not attempt to bribe any official to and Officials at the Border avoid payment of duties or obtain preferential treatment in any way, including avoiding queues. 1. All individuals shall be able to cross the border without verbal or physical abuse or harassment, With the Support of the International including but not limited to sexual and gender- Community, Governments Commit based violence. to the Following 2. Traders shall be processed at the border in an efficient and timely manner without discrimina- 1. That by [agreed time] these basic rights and obliga- tion. A receipt must be provided to the trader for tions governing cross-border movement of goods any payment made and the payment must be and people are clearly stated in the local language properly recorded. and visibly apparent at all border crossings. 3. Only officials of the approved agencies are present 2. By [agreed time] at every border post there is at at the border and all border officials wear uniforms least one agent that has received gender aware- or ID badges that allow the identification of their ness training. All senior officials at the border have respective agency. received gender awareness training by [agreed time]. Ensure that 50 percent of officials at any 4. Physical checks of traders must be recorded with border post have received gender awareness the reason and outcome provided. Female traders training by [agreed time]. have the right to receive a physical check by female officials in a private but regulated and accountable 3. At all border posts, traders have recourse to an environment. independent and confidential mechanism to reg- ister violation of any of these basic rights. Female 5. All duties, fees, and taxes and the basis for their traders must be able to register the violation of calculation are publicly available at the border. Any any basic rights with a female staff. change to duties, fees, and taxes must be publicly announced at the border, with reasonable time for 4. Apply strict disciplinary measures against officials traders to prepare, before their application. No found to have violated the rights of a trader. unpublished fees or charges should be demanded 5. Support organizations of informal cross-border at the border. traders in disseminating information on these rights 6. Documentary requirements should be clearly stated and obligations and in delivering advice and infor- and publicly available at the border. Any change in mation to enhance the capacities of the traders. documents required must be publicly announced 6. Continue to improve the quality of infrastructure at the border with reasonable time for traders to at all border crossings to provide an open and prepare before implementation. Simplified pro- safe environment for traders, with attention to the cedures should be applied to small-scale traders. specific needs of women traders, and appropriate 7. Traders should be aware of their rights and obli- facilities for officials to undertake their work. gations when crossing the border. Traders must 7. Improve the quality of data collected at all border present the required documentation and pay posts on small-scale traders, including the num- the appropriate duties at the border and obtain ber passing through the border each day and the a receipt for any payments made to an official. nature of the goods carried. 42 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa immigration and health-related procedures for crossing Trade Facilitation Project (GLTFP), which covers six Sub- borders to provide or consume services to be simplified Saharan African countries, the World Bank is working with the and made transparent.8 governments of the Democratic Republic of Congo, Rwanda, Reforms for small-scale trade in goods have been and Uganda to establish citizen engagement mechanisms, implemented for products included in a Common List of including through a toll-free hotline that will allow goods Products agreed between two countries as part of a Sim- traders to report harassment and seek information on plified Trade Regime (STR).9 In the same manner, services regulations and border procedures. Furthermore, the Trade reforms could be started in several priority services sectors Information Desks supported by the COMESA Secretariat that are particularly relevant for informal trade in services. at selected borders in these countries provide on-the-spot For example, commitments to liberalize certain services information to traders on the COMESA Regulations and the sectors through various modes of supply could be included Simplified Trade Regime for trade in goods, support the in regional agreements such as the East African Community clearance process (for example, by helping with filling in the (EAC) Common Market Protocol or in the context of the required forms), seek to resolve disputes between traders COMESA Services Negotiations. An initial list could include and officials, as well as collect relevant data and statistics. hairdressing, housekeeping, traditional health services, and Similar mechanisms should be developed to enable education services. Cross-border traders associations could services traders to get information about relevant docu- include services sectors on their list of informally traded ments and procedures, and make complaints in case of goods and services and put these sectors on the agenda of abuse at the border—alternatively, the mandate of some policy makers in Africa. Ultimately, concerted policy dialogue existing structures (e.g. the Trade Information Desks) could efforts between policy makers and associations could lead be extended to cater to service providers. As with informal to simplified, cheaper documentary requirements (visa, goods trade, information and communications technology permits, etc.) for cross-border traders in selected services. can be used to inform services traders about the require- This could represent a strong incentive for those currently ments for cross-border trading; monitor the enforcement of operating informally to join the formal sector, which, in turn, the relevant services regulations; and address issues such would facilitate a more systematic cross-border transfer of as corruption, sexual harassment, and physical violence. skills, expertise, and technology in selected services areas, Furthermore, the governments should train the rel- while offering governments the opportunity to collect taxes evant stakeholders to implement innovative tools, such from selected service providers. as an extended Charter, and more generally to promote As part of the implementation of an extended Charter behavioral change at the border on the side of both officials that covers trade in services and services traders, the gov- and service traders. As part of the GLTFP, the World Bank ernments, in collaboration with the private sector and other supports customized training to strengthen the capacities stakeholders, should look for innovative and practical ways of border agents and traders/traders associations focusing to educate providers on the trade requirements of various on border management procedures, rules and regulations, destination countries. For example, as part of its Great Lakes basic customer management, conflict resolution, and gender awareness. The aim is to enhance the technical capaci- ties and skills of agents working at the border, supporting 8 The COMESA Regulations on the Minimum Standards for the improved governance, reduced levels of harassment, and Treatment of Small-Scale Cross-Border Traders (COMESA Regula- more efficient control and processing of goods and people. tions) were subsequently developed based on the language and key The project also supports traders and traders associations by principles of the Charter for Cross-Border Traders. The COMESA providing support on trade procedures, improving relations Regulations are currently being implemented in the Great Lakes region and are tailored to reflect the specific challenges (including between traders and border officials, and improving access institutional reforms required in specific cases) faced by small-scale to market information and finance, among other things. traders at targeted border crossings. Traders are trained how to use the relevant mechanisms 9 In 2007, 10 of 19 COMESA countries introduced a Simplified to resolve disputes with officials and other traders and how Trade Regime (STR) whereby a Simplified Certificate of Origin to use the available reporting tools to register instances could be obtained at the border for consignments of an agreed list of community-originating goods with a total value less than a of harassment. New training courses could extend these certain threshold. Under the agreement, qualifying goods (below activities to include trade in services in the curricula, cover the threshold) will be allowed to pass border points duty free and services traders, and train border officials on the relevant traders will not be asked to provide certificates of origin of their clearance procedures and, more generally, on the important goods as long as they are agreed on the Common List of Products role played by services in cross-border trade. between the two countries. Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 43 Finally, the governments should consult the relevant demand for their skills, which were better than those of local stakeholders to identify the most effective and practical teachers. Removing the quotas on teachers and facilitating means of disseminating such an extended Charter. Exten- the process of getting the necessary permits would help to sive dissemination campaigns need to be held at the local, meet the growing demand for such services, improve the national and regional levels in collaboration with border quality of education, and formalize many informal teach- agencies, Civil Society Organizations/Traders Associations ers. Similarly, by removing the cumbersome requirements and regional Secretariats to increase awareness among applied to hairdressers and housekeepers, governments the stakeholders about the relevant rules and regulations. would formalize their contribution to the economy, ensure These communication campaigns would need to make use protection for the braiders and housekeepers, and collect of several communications channels, such as radio and TV tax revenue for the host country. announcements, billboards, brochures, posters, and videos, Closely related to regulatory reform is the issue of among others. For example, short documentaries have been regional integration. There are obligations arising from developed to inform the general public about the main various regional agreements stipulated under Regional characteristics of informal trade in services,10 and music Economic Communities (RECs) such as the EAC, COMESA, videos were developed as part of the GLTP to popularize and the Southern African Development Community (SADC). the benefits of the Charter11. Such initiatives would need to Of particular interest are the commitments related to the be continued, with a particular focus on the priority services free movement of service providers (such as visa require- sectors identified by local stakeholders. ments or visa fees) and the requirements for short stays in the host country to provide services (such as residency requirements or work permits). Fulfilling these obligations Improvements in the Regulatory Framework could speed up the regulatory reforms required to formal- Should Be Applied to the Provision of Services ize the provision of services such as education. In addition, In a next step, these border-related measures affecting trade new services sectors, such as hairdressing or traditional in services could be supplemented with reforms regard- medicine, could be considered for further negotiations as ing residency and work permits and other sector-specific part of such regional trade agreements. regulations affecting cross-border services transactions. Governments should consider reducing or waiving the vari- ous fees for permits to attract more formal businesses to Conclusion their country and easing immigration regulations. Although This chapter puts forward recommendations that focus this is a sensitive issue, governments should be aware that on changing behaviors and policies. The recommended immigrant service providers can help meet the various improvements in behaviors include no harassment at the needs for skilled and experienced labor. A good example is borders or in the country of destination; recommended the need for teachers in Tanzania, especially at the primary policy changes include easing visa requirements, easing and the secondary levels. Some school owners reported that and clarifying residency requirements, improving the work foreign teachers comprised 30–50 percent of their teaching permit application process, and so forth. The Charter for staff. These teachers were mainly hired from countries in Cross Border Trade in Goods and Services could be a use- Eastern and Southern Africa. Their employment was very ful template for the implementation of these solutions. often informal, given the insufficient quotas and the high In addition, the EAC Common Market Protocol and other regional or bilateral agreements could provide a platform for gradually formalizing services flows. However, an aggressive 10 https://vimeo.com/122059444; password: worldbank. dissemination campaign, including seminars for traders and 11 English: https://vimeo.com/116809516; Bemba: https://vimeo officials, would be needed to familiarize all players with the .com/119421768; Nyanja/Chichewa: https://vimeo.com/119312140. existing opportunities and options. 44 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Annex 1A: Permit Requirements in Tanzania The requirements for Residence Permit Class “B” are as Residence Permit Class A follows: Residence Permit Class “A” may be granted to a person other than a prohibited immigrant who intends to enter or remain i. Application forms (TIF 1) duly filled in duplicate in Tanzania and engage in trade, business, a profession, ii. General security covenant (TIF. 13) agriculture, animal husbandry, prospecting for minerals, iii. Curriculum vitae of the employee or manufactures. iv. Copy of national passport (with validity of not less than a year) The requirements for residence permit class A include the following: v. Certified copies of academic certificates vi. Service testimonial from previous employer (if any) i. Application forms (T.I.F.1) in duplicate duly filled in vii. Employment contract, duly signed by the employer or ii. Security bond (T.I.F.12) his or her representative and the employee iii. Cover letter viii. Job description iv. Curriculum vitae ix. Official translation of documents/certificates in case v. Copy of national passport (with validity of not less than they are written in a language other than English or a year) Kiswahili vi. Certified copies of academic certificates (if any) x. Certificates of registration, clearance, or license from vii. Evidence of capital of the company, which includes authorized institutions; job titles or qualifications that a. Bank statement(s) require registration, clearance, or licenses include b. Balance sheet accountants, engineers, architects, surveyors, doctors, teachers, nurses, pilots, employees in security compa- c. A list of the company’s assets with their value nies, executive personnel in financial institutions such d. Proof of ownership of assets/properties, such as banks and bureau de change, and so forth. as motor vehicle registration cards, title deed/ certificate of right of occupancy, and so forth xi. Memorandum and articles of association of the employ- ing company e. Proof of importation of company goods (if any) xii. Certificate of incorporation or compliance (as the case viii. Evidence of the premises of the company may be) ix. Memorandum and articles of association (for a limited xiii. Business licenses (these may include other licenses company) issued to some businesses, such as an industrial license, x. Certificate of incorporation, compliance, or registration mining license, casino license, tourist agent’s license, or of the company/business as the case may be. certificate of registration from the contractors registra- tion board) Residence Permit Class B xiv. Value-added tax certificate (for businesses entitled to pay this type of tax) Residence Permit Class “B” is issued to a foreigner other than a prohibited immigrant who has obtained specified xv. Taxpayer’s identity number (T.I.N.) certificate employment in Tanzania, and the Principal Commissioner xvi. Business license tax clearance certificate of Immigration Services (subject to recommendation by the xvii. Letter of recommendation from the Director of Employ- Director of Employment) is satisfied that he or she possesses ment, Ministry of Labor and Employment qualifications or skills necessary for that employment and that his or her employment will be of benefit to Tanzania. xviii. Cover letter from the employer xix. Six passport-size photographs Applicants for Residence Permit Class “B” must submit their applications while they are outside the host country. Chapter 1 Informal Trade in Services in Sub-Saharan Africa—Unchartered Territory 45 References Feketekuty, G. 1988. International Trade in Services: An Over- view and Blueprint for Negotiations. Cambridge: Ballinger. Bhagwati, J. 1996. Political Economy and International Econom- Ghani, E., W. Kerr, and A. Segura. 2015, “Informal Tradables ics. Cambridge: MIT Press. and the Employment Growth of Indian Manufactur- Brenton, P., C. Bashinge Bucekuderhwa, C. Hossein, S. Nagaki, ing.” Policy Research Working Paper 7206, World Bank, and J. B. Ntagoma. 2011. “Risky Business: Poor Women Washington, DC. Cross-Border Traders in the Great Lakes Region of Africa.” Jensen, B. 2012. “Overlooked Opportunity: Tradable Busi- Africa Trade Policy Note 11, World Bank, Washington, DC. ness Services, Developing Asia, and Growth.” Working Brenton, P., N. Dihel, M. Hoppe, and C. Soprano. 2014. Paper 23, Peterson Institute for International Economics, “Improving Behaviors at the Border to Promote Trade Washington, DC. Formalization: The Charter for Cross-Border Traders.” Petersen, L. M., E. J. Moll, M. T. Hockings, and R. J. Collins. 2014, Africa Trade Policy Note 41. World Bank, Washington, DC. “Implementing Value Chain Analysis to Investigate Drivers Cantens, T., J. Kaminski, G. Raballand, and T. Tchapa. 2014. and Sustainability of Cape Town’s Informal Economy of “Customs, Brokers, and Informal Sectors: A Cameroon Wild-Harvested Traditional Medicine.” The International Case Study.” Policy Research Working Paper 6788, World Journal of Justice and Sustainability 20 (9): 1040–61. Bank, Washington, DC. Walther, O. 2014. “Business, Brokers and Borders: The Cass, R. and E. Noam. 1990. “The Economics and Politics of Structure of West African Trade Networks.” Department Trade in Services”, in Rules for Free International Trade of Border Region Studies Working Paper No 1/14, Uni- in Services, edited by D. Friedmann and J. Mestmaeker, versity of Southern Denmark, Odense. Nomos Verlagsgesellschaft. World Bank. 2015. “Remittance Prices Worldwide.” Issue n. 15, October 2015. Shadows from Village by Longinos 47 Chapter 2 Measuring Regional Trade in Services in Sub-Saharan Africa: New Monitoring Indicators from Innovative Survey Methods Nora Dihel and Arti Grover Goswami Nora Dihel is Senior Economist, Macroeconomics and Fiscal Management Global Practice, World Bank and Arti Grover Goswami is Senior Consultant Econo- mist, World Bank. Introduction these methods to trade in services. It was implemented over a very limited time frame, from April to July 2014. Regional trade in services offers enormous opportunities Crowdsourcing is the process of obtaining information, for Sub-Saharan African countries to diversify their exports, work, or funding, usually online, from a crowd of people. pursue new opportunities for dynamic growth, increase Crowdsourced data come from the collective voices of con- investment, promote efficiency, and widen access to ser- sumers and can provide insights and opinions quicker and vices in the domestic economy. Reducing the cost, raising cheaper than more traditional data collection techniques. the quality, and increasing access to key services such as Given that social networking and applications of mobile telecommunications, energy, finance, and business can have technology are dominant features of African mobile life, economy-wide impacts, as these services are often inputs we used mobile phone surveys to gather information from into most productive activities, including manufacturing. A providers and consumers of education and health services. range of other services, including health, education, water, We surveyed trade patterns, determinants of trade, quality and sanitation services, are crucial for assisting in poverty of/satisfaction with various services, and barriers to trade. reduction and improving the quality of life of the popula- Data on performance indicators in health and education ser- tion as a whole. Increasing the availability, affordability, and vices were collected for nine Sub-Saharan African countries, quality of these services is crucial for economic growth and namely, Cameroon, Ghana, Kenya, Malawi, Nigeria, Rwanda, poverty reduction in all African countries. Tanzania, Uganda, and Zambia. Monitoring the progress in regional integration of services Not many studies have implemented mobile surveys to col- in Sub-Saharan Africa is severely hampered by the lack of lect data, but ours is not the first. For instance, Dillon (2009) used comprehensive data on trade in services between African mobile phones to carry out 14 rounds of interviews (every three countries and sparse information on regulatory policies and weeks) in developing countries to track farmers’ changing expec- their application. The available data typically come from case tations of their impending harvest. Similarly, Croke et al. (2012) studies of particular sectors in particular regions. Compre- draw from two mobile phone panel surveys implemented in the hensive comparisons across sectors and regions are not yet Republic of South Sudan and Tanzania. Of these, the Tanzanian possible. However, to support and monitor the opening of survey has been running longest (33 rounds to date), while the regional markets for services in Sub-Saharan Africa, we need South Sudanese survey has been operating under more difficult to go beyond trade measures and look at regulatory policies conditions. Cole and Fernando (2012) evaluate the randomized and their impact. Could innovative methods of data collection, introduction of a mobile phone–based agricultural consulting as opposed to traditional face-to-face interviews, yield results service for cotton farmers in Gujarat, India. Recently, the World quickly and in a cost-effective way? This chapter explores Bank (2015) conducted three rounds of high-frequency cell phone and evaluates new methods, such as a crowdsourcing and surveys to monitor the socioeconomic impacts of the ongoing mystery shopper surveys, for obtaining data on performance Ebola crisis in Liberia. This effort was designed to provide rapid indicators in banking, insurance, accounting, health, and indicators of the well-being of households across the country education services in selected countries in Sub-Saharan at a time when conducting a traditional face-to-face survey is Africa. This experimental survey is the first attempt to apply extremely challenging. 48 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa We also used the mystery shopping method to collect services in six Sub-Saharan African countries, namely, Kenya, first-hand data that do not rely on secondary accounts Malawi, Rwanda, Tanzania, Uganda, and Zambia. or self-reports. This method involves the use of mystery shoppers, who are trained to act as prospective customers. They undertake a series of predetermined visits to assess Survey Design and Objectives performance against specific criteria and report back on The mobile phone surveys were commissioned by the their experiences in a consistent and comparable way. The World Bank and carried out by the firm Text to Change. The mystery shopper’s identity and purpose is hidden from the surveys were designed to collect three kinds of information: establishment being evaluated. Such disguised evaluations (i) data on health and education professionals, as well as are often used to assess customer service, merchandising, students and patients involved in trade in health and educa- brand representation, and transactional processes and tion services; (ii) information on differences in the cost and efficiencies. They are also used to evaluate compliance with the quality of education degrees and medical treatments safety and security procedures, corporate and franchise across countries; and (iii) information on the recognition of standards, and industry regulations. This technique is com- foreign academic degrees and medical qualifications. The monly used in corporations that want to ensure compliance main objectives were to shed light on the magnitude and with internal regulations and high-quality customer service, the potential of trade in education and health services in but it can similarly be used to obtain information on the Sub-Saharan Africa, and identify the main barriers to trade availability and pricing of particular products and services. in these services in the region. Mystery shopping methods have been used extensively In a recent study, World Bank (2015) found that cell in high-income countries by organizations in financial phone surveys have a very low response rate. One of many services, retailing, motor dealerships, hotels and catering, possible reasons for this could be that potential respondents passenger transportation, public utilities, and government do not want to answer calls from unknown foreign numbers, departments (see Lehman [1997] for disguised evaluation particularly during a crisis situation. Furthermore, reduced in the United Kingdom). Mystery shopping has been popular income and access to electricity or power sources could in the trade press.1 However, published academic research decrease the ability of the potential respondents to charge has been limited to a few contributions. Some studies, such their phones. However, this situation has not been the case as Dawson and Hillier (1995), discuss the ethics of mystery with our crowdsourcing surveys, which covered domestic shopping. Morrison, Colman, and Preston (1997) researched and foreign patients and health professionals as well as the cognitive processes of shoppers. Most other research administrative representatives of hospitals in eight coun- has focused on the use of disguised evaluation in specific tries in Sub-Saharan Africa. The participants were selected sectors.2 Wilson (1998) reports on exploratory research randomly based on their mobile phone numbers, which that considers the reasons for using mystery shopping as were obtained from existing databases, panels, and radio a measure of service performance, the procedures used broadcasts. To encourage wider participation, the respon- to ensure the objectivity and reliability of mystery shopping dents were provided additional air time for their responses research, and the use made of mystery shopping data and in the survey. The average cost of this mobile phone survey how the data are communicated to service personnel.3 was US$16 per participant. This cost corresponds to the The mystery shopping method was used in combination findings of Cole and Fernando (2012), who demonstrate that with visits and traditional interviews to obtain data on per- surveying by mobile phones can be conducted effectively formance indicators in banking, insurance, and accounting and cheaply in a developing country context; the average “all-in” cost of a phone survey was US$2.51, compared with 1 See, for example, Bumside (1994), Cramp (1994), Dwek (1996), over US$10 for a paper survey. McNeil (1994), Miles (1993), and Newton (1994). Another advantage of mobile phone surveys is the quality 2 For instance, concerning the banking sector, see Dorman (1994), Hanke (1993), Hoffman (1993), Hotchkiss (1995), Leeds of the data. It is generally agreed that mobile survey data are (1992, 1995), Morrall (1994), Stoval (1993), and Tepper (1994); for less prone to error than paper or a landline surveys, as the hotels and firms in the travel and tourism industry, see Anderson information is already digitized. Given that this methodology et al. (2001), Erstad (1998), and Wilson and Gutmann 1998; and of collecting information is relatively new, there are only a for consumer protection and customer satisfaction measurement few researchers that compare the quality of data collected techniques, see Brown, Sopp, and Gould (1997) and Hesselink and van der Wiele (2003). by mobile surveys with other modes. One such study, by 3 Finn (2001) describes research on retail chains focusing on the Lynn and Kaminsha (2011), suggests that the quality of data quality of mystery shopping data and the number of visits needed. collected using mobile and fixed-line phone interviews might Chapter 2 Measuring Regional Trade In Services in Sub-Saharan Africa 49 differ because of line quality, the extent of multitasking by and other characteristics of the provider may signal the survey respondents, the extent to which survey respondents data-gathering intent of the shopper. are distracted from the task of answering questions, and In principle, mystery shopping surveys have the potential the extent to which other people are present and able to to help fill important information gaps for regional integra- overhear what the survey respondent is saying. However, tion monitoring. For example, the surveys could be used to randomly evaluating a sample of people who had mobile assess whether services sector integration leads to a con- and fixed phones, the experiment found only a few and vergence in prices across the region. Similarly, the surveys small differences in survey measures between mobile phone could provide insights into whether promises to remove interviews and fixed phone interviews. The few differences nontariff barriers are indeed implemented, so that their found suggest that data quality may be higher with mobile costs decline over time. phone interviews. Cole and Fernando (2012) reach similar conclusions when comparing mobile-based survey data with paper-based interviews. Data and Sample Distribution Surveys based on the mystery shopper method were More than 2,000 health professionals, hospital representa- commissioned by the World Bank and carried out by Research tives, and patients were surveyed across eight Sub-Saharan Solutions Africa (RSA). The aim was to identify in the selected African countries using the crowdsourcing method. The countries the key services offered by banks, insurers, and sample composition for the health services surveys is pre- accounting firms to micro, small, and medium-size enterprises sented in table 2.1. (MSMEs). The surveys also aimed to identify the prices for A total of 1,967 providers and consumers of education selected standardized services charged by banking, insur- services were surveyed in nine Sub-Saharan African countries ance, and accounting service providers. using the crowdsourcing method.4 The sample composition The mystery shopper survey involved the following key for the education services surveys is provided in table 2.2. steps: Outliers can significantly influence the distribution of i. Research design. Initial briefings were held with the World statistics, especially in a small sample. To reduce the effects Bank about the tool design, work plan, and sampling of possibly spurious outliers, we use two different techniques strategy. in combination to eliminate such outliers. We begin with ii. Desk review. Desk reports were prepared on the char- trimming our data by eliminating extreme values of variables, acteristics and definitions of MSMEs across the six such as costs for tuition, housing, transportation, food, surveyed countries. books, and visa in the home as well as the host countries. Any value of these variables that is more than four times the iii. Pilot study. Fifteen pilot interviews were done in Kenya average cost or less than 1 percent of the average cost is (five firms in each of the studied sectors). dropped. Averages are taken by country and the disaggre- iv. Extended rollout. Actual fieldwork was commissioned in gated category for which the data are being presented. For the chosen countries. example, in education services, the disaggregated categories v. Data processing and analysis. Data entry, cleaning, and are as follows: type of student (domestic or foreign), type of analysis were done for each country. university (public or private), and type of degree (business/ finance, engineering, medical, teaching, others). Mystery shopper methods score better than traditional Next, we also use winsorization to transform the statis- face-to-face interviews in the terms of easier access to infor- tics by limiting extreme values in the sample data. A usual mation, especially on the type of services. Moreover, the staff winsorization strategy involves replacing all outliers with a and personnel of the surveyed firm are readily available to specified percentile of the data. In our case, we winsorize assist the mystery shopper, who is a “prospective” buyer of across the category for which the data are presented. For goods. However, there have been difficulties in securing an instance, when we present a comparison of tuition cost appointment for a face-to-face interview, because it can take some time to convince the service provider to record such information. Further, compared with traditional survey instru- 4 Data were collected between April and July 2014. Sampling ments, mystery shopping is not subject to survey-induced was done through filtering existing databases of phone owners. Most questions were asked and answered via short messaging bias in the responses, as the counterpart is not aware of the service. However, several target groups—such as foreign patients survey. Mystery shoppers, nonetheless, cannot capture all and professionals with foreign degrees—were surveyed through the information, because questions about the client base face-to-face interviews using smart phones. 50 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 2.1: Sample Distribution of Health Services in Selected Countries of Sub-Saharan Africa, April–July 2014 Sample Cameroon Ghana Kenya Malawi Rwanda Tanzania Uganda Zambia Total Hospital 20 21 25 22 20 21 32 20 181 representatives Doctors and nurses 35 43 45 53 52 32 95 46 401 Patients 151 193 155 243 177 152 208 153 1,432 Total respondents 206 257 225 318 249 205 335 219 2,014 Source: Text to Change, 2014. Table 2.2: Sample Distribution of Education Services in Selected Countries of Sub-Saharan Africa, April–July 2014 Sample (including outliers) Cameroon Ghana Kenya Malawi Nigeria Rwanda Tanzania Uganda Total University 31 34 39 33 46 40 32 45 300 representatives University students 151 192 184 179 242 150 158 205 1,461 Professionals with 24 32 34 20 30 22 21 23 206 foreign degrees Total 206 258 257 232 318 212 211 273 1,967 Source: Text to Change, 2014. across local and foreign students, the data are winsorized were collected using a semi-structured questionnaire, which across the category “type of students.” We chose to winsorize was designed by RSA in collaboration with the World Bank the top and bottom 10th percentile of our data. Thus, any team. Walk-ins and prearranged appointments were used value of the data below the 10th percentile or above the to secure interviews. 90th percentile in a given category is replaced by the 10th A total of 216 interviews were conducted with service percentile value and 90th percentile value, respectively. providers across the six countries.5 The sample composition For banking, insurance, and accounting services, mystery for service providers is presented in table 2.3. In addition, shopping visits, and the traditional interviews with employ- ees of banks, insurance companies, and accountancy firms, 5 Information was collected in April and May 2014. Sampling was RSA collected information from brochures and other official done in the capitals of the countries only, where most providers documents that were provided by the respondents. Data have their branches and offices. Table 2.3: Sample Distribution of Services Providers in Selected Countries of Sub-Saharan Africa, April–July 2014 Country Banks Accounting Insurance Total Kenya 20 8 8 36 Tanzania 20 8 8 36 Uganda 20 8 8 36 Rwanda 20 8 8 36 Malawi 20 8 8 36 Zambia 20 8 8 36 Total sample 120 48 48 216 Source: Text to Change, 2014. Chapter 2 Measuring Regional Trade In Services in Sub-Saharan Africa 51 Table 2.4: Sample Distribution of Services Users in trade in health services via different modes of supply.6 in Selected Countries of Sub-Saharan Africa, The survey participants included hospital representatives, April–July 2014 doctors and nurses, and foreign patients who received medical treatment in the surveyed countries, as well as Country Micro enterprises Small enterprises domestic patients who purchased health services abroad. Kenya 2 8 For example, hospitals in Kenya, Malawi, Nigeria, Tanzania, Uganda 5 6 and Uganda reported using telemedicine, while Cameroon, Tanzania 3 5 Ghana, and Zambia do not seem to engage in cross-border Rwanda 7 2 trade (mode 1) in health services (figure 2.1). We describe the Malawi 1 7 pattern of such usage in greater detail in chapter 3, which Zambia 3 7 exclusively covers trade in education and health services. Most of the responding hospitals seem to treat foreign Total sample 21 35 patients. Several hospitals in Kenya, Tanzania, and Uganda Source: Text to Change, 2014. reported that foreign patients represent more than 50 per- cent of their total patients (figure 2.2). This finding suggests that most of the examined countries engage in trade in Figure 2.1: Use of Telemedicine in Selected Countries of Sub-Saharan Africa, April–July 2014 RSA interviewed several MSMEs to check the consistency of the information provided by the service providers. The 100 14 selected MSME users had a monthly turnover of up to responding to a given choice US$5,000 (micro) or between US$5,001 and US$100,000 80 40 38 % of hospital officials or medicare professionals (small). The sample composition is presented in table 2.4. 60 74 85 90 100 100 100 86 Key Results 40 62 60 Since the objective of our crowdsourcing survey on health 20 and education services is very different from that of mystery 26 15 10 shopper surveys on banking, insurance, and accounting 0 surveys, we present these results separately. The next sub- n na a i ia Ta da ia a a aw oo ny nd bi er an ha an m al section discusses the key results from trade in health and Ke ig er ga nz Za G w M N am U R education services. This analysis is followed by a discussion C Yes No of the results from the banking, insurance, and accounting surveys. These indicators are only illustrative of the type of Source: Calculations based on survey responses. information that may be collected through such innovative surveys. In principle, other information can be collected, such as data that measure the integration of services markets, or 6 The definition of services trade under the GATS is four-pronged, the effect of obstacles to trade in services, by appropriately depending on the territorial presence of the supplier and the con- designing the survey questionnaire and targeting a suitable sumer at the time of the transaction. Pursuant to Article I:2, the group of agents. services covered by the GATS can take four modes: (i) cross-border trade (from the territory of one member into the territory of any other member); (ii) consumption abroad (in the territory of one member to the service consumer of any other member); (iii) commercial Results from Crowdsourcing Surveys presence (by a service supplier of one member, through commercial Trade in Health and Education Services presence, in the territory of any other member); or (iv) presence of by Mode of Supply natural persons (by a service supplier of one member, through the presence of natural persons of a member in the territory of any The data on health consumers, providers, and other stake- other member) (see the WTO website on services: https://www.wto holders provide some information on which countries engage .org/english/tratop_e/serv_e/serv_e.htm). 52 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 2.2: Proportion of Foreign Patients Treated by Hospitals in Selected Countries in Sub-Saharan Africa, April–July 2014 (%) 100 5 4 3 5 10 14 15 20 48 28 14 80 % of hospitals responding 35 35 24 to a given choice 60 60 70 62 52 85 40 52 62 58 55 20 40 16 10 14 0 3 n na a i ia da ia a a aw oo ny nd bi er an ha an m al Ke er ig ga nz Za G w M N am U R Ta C None 1%–10% 11%–25% 25%–50% Over 50% Source: Calculations based on survey responses. health services via mode 2. The top source countries of It is interesting to note that few foreign students plan foreign patients are Burundi, Cameroon, Chad, China, the to remain in the host country after obtaining their degree Democratic Republic of Congo, India, Kenya, Mozambique, (figure 2.3). This finding could perhaps be motivated by Nigeria, Rwanda, Somalia, Sudan, Tanzania, Togo, Uganda, the difficulties in obtaining work permits in the country and the United States.7 of study. By surveying foreign patients who received treatment in the selected countries, as well as domestic patients who Determinants of Trade in Health purchased health services abroad, we are able to derive and Education Services some information on the imports and exports of health Differences in the cost and quality of services and institutions services via mode 2. Information on the top source coun- providing the services are typical determinants of trade. In tries of foreign patients receiving treatment in the nine the case of health services, some domestic patients from examined countries and the top destination countries for the surveyed countries pay more for treatment received patients from the examined countries reveals that trade in abroad than do foreign patients undergoing treatment in health services is dominated by exchanges with neighboring the selected countries. This situation may suggest that the countries (table 2.5). cost of medical services is not the decisive factor for trade For education services, most of our data point to the in health services. Although costs do not seem to matter extent of trade in these services via mode 2. The data gath- much, we find that differences in the quality of services may ered from foreign students who study in the nine selected explain the outcome on trade in health services. Specifically, countries provide information on the main sending countries. the non-availability of certain specialized cures (within the Our survey suggests that many students in Sub-Saharan Africa broader treatment category) could be an additional explana- study regionally. For example, the top source destination tory factor (figure 2.4). We discuss such determinants in for foreign students in Kenya is Uganda, while the reverse is greater detail in the chapter 3. true for Uganda, where 35 percent of foreign students come Our mobile survey results suggest that, as in the case from Kenya. Thus, the regional dimension seems equally as of health services, cost is not critical for education services important for trade in education services via mode 2 as it is exports. Countries such as Kenya and Uganda have taken for health (see chapter 3 for more details). advantage of the quality and reputation of their universities to attract foreign students, and have emerged as regional education hubs despite higher costs. Most other Sub-Saharan 7 See chapter 3 for more details. African countries have attempted to improve the quality of Chapter 2 Measuring Regional Trade In Services in Sub-Saharan Africa 53 Table 2.5: Main Source and Destination Countries for Trade in Health Services in Selected Countries in Sub-Saharan Africa, April–July 2014 Reporting country Trade flow Partner country Cameroon Exports to Chad, Central African Republic, Senegal, Nigeria Imports from Gabon, Central African Republic, Nigeria, Chad, Guinea Conakry Ghana Exports to Nigeria, Liberia, Togo, Benin Imports from Nigeria, South Africa, Togo, Benin, Tunisia Kenya Exports to Uganda, India, Tanzania, Sudan, Somalia Imports from South Africa, India, Arab Republic of Egypt, Nigeria, Sudan Malawi Exports to Mozambique, Zimbabwe, Zambia Imports from South Africa, Arab Republic of Egypt, Tanzania, Kenya, Ghana Nigeria Exports to Ghana, China, Togo, Cameroon Imports from Ghana, Togo, Benin, Kenya, Cameroon Rwanda Exports to Uganda, Democratic Republic of Congo, Burundi Imports from Uganda, Kenya, South Africa, Democratic Republic of Congo, Burundi Tanzania Exports to India, United Kingdom, United States, Uganda, Rwanda Imports from Kenya, Uganda, South Africa, Senegal Uganda Exports to Kenya, Sudan, Rwanda, Tanzania Imports from Kenya, South Africa, Tanzania, Rwanda, Republic of South Sudan Zambia Exports to Namibia, Kenya, Burundi, China Imports from South Africa, Algeria Source: Calculations based on survey responses. Figure 2.3: Job Destination Choices of Foreign Students in Selected Countries in Sub-Saharan Africa, April–July 2014 100 4 6 10 14 2 10 16 % of foreign students responding 1 11 to a given choice for future job 29 80 38 20 23 60 51 36 13 94 89 83 40 64 70 49 20 36 33 0 n na a i ia da a da w oo ny ni er a ha an n a al Ke er ig ga nz G w M N am U R Ta C Home Host Third Source: Calculations based on survey responses. 54 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 2.4: Reasons Foreign Patients Seek Treatment Figure 2.5: Cost of Travel and Visa for Foreign in Selected Countries in Sub-Saharan Africa, Patients Seeking Treatment in Selected Countries April–July 2014 in Sub-Saharan Africa, April–July 2014 100 2090 19 18 2000 % of foreign patients responding 80 39 4 37 39 to a given choice 66 60 1500 66 60 Cost, in USD 20 86 51 31 26 78 1020 40 1000 11 20 9 34 564 20 31 32 23 1 26 500 20 20 7 13 2 4 220 3 1 3 63 0 0 n na a i ia Ta da ia a a aw oo ny nd bi er an ha an m al Ke ig er ga nz Za G w M a da a ia ia N am U nd ny R er an an C Ke ga ig nz w N U R Ta Unavailable at home Higher quality of doctors & treatment Lower cost of treatment Source: Calculations based on survey responses. Other Source: Calculations based on survey responses. Figure 2.6: Cost of Travel and Visa for Domestic Patients Originating in Selected Countries in Sub-Saharan Africa Seeking Treatment their education systems and increase the number of Abroad, April–July 2014 their graduates through imports of educational services. These imports take the form of increased mobility of 824 students and academics (see chapter 3 for more details) 800 or sometimes through local establishment of branch campuses of foreign universities. The details about the costs of tuition, books, food, housing, and transportation 600 559 524 for domestic and foreign students that were collected Cost, in USD (but not presented here) through the mobile surveys 400 reinforce our findings. 305 A variety of push factors encourage health care profes- sionals to seek employment abroad. These include inadequate 200 139 remuneration in the home country, the desire to work in a better managed health system, the desire to continue education and training, and family reasons. These factors 0 lead to trade through the temporary presence of health da da a a ia ni ny er n an a Ke ga ig nz professionals (mode 4) or to permanent migration. Additional w N U R Ta pull factors, such as shortages of doctors and nurses in the host countries, further encourage the outflow of African Source: Calculations based on survey responses. health professionals. These factors take the center stage in our description of the results from the crowdsourcing cost of travel and visas needed to receive treatment in a surveys in chapter 3. foreign country (figures 2.5 and 2.6). The main barriers to the movement of health profes- Barriers to Trade in Services: Some Results sionals relate to the lengthy recognition of medical degrees on Health Services obtained abroad (figure 2.7), and the additional training The survey results confirm that exports and imports of health required for the recognition of degrees obtained abroad services via consumption abroad are hampered by the high (figure 2.8). Chapter 2 Measuring Regional Trade In Services in Sub-Saharan Africa 55 Figure 2.7: Weeks Required to Recognize Medical Figure 2.8: Weeks of Additional Training Required Degrees Obtained Abroad in Selected Countries for the Recognition of Degrees Obtained Abroad in Sub-Saharan Africa, April–July 2014 in Selected Countries in Sub-Saharan Africa, April–July 2014 10 9 11 8 10 Number of weeks 6 6 8 6 7 Number of weeks 4 4 5 2 2 2 2 1 1 1 0 0 n a na ia da a ia a i aw oo nd ny bi a a a i an er aw ha an bi ny nd m al Ke er ga ig nz m al Za G w Ke M ga N am U Za M Ta R U C Source: Calculations based on survey responses. Source: Calculations based on survey responses. Results from Mystery Shopper Surveys and accounting firms, but virtually no change for insurance on the Performance of Banking, Insurance, companies (table 2.7). and Accounting Services Most clients come from sectors such as trade/distribution, hospitality, transport, and construction for micro and small The level of engagement of service providers with MSMEs enterprises. varies widely by country. For example, only about 9 percent of the interviewed banks in Zambia offer banking services Services Offered to MSMEs and Their Pricing to microenterprises, compared with 65 percent of the Banking Services interviewed banks in Kenya. It is worth noting that banks As expected, the most common banking services offered were significantly more engaged with micro enterprises by banks are current and savings accounts, secured loans, than insurance companies or accountancy firms (table 2.6). fixed deposits, debit cards, asset finance, and to a slightly While more than 46 percent of the interviewed insurers lesser extent mortgages and invoice discounting. Unsecured in Rwanda offer services to small enterprises, only about loans are offered by a surprisingly high proportion of banks. 10 percent of insurers interviewed in Malawi have small However, the relatively low number of women-held accounts enterprises as clients. Compared with micro enterprises, suggests that the banks are not specifically targeting female there is a significant increase in the engagement of banks clients (table 2.8). Table 2.6: Level of Engagement with Micro Enterprises in Selected Countries of Sub-Saharan Africa, April–July 2014 (%) Average Enterprise type Kenya Malawi Rwanda Tanzania Uganda Zambia activity Banks 66.7 46.4 28.3 32.1 24.3 9.2 34.5 Accounting 32.3 9.5 36.1 28.3 34.0 10.4 25.1 Insurance 18.3 9.7 46.9 26.2 18.8 20.8 23.5 Weighted average 48.9 22.5 36.5 29.7 26.6 11.0 n.a. Source: Calculations based on survey responses. Note: n.a. = Not applicable. 56 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 2.7: Level of Engagement with Small Enterprises in Selected Countries of Sub-Saharan Africa, April–July 2014 (%) Average Enterprise type Kenya Malawi Rwanda Tanzania Uganda Zambia activity Banks 70.8 47.6 33.3 42.9 31.3 11.7 39.6 Accounting 35.4 35.7 38.9 40.0 43.8 10.4 34.0 Insurance 21.7 9.7 46.9 25.0 17.7 20.8 23.6 Weighted average 52.6 32.1 39.2 37.3 32.6 12.5 n.a. Source: Calculations based on survey responses. Note: n.a. = Not applicable. Table 2.8: Services Offered by Banks in Selected Countries of Sub-Saharan Africa, April–July 2014 (%) Services offered Kenya Malawi Rwanda Tanzania Uganda Zambia Average Current and savings accounts 100 100 100 100 100 100 100 Recurrent deposit accounts 63 43 40 38 33 40 43 Call accounts 88 100 10 46 25 40 51 Loans 100 100 100 15 100 80 83 Unsecured loans 56 29 50 100 58 40 56 Mortgages 94 71 90 54 50 20 63 Fixed-deposit accounts 100 100 80 69 92 60 83 Credit cards 63 29 50 92 42 50 54 Debit cards 88 100 90 23 58 50 68 Invoice discounting 75 43 60 77 58 30 57 LPO finance 88 71 10 38 50 30 48 Asset finance 100 100 40 77 58 30 68 Investment products 88 43 40 54 25 40 48 Women-held accounts 50 43 0 15 17 30 26 Local bank draft 88 100 90 92 92 60 87 Foreign bank draft 81 57 40 92 75 60 68 Real time gross settlement 94 71 70 85 83 60 77 Letters of credit 94 100 80 77 67 70 81 Foreign exchange 88 100 100 92 83 60 87 Money transfer services 94 86 90 92 92 60 86 Performance bonds 69 86 50 69 58 50 64 Electronic funds transfer 94 86 50 77 92 70 78 Mobile banking 94 86 90 92 67 50 80 Internet banking 81 100 70 77 92 100 87 Regional account access OTC 50 0 20 46 50 20 31 Source: Calculations based on survey responses. Note: LPO = local purchase order; OTC = over the counter. Chapter 2 Measuring Regional Trade In Services in Sub-Saharan Africa 57 Insurance Services Insurance Services As expected, most insurance companies offer group acci- Insurance premiums are compared across providers of dent, property, and automotive insurance. Many insurers personal accident insurance, personal health insurance, offer liability, indemnity, and health insurance. However, it automotive insurance, and credit insurance. Two typical is quite surprising that none of the interviewed insurers in agricultural insurance services were included: crop insurance Tanzania offers insurance for agricultural foodstuffs in transit and livestock insurance. The results show that the rates for and livestock. Rwanda scored surprisingly high for livestock personal accident insurance are reasonably consistent for insurance (table 2.9). most countries, except Tanzania and to some extent Zambia. There is a certain level of consistency for automotive, crop, and livestock insurance rates, but the coverage for crops Prices for Services and livestock seems irregular (not available in Tanzania and Banking Services Malawi). The rates for personal health insurance display a The survey responses provide broad information on price higher variation, probably reflecting different details of the ranges for standardized banking services in the examined coverage provided (table 2.11). countries, such as domestic transactions, foreign funds transfers, and business account transactions. The results on Accounting Services prices for domestic transaction costs show a wide variation Fees for accounting services are quoted separately for clients within and between countries. For example, Ugandan prices with a turnover of US$5,000 and clients with a turnover of for outward mobile payments range from zero to US$5.60 US$100,000. The results show a degree of consistency for per transaction. Similarly, Rwandan real time gross settle- the prices quoted to companies with a turnover of US$5,000 ment costs vary between zero and US$0.75, while in Malawi (loosely equated to micro enterprise; see table 2.12). There and Zambia real time gross settlement costs are in excess is nonetheless a significant difference in costs between of US$6.30 (table 2.10). countries, for example, between Kenya and Malawi, most Table 2.9: Services Offered by Insurance Companies in Selected Countries in Sub-Saharan Africa, April–July 2014 (%) Services offered Kenya Malawi Rwanda Tanzania Uganda Zambia Average Agriculture—Foodstuff in transit 20 50 38 0 25 71 34 Agriculture—Crops 20 17 13 0 25 43 20 Agriculture—Livestock 20 33 63 0 25 43 31 Health 100 0 25 71 25 0 37 Funeral 0 0 25 43 13 14 16 Group accident 80 83 63 86 75 71 76 Property 80 67 75 71 50 57 67 Credit 20 17 63 14 50 14 30 Automotive 100 33 75 57 50 71 64 Liability 40 83 25 0 50 57 43 Indemnity 40 83 25 0 50 29 38 Average engagement of insurance 37 33 35 24 31 34 n.a. companies by country Source: Calculations based on survey responses. n.a. = Not applicable. 58 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 2.10: Prices for Selected Domestic Transactions in Selected Countries of Sub-Saharan Africa, April–July 2014 (US$ per transaction) Cost per transaction (US$) Transaction type 0 0–1 1–2 2–3 3–4 4–5 5–6 6–7 7–8 8–9 9–10 10–11 11–12 Check payments Kenya Tanzania Uganda Rwanda  Malawi Zambia Transfer by RTGS   Kenya Tanzania Uganda Rwanda Malawi Zambia Transfer outward— RTGS Kenya Tanzania Uganda Rwanda Malawi Zambia Transfer— Internet banking Kenya Tanzania Uganda Rwanda Malawi Zambia Source: Calculations based on survey responses. Note: RTGS = Real time gross settlement. Chapter 2 Measuring Regional Trade In Services in Sub-Saharan Africa 59 Table 2.11: Annual Premia Charged by Insurance Companies in Selected Countries of Sub-Saharan Africa, April–July 2014 (US$) Type of policy Kenya Malawi Rwanda Tanzania Uganda Zambia Personal US$40 to US$80 US$46.50 to Rates not US$164 to US$46 to Four companies accident US$63.40 provided, as US$303 (outlier US$230 responded. Covers medical, they depend on US$607) Two companies disability, and employment quoted US$103 funeral status, nature of and US$135 job, etc. respectively Two companies quoted US$370 and US$690 respectively Personal health US$138 to n.a. Only two US$164 to Only one n.a. US$220 (outlier companies US$303 company US$20) quoted: quoted: US$16.60 and US$349 Inpatient and US$764 outpatient services Comprehensive 7–8% of value 7.6–9.9% of 5.4–8.2% of 3.1–5.0% of 4.0–5.2% of 7.1–8.3% of automotive insured value insured value insured value insured value insured value insured Credit insurance US$115 to n.a. Only two Only one US$523 to Only one (coverage of US$126 for companies company US$891 company US$23,256) personal quoted: quoted: US$231 (outlier US$140 quoted: US$538 coverage; US$1,076 and covers loss of US$2,300 for US$3,488 stock or cash group coverage from fraud) Crops insurance US$38.10 to n.a. US$27 n.a. Only one US$25 or less (maize, one acre) US$44.80 company ($15–$20) based (outlier quoted: US$35 on rates for five US$65.10) acres Livestock US$32.20 to US$37.30 US$24.40 n.a. Only one US$33 to US$38 insurance (one US$40.30 company dairy cow) quoted: US$49 Source: Calculations based on survey responses. n.a. = Not applicable. Table 2.12: Fees for Accountancy Services Offered to Clients with a Turnover of US$5,000 in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$) Type of service Kenya Malawi Rwanda Tanzania Uganda Zambia Verification of solvency 115–290 625–2,000 174–265 600–1,800 150–1,300 150–536 Support loan application 172–230 2,250–5,000 147–882 600–1,800 375–1,125 150–536 Audit 115–580 345–626 150–441 480–1,800 375–1,300 322–536 File tax returns 115–230 123–492 36–735 600–2,100 75–562 134–536 Source: Calculations based on survey responses. 60 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 2.13: Fees for Accountancy Services Offered to Clients with a Turnover of US$100,000 in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$) Type of service Kenya Malawi Rwanda Tanzania Uganda Zambia Verification of solvency 230–1,150 10,000–30,000 520–7350 1,030–3,900 562–2,630 1,100–5,500 Support loan application 290–580 4,250–51,250 520–10,000 1,030–3,900 940–1,900 890–5,500 Audit 290–920 6,900– 37,500 294–10,300 12,100–29,500 1,125–1,900 1,100–8,850 File tax returns 115–920 2,460–9,850 220–2,940 600–2,400 187–3,750 1,100–3,870 Source: Calculations based on survey responses. notably at the upper end of the quoted ranges. There is for several categories of respondents. Second, data quality greater variation in the fees quoted to enterprises with a issues hampered the implementation of the surveys. For turnover of US$100,000 (table 2.13). This finding may reflect example, despite formulating short questions and requesting greater variability in the size of the client and complexity the answers in local currency, the data set contained many of the business. The main criteria for determining the fees outliers. In the case of the insurance and accounting surveys, are the amount of work (labor hours) and complexity (or there was wide variation in the responses of accountancy risk) involved. firms, possibly driven by different underlying assumptions regarding the services offered to clients.8 To increase the reliability of the data, we hope to focus Conclusion and Next Steps any follow-up surveys on banking services. These surveys will concentrate on trade indicators, using letters of credit, The pilot surveys discussed in this chapter aimed at gather- structured trade finance, and forex transactions. Indicators ing quantitative data on trade in services in Sub-Saharan on credit, payment, and savings also seem promising when Africa using two methodologies: mobile phones and mystery analyzed using products such as MSME value-chain finance, shoppers. The surveys delivered valuable insights into the asset finance, counter transactions, mobile and Internet examined sectors. Both methodologies highlight the impor- banking, and so on.9 tance of services in five economic sectors, domestically as well as internationally. Furthermore, the mobile surveys suggest that cost is not decisive for trade; rather, the avail- References ability and quality of services seem to be more important for trade in health and education services. The prices for Anderson, D. N., D. L. Groves, J. Lengfelder, and D. 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In the Windmills of Your Mind by Richard Gicho 63 Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services Nora Dihel and Arti Grover Goswami with inputs from Richard Gicho, Borislava Marcheva and Carmine Soprano Introduction Trade in education and health services2 also features high on the agenda of policy makers and regional organiza- Sub-Saharan Africa is witnessing high international mobility of tions in Sub-Saharan Africa. For example, all five East African students and health professionals. The latest United Nations Community (EAC) countries have committed themselves Educational, Scientific, and Cultural Organization (UNESCO) to remove most explicit barriers to trade in education and data suggest that in 2012, the outbound mobility ratio of health services as part of the 2010 EAC Common Market students from the region reached 4.5 percent1—more than Protocol and other developments. Furthermore, the Southern two times higher than the world average of 1.8 percent. In Africa Development Community (SADC) countries included health services, the outflow of middle- and high-skilled profes- student and staff mobility in the 1997 SADC Protocol on sionals is significant in all African countries. The World Health Education and Training. Organization (WHO) estimates that across 10 Sub-Saharan Yet, despite the increased international mobility of stu- African countries, almost one-quarter (23 percent) of the dents, many technological developments with transformative locally trained doctors emigrated to various Organisation for impact, the emergence of private education and medical Economic Co-operation and Development (OECD) countries institutions, and the liberalization and regional integration (WHO 2012). Views regarding the mobility impacts of Afri- agreements, the continent continues to face substantive can students and academic staff are mixed, ranging from skills and competency shortages in both sectors. And sev- reports that point out the benefits from “brain circulation” eral African countries remain excluded from international to views that emphasize “brain drain.” Nonetheless, there linkages in education and health. is a general agreement that the massive outflows of health Acute shortages of skills in the education and health sector professionals exacerbate Africa’s health workforce crisis. represent a major impediment to the attainment of the Millen- The mobility of African students and health professionals nium Development Goals in Sub-Saharan Africa. For instance, has recently been recently complemented by the mobility in 2012 in higher education institutions in Sub-Saharan Africa, of educational and medical programs and institutions. Inno- the gross rate of tertiary education enrollment still stood at vative cross-border institutional arrangements create new commercial opportunities, such as franchising and twinning 2 Education services include (i) primary education services; of academic programs and health services. There are also (ii) secondary education services; (iii) higher education services; new forms of private sector involvement and increased (iv) adult education, which comprises education of adults outside foreign participation in the provision of medical services. the regular education system; and (v) other education services, which comprises education services at the first and second levels Technological progress is facilitating various forms of distance in specific subject maters not elsewhere classified (see the services education or health services supply such as telemedicine. sector classification list GATS W/120 in WTO (1991). Health services These relatively new forms of trade are beginning to gain in include (i) hospital services—including services delivered under the importance in Sub-Saharan Africa and have high potential direction of medical doctors chiefly to inpatients, aimed at curing, for further expansion, but data on such flows remain scarce reactivating, and/or maintaining health status; (ii) other human on the African continent. health services—including ambulance services and residential health facilities services other than hospital services; (iii) social services—including welfare services, child daycare, and guidance 1 http://www.uis.unesco.org/Education/Pages/international- and counselling; and (iv) other (see the services sector classification student-flow-viz.aspx. list GATS W/120 in WTO 1991). 64 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa only 6.9 percent against a world average of 27.7 percent. abroad (mode 2 in General Agreement on Trade in Services Similarly, Africa bears one quarter of the burden of disease (GATS) terminology) and the presence of service providers around the world, but has only 3 percent of the world’s health abroad to supply services (mode 4 in GATS terminology) workers. Although greater investment is needed to strengthen seem to be the predominant modes of supplying educa- education and create incentives for education and health tion and health services across borders. The movement of workers to remain in their countries, trade and regional students to consume educational services abroad (mode 2) integration can play a role in addressing the weaknesses and the movement of professionals to provide services in education and health. Recent continent-wide initiatives, abroad (mode 4) are being complemented by new channels such as the 2015 African Higher Education Summit,3 have for trade in such services. Thanks to the recent advances in called for the articulation of clear and comprehensive poli- technological progress, it is now feasible to deliver lectures cies on internationalization at the national, intracontinental, through distance learning programs or provide medical and intercontinental levels to revitalize Africa’s educational advice over video conferencing (mode 1). In addition, edu- systems and meet Africa’s health worker crisis. cational institutions and hospitals of foreign countries are This chapter summarizes the nature and the determi- respectively establishing campuses and medical facilities in nants of trade in education and health services in a selected foreign countries to provide their services (mode 3) right at group of countries in Eastern and Southern Africa, using a the doorsteps of foreign consumers. combination of quantitative and qualitative methods. We Combining qualitative and quantitative methods, this sec- present the results from new, innovative data collection tion attempts to shed light on the nature and determinants methods, such as crowdsourcing, to shed some light on the of trade in education and health services in Eastern and magnitude, determinants, and restrictions on intra-African Southern Africa. Crowdsourcing5 was used to survey more trade in education and health services. Assessments of trade than 2,000 health professionals, hospital representatives, and regulatory barriers, based on results from regulatory and patients, as well as 1,967 providers and consumers of surveys conducted in selected East African countries, and education services in nine Sub-Saharan African countries, case studies of success stories and less favorable experi- namely, Cameroon, Ghana, Kenya, Malawi, Nigeria, Rwanda, ences are then used to develop policy recommendations Tanzania, Uganda, and Zambia. The surveys collected infor- for using trade and regional integration more strategically mation on trade patterns, determinants of trade, quality of to improve outcomes in education and health. and satisfaction with various services, and barriers to trade in education and health services. The quantitative surveys and the qualitative interviews placed particular focus on Education and Health Services regional linkages and the role of regional integration in filling in Sub-Saharan Africa: How Can unmet demand for skills and services in Africa’s health and education sectors. The organizing framework described in Regional Integration Help? annex 3A is used to gather information on and discuss the determinants of trade in education and health services by Given the personalized nature of education and health provi- mode of supply. sion, the delivery of these services often requires proximity between consumers and providers.4 Consumption of services 3 http://summit.trustafrica.org/. Mode 4. Temporary presence of natural persons. Services •  4 Trade in services occurs via four modes of supply: supplied by nationals of one country in the territory of Mode 1: Cross-border supply. Services supplied from the •  another (for example, educators and medical professionals territory of one country into the territory of another country traveling abroad to provide services). Mode 4 includes inde- via the use of information and communications technology pendent service suppliers and employees of the services (for example, distance learning or telemedicine). supplier of another country. Mode 2. Consumption abroad. Services supplied in the ter- •  5 Crowdsourcing is the process of obtaining information, work, ritory of one country to the consumers of another country or funding, usually online, from a crowd of people. Crowdsourced (for example, students and patients traveling abroad to buy data come from the collective voices of consumers and can provide education and health services). insights and opinions quicker and cheaper than more traditional Mode 3. Commercial presence. Services supplied through •  data-collection techniques. Given that social networking and any type of business or professional establishment of one applications of mobile technology are dominant features of African country in the territory of another (for example, foreign uni- mobile life, we used mobile phone surveys to gather information versities or foreign hospitals established in a country). from providers and consumers of education and health services. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 65 Distance Learning and Telemedicine on the Rise Box 3.1: Virtual University of Uganda Distance learning and telemedicine are daring and disruptive The Virtual University of Uganda (VUU) is the first technologies that are expected to make an important impact online university in Uganda to be licensed by the in Africa over the next 15–20 years. Anecdotal evidence Uganda National Council for Higher Education. The confirms that the use of information and communications university uses multiple integrated forms of digital technology (ICT) tools to improve access to services, including multimedia to deliver online education. These cross-border trade in services, is beginning to emerge on include video and audio clips, chat rooms, and the continent, with several homegrown initiatives and apps discussion forums, as well as mandatory weekly taking off in recent years in Africa. audio conferencing. The university also provides The African Virtual University (AVU) was established with access to an e-library that contains more than the objective of building capacity in education and health in 50 million open-access items, including learning Africa. Eighteen African countries have signed the charter materials and video and audio resources from establishing the AVU, which has trained more than 43,000 internationally renowned universities, such as the students since its inception in 1997. As the leading institution Massachusetts Institute of Technology and Johns in the Pan-African e-Network Project, the AVU has acquired Hopkins University (among others). Online educa- the largest e-learning network in Anglophone, Francophone, tion is delivered through the university’s virtual and Lusophone Africa, with more than 53 partner institutions learning environment (VLE) on a Moodle platform in 27 countries.6 Since its inception, AVU has been linked that is hosted by Stoas Learning in the Netherlands. to a global network of leading universities, mainly based In 2014, VUU had about 600 students enrolled in its in North America and Europe, which has allowed imports distance learning program. Foreign students from of education services at 31 sites in 17 African countries.7 the Burundi, the Democratic Republic of Congo, Other examples of e-learning include the Virtual University of Rwanda, Somalia, and South Sudan account for Uganda (box 3.1) and the University of South Africa, Africa’s 25 percent of total students. The university recruits leading distance-learning open institution, which offers local and international staff members, who also internationally accredited qualifications to students from 130 contribute through the VLE. Students submit their countries. In 2012, 8.2 percent of all registered University of assignments online, and tutors review, grade, and South Africa students came from African countries (other provide feedback on the assignments online. The than South Africa).8 assignments are screened through antiplagiarism Telemedicine is also gaining traction in Africa. The Pan- software integrated into the VLE. African e-Network Project is one of the largest projects for Source: World Bank 2014 Interviews and https://moodle.org/. telemedicine in Africa and is based on the growing partnership between India and Africa (box 3.2). Several Indian universities and educational institutions are providing online education to about 10,000 students in Africa over a five-year period in various disciplines, including medicine. And Indian medi- tele-dermatology project, which provides dermatology cal specialists are offering online medical consultations to support to local physicians, dermatologists, and health medical practitioners and patients residing in Africa. care workers in hospitals and clinics throughout Africa; and Other examples of telemedicine include the dissemina- the participation of several African countries in the iPath- tion of information to doctors in Southern Africa through Network, a collaboration platform used in telemedicine to a medical library in Zambia, which partnered with a library share information on consultations, teaching, and research at the University of Florida in the United States; the Africa among a group of medical specialists worldwide (Wamala and Augustine 2013). 6 For more details, visit http://www.avu.org/. The project is also Mobile phone surveys carried out by the World Bank in equipped to support e-governance, e-commerce, infotainment, 2014/15 confirm that many hospitals in Kenya, Malawi, Nigeria, resource mapping, and meteorological and other services in African Tanzania, and Uganda use telemedicine on a regular basis countries. See http://www.panafricanenetwork.com/. (figure 3.1), with hospitals in Kenya, Malawi, and Tanzania 7 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ appearing to be the most frequent users of telemedicine AFRICAEXT/0,,contentMDK:20267251~menuPK:538760~pagePK: 146736~piPK:226340~theSitePK:258644,00.html. (figure 3.2). PwC and GSMA (2012) estimates that by 2017, 8 See http://www.unisa.ac.za/default.html. Africa’s mobile health revenue will reach US$1.2 billion (or 66 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa 5 percent of the projected global mobile health market Box 3.2: India’s Partnership with Africa earnings of US$23 billion). on e-Health and More Although distance learning programs and online edu- cation are catching up in the African continent, poorly India is contributing to Africa’s development by developed Internet and telecommunications infrastructure funding several projects, such as the ambitious still constrains the use of mode 1 in exporting health and Pan-African e-Network Project, for promoting online education services. education and telemedicine programs across the continent. The project’s objective is to link major universities and centers of excellence in Africa Students and Patients without Borders: and India and thereby extend higher education Revitalizing Education and Health Systems to some 10,000 students in Africa over a five-year in Sub-Saharan Africa period. The project also aims to link major African Although information on students studying abroad and hospitals to 12 super-specialty hospitals in India patients receiving treatment abroad is partially captured to improve medical training, online medical con- by International Monetary Fund (IMF) Balance of Payments sultations, and other facilities. Under this project, Statistics (BOPS) under expenditure on travel services, the India would connect 53 learning centers, 53 remote data are patchy, especially for African countries. The limited hospitals, five regional universities, and five regional available data suggest that despite the continent’s weak hospitals in Africa to seven leading universities in educational systems, several African countries are exporting India and 12 super-specialty hospitals via seamless education and health services (table 3B.1 in annex 3B, and and integrated satellite, fiber optic, and wireless table 3C.1 in annex 3C). However, most African countries networks. This is by far the largest distance learn- remain importers of education and health services (table 3B.2 ing and telemedicine project ever undertaken in in annex 3B, and table 3C.2 in annex 3C). Africa. A total of 47 African countries have already UNESCO provides additional information on students joined the project, which is now in its second phase. studying abroad. Angola, Mauritius, South Africa, and Uganda Source: http://www.panafricanenetwork.com/. are successfully exporting education services, primarily to the region. Burkina Faso, Burundi, Cameroon, and Ghana are Figure 3.1: Use of Telemedicine in Selected Countries Figure 3.2: Frequency of Use of Telemedicine in Sub-Saharan Africa, April–July 2014 (%) in Selected Countries in Sub-Saharan Africa, April–July 2014 (%) 100 14 100 8 responding to a given choice 13 80 40 38 8 % of hospital officials or medicare professionals responding to a given choice 80 33 33 % of hospital officials or medicare professionals 23 50 44 60 74 85 90 100 100 100 60 86 6 63 40 33 60 62 40 17 67 20 62 13 50 26 20 15 10 33 25 0 20 0 on na a i ia Ta da ia a a aw ny nd bi er an o ha an m al Ke ig er ga nz a i ia da ia a Za G w w M N am ny nd U er an R a an al Ke ig ga nz C w M N U R Ta Yes No Once a month 2–4 times a month Once a week At least twice a week Source: Calculations based on the results of the mobile phone surveys described in World Bank 2015. Note: Data are compiled from hospital officials or medical professionals responding to choices in the World Bank mobile phone survey. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 67 Figure 3.3: Imports from the Top Four Destinations for Select African Countries, 2011 East Africa Southern Africa Western Africa France, 1,620, France, 1,757, 4% 8% South Africa, 4,766, 13% South Africa, France, 4,244, 18% 15,980 South Africa, 18% UK, 4,330, 5% Others, Others, Others, 4,482, 18,055, 49% 10,559, 45% 37,588, 42% 12% UK, UK, 3,953, 19,845, USA, 8,302, USA, 17% USA, 22% 22% 2,767, 12,072, 12% 13% Source: Data from UNESCO’s UIS.Stat (http://data.uis.unesco.org). Figure 3.4: Top Three Source Countries of Foreign Students in Selected Countries in Sub-Saharan Africa, April–July 2014 % of students responding to a given choice 80 65 60 44 42 40 35 31 29 25 21 23 23 20 19 18 20 20 15 15 12 12 15 11 10 6 5 5 0 Chad Gabon DRC Nigeria USA Gabon Uganda Tanzania Sudan Zimbabwe Zambia Tanzania Ghana Benin Togo DRC Kenya Uganda Uganda Rwanda Mozambique Kenya Somalia South Sudan Cameroon Ghana Kenya Malawi Nigeria Rwanda Tanzania Uganda Source: World Bank 2015. Note: Data are compiled from students responding to choices in the World Bank mobile phone survey. also starting to participate in exports of education services.9 and Morocco appear to be the most important destina- Most African countries are importing education services, tions, while Canada, South Africa, the United Kingdom, and either regionally or from high-income countries. the United States seem to be the dominant destinations Recent data show that South Africa, the United Kingdom, for Anglophone countries (figure 3.4). However, the World the United States, and France represent the top destinations Bank mobile phone surveys also show that many African for African students who travel abroad for studies (figure 3.3). countries are importing education services from within the The World Bank mobile phone surveys are congruous region. The data confirm statistical and anecdotal evidence with the UNESCO data. For Francophone countries, France about the increasing importance of regional trade flows in education services in Africa. In recent years, Africa has started to diversify its import 9 UNESCO online database on international student mobility in destinations in education services. For example, in 2000, Afri- tertiary education: http://data.uis.unesco.org/. can students represented only 8 percent of all international 68 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 3.5: Foreign Student Enrollment in South African Universities, 1994–2011 (%) 100 17 17 13 14 13 12 90 80 38 35 % enrollment in South African 44 15 18 17 16 13 16 70 Universities 60 14 12 50 9 40 70 67 72 69 70 72 30 49 52 47 20 10 0 1994 1997 2000 2003 2006 2008 2009 2010 2011 Southern Africa Other Africa Rest of the World Sources: South Africa Department of Higher Education and Training for 1994 and 1997 data (http://www.doe.gov.za); UNESCO’s UIS.Stat (http://data.uis.unesco .org) for 2000 onward. students in Malaysia.10 During the past decade, however, d’Ivoire, Ghana, Madagascar, Morocco, Niger, South Africa, the enrollment of African students increased dramatically and Uganda are among the top education services export- to 23 percent of total foreign students in Malaysia in 2011. ers on the continent, with regional flows dominating these Of this, Nigerian students account for about 30 percent, exchanges (table 3.1). followed by students from Botswana, Libya, and Sudan, In East Africa, Kenya and Uganda host many African each representing over 10 percent of African students in students. Major policy developments in Uganda, such as the Malaysia in 2011. Universal Secondary Education initiative and the liberalization Up until 2004, Sub-Saharan Africa hosted a negligible reforms of the late 1990s, facilitated active private sector number of foreign students in comparison with all other participation in the education sector. The National Council regions of the world. In addition, this small number of for- for Higher Education estimates that exports of education eign students was declining over time (Bashir 2007). South services yielded US$36 million in 2010.12 Othieno and Nam- Africa was an exception; the number of foreign students in pewo (2012) note that foreign student entries in Uganda South African universities grew from about 13,000 in 1994 have been growing at an average rate of about 7 percent to nearly 54,000 in 2006, and increased further to more annually.13 International students are mostly found in pri- than 70,000 by 2011. Notably, in most years, the share of vate universities, with many public universities lacking the international students from Southern Africa has been on capacity to take on international students. For many private the rise, reaching 72 percent of South Africa’s total foreign universities, the international students market represents student enrollment in 2011. Since 2003, more than two- a new segment of growing interest.14 Most of the foreign thirds of foreign students in South Africa were from SADC countries, while 13–17 percent of international students 12 Uganda is exporting education services via online distance were from the rest of Africa and 14 percent were from the learning institutions (mode 1) as well. Recently, the Uganda National rest of the world (figure 3.5).11 Council for Higher Education NCHE, the statutory regulator for higher According to the most recent data from UNESCO’s education in Uganda, licensed and chartered two virtual universities, UIS.Stat, Angola, Burkina Faso, Burundi, Cameroon, Côte the Virtual University of Uganda and the Uganda Technology and Management University (UNCTAD 2013). 13 http://www.studyinuganda.com/index.php?option=com_ 10 UNESCO’s UIS.Stat (http://data.uis.unesco.org). content&task=view&id=121. 11 Zimbabwe is the top source country, accounting for 38 percent 14 Kampala International University leads with 6,715 students, of total foreign African students in South Africa in 2011. Other followed by Makerere University (2,444), Bugema University (862), important source countries include Botswana, Democratic Republic the Islamic University in Uganda (767), the Makerere University of Congo, Lesotho, Namibia, and Swaziland. Business School (671), and the Busoga University (575). Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 69 Table 3.1: Top Education Service–Exporting Countries in Africa, 2010–12 International Of which from % of within Africa Host country students within Africa students Main source countries South Africa 70428 61764 87.7 Botswana, DRC, Lesotho, Namibia, Swaziland, Nigeria, Zimbabwe (about 25k) Uganda 15035 n.a. n.a. details n.a. at source Ghana 9132 8636 94.6 Nigeria (6000+), Gabon (400+) and Congo (300) and Cote d’lvoire (400+) Morocco 8694 6988 80.4 Mauritania, Guinea, Mali, Niger, Senegal DRC (1300), Cape Verde and Sao Tome and Principe (2000 each) Angola 6530 6530 100.0 Burkina Faso 2187 n.a. n.a. n.a. Cameroon 1854 1848 99.7 Chad (1300), Congo and Gabon (100+ each) Côte d’lvoire 1818 1699 93.5 Benin, Burkina Faso, Togo Burundi 1813 1813 100.0 Congo (1000), Rwanda (700) Madagascar 1432 1384 96.6 Comoros (1200+) Niger 1125 1121 99.6 Mali (300) and Nigeria (200+) Source: UNESCO’s UIS.Stat (http://data.uis.unesco.org). Note: Data are for the latest available year (2010 or 2011). Data for Ghana is from 2012. n.a. = Not available. students come from neighboring countries, including the Bank mobile phone survey reveals that most responding Democratic Republic of Congo, Kenya, Rwanda, Sudan, and hospitals in the selected countries do treat foreign patients, Tanzania. The EAC and Common Market for Eastern and with several hospitals in Kenya, Tanzania, and Uganda report- Southern Africa (COMESA) regions are, thus, Uganda’s major ing that foreign patients represent more than 50 percent education services export markets.15 Angola and Ghana also of their total patients (figure 3.6). Top source countries of host international students. Intraregional student flows are foreign patients, in order of importance, are India, Kenya, the main source for these exports; African students in both Uganda, Tanzania, Sudan, Rwanda, China, Somalia, the United countries represent 100 and 95 percent, respectively, of States, Nigeria, and Togo. all international students. The latest UNESCO data suggest As with trade in education services, the regional dimen- that in Ghana, Nigerian students represent 71 percent of sion is becoming increasingly important in health services all international African students, while in Angola, students in Africa. For instance, the number of medical tourists in from Cape Verde and São Tomé and Príncipe represent South Africa grew from about 300,000 to more than 500,000 60 percent of total international student enrollments. between 2006 and 2009, contributing about US$9 billion in In health services, most African countries remain import- revenue (SAMP 2011). Interestingly, 88 percent of medical ers, as patients travel abroad for treatment. Nonetheless, visitors over the period 2006–10 originated from the African some African countries are exporting health services by continent, with Botswana, Lesotho, Mozambique, Swaziland, treating foreign patients in their home countries. The World and Zimbabwe being the top five source countries.16 Anec- dotal evidence suggests that medical tourists in Rwanda and Uganda are mainly from Burundi, Central Africa, and the 15 Kenya is the most important source of international students in Democratic Republic of Congo. Some Kenyans seek treat- Uganda, contributing over 60 percent of foreign student enrollment ment in Rwanda, given the availability of certain specialists, at the secondary level and 71 percent of international student enroll- such as ophthalmologists employed by Dr. Agarwal’s Eye ment at the university level. Tanzania follows with 16 and 12 percent, respectively. Other source countries include Burundi, Democratic Republic of Congo, Republic of Congo, Rwanda, and Sudan. See Maseruka (2010) and Uganda Bureau of Statistics, Statistics Abstract, 16 Regional patients mainly seek specialist consultations such 2010, p.113. http://www.ubos.org/onlinefiles/uploads/ubos/pdf%20 as scans, tests, health screenings, cardiac surgeries, orthopedics, documents/abstracts/Statistical%20Abstract%202010.pdf. cancer treatment, fertility treatments, and oncology. 70 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 3.6: Proportion of Foreign Patients Treated by Hospitals in Selected Countries in Sub-Saharan Africa, April–July 2014 (%) 100 5 4 3 5 10 14 15 20 48 28 14 80 % of hospitals responding 35 35 24 to a given choice 60 60 70 62 52 85 40 52 62 58 55 20 40 16 10 14 0 3 n na a i ia da ia a a aw oo ny nd bi er an ha an m al Ke er ig ga nz Za G w M N am U R Ta C None 1%–10% 11%–25% 25%–50% Over 50% Source: World Bank 2015. Note: Data are compiled from hospitals responding to choices in the World Bank mobile phone survey. Hospital. In Kenya, most foreign patients are from other EAC curricula; international language schools, usually affiliated member states, with some patients coming from Central with an embassy; and international research institutions in Africa and the Democratic Republic of Congo (World Bank Kenya, Rwanda, and Uganda. 2014 qualitative interviews). Box 3.3 presents some of the Secondary institutions providing internationally certified strategies for attracting medical travelers within Africa. programs, such as the Cambridge International General Certificate of Secondary Education, have had great success in the region. Such schools offer international curricula. Initially Borderless Hospitals and Campuses: they targeted members of the international community tem- Expanding Access to Foreign Medical porarily working and living in the region, but more recently and Education Services they have catered to a growing number of local students Given the large scale of the investments involved in setting demanding an international education. The schools offer a up an educational institution abroad, not many African coun- variety of curricula depending on the school’s orientation, tries are establishing branch campuses in other countries. such as an American curriculum, the French system, the But several regional tertiary institutions have established Cambridge International General Certificate of Secondary satellite campuses in neighboring countries in response Education, and so on. Growth in student enrollment is driven to the high demand for services from African students. For mainly by referrals and recommendations of other parents example, Kampala International University has affiliates in and students. Several internationally-based institutions Kenya and Tanzania (box 3.4), Cavendish University Uganda have expanded in the region, such as the Aga Khan Schools has Zambian origins, and the Jomo Kenyatta University of in Kenya, Tanzania, and Uganda; the Light Academy with Agriculture and Technology has a presence in Rwanda. Turkish origin in Kenya and Uganda; and GEMS Cambridge Kenyan tertiary institutions have been aggressive in their International Schools with Indian and United Arab Emirate regional expansion. Most affiliates have located in Rwanda ownership in Kenya, Tanzania, and Uganda. because of the ease of doing business and establishing a In tertiary education, there are further examples of Afri- foreign-based institution in the country. can countries importing education services via mode 3. For Evidence of services trade in East Africa is seen in the instance, the campuses of several foreign universities—such presence of international higher education institutions with as Monash University from Australia and Stenden Hoge­ satellite campuses; international high schools teaching foreign school from the Netherlands—have established a presence Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 71 Box 3.3: Encouraging Medical Tourism Box 3.4: Intra-African Linkages: Kampala within Africa International University and Dreamline College, Nairobi International Medical Group Dreamline College is an affiliate of Uganda-based The International Medical Group (IMG) is a group of Kampala International University (KIU). Dreamline health services companies based in Uganda. IMG College was acquired by KIU in 2008 and was integrates different healthcare services segments licensed by the Government of Kenya to practice and drives quality in health care service delivery during the same year. Twenty percent of the staff through international certification standards, and lecturers are from Burundi and Uganda. The including International Organization for Stan- college’s curriculum is derived from the KIU cur- dardization (ISO) certification. IMG has developed riculum and is accredited by Uganda’s National strategic partnerships with reputable health service Council for Higher Education. However, for a course providers such as Lancet Laboratories and Resolu- to be accredited in Kenya, it has to be vetted and tion Insurance, with presence in Eastern, Central, approved by the Commission of Higher Educa- and Southern Africa. The member companies of tion in Kenya. The college admitted 500 students IMG include International Hospital Kampala, which in 2014; they came from a variety of countries, mainly treats Ugandan nationals and foreigners such as Kenya (45 percent), Somalia (33 percent), residing in Uganda. However, International Hospital Uganda (15 percent), Rwanda (5 percent), and Kampala also sees cases of medical tourism from Tanzania (2 percent). the neighboring countries, including Burundi, the Democratic Republic of Congo, Rwanda, and South Source: World Bank 2014 qualitative interviews. Sudan. Part of IMG’s success arises from making full use of the insurance companies and having a business model that encompasses the local and in technology programs and research. Carnegie Mellon Uni- international markets. versity is the first U.S. Ivy League institution to have a campus in Africa (box 3.5). The Rwandan government has allocated Netcare the university space in the newly planned technology hub Netcare, a hospital investment firm based in in Kigali to establish a full campus. South Africa, has developed a network of agents Health services in Africa offer many commercial oppor- to promote medical tourism through its South tunities. At this stage, however, trade in medical services African hospitals. The firm makes arrangements for via commercial presence in developing countries is limited. accommodation and recuperative care for medical Generally, health-directed foreign direct investment (FDI) tourists from African countries. Established centers is controlled by governments and is a politically sensitive in Johannesburg assist foreign patients and their issue. The African Development Bank notes that of the total families with transport, visas, accommodations, and FDI stock, investments in health services accounts for only medical treatment. Netcare employs interpreters 0.2 percent in the case of developed countries and only that speak English, French, and Portuguese, and 0.1 percent in the case of developing countries (AfDB 2013). clearly targets African patients (Cattaneo 2010). Nevertheless, there are a few examples of foreign hospitals, including from other low- and middle-income countries, Source: World Bank qualitative surveys in Eastern Africa, 2015. supplying health services in Africa (box 3.6). Other examples of medical institutions that have a foot- print in several EAC countries include the Aga Khan Hospital in South Africa. Other examples include the Lancaster University (with presence in Kenya, Tanzania, and Uganda); University campus in Ghana, and the campus established health insurance companies such as UAP, Resolution Health, by the Limokokwing University from Malaysia in Botswana. Jubilee Insurance, and Britam insurance, which are present in The Government of Rwanda has been pursuing innovative most EAC countries; and laboratory service providers, such partnerships with international institutions that are leaders as Lancet South Africa with presence in Kenya and Uganda. 72 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 3.5: Global Linkages: Carnegie Mellon University in Rwanda Carnegie Mellon University, in partnership with the Carnegie Mellon in Rwanda charges the same tuition Government of Rwanda, established Carnegie Mellon as in the United States, approximately US$20,000, and University in Rwanda in 2012. This is the first U.S.- retains the same high entry criteria as for its other cam- based research university conferring degrees with puses worldwide. The Rwandan government supports an in-country presence in Africa. Carnegie Mellon a scholarship program that provides 50 percent of the University has other campus worldwide, including in tuition fees for Rwandans and East African Community Australia, Greece, Japan, Portugal, and Qatar, among (EAC) residents. Rwandan students, unlike their other others. Carnegie Mellon University in Rwanda is open EAC counterparts, can access additional government to applicants from all over the world (not only Rwandan loan programs through the Rwanda Education Board students). Currently, the university employs 15 full- to cover 50 percent of the remaining tuition fees. The time faculty staff and has 44 students. The majority of stringent admission and qualification criteria and the students are Rwandan; however, there are some expensive tuition put the university program out of students from neighboring countries, such as Kenya range for the majority of East Africans. and Uganda. Source: World Bank 2014 qualitative interviews. Box 3.6: South-South Linkages: Dr. Agarwal’s Eye Hospital in Rwanda Rwandans and residents from other African countries Kingdom), with more than 350 consultant ophthal- have historically been dependent on seeking eye treat- mologists. Dr. Agarwal’s Eye Hospital in Rwanda was ment in South Africa, Europe, and other countries such established in 2011 and began operations in 2012. The as India. The cost of treatment is high and involves the cost of specialized treatment at the hospital is between additional costs of travel and accommodations for US$2,000 and US$3,000 compared with US$10,000 in the patient and accompanying persons. The Govern- India or South Africa (including the cost of travel and ment of Rwanda facilitated the partnership between accommodations). Currently the hospital serves foreign Dr. Agarwal’s Eye Hospital and the Rwanda International patients from Burundi, the Democratic Republic of Institute of Ophthalmology by providing favorable Congo, and Uganda. The hospital receives about three conditions for obtaining the necessary licenses, busi- patients from Burundi and the Democratic Republic of ness registrations, visas, and work permits. Congo daily, about one Ugandan patient weekly, and Dr. Agarwal’s Eye Hospital has its headquarters in two to three patients from Kenya every quarter. Most Chennai State, Southern India. It was established in foreign patients come for highly specialized surgeries, 1957 and now has a network of 60 hospitals world- such as retinal surgery or cornea transplants. wide (including in India, Madagascar, Mauritius, Source: World Bank 2014 qualitative interviews. Mozambique, Nigeria, the Seychelles, and the United Brain Drain or Circulation: Do Educators absent, which prevents analyses of education services and Medical Professionals on the Move exports via mode 4. Because of the lack of reliable data in Exacerbate Africa’s Skills Shortages? Africa, recent studies use the receiving countries’ teacher registration data to provide an indication of the extent of Africa also exports education services via the movement teacher migration from selected African countries (Bhorat, of its educators. Examples include Zimbabwean educators Meyer, and Mlatsheni 2005; Kok, Gelderblom, and Van Zyl who teach in South Africa and Tanzanian Swahili teachers 2006; Morgan, Sives, and Appleton 2005). The latter study who provide education services in the Democratic Republic suggests that in 2003, 1,492 South Africans held teaching of Congo and Uganda. Systematic information on teachers permits in the United Kingdom, or close to 30 percent of and educators traveling abroad to provide services is largely teaching permit holders in the country. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 73 South Africa seems to be an equally important importer been perceived as brain drain (see, for example, Chen and of education services via the temporary movement of Boufford 2005), a recent study by Ozden and Phillips (2015) providers, mainly from the region. According to the South adds a new dimension to this debate. African Council of Educators, the intake of foreign teachers Ozden and Phillips (2015) show that of a total of nearly in South Africa has increased dramatically, from 1.2 percent 20,000 “African” doctors in the United States, about 48 per- of total educator registrations in 2006–07 to 28 percent in cent were not only born in Africa, but also trained in Africa, 2009–10 (SACE 2011). South Africa attracts teachers primarily while 44 percent were born in Africa but trained abroad. The from Lesotho and Zimbabwe (Wentzel and Tlabela 2006). migration of Africa-born and trained doctors varies widely In Botswana, nearly 5 percent of all teachers are foreign- across the continent. For instance, 307 of 374 Sudan-born ers (Manik, Maharaj, and Sookrajh 2006). The World Bank doctors in the United States were educated in Sudan, but interviews conducted as part of this study also reveal that only 52 of 378 Ugandan doctors in the United States were many Kenyan and Ugandan teachers are providing educa- born and trained in Uganda. The authors suggest that the tion services in Tanzania, often informally. extent of loss of human capital investment in medical edu- In health services, the movement of health providers to cation from African countries may have been overstated. supply medical services in the country of the patient (mode 4) In addition, the demand for health workers in Africa largely seems to be as important as the consumption abroad by surpasses the number of African health professionals work- domestic patients (mode 2). The migration of health profes- ing in OECD countries. For instance, in 2000 all Africa-born sionals from Africa to other parts of the world has received nurses and doctors working in OECD countries represented particular attention, as it is considered an important contribu- about 12 percent of the total shortages for the region (OECD tor to Africa’s shortage of health workers. For instance, Ratha 2010). This shows that although international migration may et al. (2011, chapter 3) show that in 2004 there were about exacerbate the shortages in Africa’s medical sector, it is not 25,000 Africa-trained physicians in OECD countries, almost the main cause of the continent’s health human resource one-fourth of the total number of physicians in Africa that year crisis. Nevertheless, international and regional cooperation (based on information from Bhargava and Docquier 2008). between countries or regional health institutions can help The migration of African physicians, estimated at between manage migration and enhance the integration in Africa’s 10 and 15 percent, is much higher than for other African health workforce. professionals and tertiary educated workers (Docquier and The regional migration of health professional has been Marfouk 2006). Furthermore, the number of African-trained explored by several studies. For instance, it was found that doctors working in OECD countries rose by 91 percent although half of the Cameroonian health professionals intend between 1991 and 2005. By contrast, the increase in the to migrate, only 4 percent of them think of migrating to other number of Africa-trained physicians working in Africa during African countries such as CÙte d’Ivoire or Senegal. Similarly, in the same time frame was comparatively low, at 61 percent. Senegal, only 2.6 percent of health care practitioners intend Many African countries are witnessing the migration of to migrate to other African countries. By contrast, in Uganda physicians, nurses, and other medical professionals, primarily and Zimbabwe, about 20 percent of health care workers to Canada, South Africa, the United Kingdom, and the United intend to migrate to other African countries (WHO 2004). States.17 For example, 43 percent of Liberia’s and 30 percent Anecdotal evidence suggests that foreign medical profes- of Ghana’s trained physicians are providing health services sionals have been working temporarily in Kenya, Rwanda, in Canada and the United States (Cattaneo 2010). This figure and Uganda on a regular basis. Frequent temporary medical exceeds 50 percent in Malawi, Tanzania, Zambia, and Zim- professional trade within these three countries is mostly in babwe (SAMP 2008). Earlier evidence suggests that approxi- areas with acute shortages of medical specialists, such as mately 200 doctors left Zimbabwe for Botswana and South surgery (including neurological and cardiac surgery), special- Africa in 1992 (SAMP 2002). Similarly, a study of 115 emigrant ist reviews, and second opinion consultations. Movement Zimbabwean doctors in 2008 revealed that 36.5 percent of of medical professionals is also seen in medical camps, them were based in South Africa, while 3.5 percent were short-term research, and teaching assignments. based in other African countries (SAMP 2011). Although the Given the shortage of health professionals in Africa18 migration of African doctors to OECD countries has historically and their tendency to migrate to high-income countries, 17 Whether these movements are temporary or permanent is not 18 For instance, only South Africa and Tunisia have more than studied in any detail, so we are not able to comment on the exact 75 physicians per 100,000 people. At the other extreme, Tanzania volume of exports of health services via mode 4. and Malawi have 1 and 2 physicians per 100,000 people, respectively. 74 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa developing incentives for retaining such professionals on Figure 3.7: Motivations for Medical Travel Abroad the continent is a high-priority issue for most governments. from the United States 4% Determinants of Trade in 9% Most advanced technology Education and Health Services 15% Better quality care for necessary procedures 40% Quicker access for medically Typical determinants of trade include differences in endow- necessary procedures Lower-cost care for medically ments, as well as differences in the cost and quality of services necessary procedures and institutions providing the services. Lower-cost care for 32% discretionary procedures Cost or Quality: What Matters More? Many studies show that cost is an important determinant Source: McKinsey Global Institute 2008. of education and health services trade. For instance, South African institutions of higher learning charge lower fees than recognized qualifications (Hahn 2005). South African univer- high-income nations and have a lower cost of living.19 In fact, sities dominate in the top 10 rankings of universities in the MacGregor (2007) argues that the South African govern- region (table 3.2).21 And South Africa’s 2013–14 Global Com- ment subsidizes SADC students at par with local students petitiveness Index on the quality of education and training is (as per the SADC agreement). This might explain the higher 3.9, only slightly below the United Kingdom’s index of 5.5.22 proportion of SADC students in South African universities. Similarly, lower tuition and good university rankings Similarly, in the case of Uganda, Othieno and Nampewo make Uganda much more competitive than other regional (2012) find that on average Ugandan universities charge partner states (Othieno and Nampewo 2012). less for tuition than comparable universities in the region.20 In health services, the findings of the 2014 World Bank In health services, the five most important drivers of medi- mobile phone survey show that in several cases domestic cal tourism are advanced technology, better care quality, patients from the surveyed countries pay more for treat- quicker access to care, lower cost of vital procedures, and ment received abroad than do foreign patients undergoing lower cost for discretionary procedures (McKinsey Global treatment in the selected countries (figures 3.9 and 3.10). Institute 2008). Quality seems to be more important than Again, this may suggest that the cost of medical services is cost when it comes to determinants of travel abroad to not the decisive factor for trade in health services. consume medical services (figure 3.7). Although differences in the quality of services may explain The 2014 World Bank mobile phone survey confirms this outcome, the non-availability of certain specialized that universities in several African countries have managed cures (within the broader treatment category) could be an to attract foreign students despite higher costs (figure 3.8). additional explanatory factor (figure 3.11). The data suggest that quality matters when it comes Differences in government expenditure in the health to education services exports. In general, foreign students sector, size of the health services infrastructure, and diversity base the choice of a destination on the quality of education offered. For instance, South African education services exports are based on the quality and size of the higher education 21 Additionally, South Africa has set up the South African Qualifica- sector, which is easily accessible and offers internationally tions Authority (SAQA) board, which helps in attaining internationally recognized qualifications. In South Africa, staff at most universities are offered attractive research incentives for promoting better- 19 http://www.studysa. quality teaching and education (Kwaramba 2009). 20 The tuition per year for a Bachelor of Commerce (BCOM) is 22 The Global Competitiveness Indicator derived from the follow- about US$1,464—well below fees for a similar program in major ing indicators: (a) Secondary enrollment, (b) Tertiary enrollment, universities in other EAC partner states. Similarly, Makerere Univer- (c) Quality of the educational system, (d) Quality of math and science sity charges the lowest tuition for surgery and medicine courses education, (e) Quality of management schools, (f) Internet access (US$1,977 per year) and agriculture and food science (US$ 1,971 per in schools, (g) Local availability of research and training services, year). Compare this to US$2,208 per year charged by the National and (h) Extent of staff training. The 2013–14 report is available University of Rwanda, and US$5,042 per year at the University of at http://www3.weforum.org/docs/WEF_GlobalCompetitiveness Nairobi for Surgery and Medicine. Report_2013-14.pdf. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 75 Figure 3.8: Cost of University Tuition in Sub-Saharan Africa, 2014 (US$) a. By university type b. By domestic and foreign students 2994 3000 2774 3000 2736 2000 2000 1546 1579 1352 1398 1205 684 1059 1318 1022 1103 1126 1029 928 1080 846 936 1000 1000 749 669 720 440 365 268 259 312 154 140165 0 0 Private Public Private Public Private Public Private Public Public Private Public Public Private Public Foreigner Local Foreigner Local Foreigner Local Foreigner Local Foreigner Local Foreigner Local Foreigner Local Foreigner Local n na a i ia da ia a n na a i ia da ia a aw aw oo ny nd oo ny nd er an er an ha an ha an al al Ke Ke er ig ga er ig ga nz nz G w G w M M N N am am U U R Ta R Ta C C Source: World Bank 2015. Table 3.2: Top 10 Ranked Universities in Africa, 2009 University Country African ranking World ranking University of Cape Town South Africa 1 398 University of Stellenbosch South Africa 2 566 University of Pretoria South Africa 3 718 University of Witwatersrand South Africa 4 720 Rhodes University South Africa 5 738 University of South Africa South Africa 6 1449 University of Western Cape South Africa 7 1553 America University of Cairo Egypt, Arab Rep. 8 1826 North West University South Africa 9 1857 University of KwaZulu Natal South Africa 10 2214 Source: Marko (2009). of services determine the extent of intra-African trade in and cheaper regional travel and accommodations compared health services. Other drivers include the cost and quality with travel to Asia, Europe, or the Americas. The costs of of services, availability of state-of-the-art equipment, and specialist procedures in Africa are comparable to costs in availability of specialists. Specifically, drivers of medical tour- India; however, the cost of travel and accommodations ism in the region include the recognition of transnational is higher.23 disease patterns, growing patient mobility (facilitated by low-cost airlines and advances in information technology), 23 For example, the cost of eye surgery in India and Rwanda is and growing development of the industry. Other drivers of about US$2,500 per treatment; but including the cost of travel and medical tourism in the region include lack of local specialist accommodation, a patient that sought treatment in India would health services (such as facilities and specialist consultants), spend close to US$10,000. 76 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 3.9: Cost of Treatment Received by Foreigners in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$) 2593 2500 2000 Cost, in USD 1500 1340 1153 1111 1000 523 544 512 475 500 212 116 144 102 108108 125 142 119 31 31 41 81 105 0 Cameroon Kenya Rwanda Tanzania Uganda Cameroon Kenya Rwanda Zambia Cameroon Kenya Cameroon Rwanda Uganda Zambia Cameroon Kenya Malawi Rwanda Tanzania Uganda Zambia Cancer Cardiovascular Kidneys Neurological Visual Source: World Bank 2015. Note: Data are compiled from foreign patients responding to the World Bank mobile phone survey. Figure 3.10: Cost of Treatment Received by Patients Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014 (US$) 4000 3340 2953 3000 2758 2792 2533 2667 2235 Cost, in USD 2112 1028 1979 1889 2000 1866 1676 1229 1398 1132 1101 908 9601224 1000 693 349 438 415 267 233 198 155 98 175 108 0 Ghana Kenya Malawi Rwanda Tanzania Uganda Zambia Cameroon Ghana Kenya Rwanda Tanzania Uganda Zambia Cameroon Ghana Kenya Malawi Rwanda Uganda Zambia Cameroon Ghana Rwanda Zambia Cameroon Ghana Kenya Rwanda Tanzania Uganda Cancer Cardiovascular Kidneys Neurological Visual Source: World Bank 2015. Note: Data are compiled from patients responding to the World Bank mobile phone survey. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 77 Figure 3.11: Reasons Domestic Patients Seek Figure 3.12: Reasons for Medical Professionals Treatment Abroad in Selected Countries Working Abroad in Selected Countries in Sub-Saharan Africa, April–July 2014 (%) in Sub-Saharan Africa, April–July 2014 100 100 9 26 27 20 27 % of professionals responding 9 27 80 37 80 37 % of patients responding 44 51 17 17 26 to a given choice to a given choice 76 64 14 21 27 40 20 60 7 72 80 60 50 10 59 32 39 10 31 29 40 51 40 36 49 2 9 38 50 51 5 28 9 7 20 42 2 20 10 16 39 22 19 28 24 17 20 18 20 13 7 6 6 3 7 3 10 3 6 2 2 0 0 n na a i ia Ta da ia a a n na a i ia Ta da ia a a aw aw oo ny nd bi oo ny nd bi er an er an ha an ha an m m al al Ke Ke ig ig er ga er ga nz nz Za Za G w G w M M N N am am U U R R C C Unavailable at home Better salaries Higher quality of doctors & treatment More job opportunities Lower cost of treatment Better salaries and more job opportunities Other Family reasons Others Source: World Bank 2015. Note: Data are compiled from patients responding to choices in the World Source: World Bank 2015. Bank mobile phone survey. Note: Data are compiled from medical professionals responding to choices in the World Bank mobile phone survey. Geography, Language, and Cultural Proximity: Can They Support the Regional Advantage? The proximity of providers is equally important in health services. For instance, the contribution of Algeria and Libya Geographical proximity and language similarity play an to Tunisian exports of health services amounted to 70 per- important role in attracting foreign students and patients. cent of the country’s total health services exports (AfDB For example, Lesotho, Namibia, and Zimbabwe are the larg- 2013). Eighty-seven percent of medical tourists in Jordan est source countries for South Africa’s education services are from neighboring countries, and in Thailand, 89 percent exports because of their geographical proximity, or their of the foreign patients treated in 2002 were local expatri- shared colonial relationship and history. The country’s ates or Asian nationals (Lautier 2008). In the same decade, universities use English as the primary language of instruc- the volume of foreign patients arriving from neighboring tion, which helps attract students from several Anglophone countries was similar for Singapore (84 percent), the United African countries. Kingdom (61 percent), and Germany (88 percent) (Lautier Similarly, in East Africa, most foreign students come 2005; Mortensen 2008; Obermaier 2009). from the subregion. During the colonial era, most univer- sities were established to serve the region. For example, Makerere University (formerly known as the University of What Explains Mobility in Education East Africa) was established to train students from Kenya, and Health Services? Tanzania, and Uganda. After independence, the remnants The push and pull factors that drive the migration of African of the colonial education system were still prevalent and education and health professionals broadly mirror those several universities were renowned for excellence in differing that apply to highly skilled workers in general. Such factors fields. For instance, many leading legal sector professionals include inadequate remuneration in the home country, in the region attended the University of Dar es Salaam; the the desire to work in better educational or managed University of Nairobi was known for the quality of its courses health systems and to continue education and training, in economics and engineering; and Makerere University had and family reasons. These encourage African teachers and a leading role in producing medical professionals. health care professionals to seek employment abroad, 78 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa leading to trade through temporary presence (mode 4) qualifications plays an important role in addressing quality or to permanent migration. The 2014 World Bank mobile issues related to trade in education and health services. phone survey reveals that family reasons are equally if Regional accreditation bodies can perform a critical role in not more important than other factors for the mobility of setting standards and maintaining quality. There are several African health professionals (figure 3.12). Additional pull subregional networks for quality assurance in Africa. These factors, such as shortages of doctors and nurses in the include the African and Malagasy Council for Higher Edu- host countries, further encourage the outflow of African cation (CAMES), the Inter-University Council of East Africa, health professionals. SADC, the Southern African Regional Universities Associa- Two key points emerge from this overview. First, the avail- tion, the Higher Education Quality Management Initiative for able data, including the results from the World Bank mobile Southern Africa, and the Association of African Universities.24 phone survey on trade in education and health services, Furthermore, policy makers could also refer to the tools as well as anecdotal evidence, highlight the importance of and best practices provided by international agencies, such regional trade flows. Furthermore, the data suggest that the as UNESCO (UNESCO 2006). These guidelines are helpful cost is not decisive; rather, the availability and the quality of in assessing the quality and relevance of higher education services seem to be more important for trade in health and provided across borders and to protect students and other education services than other types of services. stakeholders such as governments, education institutions, quality assurance and accreditation bodies, academic rec- ognition bodies, and professional bodies. Regulatory Hurdles and Explicit Trade in education and health services can help ensure that demand is better satisfied and financial resources Trade Barriers Affecting Trade become available to improve the quality of the institutions in Education and Health Services providing such services. However, increased trade, particularly through modes 1 and 3, can also accentuate the potential The information on the determinants of trade presented quality risks in both sectors. For example, in education ser- in the previous section is complemented in this section by vices, existing national frameworks for quality assurance or a more systematic discussion of domestic regulations and accreditation in higher education often focus exclusively on explicit trade barriers that affect trade in education and health service provided by domestic institutions. Such frameworks services. Concrete examples and policy recommendations are inadequately prepared to address new challenges from based on regulatory surveys carried out in four East African trade and the private provision of services.25 Furthermore, countries round up this regulatory analysis. many African countries would have difficulty developing and implementing appropriate quality standards or accreditation Domestic Regulations and recognition mechanisms that (i) ensure that patients and students remain protected from fraudulent or poor quality Education and health services have traditionally been providers, and (ii) reassure international providers that the subject to a high degree of regulation aimed at addressing standards and mechanisms are based on objective criteria information asymmetries between patients and doctors, and adequate verification procedures. Finally, given that negative externalities generated by skills shortages and health- and education-related quality criteria differ across skills mismatches, and concerns related to access to medi- countries, the resulting diversity in quality assurance and cal services. The typical regulatory measures in the health accreditation systems across the continent further compli- sector are put in place to (i) ensure the quality of services, cates the matter.26 (ii) minimize brain drain, and (iii) pursue equity. Ensuring Quality 24 See Materu (2007) for more details. A major concern in the education and the health sectors is 25 Because distance learning programs can easily escape the pur- the need to ensure that services meet a minimum standard view of quality assurance agencies (CHEA 2002), there is a greater of quality to protect the interests of the consumers (the need for cooperation with international and other accrediting agencies in such programs. students or the patients) and the integrity of the providers 26 Materu (2007) documents some of the pilot audits and accredita- (the education system or the medical institutions). In general, tion reviews undertaken by South Africa and Egypt. These pilots have quality assurance and accreditation mechanisms are put in proved to be very helpful in simplifying procedures and identifying place to achieve such objectives. The mutual recognition of standards and criteria that were too complicated or redundant. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 79 Minimizing Brain Drain poor students; the relationship between the cost of medi- cal treatment and individuals’ contribution, including rules The benefits from trade in education and health services and practices governing the reimbursement of patients can be offset by the permanent emigration of students under various insurance schemes that affect insurance or health professionals. This represents a significant loss portability; and the ability of patients to consume medical of investment in African sending countries. Governments services. These regulations will be examined in conjunction have used various policies to encourage students or health with the trade policy measures applied in the medical and professionals to return to their home countries, with varying education sectors. degrees of success. Some countries have tried restrictive policies, such as compulsory national service, to render migration more difficult. These policies have not proven very Explicit Trade Barriers effective, since they represent only temporary deterrents for Typical barriers on mode 1 are restrictions on the electronic migration. Another dimension is the development of policies transmission of educational materials or medical services/ and incentives for the return of highly qualified migrants, telediagnosis, restrictions on the types of courses or treat- including international students and health professionals. ments that may be offered, quotas or economic needs tests This approach requires a combination of better economic in place that restrict the number of suppliers of education conditions at home, along with improved university and and health services, restrictions on payments and transfers health facilities. of funds abroad, and local accreditation and recognition Several developing countries have attempted to incen- requirements. Trade in education and health services via tivize the return of qualified migrants through the use of mode 2 is usually constrained by barriers imposed by policies, such as tax rules on remittances, which foster home and host countries on the mobility of students and inward investment and research and development. Other patients, and restrictions on the portability of scholarships measures include setting up knowledge networks among or medical insurance schemes. For example, many home skilled expatriates linked to their country of origin, with the countries require exit visas or impose foreign currency aim of mobilizing their knowledge and expertise for the controls in the home country. In addition, there might be development of their country without physically relocating. limitations concerning the coverage by public medical insur- Such initiatives implemented at the national and/or the ance schemes of service provided abroad. Further, foreign regional level can create new incentives for retaining the degrees obtained abroad might not be recognized in the scarce skilled professionals on the continent. For instance, students’ home country. diaspora networks, such as the South African Network of For mode 3, there are limitations on the numbers of Skills Abroad, which is comprised of members residing in permitted suppliers of education and health services and 68 countries, have been successful in offering training to their their legal form (including joint venture requirements), counterparts in South Africa; helping them conduct research; foreign equity capital limits, and discriminatory tax/fiscal transmitting information and research not accessible in South measures. Burdensome immigration requirements, quotas Africa; facilitating business contacts; transferring technology on numbers of service suppliers, nationality or residence to South African institutions, and so on (Mutume 2003). requirements, and labor market tests (horizontal measures or specific restrictions that apply to education and health Pursuing Equity professionals traveling across national borders to provide Trade in education and health services can intensify the services) often impede trade in health services via mode 4. existing inequity of education and health systems in Africa, given that foreign services tend to be more expensive than Addressing Regulatory Hurdles and Trade domestic ones. So-called affirmative action and various Barriers: A Case Study of East Africa27 forms of financial aid from the public and private sectors are the two most popular mechanisms for reducing access To maintain a certain level of quality in education and disparities in tertiary education (World Bank 2002). Therefore, medical services, all the examined East African countries our regulatory analysis examines existing mechanisms to impose qualification and academic degree requirements for guarantee the necessary support to low-income or disad- vantaged (for racial, religious, or gender-related reasons) patients and students unable to meet the cost of education 27 Regulatory surveys were carried out in Kenya, Rwanda, Tanzania, or health services. We examine funding arrangements for and Uganda between May and September 2014. 80 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa practitioners in these fields. For example, Kenya, Rwanda, and the nursing councils. These institutions are mandated by and Uganda require that all doctors possess a university government to register practitioners, set standards, admin- degree to be able to practice. Doctors are also required to ister and monitor continuous professional education, and have completed one year of internship before becoming a enforce compliance and discipline. In education services, the full member of the medical profession. Nurses do not need licensing of teachers is handled by teachers’ service com- a degree, but require a certificate or a diploma with man- missions in Kenya and Uganda. In Rwanda, teacher licensing datory practical training and a minimum set of subjects to and regulation are the responsibility of the Department of practice as a nurse. Similarly, in education services, teaching Teacher Education, Management, and Professionalization at higher education institutions in Kenya, Rwanda, Tanzania, under the Rwanda Education Board. In Kenya, teachers in and Uganda requires at a minimum a master’s degree from the public sector are required to undergo a nine-month an accredited university and some work experience. For practical training course before being licensed. teachers at the secondary and primary levels, a degree is When it comes to domestic regulation affecting the not required to practice. operations of educational and medical institutions and The training program curricula for teachers, professors, professionals, we find that education services seem to be nurses, and doctors are determined by the relevant govern- subject to fewer implicit restrictions related to price controls, ment education bodies. Professional associations assist in advertisement prohibitions, or stringent standards compared the development of programs by articulating the current with medical services. skills needed by employers and making recommendations Certain countries seem to impose more severe restric- to the relevant government bodies. tions in both sectors. For instance, although most countries The ministries of education are responsible for the overall do not regulate the prices and fees for educational or medical delivery of each country’s national development mandate with professionals, the Tanzanian government imposes binding regard to education. Within each ministry, statutory bodies minimum prices for all health services based on cost shar- are responsible for implementation of government strate- ing and binding maximum prices for all service provided by gies and policies in education. They ensure that standards private practitioners. Similarly, the Government of Tanzania and quality are met and maintained. Kenya and Uganda established a unit cost for higher education to guide fee have different government bodies covering primary and setting. It is also working on unit costs for secondary edu- secondary education levels and the higher education level. cation. Currently, school fees are set by schools, confirmed Rwanda does not have standalone institutions responsible by school boards/committees, and approved by regional for service delivery in education like Kenya and Uganda. education officers. Tanzania also regulates advertising by Instead, the Rwanda Education Board oversees overall sec- medical professionals and hospitals through regulatory tor regulation and the implementation of education sector bodies (such as the Private Health Facilities Advisory Board) policies. Professional qualifications obtained outside the by imposing restrictions on the nature of advertisements as respective jurisdictions are recognized in the examined well as the content and location of billboards. Uganda has countries. At the higher education level, the university or similar restrictions on advertisements by medical profession- college is responsible for vetting the qualifications of foreign- als and hospitals. Lastly, all the countries impose stringent trained professors and lecturers and ensuring they meet standards to ensure high quality of medical services. the country’s equivalency standards. Even when it comes to explicit trade barriers, educa- In medical services, the curriculum for continuous tion services, across most modes, are less restricted than professional education in all the three countries is solely those in medical services. For instance, in most cases, the determined by the medical boards and nurses’ councils. qualifications obtained by students via distance learning The nurses’ councils in each country are responsible for (mode 1) or through study abroad (mode 2) are recognized developing and administering continuous professional edu- by all the surveyed countries. In Tanzania, however, the cer- cation for nurses. For doctors to be licensed and registered, tificates need to be approved by the Tanzania Commission continuous professional education is mandatory in all the for Universities (table 3.3). examined countries. By contrast, in health services, there seem to be stringent Furthermore, doctors and nurses in the examined restrictions on telemedicine (mode 1) or medical tourism countries must be licensed by the mandated medical board (mode 2) in all the examined countries. Although a domes- before being permitted to practice. The same also applies to tic resident hospital/individual can obtain medical services medical service institutions. The licenses are conferred by the directly from a foreign professional/hospital located outside respective medical and dental practitioners’ boards/councils their country, the insurance policy limits coverage if diagnosis Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 81 and medical services are provided on a cross-border basis. foreign educational institutions or on the student popula- All surveyed countries have special restrictions on importing tion that can be enrolled in such institutions. In most cases, medical services via mode 1 or 2. For example, in Kenya the except in Tanzania where the certificates need to be approved insurance needs to have a regional footprint, and special by the Tanzania Commission for Universities, there are no provisions also apply on the type of ailment that restrict the restrictions on recognizing diplomas/degrees provided by services and level of coverage. Similarly, in Tanzania there foreign educational institutions (table 3.5). are restrictions on referral cases facilitated by the govern- There are significant restrictions on imports of medical ment (table 3.4). services via the establishment of foreign hospitals (mode 3). Trade in education services via branch campuses of Although a foreign medical service provider can enter and foreign universities (mode 3) seems relatively open in East establish a commercial presence in an East African country, Africa. Not only are foreign universities allowed to set up several restrictions hinder the complete integration of such branch campuses, but also there are no limits on ownership services. For example, there are restrictions on the legal shares, or on the legal form of higher education institutions. forms of entry of hospitals in countries such as Tanzania In none of the surveyed countries is the management or the and Uganda. In Tanzania, only limited liability partnerships board of directors of a foreign university required to include and corporations (private limited liability companies) are locals or residents of the host country. Unlike medical services, allowed for foreign hospitals, while in Uganda domestic foreign professors and lecturers who are not locally licensed and foreign hospitals are allowed only as sole proprietor- or practicing under a limited license are permitted, although ships or corporations (private limited liability companies). not required, to engage in commercial association with fully Furthermore, Tanzania and Uganda issue only a temporary licensed professors (lecturers to undertake education work). license for foreign hospitals. Tanzania has additional restric- Moreover, there are no restrictions on repatriation of earn- tions on the management of foreign hospitals, whereby ings by foreign educational institutions or on franchise and only fully registered local doctors can take over the posi- twinning arrangements, in which the education program is tion of a medical officer in charge. The country also limits offered through a local partner without requiring a “bricks and the number of beds a hospital can have, depending on the mortar” investment by the foreign institution. Finally, there type of health facility. In none of the surveyed countries are are no limits on financial assistance or loans for students at foreign doctors with foreign degrees permitted to engage in Table 3.3: Regulations Affecting Distance Learning (Mode 1) Regulation Kenya Rwanda Tanzania Uganda Need to demonstrate the lack of domestic Yes No No No availability? Qualifications obtained through distance learning Yes Yes No Yes recognized? Restrictions on the content and/or duration of No No n.a No permitted programs? Local accreditation and recognition requirements? Yes Yes Yes Yes Source: World Bank Regulatory Surveys, 2014. Table 3.4: Regulations Affecting Telemedicine (Mode 1) Regulation Kenya Rwanda Tanzania Uganda Allowed to obtain services from a foreign Yes Yes Yes Yes professional/hospital? Need to demonstrate the lack of domestic availability No No Noa No Limits on insurance policy coverage Yes Yes Yes Yes Restrictions on the range of services Yes Yes Yes Yes Source: World Bank Regulatory Surveys, 2014. a indicates that some restrictions apply. 82 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 3.5: Regulations Affecting the Establishment of Universities Abroad (Mode 3) Regulation Kenya Rwanda Tanzania Uganda Foreign commercial presence of universities allowed? Yes Yes Yes Yes Limits on the numbers suppliers, legal form, equity No No No No capital Restrictions on the legal form of higher education – No No No institutions? All the types of legal entities allowed as for domestic Yes Yes Yes Yes institutions Nationality requirements on staff, number of No No No No students Restrictions on branch campuses/different regulatory No No No No frameworks? Limits on ownership/control for non-licensed No No n.a. No professionals Non locally-licensed allowed to engage in commercial Yesa Yesa n.a. Yesa association with fully licensed professors, lecturers to undertake education work? Requirements regarding the composition of the No No n.a. No board of directors? Requirements regarding the management? No No n.a. No Restricted from providing services to a few groups? No No n.a. No Restrictions on the repatriation of earnings? No No No No Restrictions on franchise? No No No No Limit on financial loans for students at foreign No No No No educational institutions? Restrictions on the student population that can be No No No No enrolled? Restriction on recognizing diplomas/degrees No No No No provided? Source: World Bank Regulatory Surveys, 2014. Note: n.a.= not available. a Permitted, but not required. commercial associations with fully licensed health profes- Trade in education and medical services via the tem- sionals to undertake medical work (table 3.6). porary movement of people (mode 4) seems to be more For repatriation of earnings, the policies vary across the restricted than other modes of supply. In general, a medical examined countries. In Kenya, repatriation of capital and professional needs to fulfill stringent academic and profes- profits is allowed after payment of the relevant taxes. In sional qualifications to be eligible to practice in his or her Uganda, the institution is required to attain approval from own country, but these requirements multiply many fold in the Bank of Uganda to repatriate profits and dividends. In a foreign country, because of the many regulations. First, Rwanda, institutions that fulfill the requirements on invest- access to the medical profession is strongly regulated through ment promotion are eligible for tax-free repatriation of profits. compulsory licenses issued at the national or subnational There do not seem to be any restrictions on the range of level. For instance, in Tanzania, a foreign medical professional services that a foreign hospital can provide or the use of who is licensed to practice in a foreign country cannot enter public medical insurance in foreign hospitals. In general, the country temporarily to provide medical services. A local there are no limits on ownership or control of a foreign license needs to be obtained before beginning to even apply medical institution by medical professionals (individuals) for a work permit and visa. The duration of the license is who are not even licensed to practice in the host country. one calendar year for the examined countries. However, Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 83 Table 3.6: Regulations Affecting the Establishment of Hospitals Abroad (Mode 3) Regulation  Kenya Rwanda Tanzania Uganda Foreign commercial presence of hospitals allowed? Yes Yes Yes Yes Limits on the number of suppliers, legal form, equity No No Yesa Yesa capital? All the types of legal entities allowed as for domestic Yes Yes Noa Yesa hospitals? Nationality requirements on staff, number of No No Yesa Yesa patients? Limits on ownership/control for non-licensed No No Yesa No professionals? Non-locally-licensed allowed to engage in commercial No No No No association with fully licensed professors, lecturers to undertake medical work? Requirements regarding the composition of the No No No No board of directors? Requirements regarding the management? No No Yesa No Restrictions on the repatriation of earnings? No No No No Limit on the number of beds? No No Yesa No Restrictions on the range of services? No No No No Source: World Bank Regulatory Surveys, 2014. a Some restrictions apply. there are efforts to change the license duration for foreign Movement of educators across borders in East Africa doctors from one year to the intended duration of stay in is slightly more liberal as far as licensing regulations are the country. For instance, if a doctor is in the country for a concerned, especially compared with regulations for medi- five-day medical camp, then the doctor is granted a license cal professionals. Unlike the health services sector, access for five days, not one year (table 3.7). to the education profession is not regulated through The cost of a host country’s license is often higher compulsory licenses or registration issued at the national for a foreigner than for nationals. In fact, in Tanzania and or subnational level. There are no nationality, language, or Uganda, foreign doctors are issued only a temporary license, residency requirements for obtaining an educator’s license while nationals can be issued a license of three years for in any of the surveyed countries in East Africa. However, nurses and midwives and one year for doctors.28 Although Tanzania does not recognize licenses obtained in any foreign licenses from other jurisdictions are recognized unilaterally jurisdictions, while Kenya, Rwanda, and Uganda recognize in Kenya and Uganda and preferentially in Rwanda for the licenses preferentially for EAC member states (table 3.8). EAC member states, language is a big constraint. English Most visa and immigration procedures are similar across and the national language are most often requirements to the two examined sectors. Burdensome immigration require- obtain a full license. In Tanzania, the restrictions are most ments, visa regulations, and restrictions on work permits are stringent, as foreign licenses are not recognized and local typical barriers that hamper the movement of educational licenses are not easily attainable. Permanent residency or and medical professionals within Africa. Countries such citizenship is required for obtaining a Tanzanian license for as Kenya and Uganda issue visas and work permits for a nurses, midwives, and doctors. period of 90 days. The cost of a visa in East Africa varies significantly across countries. Rwanda issues a one-year work visa with no additional requirements to obtain a work permit at US$83, while Tanzania issues a two-year work visa 28 Plans are underway to have licenses issued in accordance with the requirement—for example, a five-day license for a five-day at US$550. Educational and medical professionals also need medical camp. to obtain a work permit to practice in Kenya and Uganda, 84 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 3.7: Regulations Affecting the Temporary Movement of Health Professionals (Mode 4) Regulation  Kenya Rwanda Tanzania Uganda Requirements besides academic qualifications? Yes Yes Yes Yes Practical training requirements? (months) Yes (12) Yes (12) Yes (12) Yes (12) Foreign licensed professional temporarily allowed to Yes; with visa & Yes No Yes; temporary practice? work permit license Is there a minimum wage/salary or wage parity No No No No requirement? Burdensome immigration requirements? (initial limit, 3 12 24 3 in months) Burdensome labor market tests? Yes No No No Quotas or limits on the number of candidates? No No No No Foreign academic qualifications/licenses recognized? Yesa Yesa Yesa No Source: World Bank Regulatory Surveys, 2014. a Preferential recognition to East African Community member states and unilateral recognition. Table 3.8: Regulations Affecting the Temporary Movement of Education Professionals (Mode 4)  Regulation Kenya Rwanda Tanzania Uganda Foreign licensed professional temporarily allowed to Yes Yes Yes Yes practice? Minimum wage/salary or wage parity requirement? No No No No Burdensome immigration requirements? (initial limit, 3 12 24 3 months) Quotas or limits on the number of candidates? No No No No Burdensome nationality or residence requirements? No No No No Burdensome labor market tests? No No No No Burdensome horizontal restrictions specific to No No No Yes, experience educators? requirements (2 yrs. for lecturer; 10 for prof.) Foreign academic qualifications/licenses recognized? Yesa Yesa, but test Unilateral Yesa required Recognition Source: World Bank Regulatory Surveys, 2014. a Preferential recognition to East African Community member states and unilateral recognition. which imposes an additional cost. These work permits cost automatically recognized; but there is preferential recognition US$114 in Kenya and US$75 in Uganda. Kenya and Uganda of degrees obtained from other EAC member states only. issue a work permit for a three-month period only. Although In Tanzania, academic and professional qualifications are visas and work permits for educators and medical profes- recognized only unilaterally according to a codified process sionals are renewable, they impose large, recurring fixed based on substantive criteria. costs (table 3.9). On the positive side, none of the surveyed countries, Kenya and Tanzania impose—and labor market and except Kenya, requires a labor market test or an economic economic needs tests before hiring educators from abroad. needs test prior to hiring a medical professional. There seem Given the short duration for visas and work permits and to be no quotas or limits on the number of candidates that the high cost of getting an entry visa (and renewal), these can be admitted at professional examinations. The practi- restrictions may critically limit trade in education services. cal training and internship requirements are the same for Further, academic and professional qualifications are not foreign and domestic medical professionals, although it takes Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 85 Table 3.9: Regulations of Visas and Immigration Requirements Affecting Education and Health Professionals  Regulation Kenya Rwanda Tanzania Uganda Cost of obtaining the visa (US$) 50 (single); 83 550 130 (multiple) 100 (multiple) Initial length of validity of a work permit (months) 3 12 24 3 Average processing time for a visa application (days) 30 2 7–21 3–5 Renewal of a visa permitted? Yes Yes Yes Yes Renewal of a work permit permitted? Yes Yes Yes Yes Switching employers allowed? No No Yesa No Explicit work permit application fees (US$) 114 0 550 75 Average processing time for a work permit (days) n.a x 7–21 30 Source: World Bank Regulatory Surveys, 2014. Note: n.a. = not available. a With notification to the Commissioner of Immigration. many more procedures to have professional qualifications 11 have no medical school at all (Mullan et al. 2011). Thus, recognized in any given African host country (table 3.10). investment in training, whether publicly funded or through foreign investment, would be key not only for improving the access to better health services within the country, but also Policy Action for exporting such services. This chapter shows that although most countries in Sub- Saharan Africa import education and health services to Domestic Regulatory Reforms address skills shortages and improve access to services, Domestic regulatory reforms need to focus on incremental, exports in these sectors are beginning to emerge on the qualitative improvements that increase access to education continent. But despite increasing trade flows, including at and medical services for all, ensure the quality of these the regional level, Sub-Saharan Africa continues to faces services, and address skills shortages. Concrete examples serious shortages of education and health professionals for domestic regulatory reforms could include the following: and access to education and medical services remains a problem. To turn these sectors around, policy action is required in the areas of domestic regulation in education ■■ Eliminating disproportionate restrictions that limit competi- and health, trade policy, and labor mobility at the national tion. For example, price regulations are supported and and the international levels. introduced by education and medical associations or the government, which claims that such regulations are useful tools to ensure affordable services and access to Fundamentals all income groups. But regulated prices prevent markets Given the large education and medical skills shortages in from efficiently allocating resources, increasing shortages Africa, investment in educational institutes for medical training and deteriorating quality, while stifling innovation and and continuous updating of research in the field are quintes- diverting education and medical care to informal markets. sential for developing successful education and health care The countries that impose such regulations need to sectors. Weaknesses in African education systems mean adopt less restrictive mechanisms, such as better access that students are ill-equipped to acquire market-relevant to information on services and service providers, which skills, so enhancing the quality of educational institutions can accomplish the same goals at lower economic cost. should be a key item on the policy agenda. Most countries ■■ Strengthening incentive systems for education and health in Africa are far from the required level of medical training care professionals to remain in the home country. Restrictive infrastructure to serve their own population. For instance, policies, such as compulsory national service to render in Sub-Saharan Africa there are a total of 168 schools migration more difficult, have not proven effective, since and 24 of the 47 countries have only one medical school; they represent only temporary deterrents for migration. 86 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 3.10: Regulations Affecting Education and Health Professionals Regulation Kenya Rwanda Tanzania Uganda Competition law applicable? Yes Yes Yes Yes Redress options when business practices perceived to restrict their activity?  Health Yes Yes Yes n.a.  Education Yes Yes n.a. Yes Treated at par with domestic regarding taxes or Yes Yes Yes Yes eligibility to subsidies? Quota/limit defining the maximum number? No No No No Fees regulated in any way? No No Yesa No Regulations on prices and fee apply equally?  Health Yes n.a. Yes Yes  Education Yes Yes Yes Yes Advertising and marketing prohibited or regulated?  Health n.a. No Yes No  Education No No No No Regulations on advertising apply equally?  Health n.a. Yes Yes Yes  Education Yes Yes Yes Yes Allowed to use the name used in their home country? Yesa Yes Yes Yes Regulations on location and diversification? No No No No Regulations on location apply equally? Yes Yes Yes Yes Special instruments to assess and monitor the quality?  Health Yes Yes Yes Yes  Education No Yes Yes Yes Compulsory licenses?  Health Yes; 3 year for Yes; 3 year for Yes; 3 year for Yes; 3 year for nurses, 1 year nurses, 1 year nurses, 2 year nurses, 1 year for doctors for doctors for doctors for doctors  Education No Yes No No Nationality requirement?  Health No No Yes; temp license No (nurses); Yes (doctors, temp. license)  Education No No No No Language requirement?  Health Yes Yes Yes Yes  Education No No No No Residency requirement ?  Health No No Yes No  Education Licensing criteria apply equally to foreign?  Health Yes No Yes No  Education No No No No Compulsory membership in professional association No No No No automatically granted with required qualifications? Limited licensing system for foreign providers? No No No No Recognition of licenses obtained in other jurisdiction?  Health Yes (unilateral) Yesb Yes Yes (unilateral)  Education Yesb Yesb No Yesb Source: World Bank Regulatory Surveys, 2014. Note: n.a. = not available. a With notification to the Commissioner of Immigration. b Preferential recognition for East African Community member states. Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 87 Countries could focus on developing incentives such as ■■ Eliminating restrictions on the portability of insurance. Often work autonomy, flexible hours and scheduling, recogni- private and public insurers are prohibited to finance tion of work, coaching and mentoring structures, and consumption of health care abroad. Therefore, medical support for career development to retain education and tourism is mainly financed by out-of-pocket payments, health professionals. Addressing inefficient management making its cost disproportionally high and inaccessible structures and highly centralized decision making on for poorer segments of the population. Removing such human resources for health could also help alleviate skills restrictions on portability and permitting insurance com- shortages. Other measures could include the setting up panies to sell a policy that covers treatment in the foreign of knowledge networks among skilled expatriates linked country would lower the costs of health services for all. to their country of origin, with the aim of mobilizing their ■■ Minimizing restrictions on the forms of establishment knowledge and expertise to the development of their allowed. Underinvestment is a primary cause of poor country without physically relocating. education and health services in Africa. To improve the ■■ Putting in place a regulatory framework that supports trade. availability and quality of human and physical resources In general, rules and regulations related to qualifications in this sector, expenditures on health care need to be and licensing requirements for education and health increased and allocated efficiently, in line with local needs professionals and institutions, rules related to insurance and priorities. Easing the inflow of foreign investment in schemes, as well as rules regarding the provision of ser- the education and health care sectors would have sev- vices to economically disadvantaged groups are among eral benefits. One, it can generate additional resources the most relevant regulations for trade. Countries need for investment in and upgrading of infrastructure and to ensure that such regulations are not too cumbersome, technologies. Two, foreign investment can generate while pursuing legitimate regulatory objectives that deal employment of teachers and health personnel. Three, with information asymmetries, negative externalities, and it would easily provide expensive and specialized educa- equity issues.29 Public-private partnerships30 to deliver tion and medical services. Four, the availability of private education and health services could be also considered. capital could reduce the total burden on government resources, helping to reallocate government expenditure toward the public education and health care sectors. Trade Policy Reforms Partnering with reputable education and health service Trade policy reforms ideally would include the removal of trade institutions in other countries or countries known for barriers on a most favored nation (MFN) or nonpreferential their exports could also help to improve service facilities basis, since such an approach would generate the largest and introduce superior management techniques and welfare gains. Steps need to be taken to relax the explicit information systems (Chanda 2002). Taxes collected from trade barriers applied by EAC countries; this would facili- foreign-owned commercial hospitals, for example, could tate the movement of consumers (students and patients), be reinvested in the public health system as well as in providers (teachers, professors, nurses, and doctors), the training of health care professionals. Thus, the strategy cross-border supply of education and health services, and of welcoming foreign investment in the short run is likely the commercial presence of education and health institu- to pave way for exports of health care services over time. tions. The following are examples of possible trade reforms: ■■ Developing a transparent and consistent framework for accepting education and health professionals with foreign qualifications. The main regulatory challenge for exporting 29 A comprehensive regulatory guide for health care is provided health services via mode 4 is related to cumbersome entry by the WBG Investment Climate Private Health Policy Toolkit: https:// requests and procedural requirements for recognizing, or www.wbginvestmentclimate.org/toolkits/public-policy-toolkit/. 30 For example, the Government of Lesotho entered into a long- requiring specific forms of, qualifications and professional term Public Private Partnership (PPP) with a private sector consortium licensing (Smith et al. 2009). African countries should comprised of a mix of national and regional actors to establish and allow for freer mobility of education and health care operate a national referral hospital and mini health care network of professionals to enhance the region’s competitiveness filter clinics in the greater Maseru area. The consortium assumed by articulating the economic and social motivation for responsibility for providing the following services: (i) clinical services; (ii) clinical support services including biomechanical engineering, economic needs tests and working through the mutual laboratory and pharmacy; and (iii) non-clinical services including recognition and harmonization of qualifications and administration, facilities management and ICT. expedition of visa applications. 88 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Immigration Reforms throughout the continent are crucial for the improvement of Africa’s educational and medical systems. The removal of explicit trade barriers needs to be comple- mented by reforms of immigration laws and rules on the hiring of foreign education and medical professionals. Regional Regulatory Cooperation Particularly, our study suggests that there is a pressing Deeper regional integration, through regulatory cooperation need for a transparent and clear framework for allocat- with neighboring partners who have similar regulatory ing work permits to medical professionals. Visa and travel preferences, can usefully complement nonpreferential formalities inhibit trade in both education and medical trade liberalization. Admission requirements and policies on services. Such entry requirements and visa costs translate the transfer of academic credits and recognition of academic into government-imposed barriers to trade, which can be and professional qualifications for education and health overcome by international and regional cooperation. Many professionals are equally important for the mobility of successful exporters of medical services have eliminated such consumers and providers of education and health services. visa requirements. Other countries have adopted a more At least two regional organizations are actively involved in gradual approach and changed their visa requirements to quality assurance in Africa. These are CAMES and the Inter- encourage medical tourism and integrate health care services University Council for East Africa (IUCEA). The World Bank with tourist facilities. For example, in India, the new medi- Group is currently supporting CAMES in the design and cal tourist visas, “M-visas” are valid for a year and are also implementation of a mechanism for regional accreditation issued to the patients’ companions. Similarly, hospitals such of higher institutions in its 19 member states as part of the as Bangkok’s Bumrungard have an “in-house visa extension Regional Institutional Accreditation Initiative. In East Africa, center” for facilitating visa extensions for patients (Bookman IUCEA plays an important role in: and Bookman 2007). In some cases, medical tourists receive government assistance to expedite visa procedures. ■■ Facilitating networking among universities within and The SADC Protocol on Education and Training (signed outside the region in 1997) could provide a useful example to be refined and followed by other subregions for immigration formalities and ■■ Developing adequate education standards so as to pro- rules on hiring education professionals. Although the imple- mote the region’s competitiveness in higher education mentation of the protocol is far from perfect,31 it has done ■■ Enhancing curriculum development strategies and uni- much to relax the immigration formalities and facilitate freer versity leadership skills and competences movement of students and staff within the SADC region. For ■■ Mainstreaming ICT into institutional core functions and instance, the SADC protocol has facilitated access to afford- general support operations able student visa permits and allowed foreign students to be engaged in formal-sector employment in their institutions ■■ Strengthening higher education quality assurance pro- of learning to improve their livelihoods (Kwaramba 2009). cesses in university institutions and eventually establishing By treating SADC students like home students in terms of an East African system of quality assurance fees and accommodations, countries such as South Africa ■■ Establishing an East African qualification framework to have encouraged foreign student enrollments from neigh- facilitate harmonization of education and training systems; boring countries. The removal of immigration barriers and student mobility across the region; and harmonization of the development of enabling policies for the mobility of skills, competences, and qualifications, so as to simplify students, patients, and education and health professionals mutual recognition of the latter, among others. The medical boards/councils in the EAC have started 31 To understand how the protocol fails at some instance, we to collaborate and share registers to recognize licenses consider the example of study permits for Zimbabweans. A study from other EAC member countries. In addition, nurses and permit is issued by the Department of Home Affairs as a basic midwives, pharmacists, medical doctors, and veterinarians requirement for international students. The Immigration Act warrants are currently developing a roadmap for the preparation of that study permits be applied for in the student’s home country. In Mutual Recognition Agreements (MRAs) of Professional Qualifica- practice, this unreasonable requirement is often waived for migrants tions to deepen regional integration in the sector and create already in the country, but not for Zimbabweans (SAMP 2011). This requirement hinders the flow of Zimbabweans into South Africa for new incentives for retaining scarce skilled professionals higher education. on the continent. Such MRAs would need to be effectively Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 89 implemented in the EAC and could be negotiated and imple- movement of service providers as well as further negotia- mented by other subregions on the continent. Opening up tions on services liberalization and reform. regional boundaries and establishing MRAs would facilitate Because of the rapid expansion of private universities integration in education and health services. For example, and colleges, driven by the growing demand for educa- some of the health professionals interested in providing tion services, regional interventions that promote the their services across borders may choose to stay in the emergence of quality educational institutions are a high region rather than traveling to further OECD destinations. priority on the continent’s education agenda. There are When implementing MRAs, countries need to learn from concerns that the burgeoning increase in the number of the previous experience with such agreements in profes- universities may lead to the proliferation of unregulated sional services. For example, EAC stakeholders as well as courses on offer (box 3.7). the EAC Council of Ministers have recognized some broader Weaknesses in African education systems mean that issues that have prevented existing MRAs in accounting, students are ill-equipped to acquire market-relevant skills. architectural, and engineering services from being truly Therefore, enhancing the quality of educational institutions effective. Limited progress in delinking the commitments should be a key item on the policy agenda. Trade liberal- related to the free movement of labor from those affecting ization needs to be coordinated with regulatory reform and services providers hampers the free movement of services cooperation at the regional level. Although the IUCEA already in the EAC. Reflections are underway, as a result, on how provides a forum to start addressing regional quality issues, commitments on free movement of skilled professional a continental quality assurance agency—built for example workers, which are essential to the success of the MRAs, on the work of the African Quality Assurance Network or can be delinked from the wider issue of free movement of the African Quality Rating Mechanism—could support the workers. But limited progress on this issue hampers the free activities of regional bodies. Box 3.7: Expansion of Private Education Institutes: Are They Diluting Quality? One of the greatest challenges facing the higher edu- eight needed minor corrections, 36 needed major cation sector is a scarcity of qualified PhD holders in revisions, and 22 were beyond revision” (Spaull 2015). the East African Community (EAC). Demand from the Since the thorough review of the task force, 22 PhDs expanding higher education sector far outstrips the have been approved by NCHE. Other findings by the number of qualified academics. task force showed that several supervisors held PhDs Kampala International University (KIU) began from universities not recognized by the regulator, and offering unaccredited PhDs in humanities in 2007, still other supervisors did not have PhDs. two years before it was awarded the right to confer The Inter-University Council for East Africa (IUCEA) such degrees. Furthermore, a total of 132 doctorates largely plays an oversight role in the region, but does awarded by KIU between 2011 and 2013 were declared not have the power to accredit all institutions and pro- invalid by the Uganda National Council for Higher grams in the region. Local regulators such as CUE and Education (NCHE). Of the 42 graduates scheduled for NCHE in Uganda, or NCHE in Rwanda, accredit institu- graduation in 2012, 30 were Kenyans. In 2013, the tions and programs in their respective jurisdictions. regulator for higher education in Kenya, the Com- Unfortunately, the rate of growth of private institutions mission for University Education (CUE),a announced in the EAC outstrips the capacity of local regulators, that it will not recognize qualifications from KIU until in terms of facilities, finances, and human resources, a thorough review has been conducted. to effectively and adequately cover all institutions in Red flags were raised when KIU graduated as terms of academic management and quality assurance. many PhDs as Uganda’s largest University, Makerere Sources: Spaull 2015; Ssembatya 2012; Waruru 2014. University. The Uganda NCHE set up a task force to a CUE replaces the Commission for Higher Education. CUE advises the investigate whether KIU had the capacity to offer the government on university education policy, undertakes accreditation programs. The findings of the task force revealed that inspections, monitors and evaluates the state of university education, and ensures compliance with set standards. the 66 PhDs awarded in 2013 “all were substandard: 90 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa In addition to quality assurance, reforms would need distance learning and provide healthcare solutions such to focus on developing new and expanded means of financ- as combating malaria. Such innovations can provide free ing higher education, such as student loan schemes, and essential healthcare information that is updated daily, or developing well-articulated, diversified, and differentiated higher diagnose and monitor symptoms of diseases in rural areas. education systems that contain vocational and technical col- Distance learning requires extensive ICT infrastructure, leges as well as research universities. Cooperation among complemented by extensive policies to support such inno- countries in sharing information and experiences to increase vative cross-border exchanges. the recovery rate of student loans while increasing students’ Finally, Africa’s diaspora needs to be mobilized to play a role access to higher education could improve the impact of in the internationalization of education and health services educational loan schemes in East Africa. In general, the in Africa. For example, recent initiatives in education services fragmentation of the regional market for education by differ- have been undertaken as part of the Mobilize the Diaspora ences in regulation can prevent the emergence of regional project. The project aims to engage 10,000 diaspora scholars hubs for higher education. Thus, smoothing these regulatory in African higher education and encourage collaboration differences can lead to a greater variety of higher education with local professionals across several disciplines, such as services becoming available at lower costs for students in research, curriculum development, graduate student teach- Africa. The Centers of Excellence32 approach implemented ing, and mentoring. by the World Bank in Africa may provide a useful model to spearhead such regulatory cooperation. Similarly, in health services, the East Africa Public Health Conclusions Laboratory Networking approach focuses on establishing a network of efficient, high quality, accessible public health This chapter uses quantitative and qualitative surveys to laboratories for the diagnosis and surveillance of tubercu- assess the importance of regional integration in promot- losis and other communicable diseases in Ethiopia, Kenya, ing education and health services in Africa. Mobile-based Rwanda, Tanzania, and Uganda. This approach can provide data collection methodology is deployed to examine the guidance to create a platform for knowledge sharing, train- magnitude, determinants, and restrictions on intra-Africa ing, and regulatory cooperation. trade in education and health services. The survey results In addition to traditional student, patient, and health and suggest the following conclusions: education staff exchanges, African countries need to facilitate the emergence of innovative forms of cross-border exchanges. ■■ The regional dimension is prominent in education and Technological innovations can facilitate the expansion of health services. ■■ Although differences in the quality of services may explain 32 The World Bank Group’s Africa Higher Education Centers of educational exchanges and medical tourism in Africa, the Excellence Project is currently supporting 19 tertiary education non-availability of certain specialized cures could be an institutions in seven West African countries to promote regional additional explanatory factor for trade in health services. specialization in S.T.E.M. (Science, Technology, Engineering and Mathematics), agriculture and health. The key project objectives are ■■ Medical professionals are motivated to seek employ- to a) enhance quality research-based education in high-demand ment abroad (mode 4) mainly because of inadequate areas, and make it available to national and regional students; remuneration, poorly managed health systems in the b) promote partnerships between the newly-established African home country, and the need to continue education and Centers of Excellence (ACEs) and companies, governmental and non-governmental organizations, through internships, train- training in their field. ings etc.; and c) improve teaching and research conditions and ■■ Trade in education and health services is hampered by strengthen the capacity of the beneficiary institutions. In addition, the high cost of travel and visas and limited availability the project will support a range of regional activities to a) enhance coordination among ACEs e.g. through joint lessons; b) undertake of insurance; movement of education and health profes- regional monitoring and evaluation (M&E) activities of the selected sionals is limited by the lengthy and costly process of institutions, e.g. through tracer studies, technical audits, collection recognition of degrees obtained abroad. of academic data etc.; (c) assist regional bodies including ECOWAS and WAEMU in regional policy-making on regional higher education; A systematic qualitative analysis, including results from and d) support provision of higher education services (e.g. training, scholarship, faculty visiting etc.). (See http://www.worldbank.org/ regulatory surveys conducted in selected Eastern and South- projects/P126974/strengthening-tertiary-education-africa-through- ern African countries, complements the quantitative surveys africa-centers-excellence?lang=en) to derive policy recommendations aimed at addressing Chapter 3 Internationalizing Sub-Saharan Africa’s Education and Health Services 91 the key constraints affecting trade in education and health Several regional trade arrangements between source and services in Africa. The analysis shows that to turn this sector destination countries work through the mutual recognition around, policy action is required in the areas of domestic and harmonization of qualifications and expedition of visa regulation, trade policy, and labor mobility at the national applications. These include the Caribbean Community and and international levels. A key challenge faced by many Common Market, the Caribbean Free Trade Association, the African countries is the emigration of their scarce health North American Free Trade Agreement, and the European professionals. To retain some of these health workers in the Union. African countries should also allow for freer mobility region, it is important to ease the procedural requirements of health care professionals to enhance the region’s com- for recognizing their qualifications and professional licensing. petitiveness in providing health care facilities. 92 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Annex 3A: Trade in Education and Health Services: Modes of Supply and Examples Mode of supply Education—examples/forms Health—examples/forms Main features Cross-border supply (a)  Distance education Telemedicine and telediagnosis Program (service) mobility (Mode 1) Online education Laboratory or claims Commercial franchising/ processing twinning of a course Hospital management functions Back-up advisory services Contracting of clinical and nonclinical services such as medical evacuations, cancer treatment, specialized surgeries  onsumption abroad (b) C Students abroad Patients abroad for specialized People (student/patient (Mode 2) or surgical care mobility) Cosmetic surgery health and wellness Commercial presence (c)  Establishment of an Health insurance companies Institution mobility (Mode 3) educational institution or Medical/physician practices satellite campuses Diagnostics facilities Branch campus, including joint ventures with local institutions (d) Presence of natural persons Professors. lecturers, teachers, Health personnel providing People (education or health (Mode 4) and researchers providing health services or health professionals) mobility services abroad consulting assignment abroad Sources: Adapted from WTO 1998, 2010. annex 3B Volume of Education Services Trade Recorded in IMF balance of payments statistics 93 Annex 3B: Volume of Education Services Trade Recorded in IMF Balance of Payments Statistics Table 3B.1: Volume of Education Services Exports Education service Share in total Share in personal Country exports travel services (%) travel services (%) Moazmbique 2,466,154 1.2 1.3 Swaziland 18,757,132 37.1 85.8 Burundi 108,890 7.6 7.6 Malawi 2,011,543 6.0 14.3 Botswana 4,334,233 3.9 4.0 Namibia 2,493,240 0.6 0.7 Uganda 30,187,828 2.6 4.3 Source: UNSTATS (http://unstats.un.org/). Note: The sample of countries is based on data availability in UNSTATS in recent years, after 2010. The latest years available for Mozambique and Swaziland corresponds to 2010. For Burundi and Malawi is 2012 and for Botswana, Namibia and Uganda is 2013. Table 3B.2: Volume of Education Services Imports Education service Share in total Share in personal Country imports travel services (%) travel services (%) Mozambique 14,473,751 5.8 8.8 Seychelles 8,634,920 23.1 25.9 Swaziland 9,867,440 16.1 20.1 Burundi 12,136,509 49.0 93.6 Lesotho 14,615,975 70.4 100.0 Malawi 17,554,292 25.2 63.9 Nigeria 2,566,589,952 41.5 47.9 Botswana 18,358,836 39.0 42.1 Namibia 2,389,355 1.9 2.0 Uganda 2,102,048 0.5 1.1 Source: UNSTATS (http://unstats.un.org/). Note: The sample of countries is based on data availability in UNSTATS in recent years, after 2010. The latest years available for Mozambique, Sychelles and Swaziland corresponds to 2010. For Burundi, Lesotho, Malawi and Nigeria is 2012 and for Botswana, Namibia and Uganda is 2013. 94 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Annex 3C: Volume of Health Services Trade Recorded in IMF Balance of Payments Statistics Table 3C.1: Volume of Health Services Exports Health service Share in total Share in personal Country exports travel services (%) travel services (%) Moazmbique 735,355 0.37 0.37 Swaziland 3,097,611 6.13 14.17 Burundi 18,206 1.27 1.27 Malawi 99,477 0.29 0.71 Botswana 1,207,478 1.10 1.11 Namibia 207,770 0.05 0.06 Uganda 11,952,399 1.01 1.71 Source: UNSTATS (http://unstats.un.org/). Note: The sample of countries is based on data availability in UNSTATS in recent years, after 2010. The latest years available for Mozambique and Swaziland corresponds to 2010. For Burundi and Malawi is 2012 and for Botswana, Namibia and Uganda is 2013. Table 3C.2: Volume of Health Services Imports Education service Share in total Share in personal Country imports travel services (%) travel services (%) Moazmbique 13,738,397 5.5 8.3 Seychelles 8,506,110 22.7 25.5 Swaziland 5,696,519 9.3 11.6 Burundi 836,451 3.4 6.4 Malawi 2,476,478 3.6 9.0 Nigeria 1,042,369,984 16.8 19.4 Botswana 4,407,360 9.4 10.1 Namibia 1,558,275 1.2 1.3 Uganda 627,235 0.1 0.3 Source: UNSTATS (http://unstats.un.org/). Note: The sample of countries is based on data availability in UNSTATS in recent years, after 2010. The latest years available for Mozambique, Sychelles and Swaziland corresponds to 2010. For Burundi, Lesotho, Malawi and Nigeria is 2012 and for Botswana, Namibia and Uganda is 2013. 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Africa’s PhD Renaissance series, SciDevNet Global Edi­tion, www.wto.org/english/tratop_e/serv_e/w313.doc. February 5. http://www.scidev.net/sub-saharan-africa/ education/feature/phd-crisis-uganda-private-universities- 1.html#sthash.esexodZk.dpuf. Nora Dihel is Senior Economist, Macroeconomics and Fiscal Management Global Practice, World Bank, Arti Grover Goswami is Senior Con- sultant Economist, World Bank, Richard Gicho is a Consultant with the World Bank in Kenya, Borislava Marcheva is a Consultant with the World Bank in Washington DC, and Carmine Soprano is Economist, World Bank. Green Rain by Evans Kindeh Omondi 99 Chapter 4 Trade in Mining Services in Zambia Judith Fessehaie Judith Fessehaie, Centre for Competition, Regulation and Economic Development, University of Johannesburg. Introduction industries that could contribute to gross domestic product (GDP) growth, employment generation, skills development, Zambia is Africa’s largest copper producer and the seventh technological sophistication, and entrepreneurship develop- largest in the world.1 Globally, the copper mining sector ment. Until recently, Zambia’s strategy to develop upstream grew significantly from 2000 to 2011. Zambia’s export values industries in the copper mining sector has been weak. Since increased from US$474 million in 2000 to almost US$4 bil- 2012, however, an initiative driven by the private sector lion in 2008. Following the global economic downturn in has been developing a coherent approach for establishing 2008–09, exports in Zambia recovered from US$3.17 billion beneficial linkages to local businesses. in 2009 to US$6.8 billion in 2011. The positive performance The rest of this chapter is organized as follows. The next of Zambia’s copper sector can be ascribed to very favorable section provides a definition of upstream linkages and identi- world copper prices and new investment capital in the sec- fies the category of linkages covered in this chapter. This is tor. World copper prices increased dramatically after 2003, followed by a background section on Zambia’s local supply peaking at US$8,823 per metric ton in 2011, after a short chain, including an outline of local service providers and slump during the global economic crisis in 2008–09.2 The their response to the privatization process and the recent sector has also benefited from significant inflows of foreign economic downturn. The fourth section presents recent direct investment (FDI) after the privatization process in findings on the performance of local service providers and the late 1990s.3 Multinational companies invested in plant the constraints to their upgrading trajectory. The fifth sec- rehabilitation, expansions, and new copper extraction and tion discusses the policy and regulatory framework for local refining projects (Chamber of Mines of Zambia 2005). By service providers. The final section concludes. December 2011, FDI in Zambia’s mining sector stood at US$7.8 billion (Bank of Zambia 2012).4 The expansion of Zambia’s mining sector has created Zambia’s Local Mining Supply significant demand for goods and services. In turn, growth Chain5 in demand has opened up opportunities for local upstream Background Copper mining in Zambia dates back to the early twenti- 1 World copper output for 2012, retrieved on April 15, 2013, eth century. Specific industrialization strategies, such as from http://minerals.usgs.gov/minerals/pubs/commodity/copper/ preferential sourcing, import substitution, and value chain mcs-2013-coppe.pdf. 2 IMF Primary Commodity Price Data, retrieved on April 15, 2013, cooperation, were pursued in the 1970s and 1980s. These from http://www.imf.org/external/np/res/commod/index.aspx. strategies contributed to the development of a local sup- 3 Zambia Consolidated Copper Mines was dismantled and, ply cluster that is relatively well established compared with between 1997 and 2001, all the mines but one were sold to foreign neighboring countries. Since the nationalization of copper investors. 4 The largest sources of FDI stock were Australia (US$3.05 bil- lion), Canada (US$2.05 billion), the United Kingdom (US$1.47 billion, mostly accounted for by Indian-based, U.K.-listed Vedanta), and 5 Annex 4A briefly presents the relevant upstream supply chain China (US$852 million). linkages for services related to the copper mining industry. 100 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa mines in 1969, upstream linkage development has been a international suppliers, where the latter were endowed with key component of Zambia’s industrialization strategy (Fes- higher competitive advantages at both ends of the supply sehaie 2012a). These policies resulted in the development chain spectrum: on the one hand, knowledge-intensive of a manufacturing sector populated by large state-owned services and equipment, and on the other hand, unskilled entities, family-run businesses, and some original equipment labor-intensive products. Yet, local suppliers were no longer manufacturer (OEM) subsidiaries. supported by government industrial policies. As a result, Yet, there were significant competitiveness bottlenecks suppliers underwent an intense learning process through as a result of external and internal factors. After the mid- their own buyers on the requirements of a highly modern- 1970s, Zambia’s copper sector came under increasing pres- ized mining supply chain. sure from plummeting world copper prices. There was also In general, the success of suppliers after privatization was limited reinvestment by state-owned Zambia Consolidated much dependent on the quality of their products, the after- Copper Mines (ZCCM) in exploration, mine development, sale service products on offer, and larger firm size to meet and, crucially, mines recapitalization. ZCCM’s supply chain increased demand. Specialization in a field also increased management was poor, and its liquidity constraints caused the chances of success, as illustrated by the examples of two heavy delays in vendor payments. Economy-wide foreign transport companies: one that moved away from common exchange shortages curtailed the capacity of supply firms tipped work into copper dry-bulk transport, and the other to import parts and inputs. Low levels of competition and that switched from transport of general goods to sulfuric weak research and development (R&D) capabilities, among acid transport. The process of specialization and upgrad- other factors, caused local manufacturers to fall behind ing in the local supply chain was highly selective, as a result international standards in quality, price, and lead times. As of which a large group of manufacturing firms struggled a result, suppliers often did not meet the required technical or exited the mining value chain altogether. In its place, a specifications; yet they were not excluded from the supply fast-growing number of importers have emerged, composed chain. One reason is that ZCCM was mandated to procure of specialized, value-added service providers, as well as ad locally and lacked the foreign exchange to import. In addition, hoc traders known as “briefcase businessmen.” Overall, there was collusive behavior between mines’ procurement the supply chain experienced a decline in the value-added personnel and suppliers. content of local activities, because suppliers moved into distribution activities characterized by lower capital and skills requirements, a lower risk profile, and shorter project Privatization Processes and Local Supply Firms development periods. The privatization process had a lasting yet not necessar- ily positive impact on the extent and depth of Zambia’s Profile of Local Service Providers upstream linkages to copper mining (Fessehaie 2012a). The 1995 Mines and Minerals Act set up the legal framework There is a lack of accurate data on the overall value of local for the privatization of the mines. Although the bilateral procurement conducted by Zambia’s copper mining sec- agreements between Zambia and the mining companies tor. One estimate by Ahmad and Walker (2005) suggests generally included provisions for the development of a local that, depending on the precise degree of outsourcing, total supply base, the latter were not binding. The government procurement (local and imported) of goods and services for lacked the resources and political will to implement these the five largest mines was in the range of US$140 million provisions. to US$180 million. A study prepared for the Zambia Mining At the macro level, investment and trade liberalization Local Content Initiative (ZMLCI) estimates local sourcing opened the door for the establishment of foreign-owned of approximately US$2.5 billion, comprising equipment supply firms and the import of goods and services. Post- and mining services (35 percent of total expenditures); liberalization, mining companies had close relationships consumables, parts and components, and maintenance with their foreign suppliers, which were often from their (40  percent); low-tech manufactured goods (5 percent); home countries. Suppliers introduced higher standards and and basic services (20 percent) (Kasanga 2012). These were applied supply chain management techniques developed in supplied by locally-based international suppliers of goods their global mining operations. Direct auditing and third-party and services (80 percent), overseas suppliers (16 percent), certification became more important for firms established and locally-based Zambian suppliers (4 percent). Figure 4.1 after privatization, compared with firms established before displays the profile of firms populating upstream linkages 1990. Thus, Zambian local suppliers had to compete with to copper mining. Chapter 4 Trade in Mining Services in Zambia 101 Figure 4.1: Firms Populating Local Upstream Linkages to Zambia’s Copper Mining Sector Briefcase businessmen Agents, distributors Copper mining companies OEM subsidiaries Manufacturers General service providers Specialized service providers Note: OEM = original equipment manufacturer. Agents and distributors are an important component of are not protected by brands and face stiff competition.6 A local upstream linkages to the sector. They supply a wide lack of technical expertise, facilities, or capital at their end range of products, including engineering products, electri- often translates into poor delivery times and no advisory cal equipment, reagents, consumables, and small and large or after-sale services. capital equipment. These firms are mostly Zambian-owned, OEM subsidiaries supply capital equipment to mining and tend to be small- and medium-size enterprises (SMEs). companies, but these firms resort to direct imports when Because of liquidity constraints, many of the firms are not there are no local subsidiaries or agents. The largest mining able to maintain adequate stocks of supplies. This supply OEMs originate from Europe, South Africa, and the United link is characterized by high levels of competition because States (Atlas Copco, Barloworld for Caterpillar equipment, of relatively low capital and skills requirements for market Bell, Sandvik). After privatization, most OEMs relocated their entry. Firms with access to capital and engineering skills have manufacturing activities in countries with low production a competitive advantage, because they can provide advisory costs, while consolidating and localizing after-sale services services, move into repair and maintenance services, and in Zambia. Many OEMs established a direct presence in hold large stocks. Moreover, as will be discussed in the next the Copperbelt and tightened control over the quality of section, agents and distributors with linkages to OEMs find the goods and services provided. OEMs enforce stringent it easier to move into value-added services. warranty systems, which tie buyers to such after-sale ser- Briefcase businessmen are a group of importers that are vices (including spare parts, maintenance, and repair). This positioned in low value-added content supplies, character- system has led to reduced competition from independent ized by low barriers to entry and exit, high profits, and low service providers. risk. With no overheads and largely operating outside the Specialized firms comprise relatively few capital-intensive, tax regime, briefcase businessmen can be price competi- specialized businesses that are involved in the mining tive, thus pushing more established suppliers out of the supply chain—for example, supplying drilling and special- value chain. However, lower operating costs are not passed ized transport services. Local businesses struggle to enter onto the buyers in the form of lower price, as briefcase these supply links because of high capital requirements. businessmen often collude with mine personnel (leading to cooperative bidding and corruption). These suppliers either import from South Africa or procure goods from 6 The Association for Mining Suppliers and Contractors of Zambia, first-tier suppliers in Zambia. When briefcase businessmen which has primarily represented the interests of briefcase busi- nessmen to the government and mining companies, had around source from OEMs, power relations are skewed in favor of 400–500 members in 2009 (Fessehaie 2012b). Before 2008, briefcase the OEMs, who can charge market prices. However, brief- businessmen represented up to 80 percent of the vendors list of case businessmen hold considerable bargaining power a few mining companies. However, the global economic downturn compared with local manufacturers, because the latter changed this, as mining companies adopted cost-cutting strategies. 102 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 4.1: Characteristics of Selected Service Providers to Zambia’s Mining Sector, 2009 Trajectory No. firms Year of establishment Core business Growing 14 Before 1990—4 firms Engineering services (electrical, mechanical); distribution of large- 1990s—5 firms scale mining equipment; repair and maintenance; distribution of 2000s—5 firms components, consumables; construction; specialized transport; installation of hydraulic equipment; installation of pumping systems; drilling; laundry services Declining 13 Before 1990—2 firms Car distribution; reagents distribution; repair and maintenance; 1990s—7 firms batteries distribution; wire equipment distribution; valves; 2000s—4 firms distribution and servicing; civil construction; drilling services; distribution of compressors, generators, tools, drilling equipment, air winches, mechanical power transmission products, conveyor belts, and mining hoses; pharmaceuticals distribution Sources: 2009 survey of 27 service providers. There is a relatively higher presence of local businesses in Trajectory of Local Service skill-intensive activities such as electrical and mechanical engineering services. However, highly specialized services, Providers in Zambia such as pneumatic and hydraulic equipment installation Firm-Based Performance and servicing, are mostly imported. General services suppliers include basic services, such as Zambia’s local supply chain is characterized by a high rate of cleaning, building maintenance, security, and so forth. The entry and exit of service providers. A 2009 survey of 27 service mining companies source these services locally, employing providers located in the Copperbelt, North-Western, and personnel directly or outsourcing work to local, usually Lusaka provinces sheds light on some important dynamics Zambian-owned, companies.7 of the local supply industry and the factors underlying firm performance (Fessehaie 2012b).8 In the absence of detailed financial data, firm performance has been assessed in rela- The Global Economic Crisis and Local tion to two parameters: (i) sales growth in the mining sector Service Providers in the five years preceding the industry downturn in 2008,9 The 2008 copper price crisis crash had a significant impact and (ii) the type and level of upgrading undertaken by the on Zambia’s supply industry. As a result of the cost-cutting supplier firm.10 Table 4.1 identifies two firm trajectories: a strategies of mining companies, many briefcase businessmen were pushed out of the mining supply chain and moved into 8 On the basis of private sector organizations’ directories and non-mining sectors. Established suppliers pursued market data shared by the mining companies, the total population of diversification and risk reduction, even after copper prices first-tier suppliers in 2009 was estimated to lie in a range of 150 to recovered. Rather than investing in new products or new 200 firms, mostly based in the Copperbelt. The estimate explicitly processes, many firms have looked for non-mining customers excluded briefcase businessmen, occasional suppliers, and firms (see annex 4B). As a result, OEM subsidiaries have started exiting the supply chain. Utilities and financial companies and labor contractors were also excluded (Fessehaie 2012b). supplying the construction, forestry, and utilities sectors. 9 Sales growth in the ensuing discussion refers to sales to the Other suppliers have targeted Lafarge (cement) and Zambia mining sector. Several supplier firms also sold to non-mining sectors. Sugar, two of the largest non-mining corporations in Zambia, 10 “Upgrading” is the dynamic capabilities of firms to defend their as well as oil marketing companies, breweries, and govern- position in the marketplace by improving their method of production ment procurement. (process upgrading), improving what they produce (product upgrading), moving into new links in the value chain (functional upgrading), or moving into more remunerative value chains (chain upgrading) (Gereffi 1999; Humphrey and Schmitz 2002). Process upgrading has been broken down into various actions: qualitative improvement of existing products, improvement in production processes through new machinery, enhanced 7 Local firms produce metallurgical, plastic and rubber, and workers’ skills, reduction in lead times, introduction and improvement of engineering products, and paints. With the exception of one large total quality management systems, and introduction of new organiza- steel foundry, they are relatively small in size. This group includes tional and management techniques. Other forms of upgrading include manufacturing companies established after privatization, mainly (i) product upgrading—introduction of new products; (ii) functional by South African and Asian investors, as well as firms established upgrading—undertaking new functions, for example design or servicing; before the 1990s. and (iii) chain upgrading—movement to different value chains. Chapter 4 Trade in Mining Services in Zambia 103 Figure 4.2: Dynamic Trajectory of 14 Service Suppliers by Type and Frequency of Upgrading Processes, 2009 Category F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 F13 F14 Process Product Functional Chain Source: Fieldwork data (2009 survey of 27 service providers). Figure 4.3: Declining Trajectory of 13 Zambian Suppliers by Type and Frequency of Upgrading Processes, 2009 Category F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 F13 Process Product Functional Chain Source: Fieldwork data (2009 survey of 27 service providers). dynamic trajectory, which characterizes firms with positive value chain and have struggled to remain competitive. There sales growth and significant upgrading efforts, and a declining has been very limited upgrading effort among the interviewed trajectory, which characterizes firms experiencing declining firms on a declining trajectory (figure 4.3). The exceptions or static sales to the mining sector and no efforts to upgrade. are two firms investing in process and product upgrading Fourteen of the 27 sampled firms (52 percent) are aimed at diversification away from the mining value chain. positioned on a dynamic trajectory. These firms are evenly In these cases, upgrading has been an exit strategy rather distributed in three periods of establishment: pre-1990s, than a strategic shift into more profitable and technologically 1990s, and 2000s, and supply a wide range of services/ complex value chains. products. Figure 4.2 displays the upgrading strategy for each of the 14 firms. Ten firms focus on process upgrading, Key Constraints to Local Service either exclusively (six firms) or together with other forms of Supplier Development upgrading (four firms). Process upgrading has been mostly pursued by investing in capital equipment, up-skilling the Zambian service providers face several structural, cost- workforce, and introducing or improving quality management raising factors. Communications, transport, and utilities are systems. Investment to improve product quality, manage- problematic in cost, reliability, and access, raising the cost ment, or lead times has been relatively less frequent. Several of doing business. Anecdotal evidence suggests that poor firms pursue “deep” forms of upgrading (that is, upgrading telecom and Internet network infrastructure has resulted in on several fronts). In particular, four firms have invested in lost business opportunities for smaller firms, which have been functional upgrading (after-sale services) and three have unable to respond promptly to requests for quotations, or moved into more demanding value chains. inquiries from potential buyers. Fluctuating foreign exchange Thirteen of the 27 sampled firms (48 percent) are posi- rates make it difficult for local firms to plan expenditures tioned on a declining trajectory. They are characterized by and revenues. For example, some firms quote and import in a combination of declining (eight firms) or static (five firms) U.S. dollars, and, in case of payment delays, exchange rate sales growth. In particular, the five firms with static sales fluctuations can wipe out their profits. In addition, import tend to be micro-enterprises, owned and managed by a procedures are expensive and time consuming, which person with significant expertise. These firms have failed particularly disfavors service providers. Zambia lags behind to grow into more complex managerial and organizational the already poor Sub-Saharan Africa average in five of six structures that could accommodate upgrading processes, trading indicators (table 4.2). This situation has at least two while individual expertise has been sufficient for them to implications. First, established service providers that comply remain in business. For this reason, they have not taken with import procedures are disadvantaged compared with advantage of increasing market opportunities in the mining briefcase businessmen who often operate informally. Second, 104 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 4.2: Summary of Procedures and Documents for Trading across Borders in Zambia, 2013 Sub-Saharan Africa OECD high-income Category Zambia average country average Documents to export (number) 6 8 4 Time to export (days) 44 31 10 Cost to export (US$ per container) 2,765 1,990 1,028 Documents to import (number) 8 9 5 Time to import (days) 56 37 10 Cost to import (US$ per container) 3,560 2,567 1,080 Source: World Bank 2013. Note: OECD = Organisation for Economic Co-operation and Development. because the mining companies can organize bulk imports Technical Education, Vocational and Entrepreneurship and transport at cheaper rates, local service providers need Training Authority (TEVETA) has not been involved in the to provide a value-added service to remain competitive (for planning of Zambia’s Multi-Facility Economic Zones and example, short lead times or after-sale services). there is no skills development strategy for the mining value Another key challenge affecting service providers in the chain. Finally, training is largely theoretical, rather than mining sector is access to capital. In 2011, Zambia’s domestic practical; teacher training programs are underfunded; and credit provided by the banking sector equaled 18 percent of the training equipment that is available at colleges is old. GDP, compared with 110 percent in Mauritius, 52 percent Certification therefore has a weak signaling value in terms in Kenya, and 50.9 percent in Namibia.11 Moreover, lending of actual competencies. This translates into high search rates remain high and SMEs have low access to bank credit costs for service providers. (IMF 2012). Access to capital affects supplier performance Relevant research is also not a top priority in Zambia, on lead times. Most service activities are import intensive, which has low public and private R&D (UNESCO 2010) and because parts, components, equipment, and consumables weak linkages between public institutions and the private are imported from South Africa or further away. Yet, because sector. The research conducted in public institutions is rarely of Zambia’s poor trade facilitation performance, importing transferred to the private sector for commercial exploita- a container takes an average of 56 days (table 4.2), during tion. Moreover, local SMEs face particularly high barriers to which time the suppliers’ working capital is tied up to the acquiring technological innovation and know-how. Trade fairs goods in transit. Firms need to maintain large in-house are not well attended by technology providers or buyers, stocks if they want to reduce lead times, but this is difficult perhaps because the participation costs for such trade fairs because of poor access to banking finance. are too high. Capital investment by local service providers Service providers also face severe skills shortages, for is also low, and there is very little technological adaptation example in the areas of mechanical and electrical engineer- of imported technologies. Investment in technologically ing, information and communications technology (ICT), and advanced equipment is curtailed by different factors, includ- hydraulics, while the institutional response and availability ing capital constraints, reluctance to invest because of stiff of relevant data are limited. Overall, there is a misalignment competition from low-cost imports, and flat or erratic demand between the demand for skills that is driven by increasing from the mines. Moreover, firms are not willing to invest in FDI in various productive sectors of the economy, and the computerized equipment because of scarce local skills for government skill-development strategy. Technical and its maintenance and repair. vocational institutions are underfunded.12 Moreover, the In sum, the Copperbelt can be defined as a “shallow” cluster, because the network of specialized second-tier suppliers is underdeveloped. As a result, service providers pursue vertical integration and internalize many noncore 11 World Development Indicators data retrieved on May 15, 2013, activities, in particular maintenance and repair functions. from http://data.worldbank.org/topic/financial-sector. 12 In 2011, the Technical Education, Vocational and Entrepreneur- For example, a specialized transport company reported ship Training Authority (TEVETA) received only 55–65 percent of the having invested in in-house maintenance, repairs, servicing, budget required to run all the programs. and engine and gearbox rebuilds. Chapter 4 Trade in Mining Services in Zambia 105 Box 4.1: Direct Cooperation, Low Supplier Capabilities, and Upgrading in Zambia A mining company situated in a remote geographical companies and local coal producers. Mining compa- area in Zambia has found it difficult to localize its supply nies imported services from South Africa, because chain because supply firms are mainly located in Kitwe, Zambian coal producers are small-scale and scattered. Chingola, and Ndola. This has created an incentive for The supplier incurred search and monitoring costs the mining company to assist the few existing local and, through exclusive distributorship rights, is link- suppliers. In one case, the mining company entered ing coal producers to mining companies. The mining into a long-term relationship with the supplier, pur- companies benefit from lower transportation costs. chasing the equipment required and renting it out to Through a forward purchasing agreement with the the supplier. A combination of positive turnover and mining companies, the supply firm has been able to intense cooperation has allowed this firm to expand expand the range of products supplied and reduce its market size and move into different value chains, delivery times. namely skill-intensive services (civil engineering). Source: Fessehaie, 2012b. In another case, a Zambian-owned supply firm has played a valuable intermediary role between mining Forward and Backward Linkages minimum levels of quality, environmental, and occupational and Firm Performance health and safety management systems in place. Australian, European, North American, and South Afri- Buyer-supplier relationships are important to support firm can mining houses have also engaged in various levels of performance. However, the nature of these relationships varies buyer-supplier cooperation to upgrade local supplier capa- significantly between mining companies.13 Australian, European, bilities. For example, they directly assist suppliers through North American, and South African mining companies follow intense information sharing, upfront payments, and trans- highly developed outsourcing strategies, informed by world- port arrangements. Moreover, they are willing to operate class management. They focus on core competence, reduce through forward purchase agreements, which provide some the size of supply networks to fewer and larger suppliers, set level of certainty to local suppliers. Cooperation does not highly detailed and demanding standards for core suppliers, tackle areas such as joint product development or technical and intensively monitor supplier performance. They often rely upgrading. There are also forms of indirect cooperation to on historical suppliers, which makes it difficult for new entrants offer technical and vocational training through third parties, to participate in their supply chains. These mining companies such as the International Finance Corporation (IFC) Supplier demand value-added services: suppliers should be able to Development Program, or the partnership between Northern provide technical advice, engage in joint problem solving, Technical College and Solwezi Technical College.14 Courses and devise innovations to reduce the buyers’ transaction and include welding, heavy equipment repair, mechanical and production costs. Moreover, suppliers are expected to have electrical engineering, and mineral processing operations. Mining companies are more interested in cooperation with local suppliers when the services and goods are critical 13 The mining companies operating in Zambia vary significantly in or when locational proximity is required. In these circum- country of origin and ownership structure. The China Non-Ferrous Metals stances, mining companies are more likely to support existing Corporation (CNMC) is one of China’s largest state-owned enterprises, local suppliers and facilitate their upgrading (see box 4.1). under direct supervision of the State-Owned Assets Supervision and Administration Commission of the State Council. In the 2000s, CNMC’s presence in Zambia’s copper sector expanded with the acquisition of additional mines and investment in the Chambishi Zambia-China Eco- nomic and Trade Cooperation Zone. Indian-based Vedanta Resources 14 These are dual-based training systems, where students spend is listed on London Stock Exchange. Other large mining companies five months in a college (academic year) and seven months in the originated from Australia, Europe, North America, and South Africa. All workplace acquiring practical skills. The final assessment mark but one of the Western firms were listed on the major stock exchanges, represents an aggregated performance of the student in college and two in three were operating as joint ventures. and the workplace. 106 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 4.3: Dynamic Trajectory of 14 Service Suppliers by Frequency of Ownership and Linkages, 2009 Service No backward or Forward Mining OEM Sole supplier forward linkages linkages subsidiary Non-OEM subsidiary distributorship Total Zambian 3 1  4 Joint 1 2  3 Foreign 1 4 2  7 Total 5 4 2 3 14 Source: Fieldwork data (2009 survey of 27 service providers). Note: OEM = original equipment manufacturer. Table 4.4: Declining Trajectory of 13 Service Suppliers by Frequency of Ownership and Linkages, 2009 Service No backward or Forward Mining OEM Sole supplier forward linkage linkages subsidiary Non-OEM subsidiary distributorship Total Zambian 4 2  6 Joint 2 1  3 Foreign 1 1 2  4 Total 7 1 5 13 Source: Fieldwork data (2009 survey of 27 service providers). Note: OEM = original equipment manufacturer. Non-Ferrous China Africa (NFCA) (owned by China) and, support local supplier upgrading. Through sole distributor- to a lesser extent, Konkola Copper Mines (KCM) (owned by ship agreements, parent companies grant local distributors India) are more vertically integrated than the other min- access to external resources and expertise, credit facilities, ing houses. This situation has curtailed opportunities for and obviously exclusive access to their products.15 some local service providers, such as engineering services. Movement to sole distributorship is not easy, but sole However, local and regional procurement by NFCA and KCM distributors have upgraded and have improved the quality is still significant in value terms. Their supply chains open of services to the standards required by parent companies. opportunities to local firms because of lower entry barriers For example, a sole distributor was required by the parent and lower brand loyalty compared with other mining com- company to develop customized solutions and maintenance panies. Nevertheless, cultural and language barriers can services. To do so, this firm has developed in-house technical be problematic. Further, under the adverse conditions of competences and has started subcontracting second-tier, the global economic crisis in 2008–09, KCM delayed vendor specialized engineering firms based in Zambia and South payments, which caused many firms to close or operate at Africa. The outcome has been twofold: first, the firm has a loss, and deteriorated relationships with local suppliers. entered new sectors (fuel distribution, agro-processing, In general, NFCA and KCM have not allocated resources cement); second, it has moved into maintenance services for cooperating with suppliers, but rather have operated independent of distribution. at arm’s length. Firms that perform well in the supply chain In conclusion, forward linkages to buyers and backward to NFCA and KCM are those that rely on backward linkages linkages to international parent companies play a significant to parent companies abroad. These firms are mining OEM role in supporting local upgrading processes. As shown in subsidiaries and sole distributors for foreign manufacturers. table 4.3, each firm in the dynamic trajectory has benefitted The parent companies of mining OEM subsidiaries pro- from one type of linkage or a combination of both. Conversely, vide them with incentives and resources (capital, knowledge, supply firms in a declining trajectory have been almost totally know-how) to pursue product and process upgrading. In fact, excluded from backward and forward linkages (table 4.4). all the firms with these types of backward linkages operate on global standards. Parent companies’ contribution to job 15 The exclusivity clause, in its most stringent applications, pro- and skills creation has been significant, with local subsidiar- tects them from competition not only from the parent company ies employing hundreds of skilled workers. However, equity and from subsidiaries and distributors in other countries, but also relations are not the only way by which parent companies from briefcase businessmen. Chapter 4 Trade in Mining Services in Zambia 107 These firms operate in activities (pharmaceutical products, provisions on local procurement. The mining companies cars) where locational advantages are weak and supplies are were to grant local firms an adequate opportunity to bid not critical. The mining companies do not need geographical for tenders and had to ensure against unfair discrimina- proximity and have no interest in buyer/supplier coopera- tion. They also had to submit a local business development tion, and face stiff import competition. Moreover, these firms program. For various reasons, however, the provisions of operate at arm’s length with overseas manufacturers, which the development agreements on local suppliers were largely implies that the firms cannot tap into external knowledge and disregarded by the mining companies and the government, resources. Most of these firms do not upgrade processes, with the exception of the IFC Suppliers Development Pro- and are not International Organization for Standardization gram.16 The explanation for this disregard was threefold: (ISO) certified. ■■ The years after privatization were focused on recapital- izing the mines or mining labor issues (such as wages Constraints to Technological Upgrading and safety). Local technological upgrading is curtailed by many factors, ■■ The provisions for local suppliers were not implemented which are primarily skills-related and financial. Skills scarcity because of the poor institutional capacity of the minis- and skills gaps prevent firms from upgrading to high-tech tries involved. This included issues such as high staff repairing services and expanding to larger volumes of busi- turnover in the ministries, lack of clear implementation ness. In particular, the competitive advantage of engineering and monitoring mechanisms, weak political guidance, firms is being progressively eroded by an aging workforce. and scarce financial resources. Existing mechanical and electrical engineering skills were built during the mining nationalization era, when public investment ■■ In the past, policy makers have failed to see the oppor- in technical and vocational training and engineering schools tunities for private sector development inherent in was significant. Such a workforce is difficult to replace because upstream linkage development. of market failures, whereby the technical education system is weak and high staff turnover discourages firms from spend- The 2007 Zambia Development Agency Act set a frame- ing on in-house training. Given the difficultly of accessing work to promote investment in Zambia’s copper mining, skilled labor and financing, SMEs struggle to access, adopt, through a range of regulatory simplifications and fiscal and adapt to information on new technologies. incentives, and established Multi-Facility Economic Zones OEMs have supported skills development processes in the for selected priority subsectors. Industries upstream to cop- Copperbelt region, which has proved partially successful. They per mining, especially service providers, were not included have trained staff in local and overseas training facilities. To in these policy initiatives. In 2007, the IFC undertook the address the problem of low staff retention, OEM subsidiaries Suppliers Development Program, which was implemented have been considering closer partnerships with local training solely by the mines’ supply managers, with guidance from institutes. OEMs have become a key source of innovation in their chief executive officers and IFC staff. The experience the mining industry, mainly in the form of incremental prod- of the program shows that linkage development can deliver uct innovation, such as larger haul trucks and excavators to quick wins. The program achieved positive results in improv- cater to larger-size mining operations (Bartos 2007). However, ing firm capabilities in areas such as business planning, cost the opportunities for technological acquisition by local OEM management, marketing, product development, quality subsidiaries are limited. Consistent with the findings of Lall control, and diversification of markets (Newton Lungu and (1992), subsidiaries participate in global value chains in which Associates 2010). the highest value-added activities, such as R&D, product There are important lessons for future local supplier development, and marketing, take place outside Zambia. development programs. For example, often the beneficiaries of the IFC Suppliers Development Program were not critical suppliers. Targeting critical suppliers could have resulted in Policy and Regulatory Framework for Mining Services in Zambia 16 The IFC Supplier Development Program ran from 2007 to 2010, with funding from the mining companies, the IFC, and the Mining Sector Legislation and Local Suppliers Japanese International Cooperation Agency. The mining companies were Mopani Copper Mines, First Quantum Minerals Ltd, Lumwana The bilateral development agreements signed between 1997 Mines, and Chambishi Metals (the latter left after the 2008 financial and 2004 by Zambia and the mining companies included crisis). 108 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa additional interest by buyers to strengthen cooperation and government, mining companies, and other key stakeholders continue cooperating in the future. Furthermore, the program started ZMLCI, which was officially launched in May 2013. was driven by buyers and the IFC. Future initiatives should The World Bank and IFC are providing facilitation support have a cluster approach and find internal agents of change to ZMLCI and the Focal Group. ZMLCI aims to identify to drive the process together with buyers. This approach actions to enhance local content. Similar to the IFC Suppli- may help address structural or unforeseen problems, and ers Development Program, this initiative seems to focus on also lead to programs that continue beyond the years of local manufacturers only. Any measure aimed at developing the IFC program. In addition, the IFC Suppliers Development the local supply chain should include manufacturers and Program focused on manufacturers and included distributors service providers, including second-tier suppliers, with the only at the end of the program. Service providers with high objective of deepening the local supply cluster. potential for upgrading, skills, and job creation should have been included. Finally, the IFC program could not deliver on Investment in Services Related to Mining improving access to finance because local banking institutions did not cooperate (Newton Lungu and Associates 2010). Zambia’s investment regime for service providers to the In contrast, briefcase businessmen have benefited mining sector is relatively open. Multilateral commitments from the lack of a coherent policy on upstream linkage to liberalization of trade in services cover three subsectors development. Political connections and the pressure on of relevance to the mining supply chain: testing services, mining companies to show some level of local sourcing services incidental to mining and exploration, and engineer- enabled briefcase businessmen to gain access to mining ing services (table 4.5). Foreign companies are allowed to procurement. Because of irregular procurement practices, establish a presence in Zambia through the four modes the briefcase businessmen often charged high prices. The of supply. Temporary movement of professionals is also primary interest of their business association has been to relatively free, subject to specific restrictions. However, for maintain market access to mining procurement rather than permanent service providers, foreign engineers have to reg- to promote local upgrading. ister with the Engineers Board of Zambia. Visa procedures The development agreements were unilaterally withdrawn have been cumbersome and time-consuming, a problem by the 2008 Mines and Minerals Development Act, which set currently being addressed with the introduction of the new provisions on local supply firms. These “best endeavor” Zambian Immigration Management System. measures dictate that, to the extent possible, the mining Investments in services related to mining are also companies extend preferences to materials and products favored by other factors. Business registration is straight- made in Zambia and to service agencies located in Zambia forward, thanks to substantial regulatory simplification and and owned by Zambia citizens or citizen owned companies institutional improvement at the Patents and Companies (Government of Zambia 2008, section XIII). This approach Registration Agency. Getting construction permits for tries to build mutual trust and collaboration between local warehouses, however, is still a hurdle (World Bank 2013). suppliers and the mining industry, rather than setting com- Moreover, Zambia has signed several bilateral investment pulsory regulations on local sourcing (Kasanga 2012). For treaties and double taxation agreements. The multi-facility service providers, the act focuses on firm ownership rather economic zones provide fiscal incentives and improved than value-added content. However, the risk is that if this local physical and administrative facilities. For instance, Chambi- sourcing strategy is not coupled with supplier development shi Zambia-China Economic and Trade Cooperation Zone, programs, preferential procurement would encourage rent- a US$800 million investment by China’s state-owned China seeking behavior rather than genuine upgrading processes. Non-Ferrous Metals Corporation, is likely to attract a cluster The experience of briefcase businessmen has shown that of mining service providers, probably from China. large expenditures by the mining companies on local procure- ment through small-scale, Zambian-owned importers do not Tax and Payment Regulations necessarily result in skills and technological development, or firm upgrading to more productive value chains. On the With Statutory Instrument 33, which became effective in contrary, this process can be counterproductive because it May 2012, the Ministry of Finance and National Planning pushes established suppliers out of the mining value chain. has prohibited domestic transactions in foreign currency In July 2012, the Chamber of Mines of Zambia and the (quoting, paying, or demanding to be paid or receiving). There Zambia Association of Manufacturers, working closely with are concerns that this regulation creates incentives for the Chapter 4 Trade in Mining Services in Zambia 109 Table 4.5: Zambia GATS Schedule of Specific Commitments for Selected Subsectors, 1994 Sector or subsector Limitations on market access Limitations on national treatment 1. BUSINESS SERVICES 1) None 1) None F. Other business services 2) None 2) None e) Technical testing and analysis 3) None 3) None services (8676)  nbound except as indicated in the 4) U  nbound except as indicated in the horizontal 4) U horizontal sectiona section 1. BUSINESS SERVICES 1) None 1) None F. Other business services 2) None 2) None h) Services incidental to mining, 3) None 3) None exploration  nbound except as indicated in the 4) U  nbound except as indicated in the horizontal 4) U (883 + 5115) horizontal section section 3. Construction and related 1) None 1) None engineering services 2) None 2) None 3) None 3) None  nbound except as indicated in the 4) U  nbound except as indicated in the horizontal 4) U horizontal section section Source: World Trade Organization 1994; Zambia GATS Schedule of Specific Commitments retrieved in September 2013 from https://www.wto.org/english/ tratop_e/serv_e/serv_commitments_e.htm. Note: Limitations to market access and national treatment are formulated across the four modes of supply, namely (1) cross-border supply, (2) consumption abroad, (3) commercial presence, and (4) presence of natural persons. a Unbound except for measures concerning the entry and temporary stay of natural persons employed in management and expert jobs for the implementation of foreign investment. The employment of such persons shall be agreed upon by the contracting parties and approved by the Ministry of Home Affairs. Enterprises must also provide for training in higher skills for Zambians to enable them to assume specialized roles. mining companies to stipulate contractual arrangements parent companies’ resources. Finally, lack of access to new in foreign currency with overseas supply firms rather than technologies, weak technology adoption, and poor adapta- procuring locally in domestic currency. tion capabilities are constraining local upgrading processes. Under the 1995 Mines and Minerals Development Act, In this context, forward linkages to the mining com- and later the 2008 Act, mining companies benefit from value- panies and backward linkages to parent companies have added tax exemption and the elimination of customs and been instrumental in supporting local supplier upgrading excise duties on capital equipment. The tax regime applies processes. Nevertheless, these forms of buyer/supplier to most of the mines, but not their suppliers. Therefore, local cooperation have been very selective and have not tackled service providers have to pay customs duties ranging from structural problems. A more structured intervention is needed 15 to 25 percent. The fiscal regime confers a cost penalty to develop an internationally competitive supply cluster, on local suppliers, which should be urgently redressed. where a broad range of value-added goods and services can be efficiently procured locally. The government and private sector should implement a comprehensive strategy Conclusion and Policy to build the competitiveness of the existing supply cluster Recommendations in the Copperbelt and to facilitate supplier entry into new mining areas such as Solwezi. Service providers to Zambia’s copper mining sector face The World Bank’s work offers Zambia’s government and severe competitiveness bottlenecks, including high com- mining stakeholders many suggestions for developing a munications, transport, and utilities costs, and fluctuating local supply chain. Key suggestions including the following: foreign exchange rates. A key challenge is access to capital, which curtails local firms’ opportunities to invest in upgrad- ■■ Increase local suppliers’ value-added content, by increas- ing and business expansion. Undersupply of technical skills, ing the technology, skills, and capital intensity of suppliers’ in level and quality, emerged as an important constraint to activities, and by facilitating their upgrading processes. firms’ expansion, especially for small-scale, skills-intensive Increase the degree of local value addition to kick start businesses. In contrast, larger firms, such as OEM subsidiaries, a process of knowledge intensification, industrialization, have a very aggressive training policy, because they tap into and employment generation. 110 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa ■■ Expand the number of new entrants participating in the ■■ Mining companies. Empirical evidence suggests that mining supply chain. This could increase the range of ser- buyer/supplier cooperation is critical for stimulating vices provided locally and promote competition. There is local suppliers’ upgrading processes. However, Chinese a misalignment between the mining companies’ demand and Indian mining firms, which have become important for specialized local suppliers and the broad range of players in Zambia’s mining sector, have been less inclined services with little value addition that suppliers offer. to cooperate with suppliers. Their involvement in a stake- ■■ Expand market opportunities for existing service provid- holders’ alliance would signal a commitment to improve ers. Expansion of the mining sector in the Democratic local supplier capabilities and increase local content. The Republic of Congo has opened significant opportunities mining companies’ participation will help address the for Zambian suppliers to reach the economies of scale misalignment between suppliers and buyers and aid in that they currently lack. designing strategies to make local sourcing efficient for the buyers. Lastly, inviting mining companies to share the procurement data would facilitate the monitoring Developing the competitiveness of Zambia’s local ser- and evaluation process. vice providers would reduce operation costs for the mining companies through several channels: ■■ Government. Zambia’s government needs to commit to allocating sufficient resources at every stage of this initia- ■■ Lower procurement costs would result in price reduction tive and providing the public goods required to improve and quality improvement for the mining companies, the competitiveness of the mining cluster. directly and indirectly through better quality and after- ■■ Other stakeholders. Several institutions should be involved sale services. in the design and implementation stages of specific ■■ Higher outsourcing of noncore activities, such as stock- activities. These include the Zambia Bureau of Stan- holding or engineering services, would be enabled by dards, the Engineering Institution of Zambia, universities lead time reduction by local service providers. This would and technical institutes, business development service allow mining companies to focus on their core processes providers, and international institutions such as the IFC. and operate more efficiently. ■■ Improved knowledge flows, generated by service providers’ Review of Laws and Regulations Affecting know-how, expertise, and technical knowledge, would Supplier Development assist the mining companies in finding the most suitable solutions for their operations and in problem solving. The stakeholders’ alliance should review current legislation and regulations hampering local supplier competitiveness, To achieve these goals, there are three top policy priori- and formulate proposals to the government to improve regu- ties for Zambia’s mining sector stakeholders: latory design and implementation. This priority constitutes “low-hanging fruit” for resource requirements. One of the priorities will be the review of the tax exemption regime for Establish an Effective Stakeholders’ the mining sector. Stakeholders should formulate propos- Partnership for Mining Services als that, while ensuring that the mining companies are not Zambia’s government and private sector need to partner and negatively affected, would remove the cost disadvantage set up an effective institutional framework for mining services. faced by suppliers. The resulting stakeholders’ alliance should be responsible for the design and implementation of a local content strategy, Skills Development for Labor and Management with measurable activities, outputs, milestones, and evalu- ation mechanisms. The groups of stakeholders are The importance of addressing the workforce skills gap is twofold. First, access to a skilled labor force would support ■■ Suppliers. Supply firms in Copperbelt province are suppliers’ efforts to upgrade to new functions and expand geographically agglomerated, but, so far, horizontal their operations. Second, skills development initiatives cooperation between them has been weak. Knowledge would tap into the employment generation potential of sharing and joint actions (such as joint bids or joint bulk the mining cluster, because existing firms could employ purchases) are scarce. more people and foreign firms could be incentivized to Chapter 4 Trade in Mining Services in Zambia 111 set up local firms. In this regard, the Ministry of Science, Facilitating Technological Upgrading Technology, and Vocational Training and TEVETA should Given Zambia’s early stage of development, technological increase resources for training and vocational institutes innovation should be pursued by supporting the adoption and ensure that their curriculum matches the market and adaptation of technology, rather than high-value R&D. demand for specific skills. A few technical institutes in The Ministry of Science, Technology, and Vocational Training the Copperbelt are working with suppliers and mining should work with the ministries responsible for finance and companies in developing curriculums, but this collabora- industrial development to design firm-level incentives to tion needs to be supported with public resources and invest in new equipment and training (for example, through expanded to delivering training. matching grant programs), as well as to encourage technol- Skills gaps affecting the management of SME businesses ogy transfer agreements. also need to be addressed. The stakeholders’ alliance should work through business development service providers and international organizations to strengthen SMEs’ operational FDI Promotion and financial skills, and knowledge of world-class manufactur- To facilitate new entrants, specialization, and linkages between ing and manufacturing excellence. Quality management of parent companies and local suppliers, the government should the operations of SMEs is becoming increasingly important. continue to promote FDI and encourage technology transfer The stakeholders’ alliance should devise a program to help and joint ventures. The investment regime is relatively open, selected local suppliers comply with these requirements. but transnational corporations prefer to operate at arm’s ISO certification is costly and requires firms to have sophis- length rather than partner with local firms because of low ticated internal capabilities. Certification process should be knowledge and/or trust of local businesses, and weak local financially supported, because costs are high because of the capabilities (in skills, finance, and so forth). The Ministry of lack of accredited certification bodies. Other firms should be Commerce, Trade, and Industry could take several mitigating supported in establishing internal quality control systems, actions in this regard. Possible actions include, for the short which could be a stepping-stone for future international term, promotion of business-to-business events to facilitate certification. Such programs should be inclusive of second- linkages, and, for the long term, collaboration with the Ministry tier suppliers. of Justice to improve contract enforcement mechanisms. Suppliers’ Access to Finance Fostering Regional Integration Capital market imperfections, such as information asym- Regional integration can open market opportunities for metry and lack of collateral, constrain access to working Zambia’s local supply cluster. Regional integration efforts and investment capital for smaller firms. The IFC Supplier should prioritize infrastructure development and trade Development Program did not manage to tackle this factor. facilitation. Both are important for cutting operational costs The ministries responsible for industrial development and across the board for local firms, as well as for facilitating finance, in partnership with all stakeholders, should establish firms’ insertion in regional value chains. The Southern Afri- an SME financing scheme. can Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), and the Tripartite Transparency in Mining Companies’ (COMESA-EAC-SADC)17 frameworks offer ideal platforms for Procurement raising investment in infrastructure projects and harmoniz- ing export and import procedures, customs transit, and Transparent procurement procedures are critical to facilitate transport regulations. the entry of capable local suppliers and to improve supply Trade in goods negotiations should aim at improving local chain efficiency. An electronic procurement system could suppliers’ market access to the mining value chain of the be a step in this direction. In the past, misunderstandings Democratic Republic of Congo (which is not implementing and poor consultations between stakeholders over the the SADC free trade agreement). These negotiations should establishment of this system led to the project’s failure. be accompanied by negotiations on trade facilitation and This experience highlights the importance of adequate consultations before and after implementing such procure- ment reforms. 17 EAC = East African Community. 112 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa nontariff barriers. Trade in services negotiations within SADC on enforcing current regional frameworks on investment and COMESA are important to bind liberalization commit- and competition.18 ments; improve and harmonize domestic regulations of key service sectors such as telecommunications, finance, and 18 The Accelerated Program for Economic Integration among the five transport; and facilitate the movement of natural persons. like-minded countries (Malawi, Mauritius, Mozambique, the Seychelles, By doing so, these negotiations would facilitate regional and Zambia) can play an important role in driving the regional integra- value chains and lower transaction and operating costs for tion process (http://www.worldbank.org/en/news/feature/2013/03/19/ Zambian service providers. In parallel, Zambia should focus speeding-up-the-pace-of-regional-integration-in-east-africa). Annex 4.A Upstream Linkages 113 Annex 4A: Upstream Linkages Upstream linkages (or supply links) to the exploration stage like smelters and shafts is controlled by a handful of special- consist of geochemical and geophysical services. These tend ized OEMs from Australia and North America. There is an to be knowledge and skills intensive and therefore are often intermediate category of supplies with skills, knowledge, outsourced to foreign companies. The mine design and and technological content.19 Manufacturing products in construction stages are usually subcontracted to specialized this category include fabrication products, construction project design consultancy firms and large mine construction material, and rubber products. In some African countries, contractors from a handful of countries: North American such as Ghana and Nigeria, local manufacturers have suc- countries, Australia, and South Africa (Hanlin and Hanlin 2012). cessfully entered these supply chains (Morris et al. 2012). In Construction contractors usually operate under lump-sum the short to medium term, Zambian local supply firms can turn-key or engineering, procurement, construction, and seize opportunities to participate in the mining value chain management arrangements, which largely lock out local via this category of supplier. Opportunities for local service supply firms. Decisions taken at this stage affect procure- providers are particularly significant if the mining companies ment decisions further down the value chain for several require supplier locational proximity and local value addition. reasons. Construction contractors set product standards In the longer term, however, Zambia’s linkage development that apply for the life of the mine and purchase equipment strategy should also aim at broadening and deepening its requiring spare parts and maintenance services supplied manufacturing linkages upstream and downstream of the from specific OEMs (Hanlin and Hanlin 2012). Moreover, copper mining sector. they develop relationships with specific suppliers that are retained by the mining companies at the operational stage. Figure 4A.1 displays the global copper value chain, from exploration to industrial use and recycling. 19 This includes services such as personal protective equipment, The operational stage of a mining project consists of core health services, electrical equipment, electrical and mechanical extraction, crushing, concentration, smelting, and refining. engineering services, security services, catering, cleaning, admin- istration, process control, civil engineering services, fabrication Upstream linkages to these operations usually open more products, construction material, rubber products, transport, power, opportunities for local suppliers. However, in Africa, the laboratory testing services, and pneumatic and hydraulic equipment manufacturing, installation, and servicing of large equipment and services. 114 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 4A.1: Copper Mining Global Value Chain Geochemical Logistics services services Exploration Geophysical services Construction services Design Mine construction Mining OEMs, support Mining spares and services components Generic Consumables services Concentration Fabricated Engineering products products Refining Physical Financial services infrastructure Legal services Water Accounting services Energy ITC services Fabrication (Wires, rods, bars, sections, tubes, sheets, foils, plates) Electrical and Industrial Consumer Construction Transport equipment goods electronic products Scrap collection Note: ITC = information and communications technology; OEM = original equipment manufacturer. Annex 4.B market diversification strategies for selected service providers 115 Annex 4B: Market Diversification Strategies for Selected Service Providers Firm’s core business New target markets Distributor of compressors and other capital equipment Oil marketing companies, industrial sectors distribution Distributor of electric products Transport, government procurement, corporate, exports Distributor of electric products Breweries, oil marketing companies Engineering products distribution Corporate, farming Electrical engineering Corporate Equipment supplier Corporate Distributors of gas products Corporate, households Hydraulic equipment distribution Transport, industrial hydraulics, farming OEM equipment distribution Construction, forestry OEM pumps distribution Water utilities Distributors of wire manufacturing Corporate Note: OEM = original equipment manufacturer. 116 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa References Humphrey, J., and H. Schmitz. 2002. “How Does Insertion in Global Value Chains Affect Upgrading in Industrial Ahmad, L., and M. Walker. 2005. “Zambia Copperbelt Supply Clusters?” Regional Studies 36(9): 1017–27. Chain Assessment.” International Finance Corporation, International Monetary Fund (IMF). 2012. “Zambia 2012 Washington, DC. Article IV Consultations” IMF Country Report No. 12/200. Bank of Zambia. 2012. “Foreign Private Investment and IMF, Washington, DC. Investor Perceptions in Zambia—2012.” Lusaka, Zambia. Kasanga, J. 2012. “Leveraging Zambia’s Industrialization Retrieved on April 15, 2013 from http://www.boz.zm/. with Growth of Copper Mining Investments: Strategy for Bartos, P. J. 2007. “Is Mining a High-Tech Industry? Investiga- Expanding Local Manufacturing Capacities to Supply the tions into Innovation and Productivity Advance.” Resources Zambian Mining Industry.” Discussion Paper prepared Policy 32(4): 149–58. for the Zambia Mining Local Content Initiative. Lusaka, Chamber of Mines of Zambia. 2005. Survey of the Zambian Min- Zambia. ing Industry 1995 to 2004. Ndola, Zambia: Mission Press. Lall, S. 1992. “Technological Capabilities and Industrializa- Fessehaie, J. 2012a. “What Determines the Breadth and tion.” World Development 20(2): 165–186. Depth of Zambia’s Backward Linkages to Copper Mining? Morris, M., R. Kaplinsky, and D. Kaplan. (2012). One thing leads The Role of Public Policy and Value Chain Dynamics.” to another: Promoting industrialisation by making the most Resources Policy 37(4): 443–51. of the commodity boom in sub-Saharan Africa. Lulu.com ———. 2012b. “The Dynamics of Zambia’s Copper Value Newton Lungu and Associates. 2010. “Independent Evalu- Chain.” Unpublished PhD thesis. University of Cape ation Report of the CSSDP.” Report prepared for the Town, South Africa. International Finance Corporation. Lusaka, Zambia. Gereffi, G. 1999. “International Trade and Industrial Upgrading UNESCO. (2010). Science report: The current status of science in the Apparel Commodity Chain.” Journal of International around the world. Paris, France: United Nations Educa- Economics 48(1): 37–70. tional, Scientific and Cultural Organization Government of Zambia. 2008. “Mines and Minerals World Bank. 2013. Doing Business. http://www.doingbusiness Development Act, 2008.” Available at: http://www .org/. World Bank, Washington, DC. .parliament.gov.zm/index.php?option=com_docman& World Trade Organization. (1994). Zambia schedule of specific task=doc_view&gid=275 commitments. General Agreement on Trade in Services Hanlin, R. and C. Hanlin. (2012). “The view from below: ‘lock (GATS/SC/93). 1 April, 1994. Retrieved in September in’ and local procurement in the African gold mining 2013 from https://www.wto.org/english/tratop_e/serv_e/ sector”. Resources Policy, 37(4), 468–474. serv_commitments_e.htm Routine Series II by Onyis Martin 119 Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa Antoine Coste, Nora Dihel and Arti Grover Goswami Antoine Coste is Consultant, World Bank, Nora Dihel is Senior Economist, Macroeconomics and Fiscal Management Global Practice, World Bank, Arti Grover Goswami is Senior Consultant Economist, World Bank. Introduction downturns than do manufactures, in part because of the lower demand cyclicality for services (Borchert and Mattoo 2010). Professional services, such as accounting and auditing, archi- This chapter provides an overview of the work undertaken tectural, engineering, and legal services, matter greatly for pro- as part of the Professional Services Knowledge Platform for ductivity, growth, and development, notably in Sub-Saharan Eastern and Southern Africa. The main components of the Africa.1 Although the sector is among the most dynamic in project address three related dimensions of services trade the region, professional services remain underdeveloped in and regulatory reform: (i) filling information gaps, (ii) filling many Sub-Saharan African countries, and regional markets knowledge gaps, and (iii) providing technical assistance for these services are fragmented. This underdevelopment activities to address political economy constraints. The next has been caused by various factors, including restrictive section describes how the platform fills information gaps. trade policies, regulatory heterogeneity, limited capacity to Activities include the creation of a database and reports to train professionals, and rigid immigration rules. Policy mak- fill information gaps on market structure, collection of data ers in several Eastern and Southern African countries have on performance indicators and trade flows, and collection recognized the critical importance of developing professional of information on regulatory measures and trade policies. services and integrating regional markets. To support reform The third section describes how the platform fills knowledge efforts at the national and regional levels, in 2012 the World gaps. This is accomplished by reports and technical assis- Bank and the Common Market for Eastern and Southern tance activities to make the information publicly available, Africa (COMESA) Secretariat launched a “knowledge platform” and by providing training to relevant stakeholders to use for the development of professional services. the databases and undertake regulatory assessments. The The trade facilitation agenda has traditionally focused on fourth section describes the platform’s technical assistance cross-border trade in goods. Recent research and analysis activities to address the political economy constraints that shows that enormous benefits could accrue at the regional slow reform in professional services in Sub-Saharan Africa. level if the free movement of freight is complemented with These activities include channels adopted to support wide uninhibited movement of services (for example, through dissemination of information and regular consultations regional mutual recognition of professional qualifications in among a variety of stakeholders. The chapter concludes the engineering, legal, and accounting professions). Trade with key lessons. in services can be a source of export diversification and reduce Africa’s dependence on a narrow range of agricultural or mineral commodities, thus facilitating trade in higher Filling Information Gaps on value-added goods. In common with services in general, Regional Trade in Professional professional services show greater resilience to economic Services: Results from Survey Data This section summarizes the outcomes of the survey data 1 Related works include Trolliet and Hegarty (2003), Cattaneo collected for the users and providers of professional services. and Walkenhorst (2010), and World Bank (2010a, 2010b). It also describes the regulatory regimes that affect these 120 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa sectors in the 19 examined COMESA countries2 covered Figure 5.1: Usage of Professional Services in COMESA by this project.3 Countries, 2012 (%) More than 2,000 users and providers of professional services in Sub-Saharan Africa were surveyed during the 100 first half of 2012. The sample design was developed to 23 % of firms using service 80 cover the accounting, architectural, legal, and engineering 45 48 services sectors and all size categories (measured by the 60 36 number of employees) within those sectors. The sample 76 19 10 universe was comprised of the most recently available 40 lists of firms from official sources, such as local statistical 19 institutes or business registers in the COMESA countries. 1 24 33 20 12 In each of the professional service sectors, the distribution 22 10 12 9 of firms across size categories in the sample was chosen 0 to be proportionate to the universe distribution, within the g e g l ga tin ur in er Le ct un ite ne constraints of a fixed number of firms to be covered per sec- co ch gi Ac En Ar tor and country. Within each professional service sector–size Internal External category cell, the firms to be part of the final sample were Internal and External Nonusers chosen randomly from the universe of firms in that cell. The surveys covered 1,182 firms providing professional services Source: World Bank Survey, 2012. distributed approximately as follows: 100 firms in the Arab Note: COMESA = Common Market for Eastern and Southern Africa. Republic of Egypt, Ethiopia, Kenya, Sudan, and Uganda; 60 firms in the Democratic Republic of Congo, Madagascar, services. At least 50 percent of the firms in our sample use Malawi, Mauritius, South Sudan, and Zambia; and 40 firms in engineering and legal services. Burundi, Comoros, Djibouti, Eritrea, Rwanda, Swaziland, and Usage of professional services is associated with higher Zimbabwe. To evaluate the usage of professional services, the productivity. Firms using accounting or engineering services, survey covered 1,100 firms from five industries4 distributed whether internally or externally or via employing internal approximately as follows: 80 firms in Egypt, Ethiopia, Kenya, and external professionals, perform better compared with Sudan, and Uganda; 60 firms in the Democratic Republic of nonusers (figure 5.2, panel a). However, in the cases of archi- Congo, Madagascar, Malawi, Mauritius, South Sudan, and tecture and legal services, external professionals seem to Zambia; and 40 firms in Burundi, Comoros, Djibouti, Eritrea, be key in pushing labor productivity above that of nonuser Rwanda, the Seychelles, Swaziland, and Zimbabwe. firms (figure 5.2, panel b).5 Professional services are essential for the success and Professional services present a potential avenue for growth of all firms in any industry. Our survey suggests expanding regional trade in services. This is evident from the that a large proportion of firms in Africa use professional wide variation in the availability of professionals and hence services, whether internally, externally, or both (figure 5.1). their average (gross) monthly salaries across countries in Accounting and architecture services are opposite ends of COMESA (figure 5.3).6 The four countries where professionals the spectrum; about 77 percent of firms use accounting services and about 23 percent of firms use architectural 2 Libya was not covered by the project. 5 We use the market exchange rate from the World Development 3 COMESA countries include the Arab Republic of Egypt, Burundi, Indicators and World Economic Outlook to derive the sales figures Comoros, the Democratic Republic of Congo, Djibouti, Eritrea, in U.S. dollars for the countries covered in the survey. Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, the 6 In figure 5.3, the ranking of countries differs depending on Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe. whether U.S. dollar or purchasing power parity U.S. dollar figures 4 The firms belonged to one of the following five industries: agri- are considered. For example, professionals in Zimbabwe have one business, construction, manufacturing, mining, and services, with of the highest average remuneration levels at the market exchange services firms comprising more than 50 percent of the sampled rate, but are paid below the COMESA average at purchasing power firms. parity values. Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 121 Figure 5.2: Relation of Labor Productivity to Use of Professional Services in COMESA Countries, 2012 (US$ per employee) a. Labor productivity across countries, users versus nonusers 20000 18000 16000 Labor Productivity (US$) 14000 12000 10000 8000 6000 4000 2000 Sub-Saharan Africa Burundi Congo, Dem Rep. Egypt, Arab Rep Kenya Madagascar Malawi Mauritius Sudan Rwanda Seychelles Swaziland Uganda Zimbabwe 0 Sub-Saharan Africa Burundi Congo, Dem Rep. Egypt, Arab Rep Kenya Madagascar Malawi Mauritius Sudan Rwanda Seychelles Swaziland Uganda Zimbabwe Users Nonusers Users Nonusers b. Labor productivity across service user type 15000 Average Labor Productivity (US$) 15000 Labor Productivity (US$) 10000 10000 5000 5000 Average 0 g e g al tin ur rin g 0 Le ct un ee ite co n ch gi g e g al Ac tin ur in En g Ar er Le ct un ite ne co ch gi Internal External Ac En Ar Internal and external Nonusers Internal External Internal and external Nonusers Source: World Bank Survey, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. are paid the most are Kenya, Mauritius, South Sudan, and The survey data show that a significant proportion of Zimbabwe, in U.S. dollar values, and Kenya, Mauritius, the providers of professional services in COMESA already export Seychelles, and Uganda, in purchasing power parity values. services to clients within and outside the region. Overall, The two countries where professionals are paid the least around 16 percent of firms declared that they exported some are Burundi and Madagascar. services in 2011. The proportion is lower in engineering and 122 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 5.3: Average Monthly Salary of Senior Professionals in COMESA Countries, 2012 (US$) 1500 Salary (US$) 1000 500 0 Mauritius Kenya Zimabawe Seychelles South Sudan Sudan Swaziland Zambia Comoros Malawi Uganda Congo, Dem. Rep. Eritrea Rwanda Djibouti Egypt, Arab Rep. Burundi Ethiopia Madagascar Country Market exchange rate Purchasing power parity Source: World Bank Survey, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. Figure 5.4: Proportion of Exporting Firms in COMESA percent), and Sudan (31 percent) (figure 5.5).7 Our survey Countries by Sector, 2011 (%) data and the enterprise survey results shown in figure 5.3 are not perfectly comparable for various reasons (includ- 25 ing different years of data collection for enterprise surveys, and smaller country samples for the professional services Proportion of exporting 20 survey). Nevertheless, the order of magnitude suggests 15 that professional services can have strong export potential, firms (%) even in countries where exports in other services sectors 23 10 are very limited. 17 12 The survey also indicates clear patterns in the modes 11 5 used to export services. Following the General Agreement on Trade in Services (GATS) terminology,8 mode 1 is the most 0 frequently cited (by 43 percent of exporting firms), followed l y e g ga nc ur in Le er ct ta ite ne un ch gi co En Ar Ac 7 Although this could be caused by sampling issues, some coun- Type of firm tries, such as Comoros, Djibouti, Egypt, and the Seychelles, appear to have virtually no exporters. Among exporters, the services provided Source: World Bank Survey, 2012. to foreign clients represented on average around 20 percent of total Note: COMESA = Common Market for Eastern and Southern Africa. revenue in 2011. As illustrated in figure 5.5, enterprise surveys show much lower proportions of exporting firms for most countries (in architecture, but slightly above average in accountancy and the total country samples and in the tertiary) than the professional surprisingly high in legal services (figure 5.4). Most exports services survey. 8 The WTO’s GATS defines the following modes of services export: go to neighboring countries. cross-border supply (mode 1), consumption abroad (mode 2), com- In the proportion of professional services firms providing mercial presence (mode 3), and temporary presence of natural services to foreign clients, three countries stand out, namely, persons (mode 4). For more information, see http://www.wto.org/ Kenya (36 percent), the Democratic Republic of Congo (33 english/tratop_e/serv_e/gatsqa_e.htm. Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 123 Figure 5.5: Proportion of Exporting Firms in COMESA by Country, 2012 (%) 40 Share of exporting firms (%) 35 30 25 20 15 10 5 0 a . n di a e a n i nd da s a r ea ti . yc s s aw ep ep ca iu ou ro lle ny da bi bw nd da pi n ila an itr rit ru m o .R as R o al he Ke yp Djib Su ga Su ba hi Er om az au Za Bu w M ab ag em Et U m R h Sw M C Ar ad Se ut Zi ,D So M t, go Eg on C Type of firm Professional services survey Enterprise surveys (services) Professional services—COMESA average Source: World Bank Surveys, 2012; World Bank Enterprise Surveys, 2012. Note: Enterprise Surveys data show the proportion of firms exporting directly (at least 1 percent of sales). COMESA = Common Market for Eastern and Southern Africa. by mode 4 (25 percent) and mode 2 (23 percent). By contrast, presence abroad and traveling to provide services. Studies mode 3 is far less used (9 percent) (figure 5.6). These find- in Africa have shown that explicit trade barriers (such as ings might reflect firms’ preferred way of providing services nationality requirements and barriers to foreign ownership), to foreign clients on a daily basis, because of speed or cost domestic regulations (such as qualifications and licenses), or considerations. But they might also be a consequence of the other rules (such as immigration policies) often impede the obstacles faced by professionals in establishing a commercial provision of services by foreign providers through modes 3 Figure 5.6: Submodes of Export in COMESA Countries, 2012 Electronically 26% Mode 1 Express courier 19% Normal post delivery 6% Mode 2 Foreign clients visiting 16% Mode 3 Commercial presence abroad 6% Travel to negotiate contracts 6% Mode 4 Travel to provide services 6% Travel to meet foreign clients 14% Source: World Bank Surveys, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. Sub-Saharan Africa 47% 124 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade Europe 16% In Services in Africa Middle East and North Africa 13% North/South America 10% Russian Federation/India/China 8% Other Asia 5% Figure 5.7: Destinations of Exports from COMESA Countries, 2012 (%) Australia/New Zealand 1% a: Main destinations by region b: Main destinations within Sub-Saharan Africa Sub-Saharan Africa 47% South Africa 15% 12% Europe 16% Rwanda 11% 10% Middle East and North Africa 13% Tanzania 8% 4% North/South America 10% Zambia 4% Russian Federation/India/China 4% 8% Mozambique 4% Other Asia 5% 3% Malawi 3% Australia/New Zealand 1% 3% Seychelles 3% 15% South Africa Source: World Bank Surveys, 2012. 15% 12% Note: 11%Africa. COMESA = Common Market for Eastern and Southern Rwanda 10% Tanzania 8% 4% Zambia 4% Mozambique 4% and 4, notably in accounting 4% and legal services (see World Applied Regulatory Policies Bank 2010a). 9,10 and Barriers to Professional 3% Malawi One is that Sub-Saharan Africa is by far the clear finding3% Services Trade 3% main destination Seychelles of professional 3% services exports by firms in COMESA countries, accounting for almost half of all the 15% export relations reported in the survey (figure 5.7, panel Professional services have traditionally been subjected to a a). Within the region, South Africa is the foremost market, high degree of regulation. These regulatory measures are followed by four countries of the East African Community a result of direct government regulation and rules adopted (figure 5.7, panel b). In general, firms tend to export services by self-regulatory bodies, and range from qualitative and to neighboring countries (for example, Burundi to Rwanda, quantitative entry regulation to conduct regulation. Entry South Sudan to Uganda, Swaziland to South Africa, and regulation includes educational and professional qualifica- Zambia to Zimbabwe). tion requirements, exclusive or shared exclusive rights to Our survey also evaluates the extent of mode 3 imports provide services, ownership restrictions, and restrictions (percentage of foreign ownership in professional services on the numbers of providers. Conduct regulations govern firms, figure 5.8, panel a) and mode 4 imports (percent of business structure and multidisciplinary practices, pricing, foreign employees, figure 5.8, panel b). Very few countries and advertising. These rules can be applied to domestic have any significant proportion of foreign ownership or and foreign providers. Public interest theories tend to justify foreign employees on their payroll. This reflects significant regulation, while private interest theories have been critical, barriers to entry in foreign markets in the COMESA region. especially of self-regulation. The survey respondents were asked to assess the level of constraint imposed by different categories of regulations, domestically and in foreign markets.11 The categories of regulations considered were as follows: ■■ Regulations related to competition and firms’ operations 9 A finer analysis by submode seems to confirm the existence (number of firms allowed to operate, multidisciplinary of barriers in the case of mode 4, as “travel abroad to meet foreign activity, cooperation with other professionals, prices, clients” and “travel abroad to negotiate contracts” together represent advertisement, and so forth) 20 percent of answers, compared with only 6 percent for “travel abroad to provide services directly to foreign clients.” 10 The survey data analysis did not reveal any major differences in the modes used across sectors, but the data suggest that small exporters rely more on mode 1, while larger ones tend to use other 11 For nonexporters, the questionnaire asked which regulations modes more. would most affect operations abroad and the capacity to export. Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 125 Figure 5.8: Share of Foreign Ownership and Foreign Employees in COMESA Region Firms, 2012 (%) a: Foreign ownership in professional services firm 100 Foreign ownership (%) 80 60 40 20 0 i M . Bu i Er i ea m ya C we os a ag a au r Za s a h nd n em ia Su . yc n C lles A Ar out aw nd ep ep ca iu nd ad and Sw bi da Se da ES , D iop n or itr a rit b ru m R as .R he al b Ke ga So azil Su ba om M go Eth yp Dji w ab U O R M ut Zi M t, Eg on C Country No foreign ownership 1-24% 25-49% Over 50% b: Proportion of firms with foreign employees 60 50 foreign employees (%) Proportion of firms with 40 30 20 10 0 go h S e em dan M ep. az s Su d yc an Za es D ia R uti Bu da U di C nda os ag wi Et ar Ke ia ab ya Er . ea ep Sw ritiu w n b n p c ad ala o ll or n ila Se d an itr C So bab m ru io .R as .R he jib ,D u ga om au h w M m on ut Ar Zi M t, yp Eg Country Source: World Bank Surveys, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. ■■ Regulations related to qualification and licensing (complexity Two additional categories were included for foreign and speed of procedures) regulations: (i) restrictions on foreign ownership and foreign ■■ Public procurement (complexity of requirements to par- entry, and (ii) regulations and requirements applying specifi- ticipate and transparency of procurement processes) cally to foreign providers. On average, regulations related to qualification require- ■■ Administrative procedures and requirements to start a ments and licensing procedures are the ones cited as business. being the most constraining in the domestic and foreign 126 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 5.9: Firms in the COMESA Region Citing Foreign Regulations as a Constraint, by Sector, 2012 (%) 25 regulations as a constraint (%) Share of firms citing foreign 20 15 10 Qualification Restriction Administrative Regulations for Regulations Regulations requirements on foreign procedures to foreign suppliers related to related to public and licensing ownership start a business competition procurement procedures Type of regulation Accountancy Architecture Engineering Legal Total Source: World Bank Surveys, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. markets. In the domestic market, the latter category is seen Reform of Domestic Regulations as more constraining by accounting and law firms, while Public interest theories claim that many of the regulatory public procurement regulations appear to be more of an measures discussed in the previous section are justified to issue in architecture than in the other sectors. In foreign address market failures, such as information asymmetries, markets, regulations related to qualification and licensing externalities, lack of economies of scale, and equity con- are particularly problematic for engineering and law firms, cerns. However, private interest theories have been critical while accounting firms complain more about restrictions of many aspects of professional regulation and, especially, on foreign ownership and foreign suppliers’ operations of self-regulation.12 (figure 5.9). Information Asymmetry Filling Knowledge Gaps Professional services require that practitioners have a high The objective of this component of the Professional Ser- level of technical knowledge. Many knowledge-intensive vices Knowledge Platform was to increase information on professional services can be considered credence goods; regulatory experiences and impacts and identify alternative that is, the clients may not have the knowledge to judge the options/good practices to guide reforms in professional quality of the services they purchase. services. An important lesson learned from the project is A possible market-based correction mechanism for that there is hardly ever a “quick-fix solution” to regulatory this problem is the reputation premium. However, in many problems. The sometimes slow and modest results of lib- professional services, reputation is not enough to provide eralization and regulatory cooperation reflect the complex information about quality to consumers. This situation can political economy process that needs to be addressed when result in overall quality deterioration, because providers of implementing regulatory reforms. The project therefore the highest quality, who charge higher prices, are driven out extended the collection of data on professional services to include conceptual and applied analyses of the reforms in professional services. 12 The classic references are Stigler (1971) and Posner (1974). Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 127 of the market.13 Therefore, public interest theories assert market structures may be a result of regulatory failure, such that education and qualification requirements, other quali- as uniform standards or licensing controls at multiple levels. tative entry requirements such as exclusive tasks reserved In such cases, interventions may be needed to address to professionals, or advertising regulations are needed to inadequate direct or indirect regulation. protect consumers. Similarly, public interest theories claim that regulatory Equity intervention is needed to address the principal-agent prob- lem that can generate supplier-induced demand: the agent Markets sometimes exclude certain actors from access to (services provider) has an incentive to oversupply quality education or services. Therefore, governments or profes- to charge higher prices even if the principal (consumer of sional associations justify regulatory measures, such as services) would be better off with a lower-quality service at price regulation, to ensure access to services for low-income a more reasonable price. Such adverse selection issues are consumers. often addressed by (minimum) standards or price regulation. Lack of Economies of Scale for Practitioners Externalities and Professional Services The use of professional services may bring benefits to users, The small size of the domestic market in COMESA countries but also to third parties. For example, an accurate audit can may prevent the development of large professional service help companies obtain credit while also helping creditors and sectors, including the skills base. For example, local busi- investors make informed lending and investment decisions. ness service providers often do not have the expertise to However, several providers and potential users, particularly support manufacturing exporters. And professional service small enterprises, may be unaware of the private and social sectors may lack investment from foreign firms. In such benefits that the use of professional services offers. Therefore, cases, it is essential to (i) identify unnecessary measures and intervention in many professional service markets tries to trade barriers that prevent local companies from exploiting ensure that positive social externalities occur and negative economies of scale, and (ii) examine how regional and/or externalities are avoided. Negative externalities can be multilateral liberalization (along with mutual recognition addressed through liability regulations—but this approach agreements) can help compensate for underdeveloped operates ex post and has limited success. Ex ante quality local services markets. requirements, such as standards related to education and Public interest theories claim that many of these regu- training, seem preferable to address externality issues. latory measures are justified to address the above market Positive externalities include public goods. Many pro- failures. But private interest theories have been critical of fessional services exhibit public good characteristics and many aspects of professional regulation and self-regulation, create positive externalities for parties not involved in the in particular the protectionist outcomes they often produce. transaction. For example, legal professionals may generate For example, public interest theories argue that quali- important positive externalities that benefit society in general tative regulatory measures are necessary to guarantee by defining and enforcing property rights. In a free market, high-quality services and avoid adverse selection. Qualita- public goods tend to be underproduced, since the producer tive entry restrictions may thus be necessary. But private cannot exclude nonpaying beneficiaries. To guarantee that interest theories warn that qualitative regulations may be public goods are provided, states may decide to enact disproportionate as a result of the excessive entry require- regulations on the provision of public goods. ments set by rent-seeking professionals and professional Market power can be an additional reason for regula- associations. In addition, if the profession gains a monopoly tory intervention. In certain professional services, such as over the organization of the required training, the education accounting, leading firms (often foreign-owned) have a sig- of necessary professionals may be limited. nificant share of the market and a large gap exists between It is difficult to determine whether qualitative require- the average leading firm and the average other firm. These ments, in general, are disproportionate. One example of typical restrictive qualitative requirements is restrictions on 13 This process of “adverse selection” results in overall quality access to the profession, which are mainly caused by the deterioration, which is described as a “market for lemons” in Akerlof monopoly of professional associations over training institu- (1970). tions. Another example is multiple certification requirements. 128 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Yet another example is when a country’s banking and insur- restrictions on multidisciplinary activities prevent potential ance laws require that all companies that apply for credit conflicts of interest that are detrimental to consumers. But use auditors approved by the banks or insurance institutions private interest theories stress that these regulations are to prepare the financial statements for outside investors or clearly anti-competitive and may harm consumers by prevent- other external parties to obtain credit. Such auditors are ing providers from developing new services or cost-efficient generally affiliated with one of the “big four” or other large business models. For example, these regulations might companies. These requirements may limit the access of prevent lawyers and accountants from providing integrated smaller suppliers to the market. legal and accountancy advice for tax issues. In general, Highly skilled professionals in all sectors have exclusive restrictions on collaboration between members of the same rights to perform certain activities; these include auditing, profession seem to be less justifiable than restrictions on representation of clients before courts, advice on legal collaboration between members of different professions, matters, feasibility studies, and design and planning. The where there is a strong need to protect the independence argument in favor of exclusive rights is that they can lead to and liability of professionals. increased specialization of professionals and guarantee a Guidance on whether the regulatory measures are higher quality of service. But the negative price and allocation disproportionate can be obtained from regulatory impact effects of exclusive rights, which act as monopolies, can be assessments, stakeholders’ consultations, and business substantial, especially if they are granted for standardized surveys. services that can be provided at a lower cost by less regulated or nonregulated providers. Furthermore, price regulations are introduced and sup- Removal of Explicit Trade Barriers ported by national professional associations, which claim they The major share of the international trade in professional help prevent the adverse selection problem. But most of the services takes place through commercial presence and the economic literature states that these regulatory instruments temporary presence of natural persons. Thus, most restric- can seriously harm competition by eliminating or reducing tions faced by professional services exporters in COMESA the benefits that competitive markets deliver for consumers. countries will relate to mode 3 and mode 4 in GATS termi- Most agree that less restrictive mechanisms, such as better nology. Typical restrictions affecting commercial presence information on the services provided, could be established. in professional services include the following: Public interest theories justify advertising restrictions by the need to protect consumers. But private interest theories maintain that there is no justification for prohibiting advertis- ■■ An economic needs test for the approval of foreign ing that is relevant, truthful, and not misleading.14 Instead, investment advertising fosters competition by informing consumers ■■ Numerical quotas on the number of operating licenses about different products and allowing them to make better available to providers of professional services informed buying decisions. Public interest theories also stress ■■ A joint venture requirement for the supply of profes- that advertising, especially comparative advertising, can be sional services a crucial competitive tool for new firms entering a market. ■■ Regulation of contracts by value and number through Finally, restrictions on the business structure in all profes- an annual licensing system sional services are justified by professional associations. Such regulations include restrictions on the ownership structure ■■ Nationality or residency requirements for establishment of professional services companies; the room for collabora- of foreign-held companies providing professional services tion within the profession and with other professions; and, ■■ A requirement that foreign-held businesses hire specific in some cases, the opening of branches, franchises, or ratios of domestic staff to foreign staff chains. Professional associations argue that professionals ■■ Reservation of some service sectors or activities for are more likely to give independent advice if certain forms nationals or residents. of intra-professional partnerships are prohibited, and that Professional services supplied through mode 3 will often 14 Stigler (1971) has argued that advertising by the providers of be accompanied by mode 4 supply to provide skilled and services can substitute for a large amount of searching efforts by professional services directly to projects and to maintain a large group of consumers. local offices. Professional service firms use a variety of Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 129 professionals, such as high-skilled auditors, lawyers, engi- losers from the proposed policy changes? What tools are neers, and specialized technicians. Restrictions on mode 4 available to help us set priorities and identify the policy may also arise from a country’s overall immigration policy or changes that bring the biggest potential gains? To address specific labor market conditions. The following are common some of these questions, we complemented the qualitative examples of conditions for approving the entry of service regulatory assessments with quantitative analyses that look suppliers: at the effect of domestic regulation and trade policies on productivity and trade. ■■ Labor market testing To carry out this quantitative exercise, we asked the firms in our sample to rank the various regulatory measures by ■■ Residency requirements for intra-corporate transferees the severity/restrictiveness of regulation. Firms categorized and a requirement that the foreign-held company employ the regulatory measures into five groups: no obstacle, minor specific numbers of local staff obstacle, moderate obstacle, major obstacle, or severe ■■ Authorization subject to the non-availability of locals obstacle in their operations and growth in domestic and ■■ Authorization subject to performance requirements (such foreign markets. After calculating the percentage of firms as employment creation, the transfer of technology, and that believe that a particular regulation is a major or severe the level of investment). obstacle to their growth and operations, we argue that pro- viders consider regulations on fees/prices and advertising The deployment of professionals for temporary assign- as the most important barriers to competition. The speed of ments in export markets separately or as a complement accreditation and licensing procedures, the lack of transpar- to foreign direct investment is common in these sectors. ency in public procurement procedures, and burdensome The movement of natural persons is a sensitive issue in registration procedures are the top barriers that are likely many countries because of illegal immigration and security to impede the operations and growth of a firm and hence concerns. affect its decision to export (table 5.1, panel a). Trade in selected professional services, such as engineer- For the trade and regulatory barriers faced in foreign ing consultancy services, can be provided via mode 1 by using markets, service providers identified the following top restric- mass communications systems (including postal services, fax, tions. First, providers identified trade barriers, including telephone, and the Internet). The principal restrictions on limits to the number or proportion of shares that can be the cross-border supply of professional services are that (i) identified by foreign investors, and restrictions on cross- the services be certified by locally registered service provid- border services provision. Second, service providers noted ers, and (ii) cross-border service providers already have a regulatory issues, including regulation of fees/prices, the commercial presence in the importing country. speed of accreditation, the speed of licensing procedures, Finally, restrictive immigration policy is a barrier to the lack of transparency of public procurement procedures, trade. The trade-migration linkage is an important part of and burdensome registration procedures (table 5.1, panel b): the debate on migration reform in COMESA. Trade policy Taking the main binding regulations noted in table 5.1 officials should not neglect the immigration and labor market and pooling the firm-level decision to participate in inter- perspectives when considering temporary entry or mode 4 national markets for the 19 COMESA countries, we use a issues. Policies related to visas, work permits, and treatment gravity model to examine the impact of domestic and foreign of foreign workers must be considered. regulations on a firm’s probability to export.15 The main objective of our exercise is to identify the most important regulatory and trade barriers that are likely to impede the Regulations and Participation operations and growth of African professional services firms in Trade: An Impact Assessment and affect their decision to export. In line with the findings of the literature on regulation and trade in services, we find In addition to guidance on the trade and regulatory agenda, that domestic regulations affecting competition—such as African stakeholders expressed a strong demand for quanti- price and fee regulations or advertising prohibition—have a tative analyses to inform the reform of professional services. negative impact on a firm’s decision to export. For example, Recurrent questions raised by policy makers during our dissemination events included the following: Can we have concrete illustrations of the benefits of liberalization or reform 15 See annex 5A for the list of reporter (surveyed) and partner for our domestic audience? Who would be the winners and countries and annex 5B for the methodological details of this study. 130 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 5.1: Restraints Imposed by Domestic and Foreign Regulation on COMESA Countries, 2012 a: Most restraining domestic regulations Broad category of domestic regulation Important regulations in the broad category Regulations related to competition Regulations imposed on fees/prices (for example, binding minimum or maximum prices) Regulations on advertising and marketing by professionals Regulations related to qualification requirements Speed of accreditation and qualification procedures and licensing procedures Speed of licensing procedures Regulations related to public procurement Transparency of public procurement procedures Regulations related to administrative steps Regulations related to registration procedures, obtaining permits and other necessary to start a business administrative steps necessary to start a business b: Most restraining foreign regulations Broad category of foreign regulation Important regulations in the broad category Restrictions on foreign ownership Limits to the number or proportion of shares that can be acquired by foreign investors Restrictions on cross-border services provision Regulations related to competition Regulations imposed on fees/prices (for example, binding minimum or maximum prices) Regulations that do not allow professionals employed by your firm to perform certain multidisciplinary activities Regulations related to qualification requirements Speed of accreditation and qualification procedures and licensing procedures Speed of licensing procedures Regulations related to public procurement Transparency of public procurement procedures Regulations related to administrative steps Regulations related to registration procedures, obtaining permits and other necessary to start a business administrative steps necessary to start a business Source: World Bank Surveys, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. our estimations suggest that a 10 percent average increase less important. These firms can easily use their networks to in firms perceiving the price and fee regulations to be a bypass the procurement processes and evade competition severe obstacle decreases the likelihood of firms exporting from potential entrants. By contrast, nontransparent public by 0.3 percent. procurement processes in foreign countries hinder exporting Similarly, nontransparent public procurement processes firms’ operations and growth in the foreign market because in foreign markets have a strong negative impact on a firm’s of the lack of networks and associates in the host country. decision to export. For example, our estimation suggests that For foreign entry restrictions, our estimates suggest a 10 percent average increase in firms perceiving nontrans- that barriers to cross-border trade in professional services parency in foreign public procurement as a severe obstacle do not critically hinder a firm’s decision to export, while decreases the likelihood of exporting by 0.5 percent. By regulations limiting a firm’s investment in foreign markets contrast, nontransparency in public procurement processes are much more significant. The result confirms the findings does not seem to hinder the growth and operations of a of our business surveys, which show that a large proportion firm in its domestic market. A possible explanation for this of firms prefer exports of professional services via mode 1. finding is that the firms already in business (and hence picked The result is also broadly in agreement with earlier findings up in our surveys) are well-connected and well-versed in showing that technological advances have made it possible procurement procedures, making the issue of transparency to trade certain services unobstructed by regulatory policy. Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 131 Table 5.2: Comparison of Exporters and Nonexporters in COMESA Countries, 2012 Indicator Nonexporters Exporters Whole sample Number of firms 996 186 1,182 Years operating 10.9 13.6 11.3 Number of employees 13.9 19.7 14.8 Part of a larger firm (%) 12 18 13 Sole proprietorships (%) 45 27 42 Share of largest owner (%) 78 71 77 Some foreign ownership (%) 22 34 24 Majority foreign ownership (%) 8 14 9 Average share of foreign ownership (%) 10 16 11 Firms with establishments abroad (%) 13 30 15 Main clients—multinationals/large firmsa (%) 26 39 28 Main clients—small/micro firmsa (%) 40 25 37 Firms with foreign employee(s) (%) 11 23 13 Average monthly salary of partners/managers (US$) 1,049 1,330 1,096 Average monthly salary of senior professionals (US$) 703 841 727 Average monthly salary of junior professionals (US$) 401 483 415 Average revenue (US$) 196,097 237,532 202,674 Average labor productivity (US$ revenue/employee) 16,398 17,804 16,621 Source: World Bank Surveys, 2012. Note: COMESA = Common Market for Eastern and Southern Africa. a Percentages taken across the total answers provided by respondents for a question asking them to select up to three main types of clients. Our estimates suggest that in addition to certain regulations, Firm-Level Determinants of Trade a firm’s age, its size, the proportion of foreign professionals in Professional Services in employment, the firm’s scope of activity, and the average wages have a positive and significant impact on a firm’s prob- Being an exporter is associated with larger/older firms, more ability of exporting. The impact of the proportion of highly foreign ownership, larger clients, more foreign employees, skilled workers, although positive, is insignificant. higher salaries, and stronger performances in revenue and labor productivity (table 5.2). The fact that being an exporter implies on average a larger share of foreign ownership could Technical Assistance Activities have several explanations. In particular, one explanation could be that firms with ownership ties to foreign companies have to Disseminate Knowledge access to more international connections and resources, for and Provide Training example skilled labor or credit. Another potential explana- tion is that firms that already perform well and are able to Finally, we put special emphasis on the facilitation of network- enter foreign markets are also the ones that attract foreign ing and information exchange between national, regional, and investors seeking a foothold in the country. international stakeholders such as professional associations, In our impact assessment exercise, discussed in the pre- negotiators, private sector representatives, and coalitions vious section, we also control for firm-level characteristics.16 of service industries. Building networks to share information and knowledge with COMESA country stakeholders took place through 16 See annex 5B for details on the firm-level controls included in a variety of channels. The channels range from face-to- the estimating equation. face interactions and transfer of tacit knowledge (such as 132 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa peer-to-peer discussions) to workshops and meetings with the issue of trade in legal services; (ii) generate and promote local stakeholders and external experts. Given the investment profession-led ideas (from the bar and the private sector) in collecting data and policy information, it was important for about trade and regulatory reforms that would encourage the platform to facilitate direct engagement between stake- cross-border legal services in Africa; (iii) identify ways to holders and sharing of information on experiences (including raise awareness about the potential benefits of cross- experiences related to the political economy, what did work, border trade in legal services in Africa for African lawyers; what did not work, and so forth). Noteworthy activities for and (iv) identify further support and resources needed to building partnerships for knowledge delivery and technical support champions in taking further action to promote the assistance are summarized in the following subsections. spread and exchange of ideas on trade in legal services. As a result of the COMESA-World Bank workshop on legal services, an instrument to facilitate the movement of legal Conference Organized by the Pan African professionals on the continent, including the development Federation of Accountants in Partnership with of a regional license, was developed and shared with the the World Bank and African Development Bank COMESA Secretariat. The Pan African Federation of Accountants (PAFA), in part- nership with the World Bank and African Development Group of African Member Associations Bank, hosted a conference in Cape Town, South Africa, on Conference 2012 November 18–20, 2012. The event brought together about 150 leaders of the accounting profession, representatives The Group of African Member Associations (GAMA) con- of development partners (donor community), trade services ference was a special session on engineering services in negotiators from COMESA and the East African Community COMESA, co-organized with the International Federation (EAC), and representatives of international accounting orga- of Consulting Engineers (FIDIC) at the annual conference of nizations—the International Federation of Accountants (IFAC) the FIDIC GAMA in May 2012 in Zambia. The GAMA confer- and the International Accounting Standards Board (IASB). ence is affiliated with FIDIC and is a forum where consulting The conference objectives were to create and increase engineers, government officials, construction equipment and awareness among the development partners on PAFA stra- materials suppliers, and other stakeholders in the engineer- tegic objectives and the role of professional accountancy ing consultancy industry from the public and private sectors organizations (PAOs) in promoting economic growth, the share and exchange ideas and methods on the provision of economic potential of freer trade in accountancy services, engineering consultancy. This FIDIC-GAMA conference is the and increased regional mobility of accountancy profes- largest annual networking event for consulting engineers in sionals, and to share best practices that will contribute to Africa. The GAMA 2012 conference theme was Engineering as strengthening the accountancy profession in Africa. a Driver of Sustainable Social and Economic Development—­ The conference objectives were achieved by sharing Toward Achieving the Millennium Development Goals. and discussing (i) the PAFA 2012–16 strategy, (ii) the role Conference delegates engaged in discussions of trade of PAOs in contributing to economic growth, and (iii) good in engineering services. The key issues considered are sum- practices on accountancy profession mutual recognition marized below. arrangements (MRAs) and other regulatory measures that support cross-border accountancy activities. Procurement of foreign-funded civil works projects Two sessions were devoted exclusively to issues related to remains a controversial issue within the engineering trade in accountancy services and the mobility of accountancy sector in Africa. professionals in Africa, including the joint COMESA-World Local engineering firms believe that they are not given an Bank project on a Professional Services Knowledge Platform. equal chance to participate in the procurement process of The sessions were facilitated by trade negotiators, repre- large, foreign-funded, civil work projects. The main argument sentatives of the PAFA Board, PAOs, development partners, against the participation of local firms is that they lack the and international accounting organizations. requisite experience and capacity to undertake these large projects. But a case can be made for multilateral agencies to review their procurement models, given the changes in Workshop on Legal Services the global economy. The World Bank is currently undertak- In February 2012, the World Bank and COMESA organized ing a review of its procurement model, which has remained a workshop on legal services as part of the platform. The unchanged for the past 20 years or so. Increasing local objectives of the workshop were to: (i) engage champions on inclusion in foreign-funded projects will generally benefit a Chapter 5 Professional Services Knowledge Platform for Sub-Saharan Africa 133 country’s economy by increasing employment; enhancing Other Dissemination Activities skills, knowledge, and technology transfer from large foreign The main findings of the Professional Services Knowledge firms; increasing government tax revenues; and increasing Platform were presented at the following events: foreign direct investment. Advocacy is an important mechanism used ■■ Organisation for Economic Co-operation and Develop- by engineering associations for engagement ment (OECD) Global Forum on Trade, organized in Paris, with government and multilateral agencies on November 8, 2012 The majority of engineering associations represented at ■■ European Union Directorate General and Trade World the conference recognize the importance of advocacy and Bank seminar organized in Brussels, on 17 December have included advocacy programs as part of their strategic 17, 2013 plans. GAMA and FIDIC expressed their commitment to ■■ World Trade Organization COMESA Services Meeting assist member associations in providing advocacy at the organized in Kigali, on April 23–25, 2013. international level. The number of young professionals engaged in The main findings of the platform were also presented engineering services is decreasing, as is the number and discussed at the COMESA Services Council in Kampala of students taking engineering courses in universities in June 2013. The survey data and results on providers of professional As a result, the majority of engineering professionals engaged services, users of professional services, and the regulatory in service delivery are seasoned professionals with many years database have been developed and posted on the Profes- of experience. However, the pool of qualified engineers is sional Services Knowledge Platform for COMESA website: not only small in size but shrinking. Engineering associations http://worldbank.fissiondev.com/. have recognized that it is important to attract and engage Four short films (one general film and three sector- young professionals into the sector for continued growth. specific films) that summarize the main results of our work on professional services in COMESA countries are available Political Economy of Mutual Recognition at the following websites: of Professional Qualifications ■■ Main cut: https://vimeo.com/52317592 The five EAC countries have made progress toward removal of explicit trade barriers and mutual recognition in profes- ■■ Engineers: https://vimeo.com/52335675 sional services through the EAC Common Market Protocol ■■ Accountants: https://vimeo.com/52328792 (CMP) negotiations. The CMP, adopted by the Multi Sector ■■ Law: https://vimeo.com/52335676. Council in 2009, includes commitments related to professional services. The CMP also includes an annex on a framework agreement on MRAs of academic and professional qualifica- tions. However, there are many challenges related to the Key Lessons implementation of CMP commitments and the MRAs. The Key findings of the COMESA Professional Services Knowledge key stumbling block related to the implementation of CMP Platform include the following: commitments is the linkage made in commitments on the temporary movement of service suppliers who are nationals ■■ The professional services sector is among the most of partner states (“natural persons”) with the provisions on dynamic in COMESA countries. Crucially, higher labor the free movement of workers. A full-fledged MRA would have productivity is associated with greater use of profes- to cover education, examinations, experience, conduct and sional services in Eastern and Southern African firms. ethics, professional development and recertification, range of practice, and local knowledge. Effective implementation ■■ There are striking differences in the level of development would require a preceding sector-specific benchmarking of of professional services across COMESA countries. This current regulatory frameworks. suggests that the potential for regional trade in profes- To assist with this process, several workshops were sional services is significant. organized with Trade Mark East Africa and the East Africa ■■ Regional integration could help address the underde- Business Council. Local stakeholders were convened to velopment of professional services markets, reduce discuss specific issues on the implementation of MRAs. the high costs of accessing professional services, and 134 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa alleviate skills shortages and skills mismatches in profes- experiences studied in the COMESA Professional Services sional services. Knowledge Platform is that these initial dialogues provide ■■ At this stage, restrictive trade policies and regulatory opportunities for deeper communication. For example, the heterogeneity have segmented regional markets for dialogues provided opportunities to flag upcoming changes professional services in Sub-Saharan Africa, including in domestic regulation, and to exchange information on COMESA countries, and have increased trade costs. positions to be taken by the participating countries in multi- lateral for a. Another important lesson emerging from these ■■ To turn this sector around, the studies call for policy regulatory initiatives is that there is hardly ever a “quick-fix action in four areas: education, regulation of professional solution” to regulatory problems. Regulatory cooperation services, trade policy, and labor mobility at the national sometimes produces slow and modest results. This find- and international levels. ing reflects the complex political economy that needs to be addressed when implementing regulatory reforms. It is Most dialogues start with a process of building contacts therefore crucial to ensure that networking and informa- and confidence, and sharing information on domestic regula- tion exchanges are put in place and maintained to advance tion. An important lesson learned from the various regulatory regulatory reform in professional services. Annex 5.A Countries in the Survey Sample 135 Annex 5A: Countries in the Survey Sample Table 5A.1:Reporter Countries in the COMESA Region Country Firm count Exporters % of exporters Burundi 37 9 24.3 Comoros 40 0 0.0 Congo, Dem. 40 20 50.0 Djibouti 29 1 3.4 Egypt, Arab R 97 3 3.1 Eritrea 37 3 8.1 Ethiopia 91 9 9.9 Kenya 64 36 56.3 Madagascar 56 5 8.9 Malawi 51 9 17.6 Mauritius 55 6 10.9 Rwanda 36 4 11.1 Seychelles 40 0 0.0 Sudan 69 31 44.9 South Sudan 53 10 18.9 Swaziland 35 5 14.3 Uganda 83 17 20.5 Zambia 49 11 22.4 Zimbabwe 34 7 20.6 Table 5A.2: Partner Countries for the Impact Evaluation Study Country name Surveyed Country name Surveyed Angola No Swaziland Yes Botswana No Tanzania No Congo Yes Uganda Yes Lesotho No Zambia Yes Kenya Yes Zimbabwe Yes Madagascar Yes Russian Federation No Malawi Yes China No Mauritius Yes India No Mozambique No Japan No Namibia No United States No Rwanda Yes Seychelles Yes South Africa No Note: Common Market for Eastern and Southern Africa. 136 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Annex 5B: Methodology for the Impact Evaluation Study Section 5: Econometric Partner country’s control variables include total popula- tion, GDP per capita, quality of institutions, quality of elec- Specification tronic infrastructure and the quality of higher education. We attempt to explore the impact of institutions, electronic Based on the existing literature on the determinants of infrastructure and education through several measures. For firm’s decision to export, we estimate the following equation: institutions, we use Government Effectiveness measures, Xi 5  b1 Domestic Regulationss,r 1 b2 Foreign Regulationss,r Political stability estimates, Regulatory Quality index, and 1 b3Firm controlsi 1 b4Partner controls corruption perception index, all obtained from Worldwide 1 b3Bilateral variables 1 i,s governance indicators prepared yearly by Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi. For electronic infrastruc- The decision to export by a firm i in sector s depends ture, we use connection price for fixed broad band, fixed on domestic regulations in sector s of the reporter country broadband subscription per 100 people number of secure (represented by r), foreign regulations perceived by domestic servers per million, monthly price of fixed broadband. For firms in sector s of the reporter country, firm level controls, measuring the quality of higher education, we use gross partner country specific variables and bilateral variables. tertiary enrollment ratio obtained from the World Develop- Domestic regulations belong to the following four ment indicators. categories of domestic regulations: Regulations related to We use standard bilateral variables of gravity estima- competition, Regulations related to qualification require- tions. These include, bilateral distance between reporter ments and licensing procedures, Regulations related to and partner countries, common colonizer and common public procurement, Regulations related to administrative language, which takes a value 1 if a language is spoken steps necessary to start a business. The survey attempts to by more than 9% of a population in country pairs. These capture several components of these regulations but in our variables are obtained from CEPII. regressions we choose to use only those domestic regulatory We use export decision information from 1182 firms constraints that are most important constraints to operation surveyed in 2011 in four sectors of professional services in and growth of a firm (shown in table 5.1, panel a). 19 countries. These firms’ export decisions are then matched Foreign regulations belong to the following five categories with their export decision only with 11 partner countries that of domestic regulations: Restrictions on foreign ownership, were surveyed by the World Bank. Crossing reporter countries Regulations related to competition, Regulations related with partner countries over our sample of 1182 firms gives to qualification requirements and licensing procedures, us a total sample of 12,339 observations. Of this sample, especially for foreign suppliers, Regulations related to public we observe an affirmative response on export decision in procurement, Regulations related to administrative steps only 96 cases, which is less than 1% of our sample size. necessary to start a business. The survey collects informa- We drop partner countries where none of the firms report tion on several components of these regulations but in our to be exporting. Thus, Swaziland is dropped from the list regressions analysis we use only those foreign regulatory of partner countries, leaving us with a total of 10 partner constraints that are perceived critical to the operation and countries. This leaves us with 11,197 observations with growth of a firm in the foreign market (shown in table 5.1, 96 affirmative responses on export decision. As a robust- panel b). ness check, we also carry our estimation exercise including In each of these regulations, we measure the extent all possible partner countries to which the surveyed firms of restriction as the percent of firms in a given sector and could respond to. This totals to 23 partnering countries and reporter country that perceive a particular regulation to be increases the sample size for our data to 26,523 observa- a severe or major obstacle for their growth and operations. tions with 211 affirmative responses on export decision.17 Firm level controls in our estimations include several The estimation of the decision to export professional factors: firm size, measured by the total number of employ- services is carried by using a reporter country’s fixed effect ees; firm’s age; proportion of employees with a foreign nationality; proportion of high skilled workers; firm’s scope, measured by the number of services provided by the firm; 17 In this estimation, we drop countries with less than 3 firms firm’s wages and total cost in USD and ownership structure reporting an affirmative export decision. This includes Lesotho, of the firm. We specifically exclude firms that are subsidiar- Swaziland, Madagascar, Mauritius and Russia. The resulting sample ies of foreign firms. has 207 affirmative responses on export decision. Annex 5.B Methodology for the impact evaluation study 137 conditional logit regression. The estimation of the export and secondly, most firms report trade flows to only a very decision equation could have been estimated by a simple OLS small number of partner countries. In fact, zeros in trade technique if we had observed values of positive trade flows flows are inevitable in the trade literature (see, for instance, for all firms to all destinations. However, in our surveys only Helpman, Melitz and Rubinstein, 2008; Eaton, Kortum and a small proportion of firms report the value of their exports Kramaarz, 2011; Santos Silva and Tenreyro, 2006). 138 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa References Posner, R. 1974. “Theories of Economic Regulation.” Bell Journal of Economics and Management Science 5: 3–21. 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Washington, DC: World Bank. World Bank. 2010a. “Reform and Regional Integration of Eaton, J., S. Kortum, and F. Kramarz. 2011. “An Anatomy Professional Services in East Africa: Time for Action.” of International Trade: Evidence from French Firms.” Report No. 57672-AFR. World Bank, Washington, DC. Econometrica 79 (5): 1453–98. ———. 2010b. “Harnessing Regional Integration for Trade Helpman, E., M. Meltiz, and Y. Rubinstein. 2008. “Estimating and Growth in Southern Africa.” Poverty Reduction and Trade Flows: Trading Partners and Trading Volumes.” Economic Management (PREM) report. World Bank, Quarterly Journal of Economics 123 (2): 441–87. Washington, DC. Theatre by Sydney Mag’ong’o 141 Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community Alison Hook Alison Hook, Managing Director, Hook International, UK. Introduction Common Market for Eastern and Southern Africa (COMESA) is prioritizing initiatives in financial services, business process Professional services are important enablers for economic outsourcing, logistics and retail, health care services, tourism, development. The creation of infrastructure requires engi- the creative industries, and education. neering, architectural, and surveying skills; the development The East African Community (EAC) has been develop- of conditions likely to encourage foreign direct investment ing a policy framework for promoting trade in professional (FDI) requires specialist legal and accounting services; and services over the past five years. The EAC has undertaken the development of an employable workforce presupposes some extremely useful initiatives, in particular the use of access to adequate health care services. Not surprisingly, mutual recognition agreements (MRAs). The lessons from the demand for professional services as a share of gross this experience will help to shape future trading conditions value added (GVA) grows with development. According to for professional services and other regulated services else- the Organisation for Economic Co-operation and Develop- where in Africa. Other RECs will benefit in particular, given ment (Geloso Grosso et al. 2014), accounting and legal that all of the EAC partner states are also members of either services trade in the United Kingdom and Germany in 2007 SADC or COMESA.1 represented around 4 percent of total services turnover In most countries, access to professional services markets and 6 percent of total services employment, reflecting the is controlled by the need for individual professionals to fulfill growing internationalization of business and finance in these qualifications criteria. In general, these markets also demand economies. This potential for growth is not limited to high- the ongoing satisfaction of certain regulatory conditions. Such income economies. In the decade 2000–09, business services conditions may include, for example, adherence to a code of (including key professional services like accountancy and conduct and disciplinary oversight that can lead to a range legal) grew by over 7 percent in South Africa and 21 percent of sanctions, including withdrawal of licenses, professional in Zambia (Dihel, Fernandes, and Mattoo 2010). However, indemnity insurance, and continuous professional develop- further opportunities for growth of these service sectors in ment obligations. Such conditions of entry and practice in Africa, and of their ability to contribute to growth in other professional markets are usually justified on grounds such sectors, are hindered by the slow pace of liberalization and as public policy (including public health and safety) or infor- integration in these markets. mation asymmetries (Geloso Grosso et al. 2014). Domestic obstacles to promoting trade in professional The level of regulation applied to the same profession services do not yet appear to have been recognized by may vary significantly across countries. To a large extent, African trade negotiators. Although all of the major African this variation is caused by the highly delegated nature of regional economic communities (RECs) have agreed, or statutory professional services regulation. This level of del- are in the process of negotiating, specific market access egation, coupled with the specialist nature of professional commitments in services, professional services are rarely services, often results in sector services regulation that among the priority sectors for consideration. For example, the Southern African Development Community (SADC) is focusing its negotiations on communications, construc- 1 Tanzania is a member of SADC and Burundi, Kenya, Rwanda, tion, energy, financial, tourism, and transport services. The and Uganda are members of COMESA. 142 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa is precautionary in nature, particularly in circumstances regulation—particularly rules relating to admission into a where there is no regulatory oversight or counterbalancing profession, permitted vehicles for practice, and modes of competitive forces at work (Paterson et al. 2003). The sort of supply—may act as nontariff barriers for foreign service restrictive measures sometimes introduced by professional providers. The WTO (1998) has addressed this concern services regulators include fee regulations (fixed prices, in the post-Uruguay Round period by promoting negotia- minimum and/or maximum prices), limitations on advertis- tions on the so-called “disciplines,” most notably in relation ing and marketing, prohibitions on inter-professional col- to accountancy. These disciplines highlight the need for laboration, and restrictions on geographical establishment transparent qualification and licensing requirements for or on branch offices. None of these measures is essential professional practice that should not impose barriers to as a guarantee of quality or standards of service, and they foreign suppliers. The WTO accountancy disciplines also are likely to result in reduced choice, less innovation, and identify the potential role of MRAs for eliminating unnec- higher prices for the users of services. A study undertaken essary barriers to services trade that might be caused by for the European Commission in 2003 on the impact of domestic regulation. restrictive regulation on professional services markets drew MRAs have long been used in goods markets as a way the following important conclusions: there was a negative to ensure that the costs of conformity testing required correlation between high levels of restrictive regulation and before a good can be marketed in another jurisdiction productivity; business units tended to be larger in countries within a single market are not duplicated (Pelkmans 2012). with lower levels of restrictive regulation, encouraging inno- However, MRAs have more recently been recognized as vation and growth; and there were proportionately higher a potential mechanism that could allow foreign suppliers levels of professional services business overall in countries to provide services in another market without the need with lower levels of regulation (Paterson et al. 2003). for duplicate authorization processes in the home and Not all professional services market regulation has a host countries. This removal of duplicate procedures negative effect. As the World Trade Organization (WTO) should reduce costs and save time in bringing services recognizes,2 the introduction of regulation may be necessary into new markets; and this should ultimately be reflected to open up a previously closed market. This is particularly in lower prices and more choice for consumers. MRAs are true in the developing world, where, for example, new likely to be of particular use in markets like professional licensing mechanisms and public service obligations might services, which are usually regulated at a national or even be required as part of a series of measures to open up a subnational level. These regulatory structures sometimes previously restricted market, to underpin quality and social exist for purely historical reasons, but they also reflect the policy objectives. The key, therefore, is imposing the right nature of the specific sectors concerned (legal and audit level and type of regulation, to secure public policy goals services in particular). but without imposing negative effects on competition. This It is important to recognize that the term “mutual rec- is where openness to regional and international markets ognition” does not necessarily imply full authorization in the has an important role to play. In general, there is a much importing country. It may simply imply the importer’s recogni- lower level of openness in professional service sectors in tion of qualifications or licensing satisfied for the provision Sub-Saharan Africa than across the wider WTO membership. of the service in the supplier’s home country. Moreover, this Sixty-three percent of WTO members have made market form of recognition does not prevent the host state from access commitments in one or more professional service imposing additional requirements. Much depends on the sectors, compared with only 48 percent of WTO members in precise nature and content of any MRA. Sub-Saharan Africa.3 The number of professional service sec- MRAs will vary depending on how several important issues tors committed to openness is also significantly lower among are addressed in their design (Nicolaïdis 1997). These design African members than among WTO members in general. considerations cover the following seven areas: However, even where market access commitments have been made, they may not secure the kind of openness that 1. Governance. An MRA will only work if the signatories to the ensures competitive professional services markets. Domestic agreement have the authority to make the commitments it contains. It is also important that the agreement sets out arrangements for managing the ongoing relationship 2 See WTO GATS training module chapter 3: http://www.wto.org/ between the parties to the agreement. english/tratop_e/serv_e/cbt_course_e/signin_e.htm. 3 See WTO trade in services commitments website: http://www 2. Mode of supply. An MRA should indicate how it covers the .wto.org/english/tratop_e/serv_e/serv_commitments_e.htm. various modes of service supply and take account of the Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 143 role played by corporate entities as well as individuals understanding between regulators to work most effectively, in the supply of professional services. and this takes time to develop. 3. Scope of authorization. An MRA will need to set out the It is also important when designing MRAs to recognize scope of the practice being permitted to any foreign that they may have trade diversionary effects. This has been qualified persons covered by the MRA. These will often well documented in the case of high-income countries. For take their lead from United Nations Central Product Clas- example, it has been shown that MRAs can help to promote sifications (CPC), which are frequently used by countries trade in goods for countries outside the agreement (Chen in scheduling market access commitments under the and Mattoo 2004), unless the MRAs contain restrictive rules General Agreement on Trade in Services (GATS) or in of origin. In the case of services, and professional services bilateral trade treaties. in particular, in which qualifications to supply a service are integral to the approval process, rules of origin are likely to 4. Eligibility. An MRA needs to define the professionals who be a feature of any MRA. The evidence of trade diversion- can use the MRA. This requires a statement of what is ary effects on developing countries of MRAs in professional “an engineer,” “an accountant,” and so forth. services between developed countries is limited, because 5. Equivalence. An MRA requires significant preparatory most developing countries are not exporters of professional work to establish that there is broad equivalence in the services. However, it is highly likely that the rules of origin underlying qualifications required of any professional contained in any MRA in an African REC could have trade who meets the eligibility definition. diversionary effects on neighboring countries that are not 6. Automaticity. A foreign qualified professional who is “eli- party to the REC. Such diversionary effects could affect, gible” under an MRA may nonetheless not have automatic for example, professionals from the Democratic Republic access to the host country market, if for example there of Congo, who have historically worked in Burundi. These is not full equivalence in his or her qualifications. They workers could be placed at a disadvantage to EAC profes- may therefore be subject to compensatory measures sionals who obtain full admission and national treatment in to achieve that equivalence. sectors covered by MRAs. Furthermore, the rules of origin in professional services MRAs could lead to the loss of skilled 7. Post-approval conditions. Once recognition has been labor. Failing to cover nationals from REC countries who granted under an MRA, the agreement may also specify have been educated abroad could dissuade these profes- whether there are ongoing conditions attached, such as sionals from returning to work at home. Therefore, best renewal of licenses, maintenance of professional indem- practice suggests that MRAs should find ways to recognize nity insurance coverage, or compliance with continuous the foreign-earned qualifications of citizens from participat- education and training requirements. ing countries. The same consideration should be given to Nicolaïdis (1997) further suggests that there are trade- foreign nationals wishing to establish professional practices offs between the main features of MRAs. For example, within the REC, even if this treatment is not as preferential if levels of trust and understanding between parties are as that offered to nationals encompassed by MRAs and fully high, because of the high degree of equivalence between regulated within the REC. professional qualifications, then greater emphasis can be Various studies exploring the use and experience of MRAs placed on post-approval conditions, allowing a higher level in the EU and Australasia (Government of Australia 2009) of automaticity. Similarly, if there is greater equivalence suggest that MRAs could offer several potential benefits to between professions, then the scope of practice afforded the regions adopting them. For example, Pelkmans (2012) to professionals from other countries can be larger. identifies three areas of potential benefit: (i) regulatory These trade-off scenarios illustrate that different MRAs benefits, arising from the greater interaction of regulators may require very different degrees of automaticity and hence across borders and a tendency to even out levels of regula- produce very different levels of benefit. The experience of tion; (ii) strategic benefits from the deepening and quality the European Union (EU) in this regard is interesting and of the internal market; and (iii) potential economic welfare potentially informative for other regions of the world, looking gains from the increase in competition that MRAs could at using MRAs in service sectors. Over time, the EU approach encourage. However, Pelkmans also acknowledges that has evolved and become considerably more automatic, with there may be a considerable gap between the potential a reduced scope of discretion permitted at the national level, and actual benefits of MRAs. This emphasizes the point that a point which is covered in more detail later in this chapter. for African RECs, MRAs are not a panacea for professional Nevertheless, MRAs require a significant level of trust and services markets. Rather, MRAs must be carefully designed 144 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Table 6.1: Suppliers of Professional Services in Selected East and Southern African Countries, 2013 No. of No. of No. of Services as No. of engineers No. of accountants No. of architects GDP per share of licensed per 100,000 licensed per 100,000 licensed per 100,000 Country capita (US$) GDP (%) engineers inhabitants accountants inhabitants architects inhabitants Burundi 267 42 0 n.a. 250 2.87 41 0.47 Kenya 994 51 1,400 3.63 11,800 30.57 1,400 3.63 Rwanda 633 52 150 1.40 248 2.32 36 0.34 Tanzania 695 47 3,625 8.15 2,793 6.28 349 0.78 Uganda 572 49 302 0.92 1,700 5.17 209 0.64 EAC total 772 49 5,477 3.58 16,613 10.85 2,035 1.33 Botswana 7,317 61 n.a.a n.a. 1,016 50.80 150b 7.5 South Africa 6,618 70 41,125 77.59 37,820 71.36 8,919 16.8 Mauritius 9,210 72 1,100 84.61 2,620 201.54 171 13.15 Source: World Bank 2013 (country professional institutes). Note: EAC = East African Community; GDP = gross domestic product; n.a. = not applicable. a A new engineering registration board has recently been set up in Botswana and is rolling out a new registration process. b The Botswana architects surveyed for this table belong to a voluntary association. and implemented if they are to have maximum benefit. The The small professional firms that populate these frag- rest of this chapter considers how MRAs might be designed mented markets are frequently unable to obtain the experi- and draws in particular on the lessons from the recent ence and develop the specializations that would give them experience of the EAC. access to higher-value work. Such work often goes to profes- sional services firms from more open countries. These dual issues of undersupply and fragmentation are what the EAC Professional Services Regulation is trying to rectify by promoting cross-border movement of in the EAC professionals through the adoption of MRAs. To ensure that any MRA design can help overcome the In East Africa, the number of individuals (as a share of total undersupply of professional services and market fragmenta- population) licensed to provide certain regulated profes- tion, it is important to understand in more depth how regula- sional services is low compared with more developed tion has contributed to this picture. Table 6.2 illustrates how countries in the region. This factor is also reflected by the such fragmentation can be introduced through ownership lower contribution of services to gross domestic product limitations in a service like accountancy, and how restrictive- as a whole (table 6.1). ness in East and Southern African states is generally higher EAC markets are not only small, but they also appear compared with neighboring counties. to be highly fragmented internally, with sole proprietors or The regulation of professional services in East Africa very small firms characterizing the market. According to was traditionally based on colonial models. Levels of mobil- the Uganda Society of Architects,4 for example, of the 148 ity and interaction between countries were relatively high architects who paid membership in 2012, there was only in the immediate post-colonial period. However, barriers one firm with more than five registered architects and only subsequently developed as each country established its own five private firms with three registered architects. The rest regulatory, professional education, and training systems. were either sole proprietors or partnerships employing Discrimination in national treatment and the extent of graduate architects or architectural technicians. In Kenya, market access for foreigners has, as a result, become embed- of the 200 architectural firms registered with the competent ded in domestic professional regulation. In Kenya, Tanzania, authority in 2013, only 10 firms had between five and 10 and Uganda, where competent authorities have been in registered professionals. place since independence, a highly protectionist approach has evolved in many cases. Before they can be registered, 4 http://www.architectsuganda.org/2012/index.php. non-nationals have often been required to demonstrate that Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 145 Table 6.2: Accounting Services Restrictions in East and Southern Africa, 2010 Country Restrictions Botswana Allowed, except for a possible limit on the use of a foreign brand name. Burundi There are limits on ownership by foreign nationals and non-locally-licensed professionals; one-third must be locally licensed nationals or residents. Kenya A branch is not allowed. Ownership by non-locally-licensed professionals is not permitted. Mauritius Ownership by non-locally-licensed professionals is limited to 50 percent. Approval for licenses is not automatic. Foreign firms cannot provide services to state-owned firms, where public money is concerned. Rwanda Branch not allowed. South Africa There is no limit on foreign ownership. Tanzania Ownership by foreign nationals is limited to 50 percent. Ownership by non-locally-licensed professionals is not permitted. There is a difference in licensing criteria for foreign and domestic applicants.  Uganda A branch is not allowed. There is no limit on ownership by foreign nationals, but, in practice, if all partners are foreign, at least one should be resident in Uganda.  Source: World Bank Services Trade Restriction Database. they have work permits, pass local professional examinations, education, training, and experience that foreign professionals and enter into joint venture arrangements. There have also have already completed in their home country. been large differences in the registration fees imposed on For foreign workers in regulated professional service local professionals compared with foreigners. For example, sectors, the process of obtaining authorization to provide the annual registration fee for a local architect in Tanzania services in another country usually entails the following steps: is US$400 compared with US$5,000 for a foreigner, who must pay a further US$10,000 for every project handled. ■■ Ensure that there is a right to supply the relevant In contrast, Burundi and Rwanda have not developed service. regulatory frameworks for many professional services. Fur- ■■ Obtain access to the regulated market by obtaining a thermore, education has traditionally followed the French license. The migrant professional will either be required system, which tends to have lower durational requirements to fulfill all conditions of licensing in the host country for degrees leading to professional status than the British from scratch, or will have all home country qualifica- system followed by the other three EAC partner states. As tions recognized. a result, practitioners from Burundi, and to a lesser extent Rwanda, have been excluded from some sectors in other EAC ■■ Obtain the necessary work permit. markets. In addition, many professional sectors in Burundi ■■ Maintain registration with the host professional compe- lack regulation beyond fairly basic registration requirements. tent authority and usually also with the home country This has disadvantaged local practitioners trying to obtain competent authority and comply with the ongoing work involving international clients, since it is not clear to requirements of both. those clients what quality control mechanisms are in place, or how local standards benchmark against international Figure 6.1 illustrates how these different elements fit comparators. together. The figure shows that MRAs are an important tool for enabling trade in professional services, but not alone sufficient to provide free movement. MRAs in Professional This MRA model was introduced in the EAC through the Services Trade Common Market Protocol (CMP), which entered into force on July 1, 2010. The CMP provides for free movement within MRAs can help to overcome the sort of problems that have the EAC of goods, persons, labor, services, and capital, and grown up in East Africa. Such agreements enable foreign for equal rights of establishment and residence for all EAC professionals to provide services without duplicating autho- citizens. Article 11 of the CMP explains how free movement rization processes already completed in their home country. will be achieved in the case of skilled professional workers MRAs allow local competent authorities to recognize the (box 6.1). 146 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 6.1: Steps toward Free Movement of Professional Service Providers Political Processes Details of Rights conferred commitment to required to give agreements by different allow free effect to required and agreements movement of political responsible and their inter- professionals commitment authorities relationship Sectoral commitments made in market access Negotiation of trade schedules Right to provide commitments (negotiated by trade services ministries) Need to be compatible Political commitment Horizontal commitments to free movement of on free movement of Right to enter To be given professional service natural persons and work as a effect providers (negotiated by interior natural person requires... ministries/ministries of labor) Need to be compatible Negotiation on To have any impact academic and requires... professional Mutual recognition qualification agreements requirements (negotiated by sector Rights in and ministries or delegated conditions of access to competent authorities) to regulated market Box 6.1: Article 11 of the Common Market Protocol on Mutual Recognition Agreements Article 11.1 (b) Harmonize their curricula, examinations, standards, For the purpose of ensuring the free movement of certification, and accreditation of educational and labor, the Partner States undertake to: training institutions. (a) Mutually recognize the academic and profes- Article 11.2 sional qualifications granted, experience obtained, The implementation of this Article shall be in accordance requirements met, licenses or certifications granted, with annexes to be concluded by the Partner States. in other Partner States Source: East African Community (http://www.eac.int/commonmarket/). Article 11.1 suggests that mutual recognition is predomi- Figure 6.2 sets out how the different elements relating nantly for the purpose of ensuring free movement of labor. This to trade in professional services shown in figure 6.1 are cov- is potentially a problem for the free movement of professional ered in the EAC context. The figure shows that the essential services, as it assumes that it is only employees of companies provisions on trade in professional services can be found in who are moving between partner states under an MRA. In three annexes to the CMP: fact, a professional is likely to move within East Africa as a contractual service supplier or as an individual service supplier. ■■ Annex V contains partner states’ scheduled commitments Article 11.1 also emphasizes the need to harmonize for market access in different sectors, including those educational standards underlying professional qualifica- covered by MRAs. tions. This does make it easier to negotiate an MRA, but it ■■ Annex II contains partner state commitments in relation also creates the risk that any professional movement will to free movement of workers drawn up on a sector-by- be held up by prior harmonization of qualifications, which sector basis. can be a lengthy process. Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 147 Figure 6.2: Legislative Tools for Enabling Free Movement of Professional Service Providers in the EAC EAC CMP Articles 10, Annex V commitments made in market Right to provide 13, 16, and 23 on services free movement access schedules EAC Common Annex II commitments Market Protocol (CMP) on free movement Right to enter commitments on free of workers and work as a movement of natural person professional service Draft Annex VII on providers model MRAs and procedures for initiating them Confers rights in and conditions of EAC CMP Articles access to regulated 11 and 20 on mutual market recognition (definitions of sectors First wave “unofficial” sector MRAs used in MRAs not always the same as in Annex V) Note: CMP = Common Market Protocol; EAC = East African Community; MRA = mutual recognition agreement. ■■ Annex VII (currently in draft form) contains the frame- and, as set out later in this chapter, are currently undertak- work that partner states recommend for different ing steps to improve it. This experience, however, reinforces sector MRAs. This framework is relatively generic and that professional services mobility issues have many facets, provides a model for individual sectors to use in their which need to be considered as a coherent whole and not negotiations. just dealt with through MRAs. Comparison of figures 6.1 and 6.2 shows that there EAC’s Experience with MRAs are some clear problems in the early approach to MRAs adopted by the EAC: As of October 2014, EAC MRAs had been concluded in three professional service sectors: ■■ First, the commitments on trade in services and free movement of workers were negotiated in isolation from ■■ Architectural services, signed on July 30, 2011 each other by different ministries. As a result, there is ■■ Accountancy, signed on September 14, 2011 a lack of clarity on the rights of professional workers to ■■ Engineering services, signed on December 7, 2012. obtain work permits in fellow EAC countries. ■■ Second, several unofficial sectoral MRAs have been MRA negotiations have also been launched or are under negotiated, often without reference to either Annex V preparation for legal services, medical services, nursing, or Annex II. As a result, these MRAs are of doubtful legal quantity surveying, and veterinary services. force. And they use different sectoral definitions from The signed MRAs all follow a similar “competency” model. those used in other EAC treaty instruments. In other words, they assume that a professional in good standing, who is duly qualified and registered in an MRA The result is that the rights conferred on professionals partner state, should automatically be permitted to register through this framework do not yet add up to a coherent in another partner state. The assumption is that professions whole. The EAC Council of Ministers and the EAC Secretariat in partner states have roughly equivalent standards and are aware of the shortcomings of the existing framework qualifications. 148 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa The MRAs all require similar undertakings on the part will avoid the legal status problem arising again for other of the signatories, including the following: MRAs and professions. ■■ Automatic registration within 30 days of professionals Negotiation Challenges from other partner states on the basis of home state registration (specified in the architecture and engineer- Negotiations for the existing EAC MRAs progressed remark- ing agreements) ably quickly and surprisingly smoothly. This speed of negotia- tions can be attributed to the following factors: ■■ Mutual recognition of disciplinary measures imposed on professionals ■■ In all cases, the negotiations were driven by the profes- ■■ Development of mechanisms for further cooperation sions or the professional competent authorities, often across the region. with little or no interaction with the EAC or individual governments. The three concluded MRAs were negotiated and agreed ■■ Engineering, accountancy, and architecture are all pro- by stakeholders in the sectors. In the case of accountancy fessions that have well-developed international frame- services, the agreement was signed by all the professional works for cross-border practice, examples to draw on institutes without any significant preparatory work on equiva- from elsewhere in the world, and international bodies lence. The agreement on engineering services was initiated that can provide qualification equivalence benchmarks. by the registrars in the Kenya, Tanzania, and Uganda. It was signed only by the engineering boards of these three EAC ■■ Difficult issues were to some extent glossed over in partner states, who regarded their underlying qualifications the negotiations and have only come to light post and form of regulation as sufficiently similar to allow for implementation. mutual recognition. The architectural services agreement was initiated by the East Africa Institute for Architects (EAIA), However, the following issues were characteristic of a regionwide umbrella organization for the representative negotiations in the three sectors that finalized MRAs and are bodies of architects in each partner state. The agreement evident in the current sector negotiations for future MRAs: also benefited from significant preparatory work undertaken with the assistance of the East Africa Business Council. ■■ Negotiations often reveal concerns that partners with However, in three of the partner states—Kenya, Tanzania, larger professional sectors could “swamp” states with and Uganda—the representative and regulatory bodies for smaller sectors. This has been a particular concern for architecture are not directly represented in the EAIA. Thus, others in relation to Kenya. although the national regulatory bodies for architecture ■■ There is frequently a mismatch between the parties in signed the MRA, they have not been in the driving seat for their willingness to embrace liberalization, with Tanza- its subsequent evolution. nia and Rwanda often at either end of the spectrum. More significant is the fact that, in each of these cases, For example, not all partner states have made market the agreements were not initiated formally at the regional access commitments in the sectors in which MRAs level. This situation has left the instruments resulting are being negotiated. In the case of the architectural from these agreements in legal limbo. Although the par- services agreement, for example, the Tanzanian Board ties involved have competence in relation to professional of Architecture did not sign the final agreement. The qualifications and licensing at the domestic level, they were board felt that without an official market access com- not granted the power to conclude these international mitment (through Annex V of the CMP), it did not have agreements. The lack of true “treaty” status for the MRAs the authority to sign the MRA. means that they cannot require competent authorities to ignore existing domestic provisions (such as national- ■■ The legislative framework for MRAs at the EAC level has ity requirements) that clash with the MRA requirements. still not yet been finalized, despite the fact that MRAs Issues arising from this lack of legal recognition have sub- have already been negotiated at the level of professions. sequently become apparent. Moves are now underway ■■ The professional qualifications and regulatory infra- within the EAC Secretariat to find mechanisms to recognize structure in Burundi, and in some cases Rwanda, did the three existing MRAs as official EAC instruments. The not fulfill the equivalence requirements needed to Secretariat is also working to establish a procedure that participate in the agreement. The professions handled Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 149 this issue in their negotiations in different ways and the numbers of users of the agreements and the source have thus created different implementation challenges. countries of these migrant professionals: In the case of the accountancy services agreement, Rwanda and Burundi were included in the agreement ■■ There have been 130 registrations across all of the in full from the outset, despite the fact that Burundi has EAC (Hook 2013) under the MRA in accountancy (just not yet met the underlying International Federation of under 1 percent of the total EAC profession). The larg- Accountants (IFAC) standards on which the agreement is est number of migrant accountants was from Kenya predicated. The engineering agreement did not include and they established particularly in Rwanda, Uganda, Burundi and Rwanda as signatories, although they were and Tanzania. The second largest group of users of involved in negotiations. The intention is that they will the MRA was Ugandan accountants, admitted to Kenya sign and participate in the agreement once they have and Rwanda. Rwanda has attracted many other East both established the necessary legal and institutional African accountants because of the structural short- framework for the engineering profession. But how this age of qualified professionals there. Only a handful of process will work and who will decide whether they have applications have been rejected, usually on the grounds met the appropriate standards is unclear. that the applicant was not in good standing with his or ■■ The choice of parties to the negotiations and signato- her home competent authority. Prior to the MRA, the ries to the agreement is not always straightforward. In only movement of accountants in East Africa was into retrospect, some of the decisions on this point made Rwanda from other partner states. by the early MRA agreements did not always help with ■■ There have been 22 registrations of architects under the implementation. In the case of accountancy services, for MRA. Ironically, the largest number of these has been example, the responsibility for admission and regulation granted in Tanzania, which is not yet a formal signatory of accountants is shared in Kenya between two bodies: to the agreement, but where the Board of Architects the Kenya Accountants and Secretaries National Examina- has decided to apply the MRA under an autonomous tions Board (KASNEB) and the Institute of Certified Public liberalization. The other destinations for users of the Accountants of Kenya (ICPAK). However, only ICPAK was architects’ MRA have been Kenya, Rwanda, and Uganda. chosen as a signatory to the MRA. ■■ In engineering there have been nine applications for ■■ The speed of the negotiations was achieved at the expense registration, which have all been made to Tanzania and of proper preparation. All the MRA texts cover technical as Rwanda. The seven applications to Tanzania included well as professional qualifications in the sectors covered one from Burundi, two from Kenya, two from Rwanda, (architecture, accounting, and engineering). However, all and two from Uganda. the MRAs gloss over the logistics of free movement of para-professionals, largely because no benchmarking These statistics demonstrate that, although the numbers analysis of qualifications was done prior to the negotia- of migrant professionals using the MRAs are very small, all tions and because the technicians’ cadres in these sectors partner states have been involved either as host or home do not have well-established representative bodies. As country authorities. There have been no challenged rejec- a consequence, the negotiations focused entirely on the tions of applications or disciplinary cases. This situation movement of professionals within the sector, rather than mirrors the experience of the EU; in more than 50 years of on cross-border service delivery as a whole. This is not applying a free movement regime for professionals, there a particular characteristic of the EAC MRAs, but rather have been few challenges to refusals of establishment rights. reflects one of the potential shortcomings of MRAs in However, what has happened in the EU but not yet in the general. MRAs can focus excessively on mutual recognition EAC is that individual professionals have taken a series of of qualifications and hence on the mobility of highly quali- cases to the Court of Justice to clarify the application of the fied individuals at the expense of wider considerations. free movement regime.5 As long as the EAC MRAs remain Results So Far 5 See, for example Morgenbesser (C-313/01), on partially qualified professionals (http://curia.europa.eu/juris/liste The three EAC MRAs agreed to date have been in force for .jsf?language=en&num=C-313/01), and Wouters (C-309/99) on the two to four years. Their results need to be judged against rights and limitations on national regulators (http://curia.europa this relatively short time span. The following are results on .eu/juris/liste.jsf?&num=C-309/99). 150 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa instruments created by the professions themselves, without have been delegated authority to regulate, they have not official legal status, it will be impossible for individuals to been delegated authority to negotiate intergovernmental extend the scope or application of the EAC regime through agreements. The uncertain legal status of the agreements judicial processes, as has happened in the EU. has created an implementation issue. Competent authorities Table 6.3 shows how the EAC compares with other regions are unable to deal with instances where national legislation that have adopted mutual recognition for professions as obstructs the commitments made in the MRAs (such as instruments to promote mobility. The EU agreement and abolishing the requirement to enter a joint venture when the Trans-Tasman Agreement (between Australia and New establishing a commercial presence). Unless the MRAs are Zealand) have been chosen as examples to demonstrate formally adopted by the Council of Ministers and in effect the potential scale of MRAs. The table illustrates that the become treaty commitments, this will remain a problem. annual numbers of individuals moving across borders, Second, as outlined in figure 6.2, the negotiations did in homogenous regions such as the Trans-Tasman Area, not take into account other elements of the CMP, such as can be very high. It also illustrates that in MRA regimes Annex V market access commitments and Annex II commit- that have been established for some time, the number of ments on the free movement of workers. Therefore, there is licensed occupations covered is high. This is because under uncertainty about what services a migrant professional may such regimes mechanisms are set out for the recognition provide in the other EAC states. The accounting services MRA, of qualifications and the issuing of licenses in occupations for example, makes no reference to the commitments made that do not require the full gamut of ongoing regulation, as in the EAC CMP annexes. Instead, it permits EAC accountants in the case of the professions. only to provide the same services that they would perform Table 6.3 shows that although the EAC’s mutual recog- in their home country. In theory, therefore, the MRA text nition regime is still at a very early stage, there is potential permits a migrant EAC accountant to have a larger scope for expansion. The table also illustrates that even where the of practice than a home-licensed accountant. The MRA also numbers of professionals migrating are significantly greater takes no account of the fact that Kenya, for example, has than in the EAC, they are still a very small proportion of the excluded the preparation of audit and financial statements overall population. Hence, migration should not really pose from its scheduled commitments, and Kenya and Tanzania a political issue as is sometimes feared. have made no commitments on taxation services. Third, there is ongoing sensitivity among the partner states over free movement of people. Several sectors that Implementation Challenges of ECA MRAs use MRAs have reported significant delays in processing work Although MRA negotiations in the ECA have been relatively permits. Under the various MRAs, competent authorities smooth, implementation of the agreements has been more have agreed to waive their requirement for a work permit of a challenge. to be obtained prior to registration. Nevertheless, employ- First, although the signed agreements have all been ers are still reporting that obtaining work permits to fulfill presented to the EAC Council of Ministers, they have not yet immigration requirements is a very slow process. Moreover, been given any formal recognition as legal instruments of the significant differential in charges imposed by partner the EAC. Negotiations on the agreements were not formally states for work permits is a source of complaints among endorsed by the ministers, and the authority to negotiate businesses trying to use the MRAs for cross-border work. was not officially delegated to the relevant parties. Thus, Fourth, there have been mixed results from the approach although the competent authorities in the partner states taken in the different agreements to regional integration. Table 6.3: Annual Comparative Experience of MRAs, 2007 and 2013 EAC EU Trans-Tasman area Comparator (2013) (2013) (2007) Number of registered professionals moving under MRA 161 20,131 17,322 Number of licensed occupations covered by movement 4 145 362 Movement of registered professionals per 100,000 population 0.1 4 75 Sources: EAC professional institutes, European Commission, Australian Productivity Commission. Note: EAC = East African Community; EU = European Union; MRA = mutual recognition agreement. Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 151 The engineering MRA, for example, was largely driven in the profession. This is a well-established practice among profes- negotiation phase by the registrars, who were responsible sions, although traditionally the flow of capacity building has for key regulatory conditions. However, post-agreement the been from high-income to low- and middle-income economies regulatory boards do not have responsibility for representing and has involved activities funded by international donors.6 the profession. The boards are not driving the engagement The EAC Council of Ministers has recognized some of the sector in the MRA, and hence few professionals are broader issues that have prevented existing MRAs from being using it. However, negotiations for the architectural services truly effective. Reflections are underway, as a result, on how MRA were driven by the professional institutes, which are commitments on the free movement of skilled professional separate from the boards responsible for statutory regis- workers, which is essential to the success of the MRAs, can tration and disciplinary functions. The boards subsequently be delinked from the wider issue of the free movement of signed the final MRA, but a regional professional body, the workers. Progress on this issue is expected. EAIA, had the central role in driving it forward. This situation has caused the regulatory bodies some difficulties. The EAIA has passed several resolutions to implement the agreement, How EAC MRAs Benchmark such as the recognition of training undertaken in different against Best Practice partner states in fulfillment of statutory training requirements. However, these resolutions cannot easily be implemented Any assessment of the impact of an MRA should be judged or enforced by the regulators, who are not members of the against the following criteria: EAIA. As a result, the boards have begun to negotiate their own parallel memorandum of understanding. It is unclear ■■ How do the commitments and rules introduced by the how this memorandum will be incorporated into the MRA MRA measure against good regulatory principles? Good or interact with further EAIA resolutions. principles include sound legal foundations, transpar- Last, there have been unintended protectionist conse- ency, proportionality, equality, consistency, and a basis quences on EAC nationals holding foreign qualifications. In in international standards. particular, EAC nationals with foreign accounting qualifica- ■■ Will the MRA deliver a more competitive and innovative tions are unable to benefit from the MRA. The underlying environment for professional services? intention of this exclusion was to encourage the develop- ment of regional qualifications. However, the development On the first set of criteria, the EAC MRAs score reason- of regional standards has been delayed, which means that ably well on transparency, proportionality, consistency, and a potentially important talent pool is excluded from the EAC international standards. All the agreements signed to date accounting services market. are based on internationally recognized definitions of what What is interesting about this early MRA experience, is required to become a qualified professional in the respec- however, is that the competent authorities of all those tive fields. For example, the accountancy profession draws involved appear to have engaged in the MRAs in good faith on IFAC standards. The architectural services agreement and have generally found solutions to any issues under draws on the definition of an architect by the International their control. For example, local registration procedures Union of Architects. The engineering services agreement sometimes make conformity with MRA deadlines difficult; does not explicitly reference an international standard but this can happen when registration is formally undertaken is based on the same standard as the Washington Accord.7 by a board that only meets occasionally. In these cases, All the agreements are based on full recognition. In other competent authorities have invented special fast-track EAC words, registration and good standing with a partner state procedures. Such solutions reflect the true spirit of an MRA, as do steps to abolish admission requirements that migrants have already satisfied in their home countries. 6 See, for example, the capacity-building programs run by IFAC There has been a concerted effort in all sectors to help for professional accountancy organizations (http://www.ifac.org/ develop regulatory infrastructure in partner states where it mosaic/pao-capacity-building?news). See also the post-qualification training run by the International Union of Architects and funded by is less established. The Kenyan accountancy body, ICPAK, for the United Nations Educational, Scientific and Cultural Organization example, has provided technical assistance to help establish a for urban planners in low- and middle-income countries (http:// full-fledged Rwandan institute that can meet IFAC standards, www.unesco.org/most/urbweb4.htm). and the Rwandan institute is in turn assisting the Burundian 7 http://www.ieagreements.org/Washington-Accord/. 152 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa competent authority is considered to be a sufficient basis the MRAs should be the extent to which they can encourage for recognition of qualification and no further compensatory the formation of regional professional firms of a larger size. measures are required. However, this recognition has not Such firms can develop deeper specializations and hence in all cases been extended to Burundi and Rwanda and is compete more effectively internationally. However, all the awaiting the finalization of their legal frameworks. MRAs to date focus entirely on individual professional regis- For proportionality and transparency, the agreements tration requirements. None of them addresses the potential all contain unambiguous commitments on the part of the challenges to cross-border mergers, such as advertising, or competent authorities, with clear procedures and eligibility employment by or partnership with a professional from an requirements for EAC nationals. Although the draft EAC annex EAC partner state. on MRAs envisages a deadline of 45 days for the approval Finally, the agreements, in most cases, do not consider of applications, the architectural services and engineering the wider context or market for professional services, but services MRAs have shorter deadlines of 30 days. instead simply focus on the mechanics of professional reg- The MRAs have been particularly effective in helping to istration. There is little evidence, for example, that the MRAs introduce regulation where none has previously existed, have yet led to increases in opportunities for the professions notably in Burundi and Rwanda. The MRAs have had more covered. To a large extent this is due to a lack of awareness mixed results in bringing other laws and regulations into line within the professions of the potential opportunities the with the MRA commitments. But in Uganda, for example, MRAs offer, and the lack of an EAC-wide market for the the architects’ board has used the MRA to suggest a wide- procurement of professional services. An exception to this ranging update to the legislation governing the profession. lack of innovation is the architectural services MRA, which By contrast, none of the initial MRAs contains a well- has resulted in various regional initiatives. These include a developed framework for educational equivalence. In other regionwide Code of Ethics and Professional Conduct, and words, the initial MRAs are based on the assumption that a regional training scheme that allows for portability of intra-community harmonization has taken place for higher training between partner states. The architects have been education and that all EAC degrees are equivalent in material able to create such regional initiatives because their agree- coverage and standards; but this is not yet the case. The MRAs ment has the strongest regional body. The EAIA is driving are also unclear on how the accreditation of university courses professional market integration initiatives rather than purely for professional qualifications will be kept up to date. This regulatory initiatives. lack of clarity perhaps illustrates the lack of university-level This assessment can be set in a more formal cost-benefit involvement in the negotiation of these early agreements. framework, such as that used by Pelkmans (2012) to assess The result is that although professional registrations are the effectiveness of the EU MRA regime. This approach mea- mutually recognized, no mechanism enables the MRA to sures the success of any MRA by (i) the extent to which it have an impact on the education underlying professional delivers regulatory, strategic, and economic advantages; and qualifications, either by converging or raising standards. (ii) the extent to which it deals with the costs facing profes- Governance arrangements are also seriously underde- sionals in information and compliance. Table 6.4 shows how veloped. There is no current mechanism for fitting the MRAs the EAC MRAs measure up against these cost-benefit criteria. into the legal architecture of the EAC. The table suggests that the form of MRAs adopted by The EAC MRAs perhaps rate less well against international the EAC professions already reduces costs by lowering best practice in the impact they have had to date on the the costs of compliance. Many of the longer-term benefits market. Although in part this situation may be caused by will take time to emerge. However, the likelihood of these the short time in which the MRAs have been in force, there benefits being fully realized would be enhanced if the EAC are some other structural issues to consider. MRAs were adopted as official EAC instruments. First, the MRAs are all based on the assumption that In summary, EAC agreements can be marked highly for practice must be undertaken on the basis of full registration, the core undertakings that competent authorities have made as if a professional were choosing to move permanently to to each other. However, they score less well on their ability a partner state and practice there exclusively. Temporary to drive integration and therefore capture the full benefits practice is not dealt with under the agreement. This is of an East African Common Market. perhaps unduly restrictive, as it results in individual profes- To drive integration, the agreements perhaps could have sionals potentially having to maintain multiple registrations. contained more proactive development measures. These The agreements are also less than explicit about the could have encouraged more active development of underly- treatment of group practice. One of the largest benefits of ing harmonized educational standards, stronger promotion Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 153 Table 6.4: A Cost-Benefit Analysis of the EAC MRAs Benefit and cost Type Effect Possible timescale for benefit Effect of EAC MRAs Benefit Regulatory MRA lowers risk of overregulation Short to medium term; initial Not yet tested. Risk remains or poor regulatory behavior. benefit from adjustment of that where MRAs have just been regulation to accommodate MRA agreed between professions likely to be supplemented by without outside scrutiny, longer-term benefit. that they do not discourage overregulation. Strategic MRA deepens market. Long term; will take 10 years plus This effect has not yet been seen, to become evident. but might be expected over time. Economic MRA introduces pro-competitive Short to medium term; depends Not yet in evidence, but expected forces to the market. on encouraging new entrants. over time. Cost Information Reduced costs of obtaining Immediate. Already a benefit. Could be information about professional greater if more awareness raising services market access. was undertaken. Compliance Lower costs of complying with Immediate. A clear benefit. Some residual entry requirements to market costs remain in the form of work covered by MRA. permits. Note: EAC = East African Community; MRA = mutual recognition agreement. of regional centers of excellence for professional training, the intervening period, its approach has gone through several or stronger measures to help cross-border professional important changes. Like the EAC, the EU first promoted free businesses evolve. These lessons can be used to improve movement for several specified professions, including doc- future EAC MRAs, and can inform the design of MRAs used tors, nurses, dentists, and architects. Mutual recognition in in other African RECs. these professions was based on the legislative harmonization of the essential elements of the qualifications, including the level, content, and duration of university courses as well as Lessons from Other Parts any post-university training and experience requirements. of the World However, it became clear that applying this approach to all professions would be time consuming and difficult. There- Apart from the EAC, perhaps the two most interesting and fore, the EU developed a general approximation approach relevant examples for other African RECs of the use of MRAs to mutual recognition that could be used across all regulated are the EU and the Association of Southeast Asian Nations professions, without time-consuming negotiations of new (ASEAN). The EU has had long experience in the promotion of legal instruments for each sector. Under this approximation trade in professional services and has employed a variety of approach, each EU member state classified its regulated approaches. The fact that the EU includes countries at very professions according to the level of underlying educa- different levels of development and using a wide range of tion and training required, such as a four-year bachelor’s languages also offers useful experiences for Africa to draw on. degree (these are not all bachelor of arts degrees, some The experience of ASEAN is interesting for different will be bachelor of science degrees), three-year bachelor’s reasons. This regional economic community encompasses degree, vocational qualifications, and so forth. An assump- countries at a similar stage of development as many countries tion was then made that professional qualifications based in the African RECs. ASEAN also contains members with a on similar levels of educational attainment were similar common colonial heritage and well-developed professional enough across the EU to allow for automatic recognition. services regulation, as well as countries with little or no Equally, where EU migrants were practicing a profession that regulatory framework. was not regulated in their home country, they could obtain recognition in a host country by demonstrating that they had equivalent academic qualifications and practical experience. European Union In cases where the home country professional qualification The EU has been using MRA-type instruments to promote required a lower level of education and training, the host free movement in professional services since the 1960s. Over country competent authority could impose proportionate 154 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa compensatory measures on migrant professionals, such identify the competent authorities that will be responsible as tests of essential local requirements or top-up training. for their implementation. Agreements have been in place In practice, this system was also supported by moves to for seven key professions9 for several years, but despite this, introduce a common Europe-wide framework for academic the numbers of professionals using them are still very small. qualifications.8 The so-called “general system for mutual The ASEAN approach to mutual recognition varies and recognition” not only allowed for mutual recognition of effectively falls into three categories. In the first category, the professional qualifications in cases where there was asym- ASEAN member states have agreed on the definition of a metry in regulation, but also allowed for far greater free profession drawing on international standards—for example, movement of technical cadres. an “ASEAN architect” or “ASEAN engineer.” Member states The main lessons of the EU’s MRA experience for Africa then manage two registration lists, one of individuals who are the following: meet the ASEAN standard, which is usually higher than the basic entry requirement for domestic practice, and one for ■■ An approach of general approximation is a potentially domestic practice. Recognition is automatic for any individual risky strategy for MRAs, as it allows competent authorities in their home member state who is on the ASEAN list. This a degree of discretion. But the approach does move the approach puts the onus on the home state to determine mutual recognition process forward much faster than whether an individual has reached the appropriate level the EAC approach of sector-by-sector negotiations. This and therefore requires significant trust between regulatory is particularly important where there is a greater diversity authorities. of professions across a region. In the case of doctors, dentists, and nurses, the “man- aged” approach effectively has been agreed on. The ASEAN ■■ Any regional mutual recognition process is significantly member states have undertaken to recognize each other’s aided by the creation of a regional educational framework training and qualifications. However, their MRA allows them that creates a common understanding between the to impose any other requirement or assessment on dentists competent authorities of the building blocks on which and doctors and to require nurses to submit to an “induc- professional registration is built. tion program” or “competency assessment” before they are ■■ The EU’s MRA instruments were negotiated and agreed registered in the host country. by governments. The professions did have input into In the cases of surveyors and accountants, regional stan- the negotiations, but the resulting agreements are dards are still being negotiated. The approach that likely will intergovernmental. They are, as a result, part of the be taken for accountants is similar to that for architects and legal order of the EU and justiciable before the Court engineers. In the case of surveyors, given the very different of Justice of the EU. definitions of the sector employed in the different ASEAN ■■ Over the intervening years, the European Commission countries, the approach will likely resemble that used for has actively employed a competition policy to remove the medical professions. unnecessary restrictions to cross-border professional In all cases, the agreements designate competent authori- practice. In addition, the Court of Justice of the EU has ties at the national level to manage the MRAs and fulfill the frequently been used by individuals to enforce and undertakings contained in them. The agreements also put extend the rights of professional recognition and practice. in place formal coordination, with explicit tasks delegated Such measures have helped to curb any protectionist to a regional monitoring committee for each profession. tendencies among competent authorities. These monitoring committees then report to the ASEAN intergovernmental trade in services committee. It is very early days for the ASEAN MRAs and few profes- ASEAN sionals have yet to take advantage of the agreements signed ASEAN has also put in place a framework for professional between governments. Nevertheless, the following useful mobility based on MRAs. This framework established MRAs lessons can be drawn for possible future African RECs: as intergovernmental treaty instruments that explicitly ■■ As in the case of the EU, ASEAN MRAs are intergovern- mental agreements rather than agreements between 8 The Sorbonne-Bologna process is an intergovernmental agreement rather than an EU agreement, but it has allowed all EU member states to converge on a common educational framework, 9 Accountants, engineers, surveyors, architects, doctors, dentists, which helps to underpin professional qualifications. and nurses. Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 155 the professions themselves. This avoids many of the regional market. Such associations should be encouraged legal problems that the EAC MRAs have experienced. and their development supported rather than left to chance. ■■ Formalized regional cooperation that brings together Finally, there is also more that RECs and national gov- competent authorities and requires them to report to ernments can do to increase the impact of MRAs on the the trade in services committee creates an appropriate development of regional professional services markets. hierarchy and ensures that competent authorities are Proactive policies might include, for example, procurement kept under scrutiny. requirements that favor more integration between profes- sional service sectors. ■■ There are advantages in ASEAN’s use of a two-tier approach for engineers and architects. In particular, free movement is allowed for professionals who achieve the MRA standard, without creating an inflation of qualifica- Challenges for MRAs in Africa tions that may be unnecessary for the local market. There are challenges facing any REC that wants to undertake the actions set out in this chapter in the pursuit of MRAs. These challenges are the following: Action Plan for Professional Services MRAs in Africa ■■ There is overlapping membership between the African RECs, which means that the EAC approach will already Any African REC that is considering using MRAs to promote have been implemented in some member states. This trade in professional services should consider the follow- will inevitably influence governments’ willingness to ing steps. rethink how they implement MRAs legally, despite the First, professional services trade should be placed in the shortcomings of the EAC hierarchy of legal commitments. context of wider economic development rather than the nar- rower context of free movement of workers. For example, ■■ The level of diversity in regulatory frameworks in some the policy objectives for MRAs should include the promo- RECs, such as COMESA, is considerably greater than tion of competitive and integrated markets. This will help within the EAC. Some member countries of these RECs link MRAs to other policy instruments, such as competition will likely need to implement major reforms or introduce policy, procurement, and freedom of establishment. This in regulation where none exists to participate in any MRAs. turn will help ensure that MRAs do not become instruments This could significantly delay the launch of negotiations that simply embed the regulatory status quo. for such agreements. Second, MRAs should be derived from regional com- ■■ Governments often lack the law reform capacity needed mitments on trade in services. All contracting parties to the to implement a mutual recognition framework. As the agreement should adopt the same sector definitions to avoid EAC experience has shown, governments are sometimes subsequent confusion. Commitments on free movement reluctant to overhaul outdated national laws that are of workers should be made explicitly and linked to market incompatible with MRA commitments. access commitments, to avoid undermining professional ■■ Competent authorities in many African countries are services trade with work permit requirements. short of resources. Furthermore, the existence of paper- Third, a regional education and training framework should based regulation that is not enforced does nothing to be created in parallel with the mutual recognition process. build the trust and confidence needed to underpin Although this framework is not a prior requirement, it makes the mutual recognition process. Therefore, regulatory the mutual recognition process considerably easier and infrastructure to implement MRAs should be shared promotes greater market integration over time. between professions wherever possible. Fourth, MRAs must be set in a clear legal hierarchy to be effective. They should be intergovernmental agreements ■■ The approach to professional services regulation in most whose undertakings have been delegated to competent African countries is often outdated, with the result that authorities to implement; and they should be buttressed when new regulation is introduced it can be protectionist by official dispute resolution mechanisms. rather than proportionate. Fifth, the representative side of the profession has an ■■ Universities are frequently divorced from the needs important role to play in sensitizing professionals to oppor- of the job markets into which their graduates enter. tunities and supporting the development of skills that will African academic institutions are often slow to reflect enable local professionals to take advantage of a wider the increasing need in modern professional services 156 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa markets for greater skills-based training. Moreover, staff but this is still at an early stage. Greater benefits will come and students are often spread too thinly, preventing the with wider interoperability and recognition of qualifications development of deep expertise. within Africa and beyond. Draw on the experience of the EAC and experience else- where to set out a template approach to the future evolution Policy Recommendations of MRAs in and between RECs in Africa. Such a template could help clarify what is required of the qualification framework There are several steps that governments, regional economic as a whole, what is needed in individual MRAs, and what communities, and the international donor community can preparatory work is required to ensure the maximum ben- take to overcome the challenges to the introduction of an eficial impact of any agreement. effective MRA framework in Africa. Promote understanding at the policy level within govern- ments about the linkages between the professional services Conclusions markets and other areas of policy (such as procurement). It should be emphasized how these linkages can reinforce MRAs should not be seen as a stand-alone solution to pro- each other and help create larger professional services busi- fessional services trade. They are simply one element of a nesses at the regional level. The policy debate on professional sophisticated framework of interrelated measures that need services initiated by the European Commission’s Directorate to be implemented if cross-border work in professional ser- General for Competition in 2004, for example, helped the vices is to grow. In Africa, central government and regional EU to promote a more coherent approach to professional administrative resources are stretched; in this context, it is services, not only among different departments of the EU particularly tempting to see MRAs as a task that can be left Commission, but also between national governments. The entirely to competent authorities, as in the EAC. The risk of directorate thus helped ensure that certain national-level this approach is that MRAs will become minimalist agreements regulatory practices were banned across the EU. that simply address the needs of individuals who wish to Assist in the development of regulatory capacity in compe- move between countries. Such a reductionist approach risks tent authorities to ensure that good regulatory principles missing out on the significant benefits of unlocking regional become embedded. There is little experience in many integration in professional services markets—for consumers, African countries of the effective management and scrutiny businesses, and even the professions themselves. of delegated powers. Training programs, the creation of EAC experience suggests that much could be done to templates, and guidance—for line ministries and competent improve the design and operation of the MRAs that have authorities with delegated powers—would help to create a been implemented already, before this experience is shared culture of appropriate regulation. Good regulation would with other African RECs. assist in the development of more competitive professional For example, more needs to be done to raise the aware- services markets. ness of national governments and RECs of the role of MRAs, Build on the ambitions of the Arusha Convention10 to their uses, and their shortcomings. There should also be create an integrated African qualification framework. This discussion of the importance of ensuring that MRAs are step would aim to replicate the experience of the Sorbonne- embedded in an appropriate governance framework derived Bologna process within Europe. Sorbonne-Bologna provides from trade agreements and supported by a strong competi- for easy transfer of credits between institutions, greater tion policy. Such external frameworks would help to ensure cross-fertilization between universities, and a common that MRAs do not spread national rigidities in regulation to understanding of what academic standards mean. Such a regional level, but instead use the regional liberalization a transnational qualifications framework would transcend process to improve national regulatory approaches. Gov- its uses in the academic world and become an essential ernments also need to recognize that MRAs are not always building block for enabling free movement of wider groups the best solution for trade liberalization. For some sectors, of professionals. The EAC has begun the process of creating MRAs are required; for others, lower levels of intervention, a Regional Qualifications Framework for Higher Education,11 such as negative licensing, will be sufficient. Governments should also be aware that to realize their full potential, MRAs may require other legislative measures 10 See the Inter-University Council for East Africa: http://www to be put in place. Nationality or joint venture requirements .iucea.org/. 11 See the Inter-University Council for East Africa: http://www may need to be removed from related legislation. Moreover, .iucea.org/. more flexibility may need to be introduced into the powers Chapter 6 Mutual Recognition Agreements in Services Trade in Africa: Lessons from the East African Community 157 delegated to competent authorities to enable them to imple- Services.” OECD Trade Policy Papers No. 171, OECD ment MRAs effectively. This could, for example, include an Publishing, Paris. extension of powers to cover the regulation of technical- Government of Australia. 2009. “Review of Mutual Recognition level qualifications. The authorities could also be allowed Schemes.” Productivity Commission Research Report, to recognize and act on the possible need for temporary Government of Australia, Canberra. foreign professional practice. Hook, A. J. 2013. “Study on the EAC MRAs for the International Finally, EAC experience illustrates that the transparency Trade Council.” International Trade Council, Geneva. of MRAs is key to their success. Potential users and their Nicolaïdis, K. 1997. “Managed Mutual Recognition: The New clients need to know and understand what the agreements Approach to the Liberalization of Professional Services.” In involve. They may also need to be encouraged to transcend Liberalization of Trade in Professional Services. OECD Publi- the self-imposed cross-border barriers to practice that have cations. http://users.ox.ac.uk/~ssfc0041/managemr.htm. grown up over time in Africa. These barriers may arise from Paterson, I., M. Fink, A. Ogus, et al. 2003. “Economic Impact of culture or traditional patterns of working, and may take longer Regulation in the Field of Liberal Professions in Different to eliminate than any de jure barriers that exist. Member States Regulation of Professional Services: A Study for the European Commission.” DG Competition, Brussels. References Pelkmans, J. 2012. “Mutual Recognition: Economic and Regulatory Logic in Goods and Services.” Bruges Euro- Chen, M. X., and A. Mattoo. 2004. “Regionalism Is Standards— pean Economic Research Papers 24/2012, College of Good or Bad for Trade?” Policy Research Working Paper Bruges, Belgium. 3458, World Bank, Washington, DC. World Bank. 2013. World Development Indicators. World Bank, Dihel, N., A. M. Fernandes, and A. Mattoo. 2010. “Towards a Washington, DC. http://data.worldbank.org/data-catalog/ Regional Integration of Professional Services in Southern world-development-indicators. Africa, Africa Trade Policy Notes.” Note 10, World Bank, WTO (World Trade Organization). 1998. “Decision on Disci- Washington, DC. plines Relating to the Accountancy Sector.” Press Release Geloso Grosso, M., H. Nordås, F. Gonzales, I. Lejárraga, Press/118, December 14. http://www.wto.org/english/ S. Miroudot, A. Ueno, and D. Rouzet. 2014. “Services tratop_e/serv_e/sl63.doc. Trade Restrictiveness Index (STRI): Legal and Accounting Mixed Identity by Onyis Martin 159 Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa Alex Pio Alex Pio is Consultant, World Bank. Introduction will account for 75 percent of all international arrivals in Africa by 2021, mainly because of demographic and income shifts Tourism has a substantial and growing impact as a key (UNWTO 2010 in Christie et al. 2013). economic driver in Southern and Eastern Africa. Tourism is Tourism in Africa remains highly fragmented and glob- one of the world’s largest industries, employing one of every ally uncompetitive, with greater restrictions than the world 11 people, generating US$1.4 trillion in export earnings and average (UNECA 2013). A 2010 ICF SH&E study found that 9 percent of global gross domestic product (GDP) (UNWTO international airfares to SSA were almost 50 percent more 2014a; WTTC 2014a). In Sub-Saharan Africa (SSA), tourism expensive and charter tours were 20 to 30 percent more attracted 33.8 million international visitors in 2012. This was expensive than comparable destinations; and only 10 percent a more than 500 percent increase over 1990, generating of the region’s hotel rooms are estimated to meet interna- US$36 billion in tourism receipts, with a total contribution tional standards (SH&E 2010; Christie et al. 2013). Evidence of 7.3 percent to the regional GDP in 2012 (WTTC 2013).1 suggests that tourism demand is being stifled by the lack of Southern Africa, dominated by South Africa, is the region policy and regulatory integration, such as visa facilitation. Key with the greatest share of tourism arrivals and receipts, as practices pertaining to taxation, connectivity, infrastructure, well as the greatest variances between countries; East Africa data collection and dissemination systems, and standards has greater homogeneity in destinations and a dynamic require upgrading and reforming to scale up the growth regional community. potential of tourism services within SSA. Intraregional tourism is the mainstay of Southern and Regional cooperation initiatives in tourism can help Eastern Africa’s tourism industry, driving the international increase the regional and national competitiveness of the growth and development of the sector. Two important mar- sector. Tourism can be utilized further to connect regions kets, which are especially impacted by regional cooperation, through three dimensions: people, institutions, and infra- are the residents of one country traveling to another country structure. Increased cooperation can foster sustainable and in the same region (intraregional tourism), and residents inclusive tourism growth by increasing and redistributing of a country outside the region traveling to two or more tourist flows and spending. Cooperation can play a significant countries in the same region (multi-destination trips). Both role in connecting people, narrowing regional development categories have very different visitor needs in experiences, gaps, and spurring development in other industries (Chheang quality, expectations, and value propositions, yet both require 2013). Regionalism and tourism development can have a regional cooperation on standards, regulations, policies, and causal relationship, reinforcing each other, as the incentives common public goods (infrastructure, roads, and transport and benefits generated from the tourism industry encour- access, for example) to grow in volume and economic impact. age different economic sectors to develop, increasing the Intraregional tourism accounts for the majority of tourist multiplier effect of tourism (Chheang 2013). trips globally and in SSA; the United Nations World Tourism There are three key areas in which regional integration Organization (UNWTO) estimates that intraregional travelers can increase the competitiveness of tourism: 1. Facilitating access. Access is facilitated through physical 1 Including direct, indirect, and induced contributions. infrastructure improvements (investing in road, port, 160 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa rail, and air infrastructure) and policy reforms (remov- build on common objectives. Southern and Eastern Africa’s ing visa restrictions, reducing tourist taxes and airline foremost regional objectives should include the following: fees, deregulating aviation, and easing border crossing liberalizing airspace, reducing visa requirements further, formalities). investing in access and tourism-related infrastructure, 2. Improving the quality of the visitor experience. Quality rationalizing tax systems, setting and implementing quality improvement is achieved through implementing quality standards, cooperating on tourism and hospitality workforce standards for products and facilities, increasing wildlife development, undertaking unified regional promotion, conservation, coordinating workforce development, monitoring and evaluating tourism impacts, and conducting improving the business climate, attracting investment, high-level advocacy with policy makers. and facilitating labor mobility. Cross-border tourism initiatives are more likely to suc- ceed when the following preconditions are met: (i) member 3. Communicating the value of a region’s tourism assets. Value countries have similar policy frameworks, tourism develop- is communicated (i) to consumers, by jointly branding and ment stages, cultural backgrounds, economic drivers, and promoting the region and its multi-destination products, sizes; (ii) countries have sustained political stability and and by mounting coordinated crisis response initiatives; commitment, prioritizing tourism as a key economic driver; and (ii) to policy makers and populations, by carrying out and (iii) equitable relationships between members are research, harmonizing national statistical gathering forged. National concerns of sovereignty, diverging priorities, systems, monitoring and evaluating tourism’s impacts, political economies, and differences in development needs and undertaking high-level advocacy. and stages are all factors that must be carefully calibrated when considering regional integration initiatives in tourism. Destinations in Southern and Eastern Africa have rec- Success factors for regional cooperation in tourism ognized the importance of regional cooperation in tourism include the following: and have included many tourism objectives in the charter protocols of their regional blocs. The East African Community Institutions: (i) the creation of binding tourism charters based (EAC) has created the East African Tourism and Wildlife Con- on tourism’s potential for economic growth, job creation, servation Agency (EATWCA) to implement regional tourism conservation, and regional integration; (ii) the creation of initiatives; similarly, the Regional Tourism Organization of inclusive regional tourism development plans tied to feasible, Southern Africa (RETOSA) is the tourism arm of the Southern timely investments; and (iii) the institutionalization of an African Development Community (SADC). Each agency has independent entity as a coordinating and implementing unit, undertaken various activities, such as formulating regional with dedicated funding, a clear and accountable mandate, tourism strategies, creating shared visas, undertaking regional and high-level oversight. promotion, establishing quality standards, and defining trans-frontier conservation areas (TFCAs). Initiatives: (i) selecting regional tourism initiatives that make Directly and indirectly, the tourism sector has the business sense; and (ii) packaging regional initiatives based potential to derive significant benefits from regional coop- on intraregional products, circuits, thematic routes, popular eration and integration initiatives, but in practice it is dif- tour routes, or shared assets (such as trans-frontier con- ficult to apply policies and sustain activities. As is the case servation areas), which are commercially feasible and link with other sectors, policy and regulatory reforms are not physical investments with policy and regulatory reforms. uniformly ratified by a bloc’s member countries. Reforms Approaches: (i) starting small in the number of countries often remain unimplemented and, if they are implemented, involved and in the scale and scope of initiatives; (ii) creating they are poorly enforced. Political will, funding, and capac- momentum for initiatives by aligning them with important ity constraints limit the effectiveness of a bloc’s ongoing regional events and providing realistic time frames; and (iii) programs, such as regional promotion. The greater the carrying out frequent high-level advocacy within member economic, geographic, political, and structural disparities states. between member states, the less likely blocs are to apply initiatives effectively. This chapter explores the theory, practice, and lessons The national sphere remains the main one for addressing learned for Southern and Eastern African nations and blocs tourism development, which can then be supported by care- to grow their multi-country and intraregional tourism through fully selected bilateral, multilateral, and regional initiatives to regional cooperation. Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 161 Figure 7.1: Africa Foreign Visitor Exports and International Tourist Arrivals, 2004–14 a. Foreign visitor exports (2013 US$ billions) and tourist b. Foreign visitor exports as share of total arrivals (millions) exports (%) Constant 2013 USDbn mn Foreign visitor exports as % of total exports 90 100 12.0 80 90 80 10.0 70 60 70 60 8.0 50 50 40 6.0 40 30 30 20 20 4.0 10 10 0 0 2.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2024 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2024 Foreign visitor exports (LHS) Foreign tourist arrivals (RHS) Source: World Travel and Tourism Council 2014b. Potential of Tourism as a Key investment is set to grow by similar rates of 4.4 percent per year over the next decade, from the current US$25.9 billion Economic Driver in Africa to US$41.1 billion in 2024 (WTTC 2014b). According to the General Agreement on Trade in Services Tourism is considered the world’s largest industry and an (GATS), there are four modes defining the international trade important driver of growth in African economies. According in tourism services, which are outlined in box 7.1. Unlike to UNWTO, international tourism accounts for 29 percent other service sectors, travel and tourism is characterized of the world’s service exports and 6 percent of overall by the consumers of the service traveling to the supplier exports of goods and services (UNWTO 2014a). Tourism is country to enjoy the services and facilities (GATS mode 2). the leading sector for services exports in least developed Because tourism is consumed at the source, the cross-border countries, representing 54 percent of commercial service movement of consumers permits unskilled workers, even revenues in 2010 (WTO 2011).2 Tourism is ranked fourth in remote areas, to become service exporters (by providing in the global export category, after fuels, chemicals, and lodging, handicrafts, catering, and guiding, among other automotive products (UNWTO 2010). The World Travel and services). Suppliers such as multinational hotel chains, Tourism Council (WTTC), in its annual 2014 Travel & Tourism tour operators, transport providers, and online distributors Economic Impact Report on 47 countries in Africa, estimates work widely across borders, with linkages to many major that tourism directly and indirectly supports 19.3 million jobs economic segments. on the continent (WTTC 2014b). Compared with other sectors across African regions, In 2013, travel and tourism generated US$48.2 billion, or tourism has seen some of the most growth since 1980, 7.4 percent of total exports in Africa (see figure 7.1). This is particularly in Central, Eastern, and Western Africa, where expected to grow by 4.8 percent per year between 2014 and tourism was least developed. A 2013 WTTC benchmarking 2024, to US$81.6 billion (WTTC 2014b). Travel and tourism study found that travel and tourism’s contribution to GDP in Africa is greater than that of other individual sectors, includ- 2 Thirty-four of the world’s 48 countries categorized as least ing banking, communications, chemicals manufacturing, developed are located in Africa. and auto manufacturing (WTTC 2013). Travel and tourism 162 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.1: The GATS Modes of Supply The General Agreement on Trade in Services (GATS) Mode 3: commercial presence. This mode covers services defines international trade in services by four modes provided by a supplier from one country in the ter- of supply: ritory of any other country. Mode 3 is manifested in Mode 1: cross-border trade. This mode is defined as tourism, for example, as the establishment abroad of delivery of a service from the territory of one country a branch of a hotel chain. into the territory of another country. In tourism, this Mode 4: presence of natural persons. This mode covers could equate to international tour operators selling services provided by a supplier from one country travel packages online. through the presence of natural persons in the terri- Mode 2: consumption abroad. This mode covers the tory of another country. An example of mode 4 supply supply of a service of one country to the service con- would be a hotel hiring a foreign manager. sumer of any other country. Mode 2 is most commonly Source: WTO 2015a. associated with tourism, wherein a person travels to a foreign country to consume tourist services. Figure 7.2: African GDP Impact by Industry as a Share of Total Economy GDP, 2013 (%) 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Communication Chemicals manufacturing Higher education Automotive manufacturing services Banking Travel & tourism Education Financial services Mining Direct Indirect & induced Source: World Travel and Tourism Council 2013. Note: GDP = gross domestic product. is nearly the same size as Africa’s education and financial attract more tourists and tourism contributes more to GDP service sectors. than in West and Central Africa (table 7.1). Within each of Although tourism has benefitted all regions in Africa, this these regions, certain countries act as tourist hubs. In East has been on an unequal basis; arrivals and receipts tend to Africa, Zimbabwe receives 16 percent of international arrivals; be concentrated geographically. East and Southern Africa Mozambique, 15 percent; and Kenya, 15 percent. In Southern Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 163 Table 7.1: Tourist Arrivals and Receipts in Africa by Region, 2011 Total receipts Region Total African arrivals Total long-haul arrivals Total tourist arrivals (US$ million) North Africa 2,171,000 24,383,000 26,554,000 18,296 Southern Africa 8,449,000 2,599,000 11,048,000 10,090 East Africa 4,894,000 2,727,000 7,621,000 7,596 West Africa 1,773,000 4,838,000 6,611,000 3,412 Central Africa 192,000 475,000 667,000 674 Total 17,479,000 35,022,000 52,501,000 40,068 Source: AfDB, 2013 Table 7.2: Global International Tourist Arrivals from the Same Region versus Other Regions, 1990–2013 (millions) Average Market annual International share growth, tourist arrivals 1990 1995 2000 2005 2010 2013 (%) 2005–13 (%) Same region 348.7 422.6 532.5 630.6 728.1 840.2 77.3 3.7 Other regions 77.6 95.6 130.3 150.9 194.0 219.8 20.2 4.8 Source: UNWTO 2014b. Africa, 66 percent of all tourist arrivals in the region are in The major travel motivation for this market is related South Africa, compared with Namibia’s 9 percent. In West to business, followed by visiting friends and relatives and, Africa, Senegal and Nigeria dominate, together accounting increasingly, leisure (see figure 7.3). More recently, emerg- for 78 percent of visitors to the region (Christie et al. 2013). ing intraregional travel motivations include shopping, education, and health. Intraregional travelers tend to visit urban centers rather than rural areas or nature reserves, Growth of Multi-Country, with short-haul travel patterns closely related to trading Cross-Border Tourism partners, proximity, relative incomes, and ethnic similarities (Christie et al. 2013). Intraregional tourism (travel by residents of one country Given the weak and/or expensive air, water, and rail to another country in the same region) accounts for the transport systems in SSA, most visitors arrive by road, majority of tourist trips undertaken worldwide (table 7.2). and are mainly independent travelers rather than package An estimated four of five global arrivals originate from the tourists (Rogerson 2007). Intraregional travelers are more same region, amounting to 840.2 million international travel- inelastic to crises, and, despite spending less per capita, ers (UNWTO 2014a). Similarly, for low- and middle-income they can create proportionately more local economic link- countries, the largest source of tourism arrivals is neighboring ages than long-haul package tourists. Intraregional travel- low- and middle-income countries. South Africa, for example, ers tend to understand the cultures, patronize informal attracted 26 percent of all international tourists to SSA in establishments, and utilize local products and services 2012, and 70 percent of its 9.1 million visitors arrived from (Rogerson 2007). SADC countries (Statistics South Africa 2012). Likewise, 58 Multi-destination regional travelers, or long-haul travel- percent of all arrivals to Namibia in 2010 were from South ers visiting more than one country in the same region, are Africa and Angola (Christie et al. 2013). According to UNWTO, much more difficult to measure. It is widely accepted that intraregional travelers are expected to grow to 75 percent of this is a substantial segment of international travel, especially all international arrivals in Africa by 2021, mainly driven by for less-developed regions and more densely clustered increased levels of income and wealth (Christie et al. 2013). destinations. Nevertheless, empirical data are hard to come 164 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 7.3: Typical Mix of Passengers on African Carriers Typical Mix of Passengers on African Carriers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic Regional International Tourism Traditional business Small business/Traders Visit friends/Family Source: SH&E 2010 as cited in Christie et al. 2013. by (Parroco 2012). Long-haul travelers in SSA, for example, in obtaining visas, booking accommodations, and making tend to visit more than one country on their trips. These tour arrangements (Christie et al. 2013). visitors are generally well-traveled, demand quality, and have Despite the growth of multi-country, intraregional tour- access to substitutes (RETOSA 2012b). In the SADC region, ism and its associated products and services, cross-border for example, an estimated 48 to 58 percent of long-haul travel in SSA remains lower than the global average because leisure tourists visit more than one country, with operators of several factors. Relative prices are high, and there is a most frequently packaging together Botswana, South Africa, lack of quality, targeted facilities for the domestic regional Zambia, and Zimbabwe (Anneli 2012). market. Cross-border accessibility is poor because there Around 16 percent (4.9 million) of visitors to SSA arranged are insufficient air services and inefficient airlines. Finally, their trip through a tour operator in 2010. Serving these tour- there are policy, regulatory, and practical barriers in cross- ists were an estimated 3,000 ground tour operators in SSA, border tourism, including visa and other formal and informal providing direct employment to 35,000 to 40,000 people. A procedures (RETOSA 2012b; World Bank 2010, 8–9; Christie higher proportion of travelers to SSA use tour operators than et al. 2013). Box 7.2 outlines the major constraints to the in other global regions because of the greater complexities continent’s tourism growth as a whole. Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 165 Box 7.2: Constraints to African Tourism Growth Five interrelated constraints stand in the way of job 4. Inadequate access. Average one-way domestic fares creation and private sector tourism development: in Africa are twice as expensive as those in Latin 1. Unpredictable business environments. Political insta- America and four times as expensive as domestic bility, high crime rates, red tape, unavailability of flights in the United States. This, coupled with dif- skilled labor and quality inputs, and lack of access fering visa arrangements, poorly managed airports to capital and land have raised the risks and costs and border crossings, and a lack of quality access of doing business in the tourism sector and reduced infrastructure, is a major disincentive to interna- the region’s competitiveness. tional and cross-border travel. 2. Limited infrastructure and service provision. Unsafe 5. Low levels of linkages. Despite increasing evidence roads, inadequate water, poor sanitation, high of the multi-sector benefits that tourism can bring electricity costs, poor construction practices, and to economies across Africa, the sector is often lack of health facilities result in difficult business regarded as elitist and dominated by foreign firms. environments and subpar visitor experiences. Constraints to development of the tourism value chain in Africa include the inability to produce 3. Institutional weakness. Tourism is complex; it requires competitive products, lack of tourism awareness, coordination between multiple government agen- and a problematic business environment. There cies, private sector bodies, civil society organiza- are significant opportunities for increased link- tions, and community stakeholders. Transportation, ages, but in many cases local products (such as communications, finance, education, sanitation, horticulture, produce, crafts, entertainment, and and immigration are just a few of the many areas transportation) are not sufficiently developed or where greater coordination is required. Moreover, are not of high-enough quality to supply the tour- tourism often lacks appropriate political priori- ism industry. tization in Africa, resulting in low capacities and insufficient budgets. Sources: World Bank 2010, 8–9; Christie et al. 2013. Role of Regional Cooperation Tourism destination stakeholders recognize the impor- tance of regional tourism cooperation for their effective in Tourism Development positioning on an increasingly competitive global landscape. Cross-border tourism products and initiatives can present To maximize the benefits of tourism, the sector needs to be valuable opportunities for regions as a whole in the interna- well planned, developed, and managed. Governments have tional market, while benefitting individual destinations’ econo- a key role to play by developing strategies for the sustainable mies, environments, and social factors (Tore 2010). Along growth of the sector, formulating and enforcing policies and with the direct effects on multi-country and cross-border regulations, providing tourism-related infrastructure and tourism, regional tourism initiatives can bolster the tourism services, and creating an enabling business environment competitiveness of a region and its member countries, facili- for private sector activity. The lack of effective, coordinated tate knowledge transfers, generate geographically disperse government policies and actions can result in negative benefits of tourism, accelerate the development of tourism environmental and social externalities. Lack of government in less-developed destinations, and further integrate regions action can also lead to financial leakages, defined as the loss through increased connectivity and value chain linkages. of tourism revenue abroad through profit repatriation and Several tools and strategies can be employed from a the procurement of tourism-related goods and services regional integration perspective to increase trade in tourism abroad (UNWTO 2012a). These factors are especially relevant services. These activities can be grouped into three main for low- and middle-income nations, which often lack the categories: (i) facilitating access, (ii) improving the quality of awareness, capacities, and resources to mitigate tourism’s the experience, and (iii) communicating value and impacts negative impacts and leakages. 166 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Figure 7.4: Three Key Areas in Which Regional Integration Can Increase Tourism Competitiveness Communicating to Facilitating access Improving quality consumers and policy maker • Removing visa restrictions • Business environment • Branding, marketing, and • Improving access infrastructure • Attracting investment promotion (roads, port, and rail and air, • Service and quality • Crisis management border crossings) standards • Statistics and research • Aviation deregulation • Nature and wildlife • Advocacy • Easing border crossing conservation • Stakeholder coordination formalities • Codes of conduct • Increased awareness of • Workforce development destination communities • Labor mobility Sources: Anastasiadou 2006; Ghimire 2001; Teye 2000. (figure 7.4). Each of these aspects can be addressed through of EAC and SADC, two blocs that have developed different regulatory and policy levers, as well as infrastructure financ- regional accommodation classification systems to be adopted ing and product development programs. at the country level. On the supply side, the goal is to encourage the regional expansion of service providers and the mobility of skilled East African Community labor. Tools for achieving this goal can include improving enabling environments, attracting increased demand, Eastern Africa is a leading tourism destination in SSA. EAC engaging in mutual recognition of national standards, and member countries (Burundi, Kenya, Rwanda, Tanzania, and facilitating the mobility and transfer of skilled labor through Uganda) attracted more than 4.9 million international visi- labor agreements. tors in 2011, a 60 percent gain from just five years prior, in Regional blocs are key institutions for growing intrare- 2006 (EAC 2013). The region received US$3.5 billion in visi- gional as well as international arrivals to a region. Globally, tor expenditures in 2011, the latest year for which data are some of the best examples of the involvement of regional available for all the countries. Together, EAC member states blocs in tourism development are the European Union (EU), have a total of 56 national parks and 49 game reserves.3 For the Caribbean region, and the Association for South East long-haul travelers, safaris, scenic, beach, and birding tour- Asian Nations (ASEAN), as outlined in box 7.3. ism remain East Africa’s most popular attractions. Cultural SSA has more than a dozen regional blocs in the forms of heritage tourism is expanding, and conference tourism is economic communities, customs unions, monetary unions, beginning to take root. and common market initiatives (map 7.1). The inclusion of Recognizing the complementarities of tourist attractions regional cooperation for tourism development has been in member countries, EAC states have created a comprehen- growing in the region, despite the fact that tourism-specific sive framework under which to jointly promote and develop development agendas are marginal to the missions of regional the region’s tourism sector. The EAC treaty requires member blocs. Most blocs have recognized the importance of tour- states to develop a regional strategy for tourism promotion, ism to their regional economies and have several tourism with the development objective of “maximized benefits from protocols or objectives in their charters. sustainable tourism and wildlife resources.” As such, the region In Eastern and Southern Africa, the blocs most active in has identified the following strategic interventions: tourism are SADC and EAC. The Common Market for East and Central Africa, the Inter-Governmental Authority on ■■ Market and promote East Africa as a single tourist Development, and the Indian Ocean Commission are also destination involved in tourism to a lesser degree. Although these blocs ■■ Operationalize the East African Tourism and Wildlife generally have similar overarching objectives for tourism Conservation Agency development, their specific initiatives and standards can overlap and can lead to conflicts for nations with member- ships in multiple blocs. Tanzania, for example, is a member 3 Parks and protected area counts are from 2011. Chapter 7 TRADE IN TOURISm SERvICES AND REGIONAl INTEGRATION IN SOUTHERN AND EASTERN AFRICA 167 Box 7.3: International Examples of Regional Cooperation for Tourism Development the Caribbean region, focusing on an environmental management certifica- through its Caribbean tion system for hotels, establishing aSeaN standards tourism Organization for tourism and minimum competency standards for (CtO), has focused heav- tourism professionals, building an intra-aSeaN tour- The CTO logo. ily on marketing and ism curriculum, and establishing a regional tourism promotion. the notion is that by pooling resources, research databank, among others. aSeaN is currently the CtO could increase the competitiveness of the working on increasing labor mobility within the bloc, world’s premier sea, sand, and sun destination. the similar to the european Union’s mobility initiatives, organization is governed by a tourism Ministerial which should have a significant impact on tourism. Council and is funded by membership dues, calculated    ASEAN’s tour- based on a formula of tourism arrivals, thus ensuring ism initiatives a more equitable distribution of financial obligations. have had to CtO member states are all heavily dependent on overcome sev- The ASEAN logo. tourism as an economic driver, and have very similar eral obstacles, resource endowments and products of beach and soft including the dissolution of its tourism subcommittee nature tourism. this has allowed greater consensus in 1995, which was caused by lack of resources. the and willingness to partner on a regional level. organization also failed to launch the aSeaN tourism the association of South east asian Nations association because Malaysia, a major regional player, (aSeaN), comprising 10 member states, has pursued declined to join. aSeaN continues to face challenges a regional tourism agenda since the early 1990s. in growing the region’s tourism brand recognition. tourism development has been recognized as a high aSeaN’s five key success factors for promoting priority area for cooperation on regional development regional cooperation in tourism are identified as: (i) a in Southeast asia, because of the sector’s importance high level of political will and commitment across the to member economies. For example, tourism accounts board, (ii) strategic multi-stakeholder partnerships, for 6 percent of gross domestic product in thailand and (iii)  an early focus on institutional and regulatory employs 15 to 20 percent of its workforce (Christie et development, (iv) the development of subregional al. 2013). aSeaN tourism ministries have engaged in a cooperation frameworks, and (v) increasing members’ cooperation framework that includes marketing, train- awareness of the benefits of tourism. ing, research, travel facilitation, transport, and human Sources: Chheang 2013; CTO 2014; Christie et al. 2013. movement. aSeaN’s specific tourism goals include ■■ Implement the (voluntary) criteria for classification of Tourism and Wildlife management, formulated standardized hotels, restaurants, and other tourist facilities classification criteria for hotels and touristic facilities, and ■■ Harmonize policies and legislation on wildlife conserva- identified three centers of excellence in tourism educa- tion and management tion and workforce development.4 EATWCA was created as an implementing agency for EAC tourism activities, with ■■ Adopt a regional approach to the protection of wildlife a heavy focus on marketing and promotion. Since 2006, resources from illegal use and practice steps have been taken to market East Africa as a single ■■ Adopt a regional approach for participation in regional destination, with EATWCA coordinating participation in and international treaties/agreements on wildlife con- international tourism fairs as a bloc. The region has also servation and management ■■ Enhance capacity building in the tourism and wildlife sector. 4 The Utalii College (Kenya), the College of African Wildlife man- agement (Tanzania), and the East African Civil Aviation Academy As part of reaching its objectives, EAC created a tourism (Uganda). Their goal is to establish a unified fee structure for all marketing plan and strategy in 2007, outlined a Protocol on EAC students. 168 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Map 7.1: The State of Free Trade in Africa set equal treatment on rates for lodging and attractions, translate regional policy and coordinative initiatives into so that the same rates apply to visitors from EAC countries reality at the national level. as for domestic travelers. Funding and capacity constraints limit the effectiveness of Despite ambitious objectives and steps in the right the EAC management of programs such as regional promo- direction, many initiatives still require adoption and tion. Apart from joint promotion of trade fairs, EATWCA has enforcement at the national level, such as the EAC stan- lacked the budget to undertake meaningful regional marketing dardized classification criteria. This is a key issue faced campaigns. The region still needs to address the disadvan- by regional blocs internationally, and is magnified in tages of a narrow range of low-quality tourism products, an Africa. Because of issues of national sovereignty, politi- absence of harmonized policies and strategies, unfavorable cal economy, and prioritization, it has been difficult to investment environments, and restrictive access conditions. Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 169 Southern African Development Community this to increased competition and sophistication of other African (North Africa) and global regions, lack of targeted SADC is an intergovernmental organization with the goal of and intensive regional marketing and promotion, inadequate furthering socioeconomic, political, and security cooperation resources for the effective operation of RETOSA, and a lack and integration among 15 Southern African states.5 Tourism of prioritization of tourism by some SADC member states. is a small part of its mission, and is coordinated through RETOSA’s tourism protocol was slow to be ratified and RETOSA, which was created by SADC in 1997. In 2011, RETOSA enforced; in 2014, the organization came close to collapsing; member states welcomed 20 million visitors; they generated its chairman identified key reasons as the noncompliance US$15.31 billion, just under half of the continent’s US$32 and undermining of the institution by member states (Ncube billion in tourism receipts (RETOSA 2012b). On average, 2014). In practice, RETOSA lacks the human and financial tourism contributes 8.9 percent of GDP for SADC member resources to implement its mandate and, like many regional states. Tourism receipts vary greatly between states, from organizations around the world, has been relegated to mainly 29.1 percent of GDP for the Seychelles to 0.4 percent of promotional activities (Ghimire 2001). Currently, RETOSA is GDP for Angola (RETOSA 2012b). looking to be restructured so that it can focus on opening RETOSA’s main tourism objectives are outlined in its the skies and borders of the region. charter as follows (SADC 1997): Many regional tourism programs in Southern Africa have been short lived. Examples include the Upper Zambezi ■■ Encourage and facilitate the movement and flow of Region Development Initiative between Botswana, Namibia, tourists into the region Zambia, and Zimbabwe; the initiative to jointly manage ■■ Facilitate community and rural-based tourism the Kalahari Gemsbok National Park straddling Botswana, ■■ Develop, coordinate, and facilitate regional tourism Namibia, and South Africa; and the attempt to form a joint marketing and promotion promotional body (South East African Tourism Committee) between Botswana, Mozambique, Namibia, South Africa, ■■ Encourage and facilitate international and regional trans- and Swaziland. These all failed to take off, because of the port, tourism training, and accommodation classification inability to secure sustainable funding, divergent national ■■ Encourage and promote consistency in the quality and interests, and lack of a clear vision. maintenance of tourism standards Indeed, the SADC region’s growth in tourism can be ■■ Act as a communication channel between member states attributed mainly to national-level improvements in access and organizations. infrastructure and marketing, as well as broader political and demographic shifts. Some areas of infrastructure RETOSA has led several successful activities over the provision and quality assurance of products and services years. It is implementing the UNIVISA, a single visa valid are typically best addressed at the national level, including for visiting 14 member countries (the Seychelles is not human resource and skills certification, health and hygiene participating). In addition, RETOSA spurred the creation of standards, and construction guidelines. South Africa has TFCAs, covering more than 700,000 square kilometers in proven to be a good example in leveraging trends to plan the region. The organization has also elaborated customer and develop intraregional tourism (see box 7.4). service standards, compiled tourism statistics, and is cur- rently preparing a harmonized accommodation-grading Opportunities and Challenges system for all 15 member nations. for Regional Cooperation However, RETOSA has been seen as largely ineffective In SSA, member states often lack the funds to support the in carrying out its broader mandate (Peters-Berries 2010). initiatives of regional blocs, or agree to charters and policy SADC’s market share of global and African tourism arrivals directions that are not subsequently ratified at the country level. has remained stagnant between 42.3 and 44 percent since If ratified at all, policy directives are often not implemented or the mid-1990s. The 2012 SADC Tourism Sector Plan attributes adhered to at the national level because of capacity and fund- ing constraints, or political economy reasons. Other barriers to the effectiveness of regional blocs include geographic and 5 Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, the Seychelles, political fragmentation, differing development levels between South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe. states, the variety of political economies and political structures, 170 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.4: South Africa’s Intraregional Tourism Growth Several factors can be identified as contributing to the continent, including the emergence of South Africa the growth of regional tourism flows into South Africa as a regional aviation hub. Fourth, increased dispos- since the 1990s. First, South Africa’s new democracy able income has led to increased travel, including the and reintegration into the international economy in emergence of leisure travel; and with improvements the mid-1990s triggered a wave of regional informal in South Africa’s education and health infrastructure, and formal business travelers. Second, South Africa’s educational and health tourism have begun to grow. improved infrastructure network, particularly for land Finally, several other factors can be seen as influencing transport, has helped facilitate consistent and timely increased intraregional travel. These include easier access. This improved access for private vehicles has access for foreign exchange in many African countries, also given rise to a comprehensive cross-border regional enhanced information and communications and online bus network, regularly connecting South Africa with travel platforms, relaxation of South Africa’s immigra- Lesotho, Malawi, Mozambique, Swaziland, Zambia, and tion controls and visa regulations for regional visitors, Zimbabwe. This network was facilitated by the many and an increase in targeted promotional campaigns border and customs agreements already in place. for intraregional tourists by South African Tourism as A third factor contributing to regional tourism is the well as certain cities. improved air links between South Africa and the rest of Source: Rogerson 2007. and differing strategic views of the members (Anastasiadou quality of air, sea, and land transport; aviation regulations; 2006). In short, the greater the economic, geographic, politi- entry permits; visa requirements; airport capacities; and cal, and structural variety between member states, the less competition among carriers (Dwyer 2001; Dwyer in Anneli likely blocs are to apply effective initiatives. 2012). Improving access can mean physically improving infra- Each region faces unique opportunities and challenges structure such as access roads, airports, and port facilities; and changing political and economic trends that must be facilitating the cross-border movement of people through taken into account when designing and planning for regional regional visas or shared passports; reducing or removing tourism activities. West Africa has long suffered from political tourist taxes and airline landing fees; easing vehicle permit instability and safety concerns. Southern Africa must balance requirements for crossing borders; airline deregulation; and a region dominated by South Africa, which, given the size of incentives for the development of transport companies. its tourism sector, overshadows the rest of the region, yet is Three key issues for improving tourist access in Eastern a main source of its neighbors’ tourism flows and revenues. and Southern Africa are aviation, visa requirements, and tourism-related infrastructure. Key Regional Initiatives Aviation for Tourism Development The high costs, inadequate air-lift access, and capacity Despite failures and setbacks, if properly designed and constraints of intra-African air travel are a critical barrier implemented, regional cooperation can still be effective to the growth of intraregional tourism. Tourism remains for improving the competitiveness and impacts of tour- artificially depressed through the slow pace of liberaliza- ism. Several key initiatives that can be undertaken at the tion of African air space, including the highly regulated air regional level in Southern and Eastern Africa are discussed service regime between SADC countries, which prevents in this section. competition between airlines that operate across the region (UNWTO 2012b). Currently, South African Airways dominates the Southern African market; in East Africa, the Access largest airlines are Ethiopian Airlines and Kenya Airways, Improving access is one of the main ways to increase demand. which serve intra-African and intercontinental flights with Access is determined by the frequency, price, ease, and hub-and-spoke operations. Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 171 Figure 7.5: One-Way Average Airfares in Africa versus Other Regions, 2010 (US$) Africa $700 $600 $500 Latin One-way fair America $400 $300 $200 $100 Domestic USA $0 0 1000 2000 3000 4000 5000 Distance (Km) African fares are more than double those in the domestic US on similar stage lengths. Source: ICF SH&E 2010 as cited in Christie et al. 2013. Note: Airfare data for Africa include intra-Africa and Africa-Middle East flights. Europe’s budget airline boom of the 1990s—which has eVisas, visas on arrival, waivers for short-stay tourists, or rapidly expanded intraregional travel and tourism receipts— exemptions for particular nationalities can all reduce the was made possible by its “open skies” agreement. Although difficulty and costs of international travel. In general, the Africa has had a similar treaty on paper since 1988, little has fewer visa requirements a country imposes, the greater been done to enforce it (Economist 2013). Low-cost carri- the potential for tourism growth in that country (UNWTO ers, such as fastjet, Fly 540, and Kulula, are beginning to 2013). If a visa is perceived to be expensive or difficult challenge legacy carriers and drive down prices on certain to obtain, then tour operators may not include the issu- routes. However, high taxes, fuel surcharges, insurance ing country as part of a regional tour and independent requirements, legal fees, and growing demand with limited travelers may end up visiting fewer destinations (Christie airlift capacities have resulted in elevated intra-Africa travel et al. 2013). prices. A 2010 ICF SH&E study found that average one-way Research is lacking on the direct impacts of visa require- fares in Africa were twice as expensive as those in Latin ments in Africa. However, international studies make the link America and four times more than a comparable distance between easing tourist visa procedures and growing tourism domestic flight in the United States, as shown in figure 7.5 revenues clear. UNWTO research found that improving visa (SH&E 2010). processes could generate an extra US$206 billion in tour- In the short term, policy changes that address visa regimes ism receipts and create as many as 5.1 million additional and increased regional cooperation would strengthen the jobs in G20 countries (UNWTO 2013). For example, the regional airline industry and increase its competitiveness Schengen visa has substantially boosted tourism in Europe (box 7.5). Such changes could include bilateral air service (box 7.6). The same is true for developing countries, where, agreements, pan-African code shares, and increased knowl- for example, UNWTO/WTTC research has shown that the edge transfers in operations and management (SH&E 2010 ASEAN region would gain up to US$12 billion in international as cited in Christie et al. 2013). tourism receipts by 2016 as a result of improvements in visa facilitation (WTTC 2014a). Africa requires a visa prior to departure from countries Visa Requirements comprising 62 percent of the world’s population, with visa Easing visa requirements could be the single most effective requirements from 47 countries in SSA. The continent cur- means of creating jobs and increasing tourism’s impact on rently has the highest global percentage of visas on arrival, GDP. Most countries in Sub-Saharan Africa impose visa at 29 percent. However, there is substantial variety among requirements (map 7.2). Foreign mission–issued visas, subregions; East Africa is the second most open subregion 172 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.5: The Economic Impact of Air Service Agreements in the European Union An InterVISTAs-ga2 study (2006) found that, globally, air in cases of congestion or environmental problems, and traffic growth increased by 12–35 percent subsequent allowing EU carriers to be free to set airfares. to the liberalization of air services agreements between The single market also led to the development countries. The creation of the Single European Aviation of low-cost airline services, since an operator could Market in 1993 led to an average annual growth rate in order aircraft knowing that they had access to a large traffic between 1995 and 2004 that was almost double market without legislative restrictions. Between 1996 the rate of growth in the years 1990 to 1994. This pro- (when the legislation began to have an impact on the duced around 1.4 million new jobs between 1995 and airline market) and 2003, low-cost operators’ share 2004 and grew the European gross domestic product of capacity rose from 1.4 to 20.2 percent. The single by US$85 billion. The 1992 package of legislation that market led to the incremental growth of passenger created the Single European Aviation Market included volume to 44 million, at a growth rate of 33 percent, provisions such as permitting European Union (EU) air compared with prior intra-European market growth carriers to exercise traffic rights on routes anywhere of 4–6 percent per year. within the EU, making capacity limitations illegal except Source: InterVISTAS-ga2 2006. Map 7.2: Visa Requirements for Intra-Africa Travel, 2010 Source: ICF SH&E 2010 as cited in Christie et al. 2013. Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 173 international tourist arrivals by 284 percent between 2005 Box 7.6: The European Experience and 2010 (Christie et al. 2013). with the Schengen Visa In SSA, there are several initiatives concerning shared tourist visas for nonregional visitors. In 2014, East Africa The Schengen visa allows non-European Union launched its single tourist visa between Kenya, Rwanda, and nationals to cross the borders of 26 European Uganda. This visa eliminates national requirements for visa Union (EU) countries without having their passports applications and enables tourists to move within the three checked; only the single Schengen visa is required countries without restrictions. Tourists pay US$100 at the at the visitor’s first port of entry. EU nationals are country of entry, or the respective foreign mission abroad, already exempt from visa requirements for travel for a 90-day visa. Previously, a pre-travel visa was required within the union. Previously, non-EU nationals for Rwanda, and separate visas on arrival were obtainable would need a separate visa for each country from Kenya and Uganda, each costing US$50. Tanzania visited. Travelers would incur the cost, time, and has recently joined this shared visa, despite citing con- procedures as dictated by individual countries. The cerns that the lack of transparency in data and fee-sharing Schengen visa has substantially boosted tourism in mechanisms would result in Kenya collecting the majority Europe. For example, when 10 Central and Eastern of the revenues from the visa, thus not directly benefitting European countries joined the Schengen area in Tanzania (Naluyaga 2014). However, this concern does not 2004, their tourism arrivals grew by 11 percent take into account broader spillover effects to the economy (BBC News 2007). and related tax revenues from increased demand. Although However, as with any visa system, Schengen it is too early to gauge the results, the easing of costs and remains a barrier. A 2012 study by the European procedures is expected to increase multi-country itineraries Commission (2013) found that 6.6 million potential and lengths of stay. travelers from six key target markets were lost SADC, through RETOSA, is currently in the process of because of the Schengen area visa regime; US$6.85 implementing the UNIVISA, providing international travelers billion in annual receipts and 113,000 jobs were access to 14 member countries on a single visa. In a recent foregone. The study found that the main reason survey, tour operators working in SADC countries said they for travelers not to visit the EU was the complicated expected their business to rise by 35 percent following the and time-consuming procedures of obtaining the introduction of the UNIVISA. Operators plan to introduce Schengen visa. These include a personal meeting more multi-country packages, thus increasing the length of at a foreign mission abroad (implying traveling stay (Anneli 2012). The success of the UNIVISA, however, is and lodging expenses), gathering and translating seen to hinge on related factors, such as the liberalization required documents, and the time spent waiting of air travel in the region. for the consulate to process the application. The Regional visa discussions take time and require an inclu- four most effective solutions for these barriers sive process. The EAC single visa is the result of a decade are implementing (i) visa on arrival, (ii) visa-free of discussions facilitated through a participatory approach. travel, (iii) multiple-entry visas, and (iv) a visa with Transparency around mechanisms, fee allocations, data longer validity. sharing, and economic impacts are crucial. Sources: BBC News 2007; European Commission 2013. Tourism-Related Infrastructure Tourism is far more dependent on a range of infrastructure globally, whereas Central Africa is among the most restric- and services than most economic activities (Christie et al. tive (UNWTO 2013).6 2013). Such services include power, potable water, waste SADC and EAC have already made sizeable strides in management, information and communications technology, eliminating the need for visas for travel of member country roads, airports, and related services. The absence of any one nationals within their regional blocs. This was seen as one service can seriously inhibit the development of tourism and of the main changes that enabled Mozambique to grow its can damage the resource base of the sector. SADC has carried out several initiatives to expand tour- 6 East Africa has the lowest requirements for traditional visas in ism-related physical and social infrastructure and facilities. the world (33 percent) and wide usage of visas on arrival (62 percent). The initiatives include the Trans-Africa Coast2Coast Spatial 174 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.7: The European Union’s Regional Development Funds The European Union (EU) has found success in pro- between Belgium, France, the Netherlands, and the viding regional development funds for infrastructure United Kingdom through coastal infrastructure projects. development in cross-border transitional areas. Regional development funds are a flexible concept The resulting projects have increased cohesion and that allows subgroups of EU countries to join together improved access. The EU made more than €200 bil- on succinct projects within a broader shared theme, lion available in regional development funds between thus ensuring targeted coordination at the subregional 2007 and 2013, which have supported projects such level where partnerships can be forged more easily. as increasing the sustainability of coastal tourism Source: Jackson and Zang 2012. Development Project, the Maputo Development Corridor, legal frameworks in SSA are still either weak or entirely the Lubombo Spatial Development Project, and the Oka- lacking at the regional, national, and bilateral levels. The vango Upper Zambezi International Tourism Zone. However, required guidelines include land use planning, protected the implementation of these projects has lagged because areas management, consumptive and nonconsumptive use of lack of funds and national-level competing interests of wild flora and fauna, community involvement, resettlement (Ghimire 2001). Multi-country, cross-border products and of affected populations, wildlife reintroduction and restock- tourist routes remain underdeveloped in SSA, despite their ing issues, treaties, and memorandums of understanding substantial potential (Peters-Berries 2010). governing TFCAs (SADC 2012). Globally, regional initiatives in financing cross-border, tourism-related infrastructure have also had limited success. They have proven administratively and operationally difficult Quality: Improving the Value to implement because of regional differences in legal frame- and Diversity of the Touristic Offer works, strategic approaches, and allocation of responsibilities (Anastasiadou 2006). The EU has had several successes in Improving the quality of the visitor experience means meeting this field, for example, by providing grants based on policy or exceeding the diverse expectations of a region’s visitors. objectives to small groups of applicant countries (see box 7.7). This includes providing a suitable variety of products and International development organizations, such as facilities, at the right time at the right price, and effectively the Asian Development Bank, have undertaken similar presenting them to target users. Products and facilities approaches, providing development assistance financing to require quality standards, from architecture and construction subregional groupings and supporting physical infrastructure to operations and training. Skills certifications and dedicated upgrades as well as policy and technical assistance to ensure curricula can improve the quality and consistency of service the sustainable operation of touristic assets (see box 7.8). levels. An enabling business environment, harmonized taxes, TFCAs are important ecological and biodiversity zones and incentives can encourage the growth and diversification that straddle national borders and are managed by inter- of touristic offers within and across borders. governmental authorities. In the SADC region, TFCAs cover There are an estimated 390,000 hotel rooms in SSA, most more than 700,000 square kilometers. The establishment of which are unbranded owner-operated guesthouses and and operation of these valuable tourism products require lodges. The presence of international and regional chains is coordination of regional policy, regulatory and legal stat- growing (and thus standardized facility and service quality), utes, specific institutional frameworks, and management with 23 international hotel corporations operating in SSA. mechanisms. Establishment of these areas is important for The largest include Accor, Hilton, and InterContinental. There the protection of the region’s biodiversity, which remains are also nine regional SSA hotel brands, of which Laico, Pro- its main touristic asset. Furthermore, TFCAs are one field tea, Serena, and Sun International are the largest (Christie where most governments are willing to forge international et al. 2013). Despite being one of the most liberalized of partnerships on policies and regulations. TFCAs can thus service sectors in SSA (box 7.9), the investment climate for be effective building blocks for further regional integration tourism remains challenging. Studies show that the main initiatives. However, guidelines that inform TFCA policy and areas where countries in SSA fall short in their investment Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 175 Box 7.8: The Greater Mekong Subregion Sustainable Tourism Development Project The Asian Development Bank provided financing to Cambodia, the Lao People’s Democratic Republic, and Vietnam under the Mekong Tourism Development Project and the Sustainable Tourism Development Project from 2003 to 2014.a This financing included components focused on (i) tourism-related infrastruc- ture improvements; (ii) pro-poor, community-based tourism; and (iii) subregional cooperation for sustain- able tourism. The Sustainable Tourism Development Project operationalized 49 community-based tourism pro- grams, with 50 percent of the programs’ revenue directly benefitting the poor. The project also improved environmental conditions at key tourist sites, and enacted regulatory reforms to improve mobility (after ■■ The need to clearly define the roles of subregional reforms, 53 border crossings offered international tour- and national committees and management units, ist visas on arrival). There were difficulties in mobilizing including job descriptions, training programs, resources for regional promotion, and the pace at financial incentives for staff, detailed work plans which participating countries deployed resources and and budgets, and clear reporting mechanisms coordinated with national ministries varied. Neverthe- ■■ The necessity of allocating adequate resources for less, the projects are seen as a resounding success. monitoring and evaluation of performance and Key lessons on addressing infrastructure invest- impacts, to gain and retain support from com- ments and policy reforms at the regional level include munity leaders and partners the following: ■■ The need to undertake all implementation at the ■■ The importance of private sector involvement as national or bilateral level, while coordinating at early as the design stage the subregional level (with the exception of sub- ■■ The need to package sustainable tourism products regional marketing). and destinations into multi-country tour circuits Source: World Bank 2012. ■■ The importance of upstream policy analysis and a Between 2003 and 2011, the Asian Development Bank provided US$58.7 impact evaluations for policy dialogue on reducing million in loan and grant assistance for tourism in the Greater Mekong subregion. barriers to subregional travel climate compared with the markets in Asia and the Middle contributions. Elevated amounts of foreign direct investment East are risk management (political, economic, and security), (FDI) compared with local investment can reduce local link- the image of the region from an investment perspective, ages in the short and medium terms, thus minimizing the airline service, and government policy (Ernst & Young 2010). development impact of investments. Conversely, countries The lack of sufficiently long-term local financing for with limited FDI often have low-quality, homogeneous offers, tourism accommodations and related services is a binding rendering the destination uncompetitive. constraint to the growth of tourism in SSA. This has resulted In Nigeria, for example, hotel construction costs are in uncompetitively high room rates, financial leakages, and/ upward of US$400,000 per room for a mid-market hotel, or undiversified offers. The high cost of debt financing has compared with the global average of US$200,000 per room led to situations where more attractive, stable, and acces- for a full-service hotel. These costs vary greatly within the sible destinations are dominated by foreign private investors continent, with the average for Ghana being US$250,000 per with enough capital to meet the elevated required equity room, for example (Christie et al. 2013). Access to finance is 176 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.9: Liberalization of Tourism under the General Agreement on Trade in Services The General Agreement on Trade in Services (GATS), most other countries, it should be permissible for for- enacted in 1995, aims to reduce trade barriers for eign investors to establish tourism enterprises. Given international services. A total of 128 World Trade the sector’s high level of liberalization in Southern and Organization (WTO) member countries have made Eastern Africa, in most countries it would be difficult to tourism commitments, more than in any other ser- attract increased investment through simply lowering vice sector, which sets the stage for the creation of barriers to trade in tourism services (Kruger 2009). a more transparent and predictable legal framework Regardless, foreign investors are still obliged to for improving investment climates and attracting for- adhere to relevant domestic legislation and regulations eign investment to the tourism sector (Kruger 2009). in the sector, which can include the need to obtain a Despite the wide scope of tourism and its subsectors, license, register a company, and transfer property, as the WTO’s decades-old classification system is limited well as recognize qualifications, technical specifications, to four subsectors: (i) hotels and restaurants (including safety permits, and standards (Kruger 2009). National catering), (ii) travel agencies and tour operator services, investment regulations vary greatly between nations (iii) tourist guide services, and (iv) other. in the same bloc. For example, under the Tanzanian The global development and diversification of investment code, the minimum investment capital destinations through deregulation and improved required by a foreigner is US$300,000, whereas it is accessibility has increased the distribution of tourism, US$50,000 in Mozambique and US$500,000 in Kenya. mostly to low- and middle-income countries (WTO Similarly, Mauritius restricted foreign investment in 2015b).a In Sub-Saharan Africa, as well as globally, hotels with fewer than 100 rooms to 49 percent, and tourism is one of the most liberalized of the service requires a predominance of Mauritians to staff estab- sectors (WTO 2015b). In Southern and Eastern Africa, lishments. Tanzania decided to liberalize partially only all countries other than Madagascar and Mozambique four-star hotels and above and made no commitments have made at least some commitments under GATS, on national treatment. mostly in the subsector of hotels and restaurants. Sources: Kruger 2009; WTO 2015b. Mauritius, Tanzania, and Uganda, looking to catalyze a. In 1950, the top 15 destinations absorbed 98 percent of all international their domestic industry, maintain the most significant tourist arrivals; in 1970, the proportion fell to 75 percent, and continued to restrictions on market access for foreign suppliers. In fall to 57 percent in 2007. a major issue in all sectors in SSA. However, it is of particular Tourism firms of all sizes faced higher regulatory costs, concern to the hospitality industry, given the historically lower more burdensome tax compliance, and broad municipal rate of return on tourism sector investments. regulations. This is partly because of the many departments Many business enabling environments require regulatory and statutory bodies responsible for diverse aspects of the improvements first and foremost at the national level. For tourism sector’s regulation (Christie et al. 2013) and limited example, in 2007, investment in the Zambian tourism sector commitments to liberalize tourism services (table 7.3). was inhibited by the high costs and cumbersome processes Kenya’s early favorable conditions for FDI, coupled with of doing business. Up to 74 licenses were required to open a permissive national investment climate, have attracted and operate a tourism business; they could take between six various large international players, from tour operators to months and one year to obtain and cost as much as US$2,000 hotel chains such as Hilton, Intercontinental, Abercrombie for a five-room guesthouse. The Zambian government has and Kent, Pullmans, and Holiday Inn. According to the EAC’s since recognized this problem and is taking steps toward 2008 report on trade, FDI has played a major role in devel- improving its business environment (World Bank 2007). In oping Kenya’s tourism sector. However, the influx of FDI Namibia, more than 50 permits and certificates for lodging has also hindered the development of a local industry and operations were required in 2010 (HAN 2010). In South encouraged enclave forms of tourism, with limited linkages Africa, research across 2,000 businesses found that the to the local economy (UNECA SRO-EA 2011). costs of complying with regulations are up to three times At the regional level, economic partnership agreements higher for the tourism industry than for other businesses. (EPAs) for SADC and EAC with the EU are currently being Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 177 Table 7.3: GATS Tourism Commitments by SADC and EAC Countries SADC and EAC Travel agencies countries Hotels and restaurants and tour operators Travel guides Other Angola Extensive n.c. n.c. n.c. Botswana Partial Partial n.c. n.c. Burundi Extensive Extensive Extensive Extensive Congo, Dem. Rep. Extensive Extensive Extensive n.c. Kenya Extensive Extensive Extensive n.c. Lesotho Partial n.c. Extensive n.c. Madagascar n.c. n.c. n.c. n.c. Malawi Extensive Extensive Extensive Extensive Mozambique n.c. n.c. n.c. n.c. Mauritius Partial Partial Partial Partial Namibia Full Full n.c. n.c. Rwanda Extensive n.c. n.c. n.c. South Africa Partial Extensive Partial n.c. Swaziland Extensive n.c. n.c. n.c. Tanzania Partial n.c. n.c. n.c. Uganda Partial Partial n.c. n.c. Zambia Extensive Extensive Extensive Extensive Zimbabwe Extensive Partial Partial n.c. Source: WTO 2015b. Note: n.c. = no commitment. finalized, which include the regional liberalization of trade in against domestic service providers. There should be greater services. Experiences from the Caribbean region show that uniformity of tax policies within and between nations. The its EPAs have contributed modestly to growth in tourism, EAC was in negotiations to create a regional harmonized specifically enhancing the competitiveness of tour operators. tax regime by mid-2015, as part of the reforms required to The Caribbean market agreement is gradually expanding to achieve a common market (Kangethe 2014). include free movement of visitors and the tourism workforce as well (ITC 2009). Quality Standards Although politically difficult, there is a need to rational- ize domestic tax systems to prevent inefficient competition Tourism-related standards can include health and hygiene, with neighboring countries. In 2014, the corporate tax rate building codes, professional services, marketing and customer in Zambia was 35 percent, compared with 15 percent in service, and specific lodging quality standards and rating Botswana and 30 percent in South Africa, Tanzania, and systems. Mutual recognition of national standards—and Zimbabwe. Similarly, the value-added tax for Zambia was 17.5 eventually regionally harmonized standards—can increase percent, whereas in Botswana it was 10 percent. Tourism- quality and value for consumers. Harmonization can also specific taxes also differ; in 2014, Kenya had a 16 percent protect tourists from abusive practices, encourage the growth tax rate for tourism services, whereas Tanzania has recently of private-sector operators across borders, improve the skills exempted its tax on tourism services (Kangethe 2014). In and service delivery of the tourism workforce, and facilitate general, the tourism sector is excluded from tax incentives workforce mobility. However, very few national systems are provided to nontraditional goods exporters. However, certain recognized by other countries; the most commonly utilized providers, such as the regional hotel chain Sun International, regional standards are voluntarily adopted by multinational have been able to negotiate lower corporate tax rates in private sector operators. Regional cooperation in tourism Zambia, for example. Although these exceptions can help must be sufficiently advanced for regional standards to be grow regional tourism providers, the exceptions discriminate effective. 178 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.10: RETOSA Regional Tourism Quality Standards The Regional Tourism Organization of Southern Africa Phase 1: preparing a framework for the scheme, includ- (RETOSA) aims to establish regional quality standards. It ing identification of major issues and the resulting is working to harmonize the standards for registration, recommendations classification, accreditation, and grading of the tourism Phase 2: preparing individual standards service providers and facilities of its member states. Phase 3: integrating the various member-nation grad- More specifically, RETOSA focuses on standards for ing systems into one harmonized grading scheme transport, tourism training, and accommodations clas- sification. For example, the organization is preparing Phase 4: launch of the overall program (set for 2015). 1,850 standards for six categories of accommodations, The main concerns are that such stringent stan- including 60 responsible tourism and 40 universal- dards will not be within reach of most establishments accessibility standards. These rules reflect rigorous in the region, thus reducing compliance and relegating international-level standards and will be mandatory firms to the informal sector. upon their launch (RETOSA 2012a). The harmonized Sources: RETOSA 2012a; Statistics South Africa 2012. accommodations-grading scheme is being developed in four phases: Lodging quality is the area in which, globally and in SSA, visibility of smaller entrants; they may not have the facilities regional standards are the most advanced. Only 10 percent required to meet national standards, such as mini bars or of SSA’s 390,000 hotel rooms are estimated to meet interna- 24-hour reception, but can exceed expectations based on tional standards, with half of this stock being in South Africa service quality, for example. An alternative to accommoda- (Christie et al. 2013). Unbranded guesthouses and lodges tion grading standards would be the integration of minimum comprise the largest share of accommodation facilities in requirements into licensing regimes. the region. Wide disparities exist between country-based Sustainability and responsible travel standards are pro- classification and grading systems in content, requirements, liferating on a global scale7 and at the regional scale. For and compliance. Some standards are compulsory, some a regional example, Fair Trade Tourism (FTT) is a nonprofit voluntary, and others are in the process of being devel- organization that promotes responsible tourism in Southern oped. RETOSA and EAC are developing tourism provider Africa by certifying businesses that adhere to FTT standards. classification and grading systems, but neither system has These include fair wages and working conditions; equitable been actively adopted and implemented region-wide. For purchasing and operations; distribution of benefits; and example, Burundi does not have a national classification respect for human rights, culture, and the environment. system, and despite having adhered to the EAC regional FTT is one of the tourism certification programs developed standards, the country has yet to implement them. Box 7.10 specifically for Africa. outlines RETOSA’s quality standards program. There are global standards in a variety of fields. For Labor Mobility and Workforce Development example, the International Organization for Standardization has many tourism-specific standards, including for recre- Having an educated and skilled labor force is at the core ational diving, snorkeling, beach operation, yacht harbors, of tourism competitiveness (Zeng 2008). Low service industrial tourism, tourist information offices, spas, natural standards are a critical constraint to effective tourism protected areas, and adventure tourism. industry development in SSA. The region’s main workforce The regionalization/globalization push for quality stan- weaknesses are in business skills, understanding visitor dards is coming at a time when the Internet has enabled con- needs and expectations, customer service, and online sumers to do the opposite. Decentralized and democratized communications (Christie et al. 2013). In some countries quality-rating platforms, such as TripAdvisor, are reducing the relevance of formal certifications such as star-based rating 7 See, for example, organizations such as the Green Globe, Global systems. This crowdsourced quality process increases the Sustainable Tourism Criteria for Destinations, and Blue Flag. Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 179 Box 7.11: Labor Mobility in the Caribbean Region The Caribbean Community and Common Market travel within the region, facilitating at immigration (CARICOM), which is made up of 15 member states, points, and eliminating the need for work permits has one of the most successful examples of liberaliza- for CARICOM nationals tion in labor mobility. Recognizing that tourism plays a ■■ Other supporting measures, including the har- dominant role in the Caribbean economies, the region monization and transferability of social security has undertaken a comprehensive liberalization of benefits, mechanisms for certifying and establish- intra-CARICOM trade in services through its Protocol ing the equivalency of degrees and accrediting II of 1998 on “Establishment, Services, and Capital” institutions, completion of a skilled worker register, and its 1995 Skilled National Act. The 1998 protocol coordination of social policies, and development contains a provision “guaranteeing unconditional and promotion of a public education program on national treatment to all members of CARICOM for the policy of free movement. the free movement of services, labor and capital along A World Bank (2005) regional economic study noted with the obligation not to impose any new restrictions” that, despite the lack of comprehensive data, intrare- (World Bank 2008, 535). The key elements of the policy gional migration in the Caribbean was very significant, covering the free movement of CARICOM nationals resulting in more uniform wages and more efficient include the following: labor allocation within the region. This success has been ■■ Free movement of university graduates, other facilitated by the relative homogeneity of CARICOM professionals, and skilled persons and occupations, member states, a common system of university-level including workers in the tourism and entertain- education, and mutual recognition of degrees. ment industries Sources: World Bank 2005, 2008. ■■ Freedom of travel and exercise of a profession, including eliminating the need for passports for in SSA, the tourism sector is small and undeveloped, lead- Increased liberalization in labor mobility has been shown ing to local skills deficiencies, especially in professional, to support the development of tourism (among other sec- technical, administrative, and managerial positions. Many tors) by mitigating constraints such as skill mismatches, national tourism and education systems lack effective tour- high wages in some countries, and low productivity (World ism training plans or frameworks, resulting in inadequate Bank 2008) (see box 7.11). service levels, even in high-income destinations. This is It is difficult to implement such systems at the regional not only relegated to tourism-specific skill sets, but related level. First, relevant labor mobility and service sector regula- industries as well, such as marketing, architecture, design tions must exist to lay the groundwork for sector-specific and information and communications technology, which frameworks. Second, because of the large differences in are often not present at the levels of quality required as development levels and national capacities, it is often dif- inputs to create a competitive tourism sector. ficult to implement and enforce such programs if they are Several activities can be carried out at the regional adopted. International hotel chains can support labor mobility level to improve service levels. Regional service standards and workforce development at the regional level through can be developed, including the recognition of national in-house training programs and training exchanges with service standards at the bilateral and multilateral levels. brand hotels in more developed regions. For example, Sun Resolutions can be adopted on the transfer of tourism International Hotels has a training center for its staff in South skills that address training, mentoring, and professional Africa, providing comprehensive, continuous development education. Regions can invest in “centers of excellence” in opportunities; Accor Academy trains 135,000 students per tourism and hospitality education, and proactively facilitate year using video game modules. These approaches help the temporary movement of tourism workers such as transfer knowledge across borders and improve the quality management, event staff, guides, and transport providers. and consistency of service. 180 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Communicating the Value statistical framework for measuring the impact of tourism in an economy. Fully developed in 2008, the framework still Proposition and Impacts being rolled out in a majority of countries. African tourism of Tourism ministries understand the importance and use of this tool; however, the ministries have been slow on the update, often The tourism sector must communicate its brand and attri- because of issues of budget and underdeveloped systems butes to potential visitors, and its economic, social, and that form the basis of tourism satellite accounts. environmental impacts to policy makers and community The tourism sector is especially sensitive to crises. The members. This can be done through marketing, branding sector has a complex, fragmented structure that sells expe- and promotion, robust data collection and statistics frame- riential products, and exists in a highly competitive global works, and monitoring and evaluation. landscape. Furthermore, the deep linkages of its value chain Regional tourism marketing and promotion is the most means that crises affect front-line businesses, such as accom- commonly executed activity by regional blocs. Regions with modations, catering, tour operators, airlines, and activity similar products are promoted as single destinations, achiev- providers, as well as the related sectors of construction, ing economies of scale and increasing the region’s visibility. professional services, food and beverage, and retail, among The results often extend past simply bolstering tourism others. Such effects can be sizeable. The 1994 pneumonic demand, into improving the region’s image to investors and plague in India led to a 70 percent drop in arrivals despite promoting the exports of products not related to tourism. the fact that few tourists were directly in danger; tourism in Regional marketing initiatives need to build on shared the United Kingdom suffered losses of £6 billion because attributes of the region, dovetail to a representative theme of the 2001 foot-and-mouth disease panic, despite that it and brand, and highlight unique national sub-brands and only affected livestock (Henderson 2007). experiences. To build brand equity, campaigns must be Often, issues in a single destination can depress tourism multi-year and multimedia oriented. Cooperation with the flows to an entire region. This was seen in ASEAN tourism private sector is crucial in targeting the correct markets after the Bali bombings and the 2002 Severe Acute Respira- through effective channels and joint promotions at travel tory Syndrome outbreak in Southeast Asia. More recently, trade events. the Ebola outbreak in West Africa has had ramifications Harmonized tourism statistics within and between regions throughout Africa, with countries as far away as the South are important in setting and evaluating trade policies and Africa being affected by a drop in tourism. As such, supra- investments. Statistics on services trade are notoriously national organizations can provide an important platform inadequate because of the sector’s intangible nature. The to manage such challenges. However, few regional organi- fact that tourism is an amalgamation of economic sec- zations adequately plan for crisis management in tourism. tors comprising goods and services at the domestic and Such planning requires a holistic and strategic approach to international levels further complicates the isolation of its preventing, managing, responding to, and recovering from impacts (World Bank 2008). Consequently, the formulation crises. Flexible plans with contingency systems; a coordinative of tourism policies is hindered by a lack of data on the extent body and clear institutional mechanisms; rapidly accessible and scope of tourism’s economic contribution (World Bank resources; and a quick, consistent, coordinated, and tar- 2008). In the World Economic Forum’s Travel & Tourism geted communications campaign are important factors for Competitiveness Index, African destinations rank particularly successful crisis response and recovery (Henderson 2007). low in the areas of comprehensiveness of annual tourism data and timeliness of monthly/quarterly tourism data. These deficits impede the sector from being effectively planned Critical Success Factors and and managed (WEF 2013). Harmonizing regional tourism statistics and their systems Practical Strategies for Increased can help the tourism sector and policy makers assess the size, Effectiveness in Regional Tourism potential, and needs of the region’s current and prospective Cooperation travelers. Harmonized data can also help establish the best means of communicating and distributing the region’s tourism Cross-border tourism initiatives are more likely to succeed products to different visitor segments. Finally, these data can when the following preconditions are met: be used to identify product requirements and price levels that are appropriate to regional tourists’ needs. Tourism satellite The absence of major subregional economic disparities. As has accounts can bridge this gap. The accounts are a standard been illustrated in the Caribbean region, much success in Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 181 developing processes for the liberalization of subsectors agree on realistic levels of compliance. Adequate support and regional tourism initiatives comes from the relative and incentives for adopting, implementing, and enforcing homogeneity of the member states, including their similar regional regulations and standards should be provided. historical background, language, laws and traditions, eco- Create inclusive regional tourism development plans tied to fea- nomic make-up, and size (World Bank 2008; Teye 2000). sible, timely investments. The consultative process of making Compatible institutional frameworks and similar stages of tour- such plans is as important as their content, as it provides ism development. National policy, regulatory systems, and an opportunity to involve regional policy makers and cre- institutional systems for tourism must be similarly developed ate consensus on the road forward. Plans should reflect to undertake the most relevant regional initiatives. economically and politically realistic recommendations and Sustained political stability and commitment. Countries must match national tourism development objectives. prioritize tourism enough to contribute financial resources Enlist or create an independent entity as a coordination and regularly to multi-year regional efforts, and implement and implementation unit, with dedicated funding; a clear, account- enforce initiatives ratified by regional blocs. In general, the able mandate; and high-level oversight. RETOSA and EATWCA greater the impact that tourism has on a nation’s and region’s are charged with implementing the tourism development economy, the greater will be the political commitment toward objectives for SADC and EAC, respectively. However, both its development (Chheang 2013). An enduring challenge is agencies remain weak and largely ineffective, and lack the that tourism is often not prioritized as much as it should be. political authority to carry out their mandates. It is important This reflects the difficulty in measuring the impact of tourism, to develop implementing agencies, such as cross-border its multi-sector nature, and, in some cases, the perception destination management organizations at the subregional that its benefits are captured by foreigners or elites. or thematic route levels as well. Equitable relationships. Member countries with less-developed Ensure that regional tourism initiatives make business sense. tourism sectors have the most to gain from regional integra- Tourists plan their travel itineraries according to attractions, tion initiatives. Conversely, more developed players have time, and value, not by the borders of regional blocs. As fewer incentives to undertake regional initiatives; yet, these such. groupings of regional players and subsequent initia- larger players have an outsized influence in making regional tives need to take into account tourists’ needs and travel tourism activities a success. The successes of SADC and patterns. By clearly addressing the needs and wants of the RETOSA are greatly dependent on South Africa, the region’s target market(s), policies, regulations, and approaches can economic and tourism powerhouse. The EAC meanwhile achieve maximum impact. For example, South Africa Tourism has a more equitable distribution of power, given its smaller (the national agency responsible for marketing South Africa membership base and the members’ similar tourism assets. as a destination) conducted substantial market research on More influential nations must see that it is in their best its regional tourism segments. The agency discovered that interests to develop regional tourism economies. its most critical market segment was land arrivals, which follow “purpose” travel of shopping or business rather The success factors and lessons learned from regional than leisure travel. The agency identified subsegments of tourism initiatives include the following: “well-to do leisure,” “shoppers,” and “young up-and-coming travelers,” among others, and targeted its initiatives based Create binding tourism protocols in regional charters that are on their needs (Rogerson 2007). based on the sector’s potential for economic growth, job creation, Base regional initiatives on intraregional products, circuits, conservation, and regional integration. Depending on the pri- thematic routes, popular tour routes, or shared assets (such orities, protocols could be developed to address (i) access as TFCAs). Regional initiatives that are based on a specific (visas, access infrastructure, aviation); (ii) product quality product, route, circuit, or theme can help motivate mem- (service and quality standards, enabling environment, nature ber countries to achieve concrete goals and align physical and wildlife conservation, codes of conduct); and (iii) com- investments in infrastructure with policy and regulatory munication (marketing and promotion, crisis management, reforms. For example, the Central Asian Silk Road tourism statistics and research). Regional regulations and standards initiative began in 1993 with assistance from the UNWTO. should be tailored to mirror local contexts, and to be within It has focused on joint promotion, facilitating travel, plan- reach of nations with the lowest capacities. Often, stringent ning coordination, and capacity building along routes in international standards are adopted from high-income 19 countries based on the ancient Silk Road trade route. nations that are not feasible for implementation in low- and Regional marketing and promotion programs are also middle-income, low-capacity countries. It is important to 182 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa more effective when promoting themes or circuits, such as Cup, the Olympics, expositions, revolving cultural capitals, European Cultural Routes, which create guides, media, and and high-level meetings can catalyze the passing of reforms. campaigns for multi-country routes, such as the pilgrimage This needs to be followed by frequent high-level advocacy of Santiago de Compostela. in member states through detailed monitoring and evalu- Start small, in the number of member countries involved ation of activities, to carry over the momentum and results in regional initiatives and the scope and scale of regional following the completion of an event. tourism projects. Depending on the intervention, groups Define clear roles and responsibilities for collaborators at of similar countries should be clustered to the smallest different levels. Initiatives for regional cooperation in tourism common denominator within regional blocs. One example can be started on the bilateral or multilateral level, by regional of this is the Greater Mekong subregion’s Mekong Tourism blocs or partnerships between countries, depending on the product, comprising a subset of six ASEAN member countries. context and type of initiative. In SSA, regional blocs such as Pilots should be undertaken within a demonstration group EAC and SADC are likely to lead the way in setting up shared of countries that are economically and politically ready to frameworks and objectives and increasing integration at the implement measures, and that are relatively homogeneous multi-sector level. For these frameworks to produce tangible in policy and regulatory systems and tourism development change, however, the focus is on the countries, which need stages. Initiatives should begin by accomplishing high-visibility, to operationalize and enforce regional policies. Development tangible “quick wins,” such as rebranding and promotion, partners can be instrumental in supporting initiatives at the simultaneously with ambitious initiatives, such as regional regional bloc and national levels. This support can include visas or airline deregulation. funding for demonstration projects, or technical assistance on designing programs and policies. East Africa’s experience Create momentum for initiatives by aligning them with with its Tourism Platform (box 7.12) could provide a useful important public regional events and providing realistic time model for such regional cooperation initiatives. frames. The visibility of high-profile events such as the World Box 7.12: East Africa Tourism Platform (EATP) The East Africa Tourism Platform (EATP), the private board or department; police and counter-terrorism sector body for tourism in East Africa, has recently or security agencies; airlines; hotel associations; tour shown leadership in attempting to champion and operators’ associations; travel agents’ associations, facilitate a collective, coordinated and simultaneous and other travel and tourism representatives. approach to enhancing the region’s competitiveness This all-inclusive representation will ensure that the in travel and tourism. In a pilot program launched perspectives and priorities of all parties are effectively in November 2014, EATP uses aspects of the World incorporated in decision making, policy revision and Economic Forum Travel and Tourism Competitiveness development, implementation, and monitoring of prog- Index as a comprehensive strategic tool, and employs ress, which is key to enhancing tourism competitive- a collaborative and participatory approach that will ness. The platform enables stronger multi-stakeholder enhance each partner state’s tourism competitiveness dialogue forums at the level of each partner state to while mainstreaming regional integration. mainstream regional integration into their national The pilot program places greater emphasis on tourism development strategies and implementa- building strong multi-stakeholder dialogue forums tion plans. Thus, it is envisaged that this framework at the national level, referred to as National Tourism will further inform and feed into the regional agenda Roundtables (NTRs). NTRs in each partner state will of the EAC Sectoral Council on Tourism and Wildlife consist of government and industry stakeholders, Management, and bilateral and trilateral agreements such as the ministries in charge of tourism, wildlife, and initiatives, and enhance the region’s competitive- transport, health, the East Africa Community (EAC), ness in tourism. internal security, immigration, and the national tourism Chapter 7 Trade in Tourism Services and Regional Integration in Southern and Eastern Africa 183 The strong multi-stakeholder dialogue forums (NTRs) to hinder progress. There is a need to lobby for the address the following challenges: approval and ratification of the EAC Protocol on Tour- ism and Wildlife Management and its implementation, I. Policy Reforms and Regulation as well as the establishment of transboundary law EAC’s tourism sector cannot grow and flourish without enforcement. appropriate monetary, fiscal, and trade policies and C. Visa and Immigration Facilitation Policy Reforms regulations, which are central to improve the competi- Visa and immigration policies are among the most tiveness of tourism. The NTRs will focus on: important government policies influencing international A. Tourism Policies and Regulation tourism. A great deal of progress has been made in With the exception of Burundi, all EAC partner states travel facilitation in the EAC that has contributed to the have reviewed their tourism laws (Uganda and Tanzania remarkable growth of the tourism sector, for example, in 2008, Rwanda in 2009, and Kenya in 2011). NTRs the visa-on-arrival policies and waiver of visa fees in are expected to drive policy reforms that will ensure Rwanda for most African countries. However, despite that the laws are aligned with the objectives of the the progress made, which includes the introduction EAC Treaty, the Common Market Protocol, the draft of the Single Tourist Visa, current visa policies are still EAC Protocol on Tourism and Wildlife Management, regularly mentioned as inadequate and inefficient, and the competitiveness index. and are thus acknowledged to be an obstacle to tourism and economic growth. The direct monetary B. Wildlife Conservation and Natural Resources cost imposed in the form of fees or the indirect costs, Management Policies and Regulation which include distance, time spent waiting in lines, and East Africa is currently dealing with an unprecedented the complexity of the process, deters many travelers increase in poaching and illegal trade in wildlife from visiting the EAC. There is a need to lobby for the products that is threatening to overturn decades of full adoption and implementation of the EAC Single conservation gains on which the tourism sector is Tourist Visa, which is currently being pursued by the heavily dependent. In early 2013, the Convention on EAC Secretariat and additional visa categories, such as International Trade in Endangered Species of Wild the EAC foreign resident visa, as well as policy reforms Fauna and Flora named the worst offending countries, that support the development and implementation of which are referred to as the “gang of eight,” in the illegal eVisa programs at the EAC and national levels. trade in wildlife products. The “gang of eight” includes the supply states of Kenya, Tanzania, and Uganda, and D. Air Transport Policies and Regulation the consumer states of China and Thailand. The group A destination’s competitiveness is also measured by its also includes Malaysia, the Philippines, and Vietnam, air transport infrastructure, which provides for ease of which are important transit countries for illegal trade access to and from countries, as well as movement to in wildlife products. These countries were asked to destinations within countries. Although most of East submit specific action plans by July 2014 on how they Africa’s international and local airports are undergoing intended to tackle the problem of poaching and the major infrastructure upgrades, a lot more needs to be illegal trade of wildlife products or face heavy trade done in the liberalization of the rules and regulations sanctions. in the EAC’s aviation industry to create a free market The challenges in most EAC partner states consist environment and reduce the costs of air travel. Air mainly of outdated policies, low penalties that fuel travel within the region accounts for an estimated 45 impunity and attract criminal cartels, poor enforce- percent of the total cost of a tour package, because ment, and limited resources to curb vice, among other of high taxes and charges caused by a restricted avia- issues. At the regional level, the delayed approval tion policy, among other reasons. These policies limit and ratification of the EAC Protocol on Tourism and routes and frequencies and therefore the supply of Wildlife Conservation and the lethargy in establishing available seats. transboundary law enforcement activities continue (continued) 184 From Hair Stylists and Teachers to Accountants and Doctors: The Unexplored Potential of Trade In Services in Africa Box 7.12: Continued II. Price Competitiveness: Taxes, Levies, and Charges III. Tourism Services Export Capabilities Price is an essential component in the overall tour- The concept of intraregional and interregional tourism ism competitiveness of a destination and there is is still fairly new, and the existing concept has evolved widely accepted evidence that prices are one of the without any deliberate strategy. Until early 2015, the most important factors in decisions about whether, tourism boards in the EAC had limited engagement and where, to undertake trips. The leisure tourism with the private sector in the region, as they had no segment, which accounts for up to 60 percent of all intraregional tourism strategy. It is estimated that less tourism arrivals in the region, is very sensitive to any than 10 percent of the private sector in the region is price increases, which can in turn affect tourism arriv- promoting multi-country packages. Preparing the EAC als and receipts. It is estimated that the average cost tourism supply chain stakeholders for intraregional of a five-day tour in one East African country ranges and interregional tourism and presenting the regional between $2,500 and $8,000 per person, depending strategy as a business proposition are keys for growing on the choice of accommodation facilities, mode and supply and demand. Tourism supply chain stakehold- class of travel to and in the country, and the tourism ers need skills and knowledge of the different EAC activity. Any increases in taxes, levies, and charges destinations and extensive information and training on would therefore have a large impact on the destina- the different market segments so as to enhance their tion’s price competitiveness and arrivals, which would tourism services export capabilities. Further, broaden- in turn affect the entire tourism value and supply ing and deepening business linkages to regional and chains. There is a need to study each partner states’ international markets will secure improved opportu- and by extension the region’s price competitiveness nities for EAC’s tourism sector. As tourism services in taxes, levies, and charges, so as to inform regional revolve around relationships between inbound and and national policy reforms, and to lobby continuously outbound tour operators, effective facilitation of to mitigate any negative impact on the sector. business-to-business linkages is needed to expand intraregional and interregional tourism. 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Henna Hands by Sylvia Gichia Untitled by Rosemary Ahone