Session III - Unleashing Africa’s Services Sector

Photo - From L to R: Ebenezer Twam Asante, MTN Group, Dr. Witney Schniedman, Covington and Burling LLP, Albert Zeufack, World Bank, Daniel Ngwepe, VISA, Addis Alemayehou, +251 Communications

 

On February 12, the Corporate Council for Africa (CCA) and the US Mission to the African Union co-hosted the U.S. – Africa Trade and Investment Forum in Addis Ababa. More than 300 people attended from more than 30 countries, including senior government representatives from the United States, the AU, Egypt, Madagascar, Rwanda, Mauritius, Sudan, Ethiopia, Niger, South Africa and Benin. Senior executives from more than 50 U.S. and African companies also attended.

 

Witney Schniedman kicked off the panel by noting that a World Bank economic study recently noted that 60% of Africa’s economy is already in the services sector, and asked the panel to put that in broader context. Nigeria, South Africa and Angola account for 60% of Africa’s GDP – and they are all growing at less than 3%. Meanwhile, 11 countries (including Ethiopia, Rwanda, Tanzania, Ivory Coast, Ghana and Senegal) are growing at more than 5%. Services have grown 6.6% over the last decade in Africa, while manufacturing has only grown 1.1% over that time. The panel argued that any industrial strategy that does not include the services sector is meant to fail. In most countries, services already account for more than 50% of the economy – although this can be misleading. Often in Africa, services are informal and have low productivity, which is a serious challenge for countries looking to create jobs and boost growth.  

 

It is critical for countries to focus on how to boost productivity in key service sectors to make the rest of the economy competitive, including in finance, law, infrastructure and telecom, which all provide mechanisms to disseminate innovations. The panel also agreed it was important to align African countries to the new global trade patterns and integrate companies into regional value chains. Services must integrate better across the continent to become more effective. While they only account for roughly 20% of gross exports today, they account for more than 40% of the total value of exports. Digitization has changed the pattern of global trade, and offers Africa an opportunity to leapfrog  more developed regions.

 

U.S. companies noted the significant room for growth for the sector in Africa. It was noted that one card provider sees the same number of transactions in Sweden as in all of Africa. While access to mobile phones is nearly universal, with roughly one billion devices serving 1.2 billion people in Africa, only 40% of those with a phone have access to services. In looking at why people lack access to services, there are several explanations, including a lack of infrastructure, excessive regulation on the financial sector and protectionism, including data protection. To foster innovation, African countries must embrace a consumer focus. Localization and protection for markets does not help develop youth or women. Africa largely missed the development of the landline; it should not miss the mobile phone boom. African companies said that the services sector offered the lowest hanging fruit to create jobs in Africa, mainly because there was such a low barrier to entry for most segments. While infrastructure and manufacturing are much favored by governments, both will take years to develop. Services also tend to foster integration. The panel agreed that we should not underestimate the degree of progress over the last 15 years, and expected there would be an even bigger dividend from the African Continental Free Trade Agreement. However to get the whole benefit, it will be important to develop consistent policies and the right regulatory environment across the continent, combined with effective enforcement. Companies also have to advice governments on how to adapt services to better serve their populations.

 

In the discussion, the panel called for Africa to set a digital moonshot to invest in infrastructure to boost internet penetration rates, scale up digital network, increase mobile access for sectors like agriculture, create effective digital platforms to support more efficient services, and improve the environment for the digital economy to prosper. The goal should be for all firms in Africa to be connected by 2030. This prompted an interesting discussion about access to data. Cross border data flows are a big problem now, blocking commercial development. For Africa to make headway, it must expand internet access and the number of mobile devices. One panel member suggested that Africa may need to rethink its industrialization model, as it’s not possible to just have a manufacturing economy. African countries must think about manufacturing and services in tandem as Africa needs to be much more competitive in services.