Regulation of the service sector in South Africa can act as a break on economic growth. The WTO can perhaps act as a catalyst for faster liberalisation of service sectors but there can be no substitute for domestically-driven reform. Faster reform could have positive knock-on effects for the rest of the economy but research is needed to inform this process. Most service exports in Southern Africa are likely to be regional and it may therefore be more appropriate for these countries to focus their energies on regional rather than international arrangements. A Trade and Industrial Policy Secretariat paper argues for research into these issues in the context of WTO intervention.

Southern countries need to seek more effective policies for encouraging growth. What can the service sector do to promote economic efficiency? The service sector is now immensely important in the South African economy: as a source of employment, providing inputs into manufacturing industry, and exports. If, however, services remain inadequate and inefficient, wider economic impacts of trade liberalisation may be limited.

For the WTO to have any credibility within developing countries, it needs to first understand the importance of service sector reform by:

• encouraging relevant research, such as independent country studies
• getting trade departments to develop links with sectoral ministries so as to monitor the impact of reform from an economy-wide rather than sector-specific point of view

In South Africa, a similar kind of research process was carried out by:

• producing overview studies to develop understanding among policymakers of the contribution of service sectors to the economy
• examining the economic impact of services liberalisation
• researching how to overcome co-ordination failures within government
• identifying those sectors whose liberalisation would contribute most to the economy and might overcome reform inertia (mechanisms for identifying these sectors have yet to be developed

A review of regulatory structures and reform in the South African financial, telecommunications, and transport sectors indicates the following areas require further research:

• transactions costs: marketing and transport costs remain high, with knock-on effects throughout the economy
• welfare losses: prices in service sectors such as the telecom industry remain above international prices, resulting in substantial welfare losses
• limited multiplier effects: reduced prices in service sectors may have strong multiplier effects in other parts of the economy, such as in transport, where lower costs would improve export competitiveness
• distortions in capital allocation: lack of competitiveness in the financial services sector severely constrains the development of small firms

With the WTO as the catalyst, research into these areas may provide the impetus for service sector reform. Critically, however, this process needs to be driven domestically and regionally given that the main market for service exports is within Southern Africa.

Source(s):
'South Africa and Services Trade in the WTO: Implications for Southern Africa', paper presented at the Global Development Network Conference, Bridging Knowledge and Policy, Bonn by Rashad Cassim (December 1999)

Funded by: Trade and Industrial Policy Secretariat, South Africa

id21 Research Highlight: 5 December 2000

Further Information:
Rashad Cassim
Trade and Industrial Policy Secretariat
PO Box 477
Witwatersrand 2050
Johannesburg
South Africa

Tel: +27 11 339 1911 / +27 11 403 3952
Fax: +27 11 339 5050
Contact the contributor: Rashad@tips.org.za

Trade and Industrial Policy Secretariat, South Africa