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SERVICE SECTOR OPPORTUNITIES FOR
SMME’S
RAYMOND NGCOBO
STRATEGIC COMPETITIVENESS UNIT
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DR RAYMOND NGCOBO
CONTENT
• INTRODUCTION
• DEFINITION OF SERVICES INDUSTRIES
• COMPARATIVE ANALYSIS OF SERVICE
CONTRIBUTION IN GLOBAL ECONOMIES
• SERVICE SECTOR CONTRIBUTION TO SA
ECONOMY
• KEY POLICY CHALLENGES IN THE SERVICE
SECTOR
• KEY STRATEGIC INTERVENTIONS
DR RAYMOND NGCOBO
INTRODUCTION
• The new industrial revolution and globalization of
production systems have put services at the center of all
economic activity, and have made innovation and
efficiency in the production of services crucial to
economic growth.
• Services are the fastest growing sector of the global
economy with trade and investment growing faster in
services than in goods.
• The strategic objective of this framework is to
strengthen economic growth and improve the
foundations for the future performance of the South
African economy, through improving the services sector
performance.
DR RAYMOND NGCOBO
DEFINITION OF SERVICES
INDUSTRIES
• The services sector is construed to comprise all
enterprises, agencies, organisations, and employers
whose final output is not a material good but rather an
intangible product (in both formal and infromal
economies.
• According to the UN simplistic (SIC) definition “service
industries are the group of industries that produce
outputs that have many of the characteristics of goods,
i.e. those concerned with the provision, storage,
communication and dissemination of information, advice
and entertainment in the broadest sense of those terms
DR RAYMOND NGCOBO
COMPARATIVE ANALYSIS OF
SERVICES CONTRIBUTION IN
GLOBAL ECONOMIES
• According to the world bank report, between 1990 and
2000 the growth of world services output was 2.9%
double that of agriculture which was only 1.4%.
Consequently, the contribution of service to world GDP
was 64% in 2000 compared to 57% in 1990
• According to the WTO statistics, between 1990 and
2000, the growth of exports of commercial services for
developing countries (9%) exceeded that for developed
countries (5.5%).
• It has been established that in virtually every country the
performance of services sectors can represent the
difference between sluggish growth and rapid growth.
DR RAYMOND NGCOBO
• In the US the service sector contribute 82% to the GDP.
In 2001 the service sector accounted 81% of private
sector output and 84% of private nonfarm employment (a
record of 95 million jobs in 2001).
• The US is not only the world’s largest single service
exporter, but the world’s largest services importer as
well: these imports benefit the economy both in terms of
wider consumer choices and in terms of US firms having
access to the widest array of business and indsutrial
services available.
• In the Asian developing countries such as Korea,
Singapore, Taipei, and China the share of service sector
in real GDP increased continuously between 1980 and
2000 period, accounting for nearly 50-70% of GDP.
DR RAYMOND NGCOBO
• In the Southeast Asian economies of Indonesia,
Malaysia, Philippines and Thailand, services comprised
40-53 percent of real GDP.
• With the exception of the 1997/1998 Asian financial
crisis period, the annual growth of services in
developing Asia has been positive over the last decade
and averaged almost 7% during 1990 and 2001.
• Analysis of figures and facts from the US has shown
that services is the dominant contributor to the GDP in
the developed world, and contribute the larger portion
not only to GDP, but to other key economic indicators as
well.
• Research has shown that the fastest-growing part of the
service sector consists of knowledge-and informationrelated services such as R&D, modern communications,
and business services.
DR RAYMOND NGCOBO
SERVICE SECTOR CONTRIBUTION TO SA ECONOMY
Backbone
Infrastructure
Energy
Transport
Telecomms
Agriculture (9% empl, 4% GDP)
Mining (5% empl, 5% GDP)
Manufacturing (14% empl, 18% GDP)
GDP 2003
Employment 2003
Other
26%
L
E
V
E
R
S
Other
28%
Services
74%
DR
Services
RAYMOND
72%
NGCOBO
Ownership &
Regulation
18%
8%
Mainly Public
Provision
Education
Health
Social
Services
Provision &
Procurement
39%
47%
Mainly Private
Provision
Tourism
·Finance
·Business Services
·Construction
·Environmental
·Wholesale & retail
Personal services
Incentives, Regulation
Investment, Marketing,
HRD ,
enabling environment
43%
45%
G
D
P
E
M
P
L
Output - 2004
Wholesale &
retail
16%
P
R
I
V
A
T
E
Employment - 2004
Transport &
communication
14%
Electricity
4%
Construction
4%
B
A
C
K
B
O
N
E
Health &
Education
22%
Financial &
bus
23%
P
U
B
L
I
C
General Gvt
17%
Wholesale &
retail
12%
P
R
I
V
A
T
E
B
A
C
K
B
O
N
E
Transport &
communication
4%
Electricity
4%
Construction
6%
Health &
Education
27%
P
U
B
L
I
C
Financial & bus
27%
General Gvt
20%
AVERAGE ANNUAL GROWTH: 1999 - 2003
Output
Employment
3.35
Wholesale & retail
Whole sa le & re tail
3.79
Construction
6.94
0
1
2
-2 .53
E le ctricity
Transport & communication
-1
0 .63
He alth & Educ ation
1.53
Electricity
-0.5 1
G e ne ral G v t
0.67
Health & Education
2 .6 2
Financ ia l & bus
-0.15
General Gvt
-3 .9 3
C ons truction
3.96
Financial & bus
1 .01
3
4
5
% Growth
DR RAYMOND
NGCOBO
6
7
-1 .47
Tra nsport & communic ation
-4
-3
-2
-1
0
% G rowt h
1
2
3
KEY POLICY ISSUES IN THE
SERVICE SECTOR
• Open domestic services markets to create new job
opportunities and foster innovation and productivity.
- Further regulatory reform of services markets will
create fresh opportunities for firms to develop new
`
services, meet emerging global demands and
increase employment.
- Further steps are needed in reducing public
ownership in competitive industries such as air
transport, in addressing anti-competitive practices
in professional services, and in reducing barriers
to entrepreneurship.
DR RAYMOND NGCOBO
• Take unilateral and multilateral steps to open
international markets and investment in services.
- The HSRC report shows that the benefits of
international trade and investment in services `
are highly significant for South Africa.
• Reform labour markets to enable employment creation
and adjustment to a growing services economy.
- Effective labour market policies are essential to
help the South African economy adjust to
globalisation, structural change and the shift to
services. To strengthen employment creation in
services, the problem of high labour cost should
be addressed.
DR RAYMOND NGCOBO
• Adapt innovation policies to the growing importance of
services innovation
- Innovation policies remain ill adapted to the
growing importance of innovation in services, and
to the new potential for product and process
innovation that is due to ICT. Policy makers
should how existing pubic R&D can better
address the needs of service sector.
• Remove impediments that prevent services firms from
seizing the benefits of ICT.
- To seize the benefits of ICT for services,
government should continue to encourage
effective competition in ICT infrastructure,
network services and application, notably for v
broadband.
DR RAYMOND NGCOBO
• Provide a fiscal environment, which is conducive to the
growth of services
DR RAYMOND NGCOBO
OPPORTUNITIES IN THE SERVICE
SECTOR
Service Industry
Description
Export
Potential
Royalties and license fees
Consists of franchises & similar rights, and other royalties
and fees e.g. Nando’s, Shoprite
Logistics and Transport
Hub for value added services e.g. Singapore
Education
Education and training services e.g. University spare
capacity
Excellent
Health
Healthcare services e.g. excess demand in developed
countries
Excellent
Professional
Professional Scientific, Technical & Business Management
Consulting services
Media
Media & Audio-visual exports, music, film, television
Printing and Publishing
Exporting printed goods and publishing, e.g. UK
opportunities
BPO
DR RAYMOND NGCOBO Excess demand for business process outsourcing
Low
Low
Good
Good
Good
Excellent
KEY STRATEGIC INTERVENTIONS
• TRADE IN SERVICES
• REGULATORY REFORMS IN SERVICE SECTOR
• THE DEVELOPMENT OF THE SERVICE SECTOR
R&D STRATEGY
DR RAYMOND NGCOBO
TRADE IN SERVICES
• Services remain the fastest growing component of world
trade over the last 15 years. The service sector account
for more than a quarter of all cross-border trade.
• Services account for 20% of global trade and two-thirds
of Foreign Direct Investment flow.
• In 2000 more than half of developing countries inward
FDI stock was in services
• It should be noted that 25% of global trade in services
accounted for by developing countries is concentrated
in a handful of Asian countries.
DR RAYMOND NGCOBO
PREORITIES WITHIN TRADE IN SERVICES
•
•
•
•
Prioritize international trade in services
Improve the way we capture services trade statistics
Build capacity for trade analysis and negotiations
Regulatory reforms will enhance global
competitiveness
• Reduce restrictions on FDI
• Remove barriers to movement of service providers
• Develop SACU and SADC Services Trade Agenda
DR RAYMOND NGCOBO
REGULATORY REFORMS IN
SERVICE SECTOR
• The restructuring of the regulatory system to focus
on transparent and objective performance criteria.
• The removal of high levels of product market
regulation which stifle growth and innovation.
• The re-evaluation of the role of public ownership, in
inherently competitive industries such as in transport
services.
• Telecoms cost
DR RAYMOND NGCOBO
THE DEVELOPMENT OF R&D
STRATEGY
• The financing of innovation remains an important barrier
for services firm perhaps more so than for
manufacturing.
• Well-developed and regulated financial markets are
crucial to improve access to private finance
• public spending in R&D, in both public laboratories and
universities, does not typically address the long-term
knowledge requirements for services (the private firms
will play a crucial role in the development of such longterm research needs
• Government support e.g. through tax credits or grants
schemes to encourage private expenditure in R&D.
DR RAYMOND NGCOBO
THANK YOU
DR RAYMOND NGCOBO