DR RAYMOND NGCOBO RAYMOND NGCOBO STRATEGIC COMPETITIVENESS UNIT the dti SERVICE SECTOR OPPORTUNITIES FOR SMME’S

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 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 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 information- related services such as R&D, modern communications, and business services.

DR RAYMOND NGCOBO SERVICE SECTOR CONTRIBUTION TO SA ECONOMY Agriculture (9% empl, 4% GDP) Mining (5% empl, 5% GDP) Manufacturing (14% empl, 18% GDP) Energy Transport Telecomms Education Health Social Services Tourism ·Finance ·Business Services ·Construction ·Environmental ·Wholesale & retail Personal services Backbone Infrastructure Mainly Public Provision Mainly Private Provision L L E E V V E E Ownership & Regulation Provision & Procurement Incentives, Regulation Investment, Marketing, HRD, GDP 2003 Other 26% Services 74% Employment 2003 Services 72% Other 28% 18% R R S S enabling environment 39%43% 8%47%45% G D P E M P L

DR RAYMOND NGCOBO

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 IndustryDescription Export Potential Royalties and license feesConsists of franchises & similar rights, and other royalties and fees e.g. Nando’s, Shoprite Low Logistics and TransportHub for value added services e.g. Singapore Low EducationEducation and training services e.g. University spare capacity Excellent HealthHealthcare services e.g. excess demand in developed countries Excellent ProfessionalProfessional Scientific, Technical & Business Management Consulting services Good MediaMedia & Audio-visual exports, music, film, television Good Printing and PublishingExporting printed goods and publishing, e.g. UK opportunities Good BPOExcess demand for business process outsourcing Excellent

DR RAYMOND NGCOBO 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 long- term research needs Government support e.g. through tax credits or grants schemes to encourage private expenditure in R&D.

DR RAYMOND NGCOBO THANK YOU