1. Essentials for Building a Competitive Services Sector Ramesh Chaitoo rnmsts@yahoo.ca Essentials for Building a Competitive Services Sector Ramesh Chaitoo rnmsts@yahoo.ca Trade Policy & Negotiations Workshop for St Vincent & Grenadines, October 4-8, 2010

2. List of Essential Ingredients To develop a competitive services sector in a small economy it is critical to have: 1.Clear policy framework for services 2. Access to affordable finance in local economy 3. Investment in people - skilled workforce & standards 4. Strategic partnerships to fit into global value chains 5. Efficient telecoms infrastructure 6. Performance driven incentives for firms 7. Public-Private sector partnerships

3.  Vision is key to setting goals and developing particular services industries. Develop regulatory regimes.  Most Caricom states are service economies, but none have formal Services Policy Framework. In SVG tourism, offshore finance, ICT and entertainment flaggged; but only first two have legally based, predictable and transparent incentives.  Need to promote and develop service sectors that can become export-oriented.  Decide where you want to fit in the value chain of any sector and exploit linkages between sectors (clusters).  T&T has oil industry since 1906 & steel since 1970’s; but Singapore is world leader in jack-up oil rigs or mobile drilling units (in JV with US firms).  Vision is key to setting goals and developing particular services industries. Develop regulatory regimes.  Most Caricom states are service economies, but none have formal Services Policy Framework. In SVG tourism, offshore finance, ICT and entertainment flaggged; but only first two have legally based, predictable and transparent incentives.  Need to promote and develop service sectors that can become export-oriented.  Decide where you want to fit in the value chain of any sector and exploit linkages between sectors (clusters).  T&T has oil industry since 1906 & steel since 1970’s; but Singapore is world leader in jack-up oil rigs or mobile drilling units (in JV with US firms). 1. Policy framework for services

4. 2. Access to affordable finance  Services firms mainly SMEs - very difficult to get debt financing from banks or raise capital.  Assets of services firms are ideas not physical collateral - need innovative approaches to financing.  India, Malaysia, Singapore’s Exim Banks have special window for services providers Export Services Facilities Working capital finance Will finance services providers based on contracts Export Overseas Guarantee Facility Through Commercial Banks

5. 3. Investment in People & Standards  People most critical factor in successful services activity.  Need to invest in training & constant skills upgrading. STCIC surveys reveal that in T&T unavailability of technical staff affects growth and competitiveness  Critical shortage of higher skills in Energy sector in recent years - inadequate training facilities.  Education system must be in synch with needs of industry.  Quality service standards are also key to competitiveness in global economy.

6. 4. Partnerships to fit into global value chains Small economies must trade to create wealth. Services activities now being disaggregated around the globe and may involve various countries.  Have to decide where to link into global value chains - ICT, finance, audio-visual, design, energy, etc.  Trade agreements help but business must seek & foster commercial linkages.  Create strategic linkages with international firms to supply overseas markets based on use of local skills. Local content alone is not enough.

7. 5. Efficient ICT Information & Communications Technology critical to competitiveness of SMEs: 1.ICTs increase labour productivity & efficiency - incentivize don’t tax them 2.Need world class telecoms networks - cost & quality 3.E-commerce - to reach distant markets 4.Broadband Internet is key Information & Communications Technology critical to competitiveness of SMEs: 1.ICTs increase labour productivity & efficiency - incentivize don’t tax them 2.Need world class telecoms networks - cost & quality 3.E-commerce - to reach distant markets 4.Broadband Internet is key

8. 6. Performance driven incentives for firms Except for Tourism and offshore finance, very few incentives for services firms in CARICOM.  Need fiscal and other incentives to help services firms grow and attain scale; (lot of manufacturing incentives now).  Many inputs to services industries are still taxed because services were not thought to add significant value in terms of exports. Rethink bricks & mortar approach to industrial policy.  Reward firms that upgrade staff training & skills.  Reward firms that innovate.  Develop performance-driven incentives for services firms that export. Except for Tourism and offshore finance, very few incentives for services firms in CARICOM.  Need fiscal and other incentives to help services firms grow and attain scale; (lot of manufacturing incentives now).  Many inputs to services industries are still taxed because services were not thought to add significant value in terms of exports. Rethink bricks & mortar approach to industrial policy.  Reward firms that upgrade staff training & skills.  Reward firms that innovate.  Develop performance-driven incentives for services firms that export.

9. 7. Public-Private sector partnerships Since most services firms are SMEs, size is major limiting factor. Private firms cannot do it alone. In lumpy investments it is critical for the State to play a role in supporting the development of local sub-sectors: In 2004 National Energy Corporation built platform fabrication yard at LABIDCO in La Brea  resulted in joint venture between Weldfab & Chet Morrison (TOFCO) 6 offshore platforms built  cluster of services involved Need to invest in other sectors to build basic capacity - for design, R & D.

10. Summary of Approach Infrastructure Policy Framework Finance & Incentives Finance & Incentives Investment in People & Standards Investment in People & Standards