Industrial development in Africa has undergone notable progress over time, transitioning from a predominantly agriculture-based structure to more diversified and industrialized economies, driven by factors such as technology, urbanization, and global trade. However, persistent challenges, including infrastructure gaps, institutional weaknesses, dependence on imported raw materials, and limited access to finance, among other factors, continue to hinder it from reaching its full potential. Addressing these issues requires a multifaceted approach that leverages both opportunities and strengths, and trade in services offers formidable potential to accelerate the continent’s industrial transformation.
Services trade, comprising sectors such as transport, logistics, communications, and financial services, among others, plays a vital role in enabling global value chains, with research, development, and engineering services driving productivity and innovation across economies. The sector accounts for over two-thirds of global GDP, attracts more than three-quarters of foreign direct investment in developed economies, and ranks among the leading drivers of global job creation. In today’s digital economy, services trade enhances access to information, skills, and technology, with commercial services exports, according to the World Trade Organization, rising from $7.33m in 2022 to $8.76m in 2024. Despite this crucial contribution, service trade remains undervalued and hindered by numerous barriers that limit its potential, with its benefits often less visible than those of trade in goods, particularly in developing regions such as Africa.
Services trade in Africa mirrors global trends in its economic importance, contributing significantly to the continent’s development. The sector accounts for an estimated 54 per cent of Africa’s GDP and attracts around 75 per cent of foreign business investment. It plays a pivotal role in advancing productive and labor-intensive sectors, such as manufacturing, finance, and agriculture, which are critical to Africa’s growth. While the service sector as a whole has experienced notable expansion, the services trade has lagged in global performance levels.
A 2019 study by the German Development Corporation found that services account for only 22 per cent of intra-African trade and just two per cent of global service exports. Furthermore, only eight countries actively participate in this trade, primarily through tourism and transportation, with the majority of it concentrated in Southern and Eastern Africa. This underperformance is concerning given the breadth of sectors involved, including financial services, insurance and pensions, personal, cultural and recreational services, transport, construction, government goods and services, telecommunications, computer and information services, and travel. Also, given its increasing importance to economic growth and development, it is expedient to organize the service sector, particularly service trade, to be productive and competitive.
According to the World Trade Organization, services trade can take place through four modes: cross-border supply, consumption abroad, commercial presence, and the movement of natural persons. These modes present multiple channels capable of optimizing service trade. Unfortunately, regulatory barriers stand in the way and have continued to significantly hinder trade in services within Africa, resulting in economic growth and integration being constrained. Other barriers, including complex and inconsistent regulations, high costs for compliance, and restrictions on market access, have also contributed to preventing businesses from fully participating in the burgeoning services sector. To address these challenges, most African nations participated in at least one Regional Economic Community, such as ECOWAS, COMESA, and CEN-SAD, among others, intending to foster regional economic integration via customs and monetary unions, free trade zones, and unified regulatory and legal structures.
While RECs have achieved some progress, their overall impact on trade liberalization remains limited, underscoring the urgent need for a more efficient initiative capable of harmonizing the African market and eliminating trade barriers. Against this, the AfCFTA was established on March 21, 2018, and officially entered into force on May 30, 2019, with trading under the agreement taking off on January 1, 2021. The AfCFTA was structured to strengthen and unify trade agreements across Africa without completely displacing or replacing existing Free Trade Areas established by the RECs. Since its establishment, the AfCFTA has rolled out a series of policies, including the Protocol on Trade in Services, which has since then been effective in driving service trade in Africa.
The AfCFTA Protocol on Trade in Services aimed to create a single, liberalized African market for services that fosters economic integration and competitiveness. It was set to use a progressive, positive-list approach, where member states commit to opening specific service sectors, beginning with five priorities, which included business, communication, financial, transport, and tourism-related services, before expanding coverage. The protocol remains unique compared to other existing policies, as it includes capacity building in its framework. Given this, one question remained: can service trade, under the AfCFTA framework, efficiently drive Africa’s industrial transformation?
The AfCFTA holds substantial potential to drive Africa’s industrial transformation through service trades, given the Protocol on Trade in Services objectives and its non-discrimination principle that targets promoting economic cooperation among member states. For developing countries, trade in services presents opportunities for growth as it offers opportunities to build know-how and technological capacity, thus achieving competitiveness even at a global level. While this looks promising, the AfCFTA needs to address the restrictive trade regulatory issues challenging the free flow of trade and labor mobility. Addressing regulatory frameworks can assist in creating new services and trade opportunities for suppliers of all sizes, including women entrepreneurs.
To achieve this, harmonizing regulations and ensuring mutual recognition of standards is important, as this can facilitate the seamless flow of logistics, transportation, and warehousing services, thus integrating Africa’s manufacturing hubs.
Also, an integrated regulatory system would mean an efficient service sector that is capable of driving African industries to reach regional and global markets faster, in turn transforming Africa’s industrial sector drastically to compete with the rest of the world. In addition, predictable and harmonized regulations will shape the service sectors in Africa to be more attractive for investors, meaning a boost in Foreign Direct Investment, and FDI in services often complements investment in manufacturing and processing industries.
While this is intriguing, the AfCFTA trade in services protocol remains complicated, as its implementation strategy is embedded in individual member countries’ business and immigration laws, raising non-compliance concerns and doubts about achieving its own objectives.
While the AfCFTA presents vast opportunities for the growth of Africa’s service sector, significant constraints remain. Chief among them is the rigid and fragmented trade regulatory policies across member states. Addressing these regulatory challenges and harmonizing policies and standards within and between countries is crucial. With such reforms in place, the service sector can become a powerful driver of industrial transformation across the continent under the AfCFTA framework.
Innocent Orji is a trade fellow at Omirnira Initiative
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