Developing services infrastructure in developing countries

Strategies to establish more efficient trade-supporting services and a greater involvement of private sector players represent a useful area for development assistance to support sustainable development efforts.

Analysing ways for developing countries to improve their supply capacity in the area of trade in services through, inter alia, human resource development, institutional capacity-building, improved access to and use of new technologies, particularly in the informatics software development and audiovisual sectors, which use digitally based technology, and development of adequate legislation.

Enterprises in developing countries are affected by an overall shortage of skills, knowledge and aptitudes that impedes their ability to innovate and adapt to changing technology, legal requirements and commercial practices in the conduct of foreign trade. They also face difficulties in the introduction of improved work and management practices needed to enhance competitiveness in global markets. While these influences impinge on all economic processes, they are particularly restrictive in relation to trade-supporting services upon which the expansion and diversification of foreign trade depends.

Progressive liberalization of trade in services is meant to benefit economic development. Improved market access for developing countries' service exporters is one important benefit. Exports of labour-intensive services have been an important source of income in many developing countries and have contributed to the upgrading of qualifications in several developing countries. However, the asymmetry of globalization processes between product and factor markets and between capital and labour has been to the detriment of the latter, thus limiting the scope for expansion of developing country services exports. Moreover, because of weak infrastructures and inter alia their limited access to technology and distribution network channels, many developing countries have not yet developed the capacity to compete effectively in the world market for services. Strengthening developing countries' domestic service capacity, inter alia through technical and financial assistance, is therefore of utmost importance.

2. Developing countries' institutional, financial and human capacities and regulatory framework in the services sector should be further enhanced to enable them to engage effectively in international trade in services.

3. The economic impact of any increased services liberalisation will be affected, for example, by the maturity of the domestic service industries and the capacity of the regulatory framework. If either of these is weak, liberalisation may have an adverse impact in terms of employment and longer-term growth (UNCTAD, 1998a).

4. If developing country labour was to gain significant access to OECD service labour markets, it could have a significant positive economic (income increase) impact and negative social (disruption to household and community patterns) impact, in the exporting developing countries. If, to secure this market access, developing countries opened up their labour and enterprise markets to extensive penetration by developed country scientific and managerial personnel, then the supply function in these countries could change rapidly, with significant economic and social consequences within these economies.