Trade in professional and education and health services features high on the agenda of policy makers and regional organizations in Sub-Saharan Africa, but a host of roadblocks are in the way preventing this from happening.
For example, according to ‘The Unexplored Potential of Trade in Services in Africa’ a report commissioned by the World Bank, all five East African Community (EAC) countries have committed to removing the most explicit barriers to trade in education and health services as part of the 2010 EAC Common Market Protocol.
Several EAC countries have placed professional services at the top of the list to be integrated in the EAC Common Market. But despite progress in recent years, most regional services markets remain fragmented by restrictive policies, such as nationality requirements, and regulatory heterogeneity (these are non-tariff barriers that originate from national regulations), for licensing, qualification, and educational requirements.
Critics say the central issue is ‘protecting one’s turf’. Lawyers, accountants, doctors and the other professionals do not want nationals from neighbouring EAC member states upsetting their cosy relationships. Consequently, several barriers, beyond perhaps a lengthy accreditation process, are then put in place to frustrate allcomers.
Despite strong demand for services provided by foreign suppliers, undertaking trade is not easy.
Multiple barriers are placed on the physical movement of service suppliers, including high-priced visas, difficulties obtaining work permits, and elusive residence status.
To circumvent such barriers, most services providers form networks.
For instance, Tanzanian Maasai hair stylists organize themselves to avoid these restrictions and provide services informally abroad (in Zambia).
But the braiders have to pay a fee to a “coordinator” who facilitates their travel and accommodations, connects them with beauty shops or markets where they provide services informally, and helps them send money to their families in the home country.
Similar arrangements are observed in other services sectors. While services providers remain trapped in informality, governments lose the beneficial interactions and linkages that would come from greater integration into the domestic economy, such as the employment of locals in foreign-owned businesses, transfer of skills and technology, and increased access to more efficient services inputs.
Burdensome immigration requirements, quotas on the numbers of service suppliers, nationality or residence requirements, and labor market tests (horizontal measures or specific restrictions that apply to education and health professionals traveling across national borders to provide services) often impede the movement of health and education professionals.
In the case of professional services trade, the hurdles range from the cost and quality of education to domestic regulations and trade   barriers.
For example, domestic regulation on the entry and operations of professional services firms often undermines competition and constrains the growth of strong professional services sectors in Africa.
Trade barriers include restrictions on cross-border trade in services. For example, foreigners cannot provide advice on domestic law and audit and tax advice. And there are immigration policy and other restrictions on the entry of foreign professionals, such as Kenyan and Tanzanian nationality requirements to practice domestic law.
Foreign ownership controls and public procurement restrictions, including Kenyan and Ugandan limits on foreign firms’ provision of legal services to government agencies or international organizations, further segment the professional services markets in East Africa.
The report states that regulatory heterogeneity, prevent services providers from realizing economies of scale from a larger regional market.
Given that each country in East Africa has its own qualification criteria, the compliance costs are country-specific and cannot be spread through the provision of professional services in other East African countries.
Such fixed and country-specific regulation costs can have a serious impact on entry decisions by small and medium-size firms—especially if the firms do not expect large sales in the foreign market.
If the East African countries adopted common criteria for qualifications or recognized the qualifications and licenses obtained in another East African country, significant efficiency would be gained.
This harmonising is being currently done, but the pace of agreeing on common ground remains slow and tortuous.
For example, complying with International Financial Reporting Standards for corporate accounting may be too costly for certain types of firms, even taking into account the provision for small firms to use a simplified standard.
Several small and medium-size firms—particularly in Tanzania and Uganda—noted the excessive costs of complying with international standards. In such cases, dual standards tailored to the specific needs of firms by size may be worth considering in East Africa.
Differentiated services provided to different types of firms—say, large firms versus small and medium enterprises—may be best delivered by different classes of accounting professionals.
By contrast, international standards may be useful in certain segments of tourism services. It has been reported that only 10% of the region’s hotel rooms are estimated to meet international standards.
Adopting international standards on a broader basis could help boost tourist inflows from OECD countries (a grouping of the world’s 35 wealthiest countries).
The focus should be on effective implementation of coordinated regulatory reform and liberalization of trade in services informed by systematic and well-coordinated data collection efforts and knowledge-sharing platforms.
Source: Business Week

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.