Services are intangible products that cut across many sectors such as transport, construction, travel, medical, education, insurance and financial, communications services (postal, telephone, satellite, etc.), royalties and license fees, computer and information services, cultural and recreational services, business services, operational leasing, technical and professional services.
Trade in Services is the sale and delivery of intangible products called a service, between a producer and consumer. Trade in services that takes place between a producer and consumer that are in legal terms based in different countries is called International Trade in Services.
Trade in services records the value of the exchange of services between residents and non-residents of an economy. This includes services exchanged through foreign affiliates established abroad. Trade in services drives the exchange of know-how, ideas, and technology.
According to the World Bank, services are very crucial in the 21st Century, and moving forward, trade in services will define the ability of countries and their firms to compete in the market. It adds that developing countries in particular should tap into this growing sector.
According to the World Trade Organization, over the past 20 years, trade in services has become the most dynamic segment of world trade, growing more quickly than the trade in goods. Developing countries and transition economies have played an increasingly important role in this area, increasing their share in exports of world services from a quarter to one-third over this period.
Kenya’s services sector is the biggest contributor to the country’s GDP accounting for about 52% of the total GDP. In addition, services trade has facilitated investment, employment creation, and poverty reduction. According to the Kenya Economic Survey (2023), Kenya is a net exporter of services with the country registering a surplus of Kshs 136.4 billion in the year 2022 from a surplus of Kshs 113.7 billion recorded in 2021. This was due to increased receipts from transport, telecommunication, travel, financial and government services which jointly accounted for more than 90.0 per cent of all service receipts.
The increasing role of services has led to growth in other sectors of the economy. For instance, services incorporated in the production of goods have boosted the manufacturing and agriculture industries in Kenya. The increased use of digitalized services especially during this era of the Covid19 pandemic has become major in enabling e-commerce business transactions as well as strengthening the service supply chains.
The importance of the services trade has also been recognized within the National trade policies and strategy documents. These include; the National Trade Policy, the Integrated National Export Development and Promotion Strategy, and the recently launched National African Continental Free Trade Area (AfCFTA) Implementation Strategy. These documents underscore the key priority sectors for Kenya and provide strategic interventions and action plans on how to make the Kenyan Services trade competitive within the region and globally.
How to export services
According to the Integrated National Export Development and Promotion Strategy, Kenya can enhance her exports of services by taking advantage of the opened markets for trade in services under the EAC and COMESA regional integration framework as well as among the WTO Member Countries under the General Agreement on Trade in Services (GATS). These opportunities could be accessed via any one of the following modes of services trade, based on the level of commitment that each country in these regional blocks and the WTO has taken:
Mode 1, cross-border supply: only the service crosses the border. The delivery of the service can take place, for example, through telecommunications (telephone, television, internet etc.), or the sending of documents, disks, tapes, etc.; telemedicine has also emerged as a competitive mode of medical services.
Mode 2, consumption abroad: occurs when consumers consume services while outside their country. Visits to museums in a foreign country as well as medical treatment and language courses taken abroad are typical examples;
Mode 3, the service supplier establishes its commercial presence in another country through e.g. branches or subsidiaries. Examples are medical services provided by a foreign-owned hospital, and banking services supplied by a subsidiary of a foreign bank.
Mode 4, presence of natural persons, occurs when an individual has moved temporarily into the territory of the consumer in the context of the service supply, whether self-employed or as an employee of a foreign supplier. For instance, architects moving abroad to supervise construction work are providing services under this mode of supply
How to know services to export to countries that Kenya has a trade agreement with
Kenya has liberalized trade in services under various trade regimes. At the multilateral level, Kenya has made commitments in the General Agreements on Trade in Services (GATS). At the regional level, Kenya has made commitments under the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA), and the AfCFTA.
To fully take advantage of the trade agreements as an exporter, it is paramount to know which goods and services to export to the countries that Kenya has trade agreements with. In the case of services, one can know the services to export by identifying the services that Kenya and her trade partners have made commitments on. This information can be found in the market protocol of the agreement Kenya has with the target market e.g. EAC Common Market Protocol, COMESA Market Protocol, etc. under the schedule on commitments in trade in services.
In the EAC Common Market Protocol, for example, the schedule on commitments in trade in services can be found in part F which is comprised of Articles 16 to Article 23. The schedule allows the free movement of services in any of the modes discussed under chapter 6.3. The services that exporters can export to the EAC countries, and will benefit from the commitments are:
- Services in any sector except services supplied in the exercise of governmental authority which are not provided on a commercial basis or in competition with one or more service suppliers;
- Services normally provided for remuneration, in so far as they are not governed by the provisions relating to the free movement of goods, capital, and persons.
In COMESA Market Protocol, for example, the schedule on commitments in trade in services can be found in Article 164 and more details in the COMESA Protocol on the Free Movement of Persons, Labour, Services, Right of Establishment and Residence. The services that exporters can export to countries in the COMESA treaty and will benefit from the commitments are services in any sector provided for remuneration and are governed by the provisions relating to freedom of movement of goods, capital, and persons.