Introduction
Despite the growing importance of services in the global economy, Europe’s trade cooperation with Africa is almost exclusively focused on commodities and other primary goods. Services – which range from banking and insurance to transport – are largely missing from Europe’s trade and development cooperation agenda with Africa. Yet the services sector has outstripped the primary and secondary sectors in their contribution to African output, making up more than half of the continent’s gross domestic product (GDP). The rapid expansion of information and communication technology (ICT) and the digital economy, the ‘servicification’ of manufacturing, and the cross-border fragmentation of production processes make trade in services more important than ever before for industrialisation and integration processes.
Services not only enhance participation in trade and global supply chains, they also contribute to more equal and diversified growth. More women, young people, and micro enterprises operate in the services sector than in agriculture or manufacturing. Expanding opportunities in services is therefore particularly important for creating more inclusive employment. The high costs of energy, transport, logistics, and other backbone services across Africa make the production of goods and services expensive, impeding the competitiveness of firms across all sectors. Trade in services is a powerful tool to increase the efficiency and reliability of services, which in turn brings down production costs across the economy and facilitates diversification – and its importance goes beyond trade to offer possibilities for structural transformation.
A stronger services trade between the European Union and Africa would allow European multinationals to near-shore their production processes and diversify away from Asia-focused supply networks. As barriers to trade in services are embedded in domestic regulations, trade agreements covering services entail a degree of cooperation and shared understanding. Improved trade in services would also allow the EU to influence regulatory models across various sectors. China and other non-Western powers wield significant economic influence in Africa, which they can use to shape regulatory processes and influence standards in their favour. Faced with geopolitical competition with China, the EU should be wary of this influence. In this regard, trade cooperation on services could be a powerful means for the EU to nurture a shared understanding with African countries on economic, environmental, digital, and social goals.
No modern trade partnership can exclude services, which are central to the value of what businesses trade. While the so-called first-generation free trade agreements reached in the 1970s and 1980s only liberalised and addressed standards in the goods trade, services became an integral part of the ‘new generation’ agreements that emerged in the mid-1990s. These new agreements included goals for so-called deep integration, which covers a variety of issues beyond tariffs, including services, investment, competition, intellectual property rights, environmental standards, and other domestic policies that affect international competitiveness. More than 90 per cent of all free trade agreements signed in the 21st century cover services, making it the most widespread area of deep integration.
The 2018 African Continental Free Trade Area (AfCFTA) agreement includes a protocol on trade in services, which aims to liberalise services markets and improve their domestic regulation. The agreement provides an unprecedented opportunity for African countries to strengthen their domestic regulations to support more open and efficient services markets. It also offers an occasion for the EU to encourage intra-regional trade by supporting the AfCFTA negotiations, and to build on the agreement to create new opportunities for diversifying EU-Africa trade.
This paper explores the implications of cooperation on trade in services for the Europe-Africa relationship. The first section sets out the complex nature of the services trade and addresses misconceptions around it. The second section analyses the importance of the services trade for the industrialisation and integration objectives set out in the African Union’s (AU) Agenda 2063. The third section discusses the EU-Africa trade relationship, including the benefits for Europe of a more efficient African services sector and the existing obstacles and policy frameworks that govern services trade between the EU and Africa. The fourth section explains how the AfCFTA offers new opportunities for promoting more open and effective regulation of services markets. The paper concludes with recommendations for how Europe and Africa can enhance their cooperation on trade in services.
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