The Significance of The Service Sector in South Africa’s New Economic Plans

Tito Mboweni, the Finance Minister of South Africa, has recently issued a set of financial proposed policies that deserve strong consideration. They are geared towards reviving the floundering economic system, the expansion of which over the past 5 years has equaled only 1.1%, while the true unemployment rate has ascended towards 40%. One particularly noteworthy aspect is the prominence that is given to the part that the service sectors play in boosting the economy. 

This focus on services industries, also known as tertiary sectors, is partially justified by the rapid expansion of over 6% per year that these sectors have experienced since 2009. This progresses at a much quicker rate than either the primary or secondary industry sectors. A new analysis conducted by the World Bank discovered that raises in service sector productive output in South Africa have, over the past 3 decades, outpaced increases in agricultural output, mining productivity, and manufacturing productivity. Therefore, it would appear that the service industry is set up nicely for further expansion. The Ministry of Finance’s growth agenda includes five main themes, and three of them place a significant emphasis on services: 

  • Advancing the state of the art in network services, including telecommunication services and transportation.
  • Putting an emphasis on growth that is dependent on human labor, such as tourism in both rural and urban areas.
  • Export performance as well as possibilities for emerging markets highlights the prospects for the construction, logistics, and financial service industries. 

An Emphasis On the Service Industry

Developing nations’ financial methods have not typically centered a significant emphasis on the provision of services. They have been considered “non-tradable” because their production and consumption typically take place within the same territorial boundaries. This indicates that most transactions involving services take place on a local level.

Therefore, the establishment of a manufacturing economy is capable of maintaining domestic demand. Because of this, the manufacturing sector served as the primary driver of economic expansion in economies across East Asia, including South Korea, Taiwan, China, Malaysia, and other nations in the region. 

The Function That Services Play is Evolving

They are contributing more to worldwide value chains than they have in the past. The tradability of a variety of services has significantly improved as a result of developments in digital advanced technologies and air travel. The most prominent multinational corporations are also outsourcing normal activities, such as labor-intensive manufacturing.

They are concentrating their efforts, rather, on providing higher-value services like research and development, design, advertising, and after-sales assistance. As a direct consequence of this, the proportion of the world’s exports that are comprised of services has increased from 9% in 1970 to 20% in 2014. 

The Use of Services as a Component in Manufactured Goods is Becoming Increasingly Common

This is a response to the demand from customers for products that are both more sophisticated and branded. Increasing the productivity and competitiveness of various industries, such as agriculture, mining, and others requires the utilization of knowledge-intensive services as an essential component.

Other industries are given a boost in capability thanks to the development of more advanced producer services. They contribute to the adaptation of products for new markets, which in turn helps to reduce waste and facilitates trade with other countries. This demonstrates that services are not a substitute for manufacturing, mining, or agricultural practices; rather, they are complementary to these activities. 

The Difficulties of Constructing Capabilities

It should go without saying that the service-based economy is not a homogenous whole, and generalizations can be risky. There is a wide range of diversity among service providers in terms of the amount of capital required, the level of technical sophistication required, the types of skills required, and the types of location markets served. 

There is a significant opportunity for new business start-ups and expansion in less complicated industries like transportation and tourism. They also have a huge potential to bring about the creation of new jobs. Other possibilities for rapid job growth are presented to nations like South Africa by the act of advanced economies outsourcing all kinds of company processes and information monitoring to third-party providers. 

The development of functionality in higher-value service areas is a more difficult endeavor, but it results in significant strategic benefits. Among these are activities such as assisting other businesses in their efforts to modernize and adapt to shifting market trends and exacerbated competition from abroad. For example, sophisticated engineering and design services may be able to assist local and regional economies in adjusting to a whole series of new disruptive technologies. Technologies such as AI, robotic systems, and the so-called “internet of things” are included in this category. 

Possibilities for the International Trade of Services

South African businesses have particular strengths that they can build on, particularly in the telecommunications and financial services industries. MTN, a multinational telecommunications corporation, currently boasts more than 230 million customers and holds the largest market share in 14 of the 22 African nations in which it does business.

This does not include South Africa, which holds the position of number two. Standard Bank asserts that it is the largest lender in Africa and that more than 30 percent of its headline income comes from operations outside of South Africa. The insurance company known as Sanlam maintains significant operations in eleven different countries across Africa. 

According to the findings of our research, these achievements are somewhat singular. Exports of services across Southern Africa are falling short of reaching their full potential. They generally make a contribution of less than 15 percent to the overall balance of trade of each SADC country. The lower-valued transportation and tourism industries make up a disproportionate share of service exports. However, there are indications that growth will be stronger in particular higher-value commercial entities such as information technology and telecommunications. 

What Are the Next Steps?

Additional research is required to comprehend the possibilities presented by the market. For example, there is a tremendous amount of potential to construct a network of incorporated urban offerings to cater to the rapid urbanization that is taking place in other parts of the African continent.

To create functional cities, comprehensive planning as well as massive investments in urban facilities and the surrounding structures are required. In terms of urbanization, South Africa is more advanced than its neighbors. It has a wide range of skills that it can offer to other African nations as part of arrangements that are beneficial to both sides. 

There is a possibility to encourage various companies, educational institutions, and professional organizations that are involved in engineering, design, property investment, surveying, and financial services to collaborate to pool their knowledge and technical expertise. It would provide beneficial interconnections back to construction firms and local suppliers of machinery and plants if we built roads, reservoirs, power generators, and sewer systems. It is required to link this expertise and to establish alliances with other governments and businesses to exploit the prospects, views, and leadership.  

In addition, there is a need for additional research on the best ways for South African businesses to improve their operations and overcome the challenges they face in a variety of service industries. It makes a significant difference whether their expansion is primarily hampered by trade restrictions and excessive bureaucracy, or whether it is hampered by the firms’ conservative mentalities and business strategies. 

The ideas that are highlighted in the financial policy paper that was put together by the Ministry of Finance could open up brand-new doors of opportunity for a variety of service industry sectors in which South Africa possesses both proven abilities and unrealized potential.