The growing ICT industry has led to the emergence of a new lucrative sector called modern services with potential to accelerate Rwanda’s economic growth, the World Bank has said in its publication, Africa’s Pulse.
In the latest biannual publication that analysises issues shaping the continent’s growth prospects, the World Bank notes that Rwanda is one of the top three Sub-Saharan countries, alongside Mauritius and Tanzania, that have registered impressive growth in the export of modern services in recent years.
Modern services, such as software development, call centers and outsourced business processes can be traded like value-added or manufactured products. This enables developing countries that focus on such services, innovation and technology to leverage them as an important driver of growth.
The value of Rwanda’s exports in modern services rose to $85 million in 2012 from $40 million worth of services exported in 2005.
In Mauritius and Rwanda, rapid expansion in modern services, Africa’s Pulse notes, can be attributed to increased activity in tradable business and financial services. For instance, more than half of those employed in large companies in Mauritius work in the service sector that offers more employment opportunities than either agriculture or manufacturing.
Modern services sector is the kind of development that reflects the post-genocide Rwanda and experts will easily attribute this growth to heavy investment in a country-wide broadband internet infrastructure that has boosted ICT-based services.
With changing fortunes in traditional drivers of growth such as agriculture, modern services sector will be seen as something to fall back to during bad times.
Punam Chuhan-Pole, the lead economist of the World Bank’s Africa Region and author of Africa’s Pulse, notes that while Mauritius, Rwanda, and Tanzania have experienced rapid increase in modern services, others such as Kenya are also emerging.
The Good news aside, Africa’s Pulse has warned Sub-Saharan Africa that unsteady commodity prices and unpredictable political environment could hurt growth projections.
“Weaker demand for metals and other key commodities, combined with increased supply, could lead to a shaper decline in commodity prices especially if Chinese demand, which accounts for about 45 percent of total copper demand and a large share of global iron ore demand, remains weaker than in recent years.”
Volatile domestic food prices should also be something to worry about.
However, growing integration with larger regional markets can reduce the magnitude of the price effects from localised shocks, while lower trade barriers and better trade infrastructure would allow faster and more efficient response to localised food shortages, economists say.
Francisco Ferreira, World Bank Africa Region’s chief economist observes that although Sub-Saharan Africa’s exports remain concentrated in a few strategic commodities, countries have made substantial progress in diversifying trading partners leading to a rise in the demand of African exports among BRIC economies—Brazil, Russia, India and China.
However, it’s the untapped services sector that World Bank experts urge Sub-Saharan economies to embrace; noting that at just over $50 billion, the region’s exports in this new cash cow trails other developing regions even as it expands at about 12 percent per annum.
But as traditional services such as transportation and travel have declined from 73 percent of total services exports in 2005 to less than 64 percent in 2012, modern services exports have seen their share surge by nearly 10 percent from just over 26 percent of total services exports to about 36 percent over the same period.