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Essentials for Building a Competitive Services Sector Ramesh Chaitoo rnmsts@yahoo.ca. Trade Policy & Negotiations Workshop for St Vincent & Grenadines, October 4-8, 2010. List of Essential Ingredients. To develop a competitive services sector in a small economy it is critical to have:
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Essentials for Building a Competitive Services Sector Ramesh Chaitoo rnmsts@yahoo.ca Trade Policy & Negotiations Workshop for St Vincent & Grenadines, October 4-8, 2010
List of Essential Ingredients To develop a competitive services sector in a small economy it is critical to have: Clear policy framework for services Access to affordable finance in local economy Investment in people - skilled workforce & standards Strategic partnerships to fit into global value chains Efficient telecoms infrastructure Performance driven incentives for firms Public-Private sector partnerships
1. Policy framework for services • Vision is key to setting goals and developing particular services industries. Develop regulatory regimes. • Most Caricom states are service economies, but none have formal Services Policy Framework. In SVG tourism, offshore finance, ICT and entertainment flaggged; but only first two have legally based, predictable and transparent incentives. • Need to promote and develop service sectors that can become export-oriented. • Decide where you want to fit in the value chain of any sector and exploit linkages between sectors (clusters). • T&T has oil industry since 1906 & steel since 1970’s; but Singapore is world leader in jack-up oil rigs or mobile drilling units (in JV with US firms).
2. Access to affordable finance • Services firms mainly SMEs - very difficult to get debt financing from banks or raise capital. • Assets of services firms are ideas not physical collateral - need innovative approaches to financing. • India, Malaysia, Singapore’s Exim Banks have special window for services providers • Export Services Facilities • Working capital finance • Will finance services providers based on contracts • Export Overseas Guarantee Facility • Through Commercial Banks
3. Investment in People & Standards • People most critical factor in successful services activity. • Need to invest in training & constant skills upgrading. STCIC surveys reveal that in T&T unavailability of technical staff affects growth and competitiveness • Critical shortage of higher skills in Energy sector in recent years - inadequate training facilities. • Education system must be in synch with needs of industry. • Quality service standards are also key to competitiveness in global economy.
4. Partnerships to fit into global value chains • Small economies must trade to create wealth. Services activities now being disaggregated around the globe and may involve various countries. • Have to decide where to link into global value chains - ICT, finance, audio-visual, design, energy, etc. • Trade agreements help but business must seek & foster commercial linkages. • Create strategic linkages with international firms to supply overseas markets based on use of local skills. Local content alone is not enough.
5. Efficient ICT Information & Communications Technology critical to competitiveness of SMEs: ICTs increase labour productivity & efficiency - incentivize don’t tax them Need world class telecoms networks - cost & quality E-commerce - to reach distant markets Broadband Internet is key
6. Performance driven incentives for firms Except for Tourism and offshore finance, very few incentives for services firms in CARICOM. • Need fiscal and other incentives to help services firms grow and attain scale; (lot of manufacturing incentives now). • Many inputs to services industries are still taxed because services were not thought to add significant value in terms of exports. Rethink bricks & mortar approach to industrial policy. • Reward firms that upgrade staff training & skills. • Reward firms that innovate. • Develop performance-driven incentives for services firms that export.
7. Public-Private sector partnerships • Since most services firms are SMEs, size is major limiting factor. Private firms cannot do it alone. • In lumpy investments it is critical for the State to play a role in supporting the development of local sub-sectors: • In 2004 National Energy Corporation built platform fabrication yard at LABIDCO in La Brea resulted in joint venture between Weldfab & Chet Morrison (TOFCO) • 6 offshore platforms built cluster of services involved • Need to invest in other sectors to build basic capacity - for design, R & D.
Summary of Approach Policy Framework Infrastructure Finance & Incentives Investment in People & Standards