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Economic Development in Africa Report 2015
Box 1. Conceptualizing and defining services in Africa Definitional issues Services may be defined as changes in the condition of an economic agent (including a person) or in the condition of a good or asset (wealth) belonging to an economic agent, as a result of some activity of a second economic agent, carried out with the prior agreement of the first agent. The System of National Accounts of the United Nations distinguishes the following three categories of services: • Change-effecting services: Services that may lead to changes in the physical condition of an agent or good (e.g. car or home repairs, medical procedures and haircuts), or the mental condition of an agent (e.g. education and legal services). The change in condition brought about by such services may be temporary or permanent. • Margin services: Changes in condition that facilitate the exchange of other goods or assets or services between the user of such services and another party (who may or may not be the producer of the service). Such services include wholesale and retail distribution activities and changes in condition related to the physical location of an agent or its goods (transportation) or an agent’s current wealth or risks facing future wealth (financial services) or the social condition of an agent by enabling interaction (connection) with other agents (communications). • Knowledge-capturing products: Hybrid products, with characteristics of both goods and services (e.g. newspapers, electronic media and digital information). Such products have a physical existence; ownership rights can terefore be established and transferability is possible. The knowledge they store may be accessed more than once and production and consumption are not necessarily simultaneous. However, they are like services in that their content (the information and knowledge they contain) changes the mental condition of the user, either temporarily or permanently. The first characteristic of services is that they are produced and consumed (or used) simultaneously. Production is the activity bringing about the relevant change in condition and use is the change in condition itself. For many services, particularly if the change in condition is a physical change to a person or a good, a second characteristic follows as a corollary of the first: the producer and user must be in the same location. The third characteristic of services is that they are intangible and cannot be stored, that is, because they are changes in condition, they cannot be produced in advance of their use. They are only produced once demand for them exists. Finally, services are unlike goods in that they are not transferable separately from their production. Agents cannot purchase services separately from their use in order to establish ownership rights over the services and transfer them to third parties. The need for simultaneous production and consumption when services are traded internationally focuses attention on another set of characteristics of services, the mode of supply (i.e. the process through which the producer and user come into contact). Under some circumstances, cross-border trade (referred to as mode 1 in GATS) is possible, where the producer and user are located in different countries and export and import, respectively. For some services (e.g. tourism and surgical procedures), users from importing countries must move temporarily to the exporting country (consumption abroad, mode 2). A services producer may also move from an exporting country in order to provide services to users in an importing country, either by locating a permanent operation in the country via a capital investment (commercial presence, mode 3) or by temporarily migrating labour to provide the services (presence of natural persons, mode 4).