CHAPTER 1. The Services Sector in Africa: Emerging Trends
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Box 1 (continued) Measurement issues Measurement of services output (value added) and international trade in services is subject to two major challenges, which follow from the definitional characteristics discussed above. The first challenge is measuring the real output of services activities and the volume of international trade in services. Measuring real output, adjusted for inflation, requires a price index, which assumes that what is defined as a single unit of the product does not change over time in either quantity or quality. Assuming unchanged quality is an issue for both goods and services, especially in defining whether a product with features that are new compared with earlier versions should be considered a new product or a new model of an original product. However, for services, even assuming constant quantity over time is not straightforward, due to difficulties in defining a single unit of a services product, as services are heterogeneous and difficult to standardize and the nature of the product often depends in part on the user as well as the producer (e.g. in education services). The second challenge of measurement arises from the need for many services inputs in the production of both goods and services. Input services such as financial management or factory cleaning may be provided by the producer of an output, in which case they are not measured separately as a services output. Alternatively, they may be sourced from an independent services producer, in which case they are measured separately. Output and employment in services are higher in the former scenario, even though actual economic activity may not be different. Another issue with regard to measurement, of particular relevance to Africa, relates to informal sector activities, which overlaps (but is not identical with) what is referred to as the nonobserved economy in the System of National Accounts. The informal sector in general has a greater predominance of services sector activities than manufacturing or other industrial activities, in part because the entry barriers to many services activities are low, especially in low-income market segments in developing countries. Both household and enterprise surveys are used to measure informal sector activity, often in combination, but these are imperfect instruments, especially in developing countries. Although considerable progress has been made in developing agreed definitions and approaches to measuring informal sector output, there is as yet no standardized approach, making cross-country comparison difficult (United Nations, 2009). Measuring international trade in services can pose particular challenges over and above those faced in the measurement of services value added. Mode 1 transactions require foreign currency exchanges and as a result are, in principle, recorded and included in the current accounts of the balance of payments as non-factor services. However, the growth of e-commerce has made it much more difficult to record international trade in margin services. With regard to mode 2, services production and use occur within the territory of an importing country, with no exchange of foreign currency or customs declarations attached to individual transactions. In principle this should not make a difference to the measurement of value added and employment, yet it may be difficult to identify a transaction as involving international trade. For instance, it is difficult to distinguish the purchase of a restaurant meal or visit to a local museum by a foreign tourist from the same purchases made by a domestic resident. International services trade via modes 3 and 4 is less complicated conceptually. Services trade via mode 3 (commercial presence or direct investment in a host country by a foreign services provider) is counted in principle as part of the host economy’s national accounting system. The amount supplied by foreign providers (imported, in terms of the GATS conceptual framework) is used to develop foreign affiliate statistics data, detailed in the Manual on Statistics on