Policy Research Working Paper 10537 Services Trade Policies across Africa New Evidence for 54 Economies Laura Baiker Ingo Borchert Joscelyn Magdeleine Juan Marchetti Development Economics Development Research Group August 2023 Policy Research Working Paper 10537 Abstract In 2023, the global coverage of the Services Trade Policy albeit with substantial dispersion across economies within Database, jointly developed by the World Bank and the each sector. Professional services are the most restricted, World Trade Organization, has been significantly expanded while computer and distribution services appear as the least to cover more economies, focusing in particular on the restricted sectors. Larger economies in terms of market size African continent. This enhancement is accompanied by tend to be more restrictive toward services trade, whereas expanded sector coverage including, inter alia, tourism economies with better institutions, including higher reg- and health care services, which are of particular interest ulatory quality, tend to be more open. At the same time, to many African economies. The collection, processing, relatively high levels of restrictiveness in transportation and vetting of regulatory data took place during 2020–22 among the more industrialized economies may curtail con- and was supported by the German Development Agency nectivity and thus hamper African economies’ international GIZ, the European Commission and the International integration prospects. Landlocked economies also seem to Trade Centre, respectively, as part of their support for the miss an opportunity to alleviate pre-existing geographical African Continental Free Trade Area negotiations. This disadvantages with more open transportation service pol- paper presents evidence on the 2020/21 state of applied icies. Overall, the wealth of quantitative information on services trade policy across 54 African economies. It offers policy restrictiveness presented in this paper, along with detailed comparisons of policy stances across economies, the underpinning regulatory information, provides a fac- broad sectors, subsectors, and modes of supply. Services tual basis for the advancement of policy reform, regional trade policies in Africa are generally relatively restrictive, integration, and cooperation in service sectors. This paper is a product of the Development Research Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at I.Borchert@sussex.ac.uk. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team Services Trade Policies across Africa: New Evidence for 54 Economies1,2 Laura Baiker, Ingo Borchert, Joscelyn Magdeleine and Juan Marchetti 3 JEL codes: F13, F14, F23, L80, N17, O24, O55 1 Acknowledgments: The authors would like to express their gratitude to all WTO and World Bank colleagues who participated in preparing this paper, in particular to those who made a substantive contribution to the collection, review and validation of the regulatory information that underpins the quantification of policies: Ravneek Bhullar, Alena Fiorentino, Ishrat Hans, Giulia Jonetzko, Sabreen Khashan, Clemence Moreau, Fatima Anjum Quraishi, Ester Rubio and Cloé Torbay. Special thanks go to Daria Taglioni and Ana M. Fernandes for their long-standing support and co-management of the STPD project together with the WTO Secretariat, and to Roberto Echandi who was instrumental in the initiation and conduct of the regulatory audits in all African countries. Eugenia Go provided superb help in preparing this document. The research in this paper has been supported in part by the Umbrella Trust Fund for Trade and Development. Additional financial contributions to data collection from the World Bank (Macroeconomics, Trade & Investment) as well as from the EU, GIZ, and ITC are gratefully acknowledged. This paper is a product of the Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The author(s) may be contacted at I.Borchert@sussex.ac.uk. 2 Disclaimer: The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They are not intended to represent the positions or opinions of the WTO or its Members and are without prejudice to Members' rights and obligations under the WTO. They also do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, the Executive Directors of the World Bank, the governments they represent, or any of the aforementioned individuals. Any errors are attributable to the authors. 3Affiliations: Baiker, Magdeleine and Marchetti: WTO Secretariat; Borchert: University of Sussex Business School and World Bank. Keywords: Trade Policy and Integration; Services Trade Regulation; Trade Agreements and Negotiations; Data for Policy Analysis; Services Trade Competitiveness. Table of Contents 1. Introduction .................................................................................................................................... 3 2. The Surveys of African Services Trade Policies in Context .............................................................. 4 2.1 The Joint World Bank–WTO Services Trade Policy Database and STRI .................................. 4 2.2. The Survey of African Services Trade Policies ......................................................................... 6 2.3. African Trade in Services by Mode of Supply.......................................................................... 7 3. Policy Restrictiveness of Broad Sectors .......................................................................................... 9 3.1. Comparison of Policy Restrictiveness across Broad Sectors ................................................... 9 3.2. Comparison of Policies within Broad Sectors: Sector Profiles and Continental Maps ......... 10 3.3 Overview of Sector Closures ................................................................................................... 22 3.4 Evolution of Services Policy in Africa: Case Study ................................................................... 24 4. Policy Restrictiveness in Economic and Institutional Contexts ..................................................... 26 4.1 Market Size and Stage of Development................................................................................ 26 4.2 Services Trade Policy and Quality of Institutions .................................................................. 30 4.3 Services Trade Policy and International Integration ............................................................. 32 4.4 Health Care Services and Tourism ........................................................................................ 36 5. Policy Restrictiveness across Modes of Supply ............................................................................. 39 5.1 Patterns across Modes.......................................................................................................... 39 5.2 Modal Patterns across Sectors.............................................................................................. 43 6. Conclusions ................................................................................................................................... 45 References ............................................................................................................................................ 48 Annex 1: Country Profiles ..................................................................................................................... 49 Annex 2: Average STRI Scores by Subsector and Mode (selected sectors) .......................................... 77 Annex 3: Composition of Regional Groupings ...................................................................................... 79 Annex 4: Measuring Services Trade Policy Restrictiveness .................................................................. 80 A.4.1 Scoring................................................................................................................................. 80 A.4.2 Aggregation ......................................................................................................................... 81 A.4.3 Subsector Definitions .......................................................................................................... 85 Page | 2 1. Introduction Many developing economies excel in services trade, and in an increasingly digital world, a services- led development path may become the norm rather than the exception (Baldwin and Forslid, 2020). Yet for a long time, Africa has been a blind spot in services regulatory databases. That gap has now been addressed by the joint World Bank–WTO regulatory surveys of African services trade policies (and associated Services Trade Restrictions Indices - STRIs), which are publicly accessible through the joint Services Trade Policy Database (STPD). 4 This paper accompanies the public release of these data, and its principal goals are twofold: firstly, to enhance transparency by describing in detail the services trade policies and regulations applied by 54 African economies across the most important services sectors. Secondly, to put the policy stance in Africa into context by providing a comparison to applied services trade policies elsewhere and by correlating policy patterns with relevant country characteristics. Recent developments in Africa over the last decade, notably the launch of negotiations towards a continental free trade area covering services trade (the AfCFTA), signaled the pressing need for up- to-date and granular information on applied services trade policies in Africa. It is against that backdrop that the World Bank and the WTO carried out a major data collection exercise between 2020 and 2022, surveying services trade policies applied by all-but-one African economy (all 54 AfCFTA signatories) in a total of 34 services subsectors, representative of two-thirds of the service economy. 5 This data collection exercise is unprecedented in geographical scope, sector coverage and depth. For the first time, the services trade policies in major sectors of all African economies (except Eritrea) have been surveyed and quantified simultaneously, allowing us to present for the first time a comprehensive overview of services trade policy in the continent. The detailed comparison of policies across subsectors and modes of supply, within the context in which they are applied, reveals a rich picture of what services trade policies in Africa look like:  Restrictiveness of policies that govern the provision of services by foreign providers, across 54 African economies, is overall relatively high. On a scale from zero (no restrictions) to 100 (completely closed), the median STRI oscillates around 50 across all sectors covered by the survey, indicating the presence of some major restrictions in many economies.  Although the foreign supply of services in African economies is rarely completely prohibited, the cross-border provision of services (‘mode 1’) is by far the most restricted among the four modes of supply, with about a quarter of subsector-mode combinations closed entirely. This is one contributing factor to the overall high level of restrictiveness.  By the count of subsector-modes that are completely closed, Ethiopia and Libya appear as the most restricted economies whereas The Gambia, Mauritius and Sierra Leone are the most open ones. However, there exists substantial variation of policies and restrictiveness across African economies in every sector.  There are also considerable differences in restrictiveness across sectors. The professional services sector is the most restricted, followed by transport, communications and financial services. The least restricted sectors are computer services and distribution services. 4 Both the regulatory information and the STRIs are publicly displayed through the Services Trade Policy Database available at the WTO I-TIP Services portal (https://i-tip.wto.org/services). 5 The World Bank–WTO regulatory surveys benefited from the support of the German Ministry for Economic Cooperation and Development (BMZ), through its implementing agency, GIZ, the European Union, and the International Trade Center (ITC), which is gratefully acknowledged. Page | 3  Larger economies in terms of market size tend to be more restrictive towards services trade whereas economies with better institutions, especially higher regulatory quality and political stability, tend to be more open.  Relatively high levels of restrictiveness in transportation services among more industrialized economies in Africa may curtail their connectivity and thus hamper African economies’ international integration prospects. In particular, landlocked economies aggravate their pre- existing geographical disadvantage in terms of connectivity with transportation services policies that are on average slightly more restrictive in rail freight, road haulage and air transportation compared to policies in coastal economies. The paper is organized as follows. Section 2 provides background to the analysis of African services trade policies, by summarizing the methodology and the scope of the World Bank–WTO database and by providing a backdrop in terms of services import values in Africa. Section 3 provides an overview of services trade policy patterns. It also includes a case study showing the evolution of policies since 2016 for five economies for which the information was already available in the World Bank–WTO STPD. Section 4 puts African services trade policies in a broader context, drawing out broad correlations between the restrictiveness of applied services trade regimes and relevant country characteristics in Africa. Section 5 discusses policy restrictiveness across different modes of supply. Section 6 summarizes the main findings and calls for a continuation of this policy transparency work. 2. The Surveys of African Services Trade Policies in Context 2.1 The Joint World Bank–WTO Services Trade Policy Database and STRI The surveys of African economies were conducted in the context of the joint work by the World Bank and the WTO Secretariat to develop a comprehensive database on services trade policies to respond to the information needs of trade policy makers, regulators and the trade research community. Building on previous work initiated by the World Bank in 2008, both organizations now maintain and develop the joint Services Trade Policy Database (STPD), inaugurated in 2019 (Borchert et al., 2020a and 2020b), and the associated joint Services Trade Restrictions Index (STRI), which quantifies the level of perceived policy restrictiveness embodied in the regulatory information. 6 This is done for policies that apply on a Most Favoured Nation (MFN) basis; that is, the non- discriminatory regime applicable to all foreign services or services suppliers that do not qualify for any other preferential treatment. At the same time as information for African economies has been collected, the sector scope of the STPD has been expanded significantly by an additional 12 services subsectors (Table 2.1; new sectors in italics). As a result, the latest exercise adds 2020-21 information on a total of 34 services subsectors for 54 African economies and across multiple modes of supply to the STPD. 7 The four modes to supply services are ‘mode 1’ (cross-border supply of services), ‘mode 2’ (consumption 6 The STPD is the repository of regulatory information on services trade policies collected by the World Bank and WTO and the STRI. The regulatory information is usually collected through surveys developed by both organizations. However, for economies covered by the OECD STRI project (2016 policies at the time of writing), the regulatory information was sourced from the OECD STRI regulatory database. Cooperation with the OECD Secretariat is gratefully acknowledged. 7 These 54 African economies span two regions of World Bank work: Sub-Saharan Africa and Middle East and North Africa, respectively. Page | 4 abroad), ‘mode 3’ (foreigners establishing commercial presence), and ‘mode 4’ (temporary presence of foreign natural persons as service suppliers). 8 Table 2.1. Coverage of broad sectors and subsectors in the Services Trade Policy Database (STPD) Broad sector Subsector Distribution Wholesale, Retail trade; Financial Commercial banking; Life insurance, Non-life insurance, Reinsurance; Professional Accounting, Auditing; Legal: host country advisory, host country representation, home country/international law; Architecture, Engineering Communications Fixed-line telecom, Mobile telecom; Audiovisual: motion picture, sound recording, television; Postal and courier Transport Maritime: freight transport, Maritime intermediation auxiliary, Maritime other auxiliary (cargo handling, storage and warehousing etc.); Air passenger domestic transport, Air passenger international transport, Air freight domestic transport, Air freight international transport; Rail freight transport, Road freight transport Computer Computer services Construction Construction Health Health Tourism Hotel and lodging services, Travel agencies and tour operators, Tourist guides Source: WB-WTO Services Trade Policy Database Notes: New subsectors that were recently added to the STPD coverage appear in italics. 8 The General Agreement on Trade in Services (GATS), the multilateral agreement dealing with trade in services, defines four modes to supply services. This coverage of modes of supply is used in one way or the other in most trade agreements covering services, including the services protocol of the AfCFTA. Cross-border supply (mode 1) occurs when both the supplier and consumer remain in their respective territory, and only the services cross the border. Consumption abroad (mode 2) refers to the consumer moving to the territory of the supplier and consumes services there. Commercial presence (mode 3) is when the supplier establishes or acquires a juridical person (or other forms of presence such as a branch, representative office or a joint venture) in the territory of the consumer. Finally, the presence of natural persons (mode 4) mainly refers to the temporary movement of employees of a foreign service supplier (in the context of a service contract between the supplier and the client in the receiving country, or intra-corporate transfers) or self-employed service suppliers. Page | 5 The restrictiveness of countries' policies in each of the subsectors covered is represented by the STRI jointly developed by the WTO and the World Bank (Borchert et al., 2020a and 2020b). The STRI is an index that quantifies countries' policies on trade in services on a scale from 0 (fully open and deregulated) to 100 (completely closed to foreign participation). The STRI is produced using an algorithm and an automatized aggregation method. The input into the STRI is a selection of the information collected in the services regulatory surveys (based on a defined list of so-called “key restrictions”), which are then scored according to a determined level of restrictiveness of individual measures (or bundles if considered intertwined), and finally aggregated into indices at the sector- and subsector- mode level. A comprehensive overview of the STRI methodology for quantifying services trade policies is provided in Annex 4 of this paper. We readily acknowledge that capturing multiple regulatory measures in one number is bound to be imperfect and some nuances of these legislative measures will be lost. However, constructing an STRI offers the following advantages: i. The STRI allows one to summarize and depict policy restrictiveness in an accessible, compact way that is impossible to achieve with text-based measures; ii. the STRI facilitates a comparison of regulatory stances across sectors, countries and potentially over time; and iii. the STRI can be a crucial input for a range of additional analyses, e.g. counterfactual simulations, which can be performed using the indices themselves or using other metrics such as ad-valorem trade cost equivalents. In addition to the desirable features of the methodology in capturing the overall restrictiveness of applied service policies, the algorithm also allows for the simulation of different policy scenarios (e.g., STRI resulting from the elimination or change of specific regulations). 2.2. The Survey of African Services Trade Policies The information on African economies’ services trade policies was collected by the World Bank and the WTO through surveys filled out by local law firms or consultants. All 54 African Continental Free Trade Area (AfCFTA) Parties are covered. International support for African trade in services negotiations has provided momentum to the huge task of covering applied services trade policies across the African continent. Indeed, this work would not have been possible without the support of the German Ministry for Economic Cooperation and Development (BMZ), through its implementing agency GIZ, the European Union, the International Trade Center, the World Bank and the WTO. Notwithstanding its salience for AfCFTA negotiations, it is important to note that the information gathered may also respond to other needs such as bilateral, multilateral and other regional market access negotiations, regulatory discussions or national policy reform. The regulatory surveys were conducted on the basis of the methodology established by the World Bank and the WTO for the STPD. Beyond the information that is now available through the STPD (regulatory information and STRI), two additional specific outputs were produced, with a view to helping African countries' negotiators transition from the regulatory surveys to the schedules of commitments: 1) A “summary report” containing the information on market access (MA) and national treatment (NT) limitations in the 34 subsectors surveyed as part of the STPD enlargement across Africa (the information was extracted from the surveys); and Page | 6 2) Additional “summary reports” on MA and NT limitations in all remaining services sectors that are part of the negotiations but are not covered by the STPD. The incorporation of all-but-one African economy, alongside six Pacific Island economies and seven economies from Central and Eastern Europe, has expanded the STPD’s and STRI’s country coverage to 129 economies. 2.3. African Trade in Services by Mode of Supply This paper describes trade policies for a wide range of 34 subsectors, yet not all service sectors are equally important in terms of the observed value of services trade flows. Whereas it is important to shed light on policy restrictiveness in all sectors covered regardless of trade values, it is useful to recall that the majority of all services imports of African economies consist of financial and transportation services, as well as Information, Computer and Telecommunication (ICT including audiovisual) and distribution services, respectively (Figure 2.1). Between them, these four categories account for about three-quarters of all services imports in Africa (average values 2015- 17). These service categories are followed by the group of ‘other business services’ (including professional services), construction, and tourism and business-related travel. In addition to indicating the relative shares of main services categories in overall trade, Figure 2.1 also provides an indication of the modes of supply used to deliver services within a given category. This information comes from ‘Trade in Services data by Mode of Supply’ (TiSMoS), which is a new experimental dataset produced by the WTO. 9 Trade flows in TiSMoS are partly estimated in order to derive the modal disaggregation of trade and, as such, TiSMoS trade figures deviate from official services trade statistics. However, since the policy information described in this paper is organized by mode (see Section five below for comparisons of policy restrictiveness by mode of supply), we consider it particularly useful to have trade flows broken out by mode of supply, at least approximately, as this further helps put the policy information into a trade context. For instance, it is evident from Figure 2.1 that establishing commercial presence (mode 3) is the dominant mode for trading financial and communications services, respectively. By contrast, transportation relies mostly on mode 1. Across all services activities, about half of all trade (51%) is transacted via establishing a commercial presence abroad (mode 3). 10 Nearly 90% of services imports in Africa, according to TiSMoS, happen either via mode 1 or mode 3. Mode 4 trade is quantitatively less 9 The sector categories of Figure 2.1 are based on the structure of the TiSMoS dataset, which are broadly comparable to sector definitions in STPD with the following qualifications: for ‘Financial’, ‘Distribution’, ‘Construction’ and ‘Health’, the sector groupings in the TiSMoS dataset and in STPD are approximately identical. In other cases, subsectors are assigned to different groups; for example, the STPD subsector ‘postal and courier services’ is grouped under ‘Transport, auxiliary’ in TiSMoS but is included under ‘Communications’ in STPD. Similarly, ‘computer services’ are part of ‘ICT’ in TiSMoS, along with telecommunication services, whereas ‘computer’ is a stand-alone broad sector in STPD. The TiSMoS category ‘Other business’ has wide coverage and encompasses STPD broad sector ‘professional services’ but additionally includes trade in real estate activities, scientific and technical activities, and administrative and support service activities, none of which are part of STPD. TiSMoS category ‘Tourism, business travel’ includes accommodation and food services, whereas the STPD ‘tourism’ sector includes hotels, travel agencies and tour operators, and tourist guides. The item ‘Others*’ covers trade in manufacturing services, maintenance and repair, charges for the use of intellectual property n.i.e, heritage and recreational services and other personal services, respectively, none of which are covered in STPD. Lastly, ‘Education’ services are also not covered in STPD. 10 The share of mode 3 trade, which is mainly measured by Foreign Affiliates Statistics (FATS), relative to the other three modes that are covered by Balance of Payments statistics, is largely estimated in African economies given the lack of data availability. Page | 7 important in the overall picture but is an integral part of delivering many services, in particular professional, business and construction services. Figure 2.1. Shares of total services imports in Africa, by sector and modes of supply (2015-2017) 20 % of total services imports in Africa 5 10 0 15 l T lth n s* n l ss n ry ia ve io io tio IC lia er nc ne ea tra at ct bu th xi na si ru H uc au O tri s bu st Fi es Ed is on t, er in D or C us th sp O ,b an m Tr is ur To Mode 1 (36%) Mode 2 (9%) Mode 3 (51%) Mode 4 (4%) Notes: for the precise coverage of the service sectors shown, including the “Others*” category, see Footnote 9. Source: WTO Trade in Services Data by Modes of Supply (TISMOS) dataset, 2019. Page | 8 3. Policy Restrictiveness of Broad Sectors 3.1. Comparison of Policy Restrictiveness across Broad Sectors The restrictiveness of policies that govern the provision of services by foreign providers, across 54 African economies, is overall relatively high, albeit with substantial dispersion across economies in every sector, and across sectors (Figure 3.1). On a scale from zero (no restrictions) to 100 (sector closure), the median STRI oscillates around 50 across all nine broad sectors, thereby reflecting the presence of major restrictions in many economies. Professional services sectors are the most restrictive, with a median STRI of 60, indicating that half of the 54 economies exhibit values in excess of 60 whereas the other half fall below this value. Policies for transportation, communications and financial services, respectively, are broadly similar in restrictiveness but with a broader range of regimes, from virtually closed (STRI value near 100) to merely minor restrictions (STRI value around 25). At the other end of this spectrum, policies that regulate the provision of distribution and computer services are more liberal with median STRI values of 40, although the distribution sector exhibits a very wide range of policy regimes including complete sector closures. 11 The provision of health services also appears to be relatively open. This may be surprising in light of the perceived need to regulate this sector intensively, perhaps akin to financial services which is indeed more restrictive on average. Yet considering the different modes of supply for trade in health care services, and how they may affect the overall STRI computation, can help explain the low average restrictiveness. Firstly, most restrictions would likely focus on the practice of professionals and would thus typically relate to the supply of services through the presence of natural persons (mode 4); however, mode 4 “only” accounts for 20% of the overall score. At the same time, there are not many restrictions in mode 3 (mainly referring to the activity of private hospitals with foreign capital), which contributes 50% to the overall score. As in many economies there are very few restrictions on patients/consumers traveling abroad for health purposes (mode 2, 20%). Finally, mode 1 (cross- border supply, i.e., telehealth), accounting for 10% of the overall score, is currently not subject to specific regulation in these countries. This led to mode 1 being considered unrestricted for this type of practice setting, apart from the potential technical constraints faced. Overall, therefore, the low level of restrictiveness in the health services sector may simply reflect a lack of legislation in the sector or the existence of legislation that was conceived at a time prior to the internationalization of health services. To a certain degree, the same consideration would also extend to other sectors in many African economies. However, this does not imply in any way that fairly open sectors as per the STRI values are unregulated or not subject to regulatory frameworks to ensure a high standard of service – regulations which are not considered as restrictive. 11 For instance, in Libya and Sudan, distribution is almost entirely closed to foreign suppliers, while the sector is virtually open in Cabo Verde and Guinea-Bissau. Page | 9 Figure 3.1. Median, minimum and maximum STRI across 54 African economies, by broad service sector 100 80 STRIs in Africa 40 20 0 60 l m lth n n t ns r al ia or te io tio on is nc ea io sp pu ct ur bu at si na ru H an om To es ic tri st Fi Tr un is C of on D m Pr C om C STRI range Median 3.2. Comparison of Policies within Broad Sectors: Sector Profiles and Continental Maps Following on from the previous section’s broad cross-sectoral comparison, this section provides more detail for each of the nine broad sectors (Figure 3.3 to Figure 3.11). Specifically, we show the spatial distribution of sectoral policies with maps. In addition to maps, bar charts display the cross-country distribution of policy restrictiveness within each sector.12 As such, the sectoral bar charts further illustrate the range of policy regimes that is apparent from Figure 3.1. For instance, the distribution sector is seen to exhibit wide variation in policy restrictiveness across economies (Figure 3.1), and the associated Figure 3.6 for Distribution shows that this sector is almost entirely closed to foreign provision in Libya and Sudan whereas the sector is virtually open in Cabo Verde and Guinea-Bissau, respectively. There appears to be a certain spatial clustering of services trade policies in some sectors but not in all. For instance, several economies in Northern Africa apply rather restrictive policies in the Communications sector (Figure 3.3), whereas a restrictive stance in financial services is more prevalent in Central Africa (Figure 3.7). By contrast, there are no obvious geographical patterns in the transportation or in the tourism sectors (Figure 3.10 – Figure 3.11). The bar charts for policy restrictiveness across the nine broad sectors (lower part of Figure 3.3 – Figure 3.11) reveal that policy stances are more heterogeneous across economies in some sectors than in others, at least at this aggregate level. Specifically, policies cover a particularly wide range in distribution and health services, and to a lesser extent in financial and transportation services. By 12 It should be noted that information on applied services trade policies for the Sahrawi Arab Democratic Republic (ESH) in this paper is based on data for Morocco (MAR). In addition, the Weighted Air Liberalization Index (WALI) for South Sudan (SSD) is represented by data collected for Sudan (SDN) due to lack of further information. Page | 10 contrast, the general policy stance is somewhat more homogenous in communications and professional services, albeit at a higher average level in the case of professional services. Tourism services also present a relatively homogenous policy stance, and on average the level of policy restrictiveness is moderate. Restrictiveness in the tourism sector is mainly driven by impediments on travel agents and tour operators, as well as restrictions applying to tourist guides. One might ask whether the presence of a common legislative framework renders policies more similar across countries in certain sectors. Indeed, most African economies are party to one or more regional economic groupings that could potentially—de facto or de jure—act as conduits for coordinating services trade policies among its members. 13 Some of these groupings cut across all sectors (e.g. economic and monetary unions) whereas others have a specific focus on certain sectors. Indeed, some groupings seem to affect the level and similarity of services trade restrictiveness in some sectors (Figure 3.2). For instance, in the finance sector, regional regulations were developed in banking with the existence of two regional economic and monetary unions (West African Economic and Monetary Union – WAEMU, and Central African Economic and Monetary Community - CEMAC). Insurance services are also covered by common legislation, in the context of the Inter-African Conference on Insurance Markets (CIMA), which groups CEMAC and WAEMU parties. This translates into a high level of alignment of policies on an MFN basis in the financial services sector for countries in these economic groupings (see Figure 3.2), with a preferential treatment accorded among themselves. Figure 3.2. STRI by African regional groupings and selected broad sectors 100 STRIs in Africa by regional agreements 20 40 0 60 80 ECOWAS ECOWAS ECOWAS ECOWAS ECOWAS CEMAC WAEMU EAC SADC CEMAC WAEMU EAC SADC CEMAC WAEMU EAC SADC CEMAC WAEMU EAC SADC CEMAC WAEMU EAC SADC COMESA COMESA COMESA COMESA COMESA Professional Transport Communications Financial Distribution STRI range Median A similar pattern can be identified for professional services, for which CEMAC and WAEMU member states have also embarked on a liberalization process in regulatory cooperation. A number of regional regulations or directives exist for accounting/auditing services, legal representation services, or health professional services for those two groupings. And even when not regulated at the regional level, a 13 A list of economic groupings in Africa is provided in Annex 3: Composition of Regional Groupings. Page | 11 high level of homogeneity exists in the types of restrictions found in other professional services sectors (e.g. architecture or engineering). These features also exist for road and maritime services, although this is less visible in Figure 3.11 since transportation also includes other modes of transport (for instance, air transport, which is probably not well developed in many economies, or rail freight transport, which as a sector is often either closed or does not exist). On the other hand, STRIs values for economies that belong to regional groupings SADC, EAC or COMESA, respectively, show a relatively larger dispersion due to more heterogenous legislation across the parties. These groups also cover a larger number of parties than UEMOA or CEMAC. Even though UEMOA takes part in ECOWAS, the fact that it includes other countries as well may further contribute to higher diversity in the levels of restrictiveness. 14 14 ECOWAS covers UEMOA parties as well as Cabo Verde, The Gambia, Guinea, Ghana, Nigeria and Sierra Leone. Page | 12 Figure 3.3. STRI across 54 African economies – Communications services 100 80 STRI: Communications 40 60 20 0 COG TGO GNQ MOZ TUN TCD GIN COM DZA NGA UGA TZA ZMB GHA GMB GNB AGO MDG LSO CAF ZAF MRT SDN ETH DRC MAR CMR NER LBR DJI MLI MWI BDI SOM NAM LBY ZWE EGY GAB STP SLE CIV RWA MUS BFA CPV SWZ ESH SSD KEN SEN BEN SYC BWA Notes: (a) The colored circles in the map (upper part) with lines to their exact location refer to six small island economies that, because of their size, could not be discerned on their own without such highlighting (Comoros, Cabo Verde, The Gambia, Mauritius, Seychelles, and Sao Tomé and Príncipe). (b) ‘Western Sahara’ is referred to as “No data” but STRI values are available for this territory. Page | 13 STRI: Computer 0 20 40 60 80 100 ETH GHA LBY SYC LSO EGY AGO DZA Notes: please see Figure 3.3. STP ZMB DRC UGA SSD GAB NGA COG MRT CAF BWA MOZ MAR ESH MUS TUN GIN KEN ZWE CIV TCD MDG TGO GNQ NER SEN Figure 3.4. STRI across 54 African economies - Computer services SLE BEN MLI ZAF SWZ CMR LBR SDN TZA SOM BDI RWA MWI DJI GMB COM NAM BFA CPV GNB Page | 14 STRI: Construction 0 20 40 60 80 100 SSD EGY GHA DRC STP AGO TUN CMR Notes: please see Figure 3.3. SDN MLI MDG LBY KEN UGA TGO TCD LSO GAB SLE CAF DZA BEN SOM MAR ESH MWI NGA SYC MOZ BWA LBR ZMB MUS ZAF SWZ BFA Figure 3.5. STRI across 54 African economies - Construction services GMB ZWE MRT COG RWA TZA ETH GIN CIV SEN GNQ NER BDI DJI COM GNB NAM CPV Page | 15 STRI: Distribution 0 20 40 60 80 100 LBY SDN CAF UGA STP Notes: please see Figure 3.3. LSO EGY SSD GHA DZA GAB ESH MAR BWA AGO ETH ZMB MUS MOZ SLE DRC TUN SOM SEN COG NGA TGO MRT CIV CMR GNQ SWZ ZWE Figure 3.6. STRI across 54 African economies - Distribution services TCD MDG KEN ZAF BEN MWI GIN SYC NER LBR MLI GMB TZA DJI BDI RWA COM BFA NAM CPV GNB Page | 16 STRI: Financial 0 20 40 60 80 100 ETH SSD STP AGO UGA Notes: please see Figure 3.3. DRC ZWE EGY BWA DZA LSO RWA GHA LBY SWZ GAB KEN MAR ESH SLE SDN MOZ CIV SOM ZAF TGO MUS NER SEN BEN MLI Figure 3.7. STRI across 54 African economies - Financial services ZMB COG NGA MWI TUN TCD CMR MRT GNQ GIN GNB BFA MDG TZA GMB COM DJI CAF CPV SYC BDI LBR NAM Page | 17 STRI: Health 0 20 40 60 80 100 GIN TCD BEN BFA CMR CAF LSO STP Notes: please see Figure 3.3. MLI NER GHA MOZ SEN DZA ETH EGY ZAF GAB CIV MAR ESH SSD DRC TUN SDN UGA SOM AGO NGA COG ZWE MDG TGO SLE MWI LBY KEN ZMB Figure 3.8. STRI across 54 African economies - Health-related services BWA COM MRT BDI CPV MUS GNQ SWZ DJI TZA GMB SYC LBR RWA GNB NAM Page | 18 STRI: Professional 0 20 40 60 80 100 AGO LBY TUN DZA ETH EGY MRT STP Notes: please see Figure 3.3. NER MAR ESH GAB COG CIV GHA GIN SSD ZMB MOZ CMR NGA DRC ZWE BFA SEN TCD TGO KEN BWA BEN SDN CAF MLI SWZ MDG UGA Figure 3.9. STRI across 54 African economies – Professional services LSO SLE SOM SYC LBR GNQ RWA DJI MUS GNB GMB ZAF COM CPV NAM TZA BDI MWI Page | 19 STRI: Tourism 0 20 40 60 80 100 EGY CAF TZA ETH LBY MOZ SYC AGO Notes: please see Figure 3.3. ESH MAR GHA DZA MRT TUN SSD STP TGO CMR GAB DRC LSO BEN MLI SDN UGA BWA COG ZMB SEN MUS NGA SLE CIV MDG Figure 3.10. STRI across 54 African economies - Tourism services SOM BFA ZWE GNB LBR MWI ZAF GIN KEN RWA GMB TCD GNQ CPV NER SWZ DJI NAM BDI COM Page | 20 STRI: Transport 0 20 40 60 80 100 LSO MLI BWA ZMB LBY DZA GAB TUN Notes: please see Figure 3.3. BFA EGY CAF CMR CIV DJI COG TGO AGO MRT UGA NER ESH MAR DRC SSD SLE STP ETH MWI SWZ SOM GHA MDG TZA ZWE GIN Figure 3.11. STRI across 54 African economies - Transport services GNQ ZAF SEN COM MOZ MUS NGA KEN SDN BEN GMB TCD SYC BDI LBR NAM RWA GNB CPV Page | 21 3.3 Overview of Sector Closures Policy restrictiveness scores at the broad sector level, as discussed in the previous two sections, include a penalty for instances in which market entry or the provision of services by foreign suppliers is not possible at all in a particular subsector and mode of supply. At this much more disaggregated level, a closed subsector-mode combination attracts an STRI of 100. Within a broad sector, any such case with an STRI of 100 is then combined with STRIs from other subsector-modes within this broad sector that are open, albeit possibly subject to restrictions. This section summarizes the number of subsector-mode combinations for African economies that appear as “closed” in the Services Trade Policy Database, broken out by mode of supply in columns 2- 4 for each economy (Table 3.1). 15 The health sector is the only one for which the STPD explicitly covers Mode 2 policy information (because of the pertinence of sector specific restrictions for this mode), and across all 54 African economies none has entirely closed mode 2; indeed, doing so may perhaps not even be possible in practice. For this reason, there is no separate column for mode 2 in Table 3.1. Column 5 reports the number of subsectors in which all modes of supply from the same subsector are closed (i.e. modes 1, 3 and 4). As a result, in these cases a given subsector is in its entirety inaccessible to foreign providers. For instance, the first line of Table 3.1 shows that Algeria has closed a total of 19 subsector-mode entries, of which 11 pertain to mode 1, six to mode 3 and two to mode 4. Column 5 then shows that out of these 19 entries, six entries refer to the same two subsectors across all three modes. Specifically, accounting and auditing services, respectively, are closed across all three modes in Algeria (whereas for instance foreign supply of television services is only closed via mode 1). By contrast, Benin has closed a total of nine subsector-mode entries to foreign providers: five in mode 1 and two each in modes 3 and 4, yet they all refer to different subsectors, since column 5 indicates that Benin has not closed any subsector across all modes of supply (zero). Overall, in this sample of 54 African economies, 11% of all possible subsector-mode combinations are closed off. Across all modes, Ethiopia and Libya have the largest number of subsector-mode combinations that are entirely closed to foreign competition (39 and 33, respectively). In both countries the large number of subsector-mode closures can partly be explained by restrictions arising from general policies. For instance, in Ethiopia payments in foreign currency are restricted, except in a few selected subsectors, making it impossible for entities in Ethiopia to buy services from abroad. In Libya, foreign companies must establish a branch to be able to sell their services in the country, which in turn is only possible for a small number of services subsectors, prohibiting the provision of services directly from headquarters abroad. As a general feature, cross-border provision of services, or Mode 1, is by far the most restricted among the modes of supply, with nearly a quarter of all entries (24%) closed. The establishment of a commercial presence, or Mode 3, is not possible in 7.8% of all cases. The movement of natural persons as service suppliers, or Mode 4, is rarely closed off entirely (4.2%); however, whilst being in principle open, this mode is frequently subject to a plethora of restrictions such as labor market tests or other quantitative limitations. When it comes to professional services (including health), restrictions include nationality or residency requirements, including through reciprocity provisions, and (re-)qualification requirements, among others. 15 Note that outright closure refers to a country’s general MFN policy, as everywhere else in this paper. This implies that foreign providers may still be able to supply services on a preferential basis, e.g., due to the presence of bilateral or plurilateral agreements. Page | 22 Table 3.1. Subsector closures, by country and mode of supply Mode* Subsectors: Country all modes Total M1 M3 M4 closed Algeria (DZA) 11 6 2 2 19 Angola (AGO) 14 5 6 2 25 Benin (BEN) 5 2 2 0 9 Botswana (BWA) 7 1 0 0 8 Burkina Faso (BFA) 8 4 2 0 14 Burundi (BDI) 3 1 0 0 4 Cabo Verde (CPV) 8 0 0 0 8 Cameroon (CMR) 9 2 2 0 13 Central African Republic (CAF) 5 6 1 0 12 Chad (TCD) 6 2 0 0 8 Comoros (COM) 3 4 1 0 8 Congo, Rep. (COG) 8 4 1 0 13 Congo, Democratic Rep. (DRC) 4 2 0 0 6 Côte d'Ivoire (CIV) 9 3 1 0 13 Djibouti (DJI) 7 4 1 0 12 Egypt, Arab Rep. (EGY) 6 3 6 1 15 Equatorial Guinea (GNQ) 5 1 1 0 7 Eswatini (SWZ) 6 3 0 0 9 Ethiopia (EHT) 18 11 10 4 39 Gabon (GAB) 7 2 0 0 9 Gambia, The (GMB) 0 0 1 0 1 Ghana (GHA) 2 0 0 0 2 Guinea (GIN) 8 2 0 0 10 Guinea-Bissau (GNB) 6 2 1 0 9 Kenya (KEN) 7 2 0 0 9 Lesotho (LSO) 4 1 1 1 6 Liberia (LBR) 1 2 2 0 5 Libya (LBY) 17 10 6 5 33 Madagascar (MDG) 4 1 0 0 5 Malawi (MWI) 6 0 0 0 6 Mali (MLI) 7 2 4 1 13 Mauritania (MRT) 5 4 2 1 11 Mauritius (MUS) 1 0 0 0 1 Morocco (MAR) 8 2 1 0 11 Mozambique (MOZ) 3 3 2 0 8 Namibia (NAM) 0 3 0 0 3 Niger (NER) 10 1 1 0 12 Nigeria (NGA) 5 0 1 0 6 Rwanda (RWA) 3 0 2 0 5 São Tomé and Príncipe (STP) 7 2 0 0 9 Senegal (SEN) 8 1 1 0 10 Seychelles (SYC) 8 0 1 0 9 Sierra Leone (SLE) 0 1 0 0 1 Somalia (SOM) 0 3 1 0 4 South Africa (ZAF) 4 0 0 0 4 South Sudan (SSD) 3 0 0 0 3 Sudan (SDN) 12 6 2 1 20 Tanzania (TZA) 10 1 1 0 12 Togo (TGO) 6 2 2 0 10 Tunisia (TUN) 10 7 3 1 20 Uganda (UGA) 3 0 0 0 3 Western Sahara (ESH) 8 2 1 0 11 Zambia (ZMB) 3 3 3 1 9 Zimbabwe (ZWE) 6 4 0 0 10 Total 334 133 75 20 542 Closed (% of total) 24.0 7.8 4.2 1.0 11.0 Note: *No closures for mode 2 in health services, modal column therefore omitted. See text for more explanation. Page | 23 3.4 Evolution of Services Policy in Africa: Case Study For five economies—the Arab Republic of Egypt (EGY), Kenya (KEN), Nigeria (NGA), Tunisia (TUN), and South Africa (ZAF) —there is STRI data available for two points in time: 2016 and 2020-21, respectively. This provides an opportunity to examine how policies have evolved over time in specific instances for these five economies, subject to certain caveats regarding the comparability of STRI values at different points in time, which arise from data availability and minor changes to the aggregation methodology. Both factors may affect the level of STRI scores independently from, or in addition to, ‘genuine’ changes in policy stance. Because some of these confounding factors are confined to individual subsectors, we exclude from any comparison over time the two telecommunications subsectors as well as road freight and maritime shipping. 16 Figure 3.12 compares changes in STRI scores at the level of three broad sectors for five economies, with 2016 scores on the horizontal axis and 2020-21 scores on the vertical axis, respectively. To render policy changes readily visible, the figure also includes a 45-degree line, which indicates the equality of STRI scores at both points in time, i.e. no change. Country-sector observations below the dashed 45- degree line indicate that policy has become more liberal between 2016 and 2020-21, while the converse is true for subsectors above the reference line. Comparing the 2016 and 2020-21 STRI scores at the broad sector level—that is, for Distribution, Financial and Professional Services—reveals the cautious progression of applied services trade policies towards more openness. This trend arises as a result of some lower STRI values in Egypt and in Nigeria. Policy restrictiveness in other 3 economies (Kenya, Tunisia and South Africa) mostly oscillate around the status quo without big changes in any subsectors. The result of seemingly higher restrictiveness in South Africa could be an artefact of the fact that policies affecting competition and cross-border data flows were only scored in 2020-21 as this information was not available for South Africa in 2016. 16 The following methodological changes could potentially affect the comparability of STRI scores between 2016 and 2020- 21, respectively, at the level of subsector STRI scores: (1) the modal composition has changed slightly for two subsectors as mode 1 is now being considered for telecommunications and road freight transport subsectors; therefore these three subsectors are excluded from Section 3.4; (2) market entry restrictions were scored differently in maritime freight where alternative entry routes in Mode 3 (flying the national flag versus other forms of commercial presence) are possible; this leads to maritime shipping being excluded from Section 3.4; (3) a limited number of key restrictions in the realm of barriers to competition and those affecting cross-border data flows were not available for a number of economies in 2016 (e.g. South Africa). For the purposes of Figure 3.12, the 2016 broad sector STRIs have been recomputed using the most recent aggregation methodology in order to render STRI values as comparable as possible over time. More detailed information is available upon request. Page | 24 Figure 3.12. STRI comparison over time - selected broad sectors for five economies 100 80 EGY:Prof TUN:Prof STRI 2020-2021, broad sector KEN:Prof EGY:Fin 60 NGA:Prof KEN:Fin EGY:Dist ZAF:Fin ZAF:Prof TUN:Fin NGA:Fin 40 TUN:Dist NGA:Dist KEN:Dist ZAF:Dist 20 20 40 60 80 100 STRI 2016 Note: Figure includes changes in STRI values for three broad sectors (Financial, Distribution and Professional Services) for five economies (Egypt, Kenya, Nigeria, Tunisia and South Africa). Broad sectors ‘Transportation’ and ‘Communications’ excluded because of limited comparability over time; see Footnote 16. Page | 25 4. Policy Restrictiveness in Economic and Institutional Contexts This section draws out broad patterns of how the restrictiveness of applied services trade regimes correlates with relevant country characteristics in Africa. 17 The sample of 54 African economies is peculiar in that it includes mostly low-income economies but at the same time is highly diverse in other dimensions such as economic size, ranging from small island economies to regional powerhouses such as South Africa or Nigeria. Many economies in Africa are landlocked. Against this backdrop, it is perhaps not surprising that we find hardly any correlation between policy restrictiveness and aspects in which African economies tend to be quite similar, such as income per capita. At the same time, in other dimensions such as economic size, in which countries differ widely across the African continent, we find significant patterns, some of which are in line with stylized facts that have emerged from previous analyses of services trade restrictiveness at the global level. In order to further illustrate how policies in Africa fare in global comparison, the figures in this Section 4 also include “benchmark” economies from outside Africa, that is Lower-Middle Income Countries (LMIC). 18 The aim is to show to what extent, if any, patterns of services trade restrictiveness are similar or different compared to a ‘peer group’ of LMIC economies, which, by virtue of being roughly comparable in terms of per capita income, might face similar policy issues as the African economies at hand. 4.1 Market Size and Stage of Development Across African economies, we find that services trade regimes are much more correlated with economic size rather than with stage of development. Specifically, in most sectors there is a significant positive relationship between market size and STRI, implying that smaller African economies tend to be more open. Figure 4.1 and Figure 4.2 depict the cases of Communications and Financial services, respectively, and these patterns are representative for most sectors (except health and transport). The absence of a relationship between income per capita and STRI scores is most likely an “artefact” of the specific sample of African economies. On a global scale, OECD economies—which tend to be richer in terms of per capita income—are known to have on average more open services trade policies as compared to non-OECD economies (see e.g., Figures 5 and 8 in Borchert et al. 2020b). By contrast, the discernible relationship between market size and STRI scores may result from two principal factors. On the one hand, policy restrictiveness as captured by the STRI is often driven by barriers to establishing commercial presence. This is clearly the case for the two sectors depicted in 17 For the analyses in this section, country STRI scores are matched to contemporaneous socioeconomic variables. This means that 2020-21 STRI scores for African economies are analyzed using 2020 data for variables such as income per capita, GDP, and measure of institutional quality. For non-African lower middle-income economies, which are used for benchmarking purposes, STRI scores date from 2016 and information country characteristics therefore also pertain to that year so as to match these countries’ STRI scores. 18 The group of comparator lower middle-income countries (LMIC), for which STRI scores are available, consists of nine economies: Bangladesh, India, Sri Lanka, Myanmar, Pakistan, Philippines, Ukraine and Viet Nam, all of which were covered in 2016, plus Moldova which was covered in 2019. No STRI scores exist for non-African low-income economies in 2016 or 2019; therefore, the aforementioned group of nine LMIC is the best available match. Since construction, health and tourism sectors were only added in 2020-21, STRI scores are not available for these broad sectors in 2016. Note that average STRI scores of LMICs in 2016 and those of African economies in 2020-2021 may not be perfectly comparable due to minor methodological changes in the construction of scores, see Footnote 16. Moreover, there are differences at the level of ‘broad sectors’ in the composition of ‘Communication’ and ‘Professional services’ between 2016 and 2020, owing to an expansion of subsector coverage in 2020-21. To ensure comparability inasmuch as possible for the purposes of the graphs in this section, the broad sector definition follows the 2016 definition even for the 54 African economies. This implies, though, that the African 2020-21 broad sector scores for ‘Communication’ and ‘Professional services’ differ slightly from broad sector scores elsewhere in this paper (which include those subsectors that were added in 2020-21). Page | 26 Figure 4.1 and Figure 4.2. 19 Market entry involves fixed costs for the prospective foreign service provider, and large economies have more leverage to impose discriminatory measures (apart from a legitimate need to regulate in these sectors). At the other end of the size spectrum, one needs to keep in mind that apparent openness in smaller economies may simply reflect a lack of regulation rather than a conscious choice of liberal policy stance. The void of regulation is clearly an issue for some small economies in this sample. 19The modal weight for mode 3 restrictions is 75%-80% in financial subsectors (except reinsurance) and 70% in telecom subsectors. Page | 27 Figure 4.1. STRI and market size - Communications services 100 100 LBY LBY 80 80 DJI DJI STRI: Communications STRI: Communications COG ZWE ZWE COG DZA DZA MOZ MOZ AGO AGO CAF EGY CAF EGY 60 ETH SWZ GAB 60 SWZ GABMDG SDN ETH MDG SDN DRC LKA DRC TGO LKA SLE TGO CIV SLE CMR CIV NGA CMR MAR NGA MAR PHL ZAF STP PHL TUN ZAF STP TUN UGA UGA RWA RWA TCD MLI TCD MLI NER ZMB MMR BGD NER ZMB MMR BGD LSO GMB BWA MWI TZA GHA VNM IND MWI GMB LSOTZA IND GHA VNM BWA COM SOMMUS GIN PAK BDI SOM COM PAK MUS BDI GIN BFA SEN KEN 40 BFASEN KEN 40 MRT UKR MRT UKR GNQ GNQ GNB MDA GNB MDA BEN BEN NAM NAM SYC LBR LBR SYC 20 20 CPV CPV 0 0 20 22 24 26 28 30 7 8 9 10 Market size (log GDP) Log GDP/capita Africa LMIC Africa LMIC Note: Africa Correlation = .3189 (p-value: .020); LMIC Correlation = .2253 (p-value: .560) Note: Africa Correlation = .0478 (p-value: .734); LMIC Correlation = -0.019 (p-value: .961) Page | 28 Figure 4.2. STRI and market size - Financial services 100 100 ETH ETH 80 80 STRI: Financial STRI: Financial STP AGO STP AGO UGA IND UGA ZWE DRC DRC ZWE IND EGY EGY 60 60 LSO RWABWA MMR DZA MMR DZA BWA GHA LKA PAK RWA LSO PAK GHA LBY VNM VNM LKA LBY SWZ GAB KEN KEN SWZ GAB MAR PHL MARPHL SLE BGD SLE BGD SOMMUS MOZ TGO CIV SDN ZAF MOZ SOM TGO SDN CIV ZAF MUS MLI SEN NER BEN COG MWI ZMB NER SEN BEN UKR NGA MLI ZMB COG TCD MRT GNQ TUN CMR MWI TCD CMR NGA MRT TUN UKR GIN GIN GNQ 40 40 GNB BFA GNB BFA GMB MDA MDG TZA MDG GMB TZA MDA COM DJI COM DJI CAF SYCCPV CAF CPV SYC BDI BDI LBR LBR NAM NAM 20 20 0 0 20 22 24 26 28 30 7 8 9 10 Market size (log GDP) Log GDP/capita Africa LMIC Africa LMIC Note: Africa Correlation = .4172 (p-value: .000); LMIC Correlation = .7112 (p-value: .032) Note: Africa Correlation = .1017 (p-value: .469); LMIC Correlation = -.5286 (p-value: .143) Page | 29 4.2 Services Trade Policy and Quality of Institutions Another clear pattern is the relationship between services policy restrictiveness and quality of institutions, meaning that African countries with ‘better’ institutions, as measured by the World Bank’s Worldwide Governance Indicators (WGI), 20 typically have less restrictive services policies. In particular, the two governance dimensions that are most strongly linked to the trade policy stance are ‘political stability’ and ‘regulatory quality’, respectively. African economies with a higher WGI score for regulatory quality also tend to implement more open services trade policies—i.e. lower STRI values—in the Communications sector (Figure 4.3) and in Distribution services (Figure 4.4). Notwithstanding the salience of regulatory quality and political stability, all six governance dimensions of the WGI (listed in Footnote 20) are significantly related to trade policies for communication and distribution services, respectively. Most governance dimensions also matter significantly for professional services. The significant correlation of ‘political stability’ with services trade openness in seven out of the nine broad sectors may be linked to the importance of commercial presence as the main conduit for service provision in many sectors. This is especially true in facilities-based telecommunications and in distribution services, respectively, given the multi-year planning horizons for investment projects, the combination of a relatively open services trade policy with political stability is presumably reinforcing each other. Interestingly, the same correlations with governance indicators that prevail in Africa do not exist among the comparator group of LMIC (grey triangles in Figure 4.3 and Figure 4.4), suggesting that the policy stance in services sectors is essentially uncorrelated with local regulatory quality (and most other governance dimensions). 20The Worldwide Governance Indicators range from -2.5 to +2.5, with higher values indicating higher quality institutions. There are six dimensions of governance in the WGI – control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability. Page | 30 Figure 4.3. STRI and institutions (‘regulatory quality’) - Communications services 100 LBY 80 DJI STRI: Communications ZWE DZA COG MOZ AGO CAF EGY ETHGAB MDG SWZ 60 SDN DRC TGO CIV LKA SLE NGA CMR MAR STP TUN PHL ZAF MLI UGA RWA SSD TCD MMR NER ZMB BGD TZALSO VNM IND GMB MWI GHA BWA SOM COM BDI PAK MUS GIN BFA KEN SEN 40 MRT UKR GNQ GNB MDA BEN NAM LBR SYC 20 CPV 0 -2.5 -2 -1.5 -1 -.5 0 .5 1 1.5 2 WGI: Regulatory quality Africa LMIC Note: Africa Correlation = -.3939 (p-value: .004); LMIC Correlation = -.1863 (p-value: .631) Figure 4.4. STRI and institutions (‘regulatory quality’) - Distribution services 100 LBY SDN 80 STRI: Distribution IND 60 CAF UGA STP LSO VNM SSD MMR EGY DZA GAB GHA ETH MAR AGO ZMB UKR MOZ BWA MUS SLE DRC 40 SOM TUN SEN PHL COG NGA MRT TGO GNQZWE CMR CIV TCD MDG SWZ KEN BEN LKA ZAF MWI BGD GIN SYC LBR NER MLI GMB DJI TZA MDA BDI PAK COM RWA 20 BFA NAM GNB CPV 0 -2.5 -2 -1.5 -1 -.5 0 .5 1 1.5 2 WGI: Regulatory quality Africa LMIC Note: Africa Correlation = -.3629 (p-value: .008); LMIC Correlation = -.1169 (p-value: .766) Page | 31 4.3 Services Trade Policy and International Integration The simple correlations between a measure of services trade restrictiveness and economic characteristics point to a few instances in which African economies seem to preclude themselves from the potential benefits of being integrated into international markets for goods and services. For instance, there is a positive—albeit weak—correlation between GDP per capita, a rough proxy for stage of development, and restrictiveness in computer services (Figure 4.5). The production as well as the usage of computer services by consumers and firms is presumably relatively skill- intensive, which suggests that more advanced economies may benefit more from openness to foreign computer services. Yet the poorer economies in Africa tend to be more open in this sector. The relatively high STRI in computer services (21 economies are in the 40-60 bracket) cover restrictions on cross-border supply, establishment, and movement of persons in roughly equal measure. 21 High policy restrictiveness in computer services among economies with relatively higher per capita income, such as Seychelles, Mauritius or Libya, is driven primarily by barriers to cross- border supply (mode 1). Figure 4.5. STRI and income per capita - Computer services 100 80 STRI: Computer 60 ETH GHA LBY SYC LSO AGO EGY DZA DRC ZMB STP UGA NGA GAB CAF COG MRT BWA MOZ 40 ESH MAR MUS TUN GIN ZWE KEN MDG TCD CIV NER SLE TGO SEN GNQ MLI BEN ZAF LBR CMR SDN SWZ SOM TZA BDI RWA MWI 20 DJI GMB COM NAM BFA GNB CPV 0 7 8 9 10 Log GDP/capita Note: Africa Correlation = .2657 (p-value: .055) Another example is the finding that services policy restrictiveness tends to be higher in economies with a larger share of industrial output in GDP. In some sense this might just be another proxy measure for an economy’s stage of development; however, the point to note is that industrial activity arguably requires transportation services, both domestically as well as internationally to the extent that production requires imported inputs and some of the output is destined for exports. Yet again, the economies with the largest share of industry in GDP are the ones that exhibit substantial The set of modal weights for computer and related services is 30% for mode 1 measures, 40% for mode 3 and 30% for 21 mode 4, respectively. Page | 32 restrictions towards transportation services (Figure 4.6). Curiously enough, the industry share-STRI link is similar, if not stronger, for LMICs in other regions. In that sense, African economies are not altogether different from their peer group. But the fact that nearly all 54 African economies have transportation STRI scores within the 30-70 interval cannot bode well for their domestic and international connectivity. 22 Figure 4.6. STRI and the industry sector - Transport services 100 LSO 80 MLI LBY BWA STRI: Transport ZMB DZA PHL MMR GAB CIVTUN CMR IND BGD COG BFA EGY 60 CAF TGO LKA UKR MAR DRC DJI NER MDA UGA MRT SLE SSD AGO STP MDG ETH GIN MWI TZA GHA SWZ SEN ZWE GNQ MOZ ZAF 40 KEN MUS NGA TCD PAK SDN COM SYC BEN GMB BDI LBR NAM RWA GNB CPV 20 0 5 10 15 20 25 30 35 40 45 50 Industry (% GDP) Africa LMIC Note: Africa Correlation = .3817 (p-value: .005); LMIC Correlation = .8609 (p-value: .006) Qualitatively the same positive correlation exists for Professional services STRI scores and the industrial output share (Figure 4.7). Industrial activity conceivably benefits from a range of professional services as producer inputs. Hence, the concern would again be that the more industrialized economies, i.e., those with a larger share of industry output in GDP, appear to be the ones that are more restrictive towards imports of professional services than less industrialized economies. Even though they might arguably be more in need of such services inputs, economies with comparatively high STRI values make it more difficult for the private sector to unlock these benefits. 22 The positive association between the manufacturing share in GDP and transport STRI scores (not shown) is weaker across African economies than the STRI correlation with the industrial sector as depicted in Figure 4.6. The industrial sector is broader and includes mining, construction and utilities alongside manufacturing. Yet even mining (an important sector for some African economies) and construction activities require transportation services, thus the industrial share in GDP seems the relevant measure in this case. Page | 33 Figure 4.7. STRI and the industry sector - Professional Services 100 DZA LBY AGO ETH PHL TUN EGY IND 80 MOZ STP MAR LKA GAB ZMB STRI: Professional MMR CIV MRT ZWE GNB DJI CAF COM KEN NER SEN DRC GNQ COG SWZ TCD LBR GIN GHA 60 BEN MLI CMR TGO BWA UGA NGA SSD MDG BGD BFA LSO NAM SLE SDN SYC GMB MDA MUS CPV ZAF 40 BDI PAK UKR RWA TZA MWI 20 0 5 10 15 20 25 30 35 40 45 50 Industry (% GDP) Africa LMIC Note: Africa Correlation = .2952 (p-value: .034); LMIC Correlation = .6894 (p-value: .059) It thus seems that many economies are not fully harnessing the role of services—especially transportation and professional services—that could be greasing the wheels of commerce and industrialization. Somewhat similarly, we also find little evidence of services trade policies being leveraged to compensate for pre-existing geographical disadvantages such as landlockedness. In particular, the sample of 54 African economies contains 15 landlocked economies. 23 These also often happen to have very low per capita incomes, and openness towards foreign providers of transportation services could mitigate, at least in part, against generally higher trade costs due to their geography. Yet what we find is that, if anything, transportation sector policies tend to be even more restrictive in landlocked economies compared to coastal economies (Figure 4.8, landlocked economies marked in red triangles). This is even true holding the level of income per capita constant. As such, the situation in 2020-21 echoes a finding about services trade policies as a missed opportunity for better connectivity in developing countries more than a decade ago (Borchert et al., 2017). Across the three transport modes that are available to landlocked economies—road haulage, rail freight and air transport—the average STRI in landlocked economies is not lower compared to coastal economies but instead slightly higher throughout (Figure 4.9, dark blue bars). In air transportation, the difference is mainly driven by more restrictive policies towards establishing commercial presence in landlocked jurisdictions. 23The 15 landlocked African countries are: Burundi, Burkina Faso, Botswana, Central African Republic, Lesotho, Mali, Malawi, Niger, Rwanda, South Sudan, Eswatini, Chad, Uganda, Zambia and Zimbabwe. Even though a landlocked country, Ethiopia relies on Djibouti’s port and transport-related infrastructure for its maritime trade. As such a regulatory survey for maritime services in Ethiopia was completed and associated STRIs constructed for maritime subsectors. Thus, Ethiopia is excluded from the sample of landlocked African economies. Page | 34 Figure 4.8. STRI and per-capita income - Transportation services, landlocked versus coastal economies 100 LSO 80 MLI LBY BWA STRI: Transport ZMB MMR PHL DZA GAB CIV TUN COG CMR BGD IND BFA EGY 60 CAF TGO LKA DRC ESH MAR UKR NER UGA DJI MRT MDA MDGSLE AGO ETH GIN STP MWI TZA VNM GHA SWZ SEN ZWE SOM ZAF GNQ MOZ 40 KEN NGA MUS TCD SDN PAK BDI GMB COMBEN SYC LBR NAM RWA GNB CPV 20 0 6 7 8 9 10 Log GDP/capita Africa, landlocked Africa, coastal LMIC Note: Africa Correlation, landlocked= .2992 (p-value: .299); Africa Correlation, coastal = .1496 (p-value: .363) LMIC Correlation = -.0069 (p-value: .986) Figure 4.9. STRI in Transportation subsectors, landlocked versus coastal economies p 100 80 60 STRI 40 20 0 tic l tic d l l ai na na oa es R es tio tio R om m na na do d er r te ht s nt in as ig i ht s rp re as ig rf Ai rp re Ai rf Ai Ai Coastal African Economies Landlocked African Economies Page | 35 4.4 Health Care Services and Tourism Policies governing the provision of health care services—covered for the first time in 2020-21—are an interesting case in the sense that its macroeconomic patterns are different from the ones discussed in Sections 4.1 and 4.3. For instance, relatively richer economies (in terms of per capita income) tend to be more open to foreign health services provision (Figure 4.10), which rather echoes the relationship between these two variables at the global level (see Borchert et al. 2020b). The inverse relationship of services trade restrictiveness is even more pronounced with respect to the size of the service sector as a share of GDP (Figure 4.11). Again, economies with a relatively large services sector tend to exhibit less restrictive health trade policies. These relationships could reflect the fact that the demand for health care strongly increases with income (and presumably market size). Economies with a higher income per capita will typically exhibit a higher share of health care in consumption as demand for health services is income elastic, which in turn may prompt countries to adopt a more liberal trade policy stance. At the same time, however, in contrast to producer input services, health care services are consumed by citizens rather than businesses. Against that backdrop, the restrictive stance in low-income economies could suggest a missed opportunity for more or improved provision of health services when this would be most needed. The variation in restrictiveness across economies for health-related services is considerable, ranging from STRI values of over 80 in Guinea and Chad to ones below 20 in Guinea-Bissau and Namibia (Figure 4.10). But at least on average, the provision of health services appears to be relatively open, which had been noted in Section 3.1 above (Figure 3.1). This may be surprising in light of the perceived need to regulate this sector intensively, perhaps akin to financial services which is indeed more restrictive on average. Yet considering the different modes of supply for trade in health-related services, and how they may affect the overall STRI computation, can help explain the low average restrictiveness. Firstly, most restrictions would likely focus on the practice of professionals and would thus typically relate to the supply of services through the presence of natural persons (mode 4); however, mode 4 “only” accounts for 20% of the overall score. At the same time, there are not many restrictions in mode 3 (mainly referring to the activity of private hospitals with foreign capital), which contributes 50% to the overall score. As in many economies there are very few restrictions on patients/consumers traveling abroad for health purposes (mode 2, 20%). Finally, mode 1 (cross-border supply, i.e., telehealth), accounting for 10% of the overall score, is currently not subject to specific regulation in these countries. This led to mode 1 being considered unrestricted for this type of practice setting, apart from the potential technical constraints faced. Overall, therefore, the low level of restrictiveness in the health services sector may simply reflect a lack of legislation in the sector or the existence of legislation that was conceived at a time prior to the internationalization of health services. To a certain degree, the same consideration might also extend to other sectors in many African economies. Page | 36 Figure 4.10. STRI and income per capita - Health-related services 100 GIN 80 TCD BEN BFA CMR STRI: Health 60 CAF LSO NER MLI STP MOZ GHA ETH SEN DZA EGY ZAF CIV GAB DRC MAR ESH UGA SDN TUN SOM NGA AGO COG ZWE 40 MDG MWISLE TGO ZMB KEN LBY BWA BDI COM MRT CPV GNQ MUS SWZ GMB TZA DJI SYC LBR RWA 20 GNB NAM 0 7 8 9 10 Log GDP/capita Note: Africa Correlation = -.1782 (p-value: .202) Figure 4.11. STRI and the service sector - Health-related services 100 GIN 80 TCD BEN BFA CMR STRI: Health 60 CAF LSO MLI NER STP MOZ GHA ETH DZA SEN EGY ZAF CIV GAB DRC MAR SSD SDN UGA TUN COG NGA AGO ZWE MDG 40 SLE TGO MWIKEN LBY ZMB BWA MRT BDI COM GNQ CPV MUS SWZ TZA GMB DJI SYC LBR RWA 20 GNB NAM 0 30 40 50 60 70 80 Services (% GDP) Note: Africa Correlation = -.2903 (p-value: .037) Page | 37 For the first time in the STPD’s history, policies affecting three segments of the tourism sector have been covered (hotels and lodgings; travel agencies and tour operators; and tour guides, respectively). These service activities are arguably of interest to many African economies. We find that restrictiveness towards foreign tourism providers tends to be higher in larger and more industrialized economies (Figure 4.12). Although this echoes a correlation found for other sectors such as transportation (Figure 4.6) and professional services (Figure 4.7), here the implication is distinctly more positive. It suggests that smaller economies and ones that rely less on industrial production and mining adopt more open policies in the tourism sector, precisely perhaps because tourism offers one important source of income and development for these kinds of economies. Figure 4.12. STRI and the service sector - Tourism-related services 100 80 CAF EGY ETH TZA MOZ LBY STRI: Tourism SYC AGO MAR GHA 60 DZA MRT TUN STP TGO CMR SSD BEN MLI LSO GAB DRC SDN UGA BWA SEN ZMB COG SLE MUS CIV NGA MDG BFA ZWE 40 GNB MWI LBR ZAF KEN RWA GIN GMB TCD NER CPV GNQ SWZ DJI BDI NAM 20 COM 0 5 10 15 20 25 30 35 40 45 50 Industry (% GDP) Note: Africa Correlation = .2395 (p-value: .084) In line with all other services sectors, though, openness in both health care and tourism services is positively correlated with good institutions; in particular, with political stability and the rule of law, respectively. Page | 38 5. Policy Restrictiveness across Modes of Supply The rich detail of regulatory information in the Services Trade Policy Database allows an analysis of policy restrictiveness by different modes of supply within given subsectors. ‘Mode 1’ refers to the cross-border provision of services, ‘mode 2’ to consumption abroad, ‘mode 3’ to foreigners establishing commercial presence, and ‘mode 4’ to the temporary presence of foreign natural persons as service suppliers. 24 5.1 Patterns across Modes Across African economies, we find several patterns of services trade policy in relation to modes of supply. Firstly, in communications services subsectors (Figure 5.1) and in financial services (Figure 5.2), the cross-border supply of services—i.e. mode 1—tends to be more restricted than mode 3, which in turn is more restrictive than mode 4. One of the rationales for high levels of restrictiveness towards cross-border supply of financial services is that regulators tend to prefer having foreign suppliers onsite for reasons of regulatory and prudential oversight. This is particularly pronounced in life and non-life insurance services but equally in commercial banking. In addition to high STRI values for mode 1 in telecommunications, there are still economies in Africa with a de facto monopoly in the fixed-line segment of the telecommunications sector (e.g. Algeria, the Republic of Congo, Central African Republic, The Gambia, Togo, or Zimbabwe), which drives high restrictiveness in mode 3. Postal and courier services as well as television services (Figure 5.1) follow the same modal pattern as telecom and financial services. The reason for relatively high mode 3 STRI scores is that national postal operators often hold a monopoly in reserved areas (e.g., letters and parcels below a certain weight), whereas in television services, restrictions arise from limits on foreign equity, economic needs tests, and nationality requirements for employees, managers or directors. 24 For a more detailed description of modes of supply, see Footnote 8 above. Page | 39 Figure 5.1. STRI by mode of supply - Communications services subsectors 100 80 60 Sector: Communications STRI 40 20 0 M1 M3 M4 M1 M3 M4 M1 M3 M4 M1 M3 M4 M1 M3 M4 Telecom Television Motion Sound Postal & picture recording courier STRI 2020-21 of African Economies STRI 2016 of LMIC Figure 5.2. STRI by mode of supply - Financial services subsectors Sector: Financial 100 80 60 STRI 40 20 0 M1 M3 M4 M1 M3 M4 M1 M3 M4 M1 M3 M4 Commercial Life insurance Non-life Reinsurance banking insurance STRI 2020-21 of African Economies STRI 2016 of LMIC Page | 40 Second, in services sectors that typically rely on high-skilled professionals, trade is restricted across both mode 1 and mode 4 whereas commercial presence tends to be the least restricted of the three modes. Specifically, across subsectors such as architecture, auditing, accounting and engineering, mode 3 is the least restricted mode of supply (Figure 5.3 and Figure 5.4). Presumably this reflects again the relative preference of regulators for onsite provision of such services, as in financial services. At the same time, though, modes 1 and 4 are practically more important for discharging these kinds of services and therefore the restrictions imposed precisely on those modes matter most. For instance, in health and several professional services, many jurisdictions impose nationality and/or residency requirements on service professionals in order to be able to practice, which constitutes a significant restriction. Whether or not foreign education or experience is recognized may also play a role. Figure 5.3. STRI by mode of supply - Construction, Architecture, Engineering and Health services Sector: Construction, Architecture, Engineering, Health 100 80 60 STRI 40 20 0 M3 M4 M1 M3 M4 M1 M3 M4 M1 M2 M3 M4 Construction Architecture Engineering Health Page | 41 Figure 5.4. STRI by mode of supply - Legal, Accounting, and Auditing subsectors 100 80 60 Sector: Professional - Legal, Accounting, Auditing STRI 40 20 0 M1 M3 M4 M3 M4 M3 M4 M1 M3 M4 M1 M3 M4 Legal: Legal: Legal: Accounting Auditing home law advisory representation STRI 2020-21 of African Economies STRI 2016 of LMIC Thirdly, outside professional services, health care and tourism guides, respectively, STRI values in mode 4 largely reflect horizontal measures arising from immigration policy, and to a lesser extent potentially also regulation affecting cross-border data flows. Neither of these are sector-specific, which explains the relative similarity of mode 4 scores (see Figure 5.5) outside of professional services, health care, and tourism. The only exception are road freight services, which are appreciably more restrictive in mode 4 compared to other transportation subsectors. This higher level of restrictiveness reflects limitations on visas and the number of days that a foreign driver may stay in the host country. Moreover, there are some economies that reserve the profession to citizens such as, for instance, Cameroon, the Republic of Congo, Lesotho, Libya, or Mali. Page | 42 Figure 5.5. Mode 4 STRI, by subsector Mode 4: Movement of natural persons 100 80 60 STRI 40 20 0 M ar rg o ail n s d e el i ti m h a d ed m -life ins e fre dl re ig m m ur Le dvi rep h ry er e H g ur s do t C lesa il So tion ion H op ei g M d er om le gi ct g A i r f s nt Te bil ine c u g rm t M levi tel d ic c st lth n r ht in te h a ba in To ide re in a r i ti o a A c A u om A r o i ti n ne ur te R kin En hitentin un p ot m e n To tio g: s o r f r e do in ig i xe ri ns R ho et ig ht e o s o l A i as s Fi cou on ea om n e R pu a : W R gu r p as g: eg C No Lif c ru Ai r p Le L ur c al Ai st M ca Po e m C i ti ar M Professional Tourism Transport Financial Communications Distribution STRI 2020-2021 of African economies STRI 2016 of LMIC Note: Horizontal bar represents average STRI of mode 4. 5.2 Modal Patterns across Sectors It is equally instructive to compare levels of policy restrictiveness across sectors for a given mode of supply. Doing so reveals two additional insights. First, services trade via mode 1 is on average more restricted than mode 3, with an average STRI of 60 and most sectoral STRIs (which themselves are averages across the 54 African economies) falling in the interval between 40 and 80 (Figure 5.6). Second, however, the higher restrictiveness in mode 1 on average is accompanied by substantially more variation across sectors. Put differently, not only is the average STRI in mode 3 more open (slightly below 50) but there is much less variation across sectors, with most sector averages between 40 and 50 (Figure 5.7). The only two outliers in the context of establishing commercial presence are legal representation (part of `professional’) and in railway freight, respectively. The latter reflects the existence of de jure or de facto monopolies in the rail subsector in some 25 jurisdictions across Africa. Incidentally, the presence of such monopolies in rail freight also affects restrictiveness in mode 4 (Figure 5.5) as the possibility of working in the host country as an intra-corporate transferee becomes irrelevant. Page | 43 STRI STRI Le L 0 20 40 60 80 100 0 20 40 60 80 100 g: eg L a : C No ife om n- i n Le dvi rep g: s o m life s ho ry ba in A c A ud m e nk s c A r o u i ti n R ing ei c n g ns Financial En hite tin ur gi ct g Le Professional ne ur g: er e ho in A m Ai Ai r p g A c ud e r p as c it A i as s i Ar ou ing Ai f r s n c h n ti r f r e do t E n i te n g re igh m gi ctu M ig t ne re ar ht in i ti do t er m m in Figure 5.7. Mode 3 STRI, by subsector Figure 5.6. Mode 1 STRI, by subsector g Professional e Ai M ca RRa rp M ar rg o il Ai a a r i ti o a r f ss i ti m h a d r e in Transport m e n ig t e fre dl ht in ig in t M t Po erm ht R st ed M ari a al ar tim R il i ti e o a m f d Fi cou xe rie e re Transport M d r in igh Note: Horizontal bar represents average STRI of mode 3. Note: Horizontal bar represents average STRI of mode 1. te t o li rm Te bile ne Po ed M levi tel st al o s co So tion ion Fi ur un pi xe ie d c M d li r re ob ne c Te ile STRI 2020-21 of African economies C No Lif le te STRI 2020-21 of African economies om n e m -life ins M vis l ot i o ba in n s So ion n R kin un pic ei g ns d re u c H r Mode 1: Cross border supply Communications H Communications Financial Mode 3: Commercial presence ea ea lth lth To ro u To H p u ro ot el H p ot W R Tourism el C ho et a on les il STRI 2016 of LMIC W Re STRI 2016 of LMIC st ale h o ta r u le il sa C ctio C le om n o m Tourism Distribution pu pu te te Distribution r r Page | 44 The comparisons of restrictiveness across sectors within mode 1 (Figure 5.6) and mode 3 (Figure 5.7), respectively, can also be used to benchmark policy regimes in Africa against a set of lower middle-income countries (LMIC) from other regions. The associated 2016 STRI scores of LMICs are depicted with red diamonds in the aforementioned figures whenever STRI data are available. Two findings stand out: first, in financial and professional services subsectors African economies are on average more restrictive towards foreign cross-border provision (mode 1) whereas they tend to be slightly more open towards foreign commercial presence in both broad sectors. Second, across an array of transportation subsectors, African economies tend to be less restrictive than their LMIC peers in both modes. Note that this finding from a comparison of two country groups is consistent with an earlier insight that—across economies within each group—those with higher income per capita tend to restrict their transport sectors more (see Section 4.3). Hence, whilst overall African transport policies seem to compare favorably with those from other LMIC, it is still true that substantial barriers to road, rail and air connectivity exists, paradoxically especially among the relatively richer economies, in Africa and elsewhere. 6. Conclusions The analysis of national services trade policies crucially depends on comprehensive regulatory information. The availability of such information has long eluded developing economies, particularly African ones. In this sense, the work carried out by the WTO and the World Bank fills a significant gap and opens an auspicious door for research. It also provides the factual foundation for international negotiations and for domestic policy reform. The availability of this information is, in itself, a major advance in promoting the transparency of trade policy. For a significant number of sectors (engineering, architecture, audiovisual, computing, construction, postal/courier, health, and tourism), this information was not available in the World Bank-WTO Services Trade Policy Database (STPD) and STRI until the collection of regulatory information conducted between 2020 and 2022. Furthermore, only the STPD has information on regulatory frameworks in the health and tourism sectors – for the moment in African countries and Pacific islands, but soon for the other economies covered by the database. Another major advance of the joint work of the WTO and the World Bank is the expansion of the sectors covered in the Services Trade Policy Database (STPD). In the wake of surveying services trade policies across Africa, the World Bank and the WTO also extended the quantitative part, i.e. the STRI, to all the new sectors mentioned above, bringing the coverage to nine broad services sectors (professional, communications, computer, construction, distribution, financial, health, tourism and transportation services). From now on, this “expanded STRI” will serve as the basis for the quantification of services trade policies in all other economies covered by the STPD. In this sense, the work with respect to these 54 African countries was not merely an addition to the database but the kick-off of a substantial expansion, not only in terms of geographical coverage but also in terms of sectoral and policy coverage. The new information enables a first consistent analysis of services trade policies of all African economies. In general terms, services trade policies in Africa are relatively restrictive, albeit with substantial dispersion across economies and sectors. Professional services are the most restricted, while computer and distribution services appear as the least restricted sectors. Page | 45 There appears to be a certain spatial clustering of services trade policies in some – but not all – sectors. For instance, a number of economies in Northern Africa apply rather restrictive policies in the communications sector, whereas a restrictive stance in financial services is more prevalent in Central Africa. By contrast, there are no obvious geographical patterns in the policies applied to the transportation or tourism sectors. Some sectors exhibit wide policy heterogeneity across economies – notably distribution and health services, and to a lesser extent financial and transportation services. By contrast, although at different levels of restrictiveness, the general policy stance is somewhat more homogenous in communications, professional services and tourism. Some regional groupings led to policy coordination among their parties, affecting the level and similarity of overall sectoral trade restrictiveness in some sectors. For example, common banking regulatory frameworks in the context of WAEMU and CEMAC, and common insurance regulation in the context of CIMA (which groups WAEMU and CEMAC parties), have translated into a high level of alignment of MFN policies in these sectors, with a preferential treatment accorded within the regions. On the other hand, STRI values for parties to SADC, EAC and COMESA show a relatively larger dispersion due to more heterogenous legislation. The larger membership of these latter three groups (compared to WAEMU and CEMAC) may be further contributing to higher diversity of restrictiveness levels. Overall, 11% of all possible subsector-mode combinations in African economies are closed off to services imports. From this perspective, across all modes, Ethiopia and Libya appear as the most restrictive – 39 and 33 subsector-mode combinations are entirely closed to foreign competition, respectively – while The Gambia, Mauritius and Sierra Leone – all with only 1 subsector-mode closed off – appear as the most open. As a general feature, the supply on a cross-border basis (with nearly a quarter of all entries closed, 24%) is by far the most restricted mode of supply. The establishment of a commercial presence is not possible in 7.8% of all cases, while the movement of natural persons as service suppliers – basically ICT, IPs and CSS – is rarely closed off entirely, although it remains frequently subject to a plethora of restrictions such as labor market tests or other quantitative limitations. In services sectors that typically rely on high-skilled professionals, modes 1 and 4 appear as the most restricted, whereas commercial presence tends to be the least restricted of the three modes. Trade policy does not happen in a vacuum – context matters. This sample of 54 economies is peculiar in that it is composed of mostly low-income economies but with high diversity in other dimensions, such as their economic size, ranging from small island economies to regional powerhouses such as South Africa or Nigeria. Not surprisingly, there is hardly any correlation between policy restrictiveness and aspects similar to all African economies, such as income per capita. On the other hand, in most sectors there is a significant positive relationship between market size and the STRI, implying that smaller African economies tend to be more open. Another clear pattern that emerges is the relationship between services trade policy restrictiveness and quality of institutions, which is broadly negative and significant across nearly all services sectors and most dimensions of institutional quality. Economies with better institutions typically have less restrictive services policies – a link that appears strongest in communications and distribution services. Across different Worldwide Governance Indicators of institutional quality, "political stability" appears as the most relevant aspect of institutions with significant relationships to services trade openness in six out of nine broad sectors. Page | 46 The survey and quantification of African services trade policies is a significant step forward in the promotion of trade policy transparency. We hope that this will encourage further research on African services trade policies at a time when governments are putting in place a continental free trade area with a view to further promoting intra-continental trade and providing a springboard for further integration of their economies into world services trade. Beyond the overview of trade policy patterns, the importance of this exercise lies in the potential for research on the actual impact of services trade policies on different economic outcomes in Africa and on the assessment of policy reform. Indeed, the STRIs may be used to construct ad-valorem equivalents (AVEs) reflecting the percentage change in iceberg trade costs associated with a given change in a measure affecting services trade. These AVEs can then be used to either quantify the impact of observed changes in policies between two points in time on variable trade costs or to assess the impact of counterfactual policy changes on overall restrictiveness and hence on trade costs. But this type of analysis, in which we ourselves have already embarked, is very demanding in terms of data, requiring for example information on bilateral services trade flows (ideally, at subsector level) and on domestic trade flows – information that is largely missing for many African economies. We hope that the exercise we have just initiated in the case of African economies will serve as an encouragement for national governments, the international community and researchers to further devote resources to improving the availability of services trade data. Page | 47 References Baldwin, Richard and Rikard Forslid (2020), “Globotics and Development: When Manufacturing is Jobless and Services are Tradable”, NBER Working Paper #26731. Borchert, Ingo, Batshur Gootiiz, Arti Grover and Aaditya Mattoo (2017), “Services Trade Protection and Economic Isolation”, World Economy 40(3), pp. 632-652. DOI: 10.1111/twec.12327. Borchert, Ingo, Batshur Gootiiz, Joscelyn Magdeleine, Juan A. Marchetti, Aaditya Mattoo, Ester Rubio and Evgeniia Shannon (2020a), “Applied Services Trade Policy: A Guide to the Services Trade Policy Database and the Services Trade Restrictions Index”, Policy Research Working Paper No. 9264, June 2020, World Bank, Washington, DC. Borchert, Ingo, Joscelyn Magdeleine, Juan A. Marchetti and Aaditya Mattoo (2020b), “The Evolution of Services Trade Policy since the Great Recession”, Policy Research Working Paper No. 9265, June 2020, World Bank, Washington, DC. Borchert, Ingo; Joscelyn Magdeleine; Juan A. Marchetti (2022), “Services Trade Policies and Services Trade Costs: New Evidence for African Economies”, Presented during the 25th Annual Conference on Global Economic Analysis (Virtual Conference). Purdue University, West Lafayette, IN: Global Trade Analysis Project (GTAP). Page | 48 Annex 1: Country Profiles This annex provides a complete summary of all subsector STRI scores for each of the 54 African economies. Subsectors are grouped according to broad sectors to which they belong. 25 The red line shows each individual African economy’s STRI for a given subsector. This STRI score is an average across modes of supply within that subsector. In addition, for benchmarking purposes, the blue line shows the average STRI, as of 2016, of the peer group of lower middle-income countries (LMIC) in that same subsector (cross-country average). For details on the peer comparison group see Section 3. No 2016 STRI for LMIC exist for subsectors that were newly added in 2020-21, such as ‘Construction.’ In these cases, the blue LMIC entry is empty. Note that the average 2016 STRI scores for LMICs and average 2020-21 scores of African economies are not perfectly comparable due to minor methodological changes in the construction of scores; for details see Footnote 16 above. Country: AGO COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home 25 The following broad sector abbreviations are used: COM – communications; DIST – distribution; FIN – financial services; PRO – professional services; TOU – tourism; TRA – transportation services. Page | 49 Country: BDI COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: BEN COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 50 Country: BFA COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: BWA COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 51 Country: CAF COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: CIV COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 52 Country: CMR COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: COG COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 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TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: SWZ COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 71 Country: SYC COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: TCD COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 72 Country: TGO COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: TUN COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 73 Country: TZA COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: UGA COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 74 Country: ZAF COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Country: ZMB COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 75 Country: ZWE COM1:fixed-line TRA9:rail COM2:mobile TRA8:road COM3:motion pic TRA7:marit intermed COM4:sound rec TRA6:marit cargo COM5:television TRA5:marit handlg COM6:postal TRA4:air carg int COMPUTER TRA3:air carg dom CONSTRUCTION TRA2:air pass int DIST1:retail TRA1:air pass dom 12 DIST2:wholesale 25 TOU3:hotels FIN1:bank TOU2:guides 50 FIN2:life ins TOU1:tour op FIN3:non-life ins 75 PRO7:engineer FIN4:reinsur PRO6:architect HEALTH 100 PRO5:auditing PRO1:legal adv PRO4:account PRO2:legal rep PRO3:legal home Page | 76 Annex 2: Average STRI Scores by Subsector and Mode (selected sectors) Figure A2.1: STRI by mode of supply - Distribution subsectors and Computer Sector: Distribution and Computer 100 80 60 STRI 40 20 0 M1 M3 M4 M1 M3 M4 M1 M3 M4 Wholesale Retailing Computer STRI 2020-21 of African Economies STRI 2016 of LMIC Figure A2.2: STRI by Mode of Supply – Tourism Subsectors Sector: Tourism 100 80 60 STRI 40 20 0 M1 M3 M4 M1 M3 M4 M4 Hotels Travel agency & Tour guide tour operator services Page | 77 Figure A2.3: SRTI by Mode of Supply – Land and Sea Transport Subsectors Sector: Transport - Land and sea 100 80 60 STRI 40 20 0 M1 M3 M4 M1 M3 M4 M1 M3 M4 M3 M4 M1 M3 M4 Rail Road Maritime Maritime Maritime freight cargo handl. intermed. auxiliary STRI 2020-21 of African Economies STRI 2016 of LMIC Note: Landlocked economies are omitted from the sample for maritime subsector STRIs, as are economies without rail tracks from the sample for rail freight STRIs. Figure A2.4: STRI by Modes of Supply - Air Transport Subsectors Sector: Transport - Air 100 80 60 STRI 40 20 0 M3 M4 M3 M4 M1 M3 M4 M1 M3 M4 Air pass dom Air freight dom Air pass intl Air freight Intl STRI 2020-21 of African Economies STRI 2016 of LMIC Page | 78 Annex 3: Composition of Regional Groupings Member states of the West African Economic and Monetary Union (WAEMU/UEMOA): Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Members states of the Central African Economic and Monetary Community (CEMAC): Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon. Member states of the Organisation for the Harmonisation of Corporate Law in Africa (OHADA): Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Côte d'Ivoire, Democratic Republic of Congo, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Member states of the Inter-African Conference on Insurance Markets (CIMA): Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Republic of Congo, Côte d'Ivoire, Equatorial Guinea, Gabon, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Member states of the Southern African Development Community (SADC): Angola, Botswana, Comoros, Democratic Republic of the Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia, and Zimbabwe. Member states of the Common Market for Eastern and Southern Africa (COMESA): Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Arab Republic of Egypt, Eritrea (not covered in the sample), Eswatini, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tunisia, Uganda, Zambia, and Zimbabwe. Member states of the East African Community (EAC): Burundi, Democratic Republic of the Congo, Kenya, Rwanda, South Sudan, Uganda, and Tanzania. Member states of the Economic Community of West African States (ECOWAS/CEDEAO): Benin, Burkina Faso, Cabo Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. Page | 79 Annex 4: Measuring Services Trade Policy Restrictiveness 26 The World Bank-WTO Services Trade Restrictions Index (STRI) is a measure of the restrictiveness of an economy's regulatory and policy framework with respect to trade in services. It builds on the previous World Bank STRI and is based on the information contained in the Services Trade Policy Database (STPD). 27 Out of the broad set of regulations and measures available in the database, around 150 of them were selected to compute the index. A.4.1 Scoring Services trade policies are assessed by looking at specific types of measures for each subsector and mode. To assess restrictiveness, the severity of individual measures in curtailing services trade is captured in the scores assigned to them. We generally consider 6 distinct levels of restrictiveness on a scale of 0 to 1, each of which attracts a different (monotonically increasing) score. Each individual measure is classified under one of the 6 categories depending on the level of restrictiveness imposed. Table A.4.1 presents these six levels of restrictiveness and provides a concrete policy example for each level. Table A.4. 1. Examples of measures, level of restriction and associated score Level of Restriction Examples Score Not restrictive No restriction on the type of legal entity, no 0.00 foreign equity limitation Not restrictive, but minimal No provision for prior notice of, or 0.125 procedural/transparency comment on, regulatory changes issue Minor restriction Acquisition of land and real estate by 0.25 foreigners prohibited Neither minor nor major Limit on number of suppliers 0.50 Major restriction Services provided by a de facto monopoly 0.75 or granted on an exclusive basis Closed (service provision Commercial presence is prohibited 1.00 not possible) Additionally, assigning a restrictiveness score to a single measure is insufficient in cases in which specific policies consist of bundles of intertwined measures that are recorded separately. The restrictiveness of those policies can only be assessed by considering the entire bundle of such measures. For example, difficulty in entering a market is most plausibly assessed by looking at the admissible combinations of entry options, rather than individual routes. For mode 3, foreign suppliers may establish commercial presence and supply services either through domestic acquisitions or via greenfield investment. Since these routes represent alternative entry options, we score restrictions for each route in isolation. We call such bundles ‘synthetic’ measures as they consist of two or more individual measures that are separate entries in the database, but whose impact on restrictiveness is scored jointly for the purposes of constructing the STRI. Thus, the overall restrictiveness score for a group of policy measures, e.g., at the subsector-mode level for a given economy, results both from the type as well as the number of measures applied. 26 For further information on the construction of the STRI, please refer to the WTO I-TIP Services page (http://i-tip.wto.org/services). 27 See Borchert, Magdeleine and Marchetti (2022). Page | 80 Only when the assessment of restrictiveness, i.e., scoring, is complete at the measure level including synthetic measures, does the process of aggregation start, which is described in the following section. A.4.2 Aggregation Individual measure scores are aggregated to higher levels, such as for a given sector-mode or a given broad sector, using the ‘Constant Elasticity of Substitution’ (CES) functional form. The CES function 1 generically combines an array of = (1,…,) elements according to = ��=1 � . Using the parameter (), the CES function calibrates the marginal contribution of an additional restriction to the overall policy restrictiveness. For instance, adding a restrictive measure to a set of other restrictive measures should increase the overall restrictions index. At the same time, adding, say, a tenth restriction to a set of nine restrictions should conceivably have less of an impact on overall restrictiveness than applying the first or second restriction to an otherwise open sector. This is the equivalent to the property of ‘diminishing returns’ which in the context of policy restrictiveness implies that adding more and more restrictions should add progressively less and less to the overall index number. Against the backdrop of these intuitive underpinnings, we combine scores of individual measures for group according to the aggregator function in equation (1): 1 () STRI = �� � � � (1) =1 The parameter governs the way in which constituent scores are combined. In other applications, these groups are referred to as “CES nests” and different values of can be assigned to group depending on the context. Specifically, higher values of will lead to smaller incremental contributions of additional measures to aggregate restrictiveness. Higher values of the parameter are appropriate for aggregation if the policy measures in question have similar effects or are mostly substitutable. Conversely, if measures were regarded as adding significantly to the restrictiveness of already applied measures, their relatively high marginal contribution to overall policy restrictiveness can be modelled with a lower value of the aggregation parameter . For any given value of the parameter , the CES aggregation exhibits the following four properties that are crucial for the construction of plausible restrictiveness scores: (i) unlike a simple average, the aggregate score of any arbitrary bundle of restrictions does not depend on the total number of measures considered for quantification – it is independent of the number of measures carrying a 0 score; the restrictiveness score is (ii) increasing in the number of restrictions applied but (iii) at a decreasing rate, i.e. falling marginal restrictiveness of applied policies, and (iv) the marginal contribution to policy restrictiveness of a given measure is not fixed but depends on the co-existence of other applied measures i.e., adding a restrictive measure in the absence of other restrictions has a higher incremental impact on overall restrictiveness than adding that same measure to an existing set of already restrictive measures. CES functions of the type outlined in equation (1) can be nested to accommodate different layers of aggregation, with each nest potentially having a different CES parameter. We take advantage of this modular property and break down the aggregation of scores across the universe of all measures into several steps, so that bundles of policy measures that bear a similar relationship with each other in terms of substitutability or complementarity correspond to a CES nest with a suitably chosen parameter. The conceptual classification of related measures is set out in Table A.4.2 below. This is because measures within a given category naturally share a similar relationship vis-à-vis each other, so that they form “nests” that can be aggregated with one suitable chosen parameter. Figure A.4.1 illustrates the structure of aggregation through multiple nests as well as their chosen parameter. Page | 81 Table A.4. 2. Classification of measures in the Services Trade Policy Database (STPD) STPD Classification of Measures A. Conditions on market entry A1 Forms of entry (including foreign equity limits) A2 Quantitative measures (for firms and natural persons) A3 Conditions on licensing/investment screening/qualifications relating to market entry A4 Other conditions of market entry B. Conditions on Operations B1 Conditions on supply of services B2 Conditions on services suppliers B3 Conditions on government procurement B4 Other conditions on operations C. Measures affecting Competition C1 Conditions on conduct of firms C2 Governmental rights/prerogatives (including public ownership) C3 Other measures affecting competition D. Administrative Procedures and Regulatory Transparency D1 Administrative procedures D2 Regulatory transparency (including licensing) D3 Nature of regulatory authority (measures related to nature of regulator) D4 International standards D5 Other regulatory environment and administrative procedures E. Miscellaneous Page | 82 Figure A.4.1. Structure of multi-layered aggregation of measure scores Page | 83 At this stage we obtain one STRI value per subsector and mode (e.g., one value for banking Mode 3). Yet using the concave CES function to aggregate a set of individual measure scores yields a value that is in principle unbounded and could potentially exceed the admissible range for STRI. Thus, we apply a monotonic transformation to ensure that the CES index only approaches 1 in the limit. The generalised logistic function maps the positive real line into the unit interval. That function has 5 free parameters (denoted by , , , , ) and takes the following form 28: − ( ) = + 1 (2) (1+ − ) The transformation only applies to large STRI values, thereby leaving low STRI scores unaffected. We define a two-part bounding function and choose parameters so that the logistic function’s concave part is tangential to the 45-degree line at the point where STRI scores would take a value of 0.75, thereby avoiding any discontinuity in the bounding function. At the same time, this causes no distortion to lower STRI values that are far from the value of 1 (a score of 1 continues to be reserved for closed subsector-modes and is not subject to bounding). Figure A.4.2. STRI bounding function and its application The next step is to combine the modal scores to one STRI value per subsector, all modes of supply combined. We employ a weighted arithmetic average, with a set of modal weights that differs across subsectors, reflecting the relative importance of the four modes for the provision of a given service. In the final step, following a classification of subsectors into “broad sector” categories, subsector STRIs are further aggregated to arrive at scores for Communications, Computer, Construction, Finance, Health, Professionals, Tourism, Transport and Distribution sectors. Broad sector STRIs are constructed using value-added weights of services sectors of individual economies’ total value added for 2021. 28In terms of the general form in equation (2), the function that we apply has parameter values = 0, = 1, = 5, = 5, 1/ = 2.58765. Page | 84 A.4.3 Subsector Definitions The following definitions were used at the time of collection of data in regulatory surveys: 1. Professional a. Legal advice on domestic law: General counseling, advice and drafting of documents and other related legal services concerning domestic law (i.e. the law of the jurisdiction under review), whether criminal law or other than criminal. Also covered are advisory services in statutory procedures of quasi-judicial bodies. The following are excluded: activities in relation to the administration of public justice (such as judges); and notaries who typically perform their activities as public officials and are subject to a different regulatory regime. b. Legal services: representation services on domestic law: Court appearances/oral arguments: Legal representation of one party’s interest against another party, before the courts or other domestic judicial or quasi-judicial bodies, whether concerning criminal law or other than criminal. Also covered are representation services in statutory procedures of quasi-judicial bodies. The following are excluded: activities in relation to the administration of public justice (such as judges); and notaries who typically perform their activities as public officials and are subject to a different regulatory regime. c. Legal services: advice on foreign law (Legal advice/counseling): General counselling, advice and drafting of documents and other related legal services concerning foreign or international law. International law includes advisory services in home country law (i.e. law of the country of the foreign supplier or foreign law), third country law, international law, as well as a right to appear in international commercial arbitration. It also covers advisory services in statutory procedures of quasi-judicial bodies. Excluded are activities in relation to the administration of public justice (such as judges); and notaries who typically perform their activities as public officials and are subject to a different regulatory regime. d. Accounting: The collection, recording and extraction of financial information, and the summary of it in the form of a periodic profit and loss account, a balance sheet and a cash flow statement in accordance with legal, professional, and capital market requirements (e.g. accounting review, compilation of financial statements). Bookkeeping services are included here as the difference in regulation between accountants and book-keepers are typically small or not existent. In most jurisdictions, book-keeping is synonymous with accounting and is not separately regulated. e. Auditing: The examination and assessment of the activities, controls, records and systems that underpin accounting information and reports. Financial audits are typically performed by firms of practicing accountants due to the specialist financial reporting knowledge they require. f. Architecture: The scope of architecture services includes several related activities, such as advisory and pre-design architectural services, architectural design, contract administration services, and urban planning and landscape architecture services. g. Engineering: Engineering services include several activities which are closely related, such as engineering and integrated engineering services, and engineering related scientific and technical consulting services. Technical testing and analysis services are not included. 2. Computer Computer services: Computer programming, consultancy and related activities, as well as web search portals and data processing and hosting services. It includes activities of providing Page | 85 expertise in the field of information technologies: writing, modifying, testing and supporting software; planning and designing computer systems that integrate computer hardware, software and communication technologies; on-site management and operation of clients’ computer systems and/or data processing facilities; and other professional and technical computer-related activities. 3. Communications a. Postal and Courier services: Pick-up, transport, delivery (door-to-door delivery) services of letters, parcels, and express delivery services regardless of who provides services. These services include both addressed and unaddressed items. This definition does not distinguish courier and postal services by the type of activity. b. Telecommunications – Fixed line: The transmission and reception of signals through wired networks. Fixed-line telecommunications covers local as well as long-distance telephony services. c. Telecommunications – Mobile: The transmission and reception of signals through wireless networks. d. Audiovisual services: Three lines of activities comprise the audiovisual services sector: (1) Television: Production of TV programmes (e.g. series, telefilms, animated cartoons) as well as the transmission of these programmes (the broadcasting activity). It comprises the creation of complete television channel programmes, from purchased programme components (e.g. movies, documentaries etc.), self-produced programme components (e.g. local news, life reports) or a combination thereof. It may be of a general or specialized nature, may be made freely available to users or may be available only on a subscription basis. Broadcasting activities also cover non-linear media services such as on-demand and interactive TV delivered over a range of different networks and devices (including phones and computers). (2) Motion picture: Production, distribution, and exhibition of films, as well as an array of auxiliary activities, such as dubbing and editing. (3) Sound recording: Production of original sound recordings; sound recording services activities in a studio; music publishing (acquiring and registering copyright, authorizing the use of the music/compositions) and distribution of sound recording to wholesalers and retailers. 4. Construction Construction services: Pre-erection work; new construction and repair, alteration, restoration and maintenance work on residential and non-residential buildings, as well as civil engineering works. They also include installation and assembly work, building completion and finishing work, as well as renting services related to equipment for construction or demolition of buildings or civil engineering works, with operator. 5. Distribution a. Wholesale trade: Resale of new and used goods to retailers, to industrial, commercial, institutional, or professional users, or to other wholesalers, or involves acting as an agent or Page | 86 broker in buying goods for, or selling goods to, such persons or companies. Wholesale covers the activities of wholesale merchants or jobbers, industrial distributors, exporters, importers, and cooperative buying associations, sales branches, and sales offices (but not retail stores). Relevant are the laws, regulations rules, guidelines etc. which apply to the wholesale trade sector in general. Particular product regulations regarding the wholesale of specific types of products (e.g. primary agricultural or mining products, tobacco, alcohol, pharmaceutical products) are not taken into account. b. Retail trade: Resale of new and used goods mainly to the general public for personal or household consumption or utilization, by shops, department stores, stalls, mail-order houses, hawkers and peddlers, consumer cooperatives etc. Relevant are the laws, regulations rules, guidelines etc. which apply to the retail trade sector in general. Particular product regulations regarding the retail sale of specific types of products (e.g. tobacco, alcohol, pharmaceutical products) are not taken into account. 6. Financial a. Life insurance services: Insurance underwriting services consisting in making payments upon the death of the policy holder, or at the end of an agreed term, with or without a profit element. For the purpose of this exercise, accident and health insurance services are not covered. b. Non-life insurance services: Non-life insurance or general insurance, provide payments depending on the loss from a particular financial event. General insurance is typically defined as any insurance that is not determined to be life insurance. It typically includes motor vehicle insurance, fire and other property damage insurance, pecuniary loss insurance, and general liability insurance. Also covered is marine, aviation and transport (MAT) insurance, i.e. the insurance of risks comprising maritime shipping, commercial aviation, space launching and freight (including satellites). c. Reinsurance: Reinsurance is a financial transaction by which risk is transferred (ceded) from an insurance company (cedant) to a reinsurance company (reinsurer) in exchange of a payment (reinsurance premium). When it is a reinsurer that cedes risk to another reinsurer, the service is called retrocession. Providers of reinsurance are professional reinsurers which are entities exclusively dedicated to the activity of reinsurance (e.g. SwissRe). Also in most jurisdictions insurance companies are allowed to participate in reinsurance. d. Commercial banking: Most services supplied by banks, such as acceptance of deposits and other repayable funds from the public, lending of all types, financial leasing, guarantees and commitments, and payment and money transmission services. For the purposes of this exercise, commercial banking does not include the services typically supplied by investment banks, such as brokerage or trading of securities, securities underwriting services, and mergers and acquisitions (M&A) and corporate reorganization services. 7. Health Medical and health services: Cover the provision of hospital services, services of health professionals (medical and dental services, midwives, nurses, physiotherapists and paramedical services). For mode 3, only hospital services are covered, which are defined as follows: Services delivered under the direction of medical doctors chiefly to in-patients, aimed at curing, reactivating and/or maintaining the health status of a patient. Hospital services comprise medical Page | 87 and paramedical services, nursing services, laboratory and technical services including radiological and anaesthesiologic services, etc. Mode 4 covers the services of medical doctors and dentists, as well as the services of midwives, nurses, physiotherapists and paramedical personnel. 8. Tourism a. Hotel services: Hotel services cover lodging and related services typically provided by hotels. Related services comprise services normally furnished with and included in the lodging price and include room service, desk service, mail service and bellboy service. Hotels also generally make available other services such as parking, food, beverages, entertainment, swimming pools, banquet, convention and meeting facilities. Resort hotels may provide extensive recreational facilities. These various services are included if provided as a part of the price of lodging. If they are priced separately, they are classified according to the service provided. b. Travel agencies and tour operators: Services rendered for passenger travel by travel agencies tour operators, and similar services; travel information, advice and planning services; services related to arrangement of tours, accommodation, passenger and baggage transportation; ticket issuance services. These services are provided on a fee or contract basis. c. Tourist guide services: Include the services provided by tourist guides (whether through agencies or on own account). 9. Transport a. Maritime freight shipping: The sector covers the two main types of services offered by the maritime shipping industry, namely liner and tramp services, whether coastal or transoceanic. Cabotage is also considered. All types of goods transported should be covered (e.g. frozen or refrigerated goods; bulk liquids or gases; dry bulk goods such as cereals, flour, cement or sand; letters and parcels; goods that have been containerized for ease of transport). Rental services of freight ships with crew are also covered. Charter services are not covered to the extent that they are subject to a different regulatory regime. Mode 3 covers restrictions relating to the establishment of commercial presence for obtaining the national flag, and other forms of commercial presence. b. Maritime cargo-handling, container station and depot, and storage and warehouse services: In general, regulatory frameworks (laws, regulations, rules, guidelines, etc.) deal with maritime cargo handling, container depot station, and storage and warehouse activities as a package, given that these activities are often conducted jointly and in an integrated manner. Maritime cargo handling services are activities exercised by stevedore companies, including terminal operators, but not including the direct activities of Dockers, when this workforce is organized independently of the stevedoring or terminal operator companies. Container station and depot services means activities consisting in storing containers, whether in port areas or inland, with a view to their stuffing/stripping, repairing and making them available for shipments. c. Maritime intermediation services: Maritime agency, freight forwarding and customs clearance services are covered. In general, regulatory frameworks (laws, regulations, rules, guidelines, etc.) deal with these activities in conjunction, given that they are often conducted jointly and/or are substitutable. This refers to intermediaries/agents which are not related (i.e. no direct investment relationship) with the maritime shipping operators or ship owners. d. Air freight domestic services: Domestic air transport of freight on a scheduled basis. It covers air transportation of individual articles and packages assembled and shipped in specially Page | 88 constructed shipping containers designed for ease of handling in transport. It includes air transportation services of letters and parcels. e. Air freight international services: International air transport of freight on a scheduled basis. It covers air transportation of individual articles and packages assembled and shipped in specially constructed shipping containers designed for ease of handling in transport. It includes air transportation services of letters and parcels. f. Air passenger international services: International air transport of passengers on a scheduled basis (pre-determined international routes/schedules). It covers the accompanying passenger baggage and other items that may be carried at no extra cost. g. Air passenger domestic services: Domestic air transport of passengers on a scheduled basis (pre-determined domestic routes/schedules). It covers the accompanying passenger baggage and other items that may be carried at no extra cost. h. Rail freight transport domestic and international services: The sector rail freight service providers (or carriers). Covered items are rail freight transportation of frozen or refrigerated goods, transportation of bulk liquids and gases, transportation of containerized freight, mail transportation and other freight. Inter-urban rail transport of freight is also covered. i. Road freight transport domestic and international services: The sector covers freight transportation and relevant rental of commercial vehicles with operator. This definition entails transportation of frozen or refrigerated goods, transportation of bulk liquids or gases, transportation of containerized freight, transportation of furniture, mail transportation, freight transportation by man- or animal-drawn vehicles and transportation of other freight, whether domestically or internationally. Page | 89