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Services Trade and Regional Integration in Africa: The Case of Selected Regional
Economic Communities
Technical Report · July 2019

DOI: 10.13140/RG.2.2.15860.63368
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Services Trade and Regional Integration in Africa:
The Case of Selected Regional Economic Communities
By
Evans S. Osabuohien, Ph.D (Team Leader)

Omorogbe J.Asemota, Ph.D (Member)
Olaronke Onanuga, Ph.D (Member)
Ngozi Adeleye, Ph.D (Member)
Correspondence: Department of Economics & Development Studies,

Covenant University, Ota, Nigeria
Email: evans.osabuohien@covenantuniversity.edu.ng; pecos4eva@gmail.com
Tel: +234 802 885 8727 and +234 814 667 8226
Research Report submitted to African Economic Research Consortium (AERC)’s

Collaborative Research Project “Rethinking Regional Integration in Africa for Inclusive
and Sustainable Development – Case Studies”
REVISED AND ABRIDGED VERSION OF THE REPORT IS BEING CONSIDERED FOR PUBLICATION IN
THE WORLD ECONOMY
July 2019
Services Trade and Regional Integration in Africa:
The Case of Select Regional Economic Communities
1. Introduction
In Africa, trade has been identified to major in agricultural, natural resources and some processed
goods (Hoekman, 2017). However, in recent times services trade are emerging under regional
integration objectives. This is because once the form of regional economic collaboration in the
respective regional economic communities (RECs) moves from the free trade area to customs
union and to the common market stage; services trade becomes an important feature of regional
integration (Kono and Yokoi-Arai, 2009; Karingi and Davis, 2016). This transition supports
some level of diversification of the export of primary products in Africa (Visagie and Turok,
2019).
To illustrate the above, Nigeria’s movie industry is patronised across many African countries;
there is a rapid increase in information communication and technology (ICT) especially in
Rwanda; hospitality and tourism sub-sectors are prime in East Africa (e.g., Ethiopia and Kenya);
the development of the financial sub-sector such as commercial banks is on the rise in other
countries beside the country of origin; among others 1. Like trade in goods, services trade allows
specialisation and most of the services trade are likely inputs for industries, which contributes to
productivity growth (AU-AfDB-UNECA, 2016; Hoekman, 2017). This implies that the services
and goods trade play a complementary role in promoting productivity growth.
Even so, Hartzenberg (2011) argues that trade in services is yet to receive the attention it
deserves in African integration arrangements. The low attention to services trade is in spite of its
inclusion under the World Trade Organisation (WTO)’s General Agreement on Trade in Services
(GATS) Article V; its importance for economic growth and development; and the fact that
infrastructure services contribute to the high cost of doing business in Africa and its RECs
(Hartzenberg, 2011; Hoekman, 2017).
Meanwhile, for Africa’s RECs to utilise trade integration as an unrestricted access to larger
regional and international markets under the African Continental Free Trade Area (AfCFTA),
there is a pressing need for a structural transformation and development strategies to support not
only merchandise trade but also services trade (Osabuohien, 2019). To depict the true trade
picture in Africa, this study makes a timely contribution by considering the role of regional
integration from the perspective of services trade.
Although the proportion of merchandise trade to gross domestic products (GDP) is, at least,
twice higher than services trade to GDP in all Africa’s RECs, of the different classification of
trade, services trade is the most stable compared to other forms of trade such as agricultural,
manufacturing, fuel and mining sectors, even in the event of global fluctuation (Osabuohien and
Efobi, 2011; World Bank, 2018). The policy implications of the drivers of services trade are also
1
Other sectors have also witnessed some elements of growth; however, statistics from the World Development
Indicators (2018) indicate that the growth of services has remained stable and steady. In addition, it has been noted
by UNCTAD (2018:10) that while other forms of trade had some kind of loss of momentum between 2015 and
2017, services trade did not show such loss of momentum.
1
critical for the successful implementation of the recently launched AfCFTA (Osabuohien, 2019).
When the factors that boost services trade are also considered under regional trade agreements, it
would have positive effects on both trade in goods and services (National Board of Trade
Sweden, 2018a). This indicates the wide difference between what is realised as services trade
and the potentials of what can be realised as services trade in Africa. Thus, it is expedient to
explore how regional integration can enhance services trade in Africa with empirical evidence.
The present study builds on Olayiwola et al. (2015) and Osabuohien et al. (2017; 2019) but
focuses on services trade and exploring the nature of regional integration in Africa on selected
RECs. Olayiwola et al. (2015) used general methods of moments (GMM) on a dynamic model
with a panel of Economic Community of West African States (ECOWAS) members to
investigate the effects of trade facilitation and indicators of regional economic integration on
intra-regional agricultural exports (2003-2008). Osabuohien et al. (2017; 2019) examined the
functionality of regional trade agreements (RTAs) within ECOWAS and identified bilateral trade
barriers (including multilateral resistance term-MRT) that affect trade flows among ECOWAS
members (2006-2013)2. Kamau (2010) examined how economic integration impact economic
growth using the average most favoured nation (MFN) tariffs and the level of regional
cooperation in Common Market for Eastern and Southern Africa (COMESA), Economic
Community of Central African States (ECCAS), and Southern African Development Community
(SADC).
2. Objectives of the Study

This study aims to empirically examine the level of services trade and regional integration as
well as how regional integration can influence services trade in selected regional economic
communities (RECs) in Africa. Specifically, it:
i. assesses the level of services trade vis-à-vis merchandise trade among selected RECs in
Africa;
ii. compares the modes of services trade across the selected Africa’s RECs;
iii. investigates the degree of regional integration in selected RECs in Africa, and
iv. examines how regional integration influences the modes of services trade in the selected
RECs in Africa.
3. Insights from the Literature on Services Trade and Regional Integration

Business services may have a small share in East African countries’ gross domestic products
(GDP), the sector is one of the region’s most dynamic sector. Dihel, Fernandes, Mattoo and
Strychacz (2010) explored the regional integration of business services and found that trade
barriers limit the level of competition and efficiency of business services in the region. Dihel et
al. (2010) identified that less than 10 percent of the professionals in accounting and engineering
are foreign professionals in Kenya, Tanzania, and Uganda while they account for over 60 percent
of the professionals in Rwanda. Trade restrictions limit the establishment of foreign commercial
presence by intra-East Africans and foreigners in the region. That is, there is limited commercial
presence of foreign engineering firms in the region and domestic engineering firms win most of
the contracts, except for energy, mining and transportation which are awarded to foreign
engineering firms. A minimised intra-East African foreign firm participation in contracts exists.
These are Ugandan firms that won a few Rwandan projects and a few Kenyan firms that won a
2
The study by Olayiwola et al. was funded by The ECOWAS Commission while that of Osabuohien et al. was
funded by UNCTAD Vi (United Nations Conference on Trade and Development Virtual Institute).
2
few Tanzanian and Ugandan projects. There are no foreign professionals in legal services, audits,
tax and tax representation of the East African countries as observed by Dihel et al (2010).
Kamau (2010) examined the impact of economic integration on growth for Common Market for
Eastern and Southern Africa (COMESA) East African Community (EAC) and Southern African
Development Community (SADC) by constructing an economic integration index based on
average Most favoured nation (MFN) tariffs and the level of regional cooperation. The study
confirms that both economic integration and trade have a significant and positive impact on
growth. It suggests that the deeper the regions’ regional integration the higher their level of
economic performance. Also, less trade a restriction within the regional economic integration
and with the rest of the world promotes economic growth for the member countries.
In a related manner, Onyekwena, Ademuyiwa and Uneze (2015) investigated, from a host
country’s perspective (West Africa), the impact of inward Foreign Direct Investments (FDI) on
different export categories: primary, intermediate, and final goods to the European Union (EU).
The study applies a “commodity-proximity” model by showing how the presence of
multinationals in upstream activities in resource-abundant host countries can stimulate the export
of primary and/or intermediate goods to source countries where downstream activities take place
and the augmented gravity model. Onyekwena et al. (2015) discovered that the effect of FDI in
host country’s export differs across export categories. With the presence of multinationals in
West Africa, increase in inflows of FDI promotes the export of primary goods from West Africa
to EU. Meanwhile, increases in the inflow of FDI reduce the export of intermediate goods and
has no significant effect on final goods exports. A similar result was found among West Africa
and Brazil, India, China and South Africa (BICS). The persistent finding was explained to be due
to the inflow of FDI, into West Africa, being resource-seeking rather than being for
industrialisation.
In the process of establishing the Continental Free Trade Area (CFTA) to boost trade, economic
growth and integration in Africa, Saygili, Peters and Knebel (2018) estimated costs and benefits
of tariff reduction in four different scenarios in Africa. The study uses the Global Trade Analysis
Project (GTAP) to assess the potential long-term effects of the agreement on African Union
(AU) member States. It found that the gains from the CFTA (in the long-run) are not equally
distributed among AU member states. African countries would bear tariff revenue losses and
adjustment costs in the short-run. The unequal distribution of the costs and benefits may hinder
the negotiation processes under the CFTA. However, the long-run welfare gains significantly
exceed the tariff revenue losses. African countries’ trade deficit may also reduce due to the
CFTA.
Visagie and Turok (2019) analysed the contribution of services trade in Southern African
Development Community (SADC) using descriptive statistics. The composition of the region’s
services trade is dependent on the traditional sectors of transport and travel while modern sectors
like finance, business and information technology have relatively higher levels of growth. This
offers a potential for trade growth among SADC as the region’s services trade can be improved
on modern services. SADC, also, shows a low level of intra-African services trade.
Studies on services trade found in the literature are mainly based on other continents. Comparing
the level of services trade of Asia (Hong Kong, China; Japan; Republic of Korea; and Singapore
with Europe (France, Germany, Italy, the Netherlands, Spain, and UK) and North America
3
(Canada, Mexico, and United States), Hamanaka (2013) employed data on Mode 1 and Mode 2
services and found that the regional services trade in Asia is higher than in Europe and North
America. The regional services trade is higher than the regional goods trade in Asia and the
regional services trade remains high while that of goods are declining. This was found to be in
contrast to the other continents where their regional goods trade is higher than that of services
trade. The contrast between Asia and Europe and North America is ascribed to be the shared
language (Chinese) on the continent. The shared language is identified to be necessary for
services trade but detrimental to goods trade.
The study by Miroudot and Shepherd (2015) analysed the relationship between regional trade
integration and trade costs in services industries of 61 countries and 66 regional trade agreements
to which the countries are parties. In spite of the rapid development of services trade under the
regional trade agreements (RTAs), the study did not empirically find a lower bilateral trade costs
among countries. Gaps in data for services trade and lack of proper reporting of modes of supply
(in terms of whether it is domestic or foreign services provided) are offered as the explanation
for this finding. Also, there is no evidence that parties to services RTAs create opportunities for
foreign companies with commercial presence in their respective countries. Using a descriptive
analysis, Miroudot and Shepherd (2015) found that RTAs might lower trade costs not only for
the parties to the agreement but also for non-parties.
Kono and Yokoi-Arai (2009) demonstrated that financial services liberalisation and competition
policy implementation remain essential ingredients for regional integration in the financial
services markets. The study compared country’s competition law environment, free trade
commitments, actual entry requirements, and the relative level of liberalisation in Asian
countries. It found that there is a gap between the commitments made under regional integration
and the environment that financial institutions operate in and a lack of progress in the execution
of the commitments can become a hindrance to greater regional financial integration.
Similarly, Shahbaz and Kaliapa (2014) examined the export performances of emerging and
developed Asian economies in selected modern services - business and professional, computer
and information, and telecommunications - using the gravity model. The results proved that the
performances of economies in South Asia and the Association of South-East Asian Nations
(ASEAN) were considerably weaker than those of North America and Europe. The quality of
ICT infrastructure and the number of graduates in emerging countries are part of the key factors
for realising higher services export. While North America and Europe have the highest
performance in traditional services export, East Asia experiences the highest performance in
modern services export (particularly telecommunication) and the ASEAN countries perform
better under manufacturing. Kanungo (2018), on the similar pursuit of objective, points out that
tourism and health care services have a huge potential if South Asian countries adopt a more
open broad-based flexible regional services agreement like free movement of natural persons.
Hoekman (2017) reviewed the potential role of trade in services as a driver of productivity as
services are used as inputs and the link between services policies and domestic trade costs in
Africa, East Asia, Middle East and North Africa (MENA), the Organisation for Economic
Cooperation and Development (OECD), and South Asia. The study showed that barriers to trade
in services have direct and indirect effects on cross-border trade and investment. It observed that
the extent to which countries will benefit from services trade due to regional integration depends
4
on complementary efforts on economic governance and regulatory regimes. Services trade such
as tourism and business process have the capacity to generate substantial employment and
foreign exchange earnings.
From the foregoing, this study contributes to the rethinking on regional integration in Africa by
focusing on services trade and regional integration based on the cases of selected Africa’s RECs
as well as unbundling services trade into different modes applying descriptive and empirical
analysis.
4. Background Facts on Services Trade in Africa

Before proceeding into empirical analysis in the study, this section presents some stylised facts
on services trade across the four select regional economic communities (RECs) with a view to
making comparison among them.
In the first instance, services trade is a potential key driver of economic growth and structural
transformation for African countries, and can boost the capacities of other sectors such as the
manufacturing. According to the World Bank, the services sector accounts for 72 percent of GDP
in high-income countries, 53 percent in middle-income countries and 46 percent in low-income
countries. In addition, research evidence has revealed that stronger correlation exists between
services growth and GDP than is the case for manufacturing growth and GDP and thereby,
making services a key driver of growth in most economies. Sandrey (2014) investigated the
nature of service trade in Africa and noted that they play an increasing role in modern economy.
However, while researchers and policy-makers have focused more on trade in merchandise
goods, less attention has been given to trade in services. The limited detailed data and the
complexities of the services components make it difficult to quantify international trade in
services.
Ayoki (2018) noted that Africa’s participation in global trade in services has been on a
downward trajectory since 2006. While the continent’s trade in commercial services grew in
nominal value from US$151,025 million in 2006 to $225,650 million in 2016 representing a 49.4
percent increase, however, its overall share of global trade in services actually declined from
2.62 percent in 2006 to 2.37 percent in 2016.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
World 2931.6 3510.4 3948.1 3521.0 3847.0 4328.0 4451.3 4743.1 5078.1 4789.6 4807.7
Africa 65.429 77.702 87.820 80.742 90.122 91.869 99.093 94.994 99.166 95.845 90.294
CEMAC 1.4 1.8 2.1 1.9 2.2 3.0 2.7 3.2 3.4 2.7 2.6
COMESA 24.2 29.9 36.4 32.0 36.2 34.2 39.0 36.0 38.6 36.3 30.9
ECCAS 2.0 2.6 3.2 3.4 3.6 4.5 4.1 5.2 5.8 4.8 4.6
EAC 4.089 4.967 5.538 5.117 6.301 7.572 8.947 9.898 9.666 9.809 8.795
ECOWAS 6.3 6.6 7.9 7.2 8.1 8.9 10.2 9.5 8.6 13.2 14.0
SADC 20.1 23.8 23.3 22.2 25.9 28.7 30.9 30.0 31.6 28.9 27.3
WAEMU 2.3 3.0 3.5 3.0 3.4 3.6 3.6 3.9 4.0 3.5 3.7
Table 4.1: Exports of Commercial Services by Selected Group of Economies ($ Billion)
Source: WTO
5
Africa’s services export increased from US$65.43 billion in 2006 to US$90.29 billion in 2016
(see Table 4.1), however, the growth is not in line with its world share in service exports, which
actually declined from 2.23 percent in 2006 to 1.88 percent in 2016. This implies that the growth
in Africa’s exports is happening at much slower rate than it is in other regions of the world.
Africa’s service imports also grew from US$85.60 billion in 2006 to US$135.36 billion in 2016
(see Table 4.2). However, its world share of imports declined from 3.02 percent in 2006 to 2.88
percent in 2016.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
World 2831.1 3355.3 3810.6 3376.6 3699.3 4157.7 4321.9 4586.6 4939.2 4642.4 4694.1
Africa 85.59 108.84 141.58 126.37 140.92 159.70 163.24 163.97 173.05 150.72 135.35
CEMAC 8.1 9.6 11.4 10.4 12.3 14.0 13.5 14.9 14.3 12.4 11.3
COMESA 23.3 29.2 36.0 32.1 36.5 38.5 43.8 43.8 46.2 41.6 40.1
ECCAS 16.2 23.5 34.4 30.9 31.5 39.8 37.2 39.5 42.1 31.9 26.0
EAC 3.645 4.264 5.221 5.315 6.105 7.292 7.672 8.078 8.748 8.621 8.137
ECOWAS 19.5 24.4 33.1 26.6 31.0 35.3 36.6 36.0 39.0 35.5 28.3
SADC 28.4 37.9 48.5 44.3 49.0 59.8 58.2 58.1 60.3 48.2 41.5
WAEMU 5.0 6.1 7.2 6.8 7.5 8.1 8.2 9.4 9.5 8.6 9.1
Table 4.2: Imports of Commercial Services by Selected Group of Economies ($ Billion)
Source: WTO
In Africa, there are wide discrepancies across countries in terms of their performance in services
trade. Egypt tops Africa’s services exports, followed by South Africa and Morocco based on
their average share of Africa’s services exports between 2006 and 2016 (Ayoki 2018). Egypt
accounted for 22.3 percent of Africa’s services exports, South Africa accounted for 17 percent
and Morocco for 16.1 percent over the period, 2006 to 2016. According to Ayoki (2018), these
three countries accounted for 55.5 percent of Africa’s exports, while the top-10 countries (Egypt,
South Africa, Morocco, Tunisia, Algeria, Kenya, Mauritius, Ghana, Tanzania, and Nigeria)
altogether account for 79 percent of Africa’s service exports. Among the 10 top exporters of
services in Africa, Tanzania and Ghana have remarkably improved their commercial services in
recent years. In terms of importation of commercial services, Nigeria tops Africa’s services
imports, followed by Angola and South Africa based on their share of Africa’s total services
imports between 2006 and 2016. The top 10 importers account for about 69.3 percent while the
top 20 importers account for about 85.1 percent of Africa’s total service imports (commercial
services). Ayoki (2018) noted that the top-10 importers of commercial services, except Angola,
Libya, Congo and Ghana are also the top-10 exporters of commercial services in the continent
which suggests that some services imports are input in the production of services for exports. In
other words, countries that export more also tend to import more services.
In terms of participation by different regional blocs in Africa, Table 4.1 further reveals that the
Common Market for Eastern and Southern Africa (COMESA) remains the dominant player in
Africa services export, followed by the Southern African Development Community (SADC)
countries and the Economic Community of West African States (ECOWAS). The COMESA,
SADC and ECOWAS accounted for 34 percent, 30 percent and 16 percent, respectively of
Africa’s commercial services export in 2016, while ECCAS accounted for about 5 percent in
6
2016. Similarly, Table 4.2 also shows that SADC, COMESA and ECOWAS top Africa’s
commercial services import in 2016 with 31 percent, 30 percent and 21 percent contributions,
respectively while ECCAS accounts for about 19 percent share of Africa’s share of service
imports. Travel (basically tourism) tops Africa’s service exports by classification, followed by
transport, other business services, telecommunication and related services, and government
goods and services not included elsewhere (Sandrey, 2017).
Many African countries have made efforts to address services trade at the national, regional and
global levels, but Africa’s services provision remains suboptimal and is provided at a high cost
due to various regulatory and policy shortcomings. According to UNCTAD (2016), the absence
or undersupply of these services raise production costs and have a strong impact on the
competitiveness of a country. UNCTAD (2016) also noted that a policy disconnect on services
trade prevails between local, regional and global levels, hampering Africa’s opportunities to tap
into the benefits of greater services trade. Ayoki (2018) pointed out that there were many
obstacles to trading in services among African countries that were making it not only difficult for
them to expand exports of non-traditional services, such as business services but has slowed
down growth of overall services trade. Entry restrictions and regulatory barriers (such as
education and professional qualification requirements, restrictions on business structure, national
content and restrictions on foreign presence, and restrictive policies on the labour mobility of
skilled workers) may explain why Africa’s services export share and growth has been weak
(Ayoki, 2018).
In most African countries, market access with respect to medical services remains restricted by
the non-portability of insurance policies. While in countries such as Tanzania and Uganda the
establishment of foreign hospitals are made difficult by domestic restrictions on the legal forms
of entry to hospitals. Moreover, the high cost of visa and work permits in many countries limits
the movement of health and education professionals to provide services in foreign markets
(Ayoki, 2018). Furthermore, the problem is worsened by the high cost of trading across borders
in Africa as a result of the inefficient transport, poor border management and logistics; poorly
designed technical regulations and standard and licensing requirements. Thus, reducing trade
costs would not only create opportunities to directly expanding services exports, it would also
promote the development of competitive value chains of production across the African region.
UNCTAD (2016) noted that the main barriers to trade in services include: quotas, local contents
and prohibition of foreign access to service markets which are reserved for domestic suppliers
such as nationality, residency or visa requirements; entry and exit taxes and/or visa fees for
movement of natural persons, licensing fees, tariffs on goods related to provision of services,
price controls; discriminatory access to information channels and distribution networks for
example, in telecommunication, air transport, and tourism; granting of subsidies which have a
trade distortive impact on export from other countries, lack of transparency in government
procedures and technical standards and licensing procedures.
Some critics are also of the opinion that the multiplicity of regional economic blocs in Africa is
also an impediment to its regional integration. In fact, some of these economic blocs have
overlapping members and many countries belong to multiple regional economic blocs. African
leaders have set up no less than 14 trading blocs to pursue regional integration. However, they
have demonstrated lack of enthusiasm to empower these institutions citing loss of sovereignty
and policy space as key concerns. Consequently, regional institutions remain weak in Africa and
7
mainly performing administrative functions. Tafirenyika (2014) noted that the weakness of
regional institutions in Africa often frustrates policy makers and complicates regional integration
and is a major reason for the low intra-regional trade, which is between 10 percent and 12
percent of Africa’s total trade. Thus, despite the strong political commitment of African leaders
to regional integration, there is lack of commitment of member states to the implementation of
regional trade agreements. Despite SADC’s decision to remove trade restrictions some countries,
for instance, have not eliminated tariffs as stipulated by the agreement. While in some cases
countries that removed the tariffs have since reinstated them.
Recognising the contribution of trade in services to economic growth, some regional economic
blocs in Africa such as the COMESA, EAC, ECOWAS, ECCAS and SADC have agreed to
undertake services liberalisation as part of the regional integration agenda. At the same time,
some member states are negotiating trade in services liberalisation agreements with the European
Countries under the EPAs, (UNCTAD, 2016). According to UNCTAD (2016), the level of
services integration and liberalisation vary across these regions and the EPA-Services
negotiations are yet to be concluded. The EAC, for instance, is implementing liberalisation
commitments in seven sectors (i.e., business, communication, distribution, education, finance,
tourism and transport services), and 26 countries have agreed to negotiate a services
liberalisation chapter under the COMESA-EAC-SADC Free Trade Agreement. Furthermore, at
the continental level, the decision by 44 African countries to sign the CFTA in Kigali, Rwanda in
2018 reflects a commitment of African countries to boosting intra-Africa service trade, thereby
promoting regional integration.
The COMESA Regulations on trade in services which was adopted in 2009 provides for
progressive liberalisation of trade in services starting with seven priority sectors namely
business, communication, construction, energy, finance, and tourism and transport services
(UNCTAD, 2016). Before the adoption of the services regulations, COMESA members had
cooperation agreement only for the promotion of trade in goods. In addition to trade in services
liberalisation, COMESA members have approved visa free for free movement of people up to 90
days for every calendar year. The ECCAS has no agreement in trade in services liberation but
there exist a cooperation agreement in communication; transport; energy; education and training;
and tourism sectors. In addition, CEMAC, a sub-group of ECCAS countries, has agreed to a
deeper liberalisation in air transport and telecommunication services. Furthermore, the ECCAS
treaty also provides for free movement of persons and right of establishment.
ECOWAS has agreed and implementing free movement of persons and right of establishment,
which has progressed to allow visa free movement (up to 90 days) for users of ECOWAS
Passport and Residence Card/Permit parallel with harmonisation of regulations in services
sectors i.e., telecommunication and transport in particular. In addition, WAEMU/UEMOA, a
sub-regional bloc of ECOWAS, comprising of eight members of ECOWAS have agreed to
further liberalise trade in services in the context of a common market (UNCTAD, 2016).
However, implementation of commitments in many services areas is bedevilled by limited
political and financing support, policy incoherence, and legislative and language heterogeneity
among member countries. In addition, the non-domestication of regional agreements such as the
ECOWAS telecommunications regulation has impeded the implementation of related
commitments.
8
SADC members signed a Protocol on Trade in Services in 2012, which is largely modelled on
GATS, provides for gradual liberalisation of trade in services in different round of negotiations.
The 1st round covers six priority sectors, which are communication, construction, finance,
energy, tourism and transport. The negotiations were scheduled to be concluded in March 2015;
but by that date, only eleven members had submitted offers, which covered mostly
communication, finance, tourism and transport services. In addition, negotiations in the five
remaining sectors as well as Mutual Recognition Agreements (MRAs) were scheduled for a later
date, precisely 3 years of concluding the 1st round. In addition to this Protocol, SADC members
have signed several Protocols on: transport, communication and meteorology; education and
training; health; information, sports and culture, tourism development; and the facilitation of
movement of persons3. It is to be noted that, while the SADC Protocol on Trade in Services
provide some flexibilities for members to maintain defined market access and national treatment
limitation in the sectors, the SADC Scheduling and Negotiating Guideline provides that starting
point for liberalisation commitments is the existing GATS commitments (UNCTAD, 2016). The
SADC Protocol on transport, communication and meteorology, explicitly provides for
liberalisation of cross border road transport services through bilateral agreements among
Member States.
UNCTAD (2016) noted that in terms of agreements between African countries and third parties,
all African countries members of the WTO accepted GATS commitments, as well as those that
are negotiating their accession to WTO Agreement. In addition, some countries have signed
and/or are negotiating trade agreements, which include services liberalisation at bilateral level
such as the US Trade and Investment Agreement and the Economic Partnership Agreement with
EU under the ACP-EU Cotonou Agreement.
In sum, going beyond political commitments, a lot need to be done by African countries to
promote intra-regional trade and integration. There is need to reduce dependence on
commodities by expanding the services sector, including telecommunications, transport,
educational and financial. Also, African countries need to increase investments in infrastructure
and eliminate or significantly reduce non-tariff barriers that are major obstacles to trade within
the continent.
5. Conceptual Frameworks and Theoretical Underpinning

This section provides the conceptual framework that provides the linkage of the modes of
services trade as well as the theoretical underpinning that informs the bench vice upon, which the
empirical analysis of the study is built.
5.1 Conceptual Framework: Modes of Services Trade

The impact of regional integration can be traced to the neoclassical growth theories where
economic integration is seen as any other major economic policy that contributes to economic
growth on the transition path leading to the steady state. The positive relationship between
economic integration and economic growth is due to an increase in the level of productivity
caused by the formation and widening of regional trade agreements (RTAs). This proves that the
impact of economic integration can be traced to the production function (Kamau, 2010).
3
However, these Protocols are not yet in force due to insufficient number of Member States that have ratified the
Protocols.
9
As a fundamental factor input for other sectors of an economy, the services sector matter for
economic growth and development. For example, financial services play the role of providing
funds to firms and the role of transport services is to move goods and people (Hoekman, 2017).
The services sector has the potential to contribute in not just an economy but also in a regional
economic community. To expand the contribution potential of the services sector, a national
reform and a more integrated regional market is required (Dihel et al., 2010). An increase in
regional integration would increase the level of specialisation and comparative advantage in
trade in service among the member countries as the respective member countries’ technical
capacity constraints are complemented in cross-border movement of capital and labour
(Hoekman, 2017). Such increase in regional integration calls for a regulatory cooperation (like a
common recognition of qualifying examinations for chartered accountants, bankers, and doctors)
among the member countries (Dihel et al., 2010).
Some studies (for example, Kamau, 2010; Hannan, 2016) in the literature focused on the effects
of RTAs on trade in goods and (for example, Visagie and Turok, 2019) conducted a descriptive
analysis of the contribution of services trade. This portrays an insufficient evidence of how
RTAs, among regional economic communities (RECs), influence services trade . The National
Board of Trade Sweden (2018a) ascertains that RTAs that make agreement provisions on
services or both goods and services contribute to expanding trade in services. Such RTAs have
half the impact of trade in goods on trade in services. This impact is smaller than expected and it
can be due to lack of regulatory cooperation among the member countries in the services sector,
i.e. low level of regional integration. In other words, no/low removal of barriers on trade in
services leads to high services trade cost (Storeygard, 2016). Another barrier that reduces
integration for the realisation of the potential of trade in services is the need to apply for a visa to
travel to 55 percent of African countries (Karingi and Davis, 2016; AU-AfDB-UNECA, 2016).
As such, RECs without agreements on service provisions would have no influence on trade in
services (Guillin, 2013). The low agreements on services trade may be because policymakers are
uncertain about how to ensure that such agreements would benefit their respective domestic
economy (Hoekman, 2017).
Trade in services (i.e. services trade) is categorised into four Modes as shown in Figure 5.1.
Mode 1 comprises of cross-border transactions whereby both services suppliers and consumers
remain in their own respective countries as services move across the border, using means like the
telephone, mail/courier and the internet. Mode 2 is the consumption of services abroad whereby
services consumers move across the border to consume services, such as travel and hotel
services, in a foreign country. Mode 3 is the commercial presence of corporate services
suppliers, such as foreign banks, in foreign markets, which is becoming more apparent in Africa.
For instance, there are a number of Nigerian banks (Zenith Bank PLC, United Bank for Africa
PLC) that operate in other African countries (Osabuohien, et al, 2017; 2019). Mode 4 is the
movement of individual services suppliers, such as engineers, across the border to supply
services (Hamanaka, 2013).
10
Figure 5. 1: Modes of Services Trade Nexus
Source: Eurostat, based on General Agreement on Trade in Services (GATS) provisions (Rueda-
Cantuche et al., 2016).
Mode 1 consists of transportation, communication, insurance, and royalties and license fees
services. Travel services falls under Mode 2. Computer and information, other business services
and personal, cultural, and recreational services are delivered through Modes 1 and 4
(Hamanaka, 2013). It is getting more difficult to distinguish between financial services for
Modes 1 and 2. This is because electronic trading networks make cross-border trade
indistinguishable from consumption abroad (Kono and Yokoi-Arai, 2009). Construction is under
Modes 3 and 4 (Hamanaka, 2013). Financial services rendered through commercial presence as
fully- or partly-owned subsidiaries, joint ventures, partnerships, sole proprietorships, franchising
operations, branches, agencies, and representative offices in the foreign country is regarded as
Mode 3 (Kono and Yokoi-Arai, 2009).
The breakdown of services trade into their mode of supply to foreign customers aids proper
classification into modes. For illustration, legal services supplied to a foreign customer through
video calls and e-mail is Mode 1. If the legal firm has an annex firm in the foreign country i.e.
commercial presence, the legal service rendered to the foreign customer is Mode 3. If there is no
commercial presence but there is the lawyer's presence in the foreign country (i.e. the presence of
natural persons), this is Mode 4 (Rueda-Cantuche et al., 2016). However, such distinctive
breakdown does not exist for many African countries.
The African Union has been commended for excelling in its role on political regionalism in
Africa. However, there is the failure of deep regional integration in Africa, which is ascribed to
poor infrastructure, and a substantial portion of the landlocked countries with limited
transportation networks (Ravenhill, 2016). In spite of this, functional regionalism like the
Senegal River Basin Multi-Purpose Water Resources Development Project and the Centre for
Renewable Energy and Energy Efficiency in the Economic Community of West African States
11
(ECOWAS) is promoted. The RECs in Africa (although they are mostly in the form of free trade
areas-FTAs) are collaborative action by member countries to remove barriers to the flow of
goods and services, migration and capital (Ravenhill, 2016).
A number of African countries have experienced significant growth in trade in services. Tourism
is the most important trade in services in terms of its contribution to the level of employment and
GDP of many African countries. Tourism is dependent on many other services, ranging from
telecommunications, travel, finance and transport to hotels and restaurants. African countries,
like Rwanda, are diversifying from beach holidays and safari tourism services to medical and
business tourism services. This proves that Africa has the potential to compete in a variety of
other services sector (Hoekman, 2017). Dihel and Goswami (2016) observe that accounting,
architectural, banking, education, engineering, health, legal and insurance services are exported
among the Common Market for Eastern and Southern Africa (COMESA) countries. This depicts
that the services sector has strong poverty alleviation potential by increasing the level of
employment and support the structural transformation process in Africa (Adhikari, 2015).
The study mainly refers to travel services that fall under Mode 2 and financial services, which
encompass Modes 1 to 4. Financial services supplied to a foreign customer through e-banking
are Mode 1. Financial services rendered by the financial firm to the foreign customer in the home
country of the financial firm are Mode 2. The commercial presence of the financial firm in the
foreign country to render financial services the foreign customer is Mode 3. Commercial absence
but there is the presence of an account or relations officer of the financial firm in the foreign
country (i.e. the presence of natural persons) depicts Mode 4. Due to lack of distinctive
breakdown into the respective Modes for many African countries, travel and financial services
are applied in aggregate in this study.
5.2. Theoretical Underpinning

The theories that this study builds relate to regional economic integration, which are dual-folded,
namely: the theory of customs union and the theory of free trade areas. Under the neoclassical
growth theories, economic integration has a positive relationship with economic growth due to
an increase in the production of a member country. As a fundamental factor input for other
sectors in an economy, the services sector matter for economic growth. The services sector has
the potential to expand in not just an economy but also in a regional economic community
(REC). To expand the contribution potential of the services trade, a national reform and a more
integrated regional market is required (Dihel et al., 2010).
The theory of integration attributed to Viner (1950), was enthused by the examination of the
trade flow between two states prior–unification and post –unification; and their comparison to
the rest of the world. It posits that as economic integration occurs, the barriers of trade within
and between markets diminish. This was the basis upon which economic integration was
introduced. Balassa (1961) and Balassa (1967) further tested and posited that the demand for
further economic and monetary integration is motivated by the free movement of productive
factors across national borders, hence, positing that economic communities evolve into political
unions overtime. The various unions proposed by Balassa (1961) distinguished by the terms of
the discriminatory measures include: preferential trade area, free trade area, customs unions,
common market, economic (monetary) union and political union (Osabuohien, Efobi Odebiyi &
Fayomi, 2015). The customs union aspect of the theory of economic integration forms the
theoretical basis of this study. This is justifiable because, according to Balassa (1961), customs
12
union refers to the abolishment of non – tariff barriers to product and services market trade, as
well as the abolishment of factor market restrictions (Andrea, 2016). This implies that when
customs union is implemented to form a REC, service trade is expected to improve as a result of
the regional integration.
The theory of free trade areas (FTAs) underscore that the willingness of the member countries to
agree and implement provisions of the elimination of tariff and non-tariff barriers determines the
effect of regional integration on (services) trade. Services trade non-tariff barriers could take
many forms. Based on the services of focus for this study, the barrier of access to visa is applied
(National Board of Trade Sweden, 2018b). The theory suggests that the effect of regional
integration on services trade can be both positive and negative. The net effect of regional
integration on services trade is due to trade creation and trade diversion which is determined by
the level of trade among the members of FTAs rather than trading partners outside the FTAs
(Plummer et al., 2010). That is, according to the theory, without trade agreements on the
elimination of tariff (and non-tariff barriers), countries that charge high tariff on services trade
would experience a negative effect as exports of services trade may reduce due to competition
from other countries that apply low or no tariff (Karingi and Davis, 2016).
The identified value of services as a factor of production emphasises the weighted impact of
services trade through the substantial business opportunities that support growth in the economic
size of a REC. However, the services are not a way to guarantee the FTAs but to ensure that the
FTAs exist. Thus, a deeper integration yields a higher services trade in a REC, which is
beneficial for new services firms entering the market and vice versa (OECD, 2014). That is,
FTAs among member countries charging high tariff(s) will have services trade distortions, i.e. a
negative effect whereby trade diversion would be higher than trade creation. FTAs among
member countries with low(er) tariff(s) may have positive effects whereby trade creation may be
higher than trade diversion on services trade.
The RECs in Africa are mostly free trade areas (FTA). The regional trade agreements amongst
members of the RECs are to benefit the members in both merchandise and services trade and not
merchandise trade only. That is, regional integration efforts are made to promote the entirety of
the economy of the regional alliance. Take, for illustration, financial services, a regional
integration can lead to a bigger financial market due to the alignment of the demand and supply
of financial services in the member countries, leading to market enlargement and economies of
scale (Kono and Yoko-Arai, 2009). Unlike the aforementioned studies that present empirical
evidence on the effects of regional integration on goods trade, this study answers the empirical
question of what the effects of regional integration on services trade are.
To strengthen the potentials of the synergy among member countries on (services) trade,
appropriate institutional framework (i.e., laws, regulations or administrative measure) and
infrastructures are relevant at both the national and regional levels for harmonisation,
coordination and monitoring (National Board of Trade Sweden, 2018b). This is not to say that
regional integration is not possible with weak institutions. Stronger regional integration requires
stronger institutions and infrastructures that would ensure the implementation of regional
agreements and reduce the excludability from the benefits of services trade (Ravenhill, 2016).
6. Methodological Approach
6.1 The Selected Regional Economic Communities and Scope
13
The establishment of regional economic communities (RECs), among other reasons, is with a
view to maximising economies of scale.
Table 6.1: African Union Recognised RECs and Trade Direction (Mean percent of Exports & Imports)
European Rest of the
Intra-REC Rest of Africa
Union world
#Members
RECs (Year Exp. Imp. Exp. Imp. Exp. Imp. Exp. Imp.
established)
AMU 5 (1987) 2.5 3.1 4.5 1.7 70.4 60.3 13.1 19.6
CEN-SAD 18 (1998) 12.2 13.0 4.5 6.4 35.5 39.1 18.3 17.5
COMESA 21 (1994) 8.7 11.1 8.6 17.2 41.5 26.3 17.5 20.8
EAC 5 (1999) 12.6 18.7 7.2 9.9 30.4 24.5 26.8 22.5
ECCAS 11 (1983) 0.7 3.8 2.2 14.0 42.5 50.6 11.5 9.7
ECOWAS 15 (1975) 13.9 15.8 5.5 5.2 40.4 40.7 10.0 13.7
IGAD 6 (1986) 21.5 15.2 5.8 3.6 19.9 19.7 28.2 30.9
SADC 16 (1992) 19.9 33.1 2.3 2.6 40.7 25.2 11.2 16.7
Note: AMU-Arab Maghreb Union; CEN-SAD-Community of Sahel Saharan States; COMESA-Common Market for
Eastern and Southern Africa; EAC-East African Community; ECCAS-Economic Community of Central African
States; ECOWAS-Economic Community of West African States; IGAD- Intergovernmental Authority on
Development; SADC-Southern African Development Community. The selected RECs are in bold.
Sources: Researchers’ compilation from UNECA (2010); African Union (2018); WTO (2018).
In RECs, market and trade integration is usually facilitated through the following measures:
removal of tariff barriers to trade within RECs; removal of non-tariff barriers; development of
common trade policies. Other strategies entail development of infrastructural facilities that could
enhance intra-regional trade (UNECA, 2010; Osabuohien & Efobi, 2011; Osabuohien, et al,
2019). The extent and outcomes of the above measures has been the subject of debate especially
in Africa where intra-regional trade has remained lower than expectation (Kamau, 2010). More
so, out of the eight RECs recognised by the African Union (AU), five of them have established
free trade area (FTA). They include: COMESA, ECCAS, ECOWAS, EAC, and SADC
(UNECA, 2008; 2010; Osabuohien, et al, 2017). The highlights are presented in Table 6.1.
This study selects the RECs that have established FTA and also have membership of, at least, 10
countries. Given the above, the select RECs include: COMESA, ECCAS, ECOWAS, and SADC.
A brief on them is provided herein:

The Treaty that established the Common Market for Eastern and Southern Africa (COMESA)
was signed 5th November 1993 in Kampala (Uganda) with the main objective of taking
advantage of a larger market size, to share the region’s common heritage and enhance greater
social and economic co-operation. COMESA has 21 member countries, namely: Burundi,
Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya,
Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Swaziland (now known
as Eswatini since September 2018)4, Tunisia, Uganda, Zambia, and Zimbabwe. The Economic
Community of Central African States (ECCAS) was established in 1983 with 11 member
countries, namely: Angola, Burundi, Cameroon, Central African Republic, Chad, Congo,
From Swaziland to Eswatini: What’s in a name change? (https://www.dw.com/en/from-swaziland-to-eswatini-

4
whats-in-a-name-change/a-45372631).
14
Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and Sao Tome Principe.
While the Economic Community of West African States (ECOWAS) was inaugurated in 1975
with 15 member countries, including: Benin, Burkina Faso, Cape Verde, Cote D’Ivoire, Gambia,
Ghana, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.
Furthermore, the Southern African Development Community (SADC) came into force in 1992
with 14 member states (it transformed from the Southern African Development Coordination
Conference-SADCC), which include: Angola, Botswana, Comoros, Democratic Republic of
Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles,
South Africa, Tanzania, Zambia, and Zimbabwe.
This scope is also essential, as the member countries in the selected RECs comprise countries in
the four major regions of Sub-Saharan Africa (SSA), namely: Central, East, Southern and West
Africa. In terms of period, the study focuses on 2008 to 2017. This period is intuitive as the
initial Cotonou Agreement involving the EU and the ACP (Africa, Caribbean and Pacific)
countries ended in 2007 while the revised agreement started in 2008 (Görtz & Keijzer, 2012). In
addition, it also includes the years immediately after 2007/2008 global financial crises where
services trade became very crucial given its relative stability compared to other forms of trade
(Osabuohien et al, 2017; UNCTAD, 2018).
6.2 Analytical Structure

Empirical research on services trade is sparse relative to merchandise trade due to limited data on
prevailing policies. Hence, given the limited studies, analysis of services trade integration is
conducted within the spectra of different analytical frameworks. Nordås (2011), for instance, in
the study of motor industry used a gravity model framework to establish that in more than 100
countries, price-reduction liberalisation in business services is associated with greater product
differentiation. The author concluded that to enhance industrial upgrade particularly for
developing economies, services trade should be considered.
Similarly, a gravity regression framework was used by Hoekman and Shepherd (2015b) to
investigate the association between the levels of services trade and merchandise export
performance. They concluded that exports of manufactured products depended, in part, on
policies towards trade in services. Some studies like Mattoo et al. (2006) deployed cross-
sectional regression framework and showed that financial and telecommunications sectors
display a GDP growth rate higher in countries with open economies than those without.
Likewise, Eschenbach and Hoekman (2006) used a cross-sectional framework to establish that
economic performance is significantly boosted by liberalisation and adoption of good regulatory
practices for financial, telecommunications, energy, and transport services.
The present study adopts a divergent approach with a view to investigating how services trade
fosters regional integration in Africa. This analytical structure entails the comparative analysis of
the Common Market for Eastern and Southern Africa (COMESA), Economic Community of
Central African States (ECCAS) and Economic Community of West African States (ECOWAS)
and how each regional trade bloc has fared in relation to the modes of services trade as earlier
depicted in Figure 5.1. The analytical approach takes the form of descriptive and econometric
techniques. The descriptive approach entails analysing the trend of activities (measuring growth
rates) relating to services trade in the selected RECs. This will help making comparison between
services trade and merchandise trade as well as the various Modes of services trade.
15
With respect to econometric analysis, there is no common compromise on how best to model the
relationship between regional integration and services trade, so an inclusive approach is taken in
this study. At the first instance, panel data for the period 2008 to 2017 will be used for the four
selected RECs, which will help in achieving the objectives of the study. The econometric
analysis procedures are surmised as herewith.
Pooled OLS Estimation

The pooled ordinary least squares (Pooled OLS) analysis captures not only the variation of what
emerges through time or space but also the variation of these two dimensions simultaneously.
Rather than testing a cross-sectional model for all countries at one point in time or testing a time
series model for one country using time series data, a pooled model is tested for all countries
through time (Pennings, Keman & Kleinnijenhuis, 2006). Given these advantages, pooled
analysis has become central in quantitative studies of comparative economics.
The baseline Pooled OLS linear model is given as:
[1]
where, denotes the dependent variable (which are the modes of services trade), , the
constant term; i,, countries, 1, 2……..N; t, time, 1, 2…..T, , proxy for regional
integration and its regression coefficients; are control variables and their respective
regression coefficients, denotes unobserved country-specific effects; denotes the
5
unobserved random error term . Other variables that will be included in the study are
government consumption as ratio to GDP to capture the fiscal policy of the respective RECs
members; indicator of institutional variable that will show the relevance of institutional
framework in influencing trade performance (Meon & Sekkat, 2008; Efobi & Osabuohien,
2016).
Second Econometric Estimation

The other aspect of the econometric analysis, which is the main analysis, will deal with the use
of instrumental variable (IV). The choice of the technique was informed by the need to solve the
problems of endogeneity and measurement errors.
6.3 Data Sources

For services trade, this study engages the definition of WTO’s Article 1 on trade in services
entailing the four Modes as follows: trade in services is conceptualised as the supply of a
service:
i. from the territory of one Member to the territory of any other Member;
ii. in the territory of one Member to the service consumer of any other Member;
5
With technological changes, it is increasingly possible to trade services through information communication and
technology (ICT) and the Internet. The weakness of this is that services exchanged digitally may not be captured
which gives data challenges, especially in developing countries (Hoekman, 2017). Obtaining disaggregated services
trade data to identify, which (for example) financial services are Mode 1 or Mode 2 in Africa could be problematic.
This is because the balance of payments statement, which is the source of the services trade data, is not
comprehensive. More so, data on Foreign Affiliates Trade Statistics, which is used for Mode 3 services trade, are
less available for African countries (Miroudot & Shepherd, 2015).
16
iii. by a service supplier of one Member, through commercial presence in the territory of any
other Member; and
iv. by a service supplier of one Member, through the presence of natural persons of a Member in
the territory of any other Member.
Based on availability of data, this study utilises data from: World Development Indicators (of the
World Bank) for total services and merchandise trade variables as well as most favoured nation
(MFN) tariff rates (one of the measures of regional integration), indicators for infrastructure and
institutional quality; International Trade Centre (ITC) database for the indicators of the modes of
services trade; and African Development Bank (AfDB) for visa openness index (one of the
indicators of regional integration).
7. Empirical Results and Discussion

The section presents the results from the analysis carried out in the course of the study with a
view to achieving its objectives.
7.1 Levels for Services Trade and Merchandise Trade in Selected RECs
The call for the improvement of services trade within and among SSA countries is gaining
momentum. To support this, a comparative assessment of the historical pattern on volume of
trade in goods relative to services is vital with a view to underscoring the extent of regional trade
integration in the selected Regional Economic Communities (RECs) in Africa. Hence, to assess
the level of merchandise and services trade in the four selected RECs, the following variables are
used: merchandise exports (current US$), merchandise imports (current US$), service exports
(BoP, current US$), service imports (BoP, current US$), merchandise trade (% of GDP), and
trade in services (% of GDP).
7.1.1 Comparison of Services Trade and Merchandise Trade

The trade performances of the selected RECs are obtained by assessing the average volume of
trade for both merchandise trade and services trade as a percentage of gross domestic products
(GDP) using10-year averages (i.e., 2008 to 2017).
Analysis in Table 7.1 shows that with respect to merchandise trade, and on aggregate, all the four
RECs combined improved by 4.47 percent. That is, there is a marginal improvement on
aggregate from 54.82 percent to 57.47 percent. Individually, ECOWAS improved its goods trade
by 11.22 percent followed by SADC at 5.90 percent and COMESA with 3.27 percent. ECCAS
had a declined trend in merchandise trade pattern by 6.69 percent. However, the reverse is the
case for services trade where the combined RECs polled a negative 7.22 percent. Noticeably,
each REC services trade pattern worsened with ECCAS having the highest shortfall at -10.43
percent followed by ECOWAS (-7.79 percent), COMESA (-7.03 percent) and SADC with -6.77
percent. Two salient facts gleaned from Table 7.1 are that: 1) each REC did not match its
services trade pattern with that of merchandise trade, and 2) selected RECs did not improve
services trade in the period 2008-2017 compared to 2000-2007.
17
Table 7.1 Change in Total Trade Pattern, % of GDP (2000 - 2017)
Trade RECs Countries 2000 – 2007 2008 – 2017 % Change
COMESA 19 51.33 53.01 3.27
Merchandise ECCAS 11 58.42 54.51 -6.69
Trade ECOWAS 15 45.56 50.67 11.22
SADC 15 71.36 75.57 5.90
All RECs 54.82 57.27 4.47
COMESA 19 22.47 20.89 -7.03
ECCAS 11 18.98 17 -10.43
Services Trade
ECOWAS 15 20.28 18.7 -7.79
SADC 15 23.64 22.04 -6.77
All RECs 20.63 19.14 -7.22
Note: Percentage change is computed as: [((period 2008 to 2017) - (period 2000 to 2007)/((period 2000 to
2007) ) ×100]
Source: Researchers' Computations from World Bank (2018)
The values depicted in Figure 7.1 shows the obvious disparities between merchandise and
services trade as a percentage of GDP across four selected RECs for the period of the study.
Though SADC leads with the highest merchandise trade volume (77.97 percent) followed by
ECCAS (69.96 percent), ECOWAS (50.67 percent) and COMESA (53.01 percent), respectively,
the volume of trade in merchandise is relatively larger than trade in services across the four
RECs.
Figure 7.1: Comparison of Merchandise6 and Services Trade, % of GDP (2008 to 2017)
6Note: Merchandise trade and goods trade are used synonymously in this study because they have same connotation
18
7.1.2 Import and Export Components of Merchandise and Services Trade
Still using comparative year bands, the import and export components of goods and services
trade are examined across four selected RECS. As shown in Table 7.2a, each REC improved its
level of import in the period 2008-2017 relative to the period 2000-2007. On merchandise
import, ECCAS has the highest improvement with 184.92 percent followed by COMESA
(176.55 percent). On services import, ECOWAS recorded the highest improvement with 150.49
percent while COMESA recorded the lowest at 97.62 percent. This shows that the region
increased importation in both trade categories.
Table 7.2a Change in Import Components ($'million)

Trade RECs 2000 – 2007 2008 - 2017 % Change
COMESA 2,900.00 8,020.00 176.55
Merchandise ECCAS 1,260.00 3,590.00 184.92
Imports ECOWAS 2,370.00 6,410.00 170.46
SADC 9,820.00 22,800.00 132.18
COMESA 1,260.00 2,490.00 97.62
Services ECCAS 1,220.00 2,550.00 109.02
Imports ECOWAS 1,030.00 2,580.00 150.49
SADC 2,770.00 6,280.00 126.71
Note: Percentage change is computed as: [((period 2008 to 2017) - (period 2000 to
2007)/((period 2000 to 2007) ) ×100]
However, a further examination of Table 7.2a reveals that within the year bands, there is a
substantial disparity between the volumes of import across the four RECS. A considerable gap
exists between goods and services imports, which are clearly shown in Figure 7.27.
Figure 7.2: Import Components of Goods and Services Trade across RECs (2008 to 2017)
7
The bar charts for period 2000 to 2007 are not shown because it is not the immediate scope of the study and to
avoid having too many charts.
19
Table 7.2b Change in Export Components ($'million)
percent
Trade RECs 2000 – 2007 2008 - 2017
Change
COMESA 2,890.00 5,510.00 90.66
Merchandise ECCAS 2,790.00 5,650.00 102.51
Exports ECOWAS 3,420.00 7,700.00 125.15
SADC 10,100.00 22,600.00 123.76
COMESA 1,370.00 2,230.00 62.77
Services ECCAS 449.00 915.00 103.79
Exports ECOWAS 428.00 782.00 82.71
SADC 1,870.00 3,100.00 65.78
Note: Percentage change is computed as: [((period 2008 to 2017) - (period 2000 to
2007)/((period 2000 to 2007) ) ×100]
Similarly, the export pattern shown in Table 7.2b is not significantly different from that of
import presented in Table 7.2a. All the RECs improved in both goods and services trade exports.
With respect to goods trade, ECCAS, ECOWAS, SADC recorded over 100 percent improvement
while COMESA improved by 90.66 percent. Likewise, on services trade ECCAS had over 100
percent improvement while the rest recorded positive changes of over 60 percent.
Again, a close scrutiny of Table 7.2b shows that within the year bands, there is a wide disparity
between goods and services export. Within the period 2000-2007 for instance, ECOWAS
exported USD$3.4 billion worth of merchandise and a measly USD$428 million worth of
services export. Likewise, for the period 2008-2017, USD$7.7 billion worth of goods was
exported with a paltry USD$782 million worth of services. Also, SADC led others RECs as the
highest exporter of both goods and services trade. This is shown in Figure 7.3.
Figure 7.3: Export Components of Merchandise and Services Trade across RECs (2008 to 2017)
20
7.1.3 Analysis of Services Trade Positions
Lastly, trade positions of each REC in relation to services trade are examined.
Table 7.3 Services Trade Positions across the Selected RECs

Years RECs Exports Imports Trade Balance Net Position
COMESA 1,370.00 1,260.00 110.00 Net Exporter
ECCAS 449.00 1,220.00 -771.00 Net Importer
2000 – 2007
ECOWAS 428.00 1,030.00 -602.00 Net Importer
SADC 1,870.00 2,770.00 -900.00 Net Importer
COMESA 2,230.00 2,490.00 -260.00 Net Importer
ECCAS 915.00 2,550.00 -1,635.00 Net Importer
2008 – 2017
ECOWAS 782.00 2,580.00 1,798.00 Net Importer
SADC 3,100.00 6,280.00 3,180.00 Net Importer
Statistics in Table 7.3 reveal that for the period 2000-2007, COMESA is a net exporter of
services trade with a positive trade balance of USD$110 million but by the period 2008-2017 had
downscaled to a net importer of services trade with a trade deficit of USD260 million. The other
three RECs consistently maintained deficit services trade positions during both periods, hence,
they are categorised as net importers. SADC posted the highest trade deficits followed by
ECOWAS and ECCAS that posted asymmetric deficits in both periods.
The analyses presented have shown that the selected RECs’ trade in services lags behind their
merchandise trade. In essence, across all the selected RECs, statistics reveal that there is need to
strategically re-structure their services sectors for improved trade relations within the RECs and
the rest of the world (RoW), which regional integration holds potentials. Hence, some policy
outcomes of these investigations are rationalised. Since services trade rely more on the
availability of viable infrastructure such as the provision of information and communication
technology (ICT) equipment, which creates an inclusive environment for economic participation
(Asongu and Le Roux, 2017; Ejemeyovwi and Osabuohien, 2018; Adeleye and Eboagu, 2019;
Osabuohien et al, 2019) therefore, the time is ripe for African countries to invest massively in
infrastructural provision. This will, among others, boost output growth; labour productivity;
create new income streams; lead to employment generation and plug the outflow of foreign
exchange and promoted trade outcomes.
7.2 Modes of Service Trade across the Selected RECs

The breakdown of services into their mode of supply to foreign customers aids proper
classification into Modes. For illustration, financial services supplied to a foreign customer
through the internet are Mode 1. If the foreign consumer is in the home country of the financial
firm and patronises the firm, this is Mode 2. If the financial firm has an annex firm in the foreign
country i.e., commercial presence, the financial services rendered to the foreign customer are
Mode 3. If there is no commercial presence but there is an account or relations officer of the
financial firm present in the foreign country (i.e., the presence of natural persons), this is Mode
4.
21
Due to inadequate available information, such breakdown does not exist for the member
countries in the selected RECs. As allowed by data availability, the indicators (in the aggregate)
are used as a proxy for each of the Modes. Also, based on the premise that the development of
commercial banks is on the rise among African countries as wholly- or partly-owned
subsidiaries, joint ventures, partnerships, sole proprietorships, franchising operations, branches,
agencies, or representative offices beside their country of origin; financial services is categorised
as Mode 3. Thus, for consistency, the study focuses mainly on Mode 2 (Travel Services) and
Mode 3 (Financial Services) both for the descriptive and econometric analyses.
7.2.1 Assessment of Mode 2 Services Trade

As can be seen in Table 7.4, COMESA has the highest average export in government goods and
services. Kenya has the highest export of government goods and services over Egypt, Nigeria
and South Africa. Meanwhile, ECOWAS has the highest average import of government goods
and services and Nigeria has the highest average import.
Table 7.4a: Export and Import of Government Goods and Services (2008-2017, ’000$)
Countries Export Countries Import Countries Export Countries Import
COMESA 173,284.1 COMESA 205,689.5 ECCAS 63,855.2 ECCAS 219,472.8
Egypt 487,300.0 Angola 1,228,878 Cameroun 83,568.6 Angola 1,228,878
Kenya 835,379.6 Egypt 1,170,050 Congo DR 154,746.1 Congo DR 264,301.7
ECOWAS 91,703.8 ECOWAS 252,486.4 SADC 79,719.5 SADC 190,782.9
Liberia 194,668 Liberia 803,008.3 Congo DR 154,746.1 Angola 1,228,878
Nigeria 518,960.8 Nigeria 1,450,807 South Africa 395,097.9 South Africa 432,605.9
Source: Researchers’ Computation from ITC (2019)
Out of the selected RECs, ECOWAS and ECCAS have the higher net import in government
goods and services. This is further depicted in Figure 7.5a.
Figure 7.4a: Net Export of Government Goods and Services (2008-2017)

SADC has the highest average export in travel services, although Egypt has the highest average
export of travel services in Table 7.4b. The Table also shows that SADC has the highest average
import of travel service while Nigeria has the highest average import of travel services.
22
Table 7.4b: Export and Import of Travel Services (2008-2017, ’000$)
Egypt 8,265,460 Egypt 2,837,870 Angola 833,253.7 Cameroun 495,172.6
Mauritius 1,434,419 Sudan 622,309.4 Cameroun 385,552 Gabon 394,761.6
ECOWAS 233,242.5 ECOWAS 501,836.8 SADC 1,176,572 SADC 527,698.4
Ghana 814,414.7 Ghana 576,570.2 Mauritius 1,434,419 South Africa 3,921,216
Nigeria 801,835.8 Nigeria 5,731,013 Tanzania 1,696,112 Tanzania 902,257.3
As it is under telecommunication, computer and information services, Figure 7.4b shows that
COMESA is a net exporter of travel services, so does SADC. However, SADC has a higher net
export in travel services than COMESA.
Figure 7.4b: Net Export of Travel Services (2008-2017)

7.2.2 Assessment of Mode 3 Service Trade

SADC has the highest average export in financial services with South Africa having the highest
average export in financial services among all the countries as depicted in Table 7.5. For a
change, ECCAS has the highest average import in financial services and Nigeria has the highest
average import.
Table 7.5: Export and Import of Financial Services (2008-2017, ’000$)
Egypt 173,267 Angola 294,085.7 Cameroun 22,344.8 Angola 294,085.7
Kenya 211,178 Kenya 77,721.1 Congo DR 32,261.2 Congo DR 43,290.3
ECOWAS 18,601 ECOWAS 56,997 SADC 85,572.1 SADC 53,994
Burkina Faso 48,682 Cote d'Ivoire 78,716.4 Mauritius 89,496.2 Angola 294,085.7
Nigeria 89,673.6 Nigeria 488,405.4 South Africa 840,212.7 South Africa 115,475.9
23
SADC also has a net export in financial services, as it does under travel services, while other
RECs have net import as shown in Figure 7.5. Meanwhile, ECCAS is the highest net importer of
financial services.
Figure 7.5: Net Export of Financial Services (2008-2017)

From the assessment of Modes 2 and 3 of services trade, the selected RECs are all net importers
in government goods and services, and other business services. Even though all the selected
RECs are net importers of services on the aggregate, considering the two Modes of services,
COMESA is a net exporter of telecommunication, computer and information services and travel
services, while SADC is a net exporter of travel services (Mode 2), and ECCAS as well as
ECOWAS are net importers of all the Modes of services trade. The finding observed for SADC
on the net export for travel services supports Visagie and Turok (2019) that the composition of
services exports is skewed towards a traditional sector. COMESA’s position as a net exporter of
telecommunication, computer and information services and travel services indicates that the REC
has a competitive capacity in both traditional and modern sectors of services trade.
7.3 Degree of Regional Integration in the Selected RECs

This sub-section presents some analysis on the degrees of regional integration across the four
selected regional economic communities using two main indicators, namely: visa openness index
and MFN tariff rates.
7.3.1 Visa Openness Index Comparison across Selected RECs

The visa openness index (VOI) captures the degree of openness of countries to travellers in terms
of the need for a visa, type of visa, visa facilitation through cost reduction, time reduction,
simplification of the visa process and the matching of the initially stated agreement visa policies
to experience by visitors. A country’s score ranges between 0 and 1; a no-visa requirement
scores ‘1’ and the visa required status is represented by ‘0’. This implies that countries should
opt to have a high degree of VOI for regional integration.
From the data presented, on the average, VOI as at 2016, the REC with the highest degree of
openness was COMESA with about 0.499 points on the VOI score followed by ECOWAS
having 0.490 points, then SADC having 0.381 points, while ECCAS was the REC with the
24
lowest VOI score having 0.114 index points. In 2017, the REC with the highest VIO was
ECOWAS with 0.499 points on the VOI score followed by COMESA having 0.470 points then
SADC having 0.392 points. Again, ECCAS was the REC with the lowest VOI score having
0.160 points. The data for 2018 revealed that ECOWAS maintained the REC with the highest
VOI having 0.560 points, followed COMESA (with 0.471 points), SADC (with 0.397 points),
and ECCAS (with the lowest value of 0.173 points). Thus, on a general note, ECOWAS and
COMESA have a relatively higher degree of VOI while SADC has a relatively lower degree and
ECCAS had the least for the three years reported. This implies that using VOI, the degree of
integration in the selected RECs can be ranked as follows: ECOWAS, COMESA, SADC, and
ECCAS, which is reflective from the last column of Table 7.6.
Table 7.6: Visa Openness Index across the Selected RECs (2016 - 2018)
Visa 2017 2018 Period
RECs 2016
Openness (Average)
COMESA 0.499 0.477 0.471 0.482
Average ECCAS 0.114 0.160 0.173 0.149
Score 8
ECOWAS 0.490 0.520 0.560 0.523
SADC 0.381 0.392 0.397 0.390
Source: Researchers' Computations from African Development Bank’s Visa Openness Report (2018)
Figure 7.6: Visa Openness Index for RECs (2016 – 2018)

Source: Researchers' Computations from African Development Bank’s Visa Openness Report (2018)
7.3.2 Most Favoured Nation Tariff across RECs

The most favoured nation’ tariff rates for all products constitute the rates of products subject to
tariffs calculated for all traded goods. The data is expressed in both the weighted mean and the
simple mean as sourced from the World Bank database (2018). The tariff combines the rates for
both primary products and manufactured products. The data is expressed as percentages which
8
Given the empirics that ECOWAS has the highest visa openness index, which is above 0.5 compared to other
RECs, this study uses ECOWAS as reference REC in the Pooled OLS analysis.
25
lie between 0 percent to 100 percent and the higher the percentage, The higher the tariff, the
lower the favour received by trading partners of a country (i.e. the lower the level of regional
integration), and vice versa.
Comparison of the four select RECs considered by this study show that in terms of the simple
mean values of the most favoured nation (2008- 2017), ECCAS has the highest most favoured
nation tariff rate of 17 percent followed by COMESA having 12.6 percent. ECOWAS came next
with about 12.05 percent while the REC with the lowest among the most favoured nation tariff is
the SADC’s REC. This is shown in Table 7.7. In terms of the weighted mean values of the most
favoured nation (2008- 2017), ECCAS has the highest most favoured nation tariff rate of 14.69
percent followed by ECOWAS having 10.83 percent. COMESA came next with about 10.16
percent while the REC with the lowest among the most favoured nation tariff was the SADC’s
REC with 8.01 percent.
Table 7.7: Table: Most Favoured Nation (MFN) Average across RECs
Trade RECs 2008 – 2017
COMESA 12.60
MFN Tariff Rate ECCAS 17.00
(simple mean, all products, %) ECOWAS 12.05
SADC 8.01
COMESA
10.16
MFN Tariff Rate
ECCAS 14.69
(weighted mean, all products,%)
ECOWAS 10.83
SADC 8.01
In addition, the values across select RECs for each of the years (i.e. from 2008 to 2017) are
presented in Figures 7.7a and 7.7b for MFN tariff rates for simple mean of all products and
weighted mean of all products, respectively.
Figure 7.7a: Most Favoured Nation Tariff Rate (simple mean, all products, percent)
26
Figure 7.7b: Most Favoured Nation Tariff Rate (weighted mean, all products, %)
The trend for the MFN tariff rates shown in Figures 7.7a and 7.7b reveal that ECCAS had its
highest points of about 17.5 percent from 2008 to 2012 while a reduced trend was observed
between 2012 and 2016 before ECCAS experienced an increase to about 18 percent. COMESA,
the next highest REC ranged between 11 percent and 13 percent. COMESA’s tariff rates
fluctuated all through the period and fell below ECOWAS at 2016, having about 11 percent (the
lowest point). ECOWAS maintained an almost steady range of about 11.5 percent to about 12.2
percent compared to the other RECs. SADC recorded the least on the most favoured nation tariff
rate, which ranged between 7 percent and 8 percent. A steady trend for SADC was also observed
within the period of 2008 to 2012 while 2013, 2015 and 2017 had relatively lower values. Thus,
based on MFN as an indicator of integration, SADC followed by ECOWAS and COMESA, are
better integrated on the average than ECCAS.
8. Findings from Econometric Estimations9

This section analyses the econometric models for the four selected RECs across two Modes:
travel services (Mode 2) and financial services (Mode 3)10. The dependent variables are the two
Modes, the main regressor is the regional integration variable represented by the most favoured
nation (MFN) tariff while the control variables are: GDP per capita growth; control of
corruption; mobile subscription; access to electricity; internet usage; telephone subscription;
voice and accountability; regulation and political stability. The use of the control variables is
consistent under the application of the pooled OLS while they are unique to the modelling for
each REC under the instrumental variable regression due to the selection of instruments. Also, to
ensure the identification of models specified, the lag of the dependent variables is applied for
some RECs under the instrumental variable regression. Data is sourced from the World Bank
9
Brief explanation on how this study addresses the issue of multiple memberships is provided in the Appendix.
10
The initial analysis included transport services; however, based on suggestions received during the mid-review
workshop and based on the understanding that travels in somehow mirrors transportation, this study decided to focus
on travels and financial services, which deal more directly with trade.
27
(2018) World Development Indicators, World Governance Indicators (2018) and Economic
Freedom of the World (2018). Period coverage is from 2008 to 2017.
8.1 Pooled OLS Results

8.1.1 Pooled OLS Results using VISA Openness Index
The econometric results carried out using visa openness index as a measure of regional
integration is reported in Table 8.1. From the Table, the results show that regional integration
does not significantly affect travel services imports and exports. Increase in visa openness (as a
measure of regional integration) does not significantly increase exports of travel services or
significantly reduce imports of travel services. Other explanatory variables are not statistically
significant, except the infrastructure (measured by mobile phone subscription) and institutional
quality (measured by political stability). These findings, especially the coefficients of the REC
dummies, might be due to the newness of the measure of visa openness in Africa which called
for this cross-sectional analysis. Mobile phone subscription consistently significantly (under the
models specified for MFN tariff and visa openness indicators) contributes to the imports and
exports of travel services among the RECs and political stability also significantly contributes to
the exports of travel services among the RECs. This is somewhat intuitive as politically stable
economy is more creative to the needed environment for economic activities and entrepreneurial
innovations, which will expand domestic production as well as consumption. The F-statistics
indicate that the regressors are jointly significant in explaining travel services.
Table 8.1 Travel Services Results

(Dep. Var.: Travel Services, log)
Variables Imports Exports
Constant -0.0509 (-0.02) -5.5055 (-1.38)
VISA openness -0.0781 (-0.13) 0.2846 (0.30)
GDP per capita growth -0.1015 (-1.13) -0.0903 (-0.68)
Control of Corruption 0.7040 (1.59) 0.4639 (0.76)
Mobile Phone Subscription, log 0.7976*** (5.93) 1.0087*** (4.07)
Regulation -0.0023 (-0.01) 0.3919 (1.20)
Political Stability 0.2591 (0.76) 1.1648** (2.08)
COMESA 0.2121 (0.52) 0.5963 (1.05)
ECCAS -0.0189 (-0.03) -1.0534 (-0.98)
SADC 0.3396 (0.79) 0.0034 (0.01)
No. of Obs. 34 34
R-Squared 0.616 0.586
F Statistic 6.44 13.32
Notes: ***, **, *are statistical significance at the 1 percent, 5 percent and 10 percent levels
respectively; t-statistics (in parentheses) are based on White heteroscedasticity-consistent
std. errors; COMESA: Common Market for Eastern and Southern Africa; ECCAS:
Economic Community of Central African States; SADC: South African Development
Community
Source: Authors' Computations
28
Similar to travel services, visa openness does not significantly affect financial services imports
and exports as reported in Table 8.2. An increase in GDP per capita growth rate significantly
reduces the export of financial services among the RECs. This implies that an increase in the
production of goods and services among the RECs does not lead to an increase in exports of
financial services. Mobile phone subscription consistently significantly (under the models
specified for MFN tariff and visa openness) contributes to the imports and exports of travel
services among the RECs and political stability also significantly contributes to the exports of
travel services among the RECs. There is weak evidence that ECCAS has a higher import of
financial services than ECOWAS considering visa openness as the measure of economic
integration. The F-statistics indicate that the regressors are jointly significant in explaining travel
services. These are significant and compelling findings that validate the need for Africa to re-
think and re-position its services sector through the reduction of trade tariffs among economic
communities.
Table 8.2 Financial Services Results

(Dep. Var.: Financial Services, log)
Constant -6.9313 (-1.25) -17.2055** (-2.39)
VISA Openness 1.2096 (1.01) 0.8683 (0.73)
GDP per capita growth -0.0904 (-0.54) -0.3666** (-2.55)
Control of Corruption -0.1577 (-0.24) -0.2598 (-0.34)
Regulation 0.0646 (0.23) 0.2259 (0.75)
Political Stability 0.5846 (0.87) 2.1205** (2.37)
COMESA 0.1309 (0.20) 1.0782 (1.38)
ECCAS 1.3421* (1.87) 0.2793 (0.28)
SADC 0.3119 (0.41) -2.1946 (-2.59)
No. of Obs. 32 30
R-Squared 0.378 0.576
Notes: ***, **, *are statistical significance at the 1 percent, 5 percent and 10 percent levels
respectively; t-statistics (in parentheses) are based on White heteroscedasticity-consistent std.
errors; COMESA: Common Market for Eastern and Southern Africa; ECCAS: Economic
Community of Central African States; SADC: South African Development Community.
8.1.2 Pooled OLS using MFN Indicator

This sub-section presents the results obtained from econometric analysis using most-favoured
nation tariff as a measure of regional integration for the two Modes of services trade (Travel
Services and Financial Services).
Table 8.3 displays the results for the travel services. On imports, findings show that the
coefficient of the most favoured nation tariff is negative and statistically significant at the 1
percent level for both imports and exports.
29
The results indicate that an increase in trade tariff leads to less economic integration which
implies low trade among RECs. Hence, a percentage change in the tariff rate leads to a drop in
travel services imports by 0.96 percent, on average, ceteris paribus. The same argument holds
for travel services exports, which decreases by 0.80 percent, on average, ceteris paribus as a
result of a percentage increase in trade tariff. These are significant and compelling findings,
which support the quest for Africa to re-think and re-position its services sector through the
reduction of trade tariffs among economic communities.
Table 8.3 Travel Services (Mode 2) Results

Constant 269.6046*** (5.32) 243.3832*** (3.01)
Most Favoured Nation Tariff, log -0.9592*** (-9.21) -0.7961*** (-5.33)
GDP per capita growth 0.0058 (0.34) 0.0089 (0.37)
Control of Corruption 0.7977*** (4.91) 0.8212*** (3.75)
Regulation 0.0016 (0.02) -0.0970 (-0.91)
Political Stability -0.4244*** (-4.68) 0.7905*** (5.01)
COMESA 0.1678 (1.50) 0.4220*** (2.63)
ECCAS 2.0841*** (10.78) 0.3160 (1.46)
SADC 0.5920*** (4.39) -0.0515 (-0.28)
Year Dummies Yes Yes
No. of Obs. 272 272
R-Squared 0.736 0.687
Notes: ***, **, *are statistical significance at the 1 percent, 5 percent and 10 percent levels respectively; t-
statistics (in parentheses) are based on White heteroscedasticity-consistent std. errors; COMESA: Common
Market for Eastern and Southern Africa; ECCAS: Economic Community of Central African States; SADC:
South African Development Community.
The impact of control variables on travel services is not significantly different from those of
financial services, hence, similar interpretation holds. On the interaction among the RECs, on
average, ceteris paribus, the coefficients of the REC dummies show that travel services import in
ECCAS and SADC is 703.74 percent and 80.76 percent respectively, and higher than that of
ECOWAS (the base REC) while that of COMESA is statistically not significant. On the other
hand, travel services exports in COMESA are higher than that of ECOWAS by 18.27 percent.
Lastly, having controlled for year dummies, the goodness-of-fit of the model specifications
shows that the proportion of variation in the dependent variables explained by the regressors
ranges from 69 percent to 74 percent and across both specifications, the F-statistics indicate that
the regressors are jointly significant in explaining travel services.
Finally, Table 8.4 displays the results for the financial services model. Increasing the trade tariff
will significantly decrease both financial services imports and exports by 2.36 percent and 1.36
30
percent, on average, ceteris paribus. Same interpretation is as given in transportation and travel
services.
Table 8.4 Financial Services (Mode 3) Results

Constant 272.1248** (2.50) 342.4868** (2.18)
Most Favoured Nation Tariff, log -2.3604*** (-7.90) -1.3583*** (-5.79)
GDP per capita growth -0.0300 (-0.61) -0.0264 (-0.45)
Control of Corruption -0.3200 (-0.90) -0.0953 (-0.25)
Regulation 0.1766 (1.47) 0.4042** (2.42)
Political Stability 0.0428 (0.21) 0.7721*** (2.85)
COMESA -0.0367 (-0.13) 0.2523 (0.71)
ECCAS 1.8831*** (6.66) 0.7629** (2.05)
SADC -0.1649 (-0.54) -1.3411*** (-2.96)
Year Dummies Yes Yes
No. of Obs. 233 219
R-Squared 0.484 0.416
Notes: ***, **, *are statistical significance at the 1 percent, 5 percent and 10 percent levels respectively; t-
statistics (in parentheses) are based on White heteroscedasticity-consistent std. errors; COMESA: Common
Market for Eastern and Southern Africa; ECCAS: Economic Community of Central African States; SADC:
South African Development Community
For the control variables, only mobile subscription is statistically significant for the imports
model while mobile subscription, regulation and political stability are statistically significant for
the exports model. Among the RECs, ECCAS financial services imports and exports are higher
than that of ECOWAS by 557.39 percent and 114.45 percent, respectively, on the average,
ceteris paribus. That of COMESA is found not to be statistically significant in both models while
SADC financial services exports is lower by 73.84 percent. Lastly, having controlled for year
dummies, the goodness-of-fit of the model specifications shows that the proportion of variation
in the dependent variables explained by the regressors ranges from 42 percent to 48 percent and
across both specifications, the F-statistics indicate that the regressors are jointly significant in
explaining financial services (see Appendix for treatment of multiple membership).
Overall, across the three modes, this study concludes that increasing the most favoured nation
trade tariff will adversely affect the volume of services trade in Africa. This is a significant
outcome necessary to trigger new policy debates on re-thinking a fostering free trade and free
movement agenda among African countries.
8.2 Instrumental Variables Regression Results

The econometric equations estimated for the four RECs have travel and financial services as
dependent variables. The main regressor is the regional integration variable represented by the
31
most favoured nation (MFN) tariff. The use of the control variables is consistent under the
application of the pooled OLS while they are unique to the modelling for each REC under the
instrumental variable regression due to the selection of instruments. Also, to ensure the
identification of models specified, the lag of the dependent variables is applied for some RECs
under the instrumental variable regression. There is a somewhat economic anomaly found for
ECCAS under the export of travel services in Table 8.5 at 5 percent level of significance. This
brings to light the need for Africa to rethink and reposition services trade under its economic
integration policies.
Different measures of infrastructure support the rise of export of travel services in RECs, except
SADC. Access to electricity significantly contributes to the export of travel services in
ECOWAS. This pattern is noted also for mobile phone subscription under COMESA. Political
stability within ECCAS celebrates the export of travel services. As the political system in
ECCAS increase in stability, about 0.663 percentage change increase may occur in the export of
travel services, ceteris paribus. On the other hand, the level of regulation in COMESA does not
support increases in the export of travel services. This calls for a rethinking and repositioning in
the REC.
Table 8.5 Export of Travel Services (Mode 2) Results

Variables COMESA ECCAS ECOWAS SADC
GDP per capita growth rate 0.0408[0.028] -0.0364[0.05] ---- 0.0208[0.02]
Most Favoured Nation Tariff -0.0095[0.049] 0.3412**[0.15] -0.0077[0.035] -0.0172[0.03]
Lag 1 of Travel Services 0.0726[0.08] ---- 0.1118[0.10] ----
Fixed telephone Subscriptions ---- ---- ---- -0.0295[0.73]
Access to Electricity ---- -0.0141[0.019] 0.0257***[0.007] -0.0138[0.012]
Mobile Phone Subscription 0.0175***[0.006] ---- ---- ----
Individuals Using Internet ---- 0.0391*[0.02] -0.0031[0.14] 0.0045[0.006]
Voice and Accountability 0.0813[0.42] 0.0510[0.69] ---- 0.3158[0.45]
Regulation Quality -0.0307**[0.012] 0.5366[0.61] ---- -0.3818[0.49]
Political Stability ---- 0.6628**[0.31] ---- ----
Government Effectiveness ---- 0.0617[0.72] ---- ----
Underidentification Test 37.267*** 18.978*** 46.334*** 34.076***
Weak Identification Test 19.983* 31.217* 63.629* 29.203*
Overidentification Test 84.829*** Exactly Identified 69.975*** Exactly Identified
No. of Obs. 102 44 84 84
R-Squared 0.140 0.348 0.176 0.027
F statistic 2.53** 1.95* 3.53** 0.55
Notes: ***, **, *are statistical significance at the 1 percent, 5 percent and 10 percent levels respectively; standard errors are
presented in parenthesis []; t-statistics are homoscedasticity-consistent and efficient; COMESA: Common Market for Eastern
and Southern Africa; ECCAS: Economic Community of Central African States; ECOWAS: Economic Community of West
African States; SADC: South African Development Community
32
The level of economic integration significantly increases the import of travel services in
ECOWAS only in Table 8.6. As COMESA and SADC increases their import of travel services in
the previous period, it significantly supports increase in the import of travel services in the
current period. The use of internet in ECCAS supports not only the import of travel services but
also, the export of travel services. The political stability in ECCAS contributes to both export
and import of travel services.
Table 8.6 Import of Travel Services (Mode 2) Results

GDP per capita growth rate -0.0085[0.021] ---- ---- 0.0077[0.02]
Most Favoured Nation
-0.0216[0.03] -0.0257[0.05] -0.0772*[0.04] 0.0116[0.03]
Tariff
Lag 1 of Travel Services 0.3699***[0.11] ---- ---- 0.3288**[0.15]
Fixed telephone
---- 0.1348[0.14] 0.0805[0.09] ----
Subscriptions
Access to Electricity -0.0065[0.007] 0.0182[0.017] ---- 0.0013[0.009]
Mobile Phone Subscription 0.0006[0.004] ---- ---- -0.0019[0.003]
Individuals Using Internet 0.01739*[0.009] 0.0476**[0.019] 0.0071[0.007] 0.0044[0.008]
Voice and Accountability 0.5421*[0.30] 0.0943[0.64] ---- 0.3211[0.32]
Political Stability ---- 0.8256***[0.26] -0.1458[0.13] ----
Regulation Quality ---- -0.6020[0.56] ---- ----
Government Effectiveness ---- 0.4137[0.67] -0.3989[0.38] ----
Underidentification Test 35.279*** 18.978*** 43.780*** 31.735***
Weak Identification Test 18.084* 31.217* 52.271* 16.814*
Overidentification Test 0.016 Exactly Identified 0.926 0.042
No. of Obs. 101 44 86 84
R-Squared 0.2933 0.488 0.073 0.084
F statistic 4.42*** 3.26*** 1.56 1.06
The under-identification test shows that the estimated models are not under-identified under
Table 8.5 and 8.6 and so the null hypothesis is rejected for the alternate hypothesis that they are
identified. The Cragg-Donald weak identification test indicated the models were estimated using
strong instruments at 10 percent level of significance.
Increasing the trade tariff, which implies a reduction in economic integration, will significantly
decrease both financial services imports and exports of SADC, exports of ECCAS and imports of
COMESA. The pattern of lagged services trade significantly affecting the current services trade
under COMESA and SADC is observed also for financial services. Voice and accountability
significantly contribute to the export of financial services in ECCAS. While the role of
institutions is not observed in COMESA and SADC, the quality of regulations in ECOWAS has
a significantly negative impact on the export of financial services. This confirms the difficulty
33
experienced by business operators moving funds from one West African country to another.
ECOWAS needs to have a rethink on ensuring that regulations give room to the increase of the
export of financial services which would not only enhance merchandise trade but also the entire
modes of services trade.
Table 8.7 Export of Financial Services (Mode 3) Results

GDP per capita growth rate 0.0068[0.06] 0.0072[0.05] 0.0501[0.06] 0.0139[0.06]
Most Favoured Nation Tariff -0.0987[0.12] -0.1972**[0.092] -0.1339[0.18] -0.2836**[0.12]
Lag 1 of Financial Services 0.5967***[0.09] 0.4270[0.35] ---- 0.6340***[0.08]
Access to Electricity ---- 0.0929[0.07] ---- -0.0304[0.02]
Mobile Phone Subscription 0.0028[0.008] 0.0412[0.0361] 0.0056[0.007] -0.0077[0.006]
Individuals Using Internet ---- -0.1175[0.07] ---- ----
Voice and Accountability ---- 2.7027**[1.17] ---- 1.0028[0.98]
Regulation Quality -0.2750[0.97] ---- -6.629***[1.40] ----
Political Stability ---- ---- ---- ----
Government Effectiveness 0.1854[1.01] ---- ---- ----
Underidentification Test 27.281*** 8.691** 33.033*** 32.686***
Weak Identification Test 23.748* 3.502 20.979* 24.673*
Overidentification Test Exactly Identified 10.350** 63.476*** 49.343***
No. of Obs. 68 16 75 63
R-Squared 0.400 0.893 0.283 0.581
F statistic 5.80*** 6.07** 6.05*** 11.43***
An increase in GDP per capita growth rate significantly reduces the import of financial services
in COMESA and ECCAS. This implies that an increase in the production of goods and services
in COMESA and ECCAS does not lead to an increase in imports of financial services. Mobile
phone subscription and voice and accountability significantly support the import of financial
services in SADC but not in other RECs. The significant negative effect of the use of internet by
individuals on the import of financial services in SADC calls for rethinking and repositioning of
trade in financial services. Just as the export of financial services in ECOWAS, the import of
financial services is also significantly reduced by the quality of regulations. As such, the rethink
should cover both imports and exports of financial services.
34
Table 8.8 Import of Financial Services (Mode 3) Results
GDP per capita growth rate -0.2179***[0.075] -0.1978***[0.07] 0.0478[0.06] -0.0735[0.07]
Most Favoured Nation Tariff -0.2801**[0.12] -0.1072[0.13] -0.0601[0.14] 0.2820***[0.102]
Lag 1 of Financial Services 0.3068**[0.13] 0.2350[0.18] ---- -0.0200[0.12]
Access to Electricity 0.0125[0.26] -0.0681[0.07] -0.0766[0.06] 0.0324[0.033]
Mobile Phone Subscription -0.0262[0.02] 0.0434[0.03] 0.0189[0.012] 0.0306**[0.14]
Individuals Using Internet 0.0222[0.04] -0.0836[0.09] -0.0171[0.037] -0.0884***[0.030]
Voice and Accountability 4.2436***[1.15] 2.7557*[1.60] 0.2602[0.91] 4.8775***[1.23]
Political Stability ---- ---- ---- ----
Regulation Quality ---- ---- -5.9161***[1.43] ----
Government Effectiveness ---- ---- ---- ----
Underidentification Test 29.883*** 8.694** 39.168*** 33.327***
Weak Identification Test 15.996* 3.062 84.439* 20.591*
Overidentification Test 54.261*** 8.473*** Exactly Identified 59.228***
No. of Obs. 78 26 78 74
R-Squared 0.185 0.565 0.287 0.295
F statistic 3.42*** 2.40* 3.50*** 3.84***
Notes: ***, **, *are statistical significance at the 1 percent, 5 percent and 10 percent levels respectively; standard errors are presented
in parenthesis []; t-statistics are homoscedasticity-consistent and efficient; COMESA: Common Market for Eastern and Southern
Africa; ECCAS: Economic Community of Central African States; ECOWAS: Economic Community of West African States; SADC:
South African Development Community
The under-identification test shows that the estimated models are identified at 1 percent level of
significance. The Cragg-Donald weak identification test indicates the models are estimated using
strong instruments at 10 percent level of significance, except for the ECCAS model for export
and import on Table 8.7 and 8.8. The F-statistics indicate that the regressors are jointly
significant in explaining all the models on Tables 8.7 and 8.8 at different levels of significance.
Considering the findings above, economic integration in terms of the most favoured nation trade
tariff is not the only policy that needs to be addressed by the RECs to enhance the volume of
services trade in Africa. Cooperation in terms of infrastructural development and building
stronger institutions are required to boost services trade. This is a significant outcome necessary
to trigger new policy debates on re-thinking a fostering free trade and free movement agenda
among African countries.
8. Summary and Conclusion

This study motivated by the need for rethinking of regional integration in Africa with respect to
services trade, set out to examine the level of services trade and regional integration as well as
how regional integration can influence different modes services trade. It achieves its aim by
focusing on four select regional economic communities (RECs) in Africa, namely: COMESA,
ECCAS, ECOWAS, and SADC.
35
Using data sourced from the World Development Indicators (WDI), World Governance
Indicators (WGI), and Economic Freedom of the World (2018), International Trade Centre
(ITC), among others, for the period 2008-2017, which were analysed with descriptive and
econometric techniques, some important findings from the study are surmised herein:
The analyses presented on trade in services for the selected RECs lagged behind the respective
merchandise trade. Thus, across the selected RECs, study finds that there is the need to re-
structure the services sectors for improved trade relations within the RECs and the rest of the
world, which regional integration holds potentials. Given that services trade rely more on the
availability of viable infrastructure such as the provision of information and communication
technology (ICT) equipment, which creates an inclusive environment for economic participation,
there is need to establish and entrench viable ICT structures as drivers.
Based on the assessment of the different modes of services trade, it was observed that the
selected RECs are all net importers in insurance and pension services, transport services,
government goods and services, and other business services. Even though all the selected RECs
are net importers of services on the aggregate, considering the respective modes of services,
COMESA is a net exporter of telecommunication, computer and information services and travel
services (in mode 1), while SADC is a net exporter of travel services (in mode 2), and ECCAS as
well as ECOWAS are net importers of all the four modes of services trade.
On the degree of integration, the study finds that on a general note, ECOWAS and COMESA
have a relatively higher degree of integration using visa openness index (VOI) while SADC has
a relatively lower degree and ECCAS had the least of the three years reported. This implies that
using VOI, the degree of integration in the select RECs can be ranked as follows: ECOWAS,
COMESA, SADC, and ECCAS.
From the econometric analysis, the results from the Pooled OLS and IV indicated that an
increase in trade tariff leads to less economic integration which implies low trade among the
selected RECs. Hence, a percentage change in the tariff rate leads to a drop in travel services
imports by 0.96 percent, on average, ceteris paribus. The same argument holds for travel
services exports, which decreases by 0.80 percent, on average, ceteris paribus as a result of a
percentage increase in trade tariff. As obtained for transportation services, these are significant
and compelling findings, which support the quest for Africa to re-think and re-position the
services sector through the reduction of trade tariffs among economic communities. Thus, a
review of non-tariff barriers like access to visa and the elimination of high tariff on services is
needed under the RECs as they would boost services trade as established in the findings.
Considering the findings, economic integration in terms of the most favoured nation trade tariff
is not the only policy that needs to be addressed by the RECs to enhance the volume of services
trade in Africa. Cooperation in terms of infrastructural development and building stronger
institutions are required to boost services trade. As empirically established, a politically stable
REC would support increasing trade in travel services and a strong level of accountability is
required to ensure financial stability and it would contribute to trade in financial services. The
repositioning of trade agreements that includes services trade should address the key
infrastructure that would support services trade. This is a significant outcome necessary to trigger
36
new policy debates on re-thinking a fostering free trade and free movement agenda among
African countries.
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Appendix
Addendum to Pooled OLS Estimations and Countries with multiple memberships
Pooled OLS Estimations

Summary on how the pooled ordinary least squares (POLS) estimations were performed.
Scope: 42 countries from 2008 to 2017
In line with recent empirical studies (e.g. Ngepah and Udeagha, 2019), it is expedient to recognise
multiple memberships when carrying out regional integration analyses especially in Africa where each
country is, at least, a member of one regional economic community (REC) or the other. Focusing on our
selected RECs, we underscore the number of countries in each of them as follows: COMESA (21),
ECCAS (11), ECOWAS (15) and SADC (16).
Countries with dual or multiple memberships:

11 countries are identified with dual or multiple memberships. They are: Angola (ECCAS, SADC),
Democratic Republic of Congo (COMESA, ECCAS, SADC), Burundi (COMESA, ECCAS), Eswatini
(COMESA, SADC), Madagascar (COMESA, SADC), Malawi (COMESA, SADC), Mauritius
(COMESA, SADC), Rwanda (COMESA, ECCAS), Seychelles (COMESA, SADC), Zambia (COMESA,
SADC) and Zimbabwe (COMESA, SADC).
Estimation Procedure in Controlling for Multiplicity: There is no best approach to resolving the
problem of multiplicity of memberships (e.g. Ngepah and Udeagha, 2019). Therefore, having observed
that 11 countries are in this category (see listing above), the following procedures were carried out to
minimise estimation bias:
(1) Countries are grouped into 2 to avoid duplication (see Table A1).
(2) Group 2 used for analysis. Hence, countries are recognised by Group 2 classification.
(3) Sorting by Group 2 classification, the 42 countries per REC are: COMESA = 16; ECCAS = 4;
ECOWAS = 15; and SADC = 7.
(4) Dummy variables assigned for estimation purpose:

Since Democratic Republic of Congo has three memberships, the study classified the country under
COMESA and ECCAS but analysis was done with COMESA only.
40
• 1 assigned to all countries in COMESA, 0 otherwise
• 1 assigned to all countries in ECCAS, 0 otherwise
• 1 assigned to all countries in ECOWAS, 0 otherwise
• 1 assigned to all countries in SADC, 0 otherwise
(5) To avoid dummy variable challenge, ECOWAS is used as the base (reference) dummy because
ECOWAS has the highest visa openness index. In other words, the coefficient interpretations of the
other RECs are made relative to ECOWAS.
Table A1: Countries and Regional Economic Communities (RECs)

S/N Country Code Region Group 1 Group 2
1 Angola AGO CA ECCAS SADC
2 Benin BEN WA ECOWAS ECOWAS
3 Botswana BWA SA SADC SADC
4 Burkina Faso BFA WA ECOWAS ECOWAS
5 Burundi BDI EA ECCAS COMESA
6 Cape Verde CPV WA ECOWAS ECOWAS
7 Cameroon CMR CA ECCAS ECCAS
8 Comoros COM EA SADC COMESA
9 Congo Dem. Rep. COD EA ECCAS COMESA
10 Congo Rep. COG EA ECCAS ECCAS
11 Cote d'Ivoire CIV WA ECOWAS ECOWAS
12 Djibouti DJI EA COMESA COMESA
13 Egypt EGY NA COMESA COMESA
14 Eswatini SWZ SA SADC COMESA
15 Ethiopia ETH CA COMESA COMESA
16 Gabon GAB CA ECCAS ECCAS
17 Gambia GMB WA ECOWAS ECOWAS
18 Ghana GHA WA ECOWAS ECOWAS
19 Guinea GIN WA ECOWAS ECOWAS
20 Guinea Bissau GNB WA ECOWAS ECOWAS
21 Kenya KEN EA COMESA COMESA
22 Lesotho LSO SA SADC SADC
23 Liberia LBR WA ECOWAS ECOWAS
24 Madagascar MDG SA SADC COMESA
25 Malawi MWI SA SADC COMESA
26 Mali MLI WA ECOWAS ECOWAS
27 Mauritius MUS SA SADC COMESA
28 Mozambique MOZ SA SADC SADC
29 Namibia NAM SA SADC SADC
30 Niger NER WA ECOWAS ECOWAS
31 Nigeria NGA WA ECOWAS ECOWAS
32 Rwanda RWA EA ECCAS COMESA
33 Sao Tome STP CA ECCAS ECCAS
34 Senegal SEN WA ECOWAS ECOWAS
35 Seychelles SYC EA SADC COMESA
36 Sierra Leone SLE WA ECOWAS ECOWAS
37 South Africa ZAF SA SADC SADC
38 Sudan SDN NA COMESA COMESA
39 Tanzania TZA EA SADC SADC
40 Togo TGO WA ECOWAS ECOWAS
41 Uganda UGA EA COMESA COMESA
42 Zambia ZMB EA SADC COMESA
41
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Technical Report · July 2019

Evans Osabuohien Olaronke Onanuga

SEE PROFILE SEE PROFILE

Bosede Ngozi Adeleye

The user has requested enhancement of the downloaded file.

Evans S. Osabuohien, Ph.D (Team Leader)

Correspondence: Department of Economics & Development Studies,

Research Report submitted to African Economic Research Consortium (AERC)’s

2. Objectives of the Study

3. Insights from the Literature on Services Trade and Regional Integration

4. Background Facts on Services Trade in Africa

5. Conceptual Frameworks and Theoretical Underpinning

5.1 Conceptual Framework: Modes of Services Trade

5.2. Theoretical Underpinning

A brief on them is provided herein:

From Swaziland to Eswatini: What’s in a name change? (https://www.dw.com/en/from-swaziland-to-eswatini-

6.2 Analytical Structure

Pooled OLS Estimation

The baseline Pooled OLS linear model is given as:

Second Econometric Estimation

6.3 Data Sources

7. Empirical Results and Discussion

7.1.1 Comparison of Services Trade and Merchandise Trade

Table 7.2a Change in Import Components ($'million)

Table 7.3 Services Trade Positions across the Selected RECs

7.2 Modes of Service Trade across the Selected RECs

7.2.1 Assessment of Mode 2 Services Trade

Figure 7.4a: Net Export of Government Goods and Services (2008-2017)

Figure 7.4b: Net Export of Travel Services (2008-2017)

7.2.2 Assessment of Mode 3 Service Trade

Figure 7.5: Net Export of Financial Services (2008-2017)

7.3 Degree of Regional Integration in the Selected RECs

7.3.1 Visa Openness Index Comparison across Selected RECs

Figure 7.6: Visa Openness Index for RECs (2016 – 2018)

7.3.2 Most Favoured Nation Tariff across RECs

8. Findings from Econometric Estimations9

8.1 Pooled OLS Results

Table 8.1 Travel Services Results

Table 8.2 Financial Services Results

8.1.2 Pooled OLS using MFN Indicator

Table 8.3 Travel Services (Mode 2) Results

Table 8.4 Financial Services (Mode 3) Results

8.2 Instrumental Variables Regression Results

Table 8.5 Export of Travel Services (Mode 2) Results

Table 8.6 Import of Travel Services (Mode 2) Results

Table 8.7 Export of Financial Services (Mode 3) Results

8. Summary and Conclusion

Pooled OLS Estimations

Countries with dual or multiple memberships:

Table A1: Countries and Regional Economic Communities (RECs)

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