This picture taken on September 30, 2016 shows a general view of traffic as Manila's financial district is seen in the background. Philippine President Rodrigo Duterte has tapped a China-backed multilateral lender to help fund his government's "unprecedented infrastructure buildup", the finance minister said December 19, 2016, as he seeks closer relations with Beijing. The Beijing-based Asian Infrastructure Investment Bank (AIIB) has been viewed by some as a rival to the World Bank and the Philippines-based Asian Development Bank (ADB). (NOEL CELIS / AFP)

Services to Drive Future Growth: Implications for CLMV Countries

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The services sector is the drive for the future growth of the Asia Pacific region. Building capacity in the services sector and supporting regulatory reforms in the CLMV countries will enable these countries to access the benefits of services liberalization and help them to reach the full potential of the economy.

The services sector is deemed to drive the future growth of the Asia Pacific region. The importance of services is attributed to its use as inputs in the production of both goods and services. For manufacturing, services are needed to facilitate the shift up global value chains. Efficient services can have a positive impact on the productivity, competitiveness and the growth of an economy. The sector also promotes inclusiveness as it provides opportunities for female workers to be gainfully employed, thereby improving the utilization of a country’s labour force.

However, services liberalization alone is not enough to promote services trade due to the nature of this sector. Services are governed by regulations that can intentionally or unintentionally act as entry barriers for both domestic and foreign service providers. Liberalization has to be accompanied by regulatory reform in order for this sector to reach its full potential in any economy. More importantly, regulatory reform should not be piecemeal. It should instead seek to address the regulatory structure of a country by institutionalising good regulatory practices that are based on fundamental principles such as clarity, transparency, accountability and predictability.

Efficient services can have a positive impact on the productivity, competitiveness and the growth of an economy.

Nonetheless, the newer member states of ASEAN, namely Cambodia, Laos, Myanmar and Vietnam lack the capacity and capabilities to pursue the needed change. In these countries, the data on services is generally poor and lacking. Collecting good quality data based on international definitions is an important first step forward. It will assist a country to gain a better understanding of the actual performance of this sector. Basic institutions may not be in place while the heterogeneous nature of services imply fragmentations in regulations that further increase the complexity of this sector. Building capacity to assist a country in better understanding its services sector is crucial for formulating appropriate policies for this sector, including its liberalization. This includes the capacity of the public, the firms as well as the consumers to participate effectively in the regulatory reform process of this sector. Focussing on capacity building in the services sector of the CLMV countries will enable these countries to access the benefits from services liberalization. This will in turn enhance their willingness to further liberalize their respective services sector. Trade agreements that incorporate regulatory coherence and cooperation can also serve to contribute towards a shift in the right direction.