Service Sector Needs New Policies to Improve: Experts

The rapid transformation of service sectors is required through new policies to move away from vested interests, rethinking of regulations, and new institutions in two key areas, i.e., trade competition, and skills.

This was the crux of the session ‘Services-led Growth and the Rise of Digital Platforms: A South Asia Perspective’ organized by Sustainable Development Policy Institute (SDPI) in collaboration with the World Bank South Asia Chief Economist Office. The speakers also recommended that new institutional capacity must be developed to regulate the digital economy.

The speakers, including the Senior World Bank Economist, Gonzalo Varela, COO Genetech Solutions, Shamim Rajani, Federal Secretary Information Technology and Telecommunication, Dr. Muhammad Sohail Rajput, were of the view that digital platforms can improve the performance by increasing access to the market as they add buyers and sellers, convenient transactions, facilitate and enable buyers and sellers. This leads to increased market access for firms, which leads to increased economies and productivity.

They called for rapid transformation of the services sector through adopting new policies to move away from vested interests and rethinking regulations and setting up new institutions in two key areas, i.e., trade competition and skills.

There is a need to increase institutional capacity and introduction of regulatory frameworks on job reskilling and shared service centers. Business services contribute the most to manufacturing, and the links are stronger in wealthier countries compared to the ones with a bad economy. Economies except for Pakistan have seen an upgrade in skills, for instance, India and Bangladesh.

To eradicate barriers in entry, new institutional capacity should be introduced. The introduction of regulatory sandboxes, on-job reskilling, and shared service centers was also recommended. Valerie Mercer-Blackman of the World Bank said that services are increasingly the dominant share of GDP globally regardless of the level of development. Services-led development requires tradability, productivity, and skills requirements. With digitization, services will only be able to lead to development if they expand jobs and income.

The rapid transformation of services sectors requires new policies to move away from vested interest, rethinking of regulations. She further said that digital technologies are changing the tradability of goods and services; services-led growth may be the only option for South Asia. Digital platforms are game-changers in market economies.

Adoption of e-commerce was proposed and encouraged as it is associated with a sustained increase in business profits and sustainability. Services will be able to lead development if they get amalgamated with information technology. More learning and development should be encouraged as it expands jobs and income. Introduction to the adoption of new instructional capacity was introduced.

Shazia Naz presented a brief literature review and then, focused on services exports and FDI. She further discussed the methodology and provided comparative analyses, their results, and their conclusion. Regressions, estimations, and their mutual linkage was also discussed. FDI and its linkage with respect to trade in Pakistan, and how it can bring about changes in host countries were emphasized. She further said that Pakistan needs to upgrade the prospects for the entry of international players.

The liberalization policy of FDI and trade should be undertaken by the government of Pakistan.  Accelerated advancement in communication and information in Pakistan has a wide scope for exports oriented services. Pakistan should exploit the complementary linkages between services exports and FDI to boost global competitiveness, she added.

Siddhartha Sharma discussed how selling online is affecting informal firms in South Asia. He made comparisons between Daraz and Chaldal. He emphasized how engagement with e-commerce is helpful and pointed out its rapidly increasing impacts like reduced transaction cost, more accessibility, easy access to the grassroots level, scale reduction for large scale, quick acquisition in the product market, etc.

Sharma said that informality despite decades of growth remains stubbornly high in South Asia. Informal forms tend to have limited access to credit, and therefore, have unskilled labor intensively. Selling in e-commerce platforms impacts small firms in developing countries.

Joining online selling platforms like Chaldal and Daraz give several incentives to the informal firms to increase their customers and sales. A literature review with a divide was presented discussing informal firms, quantitative case studies, their small, limited selling in the local market, limited geographic reach, limited credit, less labor, outdated technology, and simple management functions.

The focus was to reduce the gap between formal and informal firms. The immediate increased need for e-commerce in South Asia was discussed. Badar Khushnood said that e-commerce in Pakistan is rapidly increasing. We need to retain some of the employees to upgrade their knowledge, he added. There is a need to upgrade, Badar and Gonzalo opined, while detailing the life cycle of services and their impact on the economy.

Analogies were drawn between earning in rupees, and comparisons were drawn with dollars. Issues like the lack of employability, decreased job retention, no skill and curriculum upgrade, lack of faculty knowledge, and capacity building were emphasized.

The need for new upgrades through camps, ongoing governmental projects, domestic exports, and management was discussed. Evolution of e-commerce and retail, last four quarters of cash on delivery, and domestic getaways were discussed. Different statistics of post covid era, earnings via Facebook, YouTube, and Instagram was bought into consideration.

Ongoing research and think tanks working on B2B wholesale to retail were briefed. Dr. Ganzalo primarily focused on intensive service, not businesses, and three matrixes to know about transformation were elaborated. Gonzalo said that the number of exporters of IT services has increased in Pakistan. An average exporter from Pakistan exports approximately 100,000 dollars a year, he informed. There is a huge potential in Pakistan to expand further its business capacity, he added. He appreciated increased exports and Pakistan getting international eyes and exposure.

He also mentioned the in and out payment flow, ways to bring money in, foreign exchange, its entry and exit, and how new policies can be game-changers.

“The government of Pakistan aims to increase the growth of e-Commerce enterprise by encouraging other merchants, enterprises to adapt to digital models,” said Dr. Sohail Rajput. The Federal Secretary said that knowledge-intensive services had grown a lot, but there is a huge potential that is untapped in Pakistan. The government needs to focus on short-term interventions and medium to long-term interventions to increase employability.

The government needs to incentives the good side of the exports. Dr. Sohail concluded the event and discussed knowledge-intensive services, increased exports, and potential impact. He also mentioned the government’s manifestos of granting incentives, improving human resources, jobs, opportunities, resources, and skills.