African Economies Poised to Benefit from Global Shift Towards Service Sector Investment
A global shift in foreign direct investment (FDI) dynamics, with investors increasingly favoring the service sector over traditional manufacturing, could spell good news for Africa, according to Tanzanian-based analyst, Musila Muoki.
A recent report by the UN Trade and Development Organization highlights the changing landscape of FDI, driven by trends in global value chains, technological advancements, geopolitical dynamics, and environmental concerns. The share of cross-border greenfield projects in the services sector has seen a significant increase from 66% in 2004 to 81% in 2023.
In Africa, greenfield service sector investment has been on the rise, with FDI inflows as a share of the continent’s GDP reaching 69% in 2023, up from 40% a decade earlier. This trend aligns well with efforts to boost intra-African trade under the African Continental Free Trade Area (AfCFTA) agreement.
Muoki, co-founder of Liberty Sparks, points to Africa’s readiness for a service sector boom fueled by AfCFTA, especially with the Trade in Services Protocol in force since 2019. The protocol aims to enhance intra-African trade through various modes of supply, including cross-border supply, consumption abroad, commercial presence, and movement of natural persons.
While trade in goods has been a focus under AfCFTA, attention is now turning towards unleashing the potential of service trade. Sectors like tourism, transport, business, communications, and financial services are being earmarked for development.
Recent partnerships and initiatives, such as the collaboration between Cape Town Tourism and Victoria Falls Tourism, and the entry of Tunisia into the Pan African Payment and Settlement System (PAPSS), are clear indicators of the growing momentum in cross-border services within Africa.
With the adoption of a draft protocol to regulate digital trade within the continent, African economies are poised to accelerate trade in services under AfCFTA, paving the way for regulatory convergence and common standards in the digital trade space.