The Global Trade in Services & Pakistan

PBC’s Report: “The Global Trade in Services & Pakistan” tries to answer the following questions:

  • What are services exports, how are they different from goods and what is their quantum?
  • How is the global trade in services classified?
  • Which are the major globally traded services?
  • Which countries dominate the global trade in services?
  • Where does Pakistan feature in the global trade in services?
  • Which are the services in which Pakistan can look to increase its exports?
  • The major challenges facing services exports from Pakistan are?
  • What are the policy recommendations for increasing services exports from Pakistan?

What are services exports, how are they different from goods exports what is their quantum?

A services export is any service that is provided by a resident in one country to people or companies from another country. In contrast to goods, services are intangible. This means that services, as opposed to goods, cannot be touched, felt or seen, services thus can only be experienced.

In 2020, the quantum of global services trade was about $5.0 trillion.

How is the global trade in services classified?

Services trade is classified under broad categories such as Travel, Transport, Financial, Other business services, Telecommunications, computer and information services, etc. Global trade in services is classified by the IMF under BPM6/ EBOPS 2010. The IMF’s method of classification has been used in this report.

Which are the major services exported globally?

Top 5 Global Services Exports Categories in 2020

Top 5 Global Services Exports Categories in 2020

Which countries dominate the global trade in services?

Top 5 Services Exporting Countries in 2020

Rank in Export of Services Countries 2019 2020 % Change
Over 2019
$ Billion
1 United States 876.3 705.6 -19.5
2 United Kingdom 405.5 342.4 -15.6
3 Germany 346.7 310.7 -10.4
4 China 283.2 280.6 -0.9
5 Ireland 247.8 262.7 6.0

Where does Pakistan feature in the global trade in services?

Pakistan was Ranked 61st in the World in 2020 for Services Exports, with its Services Exports being about $5.4 billion, and with a CAGR of 1.5% between 2016 to 2020.

Pakistan’s Services Exports and Major Markets

World Rank in Export of Services Countries 2016 2017 2018 2019 2020 CAGR
$ One Hundred Million 2016-2020
%
1 United States 7809.4 8337.8 8617.3 8763.0 7056.4 -3.0
2 United Kingdom 3587.4 3689.4 4142.2 4054.8 3424.4 -1.1
3 Germany 2934.5 3189.0 3497.6 3466.6 3106.6 1.5
4 China 2591.8 2744.3 3028.7 2941.2 2455.8 3.1
5 Ireland 1495.2 1828.2 2225.6 2478.2 2627.0 15.2
61 Pakistan 50.5 63.3 59.3 58.7 53.5 1.5

Pakistan has improved from being ranked 77th in 2019 to being 61st in 2020. Pakistan however, has the potential to improve its rank in the coming years.

Which are the services in which Pakistan can look to increase its exports?

Based on global demand and Pakistan’s own strengths, Pakistan’s focus should be on selected categories instead of trying to cater to a wide portfolio of services. In the initial phase it can look to expand exports in existing markets. Below are the markets and the selected categories on which Pakistan should focus in the near to medium terms.  Pakistan’s current exports and total imports for these classifications by the identified countries is also given below:

Pakistan’s Existing Top 5 Markets in 2020 & Suggested Services Categories for Specialization

Rank Classification 9, Telecommunications, computer, and information services Classification 10, Other business services Classification 7, Financial services Classification 6, Insurance and pension services
$ Million $ Million $ Million $ Million
Country Pakistan Exports (2020) Imports from the World (2020) Country Pakistan Exports (2020) Imports from the World (2020) Country Pakistan Exports (2019) Imports from the World (2019) Country Pakistan Exports (2020) Imports from the World (2020)
1 U.S.A. 847.8 38,594.0 U.S.A. 333.7 117,673.0 U.S.A. 83.2 42,256.0 U.K. 10.5 3,168.0
2 U.A.E. 124.9 4,302.0 U.A.E. 111.3 – China 13.8 3,174.0 Singapore 10.8 5,317.0
3 U.K. 108.9 13,014.0 U.K. 109.6 90,399.0 U.A.E. 11.8 – U.A.E. 7.1 –
4 Singapore 49.6 15,339.0 Singapore 89.8 58,927.0 Germany 4.6 18,338.0 – – –
5 Canada 39.9 29,711.0 China 81.1 50,487.0 U.K. 2.9 21,353.0 – – –

At the moment, Pakistan does not trade in Classification 1, Manufacturing services on physical inputs owned by others. However, Pakistan can seek to enter this services category and initially export to its current markets as a way of Product Development. Doing so, will diversify Pakistan’s services exports and could lead to an increase in its overall services exports.

The exports of Classification 1, Manufacturing services on physical inputs owned by others were about $115.2 billion in 2020. France and Ireland, are the top 2 importers of Classification 1, and had CAGRs of 5.3% and 25.0% for the period 2016 to 2020.

The major challenges facing services exports from Pakistan are?

For Pakistan to expand its services exports, it needs to address some of the challenges identified below:

Infrastructure Related Challenges:

  • There are multiple regulatory authorities for a single service sector, this leads to an overlap in regulations.
  • Service providers face difficulties due to ambiguities in tax laws.
  • Connectivity, which is a pre-requisite for IT & IT enabled services is not as per global standards.
  • Weak enforcement of intellectual property rights is hampering Pakistan’s potential in services exports.
  • Industry-Academia linkages are mostly missing in Pakistan.
  • Skills and training wise, Pakistan lags behind its major competitors in several services categories.

Trade-related Issues:

  • Specific incentives for services exporters are missing.
  • Industry participants are unaware of incentives available in existing Trade Agreements.
  • Services are given less importance while negotiating Trade Agreements
  • Pakistani services exporters face challenges in moving freely across borders and this hinders services exports from Pakistan.

Market Related Issues

  • There is an absence of a Services Exports Strategy
  • Pakistan’s services exports lack visibility in global markets and Pakistan rarely participates in services exports fairs.
  • There are problems of accreditation and acceptance of Pakistan’s Services in the global market.

What are the policy recommendations for increasing services export from Pakistan?

Improving Infrastructure as it Relates to the Services Sector

  • Establish a mechanism that promotes Inter-agency coordination and curbs regulatory bottlenecks
  • Rationalize the Taxation System in Pakistan
  • Improve Industry-Academia Linkages
  • Educational and Vocational Training needs to be upgraded
  • Improve the general Business Environment

Trade-related Policies

  • Engage in Services Agreements and Advocate for Freedom of Movement of persons
  • Provide Incentives for Service Exporters

Accessing International Markets

  • Specialize in Certain Services Sectors based on market demand and Pakistan’s potential
  • Expand Current Markets and Explore New Markets
  • Participate in Global Fairs for services exports

This report’s aim to provide a basic understanding of the Global Services Trade and Pakistan’s ranking. Having developed a better understanding of the services sector, the PBC in the next phase will do in-depth studies relating to competitiveness of selected sectors with the objective of recommending policy frameworks for enhancing these sectors competitiveness.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 86) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

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