Trade in services marked for growth potential

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By:
Kimberley Long
Published on:

Concerns over rising protectionism reducing the trade in goods might be offset by the growing trend for trade in services.

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Service industries represent a huge potential growth market for trade transactions, but will need a rethink on the rules if that is to flourish.

The Bank of England states in its Mind the (current account) gap report, released in January, that both the UK and the US have suffered from restrictive rules in place around trade in services. It forecasts if services trade were as open as goods trade it could reduce global imbalances by up to 40%.

The level of trade in services is on the increase. Figures from the World Trade Organization (WTO) show trade in commercial services was $4.8 trillion in 2016, up from $2.9 trillion recorded in 2006. And trade in services is forecast to grow significantly, increasing to $12.4 trillion in 2030, accounting for around 25% of all trade.

Telecommunications platforms such as Netflix are seen as leading the way in the trade in services. The video-streaming company announced in January it has seen its subscriber numbers rise to more than 117 million. In the final quarter of 2017, the company saw 8.3 million new subscribers, with 6.36 million of those outside of its home market in the US. 

The company generated profits of $186 million in the final quarter of 2017, almost three times the amount recorded during the same period of 2016.

Vital step

Freeing up rules on trade in services is a vital step in allowing such numbers to come into fruition. Large parts of the services business is now tied to e-commerce, and this year will likely see change, as the downturn in conventional trade first seen during 2015 and 2016 becomes more apparent.

The Trade in Services Agreement is being developed by 23 WTO members, who between them account for 70% of trade in services. The aim of the process is to open markets to allow for the free movement of components needed to facilitate trade, including licensing, telecoms and e-commerce.

There are still markets that are underserved in their e-commerce usage, and represent growth markets.

In Russia, e-commerce remains a marginal part of the consumer space, representing only a small percentage of all transactions. Sberbank has seen the opportunity in moving into e-commerce and online retail, filling a gap in the market.

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Lev Khasis,
Sberbank

Lev Khasis, first deputy chairman of the executive board at Sberbank, says: “Due to the low start point in Russia, there is still a chance to build up the business from the bottom and to make the company a legacy creator. The most effective way of doing this quickly is by collaborating with tech companies.”

Telehealth services is one area forecast to see notable growth. It allows healthcare services to be provided electronically. The system is especially applicable in remote areas and across long distances, or where the patient has reduced mobility.

The service has been approved in Russia. Following this, Sberbank acquired a controlling stake in start-up DocDoc to develop the company into a telehealth platform. The bank aims to create a platform that will bring together patients and doctors with insurers and pharmacies, and enable medication to be ordered after diagnosis.

Khasis says: “We expect to see new business streams from this as online healthcare evolves. Legislation came into effect on January 1, 2018, permitting telemedicine services. This is expected to bolster the expansion of these services.”

EM shift

While markets such as the UK, US and Germany are currently the largest exporters of services, research from HSBC forecasts there will be a shift towards the emerging economies as they upskill their workforce. It predicts India will become the fastest-growing exporter for services, followed by Indonesia and China, in the years from 2021 to 2030. This growth will facilitate further cross-border trade around e-commerce.

The Russian bank is further planning to help its customers make payments for international transactions.

Khasis says: “Sberbank customers can set up their own unique reference. The SberID will allow them to take their credentials around the web, and make easy payments and authentications whenever they make a purchase.”