** Excessive fuel price hike causing terrible hardship yet govt admits no regret ** Bangladesh received $732m loan from IMF as balance-of-payment aid for Covid ** A group of students holds a sit-in programme by tying black clothes over their faces in front of the Petrobangla building at Karwan Bazar on Wednesday to protest against the fuel price hike and demand the resignation of Bangladesh Petroleum Corporation (BPC) Chairman ABM Azad. NN photo ** ‘Hike in fuel price could have been avoided’ ** Finance minister warns on BRI loans from China ** The major rivers in Barishal division flow over the danger level that causes inundation in most of the areas of Barishal city. The photo was taken from Vola Kheyaghat area of Tetulia River on Wednesday. NN photo ** BD did not ask Swiss banks for its citizens' deposited money : Swiss envoy ** Dollar soars to record Tk 119 in kerb market ** Dysfunctional referral system creates anarchy in medical services ** Health ministry's TC law strengthening initiatives welcomed ** Forget western sanctions on Myanmar, instead, think of an emergency govt to save us from impending catastrophe ** Young man set his motorcycle on fire after getting angry with traffic sergeant ** Vehicles get stuck on Dhaka-Chattogram Highway at Gouripur, Daudkandi Upazila in Cumilla on Monday morning as a long tailback was created on the road due to heavy pressure of vehicles, causing immense sufferings to the commuters. NN photo ** Dollar rate hits all time high at Tk 115 in kerb mkt ** RMG sector loses bargaining power ** US Senate clears landmark climate change bill ** Rape, robbery in running bus on the rise ** Holy Ashura today ** Country takes on more reserve fattening World Bank loans ** Launches remain anchored at Daulatdia ferry ghat in Rajbari on Saturday due to lack of passengers. NN photo ** City buses overcharge passengers defying govt order ** NBR yet to receive any instruction for tax cut on fuel import ** People to bear the brunt ** Low, middle income earners puzzled to bear family cost ** Gang raped on running bus: 5 held in Gazipur **

Demystifying the value of the services sector across South Asia

28 November 2021
Demystifying the value of the services sector across South Asia

Valerie Mercer-Blackman :
As development economists, we are taught to measure a phenomenon by using various techniques to look at cause and effect to subsequently make policy recommendations. But the first step is to know what we are measuring even if we can't see it. Services-its measurement and contribution to growth across South Asia-has somehow defied convention and has had us economists in a fix for a while now. It's kind of like being in a jetlagged stupor and looking for lost house keys under the streetlamp, because that is the only place anything is visible at all. We have applied the same sets of tools to measure the productivity of services as we use to measure the productivity of manufactured goods, just because they are there at our disposal, under the streetlamp, and it's easier to do so.
However, our latest South Asia Economic Focus takes the services bull by the horn-measurement challenges et al-to paint a detailed picture of its role in the region's economic growth.
Services: Omnipresent, yet ignored
Even though services contribute immensely to other sectors all over the world, including manufacturing, they are continually underappreciated when calculating growth and productivity. Take the example of automobiles. The Sanand plant owned by Tata Motors in Gujarat, India can churn out between 250,000-300,000 cars a year with about 4,500 workers-about 60 cars per worker per year. This compares to the now-defunct General Motors Lordstown, Ohio plant, which in its heyday in 1990 could produce about 341,000 cars with 10,600 workers-about 32 cars per worker per year. The first conclusion may be that labor productivity in automobile manufacturing has almost doubled in 30 years globally, and therefore is an engine of growth for South Asian governments to consider. Of course, this is due in part to Tata's investments in robotics and high-tech machines.
What this inference leaves out however, is that this increase in productivity-attributed solely to the automobile sector just because we see the car roll out of the factory-was the result of services such as:
    -Research and design by a firm of engineers.
    -Programming of robots in university labs.
    -Transacting new shipping routes for rubber and steel supply chains.
    -Design of sophisticated electronics and apps for the console.
    -Better quality control and safety tests.
    -More efficient back-office work.
   - Leasing, repair, and maintenance providers that help make driving affordable.
Interestingly, Tata Motors promotes itself as an engineering, R&D, and manufacturing business. In fact, for every $1 increase in the final demand for automobiles globally in 2019, the transportation industry required almost 50 cents of inputs from the service activities spread out across the world and across time.  And those services in turn created huge demand spillovers into other sectors, spurring growth.
Then consider the acceleration of digital technologies and remote work during the pandemic, which further enabled opportunities in new services across South Asia-and with it, new measurement challenges. Software and business process outsourcing services exports in India had already been growing by an annual average rate of 10.8 percent since 2000, and free apps like WhatsApp were becoming indispensable to so many small businesses even before the pandemic. But what do these advances mean for the contribution of services going forward?
Cutting the Gordian knot
Taking these challenges of tracking and measuring services head on, in the recent South Asia Economic Focus we looked at myriad factors to demystify the value of services and its contribution to region's economy:
    -Matched words based on the descriptions of what services firms do, who owns them, and where they are located to understand their relationship and contribution to other sectors
    -Identified outsourcing of business services and their spillover effect through inter-sectorial linkages
    -Analyzed surveys of digital technology adopters in India and Bangladesh (specifically, e-commerce users)
   - Derived changes in occupations of South Asians to understand what jobs they perform, how those jobs changed in the last 10 years, and whether-in the process-average skills improved.
The proof is in the (services) pudding
Through these analyses, the trend that emerged is that South Asia is steeped in services activities and very much embarked on a path of services-led development. In addition:
    -India and the four countries that are major tourism exporters- Bhutan, Maldives, Nepal, and Sri Lanka- have an important comparative advantage globally.
    -The South Asia region is embracing digital platforms including home-grown ones. Firms and individuals adopting e-commerce saw a significant improvement in their business income, tending to innovate and improve their business practices as a result.
    -South Asian workers are increasingly moving into service occupations, even those that are mapped to the manufacturing sector  as the bar chart below shows, particularly high-skilled service occupations. In the process, the labor force as a whole has seen an upgrading of skills from on-the-job learning.
The message overall for policy makers in South Asia is to pay their attention to the new realities in the services sectors , as services-led growth through exports has been comparatively successful - much more so than export-oriented manufacturing-led growth in India. There is also still an implicit preference to "promote labor-intensive, export-oriented manufacturing-led growth", a key strategy in Bangladesh's Five-Year Plan 2020-2025. That makes it more difficult to switch gears and find the political capital to embark on major reforms in the services sector.
Nonetheless, through our effort in demystifying measurement of services, we hope to have provided some arsenal for policy makers looking to promote the new services economy in South Asia.  Using the earlier analogy, we have guided our friend out of the daze of jetlag to the place they likely lost their keys. And the proverbial streetlamp encounter points to the services sector as South Asia's key to unlocking economic growth across the region.
(Valerie Mercer-Blackman is World Bank Senior Economist, South Asia Office
of the Chief Economist).

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