Trade in services

SIDSsmall island developing States (SIDS) were recognized as a distinct group of developing countries at the Earth Summit in Rio de Janeiro in June 1992.
More information on UNCTAD official page. are highly dependent on travel exports for their international trade and employment. Consequently, they are very exposed to the economic consequences of the COVID-19Infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes a coronavirus disease called COVID-19. pandemic. It is estimated that it could take up to four years for international tourismInternational tourism comprises inbound tourism and outbound tourism, i.e., the activities of resident visitors outside the country of reference, either as part of domestic or outbound tourism trips and the activities of non-resident visitors within the country of reference on inbound tourism trips -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. to recover to levels observed in 2019 (see Tourism).

Services are crucial for SIDS

In 2019, SIDS exported US$26 billion worth of services, of which US$20 billion were travel servicesWithin the balance-of-payments classification of services, travel services cover goods and services - for own use or to give away - acquired from an economy by non-residents during visits to that economy. In this context, travel does not include passenger transport. -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.. Services exports accounted for 25 per cent of GDPGross domestic product (GDP) of the group. Additionally, they represented 60 per cent of SIDS’ total exports of both goods and services. For comparison, in other developing economies, services cover some 18 per cent of all exports.

SIDS’ imports of services, relative to their total imports, were also higher than in other developing economies. For imports, however, the difference was less striking: in 2019, services represented 31 per cent of the SIDS’ total imports of goods and services, compared with 21 per cent for the rest of the developing world. Services tradeIn the international trade in services context, services are understood as the result of a production activity that changes the conditions of the consuming units or facilitates the exchange of products or financial assets -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. Following the balance-of-payments classification, trade in services refers to manufacturing services, repair services, transport, travel, construction, telecommunications, computer services, financial services, insurance, intellectual-property related and other business services, as well as personal and cultural services, and government services. is critical for SIDS, not only because of services’ high share in GDP, but also because the services sector holds many beneficial linkages to other productive activities within countries. Moreover, services trade facilitates connections with the globalized world.

Figure 1. Share of services trade in total trade in goods and services, 2019

(Percentage)

Source: -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.
Note: The Marshall Islands and Palau are not included.

The contribution of SIDS to global services trade is predictably low, accounting for only 0.4 per cent in 2019, slightly below the 0.6 per cent recorded in 1980 - one of the first years with comparable services trade statistics. In 2019, SIDS captured 1.4 per cent of the international travel market, with their share of travel exports worth US$20 billion. Caribbean SIDS attracted most receipts from foreign travellers: 61 per cent of SIDS’ total. Another 31 per cent were exported by Atlantic and Indian Ocean SIDS and the remaining 8 per cent by the Pacific SIDS. -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-

Figure 2. Share of SIDS’ travel services exports by region, 2019

(Percentage)

Source: -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.
Note: The Marshall Islands and Palau are not included.

The leading SIDS services exporters in 2019 were Jamaica (US$4.3 billion), Bahamas (US$4.1 billion), and Maldives (US$3.2 billion). Together, these three states supplied 46 per cent of total services and over 50 per cent of travel servicesWithin the balance-of-payments classification of services, travel services cover goods and services - for own use or to give away - acquired from an economy by non-residents during visits to that economy. In this context, travel does not include passenger transport. -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. sold by SIDS to foreign residents -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.

Increasing dependence on travel services for exports

In 1980, travel had accounted for 63 per cent of SIDS’ services exports. By 2010, the share had increased to 70 and in 2019 to 78 per cent. In contrast, in developing economies as a group, the share of travel in services exports decreased from 34 per cent in 1980 to 31 per cent in 1995 and has since remained constant.

Have travel services exports grown faster in SIDS than in other developing economies since 1980? UNCTAD statistics indicate that they have not. Travel receipts in SIDS increased at an average annual rate of 6.3 per cent, compared with 9.4 per cent in the rest of the developing world. The figures reveal that, since 1980, SIDS’ travel exports have been less dynamic than in the developing countries overall and that economic growth in SIDS has nevertheless become more dependent on travel services, as their share in total services exports has increased. Such a development exposes SIDS to more economic risk. Travel contributes significantly to GDP in many SIDS, and particularly so in Maldives, Antigua and Barbuda, Saint Lucia and Grenada, countries in which international travel receipts accounted for about half of GDP in 2019.

Given the severe decline in international travel exports in 2020 - estimated at 70 per cent for remote island states¹ – SIDS’ services exports and related economic activity could suffer severely from the consequences of the COVID-19 pandemic. For illustration, the median share of tourismTourism refers to the activity of visitors -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. International tourism expenditure is often approximated by the sum of travel services and transport of passengers, reported under balance of payments statistics (see Trade in services). Transport of passengers not considered, tourism represents a subset of travel, as some travelers, such as border-workers, travel for regular work, as they are holding employment contracts outside their usual residential environment. Activities of border-workers and similar travelers do not belong under tourism. -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—- related employment in SIDS stood at 35 per cent in 2019 , according to -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. In some countries, such as Maldives and Saint Lucia , tourism supplied jobs for almost two thirds of the employed. The loss of international travel receipts in 2020 may shake many SIDS’ economies -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.

Trade structure specificities not just in travel

The SIDS’ services trade structure, in both imports and exports, reveals the distinctive economic environment of these countries. As mentioned above, the share of travel in SIDS’ exports is substantial. On the imports side, in 2019, the share of travel in total services purchased internationally by SIDS was almost two times lower than in the developing world, indicating that SIDS’ residents travel abroad less. Besides travel, a few additional services categories stand out in SIDS’ imports compared with other developing economies.

The share of transport imports was some 3 per cent higher in 2019 in SIDS compared with the rest of developing economies. This is in alignment with the finding that transport is relatively more expensive for island states, especially for those distant from continental coasts -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. The purchases of other business services – among them mainly professional and management consulting, technical and trade-related services – represented a significantly higher share in SIDS’ imports than in those of other developing economies: 30 per cent versus 18 per cent, respectively. In 2019, other business servicesOther business services cover research and development, professional and management consulting, and technical, trade-related, and other business services -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-. sold from SIDS abroad accounted for only 7 per cent of total services exported, one third of the share in the developing world. Insurance services’ imports also figure among trade structure specificities of SIDS, although with a lesser disparity. They represented a higher proportion of total SIDS’ services imports, compared with other developing economies, notably in Caribbean SIDS: 8 per cent versus 5 per cent for developing countries. The figures for telecommunications, computer, information, and financial services indicate that these categories represent lower shares in the international services transactions of SIDS compared with other developing economies as a group -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.

Figure 3. Services exports structure in SIDS and developing economies excl. SIDS

(US$ billions)

Source: -—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—--—
– ‒
- –
—-.
Note: The Marshall Islands and Palau are not included.