The services sector will become the main engine of growth in sub-Saharan Africa as agricultural exports continue to decline and the manufacturing sector remains stagnant in many countries.

Latest data from UN Conference on Trade and Development (Unctad) shows that the sector contributes half of the continent’s output, outpacing the manufacturing sector.

“Indeed, growth in services has been vibrant in Africa 4.6 per cent per annum — more than twice the average rate for the world during the period between 2009 and 2012. The sector’s performance has undoubtedly contributed to Africa’s growth trajectory of the past decade,” said Unctad in its latest report on economic development in Africa.

A number of African countries have already emerged as service-oriented economies, prompting Unctad to identify the sector, along with agriculture, as core to the continent’s growth agenda.

The services sector involves organisations, companies, and activities in an economy that provide services such as banking, wholesale and retail, transport and tourism; and a host of others, rather than manufacturing goods.

Studies done by the UN organisation show the services sector was the most important driver of growth in 30 out of 54 countries during 2009-2012 period, accounting for more than 50 per cent of real economic growth or, in other words, the rate at which a nation’s GDP grows from one year to another. The sector weathered the 2008-2009 global crisis by maintaining reasonable growth.

Unctad even concluded that the sector can play an important role in cushioning the continent from the effects of global economic shocks, “by sustaining domestic consumption and domestic output when exports are adversely affected by international crises.”

READ: Five ways to ignite intra-African trade in services to support growth

East Africa

The sector, for example, accounted for one-third of formal employment during 2009-2012, and the continent’s services exports and imports totalled $271 billion in 2012.

According to Marco Kamiya, an urban economist at UN Habitat, if the informal sector were included, the role of the service sector would be even greater.

This is because the informal sector, which is currently the leading source of employment in many countries, is predominantly service-based.

In fact, a survey done by the UN Economic Commission for Africa (Uneca) in selected African countries also confirmed services as one of the fastest growing sectors in the continent.

The survey showed Kenya as having the highest informal sector employment in East Africa outside agriculture, at 77.9 per cent of the total, which is higher than Rwanda’s 73.4 per cent, Uganda’s 59.2 and Tanzania’s 8.5 per cent.

“As Africa’s middle class continues to grow, and given the current population and urban trends, this sector is expected to expand even more,” said Mr Kamiya.

In effect, the share of services in Africa’s real output rose from 45.8 per cent to 49 per cent from the period 2001-2004 to the period 2009-2012, with growth being strongest in East and West Africa.

According to Unctad, during the period 2009 to 2012, the shares of subsectors in Africa were as follows: Wholesale trade, retail trade, restaurants and hotels accounted for 14.5 per cent of output; transport, storage and communications accounted for 9.2 per cent of output; and other activities accounted for 25.2 per cent.

Closer home, in East Africa, between 2001-2004 and 2009-2012, the real total value of the services sector in Kenya grew from 54 per cent to 58 per cent in Burundi from 40 per cent to 47 per cent, Tanzania 46 per cent to 49 per cent, Rwanda 41 per cent to 50 per cent and Uganda 50 per cent to 54 per cent.

“The economies of the five countries are slowly becoming services dependent going by the recent performance of the sector in the region. It is also where new jobs are being created, hence the sector is currently critical to the region’s development,” said agricultural economist George Mwangi.

The tiny East African countries of Rwanda and Burundi are some of the biggest performer on the continent. The two are on the list of 10 countries in Africa, where the services sector grew fastest in real terms, at an annual rate of more than eight per cent, in the period under study.

READ: Rwanda: Sluggish service sector impacts goods production

In addition, Burundi has recorded tremendous growth in the telecommunications sector, fuelled by foreign direct investment (FDI) due to the liberalisation measures in the mobile telephony market taken by the government.

However, despite the sector’s crucial role in economic growth, there are already serious concerns that the sector’s growth is slowly turning many African countries into consumers rather than producers and that current growth momentum will eventually wane, if the manufacturing sector continues to lag behind.

If Africa’s economies are to take off, the economists warn, Africans will have to start making more things in factories than they are currently doing.

Unctad figures show that the 45 countries where the share of services in output rose from between 2001-2004 and 2009-2012, 30 countries experienced a fall in manufacturing, among them Mauritania, Mauritius, Cote d’Ivoire and Swaziland.

“Africa must move away from consumption-based growth to more durable sources of growth. This is important if the continent is to industrialise. This will help the continent to effectively fight poverty and meet other socio-economic development goals,” said Mr Mwangi.

“Even the East Asian countries, commonly referred to as the Asian tigers, had to put more men and women in factories to produce durables to enable them to industrialise and achieve higher standards of living,” he said.