Global services are vital to the world’s economic growth1. The rise of the services sector (often referred to as the tertiary sector) has happened quickly and continues to grow exponentially – even amidst the pandemic. Covering everything from financial services to hairdressers – global service activity accounts for more than two thirds of global gross domestic product (GDP).
The importance of services is particularly pronounced in developed economies, where such jobs represent about 75 per cent of total employment. It is, therefore, almost always a reliable indication of economic health.
Global trade services account for more than half of all global trade flows (55 per cent) and with the adoption of new technology and digitisation of working practices, this is likely to accelerate. Indeed, in KPMG’s global CEO Outlook pulse-check, half of New Zealand CEOs surveyed stated that the digitisation of operations, and the creation of a next-generation operating model has sharply accelerated. This will further fuel economic recovery and growth of cross-border trade in services following the pandemic.
The hidden value of services
The statistic mentioned above is impressive, but only paints half the picture, which is problematic for demonstrating the real value in services.
The true contribution of services is also contained in more traditional trade flows, such as agricultural and manufactured products. This means that the value assigned to such products also includes significant amounts of underlying service activities such as, research and development, accounting and legal services, as well as marketing and distribution services.
Take for example, a business like Comvita, it is a producer of FMCG products, but there are countless people employed in service to take its products to the world: beekeepers, marketing and communications professionals, legal and regulatory teams, etc.
Global services trade is growing quickly
For decades, the global service industry has been undervalued and underestimated. It’s staggering to think that services are often overlooked in discussions on global trade, yet they account for the majority of global GDP and provide a healthy snapshot of local economies.
To put it into context, the value of global trade in services increased by 50 per cent between 2010 and 2019. That figure is twice the pace of growth that we’ve seen globally in merchandise trade (the secondary sector). The growth in services has transformed global trading patterns over the past few decades and it will be vital to the world’s recovery post Covid-19 – particularly for the regions and industries that recognise and appreciate its value.
Global services trade is expected to be a major component of global trade in the future, with the value of international trade in services expected to grow 31 per cent ($1.9 trillion) by 2025.
New Zealand can and should capitalise on services
As distance becomes less relevant to trade, New Zealand and Australia should be well positioned to grow exports in knowledge-intensive service industries.
A recent report from Western Union, in partnership with Oxford University, predicts that B2B services will be the main driver of export growth, with New Zealand pinpointed as a ‘hotspot’ for export growth in the digital services. According to KPMG, New Zealand CEOs are personally leading the technology strategy for their organisation suggesting that this will be a sector to look-out for in terms of employment growth as we head into 2021.
By embracing innovation and utilising technology within their services, businesses can position themselves for future success in trade, both locally and in exports. Although, as companies look to grow in this area, they should also work with their FX provider to implement measures to efficiently manage their cashflow alongside trading activity.
The seismic shift we have already seen in business behaviour as a result of the pandemic, including working from home, the acceleration of online services and the impacts of social distancing, means that the services sector is only likely to grow as people shift to a digital-led way of life.
Digital service exports could be key to New Zealand’s Covid-19 economic recovery, as analysis from the Western Union / Oxford University report suggests that while the global economy is suffering the short-term, trade in modern digital services will prove resilient through the current crisis.
About Western Union Business Solutions
Western Union Business Solutions is a global leader in foreign exchange and international payments. We enable companies of all sizes to send and receive cross-border payments and manage their foreign exchange needs.
Our New Zealand team provides local expertise, with access to over 130 currencies, and a global financial network spanning more than 200 countries and territories, we help companies spend less time managing their international financial transactions and more time growing their businesses.
Through our experienced foreign exchange dealers, our proven bank-to-bank payment platforms and international payment tools, and our comprehensive cash and risk management solutions, we help clients to satisfy their foreign payment needs, improve cash flow, and manage risk.
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