The development and

importance of travel service

exports in South Africa

Johan Fourie30 October 2008TIPS Conference

Cape Town

Session overview

• Definition• Context• Hypothesis• Methodology• Data• Results• Conclusions

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Definition

• Travel service exports one of a number of service sectors (WTO 2002)• Transport; travel; communications;

construction; insurance; financial services; computer and information; royalties and license fees; other business services; personal, cultural and recreational services

• Travel services are defined by the user of the service and not the type of good or service sold

• Four modes – examples• Tourism = Mode 2

3

Context

• Early Cape economy dependant on travel service exports – services sold to passing sailors and soldiers

• After discovery of diamonds and gold – very little attention to travel services

• The value of South Africa’s (broadly defined) natural resources noticed early on – Kruger National Park founded in 1924

• However, not an important sector• High transport costs• Political and economic sanctions

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Context

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log KBP6609J log KBP5002J Services exports share of total exports Services exports share of GDP

Hypothesis

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-01

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Holiday travel Business travel

12 per. Mov. Avg. (Holiday travel) 12 per. Mov. Avg. (Business travel)

Hypothesis

• South Africa has abundant labour and (broadly defined) natural resources

• Hecksher-Ohlin: export labour, natural resource-intensive products.• Natural resource exports resembled in our

existing trade structure

• Hecksher-Ohlin assumes zero trade costs• SA labour-intensive exports have to compete

with countries with significantly lower trade costs

• Trade-in-services circumvents trade costs• Thus, SA has comparative advantage in labour-

and natural resource-intensive services exports• Travel services

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Methodology

• Revealed comparative advantage (Balassa index, 1965)

• where Xij is exports of sector i from country j.

• Three indicators: travel service exports within service exports, service exports within total trade, service exports within GDP.

• (RCA – 1)/(RCA + 1)

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Data

• Data for the analysis is obtained from the UNCTAD Handbook of Statistics 2007, available electronically (UNCTAD 2008).

• The data covers 206 separate territories or countries for which GDP data is available. Travel service data is available for 147 of these countries.

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Results

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Transportation Travel

Communications Construction

Insurance Financial services

Computer and information Royalties and license fees

Other business services Personal, cultural and recreational

Government services

Results

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Services RCA Total Trade RCA GDP RCA1 Mexico 2.72 Egypt 5.05 Malaysia 4.622 Turkey 2.53 Greece 4.86 Egypt 4.623 South Africa 2.44 Turkey 3.44 Hong Kong 3.964 New Zealand 2.18 Spain 3.10 Thailand 3.715 Australia 2.02 New Zealand 3.03 Austria 3.496 Portugal 1.88 Portugal 2.68 Turkey 3.427 Spain 1.88 Australia 2.30 Singapore 3.368 Venezuela 1.78 South Africa 2.18 Greece 3.219 Thailand 1.77 Austria 1.62 New Zealand 3.03

10 Egypt 1.74 USA 1.48 Spain 2.9011 Colombia 1.70 Italy 1.42 Portugal 2.8512 Malaysia 1.68 France 1.41 Hungary 2.6513 Argentina 1.59 Thailand 1.37 Czech Republic 2.5714 Czech Republic 1.47 Switzerland 1.19 South Africa 2.0715 Italy 1.47 Poland 1.11 Switzerland 2.0516 China 1.46 Argentina 1.09 Belgium 1.8117 Greece 1.46 Hungary 1.06 Ireland 1.6318 Poland 1.44 Malaysia 1.03 Australia 1.5619 France 1.38 Czech Republic 0.97 Israel 1.5020 Indonesia 1.30 UK 0.96 Poland 1.42

Conclusions

• Other service sectors investigated• Financial sector (Butterworth and Malherbe

1999), construction (Teljeur and Stern 2002), transportation (Naude 1999), distribution services (Achterberg and Hartzenberg 2002) and communications (Hodge 1999)

• Hodge (1997), using 1994 data, finds that travel service exports are the only service sector where South Africa has a comparative advantage. He predicts that this will be an important service export category for the future (Hodge 1997).

• Seyoum (2007) also finds support for South African RCA in travel service exports

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Conclusions

• Results support the hypothesis that SA has a comparative advantage in travel service exports

• This is the only service sector where existing trends supports an RCA

• Travel service exports is a growing sector – one of the fastest growing sectors in international trade• SA also supported by other African countries

• Validates that South Africa investigates how the travel service industry can be supported• Can be an important tool for regional

integration

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