The development and importance of travel service exports in South Africa

1. The development and importance of travel service exports in South Africa Johan Fourie 30 October 2008 TIPS Conference Cape Town

2. Session overview • Definition • Context • Hypothesis • Methodology • Data • Results • Conclusions

3. 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

4. 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

5. Context

6. Hypothesis

7. 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

8. 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)

9. 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.

10. Results

11. Results

12. 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

13. 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