The South Australian services sector contributes more to exports than is revealed by trade statistics. As such, a policy environment that encourages competitiveness in the services sector will also improve our export competitiveness.
In 2016/17, South Australian services sector contributed nearly 60 per cent of the state’s Gross State Product (GSP) and more than three-quarters of the state’s total employment.
In contrast, the reported performance of our overseas services exports is much less, contributing only 22 per cent to the state’s overseas exports (Table 1).
Does this imply an underperforming services exports sector in South Australia?
Table 1: South Australia’s Goods and Services Sector, 2016/17 – Contributions to GSP, Employment and Overseas Exports
The official ABS overseas trade statistics do not reveal the true importance of the services sector in export performance.
To illustrate, an export of wine would be classified in the trade statistics entirely to ‘beverage and tobacco product manufacturing’ even though there are value added contributions in the grape growing industry and many other industries that are in the direct or indirect supply chain for wine production (i.e. including services industries).
The services sector therefore tends not to be the final producer for many exports. Rather, services are embedded within goods exports and are therefore traded indirectly.
We recalculated the split of South Australian exports by good and services to take into account these ‘value added’ contributions (i.e. exports measured on a ‘value added’ basis) to compare it with overseas trade estimates (i.e. measured on a ‘gross’ basis).
The result is Table 2.
Table 2: South Australia’s Goods and Services Sector, 2016/17 – Contributions to GSP, Total Employment, ‘Gross’ and ‘Value Added’ Overseas Exports, and Employment Induced by Overseas Exports
South Australia’s services sector now contributes 42 per cent (not 22) to overseas exports.
We also found that the services sector accounts for 41 per cent of the South Australian employment induced by export activity.
Since services are embedded in goods, a more productive services sector (by providing higher quality services and at lower costs) will therefore add to the competitiveness of the exporting sectors.
What drives productivity in services?
Clearly the application of technology is important.
But policy also matters.
Policy settings affecting the services sector can affect competition and the incentives for reducing costs and for innovation.
The relevant policies include those which affect entry into services markets and operations by both domestic and international providers of services.
Our results here indicate the value of maintaining a focus on these policies, for example by undertaking regular reviews of their impacts on services sector performance.
Original article by Suraya Abdul Halim and Christopher Findlay in SACES December 2017 Economic Briefing Report, “Focus Article 2: Revealing the True Role of South Australian Services Exports”.