exports should increase substantially over the next 25 years<sup>12</sup> . The main adjustment that takes place is a shift away from Europe. If bilateral trade flows continue to be driven by incomes and location then Europe will cease to be the largest destination market for SSA exports. Exports to the EU market will remain critical for many exporters and important new markets and niches will clearly arise. However, if EPAs are narrowly focused on bilateral trade between the EU and sub-Saharan Africa and fail to address the key constraints to global competitiveness then they will fail to assist the ACP countries in exploiting these new opportunities in the global market.

# **_3.2 Opportunities from the Global Sourcing of Services_**

The global competition that has been underway in goods for decades is now visible in services, as falling telecommunications costs and greater openness to FDI enable different parts of the services value chain to be performed in different locations around the globe— global sourcing of services. Global sourcing has increased competition in services markets for a wide variety of activities, from low-skilled such as data entry, word processing and call centers to higher skilled activities such as software development, consultancy, medical services and R&D. A range of services that were previously thought to be non-tradable are now being provided electronically over large distances. The potential number of service jobs that may migrate from rich to poor countries is uncertain but could be large (World Bank (2006)).

This phenomenon is creating considerable opportunities for development in poor low wage countries, both in terms of export possibilities as well as access through imports to cheaper services inputs that raise productivity when used in other sectors. Global sourcing is providing important new employment. In the relatively low-value segments such as call centers, wage costs are important determinants of location (along with language skills) and competition is fierce among developing countries. At the higher skill end, global sourcing of services may be reducing incentives for skilled migration by creating new opportunities at home. It is also important to note that a large number of those employed as a result of global sourcing are women, offering a different route to development than that based on growth of agriculture and manufacturing.

The services revolution and global sourcing are offering opportunities for new exports and for attracting services-related foreign investment for a range of poor countries. IT and global sourcing offer new and alternative drivers of development that circumvent some of the key constraints to growth driven by the expansion of exports of agricultural and manufactured goods. This is most apparent for landlocked countries and small (often island) economies that face very high costs for physical transportation (by air, road and sea). For example, development in Rwanda has to confront an extremely adverse location, one of the highest population densities and a high population growth rate. While increasing the quality of quantity of exports of traditional agricultural exports (coffee) and minerals is crucial to increases in incomes for the poor in the short to medium term, the government of Rwanda has identified the provision of IT intensive services, both locally and abroad, as a

> 12 The growth rates for each region are based on simple projections of average performance over the past 15 years. The approach is based on simply applying the coefficients on exporter and importer GDP from a standard gravity model to the changes in income over the next 25 years.

12