Small states need to reposition themselves in the global economy and move into knowledge-based and other service industries, according to a joint report from the Commonwealth and World Bank back in 2000.

Now a new publication written by ODI researchers discusses the challenges faced by small states in carrying out the proposal from this report and how they might be overcome.

These challenges are a result of globalisation, say the authors, especially in the areas of agriculture and manufacturing. With this in mind, they write that it makes economic sense for small states to move away from these sectors towards services such as education, health and tourism.

“Services are already an important contributor to income and employment in small states,” write Mahvash Qureshi and Dirk Willem te Velde.
One major challenge, they argue, is for countries to move up the chain towards services which are knowledge-intensive, such as tourism and information and communication technology. Generally, the more developed a country, the more it is engaged in such services.
This line of thinking is backed up by case studies of six Commonwealth and non-Commonwealth countries where the authors found that tourism accounts for over 50 per cent of service exports. The countries examined are Botswana, Mauritius, St Lucia, Vanuatu, Singapore and the United Arab Emirates.

After analysing the development of trade in services in these countries, the authors offer various suggestions for small states to consider. They observe, for instance, that the regulatory framework is very important for services.

Overall, the authors say, the development of services involves leadership that can signal a fundamental shift in economic thinking in small states, which have traditionally relied on trade preferences and protection of goods.

“Engagement with the international economy is crucial, so that important lessons can be learned from the experiences of other countries in general and small states in particular.

“In addition, the international community can help by supporting such initiatives and assisting small states technically as well as financially to build the domestic capacity that supports a strong services sector crucial for future growth prospects in small states.”