Industrial sector growth of 11.6 per cent helped the economy stay on course during the first three quarters of 2013 even as the pace of expansion slowed down, the central bank said yesterday.

The service sector was the biggest contributor to slow economic growth recorded at 6.4 per cent, 5.7 per cent and 3.9 per cent in the first three quarters of last year—the lowest in more than eight years.

While presenting the semi-annual BNR Governor’s Monetary Policy and Financial Stability Statement yesterday, John Rwangombwa said  the service sector output increased only by 4.6 per cent on average in the first three quarters of 2013, a sharp decline from 12.2 per cent recorded in 2012. He attributed this to "reduced government spending and slowdown in credit distribution to the private sector.”

Government current expenditure, one of the key drivers of growth in the service sector, increased by 4.5 per cent last year down from 12.7 per cent in 2012, while new authorised loans to commerce and hotels inched upwards by 7.2 per cent from 47.3 per cent recorded in 2012. On the other hand, financing to transport and warehousing services declined by 3.2 per cent from an increase of 23.3 per cent in the same period of the previous year.

Rwangombwa however said the export sector continued to record good performance last year with formal exports value standing at $573m (Rwf382.8bn), representing an annual increase of 18.7 per cent while the volume increased by 6.8 per cent.

Formal imports increased slightly by 2.2 per cent in value and 4.3 per cent in volume, amounting to $2,247.4m (Rwf 1.5tr) in the same period.

Rwangombwa said that this resulted in reduction in the trade deficit from $1,717.2m (Rwf 1.15tr) recorded in 2012 to $1,674.4m (Rwf 1.11tr) last year while import cover by exports increased to 25.4 per cent from 21.9 per cent recorded in 2012.

Including informal cross border trade, exports covered 30 per cent of imports from 27.7 per cent in 2012.

"The faster we can cover for our imports using exports, the better for the sustainable growth of our economy,” he said.

Tea, coffee and pyrethrum continued to dominate the export sector, despite low prices on the international market. These accounted for 62.1 per cent of the total export in 2013 against 59.4 per cent in 2012.

Rwangombwa said minerals recorded a good run in performance due to ongoing reforms, substantial investments in the sector and high prices for some minerals on the international market.

The total value of exported  main minerals (Coltan, Cassiterite and Wolfram) last year amounted to $225.7m (Rwf 150.8bn) from $136.1m (Rwf 90.9bn) in 2012, which is an increase of 65.9 per cent, largely dominated by Coltan which increased by 136.5 per cent in value and 115.4 per cent in volume to reach 2,466.02 tons from 1,144.68 tons in 2012.

He noted that the good performance in the export of minerals has offset the decline in coffee and tea revenues, accounting for 63.4 per cent of the traditional exports.

Prices of coffee declined last year due to fears of oversupply on the international market after some Latin American producers overshot their production estimates.

Similarly, tea and pyrethrum export volumes and revenues declined mainly due to unfavorable weather conditions.

The monetary policy committee however noted that the dependency on the few primary commodities remained one of the main challenges for Rwanda as the country needs to reduce the high structural external trade deficit and build resilience to external shocks.

Lawson Naibo, chief operating officer of Bank of Kigali said that as a result of donor suspension and reduced government spending last year, the treasury bills rate had shot upwards leading to reduced credit to the private sector, thus the decline in service provision.

"Since the resumption of donor flows and government spending, there is more liquidity in the economy and we have seen the treasury bills rate going down and even banks competing to lend members of the private sector,” he said.