The good performance of the agricultural sector in the first half of 2008 is expected to drive real growth to 8.5% - up from 6% last year, the Minister of Finance and Economic Planning James Musoni said on Monday.

Rwanda’s economy was expected to grow by 6.8% in real terms this year, however, Musoni said that based on the first half of 2008 where agriculture registered strong performance of over 16% and 19% in season A (November 2007-January 2008) and Season B (May-July2008) respectively, growth is projected to be 8.5%.

Musoni, who was making a presentation during the monetary policy and financial stability statement at the Kigali Serena Hotel, is optimistic about the economy partly because of a stable growth in the industrial sector, especially alcoholic and non-alcoholic beverages and construction which are growing by over 18% this year.

Overall, agricultural production increased by 19.2% in the first half of 2008 stimulated by roots and tubers which increased by 50%, cereals, particularly wheat, increased by 17.5% from 24,633tonnes in 2007 to 67,868 tonnes in the first half of 2008.

Maize increased by 62.9% from 102,447 tonnes in 2007 to 166,853 tonnes in the first half of this year.

The increase is attributed to the government strategy of making fertilizers affordable and accessible to farmers.
The minister added that tourism, transport and financial services had grown by 13%.

However, the economy which is heavily dependent on imports was noted to be troubled by imported inflation mainly caused by the global increase in oil and food prices.

A statement by François Kanimba, Governor of the National Bank of Rwanda quotes the overall price index (the average price of goods and services) as of the end of June 2008 to be 13.1%. This exceeds the 4.5% in the corresponding period of 2007.

"The change in the index of locally produced goods and services was 12.4%, while the increase for imported goods was 15.8%,” the statement reads in part.

Limited supply of transport and education services due to low investments have led to monopolies thus a hike in fees contributing to the increasing inflation.

According to statistics presented by Kanimba, school fees rose by 13.9% and transport by 13.4%.

Inflation was also worsened by increasing domestic and sub-region aggregate demand and increasing housing rent due to the rise in prices of construction materials.

Monique Nsanzabaganwa, the Minister of Trade and Industry, said that despite the increase in agricultural produce, farmers had taken advantage of the global food crisis and exported to neighbouring countries like Congo due to high demand and subsequent higher prices.

She said that the terms of trade were improper with external buyers who were exposing the economy to more inflationary tendencies.

"Exporters of agricultural products should have a commercial presence in Rwanda with restriction of foreign importers entering the country and buying directly from farmers, as a measure to curb widespread inflation,” she said. 

As one of the measures to curb imported inflation, Nsanzabaganwa said that the competition policy which was already in draft form was yet to be implemented and would deal with "the market distortion causing inflation.”

Musoni stated that despite unstable prices, there wouldn’t be price fixing as was done in the previous years.

In reaction to the unstable commodity prices, Nsanzabaganwa said that a study to establish a price structure of sensitive products is to be carried out and will lead to price stability of some of the crucial household items. 

It will also be a basis for monitoring the change in prices of other commodities. The investment strategy which is ongoing and is expected to increase productivity and break monopolies, thus decelerating the inflationary rate, was emphasised.

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