Rwanda’s economic performance in the first six months of 2015 remained satisfactory on the National Bank of Rwanda (BNR) appraisal form, but Governor John Rwangombwa has warned of a bumpy global economic highway that’s likely to hurt export earnings in coming months.

Rwangombwa announced this yesterday while speaking at the presentation of the bank’s monetary policy and financial stability statement, which is a diagnosis of the country’s economic performance in the first six months of 2015 in comparison to the same period of 2014.

Rwangombwa gave the economy a clean bill of health, saying all key indicators were working perfectly with a well-liquidated financial sector whose new authorised loans to the private sector increased by 10.8 per cent in first half of the year, amounting to Rwf360.8 billion compared to Rwf325.7billion in the same period last year.

The central bank expects the well-capitalised private sector to drive the economy well above the projected 6.5 per cent growth rate in 2015; there are already good signs after performance in the first two quarters exceeded expectations.

BNR also boasted about its accommodative monetary policy, which the Governor, who was flanked by his chief economist and the deputy governor, said, has supported the strong economic activity and subdued inflationary pressures at 1.5 per cent in the first half of the year, average, compared to 2.6 per cent in the same period last year.

There were cries of high interest rates on credit from Members of Parliament and private sector players, but the bankers at the event, including KCB’s Morris Toroitich and Bank of Kigali’s James Gatera, tried to justify their rates, albeit unsuccessfully.

But the good news aside, Rwangombwa cautioned that there are external factors that could hurt Rwanda’s economy, especially on the external trade front, where exports have already been bruised by a weak global commodity price outlook.

With market turbulence in China, wobbly growth in Europe and low global commodity prices, Rwanda’s export earnings, Rwangombwa cautioned, are likely to take a hit from these factors that are far out of the jurisdiction of his institution.

Exports, he said, is where the country has some real challenges, and the figures he presented left the room full of national leaders, business executives and development partners challenged to find answers for what is seen as an urgent assignment to grow export earnings.

He added, "As policy makers, we need to urgently expedite efforts to diversify to other forms of non-traditional export commodities.”

Coffee, tea and minerals are traditionally Rwanda’s top foreign exchange earners, but the mining sector did not perform as projected in the first six months after mineral volumes dropped by 27.4 per cent and earnings fell by 31.3 per cent due to poor international prices.

The impact of the weak mineral prices on the international market was reflected in the figures Rwangombwa presented, indicating that the country’s export earnings dropped to $275.28 million in the first half of 2015 from US$293.61 million in 2014.

According to Rwangombwa, this reduced the combined contribution of Rwanda’s traditional exports in the first six months to 46.2 percent of the total export earnings compared to 49.2 percent recorded in the same period of last year.

Things are likely to get worse on account of China, the world’s leading consumer of minerals in recent years, currently experiencing a downturn in its domestic economy with reduced industrial activity and the devaluation of the Yuan tipped to further dampen market prospects.

For the remainder of 2015, the prices of non-fuel commodities are projected to decline by 15.6 per cent, which will hurt countries like Rwanda that are dependent on non-oil commodity exports.

Inside EAC

Inside East Africa, Rwanda took a pay cut on its earnings from regional trade in the first half of this year from US$85.51million last year to $62.57 milion this year, mainly affected by reduced beer exports to Burundi and DR Congo.

According to Rwangombwa, the political impasse in Burundi has cut off a formerly booming beer export destination and the opening of a Heineken plant in DR Congo meant that Bralirwa products would no longer access the Congolese market.

These developments saw Rwanda exports to EAC reducing to 23 percent of total exports in the first half of 2015 compared to 29.1 percent in the same period last year.

"Exports of beer from malt fell by 18.3 percent, raw hides declined by 48.9 percent and electrical apparatuses for line telephones by 77.6 percent,” revealed Rwangombwa.

Import bill vs exchange rate

The question and answer session shortly after Rwangombwa’s presentation was dominated by concerns of the worsening foreign exchange rates, with participants lamenting that the central bank was not doing enough to tame the situation.

But the answer was always in the numbers and Rwangombwa said given the structure of the country’s economy, the demand for dollars to settle a huge import bill against weak export receipts was always going to keep the pressure on the Rwanda franc for the foreseeable future.

The demand for the dollar to pay for a huge import bill was actually worsened by what Rwangombwa termed as ‘activities of bad boys on the forex market’, but revealed that without speculators, the central bank has ‘enough’ dollars to facilitate importers.

In and outside the region, the country’s balance of payment deficit remained wide on account of low export earnings against a huge import bill albeit enjoying months of low oil prices that helped to slightly reduce the value of the import bill.

The volume of Rwanda’s imports increased by 18.9 per cent in the first half of 2015, but their value reduced by 5.1 per cent and as a result paid $1.13 billion compared to $1.19 billion paid in 2014.

Nonetheless, an import bill of $1.13 billion far outweighs export payment receipts of $275.28 million as the relationship represents a trade deficit of US$858.83m.

Rwanda’s poor earnings from direct exports have always been boosted by foreign exchange earnings from other sources mainly tourism, but there was no mention of how the sector performed in the first six months because the numbers are still being compiled.

Therefore, even with the alleged ‘speculation by the bad boys’ on the forex market out of the way, exchange rate pressures are likely to linger around and BNR’s increased intervention on the market may not be sustainable because its own reserves are under pressure on account of poor export earnings.

Notable voices in attendance, such as that of Lamin Momodou Manneh, United Nation’s coordinator in Rwanda, advised the central bank to let the market forces to prevail over other unnatural forces like speculation.

editorial@newtimes.co.rw