Rwandan entrepreneurs are encouraged to produce more as well as better package their products in a way that suits the huge Chinese market so as to earn more after Beijing recently decided to provide zero-tariff treatment for 98 per cent of presently taxable products from 16 least-developed countries including Rwanda.
China will provide zero-tariff treatment for 98 per cent of presently taxable products, or 8,786 items, imported from 16 least-developed countries, including Rwanda, Djibouti and Togo, starting September 1.
According to Wu Deng, China’s Director General, Department of African Affairs, the policy will gradually expand to all least-developed countries and increase imports from Africa.
With its giant population of more than 1.4 billion people, China presents a huge market for Rwanda. Experts say the zero-tariff treatment will especially be an incentive for the small and medium-sized enterprises.
Diego Twahirwa, an exporter of Chili [pepper] to China welcomed the development. In 2019, he landed a deal to supply 50,000 tons of dried Chili worth $100 million, every year, to China.
Twahirwa who exports three to four containers every week believes the zero-tariff treatment in China could further boost Rwanda’s exports as well as motivate farmers to increase production since they benefit from tax exemption.
"Zero-tariff treatment is an incentive to Rwandan entrepreneurs. We have been given priority to export Chili to China. We were already benefiting from around 16 per cent tax reduction,” he said.
The economies of most least-developed nations were heavily affected by the Covid-19 pandemic over the past two years.
Experts say the zero-tariff treatment will remove financial burdens on export-oriented companies and put their economic growth on a firmer footing. Trading partners set to benefit include those especially participating in development of the Belt and Road Initiative.
China’s Belt and Road Initiative (BRI) is a strategy initiated by the People’s Republic of China to connect Asia with Africa and Europe through land and maritime networks with the aim of improving regional integration, increasing trade and stimulating economic growth.
Rwandan SMEs should diversify
"That zero-tariff [of up] to 98 per cent means that if, for example, there were 20 products benefitting and they have now been increased to 45 products, local SMEs will be able to compete on the international market compared to least developed countries that are not among those 16 countries to benefit from tax exemption,” Teddy Kaberuka, an economist, told Doing Business.
Kaberuka also said the policy will increase the volume of Rwandan exports and it could help exporters who were hit hard by the pandemic.
"China is a destination for many products such as agricultural products and minerals from Rwanda. Rwandan SMEs should do diversification of exported products to tap into the market that is becoming wider,” he said.
According to the Observatory of Economic Complexity (OEC), in 2020, Rwanda exported $37.8 million to China.
The main products Rwanda exported to China were Niobium, Tantalum, Vanadium and Zirconium Ore ($32.6m), Tungsten Ore ($2.2m), and Coffee ($1.58m).
During the last 25 years, Rwanda’s exports to China increased at an annualized rate of 36 per cent.
Increase quantity and quality of products exported to China
According to Kaberuka, to be able to tap into zero-tariff treatment, the government has to formulate ways of increasing the quantity and quality of products exported to China.
"The businesses should be aware of requirements for the export market. For instance, if you want to export avocados, you should produce the types of avocados needed on the market. Businesses ought to be familiar with all other essential technical aspects,” he said.
The Private Sector Federation spokesperson, Theoneste Ntagengerwa, said they are working closely with members to get a list of all products that will be exempted from taxes on the China market.
"We have to work with the ministry of trade and industry, NAEB and others to guide businesses on how to tap into the different availed opportunities,” Ntagengerwa said.
"Businesses should work in associations to easily access information about all market opportunities.”
The Minister of Trade and Industry, Jean-Chrysostome Ngabitsinze has urged local agro-processing companies and other businesses to tap into China’s market to increase exports and reduce the trade deficit.
"The China commercial policy is based on the relationship it has with countries. We also have a good relationship with China. The zero-tariff treatment is good news for Rwanda. This shows the value that China attributes to Rwanda,” Ngabitsinze said.