What will it take to improve Rwanda's trade imbalance?

Rwanda’s trade balance has been deteriorating over the years due to the continued higher import bill compared to export receipts. The mismatch between imports and exports is mainly due to the continued reliance on low-value export products, whose prices depend on the international market dynamics and the continued excessive demand for foreign produced goods, especially capital and intermediate goods, to sustain the ongoing economic development. However, increased production initiatives for some categories of imports such as rice, wheat and sugar whose domestic market is growing rapidly and whose contribution to the import bill is high should be reinforced. This will be a game changer towards reducing the country’s import bill. Formal imports decreased by 2.7 percent in value, to $2.2 million in 2016 down from $2.3 million in 2015. The decline in formal imports value is due to a decrease in intermediary goods, which decreased by 16.6 percent and in energy and lubricants that registered a reduction of 15.7 percent. Formal imports declined to 17.2 percent in volume due to decreasing volume of intermediary goods (unfinished products). Government’s “Made in Rwanda” initiative seems to be paying off and according to experts, the campaign is key in correcting and balancing Rwanda’s trade books. There is potential to produce most of the imported commodities locally which could have a huge potential and positive impact on Rwanda’s trade balance, according to experts. For example, imports of cement, sugar, wheat, rice and second hand clothing exceed coffee and tea exports earnings. If produced locally they are expected to play a key role in narrowing down the country’s trade deficit. Rising commodity prices are expected to strengthen Rwanda’s export base. File. Compared to 2015, Rwanda’s trade deficit narrowed by 5.9 percent in 2016, to $1.6billion from $ 1.7billion This means the demand for imports decreased marginally driven by a drop in importation of consumer goods. Many analysts believe the country’s economy will rebound fueled by the increasing commodity prices and increased local production. The country’s total formal exports value, according to the National Bank of Rwanda (BNR) increased by almost 7.1 percent while total imports value recorded a modest decline of 2.7 percent during the same period. Consequently, formal exports cover improved to 27 percent in 2016 against 24 percent which was recorded in 2015. This is important for a country that is trying to grow its exports to an annual tune of more than 28 per cent on average. Experts believe boosting local production while encouraging consumption of locally manufactured goods will boost exports and play a key role in trade balance, thus stabilizing the economy going forward. The Central Bank governor, John Rwangombwa, says Rwanda’s trade balance improved with export cover of imports improving to 32 percent in 2016 compared to 28 percent in 2015. This means that earnings from our exports in 2016 could only pay for 32% of all the goods we imported in the same period, compared to 28% in 2015. More still, the improvement in the trade balance in 2016, does not take away the fact that Rwanda’s import bill continued to outstrip export receipts, exerting pressure on the economy. “We have observed trade balance in the last three months of 2016 due to a slower decrease especially in traditional exports of almost 5 percent compared to the average decline of 21 percent registered same period in 2015,” Rwangombwa noted adding that the improvement was largely supported by good performance of the non-traditional exports category mainly driven by minerals and re-exports as well as the decline in imports. Poor performance from formal exports Meanwhile, the economy could have performed even much better had it not been the poor performance registered by the country’straditional exports. Rwanda’s traditional exports including coffee, tea, minerals, pyrethrum as well as hides and skins fetched $219 million in 2016 way below the target and less than $265 million earned in 2015. Coffee exports declined in 2016, affecting Rwanda’s trade balance. File The situation could have been much worse had it not been the boost Rwanda got from re-exports. The country earned more than $224 million (about37.5 percent of total exports) from re-exports in 2016 compared to $177million earned in 2015. Most of the re-exports were destined to Rwanda’s main trading partners including DRC, Burundi and Tanzania. There are plans to ensure value addition to most re-exported products to make them more worthy before they can be re-exported. This according to Ministry of Trade and Industry will translate into more revenues which will keep the economy more resilient. Overall performance Meanwhile, from Central Bank numbers, one can easily say that total exports recorded good performance in 2016, increasing by 7.1 percent in value, ($ 598million up from $ 558 million) in 2015. In-terms of volumes, the sector registered a commendable increase of almost 19.3 percent driven by positive performance of non- traditional exports. However, the sector suffered a setback due to a decline in coffee, tea and mineral exports. For instance, coffee exports decreased in value by almost 5.7 percent from $ 62 million in 2015 to $ 58 million in 2016. The decrease was mainly attributed to decline in coffee unit price of 4.9 percent, from 3.30 $/kg to $3.14 /kg. The sector registered a decline in volumes with a slight decline of almost 0.8 percent, from 18,793 tons in 2015 to 18,638 tonnes in 2016. Equally, tea exports decreased in value by more than 12.5 percent, from $72.46 million in 2015 to $ 63.42 million in 2016. This decrease was due to the decline in both the unit price and volume, as the former decreased by 11.5 percent from 2.94 $/kg in 2015 to $2.60 /kg in 2016 and the latter decreased by 1.1 percent, from 24,677 tons in 2015 to 24,415 tons in 2016. Farmers say this affected profitability and ultimately house hold incomes. Theopista Nyiramahoro, the Rwanda Coffee Federation chairperson, said performance was bad but is hopeful things will get better in 2017. The governor has already reassured the public about economic improvements this year. Last week, the central bank projected improvements in commodity prices and positive agriculture and export performance which will give a boost to the country’s economic growth in 2017. Counting on the mining industry The mining sector is projected to bounce back in 2017 and is expected to give a boost to overall economic performance. File. Despite registering poor performance due to the fall in international commodity prices, experts believe the industry will bounce back in 2017 with improvements that will boost export revenues going forward. This is important because the exported value of the main minerals including Coltan, Cassiterite and Wolfram declined from $ 117.81 million recorded in 2015 to $86.42 million in 2016. Despite this poor performance, miners like David Bensusan, the Chief Executive of Mineral Supply Africa (MSA), is optimistic the sector will bounce back on account of rising prices in global markets. He is however worried on how the Trump presidency in the US and Brexit in Europe will affect the sector. “We have various agreements with companies in the US, but from the rhetoric we are hearing from the United States, no one can exactly tell how things will turn out, he said. Andre Musabyimana, the president of a mining cooperative in Cyato sector in Nyamasheke district, says, they are counting on bankers to increase credit to the sector to help make it profitable this year. Last week, Dr Diane Karusisi, the Bank of Kigali, chief executive, tasked fellow bankers to support the sector on optimism that prices were set to bounce back. Karusisi expects banks to double support for exporters, especially in the mining industry, to help keep the trend positive. In 2015, government launched the export growth facility fund as part of the strategy to boost exports and narrow down the widening trade deficit gap. The aim according to Alex Kanyankole, the Development Bank of Rwanda chief executive,was to channel more than Rwf1 billion, through the Development Bank of Rwanda (BRD), to facilitate exporters especially through SMEs . With the fund in place, exporters are expected to access the funds at about 8 per cent interest per annum, covering at least 50 per cent of the cost exporters incur as they try to seek new markets abroad. However Kanyankole says it will take more than the fund to address the challenges exporters face. He says increasing access to finance alone will not help unless stakeholders worked together to address other challenges. Export targets by NAEB The National Agriculture Exports Board (NAEB) is projecting to fetch more revenues from tea exports, from $65 million (about Rwf44.2b) to $147 million (about Rwf100b) by 2017, while coffee export earnings are expected to more than double from $73 million to $157 million during the same period. This will however require concerted efforts including facilities like the Export Fund. Government also plans to enhance honey, handcrafts and horticulture production and exports as part of the new strategy. Lack of access to affordable credit is only part of the problem, according to business analysts. The country’s export industry is still struggling with challenges, including, limited market, high taxes, poor export infrastructure and lack of skilled manpower.

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What will it take to improve Rwanda's trade imbalance?