What’s holding back Rwanda exports to East Africa?

Although Rwandan exports to fellow East African Community member states increased by 7 per cent to $131.56m last year, from $122.94 million in 2013, the country spent $546.80 million on imports from the region during the same period. The statistics are contained in the Monetary Policy and Financial Stability Statement presented early last week by the central bank Governor, John Rwangombwa. It left experts concerned and called for efforts to double performance. The UN Resident Coordinator Lamin M. Manneh was one of those who expressed concern, noting that something needed to be done to balance the country’s trade relations with EAC partners. The trade minister Francois Kanimba, said a number of initiatives were ongoing to boost exports. Currently, Rwanda’s main exports are tea, raw hides and skins, coffee, bars and rods of iron or non-alloy steel, leguminous vegetables and beer. Kanimba observed that with regional efforts to remove trade barriers beginning to pay off, it will benefit various initiatives aimed at diversifying export commodities to ensure that Rwanda has a wide array of items to sell to its neigbours. Since July 2007 when Rwanda joined the EAC, it has built a reputation as one of the most committed when it comes to implementing decisions aimed at making the integration aspiration a reality. However, some believe it’s taking too long for the country to derive dividends from its commitment to the integration efforts, seven years after diving into the project. But such a concern raises questions of who is not performing their role; if the government is doing everything by putting in place the required infrastructure for Rwandans to flourish in the regional market, has the private sector turned up? According to the 2008 EAC trade report, just a year after joining the community, Rwanda’s EAC total trade increased from $172.02 million in 2006 to $237.82 million in 2007. However, that change was inspired by a lopsided growth of imports with that year’s import bill amounting to $199.89 million compared to export receipts of $37.93 million which saw the trade deficit widening to $162 million. Actually, earnings from exports to the EAC have increased drastically but so has the import bill, since 2007. For example export receipts have grown to $131.56 million in 2014 from $32.62 million in 2006, but during the same period, the import bill has enlarged to almost half a billion dollars from $139.4 million. So what’s the problem? Bart Gasana, the Director of Premier Group, says the discussion on Rwanda’s exports must start with a question; what are we producing for sale? “You can’t sell what you don’t have, first we need to have something to sell before we look for the market,” said Gasana. He added that the challenge was for Rwandans to produce competitive commodities. “And as we produce, we need to address issues of competitiveness; if Rwandan manufacturers are incurring a higher cost of production because of say, energy constraints, that means their final products will be too expensive to compete against cheaper imports.” Pierre Kamere Munyura, the Managing Director of Mibirizi Coffee agrees; he calls for stronger efforts to reduce the cost of production. Munyura uses the Special Economic Zone (SEZ) as an example of a good initiative but one that he thinks needs rethinking if it’s to benefit local investors. “To establish a factory in the special economic zone, they’ll sell to you, for instance, a plot of land at Rwf300 million, and then spend another Rwf300 million on constructing the building, all that before you even buy the machinery, that already gives you a very expensive start,” he said. He gives an example of his Ugandan counterparts in the same coffee business, where one’s operations are conducted in a makeshift structure but with state of the art machinery, this, he says, helps cut their production cost by a good margin. “I think we need to relax regulation on our SMEs and help them to prosper through favorable incentives to thrive and break even to start investing,” he noted. Munyura says if local firms were given free space in the zone and use the capital to set up the production apparatus, it would enable them avoid too much cost that they incur before production even starts. Economy in transition Benjamin Gasamagera is the Managing Director of Safari Centre which manufactures sanitary products. As chairman of the Private Sector Federation, he believes that the economy is undergoing a transition from import-based to export-oriented. “But it’s going to be a gradual process, we shall need to build capacity of local producers, improve standards and satisfy the local market before we move to export,” he said. Gasamagera believes the import bill, which is the main burden, can be reduced through increased consumption of locally made goods. His argument is backed by statistics which shows that most imports are consumer products, some of them, locally available. In the past year, Rwanda’s imports from the EAC were dominated by cement, cereal, flour and seeds, refined and non-refined fat and oil of animal or plant origin, clothing as well as meat and fish. That list of items has remained largely the same as that of 2006. Recently, Mount Meru Soyco Limited (MMSL), started production becoming Rwanda’s only edible oil producing plant. The firm’s CEO, Nick Barigye, says the main objective was to reduce the need to import cooking oil from Uganda and Kenya. But buying locally made cooking oil, experts note, would also depend on the cost of the final product as well as preference among the consumers. “For instance, if imported cooking oil is cheaper than the home made one, the impact of the effort won’t be felt, similarly, if consumers still have the mindset that ‘foreign is better’ still demand for imports won’t ease,” said Douglas Kinyomo, a consumer behavior expert. That’s the same situation affecting Rwanda’s Cimerwa cement products; managers of many construction firms claim that the locally produced cement is not only more expensive than imported brands but also is of lower quality. As a result, cement remains one of the leading import materials from the region to Rwanda.

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What’s holding back Rwanda exports to East Africa?