Rwanda’s industrial expansion drive: Time to rethink policy

Manzi Antoine The government is encouraging value-addition, especially agro-processing as Rwanda seeks to increase contribution of the industrial sector to GDP, and also diversify and increase export volumes and value. To achieve these goals, however, a clear industrial policy is required to change industrial structure and align it according to sectors, tasks or knowledge intensity in order to increase productivity, learning opportunities, externalities and dynamic competitiveness. The policy should encompass elements from different fields such as education and skill development, infrastructure, trade, investment or competition policy. Improving the business climate, which is at the heart of private sector development, is also an important part of industrial policy to attract more investor and spur growth. This will require the diversification of the Rwandan economy into new sectors of activity that will also help the country meet Vision 2020 and the upcoming Vision 2050 goals. For Rwanda to realise the targets of this plan, the contribution of manufacturing to GDP needs to increase to 28 per cent. This means that the industrial sector would be the main contributor to GDP growth, adding at least 12 per cent annually, outstripping services and agriculture sectors that are currently the key contributors to the economy. However, for the country to achieve this transformation requires a dynamic and coherent industrial policy. Remember, government seeks to create about 200,000 off-farm jobs under the second Economic Development and Poverty Reduction Strategy (EDPRS II), the country’s medium-term development blueprint. Industry currently employs just 4 per cent of the workforce or 170,000 people compared to agriculture, which employs over 72 per cent of the population. As a member of the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA), Rwanda could also use the immense opportunities presented by these blocs to deepen trade and attract new industrial investors. The over 450 million EAC market with a combined GDP of nearly$500 billion serves Rwanda’s development plans, thanks to a larger market and growth opportunities for local industries in the regional market. Rwandan firms have an opportunity to exploit serve this market, but will also face greater competition from businesses in countries with larger and more developed industrial sectors. Though Rwanda’s economy is private sector-led, the government is increasing creating partnership with investors, especially on key projects in energy and other infrastructure development. The hitherto negligible local private sector has become of age and is investing more resources in manufacturing and value-addition compared to about sixteen year ago in 2000. The performance of the private sector today is visible and one can consider this as the ‘golden era of industrial development’. With this more collaboration between government and the private sector, the country’s self-reliance agenda could soon be realised. However, in order to encourage the business community and maintain the momentum, government needs to consider new incentives for industries, like providing more tax concessions for the private sector, protecting young industries against foreign competition, as well as introduce export bonus schemes to increase exports, and strengthen the implementation of the Export Guarantee Fund. Made-in-Rwanda: The starting point Rwanda is largely dependent on imported products, which is a fundamental challenge to the economy as the country spends billions in foreign exchange on imports. To reverse this trend and to continue on the journey to economic prosperity, then we must have a national brand that can compete internationally and resonate with the people. That’s why the push for consumption of local goods under the Made-in-Rwanda initiative is timely, especially as its success will stimulate domestic production and job-creation. Only through the growth of industries that produce high-quality goods for domestic use and export can Rwanda be able to reduce the growing import bill.This will, however, require implementation of effective and supportive policies for local enterprises to compete regionally and beyond. Sustainable industrial development is driven by increased domestic consumption, quality production, and export competitiveness, which are supported by a strong enabling environment. Achieving some of these could help significantly reduce dependence on imports and increase export revenues and hence narrow Rwanda’s widening trade deficit, which currently stands at over $0.9 billion. Therefore, instituting clear and supportive industrial development-related policies, as illustrated in international best practice, will to foster growth, value-addition, and dynamic expansion into new areas of comparative advantage where market failures would otherwise prevent or slow development. Tackling these market failures directly provides the first ‘best’ solution. Remember, a government that makes no mistakes when promoting industry is one that makes the bigger mistake of not trying hard enough. The writer is a private sector development expert and a PhD candidate

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Rwanda’s industrial expansion drive: Time to rethink policy