Coffee sector: Why Rwandex was shut down

Rwandex, the country’s leading coffee processing and exporting company was preparing to celebrate its 44th anniversary when its management abruptly suspended operations, terminated its contracts with suppliers and laid off 300 administrative employees. The reason: financial woes. The company which also deals in hides and skins faces liquidation. Local banks are up in arms demanding management of the coffee firn pays back the Frw3 billion borrowed from different banks for recapitalization the company some years back. Bank de Kigali (BK) is demanding Frw1.8 Banque Populaire du Rwanda Frw650m and COGEBAQUE Frw450m. BK has already assembled a strong legal team to try recover its money from Rwandex. The next move will be announced after studying the file, a senior Banque de Kigali source said. After government sold its stake to one of the shareholders in the coffee company, Hasson Robert, a son of the founder took over Rwandex. As he was trying to settle and restrategise the company in the competitive coffee sector, financial woes weighed in. The company started making losses. Roberts with experience in hotels and airline businesses, was forced to suspend the coffee business towards the end of February this year as he looks for money to pay off creditors and recapitalise the company. Best plan Robert had promised to invest billions of francs to turn around the coffee sector in the country which would latter boost household incomes. According to the business plan, he presented to the privatisation unit, the investor was to build several washing stations countrywide to ensure quality coffee is exported, so that he earns premium revenue. He told government that he would invest $300, 000 (about Frw163m) in roasted coffee and also $150,000 (about Frw81m) in improving the quality of green berries, with a total investment plan of over US$1.4m (about Frw762m) in four years. But by press time, Alex Kanyankole Executive Director Ocir Café, Rwanda coffee authority said there was nothing yet on ground. Our policy is to export high value product that could reap high value on the market. Rwandex had not yet met this priority, Kanyankore said. Government is promoting the production of roasted and instant coffee. Before closing, Rwandex was exporting between 5,000 to 7,000 tonnes of ordinary coffee fetching between $9 million to $10 million respectively. This was after the company’s export volumes dropped from 50 percent in 2003 to 15 per cent in 2004 when the coffee sector was liberalised allowing in more players. Govt won’t intervene Though Rwandex has bee paying Frw50m annually as Pay As You Earn, VAT other duties and employing thousands of Rwandans indirectly and directly, government says it won’t bail out the company. As government we cannot get involved, said James Musoni, Finance and Economic Planning. By the time of sale, Rwandex was worth $2.7m (about Frw1.4 billion). Government 51 per cent shareholding was valued over Frw576m. Struggling Rwandex, a company where government had a 51 per cent stake through Ocir Café and Ocir The, was not in very good books with Rwanda Revenue Authority. The tax body auditors once unearthed the company had accumulated Frw450 million in tax arrears. They had to clear the arrears before the company was fully privatised. The shutting down of Rwandex comes at a time Rwanda coffee sector is promising. In 2006, $54 million was earned from 26,000MT of the national total coffee production including 3,000MT of fully washed coffee beans. But the total production decreased in 2007, the country earned only $30.2., however it is expected to increase this year In 2010-11, the country targets a base of 40,000 tonnes for export and at least 70 per cent of it should be fully washed and 30 per cent ordinary coffee beans. The country has 134 coffee washing stations, which costs about Frw60 million for each to be set up. About, Frw300 million is spent on improving the quality of coffee among coffee farmers nationwide. Government established the agricultural grantee fund in the Rwanda Development Bank (BRD) to help potential local investors to secure loans where 50 per cent is paid by the government. Today, the cultivation of coffee involves more than 500,000 families and covers about 33,000 hectares, with approximately 80 million coffee plants.Ends