Rwanda’s goal of achieving middle-income status by 2020 is proving elusive, but efforts to increase economic competitiveness are paying off, as its minister of trade and industry explains to African Business.
For a small, landlocked country in East Africa lacking in natural resources and competitive industries, Rwanda has long been punching above its weight, with average growth of 7.9% per year between 1995 and 2014, according to government figures.
Established in 2000, the government’s Rwanda Vision 2020 policy document includes provisions to nurture the private sector, build infrastructure and boost the knowledge economy.
Progress has been made, but the country remains poor – at $710 per capita its gross national income still falls well short of qualifying for the middle-income status the country sought to acquire by 2020.
The country’s minister of trade and industry, Soraya Hakuziyaremye, spoke to African Business about how the country is focusing efforts on building a vigorous export sector in a bid to bring down the trade deficit, diversify the economy and sustain its growth momentum.
Made in Rwanda
Last year the Rwandan economy grew at 7.2%, according to the IMF, backed by strong performances in sectors including trade and manufacturing.
Both have benefited from the country’s Made In Rwanda policy, implemented in 2015 to enhance industrialisation.
A key goal of the strategy is to boost the capacity to produce internationally competitive products by adding value to traditional goods and creating new value chains for others.
This, it is hoped, will move Rwanda’s economy away from its agrarian roots.
The government initially targeted the textile, garment and leather sub-sectors but now includes value chains like agro-processing, horticulture and construction materials.
The aim is to ramp up exports by investing in and enabling local manufacturing, which in turn is intended to balance the import bill of a small country lacking in natural resources.
Yet the export drive has sparked tensions with established trade partners.
Last year, in an effort to create favourable market conditions for local producers, the government hiked tariffs on imports of used US clothing and footwear.
In retaliation, Washington suspended the duty-free access to the US market enjoyed by Rwandan textile manufacturers under the African Growth and Opportunity Act (AGOA).
While Hakuziyaremye attempts to downplay the disagreement, she also reveals that local manufacturers are being encouraged to seek new markets in a bid to mitigate the blow.
“We have two local textile manufacturers, and they’ve both been able to find other markets in Europe to sell to,” she says.
Rwanda’s tariffs remain in place, and the refusal to budge reflects the government’s commitment to the Made in Rwanda policy, despite Washington’s evident disapproval and the threat it poses to other Rwandan exporters that have made inroads into the US.
The government insists its strategy is the right one.
Since Made in Rwanda was launched, the country’s overall trade deficit has decreased by 36% as exports climbed to $944m in 2017, up from $559m two years prior.
The government hopes to further encourage this trend by working closely with export-focused companies and offering attractive incentives for international and local firms looking to do business.
“We are providing financial assistance through an export facility to support our exporters,” says Hakuziyaremye.
“They can conduct market studies [and] receive financial support and subsidised rates on imports, which has really helped to increase the country’s exports.”
One example is Africa Improved Foods, a consumer goods company entering Rwanda in 2016 through a joint partnership with the government, which has begun to produce and export nutritious foodstuffs to the surrounding East African region.
Global trading partners
Along with new and improved products, Rwanda’s portfolio of global trading partners is swelling.
France has recently upped its commitment to Rwanda, following the thawing of diplomatic relations that had been frosty for many years.
French support was important in securing the election of Rwanda’s minister of foreign affairs and cooperation, Louise Mushikiwabo, as secretary general of the Organisation International de la Francophonie, the international organisation that brings together French-speaking countries.
Since that development, Hakuziyaremye says that exports to France have risen in goods ranging from tea and coffee to niobium, a rare metal used in items such as piping, airplane parts and MRI machines.
Niobium is traditionally exported to China and the US, but promising new markets include Thailand, Germany, Spain and France.
International mining processing firm Power Resources Group began building Rwanda’s first tantalum and niobium factory in 2017 at an estimated cost of $16m.
Another developing partner is the United Arab Emirates (UAE).
Penning an opinion piece in The New Times daily newspaper in March 2018, Sheikh Abdullah bin Zayed, the UAE’s minister of foreign affairs wrote:
“Looking forward, the UAE sees great potential to further strengthen its cooperation with Rwanda by continuing to make progress over a range of economic and investment areas, including agriculture, education, infrastructure, and tourism.”
According to Zayed, between 2014 and 2016, non-oil bilateral trade rose from $30m to $200m.
With the recent signing of bilateral agreements protecting investments and avoiding double taxation this figure is expected to grow.
Rwanda’s exports to the UAE more than doubled in a year, rising to $87m in 2016 from just $40m the year before, according to the United Nations Comtrade database. Pearls, precious stones, metals and coins made up 92% of these exports.
African trading partners
Yet exports outside Africa tell only part of Rwanda’s export story.
Neighbouring Democratic Republic of Congo (DRC) is the country’s largest trading partner according to Hakuziyaremye.
According to World Integrated Trade Solution (WITS) data, Kigali exported $198m to Congo in 2016, much of that construction materials including iron, steel and cement.
Rwanda’s large and unwieldy neighbour is a key selling point for investors looking to invest in the country.
With Rwanda’s population at only around 12m, the 80m potential customers who suffer from a lack of services and goods in the DRC are an enormous attraction for businesses.
Rwanda’s relative ease of doing business and attractive macroeconomic conditions make the country a comfortable base from which to expand and export into bigger but less predictable regional markets.
Inhabitants of the eastern regions of the DRC “make their purchases in Rwanda and not in Kinshasa,” says Hakuziyaremye.
The milling industry, for example, raked in $33.8m according to Rwanda’s Central Bank Governor John Rwangombwa, due to increased production and greater demand from DRC.
Hakuziyaremye describes Rwanda’s entry into the East African Community (EAC) in 2007 as a “game changer”.
The regional bloc gives Rwanda greater access to markets and boosts the country’s credentials as an investment location.
While the recent meeting of EAC heads of state in Tanzania exposed political tensions between Rwanda and both Burundi and Uganda, President Paul Kagame’s assumption of the chairmanship of the bloc gives Rwanda renewed leverage.
Tied into Rwanda’s greater export reach is an ambitious strategy to revitalise the ailing national carrier, RwandAir.
Rwanda announced plans to fly to New York via Ghana shortly after Kenya Airways had unveiled its plans to fly directly across the Atlantic Ocean from Nairobi.
While many are critical of the government investing heavily in a sector that is infamously tough and rarely profitable – particularly in Africa – Hakuziyaremye argues RwandAir will benefit the economy at large by greasing the wheels of tourism, trade and investment.
“We have been leveraging on our national airline, which now flies to Brazzaville, Libreville, Abidjan and Dakar, to make sure we can reach markets; and then positioning ourselves as a country to go to, whether you want to reach East Africa or Central Africa,” she says.
Despite all the efforts at promoting local manufacturing, an overreliance on imported materials and expensive technology continues to put the brakes on the Rwandan success story.
Notwithstanding a significant contraction in the trade deficit, Rwanda’s imports of goods and services were equivalent to 32% of GDP in 2017, according to WITS data.
Rwanda imports food products, machinery and equipment, construction materials, medication, petroleum products and fertiliser, pushing up the price of local production.
Imports are mainly from China, Uganda, Kenya, India and the UAE, with most goods coming through the Kenyan port of Mombasa.
A deficit exists with the majority of these partners. The UAE, for instance, exports approximately $20m more of goods to Rwanda than it imports.
“The cost of raw materials for our industries is one of the problems.
“We don’t have a lot of natural resources so on the import side we are penalised,” says Hakuziyaremye.
The other setback, argues Hakuziyaremye, is the high cost of borrowing on the global market.
Rwanda’s banks, SMEs and the government are funded at costs associated with lending in less established markets.
But Rwanda can negotiate better terms, she argues.
One way to lessen the burden is by reducing Rwanda’s heavy dependence on foreign aid as a post-conflict state.
At the beginning of the century, 86% of Rwanda’s budget was backed by foreign money.
The government is expecting 68% of the 2018-19 budget to be financed by domestic resources – including receipts from the manufacturing sector – with the rest secured through grants and loans.