20 June 2012

Rwanda Sets New Ambitious Targets for the Export Sector

Rwanda's export sector will have to double its efforts in the next decade in order to meet its revised targets as the country continues to lay strategies to reduce heavy spending on imports in order to sustain growth.

The sector is expected to grow at an average rate of 28%-30% annually compared to the initial projection of 15% detailed in Vision 2020.

The "very ambitious targets" says Minister of Trade and Industry François Kanimba may not be achieved this year as export earnings are already targeted to rise by 15% compared to last year's $740 million which also include tourism receipts.

"We may not achieve these targets in 2012 because there are a number of basic investments in the infrastructure which need to be developed upfront to be able to achieve such performance in medium to longer term," says Mr. Kanimba.

But Kanimba is right. The projected slowdown is attributed to the fears that commodity prices could go down on the international market thus reducing the value of Rwanda's major export commodities-coffee, tea and minerals--which generate over 80% of the country's export earnings.

The changing global oil and food prices as well as the debt crisis in the eurozone, especially in the economies of Greece, Spain and Italy, are expected to have a negative impact on the global economy.

In addition to the revision of export numbers, a cabinet meeting on May 25 also approved new targets for Vision 2020 across a number of other sectors. The revisions were based on the fact that some of the previous targets had been achieved while others were about to be achieved even before the year 2020.

The government, for instance, increased the income per capita target to an ambitious $1,240(Rwf740, 280) by 2020 from the initial projection of US$900(Rwf537, 300).

But Rwanda has been witnessing a gradual rise on this indicator, which it moved to an estimated $540(Rwf322, 380) in 2010 from $333(198,801) in 2006, even though the population has also been increasing at a rate above 2.5% annually.

The per capita income final figure is arrived at when the total value of goods and services produced within the economy or Gross Domestic Product (GDP) is divided by the total number of the population of the country.

With Rwanda's new income projections, the country expects to move from the category of low-income countries to a well-off club of lower-middle income countries.

Low income countries, says the World Bank, have a National Gross Income (GNI) per head of $1,005 or less, while lower-middle countries where Rwanda seeks to be, have a GNI per head of $1,006 to $3,975.

Whereas it is easier to project such ambitious targets based on the country's thirst for development, achieving them often requires a lot of hard work and it looks harder for Rwanda to attain the new targets when the current statistics are considered. To achieve the new targets, says the draft Budget Framework Paper 2012/2015, Rwanda "will need to do many things differently."

Rwanda will be required to grow at average rate of 11.5% annually until 2020. This projection is much higher than the previous target of an average rate of 8.5% annually. This year alone, Rwanda's economy is expected to grow at 7.7%, which is lower than the 11.5% ten year target and again much slower than 8.6% achieved last year.

Exports as a solution?

Rwanda is a net importer of goods from other member countries of the East African Community (EAC), especially Kenya and Uganda. It imports little from Tanzania and Burundi. Rwanda's exports to these countries are gradually increasing but they are not enough to help the country to realize the set targets.

At the same time, Rwanda still solely depends on traditional export commodities-coffee, tea and minerals whose value is frequently determined by the global economic situation. For instance in 2009, Rwanda's export earnings were reduced mainly because coffee prices went down and tea production declined. Mineral export receipts went down significantly and tourism suffered the same incident.

The consequence was slow economic growth from around 11.6% in 2008 to less than 7% in 2009. This decline was blamed on the global financial crisis which reduced demand for these commodities thus reducing Rwanda's foreign exchange earnings from the export sector. It took 2010 and 2011 to recover. But what is worrying is that as exports grow slowly, imports grow larger.

From 2009, the difference between exports and imports of goods has been rising and it had reached $1.099 billion in 2011 from $786.7 million in 2010 and $762 million in 2009. This means that Rwanda continues to spend more of its currency to buy foreign currencies in order to be able to buy goods in external markets.

With this in mind, Rwanda thought that the export sector could be turned around but it needed a roadmap to dissect a clear direction.

Therefore, the 2010 national retreat held at Kivu Serena hotel in western Rwanda demanded that a National Export Strategy (NES) be developed "to guarantee continued and steady growth".

The NES was also to be aligned with Vision 2020 and the Economic Development and Poverty Reduction Strategy (EDPRS) whose implementation started in 2008 and will close end of this year.

During the retreat, Rwanda Development Board (RDB) was tasked to develop a five year strategy as a "comprehensive and coordinated approach to driving export growth." The strategy would drive export capacity, sophistication and revenues, while taking into account the many inter-related cross-cutting components that build trade competitiveness.

The NES was developed and approved by the cabinet in April 2011 according to the ministry of Trade and Industry (MINICOM).

The strategy seeks to attain seven major outcomes that include increasing export revenues through quantity and value addition as well as export diversification; creating a favorable business environment that encourages the formalization of export-related industries and increasing the number of export firms.

The NES seeks to improve the understanding of international standards, requirements, and opportunities as well as to encourage institutional and public-private coordination around key market-led export initiatives, while maintaining a flexible export strategy, based on continued monitoring and evaluation.

The five year strategy also aims to increase the export-related number of jobs, particularly with high living standards and to improve and leverage human capital, innovation, and technology investments, including the development of competitive mindsets across key export sectors.

Lastly, it seeks to support broader areas of social development such as gender equality, youth development, environmental sustainability and inclusion of vulnerable groups.

The NES also identified priory areas to be developed and strengthened in order to increase the export base as well as revenues. These areas include tourism, tea and coffee, minerals and mining services, Business Process Outsourcing (BPO), Horticulture, Home Décor and fashion as well as Greenfield Industries such as Dairy, Hides and Skins, Floriculture and Silk as well as Pharmacy.

But since the approval of the NES, Rwanda is still doing things the same way it was doing them before the strategy.

Meanwhile, two new projects--one funded by the World Bank and another one funded by the International Fund for Agricultural Development (IFAD)--have been launched to focus mainly on capacity building and production increase in the areas of horticulture and tourism. The World Bank funded project-- Governance for Competitiveness Technical Assistance Project (G4C) was launched on June 11. "This project is one of the key ingredients which will help Rwanda to achieve higher performance in the coming years," says Minister Kanimba.

With the total funding of $5 million to be spent in three years, $2.6 million will be spent on implementing the export strategy. The project mainly targets horticulture with a major focus on increasing the volumes of fruits and vegetables so that Rwanda can export more of these food commodities.

In this regard, the project seeks to result into a 5% increase in the volume of fruits and vegetables from the current 35,000 metric tons annually.

The project, according to the Director General of the National Agricultural Export Board (NAEB) Alex Kanyankole, is timely because it will help Rwanda to increase the number of producers in these areas.

It will also help them to produce commodities that meet the standards in the targeted markets especially the European markets.

Rwanda currently sells most of its fresh produce in three markets---local, regional through cross border trade and international markets. Most of the country's fresh produce sold outside the country goes into the regional markets while little goes in some European markets such as Belgium and Holland.

Kanyankole says that the horticulture sector earned around $20 million worth of exports last year but it faces major limiting factors. He says some of problems include sustaining the markets with commodities that meet the required standards as well as the high cost of air cargo transport that makes Rwandan products uncompetitive.

Christine Murebwayire, an exporter of Rwandan horticultural products and the Vice Chairperson of the Rwanda Horticulture Inter-professional Organization (RHIO)--an advocate body for the farmers--says that producers lack sufficient knowledge on farming, harvesting and handling of their fresh produce which affects the quality of the produce.

She says that they also lack market information and marketing skills in order to sell their produce. But she is optimistic that through the organization, at least 8,000 farmers who are also its members will benefit from the World Bank funded project in the areas where they need capacity to ensure high quality production. They will also learn how to market and sell their produce.

But access to finance in order to invest in production, preparation and transportation of the produce remains a major liming factor to the growth of the horticultural sector. Moreover, Murebwayire says that the cost of air cargo transport remains high compared to what horticultural exporters in Kenya, Uganda and Tanzania pay.

To airlift a kilogram of fresh produce, she says Rwandan exporters pay between $2 and $2.5 while in regional countries exporters are charged between $0.7 and $1 per kilo of fresh produce to fly it to the European markets.

Kanyankole says that although the airlines flying to and out of Kigali are increasing, which means that their capacity to fly Rwandan fresh produce is also increasing; the impact is still small especially on the price. But some are willing to lower the cost.

However, he says that the national carrier RwandAir has promised to start a cargo flight in the near future which could come to the rescue of the Rwandan fresh produce exporters. But Rwanda will also have to increase the volumes of fresh produce in order to make sense for the airlines to invest in the cargo flights to and from Kigali.

Kanyankole says that Rwanda is embarking on local production of expensive fruits such as apples and oranges, which are mainly imported.

For the apples, he says production will take place in the country's coldest areas in the districts such as Musanze in the north, Ngororero and Nyabihu in the west. This will help to reduce the import bill.

As a mean to expand the export base, Kanimba says that International Growth Center (IGC) has been conducting a research on what Rwanda is capable of exporting looking at the manufactured goods and services.

"Interestingly, explains Kanimba, "they came up with a significant number of manufacturing companies in Rwanda particularly those that came in recently targeting regional markets like DRC and Burundi." He says that the research shows that "a very significant manufacturing is taking place" and this could increase Rwanda's export potential.

In the tourism sector, the project will ensure that the tourism master plan is implemented with new destinations as well as promotion of cultural tourism and conference tourism. The project will aim at increasing the number of visitors to Rwanda and it will support activities that target new markets and consolidate efforts in the existing ones.

The head of tourism and conservation department at the Rwanda Development Board Rica Rwigamba says that more efforts will be directed in packaging and marketing the new and existing tourism products. Tourism continues to lead other export sectors in terms of reaping the most foreign currencies. This year alone, the target is $276 million compared to $251 million last year.

Rwanda targets the U.S, with the goal to increase the number of Americans visiting the country. It also targets to increase visitors from Europe with the new target set on Russians. Asia is also on the list with the focus on Chinese and Japanese tourists. The number of Asian tourists to Rwanda remains small.

Meanwhile, the IFAD funded project termed as Rural Income Through Exports (PRICE) was launched in the first quarter of the year to help increase the production of coffee, tea and horticultural products. It also has a financing component that provides a loan guarantee of 50% to the producer to facilitate them to secure loans in the lending institutions.

The $56 million project is also expected to help Rwanda increase its export base as well as quality and quantity. Murebwayire says that the two projects will greatly benefit the horticulture sector.

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