10 July 2012

Rwanda: Informal Trade Main Driver of Exports

The country's exports receipts rose significantly in the first five months of this year partly driven by a surge in informal cross-border trade.

Statistics from the central bank show that trade along Rwanda's borders increased two-fold from January to May this year, a boost to the country's efforts to reduce its huge trade deficit.

Informal cross border exports increased by 77.6 per cent to US$42.32m, from US$23.83m, while informal imports increased slightly by 1.8 per cent from $8.27m to $8.41m, strengthening the country's trade balance with neighbouring countries.

While overall imports (both formal and informal) outpaced exports, which led to a trade deficit, the country's informal trade balance recorded a surplus of US$33.91m.

"Our exports have significantly increased by 33.5 per cent in terms of value and 73.7 per cent in terms of volumes," central bank Governor, Amb. Claver Gatete, said in a news briefing on Friday following the monetary policy committee meeting.

On the whole, exports hit US$$165m in the first five months of this year, a slow pace of growth compared to 40.5 per cent recorded at the same period last year.

Rwanda's main exports include coffee, tea, cassiterite, coltan, wolfram, hides and skins, and pyrethrum.

While coffee and wolfram exports increased by 59.5 per cent and 292.5 per cent in value, respectively, tea and cassiterite slid by 9.4 per cent and 32 per cent, in that order.

Although the country's import bill continues to soar, the central bank says that the inflation rate related to imports slowed at the period under review.

Imports increased by 32.3 per cent to US$$690.5m and rose by 24.3 per cent to US$621.6m in volume.

"This is quite significant compared to the amount of imports vis-à-vis exports," Gatete said.

The import bill for consumer goods grew by 23.7 per cent, capital goods 33.7 per cent, intermediary goods 27.4 per cent as energy and lubricants imports increased by 15.3 per cent.

"Capital goods constitute 28.4 per cent of all imports, capital and intermediary goods contribute to the growth of the economy. The only component that causes us problem is the consumer goods, which do not help in the growth of the economy," Gatete explained.

"Having an increase in imports that contribute to the growth the economy in terms of production is positive and shows that people have confidence in our economy,"

The Governor says the economy is projected to grow by 7.7 per cent this year on the back of improved domestic economic activity coupled with the stabilising global economic situation.

Agriculture is expected to grow by 6.4 per cent while the industrial and services sectors are projected to grow by 11.3 per cent and 8.3 per cent, respectively.

In a similar development, the central bank maintained its key repo rate-at which it lends to commercial banks-at 7.5 percent, citing easing of inflationary pressures in the region and signs of global economic stabilisation. By the end of last month, annual headline inflation increased to 8.32 per cent from 6.95 per cent in April.

Gatete attributed the high inflation to heavy rains that affected food prices especially vegetables that constitute 34 per cent of the food index.

Experts say that progressive easing of regional inflation will have a significant impact on domestic inflation. Inflation rates have been slowing down in the EAC member countries where Rwanda imports majority its goods.

In Uganda, the inflation rate declined to 18.6 per cent in June from 27 per cent in December last year. Kenya's inflation rate dropped from 18.9 per cent in December to 10.2 per cent in June this year and Tanzania from 19.2 per cent to 18.2 per cent. However, the situation is different in Burundi where it increased to 22 per cent from 14 per cent in December.

"(Inflationary) pressures from (the) region is coming down and this is giving us some comfort that the imported inflation will also come down," Gatete said.

According to IMF projections as of April 2012, the world economy is expected to grow by 3.5 per cent in 2012 driven by the United States, whose economy is expected to grow by 2.1 per cent while the EU is set to decline by 0.3 per cent.

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