Rwanda's exports have increased significantly over recent years. The Rwanda Economic Update indicates that exports increased from $400 million in 2007 to $1.6 billion in 2016. Non-traditional exports have emerged as an important driver of growth, thus laying the foundation for export-led development in Rwanda.
Rwanda continues to promote export of semi-processed or finished products and more sophisticated niche products compared to export of raw materials and commodity products. The move is driven by the development of sector strategies, human capital improvements, and public-private discourse.
Theories of trade indicate that trade is the engine of growth. Over last few years after globalisation, developing countries including Rwanda are trying to enhance economic growth through promotion of exports. However, most developing countries are still faced with the problem of export of primary products since they are dominantly dependent on the agriculture sector. They also have few tradable commodities.
Unfortunately, dependence on a few primary commodity exports represents a dangerous combination for developing countries, making them vulnerable to commodity price shocks and weather changes.
Therefore, developing countries need to structural transformation from agricultural to manufacturing sector to gain from external trade. In their pursuit of structural transformation, developing countries should seek a more diversified economic structure, including developing a strong manufacturing sector to create jobs and promote innovation in areas of their competitive advantage.
Case for product diversfication in Rwanda
Note that product diversification for trade has gained importance over last two decades since globalisation. All countries are trying to take advantage of local resources and uniqueness for realising comparative cost advantage through export diversification.
Again, innovation in product diversification is helping countries in enhancing their market share in global trade.
Rwanda's trade policy is concentrating on harnessing the country's comparative cost advantage through regional and international trade. Diversification, innovation, promotion of entrepreneurship are some of strategies used by government to boost the export sector. The Made-in-Rwanda initiative and other home-grown solutions are also contributing towards same.
Increased diversification of commodity exports, and growth in the numbers of high-value commodity exports are some of the strategies used in the move toward increasing the country export base and volumes.
It is important to understand that diversification in manufacturing holds key to improvement in trade balance. So, developing countries need to shift focus from agricultural to diversified manufacturing exports.
Typically, diversification in East and South Asia has been accompanied by a rapid decline in the share of agricultural exports, from 40 per cent in 1965-1970, to 15 per cent in 2006-2010, along with a steady increase of the manufacturing sector, from 17 per cent in 1965-1970 to 66 per cent during the 2006-2010 period. The African experience has been different from that of East and South Asian countries.
In Africa, the sizable shift away from agricultural exports has been met with only a small rise in the share of manufacturing exports.
Apart from diversification, other strategies, like customisation of manufacturing exports as per needs of trading partners and qualitative improvement in trade, can help developing countries increase exports.
With the rapid worldwide acceptance of ISO 9000 certification, services and processes around the world are being standardised, assuring the customer of a high level of quality.
Therefore, developing countries should take advantage of reduction in trade barriers to upgrade quality standards to be competitive in global trade. However, improving quality and observation of global standards are a must for countries seeking to improve their exports.
In addition, trading with countries with different language, culture and time zones require localisation of all components of export product for a particular target market. These components include user interface (UI), the help system, printed or online documentation, websites, advertise campaigns, and any other marketing communication materials for the product.
For Rwanda to attain sustainable economic growth, it requires a strong, innovative and competitive export sector. Though ther country has made gains over the past few years, there is lot of potential for development in export sector.
Again structural transformation in trade through promotion of manufacturing exports across borders will further boost export sector. This will also help in realizing comparative cost advantage and economies of scale in export production.
Through export product diversification, improving quality and customisation of exports Rwanda can further strengthen export sector and spur volumes and revenues from international trade.
The writer is an economist and consultant based in Kigali.