EDPRS: Walking the Talk : MINICOM at the center of promoting favorable trade and boost development
Since 2008, the Government of Rwanda started implementing its second generation Poverty Reduction Strategy, the EDPRS, covering the period 2008-2012 and representing the comprehensive development agenda of the nation in the medium-term, which is aligned to the Vision 2020 and the Millennium Development Goals (MDGs).
Sector Performance, 2008 to 2011
Overall economic growth has been impressive, hovering well above six per cent since 2005, and even hitting double digits in 2008. Growth has outpaced both the EAC and Sub-Saharan Africa average for the last 5 years. Growth by sector has varied, although industrial growth has exceeded overall growth in the economy in all years but 2009.
The Private Sector Development (PSD) has always been a cross-cutting issue, and that meant that in the last EDPRS, it was sometimes difficult to find a clear view on private sector development. As private sector development is so important for Rwanda, and as there are so many actors, it should be considered to mention it more explicitly in the next EDPRS. Also, in an overarching PSD strategy and/or the new EDPRS, it would be good to take a stance on the relevance of FDI for Rwanda and to define ways to attract (useful) Foreign Direct Investments (FDI).
Exports have risen considerably since 2007/08, but did experience a two-year decline following the global economic crisis that saw falling international demand for commodities. Total goods exports stood at US$ 305m in 2010/11, having grown at an average rate of 18.5% over five years. This was driven by Rwanda’s traditional exports of minerals, coffee and tea. Rwandan exports to the EAC were 6% of total exports in 2008 and 7.4% in 2010. Imports grew at 11% per annum between 2008 and 2010 and grew by 45% in 2011. Tourism revenues increased from US$ 186m in 2008 to US$ 227m in 2010/11.
Investment had declined marginally as a percentage of GDP since 2008, from 23.5% to 21.9%, but reached 25.1% in 2011. Private investment has also fallen from 13.1% to 10.9% of GDP. Rwanda has experienced volatile FDI inflows in recent years, with strong growth in 2008 and 2009 followed by a drop of 64.4% in 2010 to just $42 million. Investments were damaged by international demand shrinking in the aftermath of the global economic crisis. 2011 showed a favourable increase in FDI of 41.8%.
Vision 2020 targets the industrial sector reaching 26% of GDP and off-farm employment of 1.4 million. Currently it is estimated that industry contributes around 14% of GDP when adjustments are considered or 21% with adjustments excluded. The Establishment Census estimates off-farm employments of approximately 364,000. To achieve these goals, the industrial sector must outstrip services and agriculture, and grow at a rate of 12% annually. The industrial sector grew by 12.7% in the 2010/11 fiscal year, following growth of just 1.2% in 2009/10. Before this the industrial sector grew at 10.4% in both 2007/08 and 2008/09.
Rwanda has identified the importance of SME development as a fundamental driver of broad-based economic growth, led by the private sector and employment generating. The vast majority of enterprises within Rwanda are classified as micro in size according to the number of employees, with just 0.5% of all establishments being classified as medium or large.
Rwandan enterprises employ a total of 281,946 workers, with micro enterprises accounting for 92.6% of this.
The sector performed strongly according to EDPRS indicators over the 2008-11 period, with green scores in all but three instances.
The Index on Business Environment grew from 36% in 2006 to 60% in 2010/2011and Rwanda moved from 139th rank in 2008 to 45 in 2012. The Investor Perception Index increased from 70.5% in 2009/10, the first year it was published, to 72.2% in 2010/11.
Investments as a percentage of GDP grew from 16% in 2006 to 22% in 2011/11. Export revenues for goods increased from 121 $US Millions in 2006 to 305 $US Millions in 2010/2011 whereas tourism revenues registered the highest increase from 42 $US Millions in 2006 to 227 $US Millions in 2010/2011.
The coordination of activities and formation of strong communication channels has been an on-going process as RDB and other new or restructured institutions (e.g. NAEB, RCA, RBS) develop and expand in coverage. The policy environment has been dynamic over the 2008 to 2011 period with numerous new policies and strategies being developed which assign roles and actions to relevant implementing stakeholders within the sector, although the extent to which these are consolidated into the relevant stakeholder action plans could be improved.
An overarching institutional framework and sector strategy are essential in this regard. This will become ever more important as the regional integration process intensifies. There are already EAC laws, policies and strategies that affect Rwanda’s PSD.
In 2010/11 the Doing Business ranking (from which the Index is calculated) rose to 45th.
The electronic single window (ESW) project for trade facilitation was initiated. RRA signed a contract with UNCTAD to supply the electronic platform, develop the system and train RRA staff. A pilot was completed in early 2012 with 4 institutions (RDB, MINISANTE, MAGERWA, RBS). RRA has rolled out a campaign to sensitise the business community on the use of the ESW.
Growth in exports
Export growth was led by tourism, tea, coffee and mining sectors, as well as strong growth of re-exports. Rwanda’s exports were mainly destined to the European Union, EAC and COMESA regions.
At the same time there was an impressive rapid growth of Rwanda’s Trade balance, from US$282 million in 2003 to about US$1.3 billion in 2010. Efforts to both expand exports and reduce or substitute targeted imports through competitive measures can reduce the trade deficit, as donor aid and international transfers, which currently subsidize this deficit, are being reduced.
Diversification of exports
Rwanda depends on volatile commodity products within its tea, coffee and mineral industries, for the vast majority of its export revenues. Over-dependence on commodities for exports can contribute to lower long-term growth.
While Rwanda’s coffee, tea and tourism strategies focus on moving towards more targeted, high-end market niches, progress is not complete and a global downturn may impact these specialty markets as well.
However, Rwanda targets to escape the “commodity trap” by diversifying its exports into targeted products and services, innovating and increasing productivity, and serving higher margin, niche markets. The global market is becoming increasingly complex, with value chains stretching across continents. By moving downstream, closer to end consumers, Rwandan firms can capture larger product margins and learn better from customers.
Past Export Promotion activities have been uncoordinated and of low impact. The government, through the RDB is becoming more coordinated with export promotion activities. The National Export Strategy addresses previous implementation weaknesses and suggests a systematic and coordinated approach to export development, through the RDB.
There is extensive diversification of non-traditional export sectors of Business Process Outsourcing and Horticulture (including agro-processing); and potentially high-growth export sectors of home décor and fashion (including, handicrafts, textiles and silk) and greenfield industries (such as cloud computing, pharmaceuticals, biotech and pyrethrum).
The National Export Strategy
Rwanda has crafted a National Export Strategy which provides for the country with choices and actions to boost key exports. The strategy complements existing strategies and policies and provides a national level coordination. The Strategy projects export revenues to rise from $336m in 2009 to $890 million by 2015, requiring investment amounting to $180.8m over the five-year period.
The 5-year Strategy is in alignment with the National Trade Policy as well as the Industrial Policy and Master Plan. The National Export Strategy also identifies a few key new opportunities which Rwanda should take advantage of in order to plan its future position in the global market place. These are generally aligned to the Industrial Policy, such as biotech, pharmaceuticals and cloud computing.
Improving business environment
Rwanda has made significant improvements in its business environment, as recognized in the World Bank Doing Business ranking. The World Economic Forum’s annual Global Competitiveness Report ranked Rwanda as the 5th most competitive market in sub-Saharan Africa and among the world’s best. Fitch Ratings recently upgraded Rwanda to a “B,” citing Rwanda’s “uninterrupted” period of economic growth and significant improvement of its business environment.
In Africa, Rwanda is the fourth easiest place to do business after Mauritius, South Africa and Botswana. In the East African region, the country ranks the easiest place to do business. RDB introduced more new radical business reforms to boost the private sector. The reforms deal with construction permits, trade across borders, free online registration, establishment of credit reference bureau and the fee of Rwf15,000 for physical registration within 6 hours among others such as amendment of company law and registering property.
The Business Development Fund (BDF)
In the framework of implementing the SME policy, the Ministry of Trade and Industry has signed a Memorandum of Understanding with BDF to work together in supporting the struggling SMEs and promote an entrepreneurial spirit across the country.
The direct target market are commercial banks and microfinance institutions where the end user will be cooperatives, companies and individuals. The Guarantee funds and matching grant are given to banks and Microfinance Institutions so that the latter can grant loans to their customers.
BDF has projects totaling to Rwf5.4 billion with guarantee loans that were granted to 90 SMEs from different banks. The most SMEs and agricultural projects financed are located in rural areas with remarkable gaps in capacities and skills. BDF has started capacity building and technical assistance initiatives that are tailor made to the need of specific agricultural and livelihood projects.
The rationale behind this technical assistance is that high quality products and services of SMEs are needed and promoters too need to be connected to the market so that they can sell their products and services at good price, increase their incomes and bring more economic activities to their communities hence creating jobs and improving lives of people.
The Agricultural Guarantee Fund will cover productive projects developed in agricultural value chain. The SME Guarantee Fund guarantees loans made by participating financial institutions with the framework of promoting SMEs in Rwanda. It intervenes when borrowers do not have sufficient collaterals to cover the risks.
Coffee farmers and cooperatives are to benefit from the agricultural fund which also targets agro-processing industries that should be able to produce for export and improve the country’s balance of payments.
Eligible beneficiaries are: individuals, companies, associations, cooperatives, microfinance institutions and profit-oriented nongovernmental organisations. The maximum amount guaranteed by the fund is limited to Rwf150.000.000.
Rwanda also aims to increase its exports through trade fairs. By participating in trade fairs Rwanda now aims to penetrate world and regional markets. The annual Rwanda International Trade Fair held in Kigali is another way of promoting local products and services.
Promoting local trade through standards
Rwandan goods and services produced in line with acceptable standards and so competitive in both regional and international trade. Rwanda Bureau of Standards defines and possesses national standards to ensure quality of the products and services. Production of quality products and services creates demand for them hence leading to the growth of businesses as they earn profit to expand.
A lot is happening as far as standards are concerned. For example, in the framework to discuss with countrywide stakeholders involved in crops marketing chain, the Ministry recently met rice processing industries, rice selling co-operatives and farmers to understand the key challenges to be addressed in short, medium and long term.
There’s need for these stakeholders to know the new instructions to harmonise rice processing and trading in the country. The new guidelines require the rice supply chain from traders, rice processors, distributors, wholesalers and retailers to hold a valid certificate of registration issued by the Rwanda Development Board (RDB) and an authorized permit issued by MINICOM.
Under the new arrangement, rice farmers and traders are also required to keep sales and purchase records, acquire warehouses for wholesalers, including subjecting their rice to quality control by the Rwanda Bureau of Standards. Additionally, processors must also adopt a new standardized approach of packaging in bags of smaller quantities ranging from two to 25 kgs and 50kgs. These requirements are meant to meet export standards that prohibit vices like duplication.
Government is putting additional efforts in rice farming. Packaging in smaller bags will address the problem of duplication. According to the guidelines, imported rice shall hold a valid certificate of origin. The proposal is expected to ensure quality and quantity rice, stabilize prices and increase profits across the supply chain. The government also plans to construct buffer stocks for excess produce which would be sold during scarcity to stabilize prices.
MINICOM provides facilities to the local government to implement some activities considered as priorities of the private sector through earmarked transfers. MINICOM as the lead of the sector involves in the setting up of priorities, deliverables and timelines for implementation at the district level and emphasizes on the monitoring and evaluation and reporting frameworks.
Business Development Centres have also been established by PSF and RDB to offer business development Services like business plan writing, accounting skills, management skills…and provide ICT facilities to local communities. The results of BDCs have been mixed and a new approach of privatising them is ongoing at RDB.
Saving and Credit Cooperatives (SACCOs) have been established at each sector in order to increase access to finance in local areas and enhance the culture of savings and investments.
Recently MINALOC developed an Integrated Development Program with the aim of operationalizing the link between central government and local government.
Skills and Human Capacity
Over the EDPRS period the human capacity of Government within the PSD sector has greatly improved with the introduction of new institutions. RDB, MINEAC, RCA, RBS and NAEB are all relatively new institutions and have grown in capacity, targeting themselves towards key deliverables. Currently MINICOM has undergone a restructuring whereby there are three Directorates General (Trade & Investment, Industry & SME development and Planning, M & E), and RDB has also refocused its mandate with more efforts on exports and investment promotion.
NAEB now provides a specialised agency for promotion of agricultural exports, focusing on value addition and high growth opportunities. A Single Project Implementation Unit has been established in MINICOM to streamline management of both internally and externally funded projects.