Invest in productive sectors to reduce trade deficit – experts

More investment in the productive sectors of the economy and increased consumer expenditure could play a big role in reducing the trade imbalance Rwanda experiences, Mohamed Mazimpaka, the director of Chamber of Commerce at the Private Sector Federation, has said.
A worker arranges flowers at a show. The government is looking to non-traditional exports like flowers to boost export earning and reduce trade deficit. The New Times / File phote
A worker arranges flowers at a show. The government is looking to non-traditional exports like flowers to boost export earning and reduce trade deficit. The New Times / File phote

More investment in the productive sectors of the economy and increased consumer expenditure could play a big role in reducing the trade imbalance Rwanda experiences, Mohamed Mazimpaka, the director of Chamber of Commerce at the Private Sector Federation, has said.

Mazimpaka noted in an interview with Business Times that manufacturers were not innovative enough and many sectors lacked technical expertise to enhance production. He said these lacking ingridients were vital to increase exports and foreign exchange receipts and hence, narrow the balance of payments.

“You cannot manufacture without the right skills, which must also be affordable… This is essential if the country is to produce quality and competitive products to give it an edge on the global market,” Mazimpaka said.

He said it was important for Rwanda to focus on processing to improve the country’s products value and earnings.

Exports rose to 27 per cent in 2012 compared to a more robust 56 per cent increase in 2011. This was mainly due to significant reduction in coffee export earnings caused by a decline in international coffee prices. Minerals and tourism as well as non-traditional exports such as flour, hides and skins, pyrethrum, were some of the major contributors to the country’s foreign exhange earnings over the period.

Imports were up 26 per cent, widening the trade deficit which, according to Mazimpaka, can only be reduced by investing in skills improvement to enhance production. “The government needs to invest more in technical schools to equip the labourforce with the required skills. Asian economies have greatly improved because they have more skilled manpower compared to other developing economies,” he said.

“Because we have no expertise to process our raw materials into finished products, we keep on importing goods from other countries. This widens our trade discrepancy.” 

Mazimpaka pointed out that the trade imbalance was responsible for weakening the franc against the US dollar and other major currencies. The Rwandan franc has shed more than 4 per cent since 2012.

“When the country imports most of the products it uses, the dollar or other major currencies gain value at the expense of the local unit. The result is that the franc and the economy remain shaky because of the high cost of the dollar,” he argued.

He said it was paramount to support bilateral trade, especially with East African Community countries, to reduce the country’s trade deficit.

According to last year’s Gross Domestic Product figures, exports dropped from Rwf23b in 2011 to Rwf21b in 2012. Equally, manufacturing receipts declined from Rwf151b in 2011 to Rwf147b last year.

Mazimpaka suggested that trade imbalances should be handled jointly as a region since all the other EAC members import more than they export.

“The need to specialise as a region will also help market our exports because it’s always difficult to penetrate international markets as a single country. Specialising in certain sectors as a region would increase our bargaining power on the international market. Besides, we could share expertise to boost our different countries’ productive sectors,” Mazimpaka said.

“Let us identify our potential instead of trying to do it all. Let’s focus on what we can do better and where we have a comparative advantage.” Mazimpaka said low purchasing power was another factor to the growing trade deficit.

“People are not spending...there is little money in circulation, which  in a way discourages investment that would boost the export sector,” he said.

Amina Rwakunda, a senior economist at the Ministry of Finance and Economic Planning, said diversification within the export sub-sector was key in reducing the import-export imbalance Rwanda faces.

“We are currently looking at other areas which can generate more exports such as horticulture to supplement the traditional export cash crops,” Rwakunda explained. She noted that the need to reduce imports was imperative as far as reducing trade deficit is concerned. “We are importing a lot, including things that can be locally made. why are we, for example, importing many of the construction materials and, yet they can be manufactured locally?” Rwakunda said. 

This year, some donors suspended aid leading to a reduction in public expenditure, hence slowing economic activity. This has affected domestic revenue collections, according to the finance ministry 2013/2014 budget framework report. 

“The suspension and delays in aid disbursements increased the current account deficit, which could not be fully financed by capital inflows. This in turn led to deterioration in the overall balance of payments and a loss of reserves, equivalent to about 0.6 months of prospective imports,” the report indicated.

According to the report, the government managed expenditure through a prioritisation policy to ensure macro-economic stability. While total projection on purchase of goods and services was Rwf67.2b, the actual turnover was Rwf63.4b, it added.

According to Robert Bapfakulera, the director of Roba General Merchants, controlled imports spur growth.

Bapfakulera, however, urged the government to focus on how to improve the exports sectors to reduce the trade deficit.

 

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