Industrial sector growth projected to improve despite slight drop in Q1

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Government is supporting SMEs engaged in processing to increase their contribution to GDP. / File.

the slight decline of the industrial sector growth during the first quarter of the year should not be cause for alarm; the development also reflects the general performance of the sector globally.

Annette Karenzi, the director general for industries and investments at the Ministry of Trade, Industry and East African Community Affairs, said there are many initiatives in place to bolster industrial growth going forward, adding that efforts to reduce the cost of production are ongoing.

Karenzi said the decline of one per cent in the general industrial sector growth during the reporting period is attributable to decline recorded in the mining and construction sectors. The official added that the mining sector was very volatile due to the influence of international commodity markets on prices “and fluctuation is therefore not uncommon”. Despite this, the mining sector has still grown by an average of 8 per cent over the past four quarters, she added.

“The construction sector’s drop comes after multiple years of consistent growth. A dip in performance can be linked to the consistent and foresighted planning that has led to construction demand being met in recent years,” she said. The first quarter was also the slowest performer for the construction sector in 2014 and 2015.

During the first three months of 2017, the manufacturing sector grew by 7 per cent which is consistent with the strong growth rate achieved in Q1 2016, figures released by the National Institute of Statistics of Rwanda (NSIR) last week indicate. This growth was driven by particularly strong growth in the chemicals, rubber and plastics products (28 per cent), food manufacturing (over 13 per cent) and textile production (9 per cent).

The sector contributed only 15 per cent of the national GDP. Overall, the sector contributed Rwf282 billion in the first quarter, slightly lower than Rwf285 billion during the fourth quarter of 2016.

However, the continued strong growth of the manufacturing sector, especially non-traditional manufacturing sectors such as textiles, highlights the benefits of government policy coming to fruition, according Karenzi.

Government and some local private sector players, including industrialists, signed partnership agreements two years ago under which export-oriented firms and manufacturers were to be supported to increase production capacity and quality and become competitive in the export market.

The central goal, according to Francois Kanimba, the Minister for Trade, Industry and East African Affairs, was to boost exports and locally-made production.

The ministry and the private sector also launched the Made-in-Rwanda campaign to promote consumption of local products and support industrial growth. Government emphasised the need to support local industries in the current financial year by introducing incentives for manufacturers to spur growth and attract more investors into the sector.

In an email interview with Business Times, Karenzi said all these initiatives are well designed to fast-track industrialisation and economic development.

The official added that the Made-in-Rwanda Policy announced recently will be the cornerstone of ensuring the continued development of the Rwandan manufacturing sector and industrial sector as a whole. “The policy addresses supply-side production bottlenecks across five core areas through continuous public awareness drives to help change mindset of Rwandans on the quality of products made locally, as well as addressing quality issues to make local goods more competitive, and putting in place mechanisms to help reduce the cost of production through numerous detailed mechanisms (including utilities, cost of finance, land and skills),” she said yesterday.

Others are to ensure strong linkages between large companies operating in country and the rest of the economy and developing sector-specific action plans to ensure priority sectors receive the policy attention necessary to thrive.

“This policy builds on the success of the Domestic Market Recapturing Strategy and will be a critical ingredient in facilitating the private sector to make high quality and affordable products,” Karenzi told Business Times.

Challenges persist

Despite the government initiatives to support the sector and improve the business environment, local manufacturers continue to complain about the high cost of production. “Utility bills are still high while the cost of imported raw materials is also prohibitive and affects profitability and competitiveness,” said Celestine Sebuhinja the UTEXRWA operations manager.

Benjamin Gasamagera, the Private Sector Federation chairman, said in a recent interview that more needs to be done to make local industrialists competitive.

While there is a general consensus that the local business environment has continued to improve, issues like shortage and high cost of packaging materials, logistical and transport challenges, still impact manufacturers negatively. Alphonse Kwizera, an expert at the Rwanda Association of Manufacturers, said despite the progress made so far, the association still receives complaints from members about high costs of electricity and other utility bills. “We shall, however, continue engaging the responsible government bodies and try to find a solution in terms of reducing the cost of industrialisation in the country,” he told Business Times.

Challenges to rapid industrialisation are mainly linked to inadequate energy supply and lack of raw materials. Inadequate power has been identified as the biggest challenge to the growth and performance of Rwanda’s industrial sector. A recent study by the Enabling Environments and Development Limited, indicated that high cost of production, including cost of raw materials, electricity, water and taxes were major constraints facing the country’s industrial sector.

Overall, electricity tops with 25 per cent, followed by raw materials at 21 per cent, transport with 18 per cent, taxes at 14 per cent and unfavourable regulations and shortage of skilled labour were at 11 per cent and 7 per cent, respectively.

More initiatives to support manufacturing sector

Through Rwanda Development Board (RDB) the government has been working hard to attract new investments and is supporting the existing companies to bolster the sector. The idea is to ensure provision of both fiscal and non-fiscal incentives to the sector, including export processing zone (EPZ) status, which allows zero corporate tax to manufacturing investors that meet the EPZ criteria.

Government has also been emphasising creation of provincial industrial parks for rural industrialisation, as well as supporting small-and-medium enterprises (SMEs) to support locally-made products.

Last year, government signed a cooperation agreement with the United Nations Industrial Development Organisation (UNIDO) to this effect. The five-year partnership deal is expected to contribute to Rwanda’s development programmes like Vision 2020 and the second Economic Development and Poverty Reduction Strategy (EDPRS II). It will mainly focus on five areas namely, industrial policy and support to special economic zones, agro-value addition and food processing, human capital for industrialisation and economic transformation, environment management, as well as energy development for productive use.