The Private Sector through their umbrella organization Private Sector Federation (PSF) raised the issue of the need to reduce the high transport costs faced by the business community during last weeks Presidential Annual Round Table.
According to the private sector, the country’s road and air transport costs remain the highest in the region due to the long distance from the nearest sea port- factors that negatively affect the price of goods and services in the country.
In a study carried out by the PSF in 2008 across 952 companies, over 80 percent of the respondents cited transport as the major challenge to doing business.
It is in this regard that the private sector requested for a review of the imposition of Value Added Tax (VAT), on international transport service.
According to the business community, this puts them at a disadvantage considering that foreign registered transporters have been relieved of VAT and can afford to charge less for transport, out-competing locally registered transporters.
A related issue to transport is the cost of fuel. The private sector finds it the highest in the region given the tax component that favors heavy transporters of fuel from outside Rwanda. This is leading to declining sales of petroleum products in Rwanda.
Apparently Rwanda’s transport are costs also fuelled by Non-Tariff Barriers (NTB’s) such as customs delays, road blocks and bond guarantees.
According to a study done by PSF on NTB’s along the Northern Corridor, over 57 percent of the journey is spent stopping compared to 43 percent driving time; the barriers are notably border stops especially Malaba, on Uganda /Kenya border, road blocks, weigh bridges and constructions along the transport corridors.
Corruption along the 2 major transport corridors is also a big driver of high transport costs and the state of infrastructure specifically along the Northern corridor is also still poor.
While lowering transport costs is crucial, Rwanda is in a difficult position because 95 percent of its main import route lies outside of its direct policy jurisdiction.
Nearly three quaters of all export and import tonnage to/from Rwanda, only 5 percent of the segment is in Rwanda. The remaining 95 percent being in Uganda and Kenya respectively, the same applies to the Central corridor.
This in itself is testimony that Rwanda does have little control of policy changes along these corridors.
Therefore, for Rwanda to address her transport challenges she has to engage her counterparts in the East African Community (EAC) to have these commercial routes improved.
The government must campaign for the reduction of NTB’s because they are affecting doing business in the region especially for landlocked countries like Rwanda.
Much as there are so many NTB’s that act as key drivers of high transport costs in Rwanda, there are also procedural barriers on the Rwandan side which definitely impact on the overall cost as well.
For Rwanda to effectively compete with her neighbors as regional integration takes root, she will have to significantly lower her high transport costs.
The author is a journalist with The New Times