BNR unmoved by volatile exchange rate as import bill surged in August

At the food section of Nakumatt, an uptown supermarket chain in Kigali, 5 kilogrammes of imported Irish potatoes cost Rwf7,500, while two 'emaciated' mangoes go for Rwf2,500 and, because of this, the story of Rwanda's surging import bill continued into the third quarter of the year.
A crane unloads a container of imported goods at Magerwa in Gikondo. (File)
A crane unloads a container of imported goods at Magerwa in Gikondo. (File)

At the food section of Nakumatt, an uptown supermarket chain in Kigali, 5 kilogrammes of imported Irish potatoes cost Rwf7,500, while two ‘emaciated’ mangoes go for Rwf2,500 and, because of this, the story of Rwanda’s surging import bill continued into the third quarter of the year.

Central bank governor John Rwangombwa on Tuesday announced that the first eight months of 2014 saw the cost of imports rise by 11.1 per cent despite the small increase in their quantity, which was 1.3 per cent.

Meanwhile, earnings from exports for the same period posted a minimal growth of just 0.8 per cent compared to their 12.4 per cent increase in quantity.

“As a result, [our] trade deficit for the period widened by 14.9 per cent with exports covering 24.7 per cent of the import bill compared to 27.2 per cent in the same period of 2013,” Rwangombwa, who was presenting the financial sector performance and monetary policy implementation for the third quarter, said.

A year has four quarters, each consisting of three months; October to December is the fourth and last quarter.

Traditional exports such as coffee and tea dominated the months of July and August, while re-exports and other exports contributed 19.7 per cent and 15.6 per cent, respectively. But imports remained higher.

According to central bank statistics, the amount of consumer goods – which include food stuffs such as Irish potatoes from Kenya – imported between July and August increased by 12.01 per cent, with their value surging by 14.5 per cent.

But at the same period, last year, saw the volume and value of imported foodstuff record a negative growth of 11.73 per cent and 11.01 per cent, respectively.

“There are no mangoes and other fruits in Rwanda so we get most of our supplies from Kenya,” said an attendant at Nakumatt mall.

Meanwhile, the cost of capital imports also increased, by 6.1 per cent from a negative growth of 9.49 recorded last year, a development that experts attribute to a rejuvenating economy.

According to Rwangombwa, the increase in capital goods imports is evidence of the general economic recovery which he said is expected to reach 6.0 per cent growth by end of the year picking up from the lowest growth in eight years, of 4.6 per cent recorded last year.

Weak Franc

However, the ever increasing import bill, which is paid for in dollars, has continued to increase the pressure on the local currency, the Franc, which Rwangombwa said depreciated by 2.1 per cent against the dollar.

The governor, though, hastened to add that the central bank is not worried by the current depreciation rate because “it’s still below the 5 per cent depreciation that we anticipated for the year.”

“There’s no need for unusual measures because the current behavior of the exchange is normal for an economy like ours that imports a lot,” Rwangombwa said.

In a separate interview with The New Times, Carolyn Turk the World Bank country manager, said there is a real need to diversify Rwanda’s exports in order to cushion the economy from the current unfavorable balance of trade.

“The biggest problem for Rwanda is that factors affecting export earnings such as prices at the international market are entirely out of her control, but the damage can be limited through diversification of those exports,” Turk said.

Indeed, Rwanda’s main exports – coffee, tea and minerals – are often hampered by negative price fluctuations.

Minerals, for instance, recorded a 98.03 gain in value in the July-August period of 2013, but during the same period this year, that value dropped by 10.08 per cent due to poor prices.

Also, since August 2012, the value of tea has constantly recorded negative growth while coffee’s worth recovered from a 41.37 per cent fall last year to record 73.23 per cent gain in August.

Trade with EAC

Rwanda’s trade within the region is the only area with fewer negatives, as exports increased to $101.12 million in the first eight months from $85.67 million in the same period last year.

In July and August alone, Rwanda earned $15.61 million compared to $15.11 milion in the same period last year, indicating an increase of 3.3 per cent.

However, Rwanda also spent more on imports from the region with at least $104.56 million in July and August compared to $107.85 million in the same period last year.

Earnings from Rwanda’s informal cross border trade also tapered from $20.85 million earned in the months of July and August 2013 to $19.79 million in the same period this year.

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