There is no two ways about it; the world is a global village and that means that just as much as there is free movement of labour, at least in many parts of the world, there is even a greater level of free movement of goods and services.
That is to say, if you are in need of a desktop computer or any other electronic devise, after placing your order, it is very likely that your brand new computer may exhibit an American brand such as Dell, but the likelihood is that it will have an inscription of ‘Made in China’. That has been the case for the last three decades.
But, opening up to international trade, economists, including Joseph Stiglitz, winner of the 2001 Nobel Prize for Economics, believe, is not necessarily a bad thing. In fact, evidence shows that international trade helps many countries to grow more quickly than they would otherwise have done.
Stiglitz himself argues that international trade helps economic development when a country’s exports drive its economic growth, and that export-led growth was the centrepiece of the industrial policy that enriched much of Asia and left millions of people there far better off.
To illustrate his argument, in his award winning book, Globalisation and its discontents, Joseph Stiglitz insists that it is because of globalisation that many people in the world are now living longer than before and exactly why standards of living have improved.
He observes that: “People in the West may regard low-paying jobs at Nike as exploitation, but for many people in the developing world, working in a factory is a far better option than staying down on the farm and growing rice”, here I can safely presume he meant growing rice for domestic consumption only.
So, what am I getting at today? Well, I want to look at how Rwanda may use globalisation as a tool to; a) attract international firms to produce goods in Rwanda, and b) how this process can help to reduce Rwanda’s trade deficit which has grown over the years.
Incidentally, last week, I woke up to news that a firm from Latin America, Positivo-BGH, had unveiled laptops that have been entirely assembled in Rwanda by Rwandans. This was exhilarating news.
According to reports, since the beginning of this week, Rwandans have the added option of being able to purchase, with local currency, locally made electronics, including laptops, all manufactured in Rwanda.
Note that I mention local currency, and not any other currency, this is on purpose. Locally produced goods can be purchased with Rwandan Francs and not necessarily with US dollars.
It is no secret that currently Rwanda has a significant trade deficit, and according to statistics from the National Bank of Rwanda, the trade deficit widened by 14.9 percent from 1.05 billion US dollars in the first eight months of 2013 to 1.2 billion US dollars in the same period of 2014.
In reality this means that we import a lot more goods than we export to the rest of the world. As an illustration, according to the World Integrated Trade Solution, a trade database provided by the World Bank, in 2014, our main exports were Niobium, Tantalum and Vanadium ores and concent , worth just over 103 million US dollars, as well as Petroleum oils, etc, (excl. crude); preparation , worth nearly the same amount. Coffee and black tea accounted for a combined 96 million US dollars in the same year.
By comparison, Rwanda imported cement in excess of 81 million US dollars, Transmission Apparatus, worth in excess of 70 million US dollars, and Petroleum oils worth 68 million US dollars, to mention but a few.
Essentially, what these figures reveal is that if this trend continues, as time goes on, we will find ourselves in a situation where we do not hold enough foreign currency to pay for imports that we just cannot afford to live without. Economists refer to this as a state of unsustainable balance of payments.
Thankfully, there is a solution. One strategy to deal with a trade deficit is to encourage domestic production for the domestic market, whereby entrepreneurs both local and foreign, are encouraged through various measures to produce goods fit for local consumption as a means to provide a substitute for imports but also as a means to improve the economy’s ability to export and collect foreign currency.
To this end, it is encouraging to see that both the government and the private sector are actively engaging in this matter by combining efforts such as the ‘Buy Local –Twigire’ campaign designed to increase consumption of locally made products with efforts to attract investors such as Positivo-BGH that are ready and willing to put their resources in the local economy. Inadvertently, this will also create jobs for the local workforce and also improve innovation capabilities because international firms will engage in the transfer of knowledge.
Ultimately, as consumers, we can also play our part in improving the current rate of the country’s trade deficit.
For one thing, much like the government is believed to have committed to the purchase of 150, 000 electronic units every year, consumers should also aim to equip households and offices with domestically produces goods, provided that these products meet international standards of quality and safety. Also, if the price is right, consumers will not always rush to import everything, they will factor in affordability.
To sum up, Rwanda’s trade deficit is only likely to decrease if three factors are in play all at the same time; 1) a successful Private-Public Partnership that relies on both sides being willing to take considerable risks; 2) locally made products must meet international standards of quality and safety so as to provide genuine competition to imports; 3) excellent packaging, branding and marketing to influence the consumer to switch from Made in China for Made in Rwanda.