The Private Sector Federation (PSF), an umbrella organisation of the business community in Rwanda has said that majority of businesses cite limited access and high cost of transport as a major impediment to business growth in the country.
The PSF also says that a local business and investment survey conducted this year shows that limited access and high cost of land, and effective tax rates are among the challenges the business community faces.
The federation made the revelations in a memorandum on key private sector issues presented to President Paul Kagame.
Kagame met some 65 private sector representatives on December 22, 2008 to tackle the challenges investors encounter in the country and the way forward to improve the general investment climate within the economy.
‘Businesses of all sizes and in all sectors rank the challenges similarly, with a few exceptions’, Robert Bayigamba, PSF chairman said in a message read to the president.
According to the memorandum, micro enterprises and businesses in the North and South of the country report greater difficulty in accessing finance.
However, the report says that manufacturing businesses face more problems in recruiting and training skilled staff while businesses in Kigali and the East are mainly challenged by the availability and increasing cost of land.
Bayigamba said that, interestingly, when asked to rank the problems in order of priority, the most common ones cited by businesses is effective tax rates, followed by land, finance and work skills.
The survey found a slight difference between businesses in the services and manufacturing sectors, with local demand and electricity topping up as priorities which needed to be redressed in services compared to local competition, customs and trade policies voiced by the manufacturing sector.
The PSF also called for more support to be accorded to the construction sector which they said has been severely affected by the recent fluctuations on oil and construction materials on the global market.
‘Change of prices globally on key items used in the construction industry affects the cost per initial contract and in most cases, the contractors carry the burden of extra costs’, Bayigamba said.
He added that, ‘a number of these contractors while servicing their contracts with government have faced related challenges and reviewing the contracts to mitigate the losses has not been possible’.
‘The private contractors are requesting for the need to always include, unconditionally, a review clause in every relevant contract to mitigate related costs and have the burden of extra costs carried by both parties in the contract regardless of the contract duration since they do not have any control on world prices especially given the growing demand for construction material exacerbated by the Chinese construction boom’, he said.
However, members of the business community said that there has been a decline in some of the Non Tariff Barriers (NTB’s) such as witnessed reduction in the number of roadblocks and weigh bridges along the Northern and Central corridors.
From the recent study, by the PSF the petty bribes paid is said to be equal to US$193.9 on the Ugandan side and US$703.64 on the Kenyan side, totaling to US$897.6 on the export route alone, representing 21 percent of the shipping cost. On the import side the cost is higher approximately at US$1,200.
The PSF said that Rwanda’s transporters have also continued to face the challenge of stiff competition from their counterparts in the other EAC partner states, something the PSF chairman said is a result of importing left hand trucks which are more expensive and also subject to a five percent import duty in Rwanda.
‘This duty has also affected the possible increase of the local Rwandan transport fleet. On this note the PSF requests that the import duty be removed from these trucks which are actually capital goods’, Bayigamba suggested.
President Kagame noted that the tax regime needed to be harmonized so that all stakeholders could be satisfied with incorporating a system that was acceptable to all parties. Thus he stressed that it was prudent to look at it holistically.
‘I want to look at it in a much wider context - the whole essence of tax, not talking about abolishing it’, Kagame said.
‘I think we need to put it in its right place and address it properly instead of just turning it into some kind of monster that we need to get rid of’, he said, while also urging both the private and public sector to work together to ensure better returns to the economy.