The Rwanda Private Sector Federation (PSF) has called upon the local business community to prepare for ruthless competition from regional traders as the country joins the Customs Union.
Rwanda will officially join the East African Community (EAC) stating July, which will require implementation of the EAC common external tariff and common external trade policy.
In an interview with Business Times last week, Antoine Manzi Rutayisire, the Director of Entrepreneurship Development and Business Growth at the PSF said the process will increase productivity of efficient firms but at the expense of inefficient ones.
“This is likely to lead to increased specialisation, which may hurt industries in which Rwanda does not have a comparative advantage,” he said, particularly anticipating strong competition from Ugandan firms, which enjoy lower transport costs compared to other EAC countries.
However, the official said the stiff competition should lead to income growth and increased competitiveness at the regional level. He believes that in the long run resources will be reallocated to efficient sectors and more jobs will be created and production levels will increase.
“The competition from imports, even when taking into account duty free access from Tanzania, should not be at levels detrimental to producers in Rwanda,” Rutayisire said.
The PSF argues that challenges such as high operational costs and low skills in the private sector must be addressed if Rwanda’s business community is to compete favourable.
According to Rutayisire, the private sector needs to be very innovative and develop ways to take advantage of the opportunities that will be created by the Customs Union
He suggested that the business community should concentrate their efforts where they have a comparative advantage and develop niche markets, advising that entering joint ventures with partners from the other member states in areas where competition is stiff but trade is beneficial.
“This will strengthen the ability of each country to integrate and trade into the global economy.
“This is a wider market for all the economies to favourably compete.”
Majority of Rwanda’s exports are sold outside Africa, in Africa most of its trade is mainly within the Common Market for East Southern Africa (COMESA) countries -Uganda and Kenya that are already implementing the Customs Union.
The most important tariff provisions of the EAC customs union protocol are the liberalisation of intra-EAC tariffs and the adoption of a common external tariff for imports from outside the union.
Under the Customs Union , sensitive products like milk (cream), wheat flour , maize flour, rice , sugar , cigarettes , cement match boxes ,worn clothing and batteries attract a common tariff .
Rutayisire said the implementation of the community’s economic trade agreement will reduce Non-Tariff Barriers, mainly transport costs.
A recent PSF Non-Tariff barriers baseline study indicates that high transport costs increase the cost of doing business in the country by 30 to 40 percent.
This is attributed to the poor state of infrastructure and corruption at the boarder stops as well as unnecessary road blocks in the region.
“Addressing transport costs would enable Rwanda to position itself as a distribution centre for the region,” Rutayisire said, underscoring that this would build on existing activities and the networks already established by Rwandan transporters and distributors.
“So we can serve as a distribution point for areas in eastern Congo, southern Uganda and eastern Tanzania. It is cheaper to get goods through here.”