About a month ago, the central bank released data showing the country’s economic performance in 2015. What stood out for most observers, including a concerned select committee of parliamentarians, was the trade deficit.
That is, the difference between Rwanda’s expenditure on imports and earnings from exports. The actual figure was close to $1.8 billion! That is a very large sum in anyone’s eyes whichever way you choose to look at it.
Fortunately, absolute numbers in economics mean very little (however large) if not seen in their right context. It is not uncommon for even the most prosperous countries to have trade deficits.
For comparison, consider that for the single month of January 2016, the US had a trade deficit of $45 billion! The devil is always in the detail. Rather than the size of the trade deficit, two questions are more critical in regards to Rwanda’s international trade dealings; 1. How does Rwanda earn her foreign exchange income? 2. What does Rwanda spend its hard earned foreign exchange income on?
Looking at Rwanda’s recent economic trends, the observers have other reasons to be concerned. Over 40% of Rwanda’s income from exports comes from three items, namely; mineral ores, coffee and tea. This is quite surprising given Rwanda’s small size and relative high population density.
Mining and plantation farming tend to flourish in expansive countries with low population density such as South Africa, Australia and Canada. The prosperous smaller countries with big populations such as Israel, Belgium and The Netherlands tend to derive their economic success from hi-tech manufacturing, sophisticated services such as banking and advanced scientific research.
Rwanda’s efforts to escape the poverty trap that most developing countries find themselves in, will take more than improving our rankings in the annual World Bank’s ‘Ease of Doing Business’ reports.
The economic gains made in the last 20 years are testimony to the resilience of the Rwandan people under the stewardship of the RPF and the steady hand of the chairman at the helm.
The economic challenges facing the country are akin to an obstacle course. Past achievements can be compared to climbing out of a hole in the ground. Rwanda is on level ground now but other obstacles still remain in her way.
Recent efforts like “The Made in Rwanda” expo to promote the consumption of local products are a step in the right direction. Recapturing the domestic market to reduce importation of consumables such as sugar, rice, edible vegetable oils and paper products will go a long way in stemming the outflow of foreign exchange and address the government’s trade deficit concerns.
Another prevailing strategy is expansion of regional trade with our neighbours. There has been some notable success with efforts towards enabling cross-border trade.
In the last year alone, Rwanda’s cross-border trade with her neighbours yielded over $100 million! This was revealed by the Minister for Trade and Industry in a recent interview on a Rwanda Television weekend show.
International trade is a business like any other; competition is stiff and funds flow to where there’s more relative value. If Rwanda is to compete favourably amongst its peers, it has to create more value than the competition.
Recent efforts have been squarely focused on efficiency. This makes a lot of sense given our recent history.
There comes a time, however, when gains from pursuit of efficiency are minimal and the returns on every extra effort begin to decline.
Economists refer to this as ‘diminishing marginal returns’. It is not that there are no gains, but the value derived from the effort exerted is significantly reduced.
My view is that Rwanda is fast approaching that tipping point where extra effort towards efficiency is rewarded with less economic gains. For the Rwandan economy to continue to thrive and breakout of the poverty trap, some radical changes at a structural level have to be made. Allow me to share three long term strategies that could go some way in expanding the economy;
Starting from the existing exports, efforts have to be made to advance beyond being primary providers of unprocessed mineral ores. The Great Lakes Region is renowned for its richness in mineral deposits.
The nearest processing facilities are on the Tanzanian coast and in South Africa. There is an opportunity for Rwanda to position itself as a ‘half-way house’ for processing mineral ores from within the region before they can be re-exported to the established global markets.
This is a clean-cut industry and Rwanda’s cultivated image of transparency and above board dealings plays right
into this. Those stellar global rankings should be converted into tangible economic value.
Coffee and tea farming employs many peasant families. We can create more employment for semi-skilled
workers by going further up the value chain by processing and packaging on a large scale some high quality and distinct Rwandan brands that can be consumed both at home and internationally.
A few brands exist today but the market is fragmented amongst small producers and quality is hardly distinct. Any Rwandan would be hard pressed to identify the leading locally branded coffee or tea product.
Last but not least, new export sectors or foreign exchange earners have to be nurtured. The recent focus on MICE tourism has had encouraging results. Building on this, Rwanda can aim to evolve as an African centre of professional training and tertiary education in areas such as ICT, governance and public administration.
This will require a lot of investment in improving the quality of local tertiary education. Countries like the UK and the US earn a lot of income from providing tertiary education to students from all over the world.
In the academic year 2011/12, international students contributed about $15 billion to the UK economy in fees and upkeep payments.
In Africa, a kind of monopoly has been enjoyed by South Africa in providing world class education to students from all around Africa.
Recent attacks on foreigners and increasing economic woes in that country mean that there is a clear opportunity for the emergence of alternative destinations.
Rwanda has earned the respect of the world in terms of governance; it is time to build upon that reputation to expand our economy.