Rwanda firms seek bigger share of EAC trade
While the net value of trade among member-states of the East African Community (EAC) has doubled from $2 billion in 2005 to $4 billion in 2010, the region’s largest economy, Kenya, continues to dominate accounting for 41.
Seeking to increase the country’s share of regional trade, Rwanda Private Sector Federation (PSF) last week engaged the secretary general of EAC, Richard Sezibera, to a discussion on challenges faced by local companies while transacting business in the region.
The breakfast meeting with chief executives of major companies sought identify solutions to impediments faced by local companies in the region under the auspices of the East African Secretary General’s Regional CEO Forum.
The meeting that was organized in partnership with East African Business Council and Trademark East Africa was attended by over 100 company heads.
“Rwanda has a lot of unrealized potential in the EAC and our objective is to substantially increase trade in goods and services with the EAC countries as the integration process progresses,” said PSF chief executive officer, Hannington Namara.
For starters, Rwanda has the second smallest population (10.6 million) in the region as of 2010. It is the second smallest economy ($5.6 billion,) but with the second largest per capita GDP of about $530 in the EAC. Above all, Rwanda is the best place for business to thrive and the second most improved economy according to the World Bank’s 2010 figures.
Yet as of 2010, more than 50% of Rwanda’s non-commodity exports were sold to DRC with only 35% consumed by EAC countries.
A closer look at the distribution of 35% trade with EAC indicates that it’s not with the biggest economies but rather Burundi (23%), Kenya (8%), Uganda (3%) and Tanzania at 1%.
Only 11.7% of exports are non-commodity export and these are traded with non-EAC countries. Tea and coffee which account for 49% of these exports are sold to Europe, USA, Canada and Asia. The same goes for minerals that accounted for 39.2% in 2010.
This clearly shows that Rwanda is doing less business with EAC partners compared to Europe and other countries.
According to Namara, the private sector has set some objectives for the EAC that will seek to smoothen the transition to common market. They include lowering the cost of imports and exports, increasing productivity through increased investments in Rwanda from EAC, developing high quality services to supply to EAC market, facilitating growth of Rwandan companies through mergers and acquisitions as well as investments in the EAC countries.
However, during the breakfast meeting, several issues were raised and if not addressed will limit the enjoyment of these freedom of movement of goods, services and people under the customs union.
Key among them is nagging non-trade barriers (NTBs) along major trade routes connecting partner states.
With Rwanda being a land locked country, the NTBs were observed as one factor that pushes the cost of doing business even higher. “There are too many roadblocks and these have become money minting machines in form of bribes demanded by those officials,” says said Ephraim Turahirwa, the general manager of Rwanda Mountain Tea.
Sezibera however blamed the business community for abetting bribery by budgeting for it as part of their overhead costs.
“We should shame business people who give bribes as the only way to kill the habit of soliciting for illegal fees on the roads,” he said.
Besides roadblocks, members of the Rwanda private sector also reckon that some partner states have policies that deliberately limit trade from outside.
For example, RwandAir CEO John Mirenge said that the airline has been denied freedoms that are nonetheless granted to foreign airlines hence increasing the cost of doing business.
Another exporter accused Burundi of blocking Rwandan fruits from accessing their market.
Lawson Naibo, chief operating officer of Bank of Kigali said that attempts to expand to the region have been met with unfriendly policies that categorize the bank as foreign rather than a company from the region.
Transporters claimed that while Rwanda charges $152 for all trucks entering the country, they are charged $500 when entering Tanzania.
All these challenges made PSF chairman to conclude that, “Geography made us neighbors, history made us relatives and economics has made us trading partners, but if we don’t iron out negative practices especially NTBs, we all stand to lose.”
However, Japan’s funding of a one-stop border post at Rusumo is tipped to reduce on the roadblocks on that route increasing trade with Tanzania.
This and many other initiatives such as Single Customs Territory might help Rwandan businesses reclaim their unrealized potential in the EAC.