When exports lose value, time to look closer to home

It tastes a little bitter these days. (file photo)

The situation is not good for coffee and tea, Rwanda’s traditional exports, and two factors are to blame. On the one side, natural factors have hurt harvests leading to low volumes. On the other, the ailing international market has resulted in reduced demand, thus low prices. Both the World Bank and the Central Bank of Rwanda acknowledge these trends in their half year reports, and they paint an uncertain future.

Let’s start with tea exports for instance. Between January and June 2010, the volume of tea grew by 12.81%, and by 13.33% in the same period of 2011, but then it registered a negative growth of 11.90% between January and June 2012, according to BNR monetary policy report for the first half of 2012.

This negative growth in volumes has obviously also hurt value as BNR indicates that it dropped by -7.71%. In 2011, the value of tea grew by 36.33% but slowed to 33.53% in 2012 between the months of January and June.

Coffee exports are also not doing that well considering that although the value of Rwanda coffee grew by 12.14% between January and June compared to 8.20% in the same period, the overall price for coffee exports dropped by -2.45%.

According to the World Bank’s third edition of the Rwanda Economic Update, all points to an eminent decline in the price of minerals and agricultural commodities – the major sources of foreign currency for Rwanda as traditional buyers of the country’s exports in Europe suffer financial distress.

Cassiterite, a tin oxide mineral (SnO2), is one particular mineral that has dominated Rwanda’s mineral revenue sources for some time now. The Ministry of Natural Resources indicates that cassiterite is exploited in at least 26 of the 30 districts within Rwanda with over 180 exploration permits operational.

As of October 2008, for instance, the earnings from 3.7 million kgs of the extracted ore in the country represented a 45.9 percent of the total revenue of US$ 81.9m (Frw 44.7b), much more than Wolfram’s US$ 10.9m (Frw 5.9b), Coltan US$ 30.6m (Frw 16.7b), and Gold US$ 1m (Frw 549m).

Bolivia and Rwanda are known worldwide as the best sources of primary cassiterite. However, between January and June, the mineral slumped in both value and volume, at least for the first half of 2012. According to BNR, the mineral’s growth in value dropped from 46.71% in 2011 to 27.20% in the first half of 2012.

It wasn’t any better for its volume either which dropped to a 2.32% increase between January and June this year from 2.95% reported in the same period last year. This drop in such a dominant mineral explains the general the reduced earnings from mineral exports which declined by 3.5% in the first quarter of 2012.

Exports of tea have fallen both in volume and value. (file photo)

If international prices for these exports stayed high it would compensate for the declining volumes, but Europe and North America, the biggest international minerals buyers, are far from recovered from the economic recession – which casts Rwanda’s exports performance in serious doubt.

The situation therefore calls for a quick assessment of available options and move fast to exploit them to guard against external shocks and ensure the economy grows at the projected rate of 7.7%.

The good news is the custodians of the Rwanda economy are aware of these threats. At the vanguard is Central Bank governor, Claver Gatete, who noted that while the economy continues to perform strongly, Rwanda cannot claim immunity from external shocks.

That realization will shape the future monetary policy of BNR.

That said, this situation may also be a good opportunity to look closely to our exports structure. And Rwanda, just like other East African states, does not have to look very far for answers. The possibilities are there, they just need to be exploited.

One of those is tourism, which still has a lot of potential for expansion. However, the EAC partner states have so far failed to implement the single tourist visa, and are thus missing out on a great opportunity to make the region more attractive for tourists.

For Rwanda specifically, the planned increase of fees for the national parks might well be suspended until full global economic recovery.

Secondly, the EAC states are yet to really tap into their common market of almost 150 million people. China, for example, thanks its tremendous growth over the past two years to its huge domestic consumer base. If the EAC block harmonized several customs and trade laws, the EA population could somehow stand in for a good portion of Europe and North America.

Recently, the Private Sector Federation signed a trade MoU that will see Rwanda’s vegetables and meet exports find market there, that’s a good sign as well.

In a nutshell, regional rather than international approach is the way to go first. While European economies will barely grow beyond 4%, East Africa’s average growth is tipped to near 6%. Trade among partner states should be encouraged.

Already, it’s not that bad considering that Rwanda’s exports to EAC jumped from US$ 36million for January-June 2011 to an impressive US$ 57million for the same period in 2012. So, before looking either to Europe or even Asia, we should remember the saying: East or West, the East African home is best.

Posted by Kenneth Agutamba on Aug 20 2012. Filed under Business, Other News, Weekly Highlights. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.