The government made a bold move above two years ago to support selected firms from priority sectors of the economy with a view of boosting their capacity so that they are able to improve output and hence increase exports.
The move was part of concerted efforts geared at solving challenges affecting the industrial sector, and government signed 40 deals with selected exporters to this effect. It pledged to put in place the necessary facilities to support exporters, while exporters committed to improving their production and subsequently increase the country’s export volumes and revenues.
However, there is a growing concern from stakeholders that despite the initiatives, the ambitious plan of increasing Rwanda’s exports to 28 per cent per year, from about 20 per cent is not realistic, calling for change in strategy.
The export growth targets is part of the country’s development blueprint the second Economic Development and Poverty Reduction Strategy (EDPRS II).
This call is supported by Minister for Trade and Industry Francois Kanimba, who said it is critical for all stakeholders to change the way the country’s export promotion strategy has been managed.
Kanimba admits that the recent performance of the country’s exports has not been impressive, saying there are still internal weakness which players can address to remain competitive.
He attributed the low performance to mainly external factors. Kanimba, who was meeting big exporters or the $1 million exporters as they are called, last week stressed the need to have a common understanding of the challenges facing the industry.
“We are in the process of summarising new joint and targeted export performance contracts (imihigo) that are more realistic,” Minister Kanimba told Business Times.
The idea is to engage the private sector in developing joint export imihigo for 2016/17 which will be signed during the exporters’ forum due to take place next month. The only hope for exporters however is to make sure these contracts work towards addressing the challenges of limited access to finance, access to markets, skills, innovation and global commodity price reduction.
State Minister for Mining Evode Imena said most agreements signed, especially those in the mining industry, were not implemented satisfactorily because of the volatile global market.
“Most companies did not invest enough to spur production because of what is happening in global markets. In addition, access to funds remains a big challenge that is significantly affecting performance of the sector,” Imena noted.
Martin Kahanovitz, the Rutongo Mines chief executive officer, called on government to address the issue of traceability fees, and loyalties, arguing that this will facilitate miners to meet their targets. Many of the mining industry players called on government to scrap some taxes paid by sector exporters, including charges for certification and tagging of minerals, if the country’s mining industry is to become more competitive. Tin and wolfram exporters said they pay $130 per tonne, while coltan dealers part with $180 a tonne, which they said is a lot of money. They added that besides these fees, they also pay 4 per cent loyalty tax.
Kahanovitz urged government to address the issue of illegal mining, saying it is hurting genuine players in the industry.
Speaking at the meeting, manufacturers said value added tax (VAT) on raw materials remains a worrisome factor that should be addressed immediately if the sector is to meet its targets.
Local mattress and fabrics makers, like Dodoma, said VAT on raw materials was making the sector unattractive to new investments besides stifling growth of the existing firms.
A source at Dodoma told Business Times that delays by Rwanda Revenue Authority (RRA) to refund VAT have compounded the situation. Unlike in the past where the country’s investment code exempted certified investors from VAT on raw materials, manufacturers say the levy was introduced by new law. Besides, manufacturers said it often takes up to six months for RRA to reimburse them instead of 15 days stipulated by the law, affecting capital flow.
Meanwhile, Robert Opirah, the director general for trade and investment at the Ministry of Trade and Industry, said the government is currently engaging the private sector and various institutions to resolve the matter.
Opirah argued that Rwanda’s exports have not experienced significant drop, noting that most emerging economies registered dismal performance.
The country’s export receipts grew at an annual average rate of 10 per cent between 2011 and 2015. In 2015, Rwanda’s total exports decreased by 6.8 per cent in value to $ 558.8 million compared to $599.8 million in 2014. However, the volumes increased by 20.5 per cent over the reporting period.
Government to double export funds
Meanwhile, Minister Kanimba revealed that government will increase financial support to the sector through the Export Growth Fund next financial year.
He said the Ministry of Finance will increase the contribution to the fund to Rwf1 billion in the next financial year, from Rwf500 million this year. In addition, exporters will be able to acquire affordable credit under the government’s Marching Grant Fund that is under Export Growth Fund. The Export growth Fund seeks to support the sector, helping increase the country’s exports base, and volumes and earnings, as well as create more jobs for the youth.
Officials from the Trade and Industry Ministry said modalities on how exporters will access the funds are in final stages. The money will be channelled through Development Bank of Rwanda (BRD), which is currently handling the fund. The officials said exporters will access the funds at about 8 per cent interest per annum.
The fund will cover 50 per cent of the cost exporters incur as they try to seek new markets abroad, according to Kanimba. Lack of funding to conduct research and explore new markets is one of the main challenges local manufacturers face, a situation that affects their entry into new markets, limiting them to local and regional markets.
Source: All Africa