Trade Policy Review: East African Community (EAC) - RWANDA

I.

ENVIRONMENT

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MAJOR FEATURES OF THE ECONOMY

1.
The Republic of Rwanda, with an area of 26,300 km2 and a population of approximately
11.7 million, is the most densely populated country in Africa. It is located in central and eastern
Africa, bordering Burundi, the Democratic Republic of Congo, Tanzania, and Uganda. With a per
capita GDP of US$595 in 2011, Rwanda remains a least developed country.
2.
Rwanda is still a rural economy: only 19% of the population lives in urban areas.1 The
agriculture sector employs about 80% of the population, and constitutes about one third of
Rwanda's GDP. Agricultural activities are mainly subsistence farming, and agricultural output is
predominantly in the informal sector, with one third still produced in the non-monetary
economy.2The mining sector's contribution to GDP is still negligible, but its share in total exports
has been significant . The share of manufacturing to GDP remains low, at 6.6% in 2011, while the
share of services increased to 46% over the review period.
3.
As a landlocked economy, trading costs are high (Chapter III). In addition, the economy is
highly vulnerable to external shocks, because of its narrow export base, its heavy dependency on
foreign aid, and the rapid rise of international fuel prices. Its exports have been concentrated in a
few products/minerals, and on a few markets, although recently there have been some
diversification efforts and progress. The authorities consider that the supply-side constraints
include: poor infrastructure, in particular rural transport links; high energy costs; lack of access to
credit and weak organization of the rural sector; lack of good farming practices and export-related
standards to enable diversification into agri-processed industries; lack of product diversification;
and low competitiveness of manufacturers.The national currency, the Rwanda franc (RF),
appreciated slightly against the U.S. dollar between 2005 and 2008, before depreciating again in
2009-11 . Rwanda accepted the obligations under Article VIII of the IMF Articles of Agreement in
1998, and maintains a system free of restrictions on payments and transfers for current
international transactions.
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RECENT ECONOMIC DEVELOPMENTS

4.
Rwanda's economy developed relatively rapidly during the period under review, with real
GDP growth averaging 8.5% annually from 2005-11 . Per capita GDP more than doubled in the
same period, from US$289 to US$595. The poor benefited from Rwanda's fast economic growth,
as the poverty rate fell from 56.7% in 2006 to 44.9% in 20113, while Rwanda's UNDP Human
Development Index improved from 0.390 to 0.429.4
5.
Rwanda's economic (including trade) and structural policy reforms have paved the way for
its relatively fast economic growth, driven mainly by improved productivity in agriculture and
industry, increased exports, strong domestic demand5, and improved investment climate. Partly
reflecting the improved business environment and lower business costs, investment increased
during the period under review .

UNDP online information, "International Human Development Indicators Rwanda". Viewed at:
http://hdrstats.undp.org/en/countries/profiles/RWA.html [18/04/2012].
2
MINICOM, Trade Policy 2009, p.2.
3
UNDP online news 27/02/2012, "Rwanda: Gains made against poverty, a lesson for others". Viewed at:
http://www.undp.org/content/undp/en/home/ourperspective/ourperspectivearticles/2012/02/27/rwanda-gains
-madeagainst-poverty-a-lesson-for-others-html [18/04/2012].
4
UNDP online information, "International Human Development Indicators Rwanda". Viewed at:
http://hdrstats. undp.org/en/countries/profiles/RWA.html [18/04/2012].
5
IMF (2012).

6.
Rwanda's economic growth has been facilitated by prudent macroeconomic policies, both
fiscal and monetary. Foreign aid, which accounts for around half of total government revenue, has
been managed well. Total revenue has increased, mainly driven by higher taxes and grants. At
the same time, total expenditure and net lending also increased, probably due to increased
expenditure on infrastructure. The overall fiscal balance (including grants) changed from a small
surplus (2.2%) in 2005 to a small deficit (-1.6%) in 2010.
7.
Monetary policy has been somewhat "proactive". After the onset of the global economic
crisis, the Central Bank (the National Bank of Rwanda, NBR) cut its policy rate (the key repo rate
or KRR) three times (since November 2009), to encourage economic activities. The KRR
remained unchanged between November 2010 and October 2011, during which the Central Bank
was reluctant to increase interest rates to contain inflationary pressures. The KRR was only
increased again in October 2011 (it was increased three times between October 2011 and May
2012).6 In 2011, inflation rose rapidly, mainly due to higher global food and fuel prices, and core
inflation was up from 2.3% in 2010 to 5.7%.
8.
Agriculture production has benefited from a number of programmes to address soil fertility,
soil erosion, and in particular the crop intensification programme (CIP) focusing on facilitating
access to fertilizers and selected seeds, land-use consolidation, and improved irrigation (Chapter
IV). Productivity in agriculture has improved, and agricultural exports have been increasing since
2007 (Table AI.1).
9.
The non-agriculture sectors have recovered from the global demand decline and the tight
credit conditions in the domestic banking sector. Strong performance in the mining sector was
stimulated mainly by higher prices for minerals on international markets. Despite its small share of
GDP, manufacturing has been growing. Performance was driven by beverages and tobacco, and
food processing. Construction was boosted by infrastructure projects, as well as commercial,
administrative, and residential buildings.

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TRADE PERFORMANCE

10.
The share of goods and services exports to GDP fell from 11.5% in 2005 to 10.9% in 2010,
before rebounding to 13% in 2011. During the same period, the share of imports was up from
25.2% to 32% (Table I.1). The current account deficit widened, from 2.2% of GDP in 2005 to 7.4%
in 2011, while the overall balance remained in surplus, thanks in part to inflows to finance large
public and private investment projects (Table I.2). International reserve coverage stayed above
five months of prospective imports.
11.
Imports increased faster than exports during the review period, reflecting partly the
increasing international food and fuel prices. Fuelled by imports and partly financed by substantial
donor inflows, total final consumption expenditure accounted for 98% of GDP (Table I.1). As a
consequence, the trade deficit increased over the period. Rwanda exports chiefly agricultural
products, in particular coffee and tea, and mining products. In 2011, primary products accounted
for 85.5% of total exports, down from 88.7% in 2005 (Chart I.1 and Table AI.1). During the same
period, the share of manufactures to total merchandise exports rose from 11.3% to 14.1%,
reflecting Rwanda's efforts to shift its exports from raw materials and commodity products to
processed goods.
12.
Rwanda has preferential market access to a number of international markets including the
EU and the United States, as well as other EAC members and the COMESA market. Despite their
eligibility for a wide variety of preferential trade schemes, Rwanda's goods are still exported mainly
to a few traditional trade partners, and utilization of these preferential market access opportunities
remains low.

NBR (2012); NBR online information. Viewed at:

http://www.bnr.rw/docs/statistics/Interest%20

13.
Rwandas imports remain dominated by capital goods and consumer goods (Chart I.1 and
Table AI.3). Capital goods imports include machinery, to build domestic industrial capacities and
promote the manufacturing sector. Processed goods are also imported for consumption, since the
domestic manufacturing sector is still small.
14.
Between 2005 and 2011, the value of Rwanda's imports more than tripled . Rwanda is a
net importer from the EAC region (nearly one third of imports) . The shares of Uganda, Tanzania,
and Burundi rose while Kenya's share fell. The share of imports from European countries
declined, as did the share of the Middle East, although the UAE accounted for 5% of total imports
in 2011. The increase in the share of Asian countries mainly reflects the increases in imports from,
inter alia, China and India.
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INVESTMENT PERFORMANCE

15.
Foreign direct investment (FDI) flows increased significantly between 2005 and 2009, from
US$14 million to US$119 million, probably reflecting the improved business environment, including
lowered business costs . However, FDI inflows contracted sharply in 2010 as a consequence of
the global economic crisis.