Rwanda currently faces an uphill task to grow its exports and reverse the widening trade deficit, which if not checked is likely to hamper government from achieving the set 28 per cent export growth target in EDPRS2 by 2018.
Data released by the National Institute of Statistics of Rwanda (NISR) in the third quarter of 2015, indicates that the country exported goods to a tune of $ 96.14 million, imports totaled $ 481.10 million while re-exports were valued at $ 46.01 million.
Much as the country registered a 0.3 per cent increase in its total trade, to $623.25 million, the difference between exports and imports remained wide.
It is against this background that government through the Minister of Trade and Industry has partnered with Development Bank of Rwanda (BRD) to roll out a fund, dabbed Export Growth Facility (EGF), which will principally address the existing export financing gap.
Although some exporters have in the past benefited from loan products obtained from commercial banks to finance their export businesses, in tea, coffee, tourism and mineral exports, among other, it has been done on a client per client basis, and there has been a costly absence of a targeted financing system for export trade, a gap which the EGF facility comes to fill.
“Financing towards exports has not been the way EGF wants it to be, we have been doing financing around issues like pre-shipment, post shipment, but it has been on client per client basis, there has not been a targeted fund for exports” said Alex Kanyankole, the Chief Executive Officer.
The facility targets exporters including SME’s, who export up to 40 per cent of their production, with a turnover ranging between, $50,000 to $1million.
The EGF facility is designed as a single facility with three separate windows, an investment catalyst fund, a matching grant fund for market entry related costs and an export guarantee facility. These were developed to respond to exporter’s most pressing financing bottlenecks.
The Investment Catalyst Fund: This provides subsidized interest rate on loans targeted towards private sector investments on export oriented production.
This fund was developed to respond to a reality where, most banks which offer loans to exporters, give them these loans on a high interest rate in the range of 16% and above, which has proved to be expensive for them, and a hindrance to their trade.
The investment catalyst fund comes to lower interest rate burden to the exporter up to 10%, this will be done through BRD working with the credit providing bank, where the fund will provide subsidized interest rates for any excess in the original rate.
Matching grant fund: This is a grant which comes to support penetration into external markets through offering financing up to 50% of total project cost, not going beyond $100,000 in funding.
This grant is intended to help exporters who struggle with funding external market penetration activities, which has hampered entry into export markets, activities like market surveys, attaining foreign standardization for their products and others related to market entry, will be supported by this fund.
Export guarantee facility: This facility will provide 80% guarantee on the loans exporters who intend to secure bank loans to finance their export trade. This does not exclude the normal bank procedures involved while financing a client, like documentation, collateral security provision, business plan review and others.
The EGF is in the pilot phase. All the products in this facility are aggregated to ease access to finance for exporters, a challenge which has come as the front runner in hampering exporters from venturing into foreign markets.
The fund is fully provided by government, under the fourth pillar in the Export Growth Strategy developed by MINICOM, but it will be fully managed by BRD.
However BRD will work with other banks – including Urwego Opportunity Bank (UOB), ECOBANK, I&M, and BPR – under this pilot phase as stakeholders in implementing the facility, in disbursement and follow up.
This facility will be principally looking at supporting exporters engaged in four main export sectors, agro-processing, manufacturing, horticulture, and artisanal mining. In addition, BRD will also provide any needed technical assistance, and improve knowledge of SME’s on export related trade.
Much as exports growth has been dismal, indicators show with targeted efforts, this can be reversed, for instance the steady growth trend registered in trade is a background to build on to revive the country’s export base.
Over the last 5 years the economy has recorded an average growth of 17 per cent exports (goods and services), while imports have grown at 5 per cent. Capital goods have grown by 9 per cent and intermediate goods by 7 per cent, and consumer goods at 6 per cent.
Looking at the growing trend of imports and the nature of goods imported, most of which are also integrated into the manufacturing sectors, confidence can be drawn that with time even this will have a greater impact on exports.
“Although we say imports are high, most of them are in capital goods and intermediate goods, these imports are going into other production sectors” said Robert Opirah, the Director General, Head of Department Trade and Investment at the Ministry of Trade and Industry.
EDPRS1 in its export growth strategy had put a target of achieving export growth by 12%, but this has been revised upwards in the EDPRS2 with a target being 28% export growth by 2018.
To achieve this, new mechanisms to attain export growth have been devised, among which includes recapturing domestic market and boosting the country’s manufacturing sector, to improve exports.
To garner this growth, MINICOM has identified three industrial sectors;
Construction materials: To enhance production of products like cement, iron and steel, aluminum products, paints, granite among others, where an estimated $206 million can be recaptured annually.
Light manufacturing: This include products like textile and garments, pharmaceuticals, soaps and detergents, wood products, insecticides among others. Government estimates to save up to $124 million.
Agro-processing: In this cluster, government will be targeting to improve sugar industries capacity, edible oil, dried fish, maize and rice processing among others, and it estimates to save up to $112 million of the money spent on importing products in this cluster.
The EGF comes to support the existing government frameworks and approaches like the one above, aimed at improving SME’s capacities to produce quality products and in the required quantities, to improve their competitiveness in foreign markets, which will ultimately grow the country’s exports.
All funds sourced/mobilized by government, BRD and other stakeholders shall be channeled to grow the EGF for financing of export oriented businesses.