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Leveraging Regional Integration for Rwanda

Birgit Hansl's picture

For Rwanda to become an emerging middle-income economy, it will need to unleash its export potential. The country has a natural comparative advantage in services, including tourism, and can serve as a gateway between Anglophone East Africa and Francophone Central Africa. But Rwanda can only reap these benefits if it integrates with its neighbors.

Regional integration can bring substantive benefits to all EAC members. But will progress affect all countries in a similar fashion? The answer is no.

Three countries are landlocked (Burundi, Rwanda, and Uganda), and two are coastal (Kenya and Tanzania). Kenya’s GDP (PPP) is similar to Tanzania’s, but 5 times that of Rwanda and almost 20 times that of Burundi. 

Tanzania’s population density is around 50 people per sq. km, whereas Burundi‘s and Rwanda‘s  are 325 and 430 respectively. Some countries have important oil (Uganda) and gas (Tanzania) reserves and others (Rwanda) are importers. The challenges and opportunities created by regional integration will be dramatically different across countries in the EAC.  Therefore, the agenda that countries should follow to maximize the opportunities and minimize the challenges of integration should also be different.

The Rwanda Economic Update (http://siteresources.worldbank.org/INTAFRICA/Resources/257994-1344361818868/rwanda-economic-update-3-july-30-2012.pdf) focuses on how Rwanda can lean on the EAC and to unlock the benefits of increased regional integration and, perhaps, globalization.

Unlike EAC exports outside the region, which are mainly commodities, the bulk of intra-regional exports are manufactured goods (food products, beverages, cement, etc.)—and some of these could be good candidates for Rwanda’s export diversification.

For example, Rwanda’s beneficial climate conditions and recent success in increasing agricultural productivity provides it with a good opportunity to become a regional food exporter. Informal cross-border trade is already dominated by agricultural products (Figure 1). Potential benefits which could be multiplied with intensified attempts to facilitate trade by making borders thinner. In 2011, informal cross border exports accounted for 15 percent of total exports, higher than tea exports (Rwanda’s third largest export). While Rwanda ran a formal trade deficit with its four neighbors (DRC, Burundi, Uganda and Tanzania) in both 2010 and 2011, for informal trade Rwanda ran a trade surplus in 2010 and in 2011. Over 50 percent of total informal cross border exports are traded with the DRC through big bordering urban centers (Goma and Bukavu). Locally produced foods and beverage are the mostly traded goods.

Figure 1: Rwanda’s Informal Cross Border Exports

 

Increased intra-EAC trade in agriculture could contribute to the region’s food security. The production of food staples for growing urban markets and food deficit rural areas represents the largest growth opportunity for regional farmers. Africa’s demand for food staples is expected to double by 2020, primarily in cities. As agricultural resources are not allocated equally across EAC countries, or even within them, borders often artificially demarcate food surplus areas from food deficit ones. Regional trade integration can have a substantial impact by better linking farmers to consumers across borders, and in ameliorating the effects of periodic national food shortages and increasing global food prices. At this stage, however, regional trade in food staples remains far from free, despite efforts at policy and regulatory harmonization.  The arbitrary and erratic imposition of barriers undermines private sector confidence to invest and distorts incentives towards cash crop production away from food staples.
 

Comments

Submitted by Anonymous on
The question for Rwanda and the author of this article is, export what? Rwanda is sorrounded with coffee exporting countries with easy access to international markets and relatively low transportation costs. I am not convinced with the author's arguments. A.

Submitted by Birgit on
Many thanks for the inquiry. I agree, it is comparably harder for Rwanda to compete with other large tea and coffee exporters in East Africa. The volume of its crops is just much smaller and harder to market to large buyers. However, the country could and does already compete quite successfully in high-quality niche market (see the Bourbon coffee success story). The article is less about Rwanda’s strategies for increasing traditional export crops of tea and coffee, but is arguing for Rwanda to become a regional food basket, as it has very advantageous climatic conditions which allow for at least two agricultural seasons per year. Also, in recent years agricultural productivity increased dramatically – thanks to an intensive public investment program for improving inputs and land management. The example provided refers to the already vibrant informal cross-border trade which is dominated by food products.

Submitted by Paulynn Yu on

Good article. Are you saying that if the ease of Rwanda's cross border trade is higher, private sector would be incentivized to invest in food staples? What is Rwanda advantage in growing food staples compared to its neighbors, say Kenya?

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