Manufacturing in Rwanda
Africa’s rising star, and a shining example of resilience in the wake of disaster, Rwanda’s burgeoning manufacturing sector has redefined itself as an attractive prospect for international investors
Writer: Phoebe Harper | Project Manager: Krisha Canlas
In the rural landscapes of Rwanda, otherwise known as the ‘Land of a Thousand Hills’, it is unsurprising that the country’s manufacturing activities are primarily agricultural, as fertile slopes and volcanic soils nourish tea and coffee plantations – the crops of which resemble the majority of Rwanda’s cash exports.
With industrial enterprises primarily centred in the inviting capital of Kigali, manufacturers of everyday consumables such as pharmaceuticals, soap, textiles and food products, alongside small-scale mining operations comprise the remaining bulk of Rwanda’s manufacturing output.
Increasingly in recent years, microenterprises have been sprouting up across Rwanda as a response to local demand, particularly concerning the production of construction materials for the many rural communities that face a distinct lack of brick, timber and roof tiles. This segment of manufacturing has enjoyed rapid growth, as the Government of Rwanda (GoR) and the private sector seek to increase building construction and develop the country’s transport infrastructure.
For many, the devastating genocide of 1994 against the Tutsi is still fresh in people’s minds when thinking of Rwanda, the impact of which is only just being overcome by the country’s developing economy and infrastructure. Constraints such as the nation’s landlocked geography and transport costs hamper the manufacturing sector’s development, meaning that at present, the sector accounts for a relatively meagre proportion of the contribution to total GDP, and accounts for just 15 percent of Rwanda’s national exports.
Nevertheless, continually strengthening in the wake of tragedy, Rwanda is enjoying a phoenix-like resurrection and continual advancement that makes the country’s industrial sectors some of the most attractive investment opportunities on the continent. Now the second fastest growing economy in Africa, Rwanda’s economy has grown at a steady rate of eight percent per annum over the past decade.
Since the implementation of the National Industrial Policy in 2011, critical policy interventions and various strategies have been instrumental in driving growth within the manufacturing sector, including the Made in Rwanda policy, the Domestic Market Recapturing Strategy (DMRS) and the National Export Strategy amongst others.
With sector growth intrinsically linked to governmental action, the GoR’s establishment of Special Economic Zones (SEZs) alongside the construction of nine prominent industrial parks across the country are effectively addressing shortfalls in the business environment whilst streamlining opportunities for investment. This also entails various incentives to foster sector development including the exemption of custom taxes, VAT and CIT for investors exporting more than 80 percent of production for companies operating within Export Processing Zones (EPZ).
Consolidation within inter-governmental organisations such as the EAC (East African Community) means that Rwanda now benefits from representation within East African nations seeking development. As a free trade agreement, the EAC, alongside other significant initiatives including the Common Market for Eastern and Southern Africa (COMESA) and the World Trade Organisation (WTO), are crucial in expanding Rwanda’s market access with preferential treatment including reduced tariffs in the US offered by WTO.
Now universally recognised as an enabling business environment with a zero-tolerance approach to corruption, Rwanda’s National Strategy for Transformation (NST1 2017-2024) continues to prioritise private-sector led development, with manufacturing a major component to foster economic growth.
With a young and growing population, trade facilitation and export promotion will drive future success, with foreign domestic investment fuelling the economy. The pandemic interrupted what was an economic boom, and as such, the full potential of Rwanda’s manufacturing sector is yet to be realised.
Rwanda Association of Manufacturers (RAM)
Founded in 2013, RAM are the organisational body to safeguard the interests of Rwanda’s manufacturing industries. We catch up with Executive Secretary Alphonse Kwizera, to discuss the association today
Executive Secretary at RAM
Africa Outlook (AO): Can you talk us through the origins of RAM; how it came about, and its initial vision?
Alphonse Kwizera (AK): Rwanda Association of Manufacturers (RAM) is an organisation focused on enhancing business opportunities and the environment for Rwandan manufacturers. We are dedicated to ensuring our members take advantage of business locally, regionally and internationally and that their voices are heard and represented in all spheres of influence.
RAM was formed on December 10, 1990, as Association des Industriels du Rwanda (AIR). AIR was established with a nucleus group of only 20 members. Until 1994, AIR was well established with a fully functional office. With the tragedy that befell Rwanda, the 1994 Genocide against the Tutsi, AIR lost its momentum with the departure of key personnel. In the years that followed, many attempts were made to revamp its operations but in vain. Nevertheless, in early 2013, with the effort of Rwanda Chamber of Industry (RCI) an organ of the Rwanda Private Sector Federation (PSF), the association was revived.
The main mandate of RAM is advocacy and this is the pillar of all our operations. RAM has to ensure that the key issues affecting businesses are well researched and presented through formal communication channels at all levels of the government and its partners. Our members are reputable companies with national, regional and international operations.
Over the years, RAM has positively influenced government policies related to the manufacturing sector.
AO: Since inception, how has the association developed and progressed in terms of its key objectives and the messages it tries to get across?
AK: RAM has grown to become a nationally recognised business membership association advocating for the interests of the manufacturing industries. It is also a member of the East Africa Manufacturers Association Network and the East Africa Business Council. As an association that offers membership to micro, small, medium and large enterprises within the manufacturing sector, RAM looks forward to addressing all matters affecting the Rwandan manufacturing sector’s growth and competitiveness through constant engagement with the government and relevant stakeholders.
To be specific, RAM has engaged the government on the Africa Continental Free Trade Area tariff offers, and the rules of origin to ensure that the Rwandan manufacturing industries can benefit. RAM has requested the consideration of value chains in the EAC Common External Tariff, where we advocated for the establishment of the four bands tariff structure instead of the current three bands tariffs structure.
RAM regularly engage with the Ministry of Trade and Industry and Rwanda Development Board to put in place incentives that facilitate the growth and competitiveness of manufacturing through the reduction of the cost of production towards improving the conducive environment for business.
RAM has consistently argued that the cost of electricity which was detrimental to the growth of the manufacturing sector increased the cost of production for the manufacturing output. The government has changed the tariff three times in the past five years to make electricity more affordable.
RAM has been nominated by the government in various committees such as the National and Regional Task Force to undertake a comprehensive review of the EAC Common External Tariff and Rules of Origin; National Trade Facilitation; National Monitoring Committee on Elimination of Non-Tariff Barriers; National Sectoral Working Group on Trade, Finance, Industry, Investment and customs matters to name a few.
AO: What do you find most exciting about working within Rwanda’s private manufacturing sector?
AK: The most exciting thing about working with manufacturing, you get to meet people with bright and entrepreneurial minds, you get to see them work and you get inspired by this while acquiring knowledge and experience. Another exciting thing is to work with the sector which is crucial to the economic structural shift whereby the manufacturing sector offers more opportunities for capital accumulation, economies of scale and technological progress whilst contributing to the economic growth and competitiveness of the country. It is worth noting that the manufacturing sector provides direct backwards and forwards linkages between different sectors which creates positive externalities to investments and growth.
AO: On the flip side, what are its biggest challenges?
AK: While we recognise the proactiveness of the government and the enabling business environment that manufacturers operate in, there are still areas of improvement such as access to long-term and affordable finance; access to cheaper raw materials; a lack of skilled labour and low linkages and value chain development. We would like to reiterate our appreciation to the government that despite the above challenges, it continues to do commendable work in providing a conducive business environment through sound and effective policies and by establishing serviced special economic zones.
AO: How has COVID-19 affected the manufacturing industry in Rwanda?
AK: The manufacturing sector is a major economic sector in Rwanda where small and medium enterprises are actively engaged. This sector includes the manufacturing of food items, beverage, tobacco, textiles, clothing, leather goods, wood, paper, printing, chemicals, rubber products, plastic products, non-metallic mineral products, metal products, machinery & equipment, and furniture.
The COVID-19 pandemic has had a negative impact on the manufacturing industries, specifically on the supply chain disruption as most of the industries import their raw materials and semi-finished products from overseas. In addition to supply chain disruption there was also employee disruption and reduction in demand due to lockdown and other restrictive measures that were put in place by the government to curb the spread of the pandemic.
However, we experienced a positive trend regarding the incorporation of technology in the working environment. As the minimum number of employees were allowed in the workplace, the companies resorted to using online platforms such as Zoom, Teams and WebEx to hold meetings.
We also noticed that e-commerce had a huge push, as most of the industries used it to continue supplying their customers during the limited movements of lockdowns. We were amazed by the resilience shown by the manufacturing industries despite these restrictive measures, as they continued to operate and supply donations.
AO: What trends are currently transforming Rwanda’s manufacturing sector and how are you responding to them?
AK: This is mainly the resurgence of e-commerce and cloud-based platforms such as video-conferencing and CRM software, due to the restrictive measures to curb the spread of the pandemic. Such trends in digital transformation pave the way to the new business model which incorporates the use technology to gain the competitive edge. In the pre-pandemic period, the industry was accustomed to a physical presence at the workplace, but the use of digital technology was embraced and incorporated.
We also observed product diversification in the manufacturing industries, where some industries repurposed their production process to start making facemasks. We also now have new industries making facemasks and hand sanitisers.
Another trend is the access new markets made possible by the implementation of the Africa Continental Free Trade Area where manufacturers are ready to start exporting to those new markets.
AO: Have you got any projects in the pipeline you wish to highlight?
AK: In a bid to address the skilled labour shortage, RAM is venturing into implementing the workplace learning also known as dual learning to equip the youth with more practical skills to increase their chances of employability. The future of manufacturing will depend on the availability of a pool of skilled workforce.
AO: How do you see RAM developing over the next five years?
AK: RAM is developing to be, and remain, at the forefront of Rwanda economic development in the manufacturing sector fostering technological progress. We also intend to be a connector and enabler in a proactive fashion and as an indispensable national player.
AO: Are you optimistic about the future of manufacturing in the country and the association’s place within that?
AK: Yes, particularly with the implementation of policy instruments such as incentivising the manufacturing sector and giving preference to local content through the Made in Rwanda policy. The National Strategy for Transformation (NSTS1) which has been implemented since 2017 has prioritised the manufacturing sector.
The revision of the National Industrial policy is almost done, with a vision to promote green industry led by an innovation-driven local business sector. Considering other policy revisions and instruments such as the investment code, the VAT law to name a few, we are very optimistic and excited about the future of the manufacturing industries.
With the COVID-19 impacting negatively the manufacturing industries, the government of Rwanda has responded with a series of measures and schemes to cushion this impact. Among those schemes is the Economic Recovery Fund (ERF) which aims at supporting the business hardest hit by the COVID-19 pandemic so that they can survive, resume operations and safeguard employment.
There is also the Manufacture and Build to Recover Programme (MBRP) which aims at fast-tracking private sector investment in manufacturing and construction sectors though various incentives designed to reduce the cost of setting up industries on selected products as well as existing firms who would like to expand their current operations.
AO: Finally, is there anything that hasn’t been touched upon that you would like to be mentioned in the article?
AK: The manufacturing sector in Rwanda has grown exponentially during the last decade. We would encourage more investors to come and invest in Rwanda as the government always works towards improving a conducive environment for business. With the AfTCA being implemented, Rwanda will become the best investment location one can think of, in my opinion.