By Layih Butake4/11/2022
In March 2018, African governments signed an agreement establishing the African Continental Free Trade Area (AfCFTA), a turning point for African regional and international trade. Brokered by the African Union (AU) and signed by 44 of its 55 member states, the AfCFTA aims at boosting the continent’s trading position in the global market by strengthening Africa's common voice and policy framework in international trade negotiations, in a bid to create the largest free trade area in the world, connecting 54 countries and 1.3 billion people.
Prior to AfCFTA, African countries were already making eﬀorts to increase trade within the continent, notably through the eight Regional Economic Communities (RECs) playing a conspicuous role in boosting economic growth, improving incomes and livelihoods, and strengthening the resilience of smallholder farmers, rural and urban populations. According to a case study by the Malabo Montpellier Panel, in the Common Market for Eastern and Southern Africa (COMESA), intra-COMESA agricultural exports almost tripled between 2003 and 2018, growing at 7.3 percent per year on average, compared to intra-African agricultural exports that grew at 5.8 percent per year, with intraregional exports accounting for up to 66 percent of COMESA's intracontinental agricultural exports. Rwanda has access to a regional market of 146 million consumers in the East African Community (EAC) and 460 million in COMESA. Furthermore, the country's agriculture sector contributes to 62.3 percent of total employment in Rwanda and accounts for around one-third of the country's GDP.
With the AfCFTA's implementation underway since January 1, 2021, amid a growing and diversiﬁed agricultural sector, a fast-growing ICT sector, and an innovative ﬁnancial ecosystem, what are the regional trading opportunities for Rwanda? AKADEMIYA2063 convened a Board Seminar to exchange with high-level stakeholders from the agriculture, trade, and other interconnected sectors while exploring the challenges and opportunities for Rwanda to boost its performance in the regional market.
Based on a regional markets model that examines how economies are performing and what kinds of policy options would be conducive to trade, Dr. Ousmane Badiane, AKADEMIYA2063 Executive Chairperson, highlighted leading value chains that, between now and 2030, would be driving regional trade in Eastern Africa.
Trade patterns in Rwanda indicate that rice, wheat, animal and vegetable fats and oils, next to tea and palm oil, are among the leading exports to the region. Regarding imports, maize, bran, and animal or vegetable oils are the top imports, with rice being the leading imported commodity. Certain commodities imported by Rwanda are subsequently exported to the region; these include rice, wheat, and palm oil. According to Dr. Badiane, "looking at the wheat figures during the Ukraine crisis, we found that 23 African countries are importing more wheat than they need to be able to export to other countries. Thus, the crisis affects those exposed to the global markets, as well as the countries that import from their neighbors".
Rwanda's main trading partners in the region include Burundi, South Sudan, Uganda, Kenya, and the Democratic Republic of Congo (DRC). Countries that have increased their export share and grown their exports faster include Rwanda, Uganda, Kenya, and Madagascar. The top-performing commodities are cotton, coffee, maize, tobacco, and other vegetable oils. On the question of regional trade expansion potential, Dr. Badiane debunked the argument of similarity of trade patterns: "Opportunities to trade are driven by several factors, not just natural conditions. We have carried out a detailed assessment of the degree of similarity of trade and production patters across countries and commodities. Our results indicate that patterns are dissimilar enough to allow for much higher levels of intraregional trade than currently observed," he said.
"There is an important trend that is observable across Africa right now. Even regionally, African countries are exporting more processed agricultural goods than before. The larger share of traded agricultural goods by African countries is now accounted for by processed goods, no longer raw materials," said Dr. Badiane.
The role of policy in improving trade performance was equally discussed, with three policy options projected by AKADEMIYA2063, namely, (i) investing in raising yields to boost productivity, (ii) reforming trade policies and investing in infrastructure to reduce the overall cost of trading, and (iii) removing cross-border trade barriers. "If countries were to invest in raising yields by just 10 percent, it will add another USD 600 million cumulative over the next 10 years. Removing trade barriers will result in an additional USD 300 million in trade while reducing overall trading costs would yield another USD 300 million," Dr. Badiane added. "Looking at the modest financial cost of reforming trading policies and remover transborder barriers, these numbers suggest significant returns.” Based on the above policy scenarios, the winning commodities for Rwanda in regional markets would be groundnut oil, spices, coffee, hides and skins: they would have the largest impact on growth, poverty, nutrition, and other social outcomes. Tea and coffee remain major export crops: "If we were to remove trade barriers, coffee and tea would benefit hugely and continue to be major income earners for the country," said Dr. Badiane.
Ms. Patience Mutesi, Country Director for TradeMark East Africa, Rwanda, weighed in on opportunities presented by the AfCFTA, stating that Africa's market of about 1.3 billion people and its GDP of USD 3.4 trillion offers opportunities to boost economic diversification and industrialization in the agriculture sector and beyond. According to Ms. Mutesi, the focus should be centered on minerals and raw materials while increasing value addition to key agricultural exports like edible oils, coffee, tea, rice, and maize, and equally targeting markets outside Africa.
Highlighting opportunities to services linked to regional trade, Ms. Mutesi underscored the need for trade logistics: "There is a lot more that needs to be done around developing trade in other services such as finance and logistics. How do we help the farmers to reach their markets? We need a combination of hard infrastructure with trade facilitation measures, such as removing bureaucracy in border crossing and improving the capacity of border officials so that they understand that there is value in increasing trade and moving trade fast," she said.
The discussion revealed that Rwanda has real opportunities to compete in regional markets outside tea, coffee, and position itself as a regional trade logistics hub.
Other stakeholders present at the event reiterated the importance of economic integration and the removal of trade barriers: “It is my firm conviction that today's discussions will provide a forum to take stock of what has been accomplished so far through our RECs, project program or policy interventions that have yielded results and can be adapted to our context, anticipate possible challenges for better preparedness, and delve into the boundless opportunities for economic integration, growth, and prosperity, especially through the implementation of the AfCFTA," said Dr. Gerardine Mukeshimana, Rwanda's Minister of Agriculture and Animal Resources.
"There is a need to push more intraregional trade, ensuring that we can add value locally, export within the region, trade amongst each other, and I think that is what the AfCFTA has to offer," said Mr. Antoine Marie Kajangwe, Director General of Trade and Investment at the Ministry of Trade and Industry. Mr. Claude Bizimana, CEO, National Agricultural Export Development Board (NAEB), echoed this stance: " Intraregional integration will help countries overcome divisions that impede the flow of goods, services, capital, people, but also ideas". The role of bilateral relations was equally emphasized by the Rwanda Private Sector Federation (PSF): “The AfCFTA is going to be an engine to push what has already been in place. AfCFTA is coming in when we have also established bilateral agreements with our counterparts in other African countries; this has been helpful in terms of reducing NTBs,” said Mr. Joseph Mutabazi, Director of Trade and Business Development.
Dr. Pierre Claver Rutayisire, Principal of the College of Business and Economics, University of Rwanda, discussed the importance of training and knowledge acquisition: "We cannot be ready enough if we are not trying to bring people who are knowledgeable into the discussion. We need to consider the university as a platform where people can acquire knowledge, and the University of Rwanda is trying hard to bring the industry into our curriculum. We started giving modules on regional integration and later, a Master's in International Trade Policy and Trade Law," he said.
The question of access to data remains crucial to policy innovation: "The gap-filling that AKADEMIYA2063 is providing through the publication of data that has not been easily available will make a tremendous leap forward toward addressing many of these challenges," said Ambassador Ertharin Cousin, Vice Chair of AKADEMIYA2063's Board of Trustees.
Dr. Layih Butake is the Director of Communication and Outreach at AKADEMIYA2063.