Regional linkages top Rwanda's economic agenda

Nakumatt, east Africa's biggest supermarket chain, had high hopes when, in 2011, it opened Rwanda's largest store in Kigali, the capital. Only a thousand shoppers visit each day, however, about two-thirds short of the target, says country manager Adan Ramata.

"We still have a small challenge in the middle class," says Mr Ramata. Nakumatt is not the only retailer stymied by the lack of a mass consumer market. Sulfo Rwanda Industries, the country's oldest and biggest domestic manufacturer with 700 workers, say its efforts to introduce skincare ranges for "more sophisticated" consumers in the past year have flopped.

"We are limited by people who want cheap products, they face inflation and have little money," says Hariharan Dharmarajan, managing director.

The IMF forecasts 6.5 per cent growth this year. Expected inflation of 3.5 per cent for 2015 is low and Rwanda aims to be a middle-income country by 2020. For now, rising domestic consumption is driven by government spending funded by donors on infrastructure.

With a total market of only 12m people, Rwanda is pushing the agenda for integration across the East African Community, the regional trade block. "For us as a landlocked country, we see regional integration as very, very crucial," says Claver Gatete, finance minister. "That's why we are talking about a railway from Mombasa all the way through Uganda to here." Rwanda is due to pay $1.2bn of the railway's $13.8bn cost, but is yet to work out how.

"We have been working on how to bring in the private sector," says Mr Gatete. The government wants it to fund at least a third of the Rwanda portion.

Rwanda has worked to cut the costs of transporting imports 1,000km from the east African coast. It has delivered reliable well-paved roads and championed smoothing out customs clearance procedures with a new region-wide single-entry system. This has reduced non-tariff barriers at checkpoints, where kickbacks were previously a feature.

Importers and retailers in Rwanda testify that goods now arrive from port to shelf within four days, compared with more than two weeks previously. "Delays have come down - now there are no formalities at the border. It has really helped us," says Mr Dharmarajan. "Now we feel we are linked, not landlocked. It's a good relief."

Despite the improvements, Rwanda still suffers a cruel squeeze on its purchasing power, which is much weaker than in the east African economic hub, Kenya. Shop prices in Rwanda tend to be at least 10 per cent higher than in Kenyan stores. A variety of factors related to long-distance transport are the cause.

"We are talking about logistics, we are talking about insurance, we are talking about considering the damages, we are talking about the shelf life," says Nakumatt's Mr Ramata.

John Rwangombwa, central bank governor, says things are set to improve as the economy emerges from the low growth of 2013. Donors held back aid at the time over allegations that Rwanda was backing rebels in neighbouring eastern Congo.

"The economy is doing well since 2014 and we are going back to where we were before 2012," he says. He points not only to improving growth but also indicators such as a reduction in non-performing loans (from a 7.2 per cent recent high in 2013 to a 2015 target of 5 per cent).

Despite its setbacks, Nakumatt, which has 300 employees at its two Rwandan stores, plans to open two new outlets in the capital, including in August a 24-hour shop near the airport with a gymnasium on top of it. It aims to open its first stores outside Kigali in two years' time.

Mr Rwangombwa says the government is lobbying banks to bring down high lending rates, although bank loans to the private sector did rise 38 per cent last year. The key challenge, he adds, remains how to boost exports to deliver greater dollar flows.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation