Rwanda is one of Africa’s “rising stars”. The country’s economy has seen solid rates of economic growth since the civil conflict in the mid-1990s. Strength in investment flows has followed in the path of this macroeconomic and institutional stability. As this article highlights, a large part of Rwanda’s success has been the result of proactive policies undertaken by the Government of Rwanda (GOR) in facilitating a good domestic investment climate, which has been conducive to strong rates of growth in foreign direct investment (FDI) into the economy. Despite the country’s successes, though, developments in manufacturing have been slow but steady: the sector’s share of the economy, and in exports, remains small.
The manufacturing sector grew by 8% for the fiscal year 2017/18 from 6% in the previous financial year. Since the adoption of the National Industrial Policy in 2011; several critical policy interventions and strategies have been developed such as Made in Rwanda policy. This has become achievable by Rwanda’s increased tariffs on imported used clothes from $0.20 (£0.15) to $2.50 (£1.90) per kg in 2016. The eventual aim is to phase out all used-clothes imports. Its government hopes the move will help nurture their garment industry and create more than 25,000 jobs. The local apparel export defied the odds between 2018 and 2020, growing at 83 percent in value. Statistics from the Ministry of Trade and Industry indicate that Rwanda exported $5.9 million worth of textile and garment products to the international market in 2018. By 2020, that value had increased to $34.6 million, pointing to an increased volume of garment products to markets such as DR Congo, Belgium, Germany, and Hong Kong.
Secondly, Entrepreneurship Development Policy (EDP), in the manufacturing sector sees to it entrepreneurs enjoy the following incentives:
Corporate income tax holiday of up to 7 years is provided when investing at least an amount equivalent to $50 million, Companies with Export Processing Zones (EPZ) status are exempted from customs taxes, corporate income tax, and value-added tax for an investor exporting more than 80% of production. A preferential corporate income tax rate of 15% is accorded to an investor who exports at least 50% of the production. Likewise, registered investors shall not pay capital gains tax. The accelerated depreciation rate is set at 50% for the first year. Foreign companies investing at least 250,000 USD can recruit three foreigners without a labor test. Manufacturing companies are exempted from import duties on inputs and equipment.
The Special economic zones (SEZ) and nine industrial parks in Bugesera, Rwamagana, Muhanga, Nyagatare, Musanze, Huye, Nyabihu, Rusizi, and Kicukiro are aimed at addressing shortcomings in the business environment by developing infrastructure, streamlining business regulations, and facilitating fast-moving investors. One of the first factories to open shop was C&H Garments, a Chinese-owned company reviving the manufacturing sector. Three years later, the daily production entails 4000 jackets,3000 t-shirts and 500 trousers having the government as one of the key clients. The workforce grew from two hundred at conception to over a thousand with 20% of the clothes sold in Rwanda and the other 80% is exported to Europe and the United States of America. According to World Bank Statistics Rwanda’s current manufacturing sector raked in $829 million in 2019. This has been the highest level since conception and 2020 equally stayed profitable despite the pandemic.
The country’s financing stock in manufacturing is heavily reliant on Foreign Domestic Investments (FDI) having been singled out as a zero-tolerance for corruption nation and Government of Rwanda has worked painstakingly to improve and streamline the country’s business registration process. Last month, November 2020,The Government of Rwanda signed an agreement with Fund for Export Development in Africa (FEDA) created by African Export-Import Bank (Afreximbank) that will see Kigali host the Fund’s headquarters aiming at providing equity capital to export and trade-oriented businesses. What is in it for Rwanda? Well, Rwanda’s aspirations of becoming a leading financial hub will soon become a reality through private investment to drive growth. Hosting FEDA shall enable SME’S to gain access to finance, manufacturing and compete favorably in the export market in Africa and beyond.
In conclusion, the experience of new investors in the garment sector has shown that Rwandan workers are disciplined and trainable and that investing in Rwanda provides good market opportunities for investment, especially in the manufacturing sector, for both its regional neighbors and foreign investors. However, the over-dependence on single firms could be detrimental and diversification is much needed.
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