Rwanda wants a textile industry

October 17, 2016

 

Rwanda has been trying to boost its textile industry since 2015, when the country banned the import of second hand clothing and hiked taxes on locally sold second hand clothes. These measures were taken-up as Rwanda spent more than US$ 15,000 on the import of second hand clothing. Shoes and second-hand clothes - very popular in Rwanda as in other African countries - are imported in bulk from Europe and North America and are sold at low prices on the local market. This resulted in an important import-export unbalance, and created competition which had killed the textile industry, according to the Rwandan Trade and Industry Minister François Kanimba. Since then, the government has been trying to increase local production and attract foreign companies and investors.

 

Incentives

This year, Cabinet has decided to remove import duties on certain fabrics and accessories (zippers, button etc.). The government has signed agreements with two investors to establish new clothing and shoe factories at the new 'Apparel Manufacturing Zone' in the Kigali Special Economic Zone. The Government land is to be leased to investors engaged in apparel production, requiring them to pay for it over a period of 20 years as a way of encouraging investment.

 

Additionally, the government plans to invest US$3 million to US$5 million in setting up the cocoon processing factory to produce silk in the Kigali Special Economic Zone. The export body recently signed a deal with a Korean-based company, HEWorks to improve silk production in the country. According to the agreement the company will invest up to US$5.1 million into silk production. It is hoped that farmers will venture back into sericulture.  

 

Rwanda, being a member of various trading regimes such as the East African Customs Union, COMESA, AGOA and others, provide broad market access potential. Rwanda itself has a population of around 11 million people, requiring 66million meters of fabric per annum at the average of 6 meters per capita. COMESA offers a market of 400 Million people that require at least 2.4 Billion meters of fabric per annum, at an average per capita consumption of 6 meters only. At an East African level, the Region has a population of 135 Million people which translates into a market size of 810 Million meters per annum. Under the AGOA initiative, Rwanda has duty and quota free access to the USA. According to MINICOM, the overall market size for clothing is expected to continue to grow as the economy grows with domestic production projected to overtake second hand imports by 2020.

 

Barriers

There are however still barriers for translating this initiative into increased and low cost production. This includes for instance the price of cotton. Uganda, Kenya, Tanzania and Burundi are major cotton producing countries, while Rwanda – which does not have the appropriate climate - is a net importer. According to textiles players, another key challenge is the high transport and transaction costs of both imported and exported materials. Being a land-locked country, the poor infrastructure around transport and logistics, nationally and regionally, is an important impediment to business. These costs have been eased by the new tax waiver on imports of fabrics, however some argue that for the policy to work well it would need to be adopted at regional level. In the long-term, Rwanda, Uganda and Kenya, are planning the construction of a standard gauge railway to connect to Kenyan ports. In the meantime, some dissenting voices worry that an unintended consequence of the governments’ initiative might be the creation of a black market if the local industry is unable to meet local demand.

 

Opportunity

Despite these however, speaking of Sub-Saharan Africa, William McRaith, PVH’s chief supply chain officer said at a conference last year that “The dynamics of that region are far more interesting than China was at a similar point in its development.”

 

Indeed, Rwanda is one of the best destinations within Africa for foreign investment and those wanting to establish operations on the continent. It is ranked 62nd in the World Bank’s Ease of Doing Business Index, the third country in Africa after Mauritius and South Africa. It has a liberalised economy with government commitment to the private sector. Between 2001 and 2012, Gross Domestic Product (GDP) growth averaged 8%, with a light decrease this year. The country is politically stable, with attractive investment policies and relatively low corruption levels (55 out of 175) in the Corruption Perceptions Index. A peaceful constitutional referendum was held in 2015, which would allow President Paul Kagame to run for a third, seven-year term in 2017. While some have previously accused Mr. Kagame of election rigging, electoral years under his leadership have been peaceful with high voter turn-out and Mr. Kagame’s party wining by landslide. Next years’ election will likely see a small rise in opposition, but not enough to disrupt peace.

 

 

(Sources: BBC News, Le Point, Jeune Afrique, AllAfrica, Newtimes Rwanda, The Wall Street Journal)

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