The World Bank has warned that Rwanda’s economic growth could be hurt by external risks like low commodity and mineral prices; and the Euro Zone finance crisis.
Rwanda has so far emerged unscathed posting very impressive growth rates last fiscal year where the economy grew at 8.6%. Just last week, the central bank here released the half year monetary policy report that indicated the economy had grown at 7.7% clearly above what IMF projects for regional economies this term.
But Rwanda heavily depends on Europe to sell her biggest exports including coffee and tea but Europe has failed to recover from recession and tea prices took a slump of about 4% in the first half meaning low returns from sales.
In its third edition of Rwanda Economic Update titled Leveraging Regional Integration, presented in Kigali last week, the Bank says there are “major risks” on the external outlook that are a threat to Rwanda’s economic future.
The Bank names inflationary pressures from possible rise in oil and food prices, decline in the prices of minerals-one of country’s major source of foreign currency and lower inflow of foreign direct investments and remittances from Rwandans working abroad.
Further harm could be registered in tourism the tourism sector which is whose revenue might dwindle due to deliberate cutting on expenditure on holidays by foreign visitors coupled with the proposed increase in fees paid by visitors coming to view gorillas, arguably Rwanda’s main tourist attraction.
But the news is not anything shocking to Rwanda whose central Bank governor also sounded the same cautions saying that though the economy continues to hits the set targets, things are not ‘safe’ for anyone, at least not yet.
“Europe has not actually recovered from the global downturn and we are bound to be affected,” warned Claver Gatete, Rwanda’s Central Bank Governor.
Last year, Rwandan households with relatives working abroad received $166.2 million-about 1.8% of GDP. The sustainability of this source of income will depend on the economic situation in Europe and North America, the second biggest source of remittances. The largest share (46%) of remittances to Rwanda however comes from the East African region where most of the estimated 300,000 foreign-based Rwandans live and work.
But the World Bank says the biggest risk should be if donor financing [diminished] given the precarious nature of many economies of the traditional donors. This would require Rwanda to scale back on capital projects and some recurrent expenditure.
In 2011, the mining and construction sectors posted strong growth rates and enabled the whole economy to grow by 8.6%, the fastest rate in the region, but growth in the mining sector collapsed to zero while construction went into negative in the first quarter of this year.
But according to the report, earnings from mineral exports did decline by 3.5% in the first quarter of 2012. At the same time, earnings from tea also plummeted by 6.7% as a result of low export volumes and lower prices at the Mombasa tea auction.
Coffee was the only traditional export to have performed well during the first quarter of 2012 on account of good prices on the international market that went up by about half.
In what appears to be the country’s new window to boost export earnings, the World Bank says that Rwanda’s export earnings during the first quarter of this year were lifted by regional trade involving re-export of petroleum products to the DR Congo-accounting for 17% of the value of the country’s exports during that period. This was significant compared with the 1.7% of the same period in 2011.
The World Bank report also suggests that Rwanda can benefit more from deeper regional integration that can allow more freedom in the movement of goods and services and by having freer access to the coast.
It’s a belief the central bank governor share after he recently said that Rwanda seeks to spur exports to the region by putting in place mechanisms to increase trade with neighboring countries.