THE EAC-COMESA-SADC TRIPARTITE FREE TRADE AREA: IMPACT ON RWANDA'S EXPORTS

Abstract

Intra-African trade, which has remained under 12 per cent in the last decade, is low compared to other major regions of the world. In January 2012, the African Union (AU) Summit of African Heads of State and Government endorsed the theme of “Boosting Intra-African trade” and called on Member States, Regional Economic Communities (RECs) and the AU Commission to promote industrial development with a view to diversify economies and moving away from heavy reliance on traditional primary commodities for export. Using disaggregate export and import statistics Harmonized System at the 6-digit level from BACI and COMTRADE data sets between 1998 and 2009, measures of export diversification (using Harfindahl-Hirshman Index) and intra-industry trade (using Grubel-Lloyd Index) are computed for Rwanda which is available from National Institute of Statistics. The paper also reviewed the works of other researchers on the impact of trade impacts on export performance in Rwanda. Secondary data was used for purposes of qualitative research. On the other hand, the researcher used ex-ante descriptive tools to review Rwanda’s export situation and from there drew conclusions on the potential of the Rwanda’s export performance with data coming from EAC, COMESA, SADC and FTA and other data sources for purposes of quantitative analysis.Preliminary results indicated that while both export diversification and intra-industry trade in Africa are generally low, there are exception cases. In addition, a positive correlation between export diversification and intra-industry trade is found for the sample of African countries. This has implication for policy dialogue suggesting that any future trade policy designed to favor export diversification has positive implications for intra-industry trade and vice versa. Other findings from the technical work provided two important contributions to the direction of current trade policy dialogue on boosting Intra-African trade. First, export diversification and intra-industry trade policies should not be treated in isolation. Second, we identified constraints towards export diversification and intra-industry trade in Africa crucial towards better understanding and subsequently developing effective program of actions for boosting Intra-African trade. Rwanda's economic performance in the near future depends very much on the strategic investment programmes to improve its infrastructure, the global demand for its exports, and the improved business climate and its effects on promoting private investment.  In order for Rwanda to overcome infrastructure bottlenecks and other supply-side constraints, investment is needed in, inter alia, broadening access to electricity for the population by increasing household grid-connectivity; the railway line to facilitate Rwanda's import/export trade;  the construction of an international airport in Bugesera;  and in irrigation systems to promote agricultural productivity.

How can Rwanda, which currently has one of the lowest levels of income and exports per capita in the world, grow and diversify its economy in presence of significant constraints? Three basic commodities – coffee, tea, and tin – made up more than 80 percent of the country’s exports through its history and still drive the bulk of export growth today. Given Rwanda’s high population density and associated land scarcity, these traditional exports cannot create enough jobs for its growing population, or sustainably drive future growth. Rwanda needs new, scalable activities in urban areas. In this report, we identify a strategy for greater diversification of exports in Rwanda that circumvents the key constraints and is separately tailored for regional and global export destinations. Our results identified more than 100 tradable products that lie at Rwanda’s knowledge frontier, are not intensive in Rwanda’s scarce resources, and economize on transportation costs. Our analysis produces a vision of a more diversified Rwanda, which can be used as a guide for investment promotion decisions. Based on the reviews and analyses, it was found that the impact of the Tripartite on Rwanda export performance maybe small with regards to export performance. However, Rwanda stood to benefit greatly from the tripartite by bringing transparency in the regional trade regime and harmonization of policies. This will eventually bring about predictability in Rwanda trade agenda and help reduce trade costs. Lastly, the study drew conclusions and offers policy recommendations on future measures to be taken with the view of ensuring that Rwanda gains from the Tripartite. Given the heterogeneity of the effect of FTAs across regions in Africa, it is important to structure negotiations to be region-specific to avoid the policy overlaps of existing trade agreements within regions.

Keywords: Rwanda, Tripartite Free Trade Area, Free Trade Agreements; International Trade, Africa, COMESA and Export performance

CITATION: Rwigema, P, C. (2021). The EAC-COMESA-SADC tripartite free trade area: Impact on Rwanda's exports. The Strategic Journal of Business & Change Management, 8 (2), 1039 – 1085.