EAC moves to reduce heavy reliance on US Dollar in intra-regional trade

EAC moves to reduce heavy reliance on US Dollar in intra-regional trade
Photo credit: Timothy Kisambira | New Times

19 Feb 2016

To cushion the economy against volatility of exchange rate markets, Rwanda has teamed up with other countries in the East African region to allow the use of local currencies across borders.

Trade across borders has previously been by the American Dollar, which made traders vulnerable to the exchange rate market volatilities and exposed them to high exchange rate costs.

Ordinarily, traders in the region involved in cross border trade have to convert their national currencies to the Dollar before conducting transactions and later convert the currency back to their national currency.

In the process, they incur exchange related costs twice.

The reduction of the reliance on the dollar in intra-regional trade will cushion Rwanda and her neighbours from depreciation of their respective national currencies as was seen last year, following the strengthening US Dollar and weak export earnings in the region due to low commodity prices on the international market.

While presenting the monetary policy and financial stability statement in Kigali, yesterday, the Governor of the National Bank of Rwanda, John Rwangombwa, said Kenya, Uganda and Tanzania were already part of the agreement.

Burundi is also part of the memorandum of understanding.

“We also worked with our partners within the region to ensure currency convertibility; we want to be using our local currency to trade across our borders. We are working with Kenya, Tanzania and Uganda; we have a memorandum of understanding on currency convertibility. Burundi is also signatory to the agreement. We expected to reduce the volatility of the impact of the US Dollar in our economies,” Rwangombwa said.

Although the sub-Saharan African economy too slowed down just like the global economy, countries in the region –other than Burundi- performed well in 2015.

According to the monetary policy and financial stability statement presented, the Kenyan economy is projected to grow by 6.5 per cent, the Ugandan economy by 5.2 per cent, the Tanzanian economy by 6.9 per cent.

Rwanda economy in the first three quarters grew by an average of 6.9 per cent with indicators pointing to good performance evolving towards the projected 7 per cent growth for 2015.

However, due to the ongoing political situation in Burundi, the economy is expected to contract by about 7.2 per cent after a growth of 4.7 per cent in 2014.

Rwanda’s trade with EAC

Rwanda’s exports to other East African Community countries went down in volume and value in 2015 from $142.45 million in the previous year to $127.76 million last year.

The decline comes at a time when East African Community is implementing a common market protocol expected to drive up trade in the region.

The decline was blamed on the fall in international commodity prices coupled with the fall in exports products mostly exported to neighbouring Burundi.

Exports to Burundi went down by 6.7 per cent in value.

Imports from the region went down too from about $546.8 million to $ 519.4 last year. Rwanda’s main exports to EAC members are tea, coffee, raw hides and skins, vegetables, beer and products from the milling industry.

On the other hand, Rwanda imports products such as cement, refined and non-refined palm oil, vegetable fats and clothing, among other products.

Commenting on the trend of imports and exports, the Minister for Trade and Industry, Francois Kanimba, said there were structural constraints as well as shocks that required urgent attention.

Other than the global commodity prices, Kanimba said there were challenges such as supply bottlenecks that would significantly increase the volume in production levels.

“We have strategies in place to do better which we will continue to implement. Our projection is that we may improve in export volume and value in the coming years but at a speed that can affect the current level of trade balance,” Kanimba said.

Kanimba noted a worrying trend in the imports of some consumption goods that Rwanda was also producing.

Giving the example of local cement producer, CIMERWA, Kanimba, said even after expanding their production capacity, improving their quality and reducing prices, the local market was flooded with imported cement reducing the performance of the local product.

“There are issues that I would like us to set operational framework in different institutions to see how we can to better,” he said.

Rwanda MPFSS 2016 New Times

Private Sector Federation (PSF) chairman Benjamin Gasamagera said they were convening session with members of the private sector to look into the issue of local products performance in the market against imports.

He added that initiatives such as the ‘Made in Rwanda’ expo and exhibition slated to take place on February 25 would ensure that the market was aware of quality products produced in the country as well as their comparative advantages.

Regional instability

The central bank meanwhile allayed fears that the political instability in the region, mostly in Burundi (and fears of DR Congo) could hold back Rwanda’s economic growth which is projected to grow by 6.3 per cent in 2016.

Rwanda is aiming at economic growth this year largely driven by service, agriculture and industry sectors.

Rwangombwa said having operated in an unstable region in the past among trading partners such as DR Congo, they were prepared to handle slow down in the event it arises.

He said the Burundian refugee influx hadn’t taken a toll on the country much as Rwanda was working with international partners to maintain them in the country.

“The expected impact is not very big in relation to other challenges expected such as economic crisis. The exports we are sending to the region is about $200m and the impact might be about 20 to 30 per cent of that,” Rwangombwa said.

The other impact could be on tourism as westerners see Africa as one country, the governor said.

Author Collins Mwai
Source The New Times
Website Visit website
Date 19 Feb 2016
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