Bringing industrial policy back in: A new flavour to the narrative of post-1994 Rwanda

Continuing our series on Rwanda, Pritish Behuria takes a look at Rwanda’s industrial policy. Economics has played an important role in reflecting and shaping politics in the country, he argues, yet industrial policy is often neglected in analyses of Rwanda. Pritish is a PhD candidate at the School of Oriental and African Studies.

Rwanda’s dual narrative is well-known. On the one hand, critics talk of a violent state guilty of human rights violations consolidating control within its elite. On the other, there is an image of what Paul Collier calls the ‘hat-trick’ of rapid growth, sharp poverty reduction and reduced inequality, or the tremendous improvements in health indicators. Nobody, though, discusses industrial policy with any real fervour. There is perhaps an obvious reason for this: there is very little ‘manufacturing’ taking place in Rwanda. However, it is my contention that one of the key ingredients of the ‘positive’ narrative in Rwanda is not found in a ‘business-friendly environment’ or other indicators romanticized by mainstream commentators. Rather, it is the creating (or at least in attempting to create) a diversified economy, such that Rwanda has never seen before.

Coffee and Rwanda

The economy of Rwanda has, historically, like many other former colonies, been organized around primary commodity production. As with many other former colonies, this commodity has been coffee. Gregoire Kayibanda’s own political career was catalysed only after he became President of TRAFIPRO (Travail, Fidelite, Progres), a co-operative that would later become the country’s marketing board and serve as the economic arm of the regime. During his own reign and Habyarimana’s reign that followed, rents continued to be derived within the coffee sector.

Phillip Verwimp has widely discussed how a fall in worldwide coffee prices and the Habyarimana government’s acute dependence on this sector (amounting to nearly 70 percent of exports in the 1980s) stretched the government’s coffers to the limits during the years preceding the genocide. What really squeezed the government was the ‘triple torrent’ (as Andy Storey called it) that hit Rwanda in the 1980s, which was only accentuated by the fall in coffee prices after an earlier fall in tin and tea prices. Following this plummet in prices, Habyarimana’s government scrambled to find new sources of revenue and forced farmers to grow increasing amounts of coffee during crisis years. Later, ‘greedy’ elites were able to take advantage of common grievances within a peasantry, suffering from increasing destitution, to lay the foundations for violence. Primary commodity dependence in Rwanda was not the only cause of genocide but clearly influenced the events of 1994.

Coffee was Power

The new government learned from these mistakes, but also reacted to the prevailing low international prices and a ravaged coffee sector. TRAFIPRO had been the sole marketing board during the Kayibanda years, while Rwandex – a monopsony export agency out of which members of the Akazu extracted individual benefits – exported about 80% of coffee out of Rwanda during the Habyarimana years. During both regimes, these institutions were utilized as avenues of rent extraction for elites. The new government immediately transformed the sector by liberalising it on the exporting side. Currently, the sector has over 40 companies exporting coffee out of Rwanda, in a relatively competitive market.

Today, the Rwandan economy is still largely dependent on three traditional exports – coffee, tea and minerals. However, the government has built a strategy towards developing a services-led economy. In this regard, ICT and Tourism are targeted as key sectors for foreign exchange earnings. Tourism has already begun to play a major role, boosted by the popularity of Gorilla Tourism, which the Habyarimana government was never able to take advantage of despite the popularity of the film, Gorillas in the Mist. Other sectors have shown surprising success. Rwanda has begun to export the best quality pyrethrum extract in the world and by some estimates, controls 15 percent of the world market share in this commodity. The dairy sector recently became the top export in Rwanda for a three-month period between October and December 2013. Of course, there have been some failures as well – including an attempt at building the country’s floriculture sector, which the government is now looking to reinvigorate.

Diversification in Traditional Exports in Rwanda

The three traditional sectors have also experienced diversification within them, with mixed results. This has occurred by producing better quality exports and thereby attracting better prices, as well as audacious attempts at setting up coffee shops and finding shelf space in international retail stores.  In the coffee sector, for instance, fully-washed coffee production has been on the rise. The government played an important role in setting up the foundation for adding value in the coffee sector with the military, building several of the first washing stations. USAID projects – PEARL and SPREAD – were also pivotal in initial moves in this sector, supporting the installation of new washing stations as targets were set on increasing production of fully-washed coffee. Today, over 30 percent of all coffee produced in the country is Fully-Washed Coffee. The number of Coffee Washing Stations in the country has increased from 2 in 2000 to 213 in 2012. Rwandan brands now appear in shelf spaces in Tesco and Sainsbury.  A Crystal Venture Ltd. Subsidiary – Bourbon Coffee – was used in a bold attempt at adding value by setting up stores in Washington DC, New York and London (with mixed success).

The Tea Sector has also been regalvanized under the current government. All 11 factories are now owned by private companies, compared to just one during the Habyarimana government. Here, value-addition has been quite difficult, although Rwandan Tea has won prizes and risen in value over recent years. Attempts to package tea have been met with mixed success. The National Agricultural Export Board (NAEB) of Rwanda worked with a domestically-owned company – Rwanda Mountain Tea – to make an ill-feted venture into Dubai to sell their packaged products.

The Mining Sector, too, has consistently flirted with ‘adding value’ without much success. Most importantly, recent liberalization has paralleled a rise in mining exports. Though critics may scoff at such findings, transparency initiatives have been recognized as improving, and the domestic mining sector is now under a rapid transformation. A smelter has been inoperative for decades in Rwanda and is currently under the ownership of international investor, Phoenix metals. A combination of infrastructural constraints, administrative impediments and a lack of consistent supply plague the running of the smelter.

A classic problem in terms of motivating and maintaining successful industrial policy has been a political one. Mushtaq Khan, for instance, has highlighted the need to manage ‘transition costs’ – the ability of powerful groups to block certain policies – as winners are picked in the economy and some ‘losers’ may no longer be accommodated.  David Booth and Frederick Golooba-Mutebi have argued that ‘partystatals’ – party-owned enterprises such as Horizon Group and Crystal Ventures Ltd. – are key agents in the process of industrialization. Critics state that such groups dominate a majority of the economy and have themselves become agents of rent extraction for individual elites. For Booth and Golooba-Mutebi, and their critics, it is important to note that no partystatal company occupies a significant market share in these three sectors. Here, the ‘engines’ of ‘adding value’ are different. They include international companies, domestic entrepreneurs and individual Rwandan elites – all of whom have had mixed success. The government meanwhile attempts to build relationships with these ‘agents’ that can encourage continued learning and avoid lazy monopolies.

This story of ‘adding value’ in Rwanda is a small part of the larger tale of industrial policy in Rwanda. Other sectors are perhaps more important in terms of enhancing the structural transformation of the economy and the creation of jobs. There are fears within Rwanda of a ‘lost generation’ and the growing need to accommodate the youth with jobs. As the country pushes for a ‘service-led’ economy that could provide such employment, the government must manage the politics of industrial policy, while lifting infrastructural constraints. This begins with energy, which will be particularly key to dreams of a ‘service-led economy’, with little progress being made towards meeting targets of 563 MW by 2017 (it is currently at 110 MW). Big leaps are needed to enter the monopolistic markets of the West, and even to secure markets at home. The next few years will be crucial in testing Rwanda’s mettle.