With more investment in internet infrastructure and technological innovation, Rwanda could benefit more from increased trade in services, asserts the World Bank.
This was stipulated in the latest World Bank report on Rwanda’s economic update released on September 23. It was dubbed “Boosting exports through technology, innovation and trade in Services.”
Rwanda aspires to become a knowledge-based and services-led economy through diversification of its export base into distribution and logistics services, tourism, business travel and financial services, as part of the National Strategy for Transformation.
These service activities offer significant employment opportunities for both relatively unskilled and more skilled workers in different sectors.
Calvin Djiofack, World Bank Country Economist, noted that Rwanda should invest more in strengthening the link between e-commerce and exports as it is not fully exploited by local firms which lack information regarding foreign markets.
“Investment in internet infrastructure can provide isolated enterprises, such as those in rural and underdeveloped urban areas, low-cost connectivity to markets and customers, and increase local firms’ participation in international trade,” he added.
The report emphasises that enhanced digitisation could also foster digitally-enabled services to facilitate cross-border trade, support backward and forward linkages to agriculture, mining, and manufacturing.
This call finds Rwanda on a journey of significant strides made over the last couple of years in improving ICT infrastructure to drive productivity of the entire economy, reduce transaction costs and inefficiencies in the use of capital and labour, data shows.
In 2019, data from the Ministry of Trade and Industry (Minicom) indicate that services trade was roughly 45 percent of Rwanda’s total exports worth $2 billion in or 21 percent of GDP.
However, the sector witnessed a sharp drop in 2020 from being hard hit by the pandemic with 10.2 percent share of GDP, but it recovered over time as restrictions eased.
For instance, Antoine Kajangwe, Director General of Trade and Investment, Ministry of Trade and Industry, noted that the e-commerce sector in Rwanda is developing swiftly.
A recent survey conducted by Minicom and Ministry of ICT & Innovation in 2021, showed the increase of e-commerce firms from just 3 to over 60 in the 2 years of COVID 19, he said, likewise, the value of e-payments to GDP increased 111.4 percent in the first half of 2022.
“We expect the e-commerce sector to continue growing as consumers recognise the convenience of e-commerce. A sector policy and regulatory framework are currently under development to help address some of the gaps hindering further growth,” Kajangwe said.
To benefit from the African Continental Free Trade Area (AfCFTA), Rwanda -under the regional bloc -has been making negotiations for trade-in-services liberalisation expected to make the region competitive and tap into new emerging opportunities.
Herman Musahara, an economist based in Rwanda, said that there has been a quick recovery in the service sector especially driven by the MICE (Meeting Incentive Conference and Exhibitions).
He further added that the concerned businesses should leverage regional blocs that Rwanda is part of and other bilateral agreements it has with other countries in terms of expanding their market.
“In many respects, Rwanda’s services trade regime is quite open, for example, in commercial banking, distribution and road freight…however, Rwanda imposes restrictions on the cross-border transfer of data and on data processing that could impair firms’ ability to participate in services trade,” World Bank noted.
Addressing skills gap by liberalising work-permit regime
Rwanda is facing a skills deficit that, if not remedied, will constrain potential growth for high-skill services contribution, cited the report.
One of the measures recommended to boost openness to trade in services is for Rwanda to address its skills shortage in the short-run by recognising the qualifications of regional professionals, and abolishing work-permit regimes for them.
“These administrative burdens are a primary reason that prevents professionals from accepting short-term assignments. Any eligible professional certified from any EAC professional body should be automatically exempt from work-permit regimes.”
However, it adds that the attraction of regional service providers should be accompanied by aggressive measures to help expand the number of Rwandan professionals.
To foster innovation through tertiary education, the report recommends Rwanda to continue creating incentives for researchers to develop and adapt innovations that benefit industries in the country and that can help to reap the maximum returns to local innovation.