## 1. Determinants of African Firms’ Exports and Participation in Global Value Chains

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### Introduction and context
- Rwanda’s export landscape is anchored in primary commodities and a small set of trading partners, constraining external adjustment despite active policy frameworks.
- Key national frameworks: Vision 2050 and the 2024–2029 National Strategy for Transformation (NST2).
- The SIP assesses non-price factors (product composition, diversification, export survival) and price competitiveness, and outlines policy priorities to enhance competitiveness and narrow Rwanda’s external gap.

### Rwanda’s trade deficit: magnitude, drivers, and characteristics
- Current account deficit averaged well above 10 percent of GDP and reached nearly 15 percent in recent years.
- Structural factors explaining the persistent trade deficit:
  - Sticky imports: More than half of the increase in exports-to-GDP since 2016 came from gold and re-exports, which require high import content; imports have risen in parallel with exports.
  - Limited contribution of services: Travel and ICT exports expanded but were fully offset by deficits in transport services.
- Imports expanding rapidly driven by food, fuel, construction materials, and capital goods supporting an investment-led growth model.
- Trade openness (exports + imports as share of GDP) has increased and now exceeds regional peers; world goods export market share has increased from a low base; services exports growth has stalled.

### Structural underpinnings and export composition
- Export base remains narrow and concentrated in primary products: coffee, tea, mineral products; non-traditional exports (horticulture, light manufacturing, ICT) remain small.
- Concentration and market shifts:
  - Gold accounted for nearly one-third of total goods exports by 2022, up from less than 1 percent in 2010.
  - By 2022, exports became heavily concentrated in the United Arab Emirates (36 percent) and the Democratic Republic of Congo (24 percent).
- Downstream GVC role and foreign value-added:
  - Significant share of exports linked to downstream participation in global value chains (e.g., import intermediate goods, refine/process, re-export).
  - Rwanda’s role remains primarily downstream; upstream participation is limited compared with more industrialized peers.
- Export sophistication and skill intensity:
  - Medium- and high-technology products account for less than 10 percent of exports.
  - Overall export sophistication has declined largely due to rising dominance of gold.
  - Concentration in low-skill intensity products limits long-term growth dividends.
- Product survival and complementarity:
  - Trade complementarity with regional partners has improved but Rwandan export products remain broadly similar to Kenya, Uganda, and Tanzania.
  - New products show low survival rates; many disappear after a short period.

### Box 1 — Determinants of African firms’ exports and participation in GVCs (firm-level evidence)
- AfCFTA context:
  - Signed by 54 countries, covering 1.3 billion people and a $3 trillion GDP.
  - Africa’s intra-African trade accounts for only 15 percent of total exports.
  - Tariffs about 6 percent; large nontariff measures roughly equivalent of18 percent tariff.
- World Bank Enterprise Surveys: covers 96,000 firms across 45 countries during 2010–22 period.
- Export activity measures used:
  - Exporter status: ≥10 percent of sales exported.
  - GVC participation: ≥10 percent exports and ≥10 percent imported inputs.
  - Export intensity: exports-to-sales ratio.
- Key determinants of export and GVC participation (firm-level):
  - Trade environment: customs clearance times, access to finance, reliable energy and transport infrastructure, and security conditions strongly shape export behavior; customs efficiency and access to imported inputs are particularly critical for GVC participation.
  - Firm characteristics: larger, older, foreign-owned firms, and those located in major cities are more likely to export; female ownership is positively associated with export propensity.
  - Skills and innovation: firms with better-trained employees, skilled managers, and those introducing new products or processes are significantly more export-active.
  - Market conditions: competition from informality and corruption in procurement reduce incentives for formal firms to engage in exports.
- Policy implication from firm-level evidence: decisive factors for exporting and joining GVCs lie less in tariff policy and more in the domestic trade environment; complementary reforms to customs, finance, infrastructure, skills, and governance are essential for AfCFTA to realize its potential.

### Impediments to export diversification and growth
- Structural and policy drivers identified as critical for export growth and diversification:
  - Logistics and infrastructure quality.
  - Human capital and skills development.
  - Institutional strength (governance, labor market flexibility, role of SOEs).
  - Tariff barriers and non-tariff measures.
- Rwanda’s specific constraints:
  - Landlockedness and distance from major markets increasing transport costs.
  - Weak transport logistics and high transportation costs.
  - Human capital gaps and skill shortages.
  - High import content of export expansion (gold and re-exports), limiting trade balance improvements.
  - Stalled services export growth and deficits in transport services.

### Trade pattern, geography, and market access
- Rwanda's landlocked geography and reliance on Kenya and Tanzania corridors (Mombasa and Dar es Salaam) limit export growth and diversification and increase vulnerability to regional logistical shocks and border closures.
- Proximity to large, high-income markets is associated with greater opportunities for technology transfer, export upgrading, and integration into global value chains.
- Regional integration through EAC and AfCFTA is identified as an opportunity to expand market size and reduce non-tariff barriers.

### Logistics performance and trade costs
- Rwanda's global Logistics Performance Index (LPI) ranking: 151st in 2010 → 57th in 2018 → declined to 73rd (driven primarily by timeliness and international shipments subcomponents).
- Cost and time improvements up to 2010 were largely due to trade reforms, but momentum has since stalled.
- Measurable impacts from reforms:
  - Rwanda Electronic Single Window (ReSW): clearance time reduced from 11 days (2012) to 1.5 days (2014).
  - Rusumo One-Stop Border Post (OSBP): truck clearance time cut to under 30 minutes.
  - EAC Single Customs Territory (SCT) implementation: transit times from Dar es Salaam and Mombasa ports reduced from 21 and 18 days to 7 and 4 days, respectively; transport costs decreased from US$3,100 to US$1,025.
  - Kigali Logistics Platform (KLP): truck turnaround time reduced from about 2 weeks to 3 days.
  - Inland Container Depots (ICDs) in Tanzania/Kenya/Djibouti expected to further cut transit time and logistics costs for Rwanda’s goods (anecdotal).
  - Air Cargo Hub development with Qatar Airways targeted at high-value agriculture and horticulture (which comprise 50 percent of non-traditional exports).

### Human capital, skills, and export upgrading
- Diversification into higher value-added and more complex products requires workforce adaptability and technical capacity.
- Despite important gains in education, Rwanda performs below SSA and EAC neighbors on human capital (Human Capital Index, 2020; [range: 0 (low) to 1 (high)]).
- Policy-relevant quantitative priorities:
  - Increase investment in secondary and tertiary enrollment, technical and vocational training, and STEM competencies.
  - Improve digital literacy and smartphone access to leverage digitized customs procedures and digital trade platforms.
- Sectoral implications: shortfalls hinder development of ICT, agro-processing, and light manufacturing and limit participation in global value chains.

### Institutional quality, SOEs, and business environment
- Institutional quality supports export diversification by lowering uncertainty and fostering private investment.
- Rwanda stands out in SSA for strong governance indicators and ease of doing business, supporting investment in tourism and services.
- Challenges and measures:
  - Reduce prominence of SOEs in competitive sectors and improve SOE governance.
  - Ensure a level playing field for private investment.
  - Historical role: SOEs played a vital role in rebuilding the economy; going forward their roles should be redefined to limit participation in competitive sectors, advance ongoing privatization, and leverage private finance through PPPs where appropriate.
- Business environment reforms and incentives:
  - Rwanda's World Bank Doing Business rank surged from 158th to 38th (2007–2020).
  - Preferential CIT rate of 15 percent for companies exporting ≥50 percent of production or in priority sectors (0 percent for regional HQs).
  - 50 percent accelerated first-year depreciation and exemption from capital gains on assets sold.
  - Duty-free imports of machinery and inputs within EAC.
  - Rwanda Trade Portal and RDB one-stop shop consolidating 22 institutions to provide 440 services.

### Price competitiveness and exchange rate dynamics
- Since 2015, the nominal effective exchange rate (NEER) has depreciated steadily; the real effective exchange rate (REER) has also trended downward but less so due to episodes of relatively high domestic inflation.
- IMF EBA-lite assessment: Rwanda’s REER is moderately undervalued relative to model-implied norms, consistent with a current account gap of about 3–5 percent of GDP.
- Despite nominal and real depreciation improving external price competitiveness, structural factors—high trade costs, limited export diversification, and quality gaps—remain the main impediments to external sustainability.

### Policy implications and recommended actions
- Overcoming impediments requires a comprehensive approach addressing both hard and soft obstacles, complemented by macroeconomic stability.
- Addressing logistics and infrastructure bottlenecks (short- to medium-term and long-term):
  - Continue focus on high-value, low-volume exports that leverage air connectivity and skills base.
  - Complete planned investments in dry ports in Tanzania and Kenya and continue customs modernization to enhance integration into regional and global value chains.
  - Complete strategic infrastructure projects such as the New Kigali International Airport and improve road and rail connectivity to Mombasa and Dar es Salaam.
  - Connect farmers to markets through investments in storage, cold chains, and measures to reduce post-harvest losses.
  - Improve digital literacy and increase smartphone access to fully leverage digitized customs procedures.
- Improving the business environment:
  - Systematically reduce the role of the state in commercial activities, strengthen SOE governance, and ensure a level playing field.
  - Invest in skills development and ICT to support goods and services exports (e.g., agro-processing, light manufacturing, ICT-enabled services, tourism), building capacity in product design, quality assurance, data analytics, and emerging technologies.
  - Support sustainability of new firms and products to reduce high exit rates and translate entry into lasting export diversification.
- Capitalizing on regional integration:
  - Deepen participation in EAC and AfCFTA to expand market access, reduce non-tariff barriers, and attract FDI.
  - Improve trade facilitation, harmonize standards, and strengthen regional transport corridors.
- Safeguarding and enhancing price competitiveness:
  - Maintain inflation close to the center of the target band and allow exchange rate flexibility to absorb shocks.
  - Use opportunistic sterilized FX purchases to build reserves while mitigating exchange rate overshooting during large inflows.
  - Complement macro tools with structural reforms to address high trade costs and narrow export base.

*Source: IMF staff analysis in "Rwanda" Selected Issues chapter (sipea2026042).*

### 1. Determinants of African Firms’ Exports and Participation in Global Value Chains  ______ 6

### 1. Determinants of African Firms’ Exports and Participation in Global Value Chains

### Introduction and context
- Rwanda’s export landscape is anchored in primary commodities and a small set of trading partners, constraining external adjustment despite active policy frameworks.
- Key national frameworks: Vision 2050 and the 2024–2029 National Strategy for Transformation (NST2).
- Export competitiveness is central to achieving high-income status; the SIP assesses non-price factors (product composition, diversification, export survival) and price competitiveness, and outlines policy priorities to enhance competitiveness and narrow Rwanda’s external gap.

### Rwanda’s trade deficit: magnitude, drivers, and characteristics
- Current account deficit averaged well above 10 percent of GDP and reached nearly 15 percent in recent years.
- Two structural factors explaining the persistent trade deficit:
  - Sticky imports: More than half of the increase in exports-to-GDP since 2016 came from gold and re-exports, which require high import content; imports have risen in parallel with exports.
  - Limited contribution of services: Travel and ICT exports expanded but were fully offset by deficits in transport services.
- Imports expanding rapidly driven by food, fuel, construction materials, and capital goods supporting an investment-led growth model.
- Trade openness (exports + imports as share of GDP) has increased and now exceeds regional peers, while world goods export market share has increased from a low base; services exports growth has stalled.

### Structural underpinnings and export composition
- Export base remains narrow and concentrated in primary products: coffee, tea, mineral products; non-traditional exports (horticulture, light manufacturing, ICT) remain small.
- Concentration and market shifts:
  - Gold accounted for nearly one-third of total goods exports by 2022, up from less than 1 percent in 2010.
  - By 2022, exports became heavily concentrated in the United Arab Emirates (36 percent) and the Democratic Republic of Congo (24 percent).
- Downstream GVC role and foreign value-added:
  - Significant share of exports linked to downstream participation in global value chains (e.g., import intermediate goods, refine/process, re-export).
  - Rwanda’s role remains primarily downstream; upstream participation (where domestic value-added feeds into third-country exports) is limited compared with more industrialized peers.
- Export sophistication and skill intensity:
  - Medium- and high-technology products account for less than 10 percent of exports.
  - Overall export sophistication has declined largely due to rising dominance of gold.
  - Concentration in low-skill intensity products limits long-term growth dividends.
- Product survival and complementarity:
  - Trade complementarity with regional partners has improved but Rwandan export products remain broadly similar to Kenya, Uganda, and Tanzania.
  - New products show low survival rates; many disappear after a short period.

### Box 1 — Determinants of African firms’ exports and participation in GVCs (summary of firm-level evidence)
- AfCFTA context:
  - Signed by 54 countries, covering 1.3 billion people and a $3 trillion GDP.
  - Africa’s intra-African trade accounts for only 15 percent of total exports.
  - Tariffs about 6 percent; large nontariff measures roughly equivalent of18 percent tariff.
- World Bank Enterprise Surveys: covers 96,000 firms across 45 countries during 2010–22 period.
- Export activity measures used:
  - Exporter status: ≥10 percent of sales exported.
  - GVC participation: ≥10 percent exports and ≥10 percent imported inputs.
  - Export intensity: exports-to-sales ratio.
- Key determinants of export and GVC participation (firm-level):
  - Trade environment: customs clearance times, access to finance, reliable energy and transport infrastructure, and security conditions strongly shape export behavior; customs efficiency and access to imported inputs are particularly critical for GVC participation.
  - Firm characteristics: larger, older, foreign-owned firms, and those located in major cities are more likely to export; female ownership is positively associated with export propensity.
  - Skills and innovation: firms with better-trained employees, skilled managers, and those introducing new products or processes are significantly more export-active.
  - Market conditions: competition from informality and corruption in procurement reduce incentives for formal firms to engage in exports.
- Policy implication from firm-level evidence: decisive factors for exporting and joining GVCs lie less in tariff policy and more in the domestic trade environment; complementary reforms to customs, finance, infrastructure, skills, and governance are essential for AfCFTA to realize its potential.

### Impediments to export diversification and growth
- Structural and policy drivers identified as critical for export growth and diversification include:
  - Logistics and infrastructure quality.
  - Human capital and skills development.
  - Institutional strength (governance, labor market flexibility, role of SOEs).
  - Tariff barriers and non-tariff measures.
- Rwanda’s specific constraints highlighted:
  - Landlockedness and distance from major markets increasing transport costs.
  - Weak transport logistics and high transportation costs.
  - Human capital gaps and skill shortages.
  - High import content of export expansion (gold and re-exports), limiting trade balance improvements.
  - Stalled services export growth and deficits in transport services.

### Strategic implications and reform priorities (as outlined in the SIP)
- Enhance composition, quality, and skill intensity of exports:
  - Shift export mix toward more skill- and technology-intensive products and services.
  - Improve product sophistication and move up the product space through investments in skills, technology, and supporting industries.
- Strengthen trade environment and GVC integration:
  - Improve customs efficiency and reduce customs clearance times.
  - Increase access to finance and reliable energy.
  - Enhance transport infrastructure and logistics to lower transport costs.
  - Promote reforms that facilitate access to imported inputs for upstream GVC participation.
- Promote private sector participation, FDI, and linkages:
  - Broaden the scope of foreign direct investment and foster linkages between services, agro-processing, and light manufacturing.
  - Use large-scale strategic infrastructure FDI to position Rwanda more centrally in regional and global value chains, conditional on complementary reforms.
- Leverage regional integration:
  - Deeper integration within EAC and full participation in AfCFTA could deliver substantial growth dividends, provided domestic trade environment constraints are addressed.

*Source: sipea2026042 - 1. Determinants of African Firms’ Exports and Participation in Global Value Chains (selected content provided).*

### 16.      Rwanda’s trade pattern reflects a set of logistics and infrastructure impediments that

### 16.      Rwanda’s trade pattern reflects a set of logistics and infrastructure impediments that

### Trade pattern, geography, and market access
- Rwanda's landlocked geography and reliance on Kenya and Tanzania corridors (Mombasa and Dar es Salaam) limit export growth and diversification and increase vulnerability to regional logistical shocks and border closures.
- Proximity to large, high-income markets is associated with greater opportunities for technology transfer, export upgrading, and integration into global value chains (Behar and Freund 2011).
- Regional integration through EAC and AfCFTA is identified as an opportunity to expand market size and reduce non-tariff barriers.

### Logistics performance and trade costs
- Rwanda's global Logistics Performance Index (LPI) ranking: 151st in 2010 → 57th in 2018 → declined to 73rd (driven primarily by timeliness and international shipments subcomponents).
- Cost and time improvements up to 2010 were largely due to trade reforms, but momentum has since stalled.
- Measurable impacts from reforms (Box 2):
  - Rwanda Electronic Single Window (ReSW): clearance time reduced from 11 days (2012) to 1.5 days (2014).
  - Rusumo One-Stop Border Post (OSBP): truck clearance time cut to under 30 minutes.
  - EAC Single Customs Territory (SCT) implementation: transit times from Dar es Salaam and Mombasa ports reduced from 21 and 18 days to 7 and 4 days, respectively; transport costs decreased from US$3,100 to US$1,025.
  - Kigali Logistics Platform (KLP): truck turnaround time reduced from about 2 weeks to 3 days.
  - Inland Container Depots (ICDs) in Tanzania/Kenya/Djibouti expected to further cut transit time and logistics costs for Rwanda’s goods (anecdotal).
  - Air Cargo Hub development with Qatar Airways targeted at high-value agriculture and horticulture (which comprise 50 percent of non-traditional exports).

### Human capital, skills, and export upgrading
- Diversification into higher value-added and more complex products requires workforce adaptability and technical capacity (Hausmann et al. 2007).
- Despite important gains in education, Rwanda performs below SSA and EAC neighbors on human capital (Human Capital Index, 2020; [range: 0 (low) to 1 (high)]).
- Policy-relevant quantitative priorities:
  - Increase investment in secondary and tertiary enrollment, technical and vocational training, and STEM competencies.
  - Improve digital literacy and smartphone access to leverage digitized customs procedures and digital trade platforms.
- Sectoral implications: shortfalls hinder development of ICT, agro-processing, and light manufacturing and limit participation in global value chains.

### Institutional quality, SOEs, and business environment
- Institutional quality supports export diversification by lowering uncertainty and fostering private investment (Rodrik et al. 2004).
- Rwanda stands out in SSA for strong governance indicators and ease of doing business, supporting investment in tourism and services.
- Challenges include:
  - Reducing prominence of SOEs in competitive sectors and improving SOE governance.
  - Ensuring a level playing field for private investment.
- Historical role: SOEs played a vital role in rebuilding the economy and infrastructure; going forward their roles should be redefined to limit participation in competitive sectors, advance ongoing privatization, and leverage private finance through PPPs where appropriate (IFC 2019).
- Business environment reforms and incentives (Box 2):
  - Rwanda's World Bank Doing Business rank surged from 158th to 38th (2007–2020).
  - Preferential CIT rate of 15 percent for companies exporting ≥50 percent of production or in priority sectors (0 percent for regional HQs).
  - 50 percent accelerated first-year depreciation and exemption from capital gains on assets sold.
  - Duty-free imports of machinery and inputs within EAC.
  - Rwanda Trade Portal and RDB one-stop shop consolidating 22 institutions to provide 440 services.

### Price competitiveness and exchange rate dynamics
- Since 2015, the nominal effective exchange rate (NEER) has depreciated steadily; the real effective exchange rate (REER) has also trended downward but less so due to episodes of relatively high domestic inflation.
- IMF EBA-lite assessment: Rwanda’s REER is moderately undervalued relative to model-implied norms, consistent with a current account gap of about 3–5 percent of GDP (Annex V).
- Despite nominal and real depreciation improving external price competitiveness, structural factors—high trade costs, limited export diversification, and quality gaps—remain the main impediments to external sustainability.

### Policy implications and recommended actions
- Overcoming impediments requires a comprehensive approach addressing both hard and soft obstacles, complemented by macroeconomic stability.
- Addressing logistics and infrastructure bottlenecks (short- to medium-term and long-term):
  - Continue focus on high-value, low-volume exports that leverage air connectivity and skills base.
  - Complete planned investments in dry ports in Tanzania and Kenya and continue customs modernization to enhance integration into regional and global value chains.
  - Complete strategic infrastructure projects such as the New Kigali International Airport and improve road and rail connectivity to Mombasa and Dar es Salaam.
  - Connect farmers to markets through investments in storage, cold chains, and measures to reduce post-harvest losses.
  - Improve digital literacy and increase smartphone access to fully leverage digitized customs procedures.
- Improving the business environment:
  - Systematically reduce the role of the state in commercial activities, strengthen SOE governance, and ensure a level playing field.
  - Invest in skills development and ICT to support goods and services exports (e.g., agro-processing, light manufacturing, ICT-enabled services, tourism), building capacity in product design, quality assurance, data analytics, and emerging technologies.
  - Support sustainability of new firms and products to reduce high exit rates and translate entry into lasting export diversification.
- Capitalizing on regional integration:
  - Deepen participation in EAC and AfCFTA to expand market access, reduce non-tariff barriers, and attract FDI.
  - Improve trade facilitation, harmonize standards, and strengthen regional transport corridors.
- Safeguarding and enhancing price competitiveness:
  - Maintain inflation close to the center of the target band and allow exchange rate flexibility to absorb shocks.
  - Use opportunistic sterilized FX purchases to build reserves while mitigating exchange rate overshooting during large inflows.
  - Complement macro tools with structural reforms to address high trade costs and narrow export base.

*Source: IMF staff analysis in "Rwanda" Selected Issues chapter (sipea2026042).*

---


_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026042.pdf_