Using an innovative approach called the ‘Decision Support Model’ (DSM), a mapping of Rwanda’s export potentials has been produced, revealing its most promising export products, accompanied by an overview of markets that currently demand such goods.
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Devising a national export strategy
Stimulating new exports and attracting foreign direct investment (FDI) are two important ways in which policymakers can drive structural transformation. This is achieved by transferring resources from traditional activities to new ones with the aim of uplifting and advancing the economy at large. However, it can often be difficult for government to plan and prioritise which sectors deserve support to realise such goals.
Key aspects to consider for a national export strategy include which new markets to target, what such market demand looks like in the medium-term, and how accessible such markets are given a country’s trading and tariff conditions. This strategy should also consider what new products to produce with new technologies.
Understanding the underlying employment, skill and technology requirements of producing new export markets should also be a key consideration. Policy-makers need to use the right tool for the right policy question, since policies aimed at diversifying export products differ significantly from diversifying destination markets.
The study: Using the Decision Support Model approach to determine export promotion activities
The main objective of the study was to identify new opportunities for exporting Rwandan goods and services using a DSM approach, endorsed by the World Trade Organisation (WTO). Governments can use this DSM tool to identify which markets have the biggest potential to diversify a country’s exports. It also allows them to inform exporting firms which foreign markets they could target to expand their sales.
The DSM is a tool to facilitate systematic export market selection through the identification of export opportunities. For this study, a purpose-built DSM for Rwanda was developed. This considers all possible worldwide product-country combinations and, using four filters, progressively eliminates less promising markets until those with the greatest prospects of success are revealed:
- Filter 1 assesses the country’s political and commercial risk, macroeconomic size, and growth performance.
- Filter 2 assesses market potential, determined by the size and growth of specific products’ import demand.
- Filter 3 examines country accessibility in terms of their different barriers to entry (including shipping time and cost, logistical efficiency, and tariffs and non-tariff barriers), as well as market concentration.
- Filter 4 compares the “home” market’s export performance (in this case Rwanda), to the performance of the top six competitors in each market. This can indicate a potential “additional” size of different export opportunities from the perspective of the “home” market, relative to exports to the target market.
This approach therefore provides a realistic indication of the potential market value that the Rwandan market could target to obtain, in addition to its existing exports to the target market.
Using the DSM model for the analysis for Rwanda, indicates that more than 80% of potential value of product-market combinations are contained (in descending order of potential value) in Western Europe, Eastern Asia, Northern America, Southern Europe, South-Eastern Asia and Northern Europe – not within the direct geographic vicinity of Rwanda.
As a relative share of export opportunities, Rwanda’s regional markets in Central, Eastern and Southern Africa offer a relatively small size of export value and a low number of Rwanda’s overall export product opportunities. This finding indicates that while regional integration offers some potential, the biggest opportunities for Rwanda lie in the international market where it should devote most of its attention.
A “portfolio” of focus products and markets was also created, which offer a range of options that fall widely in line with Rwanda’s National Export Strategy. This includes a focus on processed agricultural products, foods, beverages and agrochemicals, specialised textiles and garments, construction materials, metal and wood products.
The added-value of the DSM approach here is that for each target product, it provides a detailed overview of which markets currently demand such goods, and what Rwanda’s additional export potential is (taking into consideration factors such as trade cost and import tariffs). This offers an important evidence-based complement to Rwanda’s existing National Export Strategy.
The analysis also offers new, unexplored areas of export diversification, including aeronautic maintenance, mining and drilling maintenance, and manufacturing of plastics. These further highlight the innovative nature of the DSM approach.
To further inform strategic decisions, more detailed investigation and evaluation of each of the opportunities identified for Rwanda is required. However, the current outcomes help point the way in which policy makers could focus.