Improving supplier development linkages in the ‘Made in Rwanda’ policy: The potential of a Local Content Unit and a Firm Database

Project Firms

The Government of Rwanda has recently drafted a “Made in Rwanda” (MiR) Policy. This seeks to improve the overall trade balance by improving perceptions of Rwandan products within Rwanda, promote nascent industries, and boost productivity of exporting sectors (MINEACOM, 2017).

Improving linkages between domestic suppliers and large exporting firms is a critical component of the ‘Made in Rwanda’ policy. This is important because foreign buyers are often more demanding of domestic suppliers, who in turn are required to learn to produce higher-quality goods. For that reason, Sutton (2014) argues that “the most powerful engine of capability building lies in firm-to-firm interactions in supply chains”. Domestic suppliers of large, exporting firms also tend to grow faster and are more productive (Spray, 2017), and can eventually start exporting themselves.

While large multinationals often express a strong interest in increasing their share of local content, two main challenges prevent them from doing so (Sutton, 2014):

  • Information Asymmetries: Newly established (international) firms often do not have extensive local networks, and so are unfamiliar with all the inputs that domestic suppliers that may be able to provide. As a result, firms instead rely on their previous set of trusted international suppliers.
  • Quality-constrained local suppliers: Many firms rely on imports because the specific types of high-quality technical inputs cannot be found domestically. Improved local sourcing would thus only be possible if domestic supplies are of comparable quality to imported goods and can therefore function as substitutes.

To help address these challenges, the ‘Made in Rwanda’ Policy proposed two new initiatives:

  • Establishment of a Local Content Unit to help connect new investors with local suppliers.
  • Establishment of a Publicly Available ‘Made in Rwanda’ Company Database.

The aim of this project is to provide a more detailed proposal on how Rwanda could structure these two initiatives using lessons from international best practice. For guidance on the appropriate design of a Rwandan LCU, the policy note offers lesson learned from Ethiopia, Tanzania and Rwanda. For the ‘Made in Rwanda’ Company Database, examples are taken from private-sector websites such as the Yellow Pages, Yelp and Ali Baba.  Jointly, these provide helpful, evidence-based guidance to structure these new, high-priority policy initiatives.

Through the Rwandan government’s pro-active role in fostering linkages between foreign and local firms and deepening domestic firm capabilities, it can become a leader in stimulating local content management, and offer important lessons for other countries in the region.