The two biggest policy priorities of the Rwandan Ministry of Industry, Trade and EAC Affairs (MINEACOM) currently relate to the promotion of exports, and the reduction of the import bill through ‘domestic market recapturing’. This project will conduct two small studies that utilise firm-level tax data to better understand the dynamics and constraints in both these areas.
The first study focuses on the impact of exporting on the supply chain. This firstly considers how firms’ productivity changes when they become exporters. It also considers whether there are any the productivity effects (spillovers) from the exporters’ suppliers. Finally, the study will inspect whether this has market-wide effect on the composition of supply-chains as firms upgrade from low-quality suppliers to high-quality suppliers. To identify the causal impact of exporting on the supply chain, this study makes use of the large recent drop in transportation costs that Rwanda experienced after joining the East African Community. This provides an external 'shock‘ that led to entry of new exporters and to the growth of non-traditional export items, and thus provides a helpful ‘natural experiment’ on exportation.
The second study relates to the role of importation on the supply chain. This is done by analysing 3-5 sectors, and considering the type of goods that are imported versus sourced locally. A key focus here will be on analysing why some firms in the sector import products which others in the same sector source locally (e.g. top 5 hotels importing goods vs. mid-level hotels sourcing locally). This will be followed up with firm interviews to understand barriers to local sourcing, and how other firms have navigated these challenges. The aim of this project is to identify 6-10 products ripe for ‘domestic market recapturing’ of global value chains.
The identification of firm challenges for export promotion and domestic market recapturing are both high-priority issues for the Government of Rwanda and the Minister of Industry, Trade and EAC affairs explicitly requested the IGC to conduct these studies. The findings may feed into the upcoming revision of a number of strategic plans by MINEACOM, including the National Industrial Policy and the Small and Medium Enterprise (SME) Development policy.