Rwanda - The manufacturing sector : performance and policy issues

lepotr No. 53S2- RW Rwanda The Manufacturing Sector: Performance and Policy Issues July 10, 1985 Eastern and Southem Africa Projects Department Industrial Development and Finance Division FOR OFFICIAL USE ONLY :e ~ ~ ~ ~ ~ ~ ~ , . - V -~~~ ~ ~ ~ - - .. Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disciosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Rwanda Franc (RwF) Exchange Rates Through December 1971 - US$1.00 = RwF 100.00 January 1972 - December 1972 - US$1.00 = RwF 92.11 January 1973 - December 1973 - US$1.00 = RwF 82.90 January 1974 - August 1983 - US$1.00 = RwF 92.84 Since September 1983 - SDR1.00 = RwF 102.71 Fiscal year January 1 - December 31  FOR OFFIMCAL USE ONLY RWANDA The Manufacturing Sector: Performance and Policy Issues Table of Content Page No. Glossara......... ........ SUMHARY and CONCLUSIONS .......................................... i-x I. THE SETTING 1 Structural Characteristics .............. 1 Basic Constraints to Industrial Development 2.... 2 Recent Economic Developments ................ 3 Investment Climate ...................... 4 Development Planning and Industrial Strategy. 5 II. STRUCTURE AND PERFORMANCE OF THE MANUFACTURING SECTOR 8 Industrial Structure: An Overview 8....... ........ *v. 8 SOMIRWA.. 14 Modern Manufacturing . . .15 Small Scale Industries ... 17 Local Construction Materials . . .19 Recent Sector Developments ......... .. ...... .. 20 - Growth Performance ,.... 20 - Investment .... .0*........... ....*....... ... 21 - Growing Importance of the Government .22 III. POLICY FRAMEWORK AND INDUSTRIAL ISSUES 23 A. Industrial Policy Issues ................... .... 23 1. Description and Implementation of Industrial Policies .. ......... . . 23 Import Tariffs ...23 Import Licensing ..... ........... 25 Price Control .......... ... 25 Investment Code . 26 Exchange Rate Policy ......... 28 Export Tax ., .............. ,., 29 Company Tax and Depreciation Allowances .. 29 Wage and Employment Policies . .............. 29 2. Impact of Industrial Policies .32 This document has a restriced distribution and may be used by recipients only in the perfoffance of| their official duties. Its Dntents may not otherwise be discJosed without World Bank authorition.  -2- Page No. B. Financial Sector Issues ............. ................... 35 1. Description of the Financial Sector ...... .......... 35 2. Availability of Finance for Industry ............... 36 3.* Issues R....s...................................... 39 Financing of Parastatals ......................... 40 C. Issues in Industrial Promotion ..... .................... 41 1. Bureau for Industrial Promotion ................... 41 Past Efforts and Present Situation ................ 41 Issues and Recommendations ........ ................. 42 Autonomy ................... ...... . ............ 42 Mandate ............. * *............ *.......... 43 2. Other Initiatives ...* .... ....... 43 D. Training Facilities .................................... 45 Government Institutions ............................. .. 45 Non-Governmental Organizations (NGO) ................... 45 Foreign Donors' Initiatives ............................ 45 - The ILO Artisan Project ......................... 46 - The Cooperative Training and Research Center ...... 46 IV. REGIONAL COOPERATION 47 A. Description of Existing Arrangements ..........0 ........ 47 1. The Economic Community of the Great Lakes Countries 47 - The Executive Secretariat ....es.. ............... 47 - BDEGL ......................................... 48 - Trade and Customs Cooperation Agreement ....... 49 2. Other Regional Arrangements ....................... 49 - Kagera Basin Organisation (KBO) .....D.......... 49 - Preferential Trade Area (PTA) ................. 49 B. Effectiveness of Existing Arrangements ................. 50  V. PROSPECTS AND STRATEGY FOR INDUSTRIAL DEVELOPMENT ........... 54 A. The Third Development Plan (1982-86) .................... 54 B. Elements of a Medium-Term Industrial Strategy ........... 59 Industry and Agriculture ............. 59 Small Scale Enterprises .................m............... 60 Reform of the Incentives System ... ..................... 62 - The Exchange and Trade Regime ..................... 62 - Price Control *..................... ...eee 63 - Interest Rates .... 63 - Investment Code ............ ........... ...e** 64 Promotion of Exports e .g ****. See..... ......... ..e.... 65 Regional Cooperation ......e......e.eeeeeee e.......e ...e 66 Role of the Government ee................ 66 Summary of Proposed Reforms: An Agenda for Action and Need for Technical Assistance 67 This report is based on the findings of an industrial sector mission to Rwanda in March 1983. The mission was composed of Messrs. Chuong N. Phung (Mission Chief), Heink Koppen (Industrial Economist, Consultant), Fernan Ibanez (Industrial Projects Specialist, consultant) and Mrs. Marie Hglane Desgranges (Statistics, Consultant).  -4- List of Text Tables Page Table 1: Main Characteristics of the Industrial Sector, 1980 ..... 9 Table 2: Economic and Financial Characteristics of Selected Manufacturing Enterprises, 1981 ..... .................. 10 Table 3: Origin of Industfa il Inputs, 1980 ....................... 12 Table 4: Government Ownermhip of Major Industrial Enterprises .... 13 Table 5: Structure and Growth of GDP, 1977-82 .................... 20 Table 6: Import Duty Rates at Different Stages of Processing ..... 24 Table 7: Import Duties on Selected Goods Produced Locally ........ 24 Table 8: Nominal and Exchange Rate Movements of Rwanda Franc 1978-84 .................................... 28 Table 9: Minimum Monthly Salaries by Level of Skill, 1976-83 ..... 30 Table 10: Changes in Minimum Wages and Salaries, 1974-83 .......... 31 Table 11: Average Monthly Earnings per Employee in Manufacturing in Selected Countries, 1982 ........ P..*. 32 Table 12: Credit Outstanding by Term and Sector, 1978-83 ....0...... 37 Table 13: Tariff Rates on Selected Manufactured Goods in Burundi and Rwanda ........... ......... 53 Table 14: Proposed Industrial Investment under the Third Plan 1982-86 ............. ...................... . 56 ANNEX I: Note on The Measurement of Protection in Rwanda ....*.... 68 ANNEX II: Findings of the SSE Study ................. . .............. 71 STATISTICAL APPENDIX . ........ . ........................................ 73  GLOSSARY ACHOR African Continental Holding of Rwanda BACAR Banque Continentale Africaine au Rwanda BDEGL Banque de DEveloppement des Etats des Grands Lacs BNDE Banque Nationale pour le DEveloppement Economique (Development Bank of Burundi) BNR Banque Nationale du Rwanda BPI Bureau de Promotion Industrielle BRALIRWA Brasseries et Limonaderies du Rwanda BRD Banque Rwandaise de Developpement (Development Bank of Rwanda) CCCE Caisse Centrale de Cooperation Economique CCDFP Centres Communaux de Formation Permanente CEPGL Communaute. Economique des Pays des Grands Lacs CER Caisse d'Epargne du Rwanda CERAI Centres d'Enseignement Rural et Artisanal Integres EDF European Development Fund EGL Energie des Grands Lacs EIB European Investment Bank IDA International Development Association ILO International Labor Organization IMF International Monetary Fund KBO Kagera Basin Organization MINAGRI Ministere de l'Agriculture HINIFINECO Ministare des Finances et de l'Economie HIINIMART Ministgre des Mines, de l'Industrie et de l'Artisanat NGO Non Governmental Organization OCIR-The Office des Cultures Industrielles du Rwanda-ThE ONATRACOM Office National des Transports en Commun OPROVIA Office des Produits Vivriers OPYRWA Office du Pyre'thre du Rwanda OVIBAR Office pour la Valorisation Industrielle de la Banane au Rwanda PTA Preferential Trade Area SDR Special Drawing Rights SOFIDE Socit