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Section 3: Infrastructure in Rwanda

Fitch Solutions Logistics Risk Index

  • Rwanda is placed in second position out of 11 East Africa states and in 110th position out of 201 states globally in the Fitch Solutions Logistics Risk Index.
  • Rwanda's Logistics Risk Index score outperforms the East Africa average significantly, given its extremely strong scores for ‘trade procedures and governance' and ‘transport network'. However, in terms of ‘utilities network', the country underperforms regionally.
Chart: Logistics Risk, 2019
Chart: Logistics Risk, 2019

Logistics Risk Index: Methodology and Components

  • 100 = Lowest risk; 0 = Highest risk
  • The Logistics Risk component is calculated using the average of the Transport Network, Trade Procedures and Governance and Utilities Network scores.
  • Transport Network: this indicator assesses the extent and quality of road, rail, air and waterway transport networks within a country, which indicate capacity and ability to transport raw materials and finished goods around a country.
  • Trade Procedures and Governance: this indicator assesses the time and cost required to import and export goods by container. In addition, a country's air freight volumes and connectivity to shipping networks is used to gauge its potential as a shipping or freight hub. An ideal market would have strong freight connections and low levels of trade bureaucracy.
  • Utilities Network: this indicator assesses the quality and availability of electricity and fuel, and their costs, and considers the availability of water, industrial usage, and evaluates the quality and extent of the telecommunications networks and internet penetration. A well-developed utilities sector enables the smooth running of supply chains.

Electricity Supply and Energy Costs

Businesses in Rwanda face high risks in the short to medium term from power outages and high electricity costs. These are due to the fact that Rwanda's power supply is currently very reliant on hydropower and the country, as in many other SSA states, experiences severe droughts. High electricity costs also stem from the fact that the country has a low overall electrification rate, which means that many businesses and private homes still rely on diesel-powered generators for their electricity supply at a high additional cost. Overall, Rwanda's electrification rate is 43% (as of 2017), with a very large discrepancy between the access of the Rwanda urban population to electricity (71.8%), and the rural population (9.1%).

These problems are expected to decrease over the next five years, as the country has many significant projects coming online, including coal, gas and renewable energy power projects. This will diversify the sources of the domestic power supply from an overreliance on hydropower, whilst expanding grid infrastructure will help secure the supply.

Chart: Electricity Cost and Electrication Rate
Chart: Electricity Cost and Electrication Rate

Rwanda has no domestic crude reserves or refining capacity and relies solely on imports for its fuel supply. The majority of these imports are from the Middle East, and this therefore renders the country's fuel supply highly vulnerable to supply chain disruptions. Such disruptions have caused fuel shortages and fuel rationing in the past, as well as price hikes. Rwanda currently has the highest fuel costs in East Africa.

Transport Network

Rwanda fairs better in relation to the quality of its transport infrastructure than many of its East African regional peers. The country's roads, which connect key urban areas, have high quality services while its main airport boasts adequate passenger and cargo capacities which serve to ensure safe and uncongested airfreight travel services. Problems do arise from the poor quality of roads in many of Rwanda's more rural areas, where key mining and agriculture activities take place. This poor infrastructure also causes lengthy transit times and high transport costs for companies needing to access seaports in Tanzania and Kenya.

Furthermore, Rwanda currently has no railways available for freight transport use within the country, further increasing pressure on the road network. Railways are used to transport goods to and from the ports of Mombasa in Kenya and Dar es Salaam in Tanzania, but the nearest railway terminals to Rwanda on lines from these ports are located at Mwanza in northern Tanzania and Kampala in Uganda, which means that cargo must be freighted to and from these terminals by road.

There are several projects in the pipeline in the areas of road, rail and airport infrastructure, which will see these transit times and costs problems decrease over the next five to ten years. One of the big projects the government is investing in to drive commercial development is the Bugesera International airport, which is due for completion at the end of 2020. In addition, Rwanda is planning a rail link through Burundi to Dar es Salaam in Tanzania, for improved access to Indian Ocean ports. Originally intending to develop a line to link with Kenya's Standard Gauge Railway to Mombasa Port, Rwanda announced in 2016 it would be pursuing a cheaper and shorter route to Tanzania.

Infrastructure development is being driven by the government spending, but the sector is also receiving private sector investment, as well as financial support from international governments and development banks. Chinese firms are playing an active role in Rwanda's transport plans, as part of Mainland China's Belt and Road Initiative.

Supply Chain Logistics

Supply chains in Rwanda are adversely affected by the country's landlocked status, which increases the risk of disruptions and delays, and pushes up logistics costs for the international trade of goods. In addition, there is a lack of diversification in domestic and regional supply chains, which are solely reliant on the road network for overland freight transport, increasing the risk of disruption on the roads and causing supply chains to grind to a halt. There are also significant congestion issues at ports, in order to access maritime transport via either Kenya's Mombasa Port or Tanzania's Dar es Salaam Port. That said, these lengthy transit times and elevated costs are most likely to decrease over the next five years, as Rwanda's government is heavily prioritising the strengthening of the country's regional transport infrastructure connections.

In terms of ease of trading, from a time-efficiency perspective, import and export border and documentary compliance procedures in Rwanda remain extremely competitive when compared to other East African countries, especially in relation to other landlocked states, such as Ethiopia and Uganda.

Chart: Time to Export and Import, 2017
Chart: Time to Export and Import, 2017

Tariffs and Trade Regulations

Rwanda is part of the EAC customs union together with Burundi, Kenya, Tanzania, Uganda and South Sudan. Customs tariffs, import prohibitions, rules of origin and trade remedy regulations have been harmonised through the EAC, and Rwanda applies the EAC Common External Tariff (CET) on its imports. Rwanda has reduced its tariff rates and eliminated all export taxes and other non-tariff barriers, in order to spur exports.

 

Manufacturing in East Africa: Rwanda

Section 1: Industrial Manufacturing Focus
Section 2: Labour & Land Resources
Section 3: Infrastructure
Section 4: Regulations & Tax Incentives
Appendix: Relevant Government Bodies
        
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Content provided by Picture: Fitch Solutions – BMI Research
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