The effects of poor infrastructure in Rwanda

The effects of poor infrastructure in Rwanda

Tuesday, October 22, 2013 - 17:42

             Supply chain challenges in Rwanda 

This summer I did a project for an entrepreneur in Rwanda who is promoting the local production and consumption of mushrooms (read more about Kigali Farms here). This prompted me to eat my fair share of Oyster mushrooms (with thanks to the cooking skills of my buddy Tim Eisenmann, whose blog can be read here). I also got a taste of some of the local specialties: brochettes (goat meat skewers), grilled corn, grilled fish and an incredible variety of beans, fruits and fresh vegetables. Overall, food cost a fraction of what I pay in London.

The one big exception was the price of imported food. While locally produced Coca-Cola and Amstel beer were reasonably priced, most imported goods such as pasta sauce, fruit juice, tomato ketchup, peanut butter and olive oil were prohibitively expensive. In Kigali where disposable income of the middle class is approximately $5 per day, one can imagine how only a sliver of society can afford to spend $5 on a one-liter package of Tanzanian mango juice, or $5 for a pot of yogurt from Kenya.

If you’re an entrepreneur in Rwanda or thinking about setting up a manufacturing business there, should you be worried about the high cost of imported goods? Yes, just as importing into Rwanda is expensive, the flip side poses its own problems: it is very expensive to export products to other cities, restricting the market size for Rwandan-made goods. Consider this statistic: the cost of shipping a 40-foot container from Kigali, Rwanda to Dar es Salaam, Tanzania is $8,000 and takes 14 days. By comparison, it costs $1,400 and takes less than two days to cover the same distance in the United States.

Logistics in and out of Rwanda and in the rural parts of the country are a huge challenge. Roads are poor, with some becoming impossible to navigate during the rainy season. Customs procedures—although simpler than a few years ago—are still relatively complex: a typical export transaction in Rwanda requires 8 signatures—but only 1 in Germany. A single delay or disconnect can easily slow down or halt the process, which is costly to any business. Poor infrastructure and the bureaucracy of trade make foreign investment in Rwanda less attractive.

This is why I was excited to read that the European Union and Rwanda signed a €40 million agreement this month to improve the quality of the road network in the rural areas (read more here). Rwanda has to prioritize improving its infrastructure and pursue deeper integration with neighboring countries, to attract more investors and entrepreneurs. With the help of better roads, easier cross-border trade processes and more reliable connections, nascent Rwandan consumer goods businesses have a higher chance of succeeding locally and gaining scale by expanding abroad. Entrepreneurs that use their ingenuity to navigate this challenging logistics landscape stand to benefit immensely from the rapid growth taking place in Rwanda and the surrounding region.

 

Explanation of this blog's picture: Supply chain challenges in Rwanda. Given that most farmland is only accessible on foot, collectors carry large sacks with produce on their backs from remote farms to collection points along arterial roads (taking up to a day), before they are transported to markets by truck (in a matter of hours). The picture is an example of sacks of carrots near Musanze waiting to be picked up for transport to Kigali.

 

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