Review of Rwanda s National Strategy for Elimination of Non-Tariff Barriers (NTBs) DRAFT FINAL REPORT

Transcription

1 Review of Rwanda s National Strategy for Elimination of Non-Tariff Barriers (NTBs) DRAFT FINAL REPORT DECEMBER 18, 2014 Prepared by: Safari Vincent and Mads Knutsen on behalf of ACE INTERNATIONAL

2 Table of Contents LIST OF TABLES AND FIGURES BACKGROUND ON ELIMINATION OF NTBS IN THE EAST AFRICA COMMUNITY AND RWANDA GENERA INTRODUCTION INSTRUMENTS FOR REMOVAL OF NTBS IN THE EAST AFRICA COMMUNITY (EAC) MEASURING PROGRESS ON TRADING ACROSS BORDERS IN EAST AFRICA ANALYSIS OF RWANDA S INTRA- EAC TRADE Overall Rwanda s trade with EAC partner states Merchandise export and export growth rate Merchandise Imports Rwanda s trade with EAC and the Rest of The World REVIEW OF RWANDA NATIONAL STRATEGY FOR ELIMINATION OF NTBS ( ) AND EMERGING ISSUES OVERVIEW OF RWANDA NATIONAL MONITORING COMMITTEE ON NTBS AND THE NATIONAL STRATEGY FOR ELIMINATION OF NTBS ACHIEVEMENTS OF RWANDA NMC FROM IMPLEMENTATION OF THE NATIONAL STRATEGY FOR ELIMINATION OF NTBS ( ) Rwanda s commitment to address NTBs Elimination of internal, bilateral and regional NTBs Harmonization and mutual recognition of sanitary and phytosanitary standards, and technical standards Summary of achievements by Rwanda NMC through implementation of the National Strategy for elimination of NTBs CHALLENGES OBSERVED IN IMPLEMENTING THE NATIONAL STRATEGY FOR ELIMINATION OF NTBS LESSONS LEARNT DURING IMPLEMENTATION OF THE NATIONAL STRATEGY FOR ELIMINATION OF NTBS QUANTIFICATION AND IMPACT OF REMOVED AND OUTSTANDING NTBS NEW STRATEGIC DIRECTIONS BASED THE REVIEW AND QUANTITATIVE FINDINGS IMPROVING NMC ACTIVITIES AT NATIONAL AND REGIONAL LEVELS STRATEGIC FOCUS ON IDENTIFICATION AND STREAMLINING OF NON-TARIFF MEASURES GENERAL CONCLUSION AND RECOMMENDATIONS Page 1 of 68

3 List of Tables and Figures TABLE 1: HOW DO EAST AFRICAN COUNTRIES RANK GLOBALLY IN DOING BUSINESS?... 6 TABLE 2: HOW DO EAC COUNTRIES PERFORM IN TRADING ACROSS BORDERS INDICATOR?... 6 TABLE 3: RWANDA S PERFORMANCE ON TRADING ACROSS BORDERS (COMPONENTS) TABLE 4: DOCUMENTS, TIME AND COST TO EXPORT AND IMPORT IN RWANDA, SUB-SAHARAN AFRICA AND OECD IN DOING BUSINESS REPORT TABLE 5: RWANDA S TOTAL TRADE FLOWS WITH EAC IN US$ ( ) TABLE 6: STATUS OF NTBS AT NATIONAL, BILATERAL AND REGIONAL LEVELS AFFECTING AS OF SEPT TABLE 7: THE TABLE BELOW SHOWS NTBS IMPOSED BY EACH PARTNER STATE TABLE 8: COMPARATIVE SUMMARY OF RWANDA NMC BEFORE AND AFTER IMPLEMENTATION OF THE NATIONAL STRATEGY OF ELIMINATION OF NTBS FIGURE 1: TRADING ACROSS BORDERS BY THE EAST AFRICAN COMMUNITY AND OTHER REGIONAL ECONOMIC COMMUNITIES... 7 FIGURE 2: RWANDA TIME TO EXPORT AND IMPORT-DB FIGURE 3: TOTAL RWANDA S FORMAL TRADE FLOWS BY EAC PARTNER STATES IN FIGURE 4: SHARE IN TOTAL TRADE BY EAC AND REST OF THE WORLD (ROW) FROM 2011 TO FIGURE 5: REPORTED NTBS BY PARTNER STATE: PERCENTAGES FUIURE 6: MOST FREQUENT CATEGORIES OF NTBS IN THE EAC Page 2 of 68

4 1 BACKGROUND ON ELIMINATION OF NTBS IN THE EAST AFRICA COMMUNITY AND RWANDA 1.1 Genera Introduction Non-Tariff Barriers (NTBs) is a term used to refer to government measures other than tariffs that restrict trade flows. Examples include quantitative restrictions, import licensing, voluntary restraint arrangements, variable levies, and obstruction to physical movement of goods through measures such as roadblocks 1. The East African Community Partner States under the Customs Union Protocol which entered into effect on January 1, 2005 committed to remove, with immediate effect, all the existing non-tariff barriers to the importation and thereafter, not to impose any new non-tariff barriers. 2 The Partner States also committed to formulate a mechanism for identifying and monitoring the removal of non-tariff barriers. Since then Partner States have been negotiating to develop a wide range of protocols for implementing the Customs Union. Studies have been undertaken by Partner States, private sector and other civil society organizations, all aimed at identifying and classifying Non-Tariff barriers and ensuring an effective monitoring mechanism. The National Strategy for Removal of NTBs was adopted by Rwanda NMC members in September 2011 for the period of three years with the objective to address the critical issue of capacity of the national institutions, private sector and other stakeholders in Rwanda for effective elimination of NTBs. The Strategy was built around three strategic outcomes, each contributing to an important capacity issues and processes in the NTBs monitoring and elimination. The implementation of the strategy has resulted in considerable amount of research papers in some areas and advocacy initiatives of NMC, developing and maintaining NTB monitoring and reporting mechanism and some aspects of bilateral and multilateral negotiations. Its implementation also resulted in removal of a number of NTBs, such as big success in harmonization of road tool fees with Tanzania and contribution to establishment of the Single Customs Territory. Transport time from Mombasa and Dar es Salaam has also been significantly reduced. As a part of Strategy implementation a number of NTBs was also addressed related to transport, standards as well as domestic NTBs. However, the economic effects on exporting sectors and Rwandan economy as whole was not assessed. Such assessment would be needed 1 Walter Goode, Dictionary of Trade Policy Terms 2 Article 13 of the Protocol on the Establishment of the East African Customs Union Page 3 of 68

5 to guide further activities on removal of NTBs and focusing on available resources on most effective interventions in this area. The assessment thus presents a review of Rwanda National Strategy for elimination of NTBs which is derived from the need to review the progress achieved by Rwanda National Monitoring Committee (NMC) in implementing the strategy. The assessment will also try to quantify the impact of removed NTB. The review further presents a contextual appreciation in terms of achievements of EAC with respect to NTBs elimination and the actions that have been initiated at the regional and national level to address this complex and yet necessary stage in the advancement of the EAC Customs Union and Common Market. Finally, it summarises key lesson learnt and strategic areas of focus for the next phase and suggest key actions to be undertaken for further achievements. 1.2 Instruments for removal of NTBs in the East Africa Community (EAC) The Customs Union as provided for in the EAC Treaty aims to further liberalize intra-regional trade in goods on the basis of mutually beneficial trade arrangements among the Partner States; promote efficiency in production; enhance domestic, cross border and foreign investment; promote economic development; and diversify industrialization in the community. As elaborated under Article 75 of the Treaty, the Customs Union incorporates Elimination of Non-Tariff Barriers (NTBs) as part of efforts to facilitate the free movement of goods between Partner States. In efforts to fast-track the process of monitoring and eliminating identified and future NTB s, Partner States in 2007 established the NTB Monitoring Mechanism as envisaged in both the Treaty and the EAC Customs Union Protocol. The Mechanism provided for the establishment of National Monitoring Committees on NTBs, whose overall responsibility is to assist in identifying, monitoring and facilitating the elimination of NTBs. The National Monitoring Committees (NMCs) were launched in 2007 and 2008 in all the five Partner States, while the EAC Time Bound Programme on elimination of NTBs was additionally approved by the Council of Ministers in September To that effect, EAC has developed several mechanisms and introduced many initiatives to abolish Non-Tariff Barriers. Among them we can mention: NTB National Monitoring Committees that have been established in each of the 5 Partner States to coordinate the monitoring and removal of NTBs Partner States agreed to a list of core NTBs, the EAC Time Bound Programme. Responsibility is attributed to line Ministries for the elimination of NTBs (Mostly Ministries of Trade or alternatively Ministries of EAC affairs) Page 4 of 68

6 EAC has developed an act: The EAC bill on legally binding enforcement mechanism for elimination of NTBs. The act seeks to address persistent NTBs through introduction of sanctions and penalties for non-compliant partner states Introduction of the Single Customs Territory that has significantly reduced delays by allowing clearance of goods at the point of entry only Construction of One Stop Border Posts to reduce time wastage encountered while clearing at the 2 sides of border posts Extension of customs and ports working hours Introduction of Electronic Single Windows to reduce cumbersome procedures and bureaucratic /heavy clearing procedures caused by several institutions At Rwanda country level, the Ministry of Trade and Industry (MINICOM) is the lead institution in the advocacy for removal of NTBs. MINICOM has been instrumental in the development and operationalization of the National Strategy on Elimination of NTBs Through bilateral engagement on a country to country basis, NTBs are being discussed and eliminated. In this regard, MINICOM has spearheaded signing of MOUs with Uganda and Tanzania with specific time-bound commitments to eliminate NTBs. Evidence based studies have been conducted to support bilateral engagement and other advocacy efforts to address NTBs Removing NTBs is now a priority in the EAC integration agenda. The East African Community (EAC) is a desired platform to advocate against NTBs that Rwanda is facing given the fact that EAC corridors (Northern and Central) and ports (Mombasa and Dar es Salaam) are of strategic importance to Rwanda s exports and imports. 1.3 Measuring progress on Trading across borders in East Africa A key achievement of the Vision 2020 and EDPRS so far is improvement in the business environment as measured by improvement of Rwanda s doing business ranking from 150 th in 2008 to 46 th out of 185 countries in In comparison with other East African Community Partner States, Rwanda consistently ranks much better and has registered the greatest improvements on the Doing Business Index as shown below: Page 5 of 68

7 Table 1: How do East African Countries Rank Globally in Doing Business? Member State Global Rank (2015) Change (comparison with 2014) EAC Rank (2015) Rwanda Kenya Uganda Tanzania Burundi Source: World Bank 2014 and World Bank 2015 As shown above, Rwanda ranks better as an overall leader in the EAC on Doing Business. However, when it comes to the indicator on Trading Across Borders the situation becomes different as indicated in the table below: Table 2: How do EAC Countries perform in Trading across Borders Indicator? Indicator Burundi Kenya Rwanda Tanzania Uganda (2015) (2015) (2015) (2015) (2015) Trading across borders No. of Export Documents Time to Export (Days) Export Cost (US$ per container) No. of Import Documents 2,905 2,255 3,245 1,090 2, Time to Import (Days) Import Cost (US$ per container) 4,420 2,350 4,990 1,615 3,375 Source: Built based on DB Report 2015 In terms of ranking on Trading Across Borders, the indicators for the East African Community Partner States are shown in Table 2 above. Rwanda is ranked 164 th meaning 4 th in EAC after Page 6 of 68

8 Tanzania, Kenya and Uganda due to some challenges, such as inadequate infrastructure and high transport costs, which are beyond its control. The landlocked countries such as Rwanda, Uganda and Burundi are particularly affected. In terms of Trading Across Borders, these countries rank among the lowest in the Doing Business report. For instance, it costs Rwanda on average 3,245USD to export and 4,990USD to import a 20ft container. The sub Saharan average is US$1,960 to export and US$ 2,504 to import a 20ft container. Compared to other landlocked countries from other regional economic communities such as EU, COMESA, and SADC; EAC landlocked states are still behind in Trading Across Borders ranking and taking the highest cost of transport for import and export of goods as indicated in the figure below. Figure 1: Trading across borders by the East African Community and other regional economic communities TRADING ACROSS BORDERS IN THE EAST AFRICA COMMUNITY OECD HIGH INCOME MIDDLE EAST AND NORTH AMERICA ECOWAS COMESA EAC regional average Tanzania Kenya Rwanda Uganda Burundi Source: Compiled from WB Doing Report, 2014 The World Bank s 2014 Doing Business Report corroborates the above statement. The East African Community and its Partner States rank badly when it comes to the indicator on Trading Across Borders where EAC is ranked 159 compared to OECD (31), ECOWAS (133) and COMESA (134) for a total of 185 economies. The rankings for other economies and the regional average ranking provide other useful information for assessing how easy it is for a business in Rwanda to export and import goods. Page 7 of 68

9 The ranking is no better for Tanzania (139) and even Kenya (156) who are not even landlocked countries. There is thus need to improve the competitiveness of the whole trade, transport and logistics chain along the Central Corridor in order to bring down transport costs and hence improve the competitiveness of regional economies. In today s globalized world, simplifying trade between different economies is increasingly important for the private sector. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to extra costs and delays for exporters and importers, stifling trade potential. EAC Partner States, together with other African countries, have recognized the importance of improving these aspects of trade. The EAC and Corridor Management Institutions with their member states have embarked on programmes to reduce these high costs, which includes harmonization of legislation, regulations and rationalization of administrative procedures. The table below reveals the impact of reforms on trading across border for the period Table 3: Rwanda s performance on Trading across borders (components) Documents to export (number) Time to export (days) Cost to export (US$ per container) Documen ts to import (number) Time to import (days) Cost to import (US$ per container) DB , , DB , , DB , , DB , , DB , , Source: From DB reports It is clear that for a period of 5 years, the number of documents to export and import as well as the cost to import have remained constant. However, interventions made by both EAC partner states and Rwanda in particular have resulted in reduction of time to export from 35 days in 2010 to 26 days in Time to import has also reduced from 34 days to 27 days. The cost to export has reduced from 3,275 US$ to 3,245US$ for the same period. Page 8 of 68

10 It is clear that Rwanda s efforts to reduce costs related to import and export of its goods have resulted in limited impact. Reducing the time and cost to exporters and importers is still paramount to Rwanda for increased intra-regional trade. The figure below depicts graphically Rwanda s time to export and import from DB 2011 to DB Figure 2: Rwanda Time to export and import-db Rwanda DB- Time to export and import Time to export (days) Time to import (days) DB2011 DB2012 DB2013 DB2014 DB2015 Source: Doing Business Reports As mentioned previously, time to exports and imports goods from and to Rwanda reduced from 35 to 26 days and from 34 to 27 days respectively from 2011 to 2014 according to World Bank Doing Business reports as indicated in the table above. Rwanda ranks relatively better that most of sub-saharan Africa for the number of documents to export and import as well as time to import and export. For instance Rwanda requires 7 documents to export and 9 to import while the requirement is 8 documents to export and 9 to import in Sub Saharan Africa and 4 for export and import in OECD countries. It also requires 26 days to export from Rwanda, 30.5 in Sub Saharan Africa and only 10.5 in OECD. For import, Rwanda requires 27 days while Sub Saharan Africa requires 37.6 days and OECD only 9.6 days as indicated in the table below: Page 9 of 68

11 Table 4: Documents, Time and Cost to export and import in Rwanda, Sub-saharan Africa and OECD in Doing Business Report 2015 Indicator Rwanda Sub-Saharan Africa OECD Documents to export (number) Time to export (days) Cost to export (US$ per container) 3,245 2, ,080 Cost to export (deflated US$ per container) 3,245 2, ,080 Documents to import (number) Time to import (days) Cost to import (US$ per container) 4,990 2, ,100 Cost to import (deflated US$ per container) 4,990 2, ,100 Source: Doing Business Report 2015 The costs of transportation generally within Africa are markedly higher. This places an additional burden particularly on the economies of land-locked countries, not only affecting the costs of imports but also making their exports less competitive in the worldwide market. Modern business practices, such as just-in-time delivery systems and global supply chains, underscore the importance of timely, predictable delivery. Trade facilitation encompassing both simplified customs procedures and upgrades to transportation infrastructure enhances Countries ability to compete in Global market places by reducing shipping delays and risk, and lowering the cost of trading. Trade is growing rapidly among the countries of the East African Community (EAC) by expanding the volumes of goods crossing their borders. For some years now much concern has been raised on transit delays and inefficiencies related to cargo clearing processes as well as constraints encountered during actual movement of cargo along the Central Corridor. High dwell times at Mombasa and Dar es Salaam ports, cumbersome documentation and lengthy cargo clearance procedures as well as repeated inspections by the multiple regulatory authorities along the transport corridors in transit countries have been cited as impediments to smooth trade flows in the East Africa region and the Northern and Central Corridors in particular. Inspections and stops encountered by transporters involve stops at weighbridges; customs check points in addition to Police stops for regulatory compliance with traffic routines. Page 10 of 68

12 1.4 Analysis of Rwanda s intra- EAC trade This section provides Rwanda s trade with other EAC Partner States for the period The period coincides with the implementation of the National Strategy for elimination of NTBs. The analysis will help understand if the advocacy undertaken for a conducive business environment in East Africa Community has contributed to the increase of Rwanda s overall trade with EAC countries over the period. A comparison is also made with regards to the rest of the World Overall Rwanda s trade with EAC partner states Analysis of formal and informal trade statistics during the period 2011 to 2013 shows that Rwanda has increased its total trade values with EAC countries growing on an average annual growth rate of 9%, accounting for $582.4 million in 2013 from $488.4 million in The majority of this trade is imports from EAC Partner States which accounted for 78% while exports accounted for 22%. Despite the large share of Rwanda s imports from EAC as compared to exports, Rwanda s exports to EAC increased significantly by 18% while imports increased by 7%. Total exports from Rwanda to EAC partner states increased from US$92.9 million in 2011 to US$128.9 million in In the same period under review, imports from EAC increased at a relatively slow pace from US$ 395.2million to US$453.5 as illustrated in table 6 below. Table 5: Rwanda s Total Trade Flows with EAC in US$ ( ) % Change Formal Exports to EAC 80,554, ,336, ,309,512 16% Informal Exports to EAC 12,371,200 21,591,881 19,607,424 26% Total exports to EAC 92,926, ,927, ,916,936 18% Formal Imports from EAC 379,053, ,747, ,095,416 8% Informal Imports from EAC 16,243,772 19,777,689 12,437,863-12% Total Imports from EAC 395,297, ,525, ,533,279 7% Total Trade with EAC 488,223, ,453, ,450,214 9% Source: RRA trade data Merchandise export and export growth rate In the period under review, Kenya tops the EAC countries as the most important EAC export destination country, taking a total of 67% of Rwanda s exports to EAC in 2013 as a result of increased tea exports to Mombasa auction. Tea exports are driving Rwanda s exports to the Kenyan market. In 2013, 52% of all exports to Kenya were Mombasa tea auction that accounted for 93% of Rwanda s total tea exports in However Kenyan market is not the final destination of Rwanda s tea exports. Tanzania was the second with 16% of share, followed by Uganda with 5% and Burundi with 2%, of Rwanda s total exports to the region during the period under review. Page 11 of 68

13 Millions USD With respect to growth rate of export to the region, the average growth rate between 2011 and 2013 stands at an annual growth rate of 9% of which exports to Tanzania grew at the highest rate of 89%, followed by Burundi at 24%, Kenya at 23% and Uganda at 3%. The analysis therefore shows that although Burundi and Uganda are the smallest markets for Rwanda s exports to the region, overtime there have been efforts to increase Rwanda s presence in both countries. Such efforts should be encouraged, especially through removal of reported NTBs that hinder Rwanda s penetration of the region s markets. Europe dominates Rwanda s exports destination markets by 33% of Rwanda s total exports share, followed by both EAC and Asia-Australia by 21% of share each then the Democratic Republic of Congo, Rwanda s single largest export destination accounted for 20%. For the growth exports rates, the growth is dominated by DRC by 51%, followed by Asia and Australia by 49%, America 37%, Middle East 27%, EAC 25% and Europe 20% Merchandise Imports As for imports, Uganda was the most important source of Rwanda s imports during the period , contributing to 49 % of Rwanda s total imports, while Kenya was ranked the second with 30 % of Rwanda s import bill during the period. From Tanzania, it sourced 20 % of its import requirements, while Burundi contributed slightly by 2% of Rwanda s imports during the period. The figure below illustrates what is discussed in the above paragraph. Figure 3: Total Rwanda s formal trade flows by EAC Partner States in Uganda Kenya Tanzania Burundi Source: RRA trade data The analysis shows that there is high potential to penetrate the Rwanda import market as demonstrated by small contributions of Rwanda imports to individual country s export earnings Page 12 of 68

14 with exception of Uganda. Generally, the total trade of Rwanda with the rest of EAC partner states reveals a good trend though there has been a slight decrease in 2013 compared to 2012 especially for Uganda and Kenya. For imports, the total growth for EAC imports to Rwanda is 12% for the period Although imports from Burundi represented only 2%, the country is leading imports growth to Rwanda by 64% followed by Tanzania 13%, Uganda 12% and lastly Kenya 10%. Imports from the Rest of the World are dominated by Asia and Australia by 32% and represents a growth rate of 35%, second after Latin America represented by a growth rate of 47% for the same period. EAC partner states come at the second position of the total Rwanda s imports with an average rate of 23%, followed by Europe with 21% and then the Middle East with 15%. Their imports growth rates are 12%, 20% and 34% respectively. This implies that though Rwanda is the second destination of EAC imports, its growth rate is lower compared with other regions of the world which might overtake EAC partner states in the future. There is thus need to facilitate trade through reduction of NTBs and diversity imports from EAC partner states to take advantage of the existing preferential treatment Rwanda s trade with EAC and the Rest of The World Rwanda s intra-eac trade is still low compared to the rest of the world. It is even decreasing while trade with the Rest of the World is increasing as indicated in figure 4. Rwanda s trade with the Rest of the World has increased from 75% of the total Rwanda s trade share in 2011 to 78% in At the same time, Rwanda s trade with EAC partner states declined from 25% of the total Rwanda s share in 2011 to 22% in Figure 4: Share in total trade by EAC and Rest of the World (RoW) from 2011 to % 80% Share in total trade by EAC and Rest of the World (RoW) 75% 76% 78% 60% 40% 20% 0% 25% 24% 22% EAC RoW Source: RRA trade data Page 13 of 68

15 The decreasing share of Rwanda's trade with EAC is mainly due to emerging markets of Rwanda s exports of minerals to Asia which resulted from the shut off access to European and American markets by Dodd Frank Act. Asia is Rwanda's primary source of formal merchandise imports. Despite increase in Rwanda's trade with EAC, the share of EAC trade with Rwanda is still dominated by the Rest of the World due to other trading regions that also increased their trade with Rwanda at a high pace. The analysis on formal intra-eac trade demonstrates significant potential to increase both intra-eac exports and imports. However, Partner States need to address identified NTBs which hinder realization of this potential. In addition, Partner States need to increase their efforts in value addition at the national level, as most intra-eac exports and imports comprise of products that are similar to those produced by the target EAC markets. Partner States therefore need to increase production of items for which they have competences and comparative advantages as part of efforts to increase intra-eac trade in addition to addressing NTBs that hinder increased cross-border trade. Page 14 of 68

16 2 REVIEW OF RWANDA NATIONAL STRATEGY FOR ELIMINATION OF NTBS ( ) AND EMERGING ISSUES 2.1 Overview of Rwanda National Monitoring Committee on NTBs and the National Strategy for elimination of NTBs The NMC was established in June 2008 soon after the country joined the EAC membership in 2007 and has a functional Secretariat housed by the Ministry of Trade and Industry (MINICOM). Its responsibilities include identification, monitoring and facilitation in removal of NTBs in line with the Monitoring Mechanism and the EAC Treaty, which was a top agenda that informed the country s membership to EAC. As envisaged by the EAC Customs Union Protocol, the NMC is regarded as the key entity for facilitating, coordinating and monitoring the NTBs elimination process. The NMC however only became active in September 2011 after a National Strategy for elimination of NTBs was adopted, which addresses technical issues related to capacity of the national institutions, private sector and other stakeholders for effective elimination of NTBs. The Strategy assigns three Sub committees for the NTBs elimination process, each covering Standards, Transport and Infrastructure, and Customs and Border Procedures. The Strategy however provides that the number of Sub committees can be expanded to in line with other priority NTBs that may emerge as key hindrances to smooth implementation of Rwanda s commitments and aspirations under the Common Market. Each Subcommittee nominates a Team Leader who is responsible for supporting in implementation of the work plan. The Strategy also incorporates a communication strategy aimed to improve internal, external and advocacy related-issues of the NMC. Currently the NMC is considered fully operational in line with the National Strategy and has 30 members; 16 from key business organizations and associations, and 14 from government institutions. The process of reporting NTBs is through the Ministry of Trade and Industry (MINICOM) which provides the Chair and Secretariat to the NMC. The key institutions responsible for making such reports are government institutions such as the Bureau of Standards, Rwanda Revenue Authority and private sector organizations such as the Private Sector Federation (PSF), its respective Chambers (and key business representatives (e.g. key exporters and importers, transporters and other companies with high involvement in intra-regional trade). The reporting institutions and organizations additionally have focal points that are responsible for compiling relevant information and forwarding it to NMC Secretariat. The NMC meets on a Page 15 of 68

17 quarterly basis to discuss the NTB complaints, propose solutions and identify institutions that should take specific corrective actions. Based on the urgency of a reported NTB, the NMC can meet more often than the scheduled meetings. 2.2 Achievements of Rwanda NMC from implementation of the National Strategy for elimination of NTBs ( ) Rwanda s commitment to address NTBs Both Rwanda s Vision 2020 and the Economic Development and Poverty Reduction Strategy (EDPRS) recognize the importance of removing internal and external Non-Tariff Barriers to trade as a strategy of improving the country s overall economic competitiveness. Rwanda s NMC has been at the forefront of identifying and monitoring the removal of NTB s in Rwanda and within the EAC Partner States. The improved operation of the NMC in Rwanda has focused on strengthening its management and organization and developing new processes for NTBs monitoring and elimination. It emphasized the importance of introducing a strategic approach in addressing the key technical, institutional and political issues surrounding the NTBs while planning NTB related activities simultaneously at the national and regional level. In this regards, several advocacy meetings at national, regional and bilateral levels were held to discuss elimination of NTBs. Concerted efforts led to a number of NTBs being removed. As mentioned above, removal of some NTBs is a result of many efforts at different levels. The list of NTBs removed will thus take into account domestic NTBs that have been eliminated at national level, NTBs that have been eliminated using bilateral meetings channel between Rwanda-Uganda and Rwanda-Tanzania and finally NTBs that have been addressed at regional level through EAC regional forum meetings intervention under coordination of EAC secretariat Elimination of internal, bilateral and regional NTBs. EAC Partner States themselves recognize the existence of NTBs --and thus the violation of the CU Protocol. Unlike tariffs, non-tariff barriers (NTBs) are not directly quantifiable, and the information needed for a quantitative analysis is often hard to collect. This is the main reason why the EAC Time Bound Program was chosen as a matrix for the analysis of this scorecard, as in such program Member States themselves identified and gave official recognition to their non-conformity with the EAC obligations. Although overall information on NTBs in the EAC is available from 2008 to September 2014, NTBs have been reported quarterly only since September 2011, and hence the period of September 2011-September 2014 served as the basis for the analysis. The assessment was also made with the view to examine the contribution of Rwanda NMC since the time it was revamped in September Page 16 of 68

18 The review of the National Strategy for elimination of NTBs acknowledges that the NMC has made some progress in the last few years in terms of identifying issues, proposing solutions and identifying institutions that are responsible for corrective action. In total 7 out of 8 domestic NTBs have been eliminated in Rwanda, 15 out of 25 through bilateral discussions between Rwanda-Uganda and Rwanda-Tanzania while 68 out of 98 NTBs of regional dimension which have been removed cumulatively under coordination of EAC secretariat. The Table below shows the current status of NTBs at national, bilateral and regional levels: Table 6: Status of NTBs at national, bilateral and regional levels affecting as of Sept 2014 NTBs Removed Outstanding NTBs Total NTBs % of removed NTBs Domestic % NTBs NTBs % discussed at bilateral level 3 NTBs ,3% discussed at EAC level NTBs status since September ,7% Source: Author calculations from different reports The following observations are made on the above table: 49 new NTBs were reported by all EAC partner states from September 2011 up to September 2014 in addition to the existing unresolved 30 NTBs. This make an increase of 163,3% of reported new NTBs for a period of 3 years NMCs have tried to address 79 new and existing NTBs from September 2011 and successfully resolved 49 NTBs. This means a cumulative rate of 62% resolved NTBs out of the unresolved NTBs reported since September In fact this elimination should be attributed to the performance of NMCs as well as support from development partners and mainly TradeMark East Africa. The rate of eliminating NTBs is even going higher moving from 38,7% in September 2011 up to 69,3% of resolved NTBs in September 2014 Unfortunately, we can observe that the number of reported new NTBs and number of addressed NTBs is the same for the above period of analysis and is 49 NTBs. This implies 3 Some NTBs discussed and addressed at bilateral level are also included in the EAC Time Bound Programme Page 17 of 68

19 that EAC partner states impose and address NTBs at the same pace. Surprisingly, the number of unresolved NTBs has also remained the same that means 30 unresolved NTBs as it was in In the review of the strategy, a complementary analysis was also conducted on those NTBs that have been resolved and those that are pending resolution, per country. The criterion under which an NTB was deemed to have been resolved was strictly following the recognition of that status by all five member States in the EAC Time Bound Program. An NTB is considered resolved if all five Partner States recognize that status. The analysis led to the following findings about compliance with the obligation to eliminate NTBs: Of the 30 outstanding NTBs as of September 2014, Kenya has 12 (40% of the total), Tanzania has 11(36%), Uganda and Rwanda are imposing each 2 NTBs (7% each), Burundi has 0 NTB (0%) while all partner states together impose 3 common NTBs (10%). This is illustrated in the table and figure below. Table 7: The table below shows NTBs imposed by each Partner State. PARTNER STATE/ALL PARTNER STATES NUMBER OF NTBS IMPOSED REPUBLIC OF BURUNDI 0 REPUBLIC OF KENYA 12 REPUBLIC OF UGANDA 2 REPUBLIC OF RWANDA 2 UNITED REPUBLIC OF TANZANIA 11 ALL PARTNER STATES 3 Source: EAC Time Bound Programme, September 2014 The use of comparative analysis and percentage distribution of NTBs in the graph below is intended only to show trends in and across countries. All Partner States have pending issues with NTBs expect Burundi. Countries with more NTBs tend to also have higher percentages of resolved ones. Figure 5: Reported NTBs by Partner State: Percentages Page 18 of 68

20 Number of Imposed NTBs Tanzania 36% All partner Rwanda states 7% Uganda Burundi 7% together 0% 10% Kenya 40% Rwanda Burundi Tanzania Uganda Kenya All partner states together Source: Drawn from the EAC Time Bound Programme, September 2014 From the analysis made by International Finance Corporation (IFC), reported NTBs are most often linked to rules of origin, sanitary and phytosanitary measures, price controls (including additional taxes and charges) and technical barriers to trade. Though all products traded within the EAC are affected by the reported NTBs, specific sectors or products tend to be particularly affected: manufactured foodstuffs, rice, tea, dairy products, and alcoholic beverages. From the same analysis, the category with the most unresolved NTBs is sanitary and phytosanitary measures, followed by rules of origin. Kenya has the most NTBs involving sanitary and phytosanitary measures, while Tanzania and Uganda have the most involving rules of origin. The figure below illustrate what is discussed above. Fuiure 6: Most Frequent Categories of NTBs in the EAC Page 19 of 68

21 Border Sch. 8% Finance 10% Preship.Insp. 3% Surcharges 17% Other 2% Quotas [CATEGORY[PERCENTAG NAME] E] [PERCENTAG E] TBT 12% SPS 20% Source: Source: IFC, 2014 The SPS and TBTs related NTBs represent together 32% of the total categories of NTBs identified in the EAC Time Bound Programme. These are followed by Rules of Origin representing 25% and surcharges 17%. Borders represent 8% while finance measures take a portion of 10% Harmonization and mutual recognition of sanitary and phytosanitary standards, and technical standards All five Partner States formally are in the process to comply with their commitments to harmonize and mutually recognize sanitary and phytosanitary standards (SPS), and standards to prevent technical barriers to trade (TBT) through the adoption of the EAC Standardization, Quality Assurance, Metrology, and Testing Protocol (2001) and the Standardization, Quality Assurance, Metrology and Testing Act (2007). In addition, the EAC Protocol on Sanitary and Phytosanitary Measures was recently approved by the EAC Heads of State and Partner States (July 2013), although it is still undergoing ratification and implementation. However, despite formal legal compliance, an analysis of this obligation in the Partner States, using the EAC Time Bound Program and information provided by each country from 2008 to September 2014, shows some implementation problems: SPS and technical standards seem to be recurrent issues affecting intraregional trade, accounting for nearly a third of the NTBs reported in this period. Most issues related to SPS and technical standards take the form of cumbersome testing and certification procedures for products (especially food), non-recognition of quality marks and SPS certificates from other Partner States, and stringent requirements for the export of certain products. Page 20 of 68

22 Though certain products such as food (tea and milk) are especially affected, all products in the region face these challenges Summary of achievements by Rwanda NMC through implementation of the National Strategy for elimination of NTBs Rwanda s NMC has been at the forefront of identifying and monitoring the removal of NTB s in Rwanda and within the EAC Partner States. As mentioned above, in September 2011, Rwanda became the first Member State in EAC, COMESA and SADC to develop and adopt a National Strategy for Elimination of Non-Tariff Barriers. The goal of the National Strategy is to enhance the capacity of the National Monitoring Committee and other institutions involved in the elimination of NTB s that affect imports into and exports out of Rwanda to enable them to better advocate for the removal of NTB s across the region. The overall objective of the NMC strategy is thus to reduce high transport costs that have negative impact on the prices of goods for the final consumer. The advocacy made on improvement of port facilities, road and border posts infrastructure, reduction of multiple stops that create cumbersome and unnecessary delays and automation of procedures using information technology is meant to reduce the costs of transport that will subsequently reduce the price of logistic goods and services for final consumers. The strategy further recognized that NTB s are an impediment to unlocking the trade and investment potential of EAC Partner States, and that removing them will contribute to general improvement of Rwanda s business environment as measured by the World Bank s Doing Business Reports. The Ministry of Trade and Industry received support from TradeMark East Africa to revamp Rwanda National Monitoring Committee for elimination of NTBs (NMC) that is hosted by the Ministry. As discussed above, Rwanda has achieved a lot during the 3 years of support from TMEA. The NMC work plan is built around three strategic outcomes, each contributing to an important capacity issues and processes in the monitoring and elimination of NTBs. The review thus states what has been achieved from September 2011 to September 2014 against activities planned under the following three outcomes Established effective NMC organization and capacity for monitoring of NTBs Under the first outcome, the key activities recommended were to build the institutional and organizational capacity of NMC, establish strategic planning and monitoring functions and improve visibility and communications. Among other things it was recommended that the NMC members operate in three sub committees, each committee covering one of the key areas of NTB: Standards, Transport and Infrastructure, and Custom and Border Procedures. The following are the outputs that were achieved: Page 21 of 68

23 Establishment of the NMC secretariat with a dedicated full time coordinator Developed and adopted the National Strategy for elimination of NTBs Establishment of 3 sub committees on: Standards headed by Rwanda Standards Board (RSB) Transport and Infrastructure headed by the association of trucks drivers (ACPLRWA) Customs and Border Procedures headed by Rwanda Revenue Authority (RRA) The NMC successfully built the NTB monitoring mechanism in Rwanda which was inexistent before Rwanda NMC has ensured that relevant institutions and stakeholders participate consistently in NMC meetings and without constant change of representatives. Currently, consistency in sending the same representatives to NMC meetings has been maintained at about 70% which is commendable. For the communication and visibility of the NMC, the NMC website was developed to provide information on NTBs to NMC members and facilitate online reporting. The website is now a sub website of MONICOM. 16 articles were drafted and published, a documentary film on the state of NTBs in the EAC was produced and printed as well as NMC promotional materials Increased capacity of NMC in advocacy for eliminating of NTBs at national and regional level The second outcome represented the main pillar of the NMC operations, its advocacy function for removal of NTBs. It included improved registration, monitoring mechanisms and information systems, development of the NTB prioritization mechanism and research on priority NTBs, and active engagement in NTB advocacy at the national and regional level. The following are the achievements resulting from the implementation of the strategy with regard to the above outcome: The capacity of the NMC to identify, register and facilitate removal of priority NTBs has constantly increased though improved organization, more focused agenda of national NMC meetings and better preparation for regional NMC meetings as well as demand driven trainings and information sessions. Rwanda NMC initiated and carried out several diagnostic studies on NTBs and logistics that guided policy formulation and advocacy and ultimately brought down time and cost for doing business in Rwanda and EAC. Examples are multiple: harmonization of road toll between Rwanda and Tanzania that resulted in the reduction of Tanzania road toll from 500$ to 152$ and saved up to 800,000$ for Rwandan transporters, lift of the ban on importation of right hand drive trucks, reduction of weighbridges and police roadblock along the corridors, extension of working hours at the borders, customs and the ports, construction of One Stop Border Posts, the establishment of a Single Customs Territory, construction of Mirama Hills-Ntungamo road and so on. Page 22 of 68

24 Active involvement in the review of the EAC Draft Report and Bill on legally binding enforcement mechanism for elimination of NTBs Improved mechanisms for elimination of cross-border NTBs Under the third strategic outcome, the strategy looked at the ways the NMC could initiate and support the Government in actively and efficiently engaging in bilateral and multilateral negotiation on NTBs removal. The following are the achievements resulting from the implementation of the strategy with regard to the above outcome: Rwanda NMC has been deploying a bilateral approach to eliminating NTBs with neighboring countries in the EAC. As a result, MoUs were signed between the Rwandan and Ugandan governments represented by their Ministries of Trade in January 2012 and between Rwanda and Tanzania in October 2012 to facilitate trade between them and at the borders and identify some quick wins already achieved. Establishment of Rwanda-Uganda border committees at Cyanika, Gatuna and Kagitumba- Mirama Hills border posts that are aimed at facilitating cross border trade and address daily complaints and NTBs of cross border nature 87.5% of domestic NTBs identified in Rwanda by both Uganda and Tanzania business community have been eliminated while 60% of NTBs that Rwanda was facing in Uganda and Tanzania have been completely removed through bilateral arrangements. Out of the 68 cumulative NTBs that have been eliminated in the EAC Time Bound Programme from 2008 up to September 2014, 49 NTBs were eliminated from September 2011 to date, meaning from the beginning of implementation of Rwanda s strategy to eliminate NTBs. This means a cumulative rate of 62% resolved NTBs out of the active NTBs. This also constitutes 72% of the total NTBs removed from The time to exports and imports goods from and to Rwanda reduced from 35 to 26 days and from 34 to 27 days respectively from 2011 to 2014 according to World Bank Doing Business reports. In real sense inland transportation (excluding time for clearance at the ports and final destination) from Mombasa to Kigali moved to 5 days and from Dar es Salam to Kigali between 4 and 3 days. The cost to exports good from Kigali decreased from 3,275 $ to 3,245$ according to WB Doing business reports from 2011 to However, it is reported that the cost to import a container remained constant at 4,990$ for the same period Below we have summarized a comparative analysis before and after the implementation of the National Strategy of elimination of NTBs. Table 8: Comparative Summary of Rwanda NMC before and after implementation of the National Strategy of elimination of NTBs Page 23 of 68

25 Situation Before Situation after Established effective NMC organization and capacity for monitoring of NTBs Inexistence of formal NMC secretariat with a Established NMC secretariat with a dedicated full dedicated staff for NTBs issues only time coordinator Lack of strategy in place to eliminate NTBs Developed, adopted and implemented NMC National Strategy for elimination of NTBs from September 2011 Poor attendance and lack of baseline record for Consistency in sending the same representatives NMC meetings to NMC meetings has been maintained at about 70% Week representation of private sector in NMC Representation of the private sector in NMC meetings. The Rate was at 42.1% Lack of formal monitoring mechanism to evaluate the advocacy achievements on elimination of NTBs No mechanism in place to evaluate NTBs removed in the EAC Time Bound Programme over a certain period Lack of communication plan and NMC visibility Page 24 of 68 meetings has improved up to 53.3% Developed, adopted and implemented Rwanda NMC Monitoring plan since September The plan was reviewed in June 2013 to align it to new developments EAC Time Bound Programme is monitored and analyzed on a quarter basis. So far, 62% of outstanding and ne reported NTBs were resolved NTBs from September This also constitutes 72% of the total NTBs removed from 2008 The NMC website was developed to provide information on NTBs to NMC members and facilitate online reporting. 16 articles were drafted and published, a documentary film on the state of NTBs in the EAC was produced and printed as well as NMC promotional materials. Increased capacity of NMC in advocacy for eliminating of NTBs at national and regional level Lack of formal research agenda on priority NTBs Researched agenda established and so far 5 and baseline for research undertaken by NMC research and issues papers presented and Lack of capacity building programme for NMC members Improved mechanisms for elimination of cross-border NTBs Lack of legal basis and formal cooperation approach at bilateral level to eliminate NTBs Lack of proper mechanism to deal with NTB issues at the borders Inexistence of a legal basis to enforce elimination of NTBs at regional level Lack of baseline and list of domestic/national NTBs to be eliminated adopted by Rwanda NMC since September 2011 Development of capacity building programmme. In total 7 trainings and workshops organized for NMC members from September 2011 Adoption and implementation of bilateral approach with EAC partner states to eliminate NTBs. As a result, 2 MOUs signed on elimination of NTBs with Uganda and Tanzania Established Joint Border Committees with Uganda at Cyanika, Kagitumba and Gatuna border posts Rwanda assisted EAC in the development of the EAC act on legally binding and enforcement mechanism for elimination of NTBs Development of a list of domestic NTBs to be removed. So far 87,5% of these NTBs have been

26 Lack of baseline and list of bilateral NTBs to be eliminated Lack of proper mechanism to evaluate transport costs and time over a certain period Source: Authors addressed. Identification of bilateral NTBs to be discussed at bilateral level with Uganda, Tanzania and Burundi. So far 60% of NTBs identified at bilateral level and discussed with Uganda and Tanzania have been removed. Transport time and costs are regularly evaluated through UNCTAD toolkit: - The time to exports and imports goods from and to Rwanda reduced from 35 to 26 days and from 34 to 27 days respectively from 2011 to 2014 according to World Bank Doing Business reports. In real sense inland transportation from Mombasa to Kigali moved to 5 days and from Dar es Salam to Kigali between 4 and 3 days. - The cost to exports good from Kigali decreased from 3,275 $ to 3,245$ according to WB Doing business reports from 2011 to However, it is reported that the cost to import a container remained constant at 4,990$ for the same period 2.3 Challenges observed in implementing the National Strategy for elimination of NTBs During the 3 years of implementation of the NMC work plan, we have noticed that removing NTBs is not an easy task. In fact some NTBs require commitment of more than one institution for their removal. Some require significant amount of time including several consultations of parties involved, policy reforms and enough funds for them to be eliminated. In efforts to pursue the NTBs elimination process, it was important to assess the current status of NTBs based on new developments and the findings resulting from a deep analysis on NMC operations, members participation and capacity, institution involvement and framework. A quick analysis revealed that the NMC is facing some new issues that need to be addressed to make it more active and more efficient in advocating for removal of NTBs. In summary the following are the challenges that Rwanda NMC is facing and which impede to the full implementation of the strategy: a) Dependency on goodwill for removal of NTBs identified outside Rwanda Rwanda NMC still depends on the good will of partner states in removing NTBs that have been identified in their territories. This does not help to fast track elimination of NTBs and comply with the time bound programme agreed upon by EAC partner states as well as full implementation of our action plan. b) A lot of institutions involved in NTBs removal and creation Page 25 of 68

27 It is difficult to coordinate removal of NTBs since many institutions are involved. This requires much effort to make understand each institution the importance of NTBs removal. For instance NTB related to lack of 24/7 operations at customs and border posts need financial resources for additional staff but also commitment and willingness of other institutions involved such as Bureau of Standards, National Police, Immigration and clearing agencies to do the same. c) Obstacles in planning, holding and funding of bilateral meetings The preparation and organization of bilateral meetings are very challenging. The major problem is to agree on convenient dates to hold the meetings by the involved two countries. Sometime meetings are postponed due to other urgent issues that are considered as priority in the other country and this creates delays in the implementation of Rwanda NMC action plan. This seems to be an external factor that is uncontrollable. The recent example is the planned bilateral meeting between Rwanda and Burundi that has been postponed twice without proper justification. Also, lack of funding in some countries does not allow proper representation and is another factor that causes meetings postponement or cancellation. Furthermore, the fact that the institutions that host NMCs in EAC partner states are different, Ministry of Trade, Ministry of EAC or Presidency office complicates the level of cooperation between hosting institutions which do not have the same level of authority and cooperation and thus cannot organize joint activities or sign agreement between themselves. d) Very slow response times to complaints from Partner States for those NTBs that have been identified. Implementation of agreed actions in the EAC Time Bound Programme is very slow. Partner states do not comply with the timeline and there is no proper follow up and coordination from EAC secretariat before the next meeting a part from national NMC meetings initiated and facilitated by EAC secretariat in partner states for review and update of the EAC Time Bound Programme and reporting of new NTBs. In addition, there is no adequate mechanism of enforcement of agreed decisions to ensure there is strict compliance with set timelines by each EAC partner states. e) A shortage of detailed case studies documenting the adverse impact of NTMs/NTBs on trade and quantification of removed NTBs. Quantifying NTBs in terms of time and cost loss has been very challenging. Prioritization of NTBs can only be done based on factual figures revealing the effects that NTBs are causing. However, the work of the NMC has been merely limited to identifying, reporting, monitoring and facilitating removal of NTBs. f) Insufficient involvement and interest of businesses and the private sector associations in reporting and advocating for NTB removal is still inadequate Page 26 of 68

28 The capacity and interest of the business community to identify and report NTBs is still low. Furthermore, their interest and involvement in advocating for elimination of NTBs is quite small. The work of the NMC is mostly spearheaded by Government and involvement and representation of the private sector need improvement. In addition, less concerned institutions from NMC should be replaced by public and private sector institutions who are more involved in regional integration issues and thus the Membership of NMC should be reviewed. g) Unstructured methods for consultation with private sector in identifying NTBs To date, consultations with the private sector has passed through PSF, apex body of the private sector. Consultations with NMC member has been done through formal and informal meetings and members seem exhausted with new NTBs to be reported. In this regards, mechanism and approach to collect new NTBs should be defined and determined to ensure that NTBs that the business community faces is taking care of. h) Ineffective preparations and inadequate representation of affected institutions in the NMC and in EAC regional meetings on NTBs Some meetings have not been very effective due to lack of proper representation of affected institutions either due to unavailability or funding to participate in regional meetings. Moreover, in some cases, members do not meet in advance to have the right position on the items to be discussed in the meeting. The revised strategy should try to address this and recommend proper mechanism to be used for effective meetings. i) Inadequate reporting mechanism of the outcomes of technical regional meetings and lack of proper follow up on issues discussed at regional and bilateral level by national institutions, members of the NMC In most cases, institutions are not informed of the outcomes of the regional meetings on NTBs and actions are not taken to ensure that there is proper followed on issues discussed. The NMC should design a brief template for reporting and a follow up template on agreed actions which need attention of national institutions. j) Uncertainty of NMC funding sustainability To date, NMC budget is co-shared by TMEA and MINICOM. The support of TMEA is temporary. There is need to look for other sources of funding including contribution from private sector members and other development partners to ensure sustainability of NMC programme. 2.4 Lessons learnt during implementation of the National Strategy for elimination of NTBs Page 27 of 68

29 During the implementation phase of the National Strategy of elimination of NTBs, key lessons were learnt and proved invaluable. In Some areas of interventions, Rwanda NMC performed very well while in some others, more improvement was needed. These relate to planning, organization, coordination, monitoring and evaluation of NMC activities at national, bilateral and regional levels. For purpose of getting the best from lessons learnt, we have separated what worked well and what could have worked better. i. What worked well (to be deepened) The review found that the most areas of success were: a) The approach to engage in bilateral negotiations has moved the NMC role from the simple NTB registration into more proactive role in removing of NTBs. Domestic and cross border NTBs were identified, discussed and most of them have been removed. Therefore this effort should continue. b) The research on priority NTBs continues to be one of the essential tools for better understanding of the underlying dynamics of the NTBs. It has been very clear that evidence based research is a strong tool for advocacy. The Rwanda s Road freight industry competitiveness study is just one of many examples. The study findings pushed Rwanda to harmonize road tolls with Tanzania as well as the Government of Rwanda to lift the ban on importation of right hand drive trucks. We have learned that initiatives are good but do not speak unless the impact is quantitatively determined. Aftermath, Burundi also advocated for equal treatment as Rwanda. The Cabinet Paper and an action plan were developed based on recommendations from the study. Cabinet endorsed the proposal and stakeholders are supposed to implement the action plan for a more competitive Rwanda trucking industry. c) Increase in capacity of the NMC members to better understand the tools for addressing priority NTBs was essential for better functioning of the committee. Targeted trainings have empowered NMC members and made them a driving force in advocating for removal of NTBs d) NTBs are better removed when efforts are made at both technical and political levels. The recent Northern Corridor Integration projects initiative is a good illustration. Many NTBs along the Northern Corridor were removed through this intervention. ii. What could have worked better (to be reviewed) The areas that could have been worked better a) More consultations were needed between Private Sector to agree on several issues like research agenda and research topics so that result papers would be more demand driven. Consultations would also have resulted in providing an approach of collecting new NTBs. Page 28 of 68

30 b) The technical assistance should have been more used in the quantification of NTBs and assessing their impact on the national economy. Some of the most complex NTBs are still not resolved and the role of the NMC on coordinating their removal will increase. This will also increase the need for even more focused and specialized assistance, possible with a strong regional dimension. The technical assistance would also have helped in assessing the capacity of NMC members so as to produce a more focused and targeted capacity building programme. c) There should be more integration of TMEA TA projects related to elimination of NTBs for experience, information and knowledge sharing such as standards, private sector advocacy programme on NTBs as well as NTB Coalition from the civil society. In this respect a joint Steering Committee of interlinked projects may be required to guide the coordination process. d) Intervention at higher level is needed when organization of bilateral meetings seems difficult or other issues that cannot be solved by the Coordinator or NMC members. Technicians might not have the required capacity and necessary confidence to decide on the issue and the way forward. The structure of the NMC should hence be reviewed to include top level management of key institutions such as MINICOM, PSF and MINEAC to provide guidance on some sensitive issues that are crucial for fast-tracking elimination of NTBs Below is a summary of worked worked well and what could have been improved for the period of 3 years implementation of the NMC strategy. Page 29 of 68

31 What worked better What could have been improved Engagement in bilateral approach for elimination of NTBs More consultatons with private sector for identification of new NTBs Strong evidence reseach papers Tecnical assistance focused on quantification and prioritization of NTBs, classification and data collection of Non Tariff Measures (mainly TBTs and SPS) Increased capacity building for NMC members More integrated projects on elimination of NTBs linked with private sector and civel society More technical and political support in elimination of NTBs More suport at higher level for organization of bilateral meetings Page 30 of 68

32 3 QUANTIFICATION AND IMPACT OF REMOVED AND OUTSTANDING NTBS Contents 1. SITUATIONAL ANALYSIS OVERVIEW OF IDENTIFIED NTBS SUMMARY METHODS THE METRICS OF MEASURING IMPACT OF PROGRESS Direct gains from decreasing importation time by 1 day Export increment from reducing time to export by 1 day Direct gains from decreasing the cost to import a container by $ Direct gains from decreasing the cost to export a container by $ Indirect effects ASSUMPTIONS TO CALCULATE NET PRESENT VALUE OF GAINS The real interest rate The Social Discount Rate on Time Future imports and exports Future size of the economy MODEL TO PROJECT THE FUTURE TRADE FLOWS FROM GDP Calibrating the model to Rwanda Baseline Scenario Calibrating the model to Rwanda - Vision 2020 and beyond Scenario SUMMARY RESULTS NPV OF REDUCING TIME TO IMPORT Central Corridor Gains Northern Corridor Gains INCREASED EXPORTS AS A RESULT OF SHORTER TIME TO EXPORT GAINS FROM REDUCING COSTS PER IMPORTED CONTAINER GAINS FROM REDUCING COSTS PER EXPORTED CONTAINER SUMMARY OF RESULTS Net Present Value of Achievements Impact Potential of the Areas of Intervention WAY FORWARD FUTURE AREAS OF INTERVENTION Time and Costs of Trade Emerging areas of intervention RECOMMENDATIONS Recommended priority areas Recommendation to improve collection of information and organization of issues in the Time Bound Programme database ANNEX: SPECIFICATION OF MODEL TO PROJECT FUTURE GDP AND TRADE-FLOWS Page 31 of 68

33 1. Situational analysis This section takes stock of the NTBs identified in the Time Bound Programme and at the bilateral level. Based on the identified NTBs appropriate parameters for quantification are selected. 1.2 Overview of Identified NTBs The primary source for identified NTBs is the meeting reports from the EAC Regional Forum on Non-tariff Barriers from 2011 to Tracking the Time Bound Programme allows for determining the date in which an issue was resolved. The annex provides the full list of issues discussed stating the date the issue was resolved. Tracking the development of the Time Bound Programme over time shows that issues proliferate and re-emerge over time. The forum will therefore expectedly be relevant in the years to come. A total of 47 issues involving Rwanda have been identified of which 11 are yet to be resolved. The focus has been on issues pertaining to the movement of goods along the corridors, i.e. port handling, clearance systems, roadblocks, weighbridges and border posts. In total, 31 corridor issues involving Rwanda have been identified of which 25 have been resolved through discussions in the EAC forum or through bilateral engagement. Two major achievements have been the introduction of the Electronic Single Window System and implementation of the Single Customs Territory along the Northern Corridor. The major issues ahead are: 1) to strengthen the systems used for the Single Customs Territory in the Northern Corridor to enhance predictability for traders; 2) Push for a Single Customs Territory along the Central Corridor; 3) Address the issue of road blocks and weighbridges along the Central Corridor. Issues related directly to the trucking sector has been another area focus. The attention has been directed to ensure fair competition for the Rwandan trucking sector vis-á-vis foreign trucking companies. The major achievement has been to harmonize road toll fees with Tanzania such that Rwandan and Tanzanian freight companies face the same road toll fees. Harmonization with Uganda and Kenya are yet to be harmonized. While such achievements are benefitting the competitive position of Rwandan freight firms, it is unlikely to have significant impact on the price charged on consumers, since the Rwandan freight sector has a relatively small share of the Rwandan freight market. Only universal reduction of road tolls would have significant impact on the cost of trade but would slim the tax base. The forum proved effective in addressing some labor market issues by curbing introduction of visa requirements from Kenya and Uganda during the period. Broader parameters related to accessing other EAC labor markets, e.g. educational exchange, regional labour market information systems etc., do not appear to have been a focus area in the forum. Standards is reported with only one entry and is reported addressed as countries have agreed to mutually recognize standards. In reality, the area of standards is complex and it is still under Page 32 of 68

34 implementation. This is an emerging area in which harmonization of each standard should be treated as an individual case in discussions. The strategic interests for Rwanda are: 1) ensure a level playing field in standards - and enforcement of standards across the East African market. 2) Ease access to East African markets by automatically qualifying for EAC markets by meeting standards in Rwanda. Rules of Origin is an area with limited strategic interest for Rwanda. In the majority of cases, accepting Rules of Origin will divert trade to the benefit of the two countries where the ports are located The miscellaneous issues category include issues of relatively insignificant importance which do not qualify under the other broad categories. Page 33 of 68 Table 9: Identified issues in the Time Bound Programme Total Resolved Unresolved Corridors Labor market Rules of origin Standards Trucking sector Miscellaneous Total Source: Time Bound Programme and Domestic Data Collection Based on the dominant focus on the corridors the bulk of the analysis will focus on quantifying the social value of decreasing time and cost to trade. 1.3 Summary 1. Tracking the Time Bound Programme over time shows that NTBs proliferate and reemerge over time. The EAC Forum will therefore expectedly be relevant in the years to come. 2. Main focus and achievements pertain to the movement of goods along the corridors. Hence the impact assessment of past achievements concentrate on this area. 3. Addressing issues relevant to the Rwandan trucking sector benefits this sector but will have limited significance beyond the sector. 4. Standards and labor market issues have only been discussed to a limited extent in the EAC Forum for NTBs. These are areas where Rwanda has a strategic interest in raising more issues.

35 5. Rules of Origin is an emerging area of interest for Kenya and Tanzania. Rwanda will have limited strategic interest in this area. 2. Methods This section outlines a methodology to quantify the impact of past and potential achievements to decrease the time and costs associated with trade. Firstly, a metric is developed to determine how shorter time to trade and lower costs of trade translate into monetary gains for society. From this it becomes clear that the benefits of current achievements will be realized over many years in the future. Hence, it is necessary to make assumptions and projections on future values of key variables. The assumptions are described and a forecast model is developed and calibrated to match Rwandan figures. 2.2 The Metrics of Measuring Impact of Progress As indicated, the main achievement has been to decrease the number of days it takes to import and export along the two trade corridors. This sub-section section develops a metric to estimate the direct monetary value of these achievements Direct gains from decreasing importation time by 1 day Each day of transportation means a day of delay before a good can be consumed, used as an input to the production or re-sold by the importer. Hence, there is a cost associated with waiting for a good (which the importer in most cases have paid for prior to the shipment). The monetary cost of time is reflected in the real interest rate - the nominal interest rate less inflation. Hence, the cost of waiting a day for all imports in year n is given by the value of total imports times the interest rate per day in year n: Eq. 1) ( ) ( ) ( ) ( ) ( ) Once a source of delay has been removed the benefits will accumulate in all subsequent years. Therefore, the gains associated with decreasing transport time will not be derived in one year alone. Rather, they derive from the Net Present Value of all future gains, i.e. the sum of all future gains discounted by a time factor, I, commonly known as the Social Discount Rate. Eq. 2) ( ) ( ) Hence, two variables need to be determined in order to estimate the value of decreasing importation time by 1 day: 1) current and future values of imports; 2) the current and future real interest rate. Moreover, to determine a parameter value of the discount factor. This will be done in subsequent sections. Page 34 of 68

36 2.2.2 Export increment from reducing time to export by 1 day Decreasing time to export will increase exports through several channels. Firstly, Rwandan goods will be more attractive to foreign clients as they can get their goods faster. Secondly, Rwandan producers will be incentivized towards foreign markets because they can be reached more easily. Thirdly, lower time to export likely correlates with lower cost of exporting as well as easier access to inputs through shorter time to import. Djankov, Freund and Pham (2010) find that all else equal - 1 day of extra transport time has an estimated 1% level-effect on exports. They use a cross-country gravity equation methodology to control for all other factors that may impact export flows. Using this result the expected export increment can be described as 1% of what it would have been otherwise: Eq. 3) ( ) ( ) Again, since the gains will accumulate over the future, the Net Present Value represent the actual gain: Eq. 4) ( ) ( ) The variable to be determined is current and future flows of exports as well as setting a value for Social Discount Rate on time Direct gains from decreasing the cost to import a container by $100 Customs data suggests that an imported container weighs on average 23MT. Knowing the volume of import flows, the number of trucks can be inferred, hence also the total gain of decreasing the costs per truck by $100. Eq. 5) ( ) ( ) *$100 Assuming that the pay load will remain 23MT, the Net Present Value of future gains can be calculated: Eq. 6) ( ) ( ) Direct gains from decreasing the cost to export a container by $100 The gains from decreasing export costs can be derived in the same manner as for import cost reductions, taking into account that an exported container weighs 17MT on average: Eq. 7) ( ) ( ) *$100 Assuming that the pay load will remain 17MT, the Net Present Value of future gains can be calculated: Page 35 of 68

37 Eq. 8) ( ) ( ) Indirect effects This report presents the direct gains from decreasing the costs of trade through the Time Bound Programme. However, there are several indirect gains associated with the interventions. Decreasing time and cost to trade will likely increase flows of imports and exports thus magnify the effects further. If it is cheaper to import, total volumes as well as product variety will likely increase. Consumers will have more and cheaper goods to choose from. Companies will have cheaper access to inputs to the production, which will likely lower production costs and make more ventures viable. This will likely increase domestic production and potentially exports as well. Additionally, if imports reach Rwanda faster, importers will need less working capital. This will free liquidity for use elsewhere in the economy. Assuming that banks and bank clients are sufficiently liquidity restricted, the freed liquidity can amount to as much as the total gain from decreasing the time to import. In turn, these effects will be subject to a Keynesian demand multiplier that benefits society further in the short and medium term. The losers from decreased costs of trade will likely be local producers who were previously shielded from foreign competition by high costs of trade. They will be forced to shift to other products if consumers choose to substitute the old products with more competitive imports. However, the secondary gains from decreasing trade costs will in all likelihood outweigh the secondary costs. Hence, the results calculating the direct gains can be regarded conservative estimates of the total benefits to society given the assumptions. 2.3 Assumptions to Calculate Net Present Value of Gains The previous section stipulated the necessary information to estimate the Net Present Value of decreasing the costs of trade: 1) The current and future real interest rate 2) The time discount factor 3) Current and future imports share of the economy 4) Current and future exports share of the economy 5) Size of the economy Some assumptions are needed on these in order to calculate gains from projected values. The difference between a projection and a prediction should be kept in mind. In contrast to a prediction, a projection necessarily follows from a set of well-defined assumptions. Assumptions may turn out to be not quite true, but they can be verified and it is possible to test how sensitive the conclusions are to the assumptions, i.e. whether the assumption is critical or not. The projections reach into the distant future. Such long projections may seem unrealistic to the reader. However, historically, economies follow certain regularities, and the effects of crises Page 36 of 68

38 and shock tend even out over time. 4 Therefore, contrary to intuition, a model projecting the economy in 50 years may be more exact than a forecast model for the next year. The following outlines the critical assumptions and the resulting projections The real interest rate The real interest rate faced by commercial bank clients has been around 15% in recent years (Figure 7). This is a relatively high interest rate in an international perspective. Assuming that the macroeconomic environment will remain stable and that financial sector development will take place, the interest can be expected to decrease toward an internationally comparable long-run interest rate of 5% percent over the coming decades. Figure 7: Projected Real Interest Rate 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: BNR The Social Discount Rate on Time The Social Time Discount Rate Is determines how much less a gain is worth if it falls in the future as opposed to immediately. Choosing an appropriate discount rate is critical in cases where future gains are assumed to be substantial compared to at present. Table 10 illustrates the significance. If a $1000 dollar gain falls today it will not be discounted. However, discounting by 1% per year, the value today (NPV) of receiving a $1000 gain in 10 years time will be 910. If the gain is received in 100 years time, the NPV is $370. Choosing a higher social discount rate will have significant impact on the NPV of future gains. With a 10% discount factor, the NPV of $1000 received 10 years from now will be $386. If it is received in 100 years, 4 See for example: Jones, Charles I., and Paul M. Romer "The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital." American Economic Journal: Macroeconomics, 2(1): and Kaldor, Nicholas (1957). "A Model of Economic Growth". The Economic Journal 67 (268): Page 37 of 68

39 the value will be a mere $0.07. Thus a high discount rate will assign little value to gains received In the far future. Table 10: The Net Present Value of a $1000 gain today, and in 10, 50, and 100 years at different discount rates Discount rate Today 10 years away 50 years away 100 years away 1% % % % Which social discount rate to choose? For the private person, the real interest rate is a relevant choice as it is the cost of borrowing for the private person. However, for society it is a choice of social preferences. There are several principles to follow, but no indisputable answer. The social discount rate is therefore at the core of discussion in cost-benefit analyses where gains and costs are realized over long periods, perhaps most prominently in the debate between environmentalists and climate sceptics. Table 11 outlines social discount rates used internationally. Discount rates tend to be higher in developing country settings as compared to in developed countries. This may reflect a relative urgency of realizing costs and benefits in countries with high poverty rates. Based on these findings, a 10% discount rate seems appropriate for the calculations at hand. In addition this will decrease the sensitivity of results to benefits in the distant future. Table 11: Social Discount Rates used elsewhere Country Agency Discount rate India 12% Multi-lateral Development Banks World Bank 10-12% European Bank for Reconstruction and Development 10% African Development Bank 10-12% South Africa 8% (test 3% and 12%) Page 38 of 68

40 United States Office of Management and Budget 7% (test 3%) European Union European Commision 5% United Kingdom HM Treasury 3.5% (1% for costs and benefits received beyond 300 years) Norway 3.50% Germany Federal Finance Ministry 3% Source: Harrison (2010) Future imports and exports The size of trade flows will be determined by the future size of the economy. Currently, Rwanda s trade flows constitute around 35% of total GDP (Table 9Table 12). As the country develops and integrates further with the world economy, trade flows are expected to constitute a larger share of the economy. Comparing to more developed countries of similar size, it is likely that Rwanda s trade flows may increase towards 70-90% of GDP over time. Table 12: Import and Export Share of GDP in Selected Countries Austria Czech Republic Sweden Switzerland Portugal Rwanda Source: World Development Indicators, World Bank Specifically, imports and exports are assumed to follow their trends since 2010 towards respectively 50% and 35% of the economy where they will stabilize. Hence, the country is projected to operate a trade deficit in the foreseeable future which is consistent with the country experiencing a phase of catching-up growth and foreign investments. However, no 5 Harrison, Mark, 2010, Valuing the Future: the social discount rate in cost-benefit analysis, Australian Government Productivity Commision, Visiting Research Paper. data/assets/pdf_file/0012/96699/cost-benefit-discount.pdf Page 39 of 68

41 country can perpetually consume more than they produce 6, and in the very long run imports and exports are expected to balance (Figure 8). Figure 8: Projected Export and Import Shares of GDP 60% 50% 40% 30% 20% 10% 0% Exports share of GDP Imports share of GDP Future size of the economy Imports and exports are determined by the size of the economy. The more the economy produces the more goods will be available for exports. Equally, the higher the income from production, the higher the demand for imported goods. Hence, projections of trade flows are based on projections on future GDP. To this end a forecast model is applied in the following section. 2.4 Model to Project the Future Trade Flows from GDP Given that imports and exports depend on the size of the economy, it is key to project future GDP. A projection model has been modelled and calibrated for Rwanda in two future scenarios: 1) the baseline scenario; 2) The Vision2020 and beyond scenario. This subsection outlines the key assumptions of the model and projected future growth. Essentially, the model is a reduced form version of Howitt (2000) 7 which has been simplified to the sole purpose of projecting future GDP growth rates. The key assumption is that growth in Rwanda occurs as a result of adopting knowledge, technology, organizational forms etc. from more advanced countries. Hence, by using the advantage of backwardness 8 Rwanda will grow 6 I.e. A No Ponzi Game condition apply 7 Howitt, P., Endogenous growth and cross-country income differences. American Economic Review 90, Abramovitz, M., 1986, Catching up, forging ahead, and falling behind. Journal of Economic Page 40 of 68

42 faster than more advanced economies hence converge toward the advanced economies over a long period. The full model is derived and outlined in the Annex. The key equation is the projection of growth in a given year n: Eq. 9) Growth [log( GDP / cap ) log( GDP / cap ] z GDP / Adv Rwa n n n Hence, Rwandan growth in GDP per capita will be larger if the distance between GDP per capita in Rwanda and GDP per capita in the advanced countries is large. The logic is that there will be more technologies to adapt the further away the country is from the frontier. As it gets closer to the frontier, it will be increasingly difficult to exploit the advantage of backwardness. The parameter µ is commonly known as the rate of convergence. It determines the speed at which technologies can be adopted from more advanced countries. It is interpreted to reflect factors that are not easily changed, such as for example geographic and cultural proximity to advanced countries. Empirical findings suggest that the value of µ is close to 2% (the so-called iron law of convergence) 9. The parameter z reflects factors that affect the ability of the country to adopt new technologies and can be changed by policies. These factors could for example be the educational level of the workforce, the investment climate, the ability of companies to conduct R&D and learn from abroad etc. The value of z is expected to change over time and will be used to generate different growth scenarios Calibrating the model to Rwanda Baseline Scenario In the baseline scenario, is the optimistic but realistic scenario. GDP/capita will follow the projections in the World Economic Outlook 10 until Beyond 2019, growth is determined by Eq. 9. The advanced country is set to have GDP per capita of $40,000 in 2011 and grows 2% per capita per year on average in the long run. If the value of z is set to 0.02, Rwanda would be consistent with full convergence starting in 2020 and GDP/capita growth of 9.7% in However, the current World Economic Outlook projects 5% GDP per capita growth by 2020 which is consistent with a z value of The value of z is assumed to increase towards 0.02 as the educational level and investment climate improves over time, such that per capita growth will be 5% until z=0.02. Subsequently, the economy will converge fully to the advanced country and the growth rate will approach the steady state value of 2%. Population growth is accounted for by using the population projection from the Household Census 2012 which projects the population until Beyond 2032 the trends are extrapolated until population growth approaches 1% per year. History 46, Barro R., Convergence and Modernization Revisited. Working paper (Harvard University) 10 These projections are made jointly by IMF and MINECOFIN. Page 41 of 68

43 Given the model assumption, in the baseline scenario, GDP is projected to grow by about 7% on average over the coming decades disregarding business cycles and other shocks that tend to even out when observing a sufficiently long period. The growth trend will be declining due to slower population growth (Figure 9Figure 9). This growth rate is consistent with doubling the economy approximately every 10 year. Compared to a GDP of RwF 3,846 bn in 2011, the model projects GDP will be RwF 14,298 bn by 2030; RwF 56,426 by 2050; by 2065 the economy is projected to be RwF 154,159 bn 40 times larger than in Since, the share of trade flows are assumed to increase (Figure 8), imports and exports are projected respectively 82 times and 194 times larger by 2065 compared to Those figures illustrate the significance of the future when calculating the benefit of improvements made today Calibrating the model to Rwanda - Vision 2020 and beyond Scenario In the Vision2020 and beyond scenario is the optimistic scenario (Figure 10). GDP per capita is projected to reach $1240 by Subsequently, z is assumed to be 0.02 consistent with the economy being on the growth path toward full convergence with the advanced economy by Given the projected population growth GDP will need to increase by 12% per year until 2020 to reach the targeted GDP/capita target. After 2020, growth will be on a high but declining trend due as the distance to the frontier diminished (c.f. Eq. 9) and population growth decelerates. With growth average about 10% the economy is projected to double approximately every 7 years. Hence, by 2020 the economy has more than doubled compared to 2011; by 2030 more than 6-doubled; by 2050 the economy is about 38 times bigger and by 2065 the economy is projected to be 116 times larger. Similar to the baseline scenario, the trade flows are projected to increase more than the economy: imports and exports are projected to be respectively 153 and 307 times larger 50 years from now in the Vision2020 and beyond scenario. Figure 9: Projected GDP, growth, Imports and Exports Baseline scenario 180, , , , ,000 80,000 60,000 40,000 20, % 7.5% 154, % 7.2% 7.2% 7.1% 7.0% 6.9% 77, % 56,426 54, % 28,537 28, % 13,264 19,799 7,098 2,407 14,298 5,747 9, % 4,382 1,133 3, % Imports, RwF bn Exports, RwF bn Constant GDP, RwF bn GDP growth Page 42 of 68

44 Figure 10: Projected GDP, growth, Imports and Exports Vision2020 and beyond 500, % 450, , , % 12.0% 10.4% 445, % 10.0% 300, , , , ,000 50, % 7.5% 7.0% 8.0% 224,0826.0% 148, ,468 74, % 8,801 25,277 52,162 2,984 10, % 3,846 1,405 6, % Imports, RwF bn Exports, RwF bn Constant GDP, RwF bn GDP growth 2.5 Summary The monetary gains to society from decreasing time and costs of trade were determined by Equation 1)-8). Secondly, since gains from achievements will be accrued over time, assumption on future real interest rate, as well as the future share of imports and exports in the economy. The social discount rate of time was chosen to be 10%. Subsequently a forecast model of the economy was developed and calibrated to project future GDP, Imports and Exports in two scearios: 1) the Baseline scenario; 2) The Vision2020 and beyond Scenario. This allows for calculating Net Present Value of gains mde from decreasing time and costs associated with trade. 3. Results Now that future trade flows, the real interest rate and the social discount rate have been determined, the Net Present Value of gains can be calculated according to Eq Hence, the NPV of achievements in the period can be quantified. 3.2 NPV of Reducing Time to Import The NPV of the monetary gain from decreasing time to import by one day is derived from Eq 1. An Eq. 2. In the baseline scenario, the NPV for decreasing import time by 1 day in 2011 is RwF 13.4 bn using a social discount rate of 10%. The value of gains accumulated by 2020 is RwF 3.6 bn per day, while RwF 12 bn will be realized by In the Vision2020 and beyond scenario, the NPV of decreasing import time by 1 day is RwF 24.7 bn. In the first years, the differences to the baseline will be relatively small, but as the difference emerges by 2030 where the effect of higher growth rates kicks in. For illustration, NPVs have been calculated using 5% discount rates. This gives weight to gains in the distant future. By this time the economy will be Page 43 of 68

45 substantially larger, therefore also the gains. However, only a fraction will be realized by 2070 which substantiates that a 10% social discount rate is probably more relevant for the case at hand. Table 13: Gains from Decreasing Import Time by 1 day in 2011 Import NPV Cum Cum Cum Cum Cum Cum 2030 Cum 2050 Cum Baseline, 10% discount V2020, 10% discount Baseline, 5% discount V2020, 5% discount Table 13 shows that the Net Present Value of decreasing average time to import by 1 day is RwF 13.4 bn. To get the total gains from achievements this should be multiplied by the observed reduction in days to import. But how much has time decreased since 2011? There are varying accounts and they differ for each corridor. For the central corridor we have chosen to follow the World Bank Doing Business data on time to import. For the Central Corridor, we follow a recent study from Rwanda Revenue Authority on the impact of the Single Customs Territory. We assume that each corridor will handle about 50% of future imports. According to customs data, the Northern Corridor used to be the primary port of entry, yet currently the Central Corridor is dominating. In that light it seems reasonable to assume that over time, they will handle the same amount of trade Central Corridor Gains Accounts vary as to how long it takes from a container lands in the port of Dar Es Salaam till it reaches the importer. According to freight companies a container can reach the Rusumo border days after reaching the port and be cleared in Rwanda by 1-3 days. However, this is in the optimal scenario and often delays occur in the port or along the route. In some cases the duration can be more than a month. The World Bank Doing Business Report Collects data on transit time along the Central Corridor. The estimates are higher than the reports from other sources which provide a conservative estimate of the gains. The results are reported in Table 14. Using the assumption that 50% of imports will come through the central corridor, the NPV of decreasing import time by 1 day in 2011 is RwF 6.7 bn. Time was reduced by 3 days in 2011 compared to the previous year, so the total gain was RwF 20.2 bn. Improvements in subsequent years have a slightly smaller value as they did not realize gains in the years before. Hence, the 1 Page 44 of 68

46 day improvement during 2013 was worth 6.3 bn and the 3 day improvement in 2014 was worth RwF 18 bn. The total NPV of improving time to import by seven days in the period was RwF 44.5 bn using the baseline projections and a 10% discount rate. Table 14: Gains along the Central Corridor Import Days to Import Improvement compared to previous year NPV of gain per day, baseline NPV of Gain per day, V2020 Gains, baselin e Gains, V2020 DB2012 (11) DB2013 (12) DB2014 (13) DB2015 (14) 31 3 days 6.7 bn 12.3 bn 20.1 bn 37.0 bn 31 0 days 6.6 bn 12.1 bn 0.0 bn 0 bn 30 1 days 6.2 bn 11.7 bn 6.2 bn 11.7 bn 27 3 days 6.0 bn 11.4 bn 18.0 bn 34.1 bn Total 7 days 44.4 bn 82.9 bn Source: WB Doing Business and own calculations Northern Corridor Gains The implementation of the Single Customs Territory during 2014 has been a major achievement. Integrating customs systems with Uganda and Kenya, introducing more time efficient weighbridges and controls posts have reportedly reduced average import time by 15 days 11. Since the improvements are rather new, the effect is yet to be registered by external sources such as the World Bank Doing Business Report. The World Bank Dong Business does not collect import time for Rwandan imports along the Northern Corridor. However, the data for Uganda shows no improvement over the past years. Therefore, only the 15 days gain in 2014 is taken into account. Table 15: Table 16: Gains along the Northern Corridor Gain compared to previous year NPV of gain per day, baseline NPV of Gain per day, V2020 Total gains, baseline Total gains, V Rwanda Revenue Authority, 2014, Impact Assessment of the Single Customs Territory Page 45 of 68

47 days 6 bn 11.4 bn 90.0 bn 171 bn Total 15 days 90.0 bn 171 bn The total Net Present Value of the achievements to reduce time to import since 2011 is RwF bn under the baseline assumptions. Using Vision2020 and beyond assumption the NPV would be RwF 248 bn. 3.3 Increased Exports as a result of shorter time to export Decreasing the time to export by 1 day has been found to generate a 1% positive level-shift on exports all else equal (Djankov, Freund and Pham, 2010). The estimated effect on exports is hence based on Equation 3-4. In the baseline scenario, the gains from decreasing export time by 1 day is RwF bn. The Vision2020 and beyond scenario projects a RwF bn gain. These increments exceed the total current exports. However, it should be kept in mind that the increments will be realized over many years. Figure 11 shows how the annual increments are distributed over time when discounted by 10% annually. Both scenarios project that the annual increment associated with 1 day short export time will be about Rwf 2-3 bn during the first years. In the Baseline projection, the annual increment will accelerate to RwF 4-5 bn around 2035 before starting to decline in subsequent decades. In the Vision2020 scenario, increments will increase to above RwF 10 bn around the peak in The export increment from decreasing exort time by 1 day is projected to constitute about 1% of the projected trade deficit in 2020 and 2.3% of the projected trade deficit in the longer term. Table 17: NPV of Export Increment by reducing time to export by 1 day in Exports NPV Cum Cum Cum Cum Cum Cum 2030 Cum 2050 Cum Baseline, 10% discount V2020, 10% discount Page 46 of 68

48 Annual Export Increment/Discounted bn Share of Trade Deficit Figure 11: Discounted Annual Export Increment by Decreasing Time to Export by 1 Day in % % 2.50% 2.00% 1.50% 1.00% 0.50% % Export Increase, Baseline, 10% Exports increase, V2020, 10% Effect f trade balance According to the World Bank Doing Business data, the time to export a container is 9 days shorter by the beginning of 2015 compared to the beginning of Using the baseline scenario results in Table 17, this translates into a total increase in exports by RwF 2,944 bn. In the Vision2020 scenario, the total export increment is estimated at RwF 6,344. In both scenarios, the resulting export increments will close 15% of the total projected trade deficit. Table 18: Export Increment from the Achievements (baseline scenario, 10% discount rate) DB2012(1 1) DB2013(1 2) DB2014(1 3) DB2015(1 4) Days to Expor t Improvement compared to previous year NPV of increment per day, baseline NPV of incremen ts per day, V2020 Incremen t, baseline Incremen t, V bn bn 1974 bn 4,253 bn bn bn bn bn 970 bn 2110 bn bn bn 0 0 Total 9 2,944 bn 6363 bn Page 47 of 68

49 Source: WB Doing Business and own calculations 3.4 Gains from reducing costs per imported container In 2013 Rwanda imported 1,781,945MT goods of which 907,592,225MT were imported from the region (Table 19). Using the finding from customs data that average payload per truck is 23MT for an imported container, 77,476 truck loads were imported during Of these, 39,461 carried goods from within the EAC and 38,015 carried goods from outside the EAC. Using the RWF/USD exchange rate from that year, 646 RWF/USD, the gain from decreasing the cost for any imported container was RwF 5bn. If the gains are made exclusively on containers coming from outside the EAC, for example if customs clearance or port handling procedures reduce by $100, the gains in 2013 would be RwF 2.46 bn. Table 19: Value of $100 Cost Reduction for Importing a Container in 2013 Total EAC Outside EAC Imports 2013, MT 1,781, ,592, ,353 Load per Truck, MT Number of trucks 77,476 39,461 38,015 Total Gain 2013, USD 7,747,600 3,956,100 3,801,500 Total Gain 2013, RwF bn Source: BNR statistics, RRA Customs Data (ASYCUDA++) and Authors Calculations The calculated gains from 2013 can be extrapolated to other years in the model by making the following assumptions: 1) Total volume of imports will be proportional to the value of imports in all years; 2) The average payload will remain 23MT per truck; 3) The proportion of trucks from the EAC versus from overseas will remain unchanged. A $100 cost reduction of all imported containers would in the baseline scenario generate a gain of NPV RwF bn. RwF 39.4 bn of the gains would be reaped by If the cost reduction is made in areas that only affects imports from outside the EAC, the NPV of the gains would be RwF bn of which RwF 19.3 bn would be reaped by In the Vision2020 scenario, NPV of a gain made on all containers would be RwF bn and RwF bn if the gains are only made on imports from outside the EAC. Table 20: Gains from $100 cost-reduction per imported container in 2011 NPV Cum Cum Cum Cum Cum Cum 2030 Cum 2050 Cum Baseline, 10% discount Page 48 of 68

50 Of which outside EAC V2020, 10% discount Of which outside EAC Table 21: NPV of achieved gains from cost reductions of importing a container Cost to Import Improveme nt NPV per $100 all NPV per $100 outside EAC Total Gain DB2012 (11) DB2013 (12) DB2014 (13) DB2015 (14) $4, bn 108 bn 0 $4, bn 106 bn 0 $4, bn 104 bn 0 $4, bn 103 bn 0 Total 0 0 Source: World Bank Doing Business and own calculations The RwF bn gain from reducing import costs by $100 per container is large relative to the gained gained RwF 13.4 bn from reducing time to import by 1 day (Table 13). However, no improvement in the costs has been registered since 2011 ( Table 21). According to the World Bank Doing Business data, the cost to import a container through the Central Corridor is still $4,990. Quotes from freight companies suggest that the actual price is somewhat lower than the Doing Business findings - $4800 yet no actual price reduction has been registered in recent years. Therefore, no gains have been realized from reducing import costs since Gains from Reducing Costs per Exported Container The gains from reducing costs to export a container can be calculated in the same fashion as for imports. The export flows are smaller as are observed average payload per truck (Table 22). Consequently, potential gains are smaller: RwF 0.86 for reductions on all containers in 2013, RwF 0.17 bn for reduction on containers with overseas destinations. Page 49 of 68

51 Table 22: Value of $100 Cost Reduction for Exporting a Container in 2013 Total EAC and DRC Overseas Imports 2013, MT 225, ,476 45,153 Load per Truck, MT Number of trucks 13,272 10,616 2,656 Total Gain 2013, USD 1,327,200 1,061, ,600 Total Gain 2013, RwF bn Source: RRA Customs Data (ASYCUDA++) and own calculations Making the same assumptions as for imported containers, Net Present Values can be calculated (Table 23). Given the projected growth in exports future (time discounted) gains are going increase until around Hence, NPV in the baseline scenario is RwF 62 bn of which Rwf 6.7 bn will be realized by For gains made exclusively on containers from overseas, the NPV is RwF 12 bn. In the Vision2020 Scenario, projected gains are RwF 134 bn per $100 cost reduction and RwF 27 bn on reductions only pertaining to containers with destinations overseas. Table 23: Gains from $100 cost-reduction per exported container in 2011 $100 cheaper per exported container in 2011 NPV Cum Cum Cum Cum Cum Cum 2030 Cum 2050 Cum Baseline, 10% discount Of which outside region V2020, 10% discount Of which outside region The World Bank Doing Business finds that costs have been relatively stable since A $30 reduction is registered in To make estimates conservative we assume that the reduction is made exclusively on containers with overseas destinations. In the Baseline scenario the gain is RwF 3.7 bn. In the Vision2020 Scenario the gain is RwF 8 bn. Table 24: NPV of achieved gains from cost reductions of exporting a container Cost to Export Improveme nt NPV per $100 outside EAC, baseline (RwF NPV per $100 outside EAC, V2020 (RwF Gain, baseline (RwF bn) Gain, V2020 (RwF bn) Page 50 of 68

52 bn) bn) DB2012 (11) DB2013 (12) DB2014 (13) DB2015 (14) $3, $3,245 $ $3, $3, Total Source: WB Doing Business and own calculations 3.6 Summary of Results Net Present Value of Achievements The main achievement has been to reduce time to import and time to export. The gains from shorter shorter time to import will be distributed among: 1) the direct importers who will face lower financing financing costs and receive payments faster; 2) companies who will receive inputs faster; 3) consumers that will face lower prices and more variety due to lower costs for importers. Losers will be will be some producers that are no longer competitive with imports if that have now become cheaper. cheaper. These producers will have to switch production to other goods. In the baseline scenario scenario (Table 25) the value to society of the reduced time to import is Rwf 135 bn using a social discount rate of 10%. Rwf 36.5 will be gained by In the V2020 Scenario ( Table 26), NPV is RwF 254 bn of which RwF 40.2 bn will be gained by The reduction of time to export is estimated to increase exports essentially through competitiveness gained from exporters being closer to their markets. All else equal, the increment is estimated to have a 1% level effect per reduced day (Djankov, Freund and Pham, 2010) all else equal. In the baseline scenario the NPV of all future export increments is estimated at RwF bn of which total cumulated export increments will be 326 by In the Vision2020 and beyond scenario, the increment is estimated RwF bn of which RwF 354 bn will be realized by In both scenarios, the estimated export increments cover about 15% of the otherwise projected trade deficit. Page 51 of 68

53 Reducing the cost to import a container will have similar effects to reducing time. Importers will face lower costs which in turn will benefit companies and consumers through lower prices of imports. Yet, no cost reductions have been confirmed ad the gains are therefore estimated at 0. Reducing the cost to export a container will produce direct gains to exporters who will face lower costs. A cost reduction of $30 has been registered during the period. This translates into a RwF 3.7 gain in the baseline scenario and RwF 8 bn in the V2020 and beyond scenario. Table 25: Summary of Gains from Achievements baseline scenario Achieved Net Present Value of all gains Cum Cum Cum Cum 2030 Cum 2050 Cum Reductions in Time to Import 7 days in Central Corridor, 15 days in Northern Corridor 135 bn Reductions in Time to Export 9 days bn increased exports (15% of projected trade deficit) Reduction in Costs to Import Reduciotn Costs to Export $ bn Table 26: Summary of Gains from Achievements baseline scenario Vision2020 Achieved Net Present Value of all Ggains Cum Cum Cum Cum 2030 Cum 2050 Cum 2070 Reductions in Time to Import 7 days in Central Corridor, 15 days in Northern Corridor 254 bn Page 52 of 68

54 Reductions in Time to Export bn increased exports (15% of projected trade deficit) Reduction of Costs to Import Reduction of Costs to Export $ Hence, in the baseline scenario, the NPV of total direct gains from achievements during amount to RwF bn of which RwF 37 bn will be realized by The export increment is estimated at RwF bn (15% of projected trade deficit) of which RwF 326 export increments will be made by In the Vision2020 and beyond scenario, total gains are estimatedly RwF 262 bn of which RwF 40.6 bn will be realized by Estimated export increments amount to RwF bn of which RwF 354 bn will be realized by These are the direct gains from the achievements. Several secondary gains can be expected. For example, it is likely that imports and exports will increase further directly as a result of achievements, thus making the gains even larger. Secondly, decreased time to import will free up liquidity in the economy and can finance the needs for other borrowers. Thirdly, any Keynesian demand multipliers from the gains have been disregarded. The calculated gains can therefore be regarded conservative lower bounds given the assumptions Impact Potential of the Areas of Intervention The calculated potential gains from decreasing time to export and import by 1-day an costs by $100 per container are summarized in Table 27. Reducing time to export will have impact on the trade balance rather than be a direct cost reduction and can therefore not be directly compared to the other areas. Projected accumulated export increment of RwF bn per reduced day justifies that reducing time to export is a relevant area of focus. Comparing the gains from reducing time to import versus costs to export and costs to import, improvements in the latter emerge as an area of high potential. While the RwF 13 bn gain from reducing import time by 1 day is substantial, it is considerably smaller than the RwF 221 bn gained from reducing costs by $100 per imported container (RwF 108 bn if the gain is made exclusively on containers from outside the EAC). Equally, the gain from reducing costs of Page 53 of 68

55 exporting a container would generate a RwF 62 bn gain and most likely generate more exports as a secondary effect. Therefore, while reducing time to import and export remain important areas, cost reductions associated with trade emerges as an area with larger potential benefits. Table 27:Potential gains from reducing trade time by 1-day and by reducing costs by $100 Import NPV (RwF bn) Cum (RwF bn) Cum (RwF bn) Cum 2030 (RwF bn) Cum 2050 (RwF bn) Cum (RwF bn) 1-day reduction in time to import, baseline 1-day reduction in time to import, V day reduction in time to export, baseline 1-day reduction in time to export, V2020 $100 Reduction in import costs, baseline Of which outside region $100 Reduction in import costs, V Of which outside region $100 Reduction in export costs, baseline Of which outside region $100 Reduction in export costs, V Of which outside region Page 54 of 68

56 4. Way Forward Based on the findings above, this section provides guidance for future areas of focus for the NMC and the EAC Forum. The potential for further reducing cost and time associated with trade is evaluated alongside other potential areas of focus. 4.2 Future Areas of Intervention Time and Costs of Trade In the situational analysis we found that past efforts and achievements have been concentrated in reducing the time and costs of trade. It was also found that issues within this area proliferates and re-emerges as they are addressed. The EAC Forum and National Monitoring Commission will therefore remain focused on this area, and there are still interventions to make. Comparing the time to import with for example Switzerland and Singapore, Rwanda still has improvements to make especially when it comes to documents preparation, port and terminal handling and in inland transportation (Figure 12 and Figure 13). Figure 12: Breakdown of Time to Import in 2014, Rwanda, Tanzania, Switzerland and Singapore, Days Rwanda Tanzania Switzerland Singapore Documents preparation Ports and terminal handling Customs clearance and inspections Inland transportation and handling Source: World Bank Doing Business Page 55 of 68

57 Figure 13: Breakdown of Costs to Import in 2014, Rwanda, Tanzania, Switzerland and Singapore, USD , Rwanda Tanzania Switzerland Singapore Documents preparation Ports and terminal handling Customs clearance and inspections Inland transportation and handling Source: World Bank Doing Business The number of required documents remains one of the reasons for more time and cost to import and export to Rwanda compared to Switzerland and Singapore. Reducing the number of required documents is therefore a natural area of intervention going forward. A cornerstone will be to proceed the implementation of the Single Customs Territory along the Northern Corridor and particularly along the Central Corridor. Table 28: Documents Required to Import and Export Rwanda Switzerland Singapore Export documents Import documents Export documents Import documents Export documents Import documents Bill of lading Bill of lading Bill of Lading Bill of lading Bill of lading Bill of lading Commercial Invoice Commercial invoice Commercial invoice Commercial invoice Commercial Invoice Commercial invoice Customs export declaration Customs import declaration Customs export declaration Customs import declaration Customs export declaration Customs import declaration Packing List Delivery order Packing list Shipping order Technical standard/heal Gate Pass (at Tanzania Port) Packing list Page 56 of 68

58 th certificate Transit documents Proof of payment of customs fees and duties Technical standard/heal th certificate Transit documents Source: World Bank Doing Business Costs of inland handling and transportation takes the lion s share of costs to import (Figure 13). It is an area of particular interest because gains from cost reductions are likely to be made on containers from the region as well as from outside the region. Table 29 shows an estimated breakdown of the direct costs associated with making one roundtrip to the port in Dar Es Salaam the variable costs. Costs derived from fuel, driver s fee, road tolls, insurance and container drop-off have will be incurred for each trip. This amounts to USD 2759 per trip. This leaves $866 for other costs. For example, the vehicle will need a repair every 2-3 trips, the driver s and supporting staff have a fixed monthly salary, the costs derived from operating the offices, marketing, financial costs from investing in vehicles etc. Finally, there is profits to the owners of the freight company. While interventions in the freight sector may not technically be NTBs there are large potential gains associated with lowering the costs of transportation. The areas of focus would be to: 1) lowering fixed and variable costs for freight companies; 2) Facilitate healthy competition in the sector. For example by enhancing matching of clients and companies with an Electronic Freight System. Table 29: Breakdown of Varible Costs Associated with one roundtrip Cost Item USD Fuel 2300 Driver's Maleage 212 Road tolls 152 Insurance 50 Container Drop-off 45 Total 2759 Page 57 of 68

59 Source: Freight company operating along the Central Corridor Emerging areas of intervention Evident from the data collected in the Time Bound Programme focus has been on the corridors in the past. However, there are three other areas that are relevant emerging topics: 1) harmonization and cooperation on standards, 2) integration of labor markets; 3) Rules of Origin. How important are these areas perceived to be among Rwandan manufacturers? The Rwanda Industrial Survey 2014 suggest there is a good reason for the focus on tranports: transport remains the main perceived barrier to export with 44% of larger manufacturers deeming a barrier to export (Figure 14Figure 15). Price competitiveness is perceived as a barrier by more companies than competitiveness on quality. Looking more broadly on the perceived obstacles for companies, the price of power and access to raw materials remain the two cardinal explanations for difficulties in competing (Figure 15). However, labor costs and access to qualified labor take a prominent position. Meeting standards in Rwanda and abroad appear to be less severe obstacles for companies. But there is some degree of perceived unfair competition in standards. Figure 14: Perceived Barriers to Exports among large Manufacturing Firms 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 94% 6% No interest in exporting 79% 21% Cannot compete on quality 69% 31% Cannot compete on price 78% 79% 22% 21% Cannot meet quality 72% 28% 80% 20% No demand Logistics Lack of Information 56% 44% Transport Barrier Minor barrier/doesn't apply MINICOM, Rwanda Industrial Survey 2014 Page 58 of 68

60 Figure 15: Perceived Obstacles for the Company Among Larger Manufacturers 120% 100% 80% 60% 69% 75% 82% 92% 91% 71% 55% 63% 40% 20% 0% 31% 25% Qualified labor Labour costs 18% 8% 9% Unfair Meeting competition standards in from Rwanda standards Meeting Standards abroad 29% Competition from abroad 45% Price of Power 37% Quality of Raw Materials Obstacle Minor obstacle/does not apply MINICOM, Rwanda Industrial Survey 2014 How does this guide the importance of emerging issues? Firstly, it appears there is a justification for a focus further integration of the regional labor market: companies need access to qualified labor in the region and at competitive wages. Secondly, meeting standards is perceived a smaller obstacle than the unfair competition associated with unenforced standards among competitors. This justifies a focus on ensuring that standards are equally enforced among competing fims. 4.3 Recommendations Recommended priority areas 1. Reducing costs to import and export a container has high potential for social gains. This warrants a focus toward reducing costs for freight companies and enhance matching between clients and companies by introducing an e-freight system. 2. Focus on reducing customs procedures, weigh bridges, road blocks particularly along the Central Corridor. To this end, implementation of a Single Customs Territory is an important focus. 3. Focus on strengthening the systems around the Single Customs Territory along the Northern Corridor. Current delays occur primarily as a result of errors in the integration between ASYCUDA++ and the Kenyan Simba system. 4. Integration of labour markets is an emerging focus area. The goal should be to improve companies access to qualified labor in the region at competitive costs. This includes ensuring that work permits remain accessible, improved cooperation on access to Page 59 of 68

61 education, enhanced regional labor market information systems to match companies to prospect employees. 5. Access to standards are generally not perceived an obstacle among the larger manufacturing companies. However, equal enforcement of standards across countries is important for fair competition. The goal should be harmonization of standards and to ensure they are equally enforced across countries. Secondly, regional Standards agencies could cooperate on geeting accreditation to awarding international standards. 6. Rules of Origin will be an area of focus from the larger countries where the ports are located. Rwanda will have limited strategic interest in this area Recommendation to improve collection of information and organization of issues in the Time Bound Programme database 1. Each entry in the database should be associated with a specific set of actions. E.g. separate issues related to the Northern Corridor from issues related to the Southern Corridor as different actions will be needed to address the two issues. In the annex a recommendation has been given to specify which entries need to be separated. If one issue can be deemed partially resolved it is likely because it should have been regarded 2. Use a common identifier for each entry in the database such that each issue can be traced over time without confusion that derives from e.g. change of wording. 3. When an issue is deemed resolved include information on the date it was resolved. 4. Enhance cooperation with the Observatories for the Northern and Central Corridors to continuously getting data on impacts from interventions as they happen. 5. Enhance data collection from national standards agencies to trace which standards are being harmonized. Moreover, facilitate a discussion on division of labor between agencies to get accreditation for international standards to address NTBs/NTM faced by EAC companies in markets overseas. 6. Enhance data collection directly from private companies to ensure that all relevant NTBs are captured n the discussions. Annex: Specification of Model to Project Future GDP and Trade-flows Model Specification Future trade flows is best projected as a function of the size of the economy. Hence, projections of future GDP is necessary. Such projections can be made under given assumptions of Page 60 of 68

62 determinants of the Rwandan economy. In this case projections are based on the assumption that GDP is mainly determined by the level of technology in the broad sense (including organizational and institutional factors as well as technology in the broader sense. Rwanda is assumed to converge towards more advanced economies through absorption of their technologies and is thus projected to experience catch-up growth in the future by exploiting the Advantage of backwardness (Abramowitz, 1986). The model is essentially a version of Howitt (2000) simplified to the narrow purpose of projecting GDP. We model Rwanda as a small open economy with free movement of capital in discreet time. Hence, we assume a simple production function where the level of GDP at time t Y ) will be proportional to the level technology used in the economy, A. ( t 1) t t Y A For later use, 1) is log-transformed such that y a, in general: ln( X) x. t The level of technology in the period that follows period t, namely t+1, we apply the following functional form. t t 2) w 1 t 1 t t t A A A Z The Rwandan technology level in t+1, At 1depends positively on the level of technology in the advanced countries the period before w At as well as the technology level in Rwanda in the preceding period, A t. is a parameter ranging in the range 0-1 expressing how quickly Rwanda absorbs technology that exists in the advanced country. This parameter is commonly known as the rate of convergence. The higher, the Rwanda faster converges to the advanced country. µ is considered dependent on factors impacts transfer on knowledge between the advanced country and Rwanda and change very little over time, e.g. language, culture, geographical distance etc. Z on the other hand, is a parameter tha can change through policy, e.g. educational level of the work force, business environment, level and quality of R&D etc. Log-transformation of 2) and subtracting at 1 at specifies the growth rate at time t (the Law of Motion): w a a Law of Motion: 1 [ ] t t a a a z t t t Where a t is the Rwandan growth rate in year t. Finally the growth rate of the advanced country, g, is defined as the growth in accumulated knowledge from time t to t+1. w At 1 3) 1 g g a w A t w t Page 61 of 68

63 The model is then complete. The Steady State In steady state the economy grows at the same rate as the advanced economy: aˆ a ˆadv g, (* indicates that the variable is in its steady state). Using the Law of Motion and 1), the level of GDP in steady state is determined such that: * t t 4) a a ( z g) / y * adv * t t t It is assumed that z g such that a a * adv t t. This condition ensures stability of the steady state. The closer z is to g, the closer GDP per capita is to GDP per capita of the advanced country. If z=g is consistent with full convergence. Growth outside steady state The convergence path toward steady state emerges by taking the first-difference to the logtransformed production function 1) and inserting the Law of Motion: adv 5) yˆ ( a a ) z t t t This is the basis fro Eq 9) in the text used to project the growth rate for all years thus forecast GDP in any given year. Page 62 of 68

64 4 NEW STRATEGIC DIRECTIONS BASED THE REVIEW AND QUANTITATIVE FINDINGS The socio-political and economic environment for NTB s continues to evolve. Therefore to ensure the relevance of the National Strategy and responsiveness to these changes, it is prudent to review the strategy and Implementation Framework on regular basis. The review should take account of lessons learnt from implementation and experience from best practices. Identifying, classifying and eliminating NTBs is not often straightforward as specific administrative practices and legislations have over time evolved in response to political economy developments at the national and regional levels. 4.1 Improving NMC activities at national and regional levels The thorough review of the current strategy and findings will guide NMC members and beneficiaries of the areas that need strategic support as well as prioritize some activities and NTBs that need to be addressed in the very short term due to their level of impact on the national economy. It is important to orient the outputs and activities of NMC project based on the highest impact on the transport cost and time. Some components of the strategy that will need special consideration are, among others: a) Strengthening national and regional NTB information systems for identification, registration, monitoring and elimination of NTB s: The EAC Secretariat has limited capacity to monitor implementation of the EAC Time-Bound Program for Elimination of NTB s. Furthermore, the impact of the NTB s on national economies differs, which points to the need for a more-or-less independent monitoring mechanism. The NMC should establish linkages with key national and regional private sector organizations and companies to ensure continued flow of information on incidence of NTB s, identification, registration, and removal. b) Review of NMC membership: More empowerment of the private sector as a driving force to advocate for elimination of NTBs is needed. The Government is still taking the lead in advocacy. The membership of NMC should again be reviewed to include more active and concerned players c) Robust Capacity building programme for NMC Members: This outcome relates to developing and implementing a capacity building development programme for NMC members so as to make them a driving force of NTBs removal. The programme should target private sector associations to increase their skills for elimination of NTBs d) Increased awareness on NMC activities and NTBs elimination mechanisms. Strategic communication is important to ensure the key messages from the work program of the NMC reach relevant stakeholders at the regional level, and to ensure ongoing support Page 63 of 68

65 from stakeholders at the national level. In this spirit, it is crucial for the NMC to develop and implement a Communication plan, publicize and update the NMC website, organize TV and Radio talks, produce and distribute NMC promotional materials and produce and publish case studies on NTBs. It is also essential to initiate a Borderless/seamless trade Newsletter which will focus on performance of borders, transport and trade facilitation along the 2 main corridors used by Rwanda as well as prepare and publish articles on NTBs in the national and regional media. In addition to conventional media (e.g. print and electronic media, newsletters) consideration should be given to targeted use of social media (e.g. Facebook and Twitter) for greater impact. e) Research papers on priority NTBs: Research is a key component of the NMC strategy and an important activity of the NMC. NMC should produce well elaborated position papers on priority NTBs and develop an index that will help to track the progress on elimination of identified NTBs. f) NTBs Bilateral resolution mechanisms: Bilateral meetings have been used as a new approach to compliment regional approach to eliminate NTBs of cross border nature. It is thus critical to hold bilateral talks with Kenya and Burundi and sign cooperation agreements with the central and northern corridor authorities as well as signing with Rwanda NMC members a code of ethics on elimination of NTBs and refraining for introducing new ones. The Memorandum of Understanding signed with Uganda (January 2012) and Tanzania (October 2012), NMC should adopt a similar approach with Kenya and Burundi while taking account of the lessons learnt from implementation of the MoUs with Uganda and Tanzania. g) NTBs Dispute resolution mechanism : Rwanda believes that the draft EAC act on legally binding enforcement mechanism on elimination of NTBs is a solution to persistent NTBs and a desired mechanism to resolve trade related disputes. Rwanda NMC should be proactively involved in the final adoption and implementation of the act. h) Exploration of new area of focus such as standards (SPS and TBT measures) as well as procedural obstacles that have been unexploited by NMCs. Most EAC Protocols require review of domestic laws and regulations, which are NTMs that may hinder free flow of intra-eac trade. The NMC capacity needs to be built to pursue this approach to easing cross-border movement of goods. i) Regular quantification of removed and outstanding NTBs Now that tariff barriers have been substantially reduced, there has been increasing interest in the ways that NTBs may distort and restrict international trade. Quantification of NTBs should assess available methods for quantifying NTBs. Calculation of the tariff equivalent of a given NTB for a given economic indicator is complex, and requires a great deal of information. Measures that are equivalent for one indicator will not be so for others, and there is no substitute for NTB-specific expertise. Page 64 of 68

66 Unless the above NTB impacts are documented and thereafter specified in the TBP, it is difficult for NMCs to prioritize and sequence their elimination during national or regional meetings. The lack of such detail reduces the effectiveness of the TBP in the NTBs elimination process. This activity has been unexploited and is likely going to have a huge impact if it is well done. It should thus constitute one of key outcome of the new strategy to be designed. 4.2 Strategic focus on identification and streamlining of Non-Tariff Measures As discussed previously, addressing the NTM issue has become prominent in the policy agendas of governments seeking to further integrate their trade into the world economy. As the overall level of tariff protection has been largely contained around the world through multilateral, regional, and unilateral tariff reductions, streamlining NTMs whether quantitative restrictions, technical regulations, or anticompetitive measures, to name but a few is nowadays one of the new frontiers of trade policy. Efforts to streamline NTMs have been hampered by lack of a clear conceptual definition and data on the use of NTMs, their impact on domestic competitiveness, and their implications for market access for developing countries. Most studies on the impact of NTMs still rely on obsolete or fragmentary data. Part of the reason for this lack of visibility is that collecting data on NTMs is a difficult endeavor. Unlike tariffs, NTMs are not mere numbers they are complex legal texts that are not easily agreeable to quantification, comparison, or even standard formatting. For a thorough review of NTMs, we suggest four broad steps summarized as follows: Page 65 of 68

67 1. Complaint from stakeholders suggesting change 2. Assessment of the complaint with the imposing institution/agency and classification of the NTM based on UNCTAD guididelines 3. Build formal analysis and fact finding determining the costbenefit analysis of the NTM 4. Make recommendations and engage in debate Page 66 of 68