Rwanda’s exports have had a slower growth since the recovery from the shock caused by the COVID-19 pandemic. The country’s total merchandise exports had a slower growth since the recovery to USD 1.6 billion in 2021. Rwanda has a concentrated export profile and earnings from gold have continued decreasing to USD 529.1 million (approx. 33.9% of total exports) in 2021. Other top exports from Rwanda include metallic ores and coffee. These exports contributed USD 282.3 million (approx. 18.1% of total exports). Rwanda’s export earnings from metallic ores have continued increasing to USD 185.6 million in 2021; and earnings from coffee have continued increasing to USD 96.7 million in the same period. Rwanda’s trade deficit continued widening beyond the historical medium-term average of -USD 1.4 billion for 2018 to 2020, to -USD 1.8 billion in 2021.
Total merchandise export earnings have continued increasing which relieved the pressure caused by decreasing net FDI inflows (foreign capital being invested domestically). Rwanda’s FDI inflows decreased to USD 211.9 million in 2021. Rwanda’s FDI stock has been seemingly unaffected by COVID-19 and continued increasing from an annual average of USD 2.5 billion for 2018 to 2020, to USD 2.9 billion in 2021. This bodes well for Rwanda as a country that is aiming to attract more foreign investment to diversify its economy away from the reliance on gold exports. However, this signifies the limited economic opportunities due to the small population and domestic market, which leads to slow progress for the national economic diversification strategy.
Remittances receipts have grown significantly over the period. Personal remittances received have been seemingly unaffected by COVID-19 and continued increasing from an annual average of USD 267.1 million for 2018 to 2020, to USD 391.2 million in 2021. Personal remittance payments to foreign nationals have begun increasing slightly since the COVID-19 pandemic from an annual average of USD 71.8 million for 2018 to 2020, to USD 73.4 million in 2021. Rwanda has had net remittance inflows (net remittance receipts from the diaspora) which increased to USD 317.8 million in 2021. This has affected the current account balance and strength of the RWF over the period.
The RWF has continued depreciating. In nominal terms, the RWF depreciated by an annual average of -7.6% against the USD for 2018 to 2020. The RWF depreciated by -15.9% to an annual average of RWF 988.1 per USD in 2021. Rwanda’s current account deficit narrowed despite being wider than the historical medium-term average. In 2022, Rwanda’s current account deficit widened beyond the historical medium-term average. In particular, Rwanda has benefited from the higher commodity prices which continued appreciating due to lower global supply following the sanctions against Russian exports after its military exercises in Ukraine. The global price of gold appreciated by 1.4% to USD 1,825.2 per ounce in 2022 (2021: 1.7%; USD 1,799.8 per oz). This is also reflected in the projections for Rwanda’s current account balance.
In 2023, Rwanda’s current account deficit is projected to remain stable despite exceeding the historical medium-term average at -USD 1.5 billion (approx. -11.7% of GDP). In the medium-term from 2024 to 2026, Rwanda’s current account deficit is project to narrow below the historical medium-term average, to an annual average of -USD 1.4 billion (approx. -9.0% of GDP). This illustrates a steady current account balance despite the current rebound in commodity prices which is primarily driven by the impact of sanctions against Russia on global oil prices. Nevertheless, oil prices are expected to remain relatively elevated in 2023. Gold prices are expected to remain stable as the global commodity for value-storage. Therefore, Rwandan authorities will have to take advantage of the current reprieve and invest in further diversification of the country’s exports away from the continued reliance on gold.
The issue of diversifying the Rwandan economy remains an elusive obstacle for the country. Rwanda still has a significant potential to grow its exports from metallic ores and coffee. These represent the highest growth potential towards diversifying the Rwanda’s economy and export earnings. Apart from this, Rwanda should also deepen its integration in the EAC region and increase its intra-regional trade. This will provide an opportunity for Rwanda’s exports to compete against goods and services of comparable quality from the local region. Moreover, Rwanda can offset the risks with its traditional export markets by increasing its dependence on the local region for its exports.