Tuesday, December 22, 2020

Climbing up the value-chain


 
A woman picks tea in a plantation in Rutsiro District. The agriculture sector continues to offer a lot of opportunity for Rwanda to develop into a regional agri hub. / Photo: File.
 

Moving up the value-chain remains a key priority for any economy. Pursuing higher value-added

activities remains a key policy concern and challenge as it is a key vehicle for employment, higher earnings and a greater participation in global trade. In a post-Covid world, climbing up the value-chain also supports a country in developing its resilience to economic shocks.

Rwanda remains a shining example of an economic miracle and transformation. Government has successfully built a strong institutional and governance backbone which today makes it a beacon of economic potential on the continent. Going forward, especially post-Covid, it is critical for the country to continue exploring ways in which its economic sectors can continue climbing the value-chain across different sectors which have the potential to diversify themselves both vertically and horizontally.

The agriculture sector continues to offer a lot of opportunity for Rwanda to develop into a regional agri hub. The prospect of agritech and also the use of incentives including tax reforms and investment support packages can attract international investors to continue modernizing and making the sector a key economic contributor and climb up the value-chain. The optimization of resources including which crops to target will be critical and here it is commendable that Rwanda is also focusing on the cultivation of medical marijuana for export purposes which constitutes a high yielding crop with an ever-growing international market. Having the potential to set-up processing and manufacturing capacity around such industries will be a key determinant of future growth. In Malta, we have supported the growth of this industry by allowing the processing and manufacturing of medical marijuana products and this will contribute to high yielding activities in the near future.

The pandemic has also disrupted global supply chains opening up new opportunities for global manufacturing to establish itself closer to important markets. The onset of technologies such as 3D printing, IoT and additive manufacturing will also allow countries to lure new niches in the manufacturing sector as companies are building supply chain resilience. By establishing itself as a regional manufacturing hub, Rwanda can attract manufacturing players eyeing growth in the region.

As Rwanda continues to embark on this diversification and value-adding journey, regulatory innovation will be key, in both services and manufacturing. Malta, a small island in the Mediterranean, has built a strong manufacturing and services sector solely on the basis of regulatory innovation and finding particular niche markets. Medical marijuana is just one but over the years, legislative and regulatory innovation have allowed the island to attract generic pharmaceutical manufacturing companies, it is today one of the largest private aviation and maritime registers in the world, attracts global insurance companies, financial services and also other niche sectors. Over time, the key goal was always to try and climb up the respective value-chains and start integrating research and innovation to existing manufacturing facilities.

Climbing up the value-chain is not only limited to manufacturing. Services can be a key area and the financial services sector is definitely one which allows such transitions. As the world continues to embrace digital finance and digital currencies, new forms of impact investment vehicles aided by the power of blockchain; Rwanda can, here too, leave its mark, in becoming a regional financial hub. The incredible work of Rwanda Finance is commendable in pushing Kigali towards establishing itself as a regional international finance centre. Here too, embracing the new digital realm can support the growth of the centre and support the country in climbing up the value-chain.

Such a vision and strategy require developing supporting ecosystems of which regulation and legislation are just one element. Having the right skill set and talent development through education and attracting international talent is also critical for a country wanting to go down this path. Strong and attractive incentive packages together with the establishment of new and sector-specific Special Economic Zones can also play a central role in attracting investment. Tax incentives and reform centred around having a simple corporate tax structure will also be beneficial in attracting higher value-added activities. The reliance on a public sector that is digital to its core with digital processes and applications will also continue to build on an already strong business friendly environment.

There is no doubt that economies will continue to face the volatility and threats of external shocks. Building resilience is no longer a luxury but needs to be a strategic policy goal. Resilience-building can take many forms and in fact it is multi-faceted however ensuring that the economic structure of the country climbs up the value-chain not only supports resilience but also the general development agenda of the country. In a post-pandemic world, this will be a critical element of any country’s recovery strategy.

JP Fabri is an economist and co-founding partner of Seed Consultancy, a boutique research-driven advisory firm.

 jp@seedconsultancy.com |

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