Ditch that Prado and buy a tractor

Rwanda-OilYesterday, RURA (Rwanda Utilities Regulatory Authority) issued a decree that will have users of public transport dancing in their cramped seats; transport prices have been reduced by ten percent, from Rwf20 per kilometer to Rwf 18.

This announcement follows hot on the heels of one by the Ministry of Trade and Industry late last year announcing a new pump price of Rwf 895 a litre for both petrol and diesel, down from more than Rwf 1000 at the start of the year. As an avid motorist, the new price was certainly a welcome end of year present but truth be told, it was expected.

With the price of a barrel of Brent crude oil falling from $112.18 in June 2014 to $58.86 (at the time of writing), someone would argue that the local price reduction is in fact too little. However, I’m not using this column to complain about RURA’s decision-making. Rather, I want us to discuss what this petroleum price fall means to the entire economy and most especially Rwanda’s balance of payments i.e. the monetary value of our exports versus the value of our imports.

Thankfully, obtaining Rwanda’s balance of payment figures is as easy as going to the Central Bank website and downloading two PDFs, one showing our imports from January to September 2014 and another showing our exports in the same time period. Boy does it make for interesting reading, especially as it pertains to how much of a role petroleum imports play in Rwanda’s overall economic state.

I was shocked to find out that Rwanda paid a whopping $267,515,266 from January to September 2014 for petroleum products. That doesn’t sound too bad, except when you discover that Rwanda’s principle exports (coffee, tea, cassiterite, coltan, wolfram, hides and skins and pyrethrum) earned $281,124,890. I haven’t added the little over $84 million that Rwanda earns from it’s other exports such as shoes, foodstuffs and live animals. In other words, our petroleum imports almost obliterated any earnings we made in the international market.

The bright side is, last year’s quarter billion dollar petroleum product bill will probably fall by quite a bit this year.

However, we shouldn’t get comfortable; the same way the prices fell unexpectedly is the same way they will rise once again. Therefore we need to figure out a way to do two things: firstly, we need to reduce the petroleum import bill and secondly, we need to export a lot more so we aren’t spending everything we earn to run the cars in the country.

Here is my suggestion for the first issue of reducing petroleum import quantities. Decrease the amounts of cars on the road by increasing the amount public transport vehicles.

Government should go so far as reducing the import duties on mass transport vehicles such as buses. With buses on even secondary routes (as I call neighborhood roads) less people would need to buy cars to avoid ‘ivumbi’ (dust). And on the topic of reducing import duties, I suggest the same for new, fuel-efficient cars. I mean, why should someone importing a Toyota Prius pay the same import duty as someone importing a Toyota Prado?

And on the issue of increasing our exports, we need to increase the amount we spend on importing machines, devices and tools. While we imported these value-adding instruments to a tune of $314,961,068 from January –September 2014, we need to increase this by quite a bit. The savings we are making a smaller petroleum bill should be used in increasing machine imports. These stone-crushing machines, fruit processing machines, carpentry machines etc. increase productivity and therefore exports.

We have a small window to do all this before we are back to spending almost all our foreign reserves on oil for I foresee a price rise in the near future. My sentiment is shared with Ali al-Naimi, Saudia Arabia’s oil minister.

He told UK’s The Independent that although he wasn’t pleased with the current prices, he was confident they would rise again. “Current prices….stimulate global economic growth, leading ultimately to an increase in global demand and a slowdown in the growth of supplies”. We need to act now while the going is still good.

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