Rwanda has become the latest beneficiary of China’s move to shift its manufacturing base to Africa in the face of rising labour costs at home, that are making the Asian country’s products less competitive than before.
C&H, a Chinese garments company announced last week that it plans to invest up to $10 million in the next five years to set up a local textile plant in the Kigali Special Economic Zone.
“We will soon be shipping new equipment from China and plan to recruit our initial 200 workers in September. We believe that Rwanda can offer a strong and disciplined workforce for a successful business exporting garments to both Europe and the US,” said Helen Hai, one of the proprietors of C&H Garments Company, after signing a memorandum of understanding with the government.
C&H was among a group of Chinese firms that were in Rwanda last week to explore investment opportunities in textiles, shoes, mechatronics, industrial sewing machines and other sectors.
The company, which supplies to US-based retail store Walmart and Target, plans to employ more people as it diversifies and increases its capacity to supply both regional and international markets.
“At the beginning we have to import a lot of raw materials from abroad and focus on training. But the whole idea is to build a supply chain,” said Ms Hai who also manages Hua Jian, a Chinese shoe producer based in Ethiopia.
In the two years to 2012, Hua Jian employed 2,000 workers and exported $12 million worth of shoes to the US and EU making it the largest shoe exporter in Ethiopia.
Rwanda is hoping Chinese companies will invest in its budding manufacturing sector and help expand the export base beyond tea, coffee, pyrethrum and minerals.
“We need to export finished goods …The people who are good at this are the Chinese,” said Clare Akamanzi, the chief operating officer of the Rwanda Development Board (RDB). “This company is going to help us show other Chinese investors that it is possible to invest in Rwanda.”
The finished products will be exported mainly to the US where Rwanda is yet to significantly exploit the Africa Growth and Opportunity Act (Agoa) window. Agoa provides quota and duty-free entry into the US for certain goods from Africa including textiles and apparels.
In 2013, RDB put official Chinese investment in Rwanda at $4.5 million.
In Africa, Chinese firms see an opportunity to maintain competitiveness in the export sector amid rising labour costs.
“China has been the factory of the world for many years but with the economic development in the past few years, the wages in China have grown from about $100 per month to about $600,” said Henry Tan, the chief executive officer of Hong Kong based Luen Thai Holdings Ltd, a consumer goods supplier with an annual revenue of over $1.2 billion.
The minimum daily wage in Rwanda is Rwf100 ($0.14) but on average casual workers are paid Rwf1,000 ($1.46) per day. The minimum wage was set in 1978 and is set for review by the end of the year with differentiation of compensation across sectors a key goal.
Economic experts say the average minimum wage across should be increased to at least Rwf40,000 ($58.7) from Rwf3,000 ($4.4) per month.
“African labour is much cheaper in labour compared with countries like Myanmar and Bangladesh — the difference is that Africa has the Agoa Act and Economic Partnerships agreement with the EU. The duty saving will probably be an important reason to attract investors in the light industry to invest here,” Mr Tan said.