Rwanda’s soft drinks and beer exports to the Democratic Republic of Congo (DRC) have declined as new duty takes a toll on exports.
DRC is Rwanda’s biggest beverage export market in the region and with the new protectionism tax, Rwanda’s beverage makers are already experiencing decline in their profits after tax.
Bralirwa, the biggest brewer and soft drink maker in Rwanda is the sole exporter to DRC and has recorded over 8 per cent decline in sales.
The new tax on soft drinks by the neighbouring DRC comes at a time when the manufacturer had launched a new plant to increase production from the current 509,000 to 826,000 hectolitres per year.
With Rwanda’s biggest export market becoming hard to access due to the new taxes in DRC and very insignificant penetration of the EAC market, the production capacity of the new plant could be compromised.
The new import tariff by DRC on soft drinks comes months after beer exports to the same country suffered the same fate seeing taxes rise from Rwf1, 972 to Rwf3,903 per crate of beer and introduced a higher charge for quality standard verification increasing from Rwf326 to Rwf618 per bottle rack.
Beverage exports to regional markets dropped from Rwf8.8 billion in 2012 to Rwf4.7 billion in 2013, a 46 per cent decline mainly because of new tariffs.
However, Bralirwa could not yet reveal how much import tax DRC has imposed on the Rwandan soft drinks export.
“Both our beer and soft drinks exports to DRC have suffered a new protectionism tariff but it is worse for soft drinks,” said Mr Jean Paul Uwizeye, external communications manager of Bralirwa.
As a result of reduced exports, Bralirwa registered a 19.8 per cent decline in after-tax profits of Rwf6.1 billion during the first half of the year compared with Rwf7.6 billion recorded over a similar period last year.
“Additional duty means that Rwandan products are disadvantaged. Exports to other EAC markets are developing but I do recall that these three markets each has a string of international competitors with very well established brands. Breaking into the market can never be a quick fix,” added Mr Uwizeye.
However, Bralirwa profits also suffered because of increased prices of raw-materials on the market as well as the depreciation of a franc against the dollar.
DRC decided to impose the new tax on Rwanda’s beverage exports after the launch of a beer and soft drink plant in Goma, the capital of the eastern DRC, which now serves the same market that Rwanda used to supply.
Bralirwa is also facing stiff competition in the local market for both soft drinks and beer as BMC-skol is also eating into its market share as well as imports from the regional manufacturers like the East African Breweries Ltd.
Azam, a Tanzanian manufacturer is also exerting pressure on the soft drinks market after flooding the local market with its products.
Trade experts cautioned that such taxes on the country’s exports will hamper the efforts of closing the already huge trade deficit for Rwanda.
Stabilise the dollar
“As the trade deficit widens, it puts pressure on the central bank to stabilise the dollar on the market as less exports means fewer foreign exchange which we use to import,” said John Bosco Kanyangoga, an independent consultant specialising in trade policy issues.
DRC remains Rwanda’s biggest trading partner informally representing over 75 per cent of total informal cross-border exports.