Rwandan businesses are feeling the pinch of rising costs of operation that are likely to reduce their profit margins this year.

The costs are associated with limited access to raw materials on the domestic market, forcing most businesses to import from the region and beyond.

Yet high transportation costs make importation of these raw materials expensive.

This is in addition to rising energy costs following the government’s decision to reduce subsidies on energy.

While 98 per cent of Rwanda’s private sector is small and medium enterprises (SMEs), over 60 per cent of these are in agro-processing.

Currently, Inyange Industries, Bralirwa Ltd, Cimerwa and Urwibutso Enterprise continue to dominate local manufacturing producing for both the local and export markets.

Central bank statistics indicate that during the first half of this year, total exports of three major companies (Inyange, Bralirwa Ltd and Cimerwa) increased by 110.5 per cent to $5.05 million, up from $2.40 million.

However, for most industries, the relatively higher cost of raw materials makes their products uncompetitive.

Due to a shortage of raw materials on the local market, most businesses are forced to import from the region and abroad.

“We buy our raw materials from the same sources as our regional competitors, but transport costs impact on our end prices,” said Alphonsine Rubangura, director-general of Uprotur a company that deals in metal products.

Uprotur exports less than five per cent of its total production to Burundi and the DR Congo.

Electricity costs for both businesses and households will increase by 20 per cent, the biggest increment in the past seven years, following the government’s decision to reduce on electricity subsidies.

“The cost of raw materials has gone up by 20 per cent in the past six months, which is increasing our operational costs as well as affecting our production capacity,” said Mark Mugarura, marketing manager at Brasserie des Milles Collines (BMC), the brewer of Skol malt beer.

According to Mr Mugarura, BMC, which exports 1,000 hectolitres a month of beer to Burundi, also faces a big challenge as a result of high power tariffs.

Bralirwa Ltd, BMC’s competitor, has also been affected by rising costs of inputs. Early this year, the brewer increased the prices of its soft drinks citing increased costs of transportation and raw materials, the first increment since 2008.

Urwibutso Enterprise, one of the leading agro-processing industries in the country is also feeling the pinch, although it outsources mainly from the domestic market.

“For products like juice, hot pepper and the local brew, we grow the raw material by ourselves, although it’s not enough,” said Sina Gerald, managing director of Urwibutso.

Urwibutso tries to cover the raw material gap by importing from Burundi.

This year, Inyange Industries also increased the prices of its products by approximately 20 per cent on account of increased costs of raw materials.

Local manufacturers are also affected by rising competition from regional manufacturers in already established markets like Kenya, Tanzania and Uganda.

In the construction sector, large companies that enjoy economies of scale are outcompeting Rwandan products in the local market.

Cimerwa, Rwanda’s only cement makers, faces price competition from regional competitors, Hima and Bamburi Cement.

A bag of Cimerwa Cement costs approximately Rwf10,000 ($17) while a bag of Hima Cement goes for approximately Rwf9000 ($15).