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Govt plans to create Rwf1.3b facility to cushion exporters

Saturday July 07 2018
c&h

Chinese garment maker C&H laid off its workers and it is believed it was mainly due to their business being affected by the loss of Agoa benefits. When the tax facility is finally approved by Cabinet it will serve as a cover for the tax gap caused by the AGOA issue. PHOTO: FILE

By MOSES K. GAHIGI

Exporters of handicrafts and textile products to the US market have welcomed a proposal by the government to set up a facility to absorb tax expenses by traders who have running contract obligations.

In March, the Office of the United States Trade Representative said that Rwanda would lose some benefits under AGOA in 60 days after it increased tariffs on second-hand clothes.

The move sent shockwaves throughout the textile industry, with C&H manufacturer saying some of its US customers have put orders on hold until further notice.

However, the government plans to set up a two-year Rwf1.3 billion facility, which can be expanded into a revolving fund that will serve local industries in times of external shocks. The proposal currently awaits Cabinet approval.

“It is like a bail out. It will help those who were already under contract, but it is not something you can base your business on” said Janet Nkubana, the co-founder and managing director of Gahaya Links, a local handicrafts company that exports to the US.

Some local companies say some of their clients put orders on hold as they wait to see the eventual direction the AGOA stalemate between the US and Rwanda takes — leaving many exposed to price fluctuations.

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According to the Minister of Trade and Industry Vincent Munyeshaka when the facility is finally approved it will serve as a cover for the tax gap caused by the AGOA issue.

“The facility is meant to cover the tax gap in order to stabilise the price for exports into the US market. If a certain company exports goods worth $100 and an extra $5 on tax, the facility will cover the $5,” he said.

Mr Munyeshaka said the funding for the tax facility will be obtained from the national budget.

“Two years can be enough to normalise the situation with companies affected by AGOA, then we can expand it into a revolving fund to work as an industry adjustment facility to increase the resilience of our local companies to external shocks,” said the minister.

“When you enter into a price agreement, it has to remain the same until the contract expires. Coming up with a facility like this shows companies that the government is serious about supporting the private sector. Otherwise some traders would easily be taken to court,” said Ms Nkubana.

When asked how the AGOA stalemate has affected her company, she said it has had a negative impact on their trade.

Other markets

“No one wants to buy our products any more. The US market is not one to rely on any more. We are looking for other markets, but it also needs new investments,” said Ms Nkubana.

After many US customers put their orders on hold, Chinese garment maker C&H laid off its workers, something some of the affected employees attributed to the problems they encountered with the US market.

The government came up with the tax facility as a transitional support for exporters as they look for new markets, especially if the US stands by its AGOA suspension.

Traders who exported articles such as local baskets (Agaseke), jewellery and other handicraft products to the US market have started looking at other markets in Asia, Europe and in Africa.

Bella Rukwavu, the project manager of Agaseke promotions project said since the AGOA issues started, the quantities bought by their customers — who included exporters to the US market — has significantly decreased.

“The women who weave the baskets keep asking what has happened to their customers. They were used to exporters buying products from them in bulk, but these days they make products and don’t to get buyers,” she said.

The uncertainty that surrounds the AGOA situation is also affecting traders.

Ms Nkubana said that going forward Gahaya Links is going to capitalise on the local market through the “Made in Rwanda” initiative as well as looking at African countries as export destinations for their products.

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