Supporting Value-Chain Growth has Promise in Post-Conflict Countries, As Rwanda’s Coffee Industry Shows
January 3, 2014
Building an economy from the ruins of war has never been easy. Finding ways to give participants and victims of violence an economic stake in stability has long been one of the most important objectives of countries trying to recover from conflict. Many do not succeed. So it is important to learn the right lessons from those that have.
Rwanda is touted as a post-conflict development success story. After the Rwandan genocide, its economy was in shambles. The coffee sector, historically the country’s biggest export, was largely destroyed. Rwanda owes much of its economic resurgence to the transformation of its coffee sector from a low value commodity industry into a high value enterprise. In 1995, the Rwandan government attempted to revive the dying coffee sector by opening it up to market forces. However, liberalization led coffee prices to drop, and in 2001, coffee only brought 20 million dollars in revenue to Rwanda. In contrast, 2013’s expected revenue for Rwandan coffee is 87 million dollars. Rwanda’s economic success is due to successful coordination and between donors, the private sector, and the Rwandan government. Together, these actors built a value-chain industry that is competitive in the world market and creates significant jobs and revenue.
After the genocide, Rwanda’s coffee industry was trapped in a “low quality/low production” cycle. Both the quantity and quality of Rwandan coffee dropped due to market pressure to sell at lower prices. Farmers lacked incentives to invest in coffee growing because of low prices, and coffee trees were neglected or destroyed. Growers needed both revenue and knowledge in order to revive the industry.
Breaking this cycle involved a joint effort between the Rwandan government, the private sector, and international donors. In 2002, the Rwandan government asked OTF (On The Frontier), a global business strategy firm, for help in developing a plan for its coffee sector. Involving this private-sector perspective from the beginning was vital to Rwanda’s recovery. The strategy OTF developed called for the Rwandan government to drastically upgrade the infrastructure of the coffee industry and increase incentives for farmers to grow high quality coffee cherries. These upgrades allowed Rwandan coffee farmers the chance to enter the more lucrative specialty coffee industry. From 2002 to 2010, the specialty coffee sector grew 7.2 percent per year. Additionally, Rwanda increased the number of washing stations for coffee beans from two in 2000 to 187 in 2010. Creating more washing stations meant that Rwanda was able to produce more high quality beans and keep more of the production process in Rwanda, creating more employment. The coffee industry has had positive economic spillover effects in many communities. New non-coffee businesses have sprouted up in successful coffee communities, and household spending has increased.
The strategy to upgrade Rwanda’s coffee industry used a private-sector assessment of Rwanda’s potential comparative advantage in coffee production combined with data on the market trajectory for specialty coffee. Growing market demand for specialty coffee made it easy for Rwanda to find buyers for its new products once it had invested in upgrading its coffee-producing infrastructure.
Liberalization alone could not have created Rwanda’s successful coffee industry. Opening up the market originally caused the percentage of Rwanda’s crop that was rated high quality to rapidly decline. International donors, including USAID, were necessary to provide finance for entrepreneurs and connect Rwanda’s nascent industry with buyers of specialty coffee.
Studying the trajectory of Rwanda’s coffee industry reveals how the development community can aid the economies of other post-conflict countries. The Rwandan government was able to exploit Rwanda’s comparative advantage in the coffee industry, but only because international donors, including USAID, were able to provide necessary resources and technical expertise targeted to the right industry. In other post-conflict countries, the Overseas Private Investment Corporation (OPIC) and USAID could collaborate to replicate Rwanda’s success. USAID can first work with post-conflict countries to determine where there is an opportunity for market development and to provide resources and technical expertise. OPIC can then provide incentives to U.S. companies to invest there, by providing inexpensive political risk insurance and low-interest loans. That can give the targeted industry a real chance to enter a virtuous cycle between economic development and the positive spillovers that improve well being more broadly.
Sadika Hameed is a fellow with the Program on Crisis, Conflict, and Cooperation (C3) at the Center for Strategic and International Studies (CSIS) in Washington D.C. Eli Harpst is an intern with the C3 program.
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