Relative profitability between East African community trading and non-trading small and medium agribusiness enterprises in Rwanda
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Date
2015
Authors
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Publisher
Sokoine University of Agriculture
Abstract
The creation of customs Union in the East African Community (EAC) block was
supposed to enhance and smoothen trade, enable traders to gain more profit from their
business and encourage formal trade. However, Non-Tariff Barriers (NTBs) continue to
exist and affect trade within the region. The aim of this study was to analyse relative
profitability between EAC trading and Non-trading Rwanda Small and Medium
Agribusiness Enterprises (SMAEs) and factors that influence the participation in the EAC
cross border trade. Specifically, the present study aims at determining factors influencing
SMAEs’s decisions to participate in cross-border trade, to compare profits between EAC
trading and non-trading SMAEs and to analyse the effect of NTBs and transport cost on
profitability of SMAEs participating in EAC cross border trade. The results from binary
logistic regression show that the decision to participate is significantly influenced by
distance from the border, age of the firm, number of employees, management and
ownership status of the firm and decision to start the business. Results from gross margin
analysis show that gross margin per kilogram of beans, Irish potato, carrot and onion is
greater when they are sold in the EAC market than gross margin per unit when those
commodities are sold in the domestic market. In addition, results from T-test confirmed
that there is significant difference between the gross margin for beans, Irish potato and
onion for EAC trading when compared with non-trading. Results from multiple linear
regression proved that the profit for EAC trading SMAEs is significantly affected by
transport cost, clearing fees, customs charges and bribes. Therefore, EAC trading is more
profitable than non-trading. However, high transport cost and Non-Tariff barriers affect
the profitability of EAC trading enterprises. Furthermore, SMAEs should be confident to
participate in the EAC trade and Rwanda Ministry of Trade and Industry should enhance
strategies for supporting cross border export.
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Keywords
Relative profitability, East African, East African community, trading and non-trading, agribusiness enterprises, Rwanda