The essential oils industry in Rwanda offers investors a niche and high-value opportunity in an underdeveloped and high growth market.
Essential oils are concentrated plant chemical extracts obtained by distillation or mechanical methods that have the characteristic fragrance and flavour of the plant or other source from which they were extracted. Once the chemicals have been extracted, they are either sold as pure oils or combined with a carrier liquid to create a product that is ready to use. There are over 90 commonly used essential oils, with widely-used oils including orange, lavender, peppermint, eucalyptus, patchouli, geranium, and avocado.
The global essential oils industry is currently valued at approximately USD 6 billion, with this number expected to grow to around USD 13 billion by 2023. Essential oils are increasingly being used in a number of high value industries, including: Flavour and Fragrance, Beauty and Cosmetics, Food and Beverage, and Pharmaceuticals.
The rapid increase in demand for essential oils is being driven by several factors, most notably:
Rise in disposable consumer income, particularly in Asia, Latin America and Africa, and
Changing customer habits, with a growing interest in naturally-sourced products.
Rwanda is well-placed to take advantage of the increasing demand for essential oils. The country has the climate and soil to produce high-quality and high-volume plants, particularly patchouli and geranium, from which two of the most popular essential oils are produced. Rwandan farmers can produce three or four harvests a year, a clear advantage compared to many other essential oil producing countries (e.g. South Africa has only two harvests a year).
The Rwandan government has identified the modernisation of its agricultural sector as an important aspect of its Economic Development and Poverty Reduction Strategy (“EDPRS”), currently transitioning from its second phase (EDPRS-2, which ran from 2013 to 2018) to its third phase (EDPRS-3, running from 2018 to 2023). Central to the government’s strategy is the move to producing high-value crops, with the plants used in manufacturing essential oils (e.g. patchouli and geranium) recognised as one such opportunity for farmers in the country.
A central tenet of the government’s EDPRS-2 and EDPRS-3 strategy is the move to the private sector as being the driver in enhancing economic growth and reducing poverty. With this being the case, the government has offered a number of incentives to encourage both foreign and domestic investors, including tax exemptions and low-interest loans. The government has also invested in key infrastructure and R&D across a number of sectors, with the aim of improving Rwanda as an investor destination. In 2016, for example, the government built the first essential oils testing and certification laboratory in East Africa, meaning that products can now be tested to international standards locally.
The essential oils industry in Rwanda is underdeveloped, with one company – Ikirezi Natural Products (“Ikirezi”) – currently active and exporting essential oil products, featured in this brief as a case study.
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