Foreign and local investment in a wide range of services has helped keep Rwanda’s small economy buoyant, exploiting its key location as a regional hub – especially in technology and finance.
Investments in construction, mining, information and communication technology (ICT), tourism, banking and insurance are keeping economic growth moving forward in Rwanda. The country has managed to maintain annual average growth above 7 percent since the year 2000. The economy stayed largely resilient last year, registering strong growth of 7.7 percent, regardless of recent threats to suspend donor support.
The inflation rate also declined, despite a depreciation of the Rwandan franc (RWF).
Foreign investment accounted for just over 50 percent of the total US$1.1 billion value of new investments last year (up from $626 million in 2011). According to the national investment promotion body, the Rwanda Development Board (RDB), the country now hopes for foreign and local investments totalling $1.3 billion in 2013, mostly in financial services, logistics and lightweight manufacturing.
For RDB’s chief executive officer, Clare Akamanzi, “the year 2012 can be said to be a particularly good one for Rwanda in terms of investments”. She partly attributes success in attracting investors to RDB’s new strategy, which emphasises high level customer care to promote business in the country.
“All investors have key account managers whose mandate is to ensure that their investments are well taken care of and they are able to move towards actualising their investments in a faster manner,” she says.
In early February, the then governor of the National Bank of Rwanda, Ambassador Claver Gatete, warned that Rwanda, like any developing country, is likely to be affected by unsolved sovereign debt crises in Europe and concerns about the fiscal cliff in the USA. He projected a fall in commodity prices, a slowdown in foreign direct investment, a decline in cash transfers from nongovernmental organisations (NGOs) and the Rwandan diaspora, as well as reduced foreign support to the country’s national budget support.
“Such decrease in external inflows would create challenges to maintain adequate liquidity in the banking sector and also have an adverse impact on the Rwandan franc exchange rate,” Gatete said, as he presented the country’s monetary policy and financial stability statement in Kigali. But he added that “the stability of international oil prices and prospects for low global and regional inflation in 2013” would help mitigate the negative effects of the risks on the country’s economy. In late February, Gatete was put in charge of the Ministry of Finance, switching positions with John Rwangombwa.
The IMF says increased global uncertainties have hit economic performance in emerging and developing countries by reducing their exports to advanced economies. For Rwanda, where half the national budget relies on foreign aid, the threat to Western economies tends to mean both a direct feel of the pinch and the need for more hard work in achieving economic self-reliance.
For example, the Rwandan government decided to issue sovereign bonds worth RWF227 billion ($359 million) to European markets when it became clear there would be delays and possible postponement of donor support funds to its current fiscal year (2012/2013). The funds delayed include $85 million in bilateral budget support grants from Western governments, and budgetary grants and loans amounting to $170 million from the World Bank and the African Development Bank.
Apart from successfully attracting new investment, the “country of a thousand hills” is slowly replacing its dependence on foreign aid by developing trade with its fellow members in the East African Community (EAC) and the Democratic Republic of Congo.
The admission of Rwanda to join Uganda, Kenya, Tanzania and Burundi in the EAC bloc in 2007 compelled it to learn English and to adopt common trade tariffs in order to help integration. However, these efforts have also translated into increased trade volumes and made Rwanda a trade hub for greener markets in eastern Congo and Burundi.
Implementation of the EAC customs union and the common market protocols has made it easier for Rwanda to export to other EAC countries and has opened Rwanda’s market to regional investors. As a result, its banking sector is now hosting Kenya’s major financial brands such as Kenya Commercial Bank (KCB), Equity, Fina Bank and, most recently, the I&M Bank.
Rwandan policy-makers view the EAC as an opportunity to reduce the country’s weakness of being landlocked. Traders can now move goods more easily from Kenyan and Tanzanian ports since members of the bloc slashed import taxes.
Rwanda views its integration into the EAC as one of the six pillars of Vision 2020, a government economic development plan that ambitiously aims to transform Rwanda from a low-income, agriculture-based economy to a knowledge-based one where per capita income is raised to more than $1,000 – up from only $200 in 2000 and $541 in 2011. Other pillars of the plan include good governance, human resource development, a strong private sector, infrastructure development, and productive and market-oriented agriculture.
