November 13 2015 Fatou Ndiaye

Rwanda: A Rapid Economic Transformation

After a four-year civil war that ended in 1994 and that has thrown Rwanda into a deep crisis, the country is engaged in a new momentum of economic development.

In fact, the government has launched in 2000 a long-term development strategy “Rwanda 2020”. The goal of this program is to transform the country from a low-income agrarian economy to a medium income export-oriented and knowledge-based economy.

So far, some reassuring economic signals are showing that the Government is engaged in a growing path:

  • GDP of Rwanda has evolved from USD2.5 billion[1] in 2005 to USD7.5 billion[2] in 2013 – an increase reflecting a sustained expansion of exports and domestic investment with inflows of foreign direct investment.
  • Increase of FDI from USD 590.5[3] million (2010) to USD 832.3[4] million (2011)
  • Good control of its inflation – over 15%[5] in 2008 and 2.3% in 2010 (In 2014, the level of the consumer prices inflation stood at 1.3%)

Developing a service-based economy

The vision 2020 program foresees specific growth rates for the services’ sector. Based on this strategy, some priority sectors are being developed:

  • Transport and energy infrastructure: as one of the key engines of growth to support an economy, Rwanda has invested in a public investment program to ease transport traffic and energy bottlenecks. Indeed, the Government of Rwanda has substantially developed and maintained key infrastructural routes.
  • Tourism: The Kivu-belt tourism Master Plan was launched in September 2013 and aims to modernize infrastructure through the construction of hotels, spas, golf courses, resorts, marinas and conference halls in the five districts which surrounds the Kivu Lake. The cost of investment is estimated between USD 50 million to USD 80 million[6].
  • Financial services: Rwanda has the target to reach 70%[7] of financial inclusion by 2017 (as of 2014, only 42%[8] of the country’s population was in the formal financial system). This potential is very interesting for foreign banks that are willing to invest in the retail banking sector.

Also to tackle issues like funding for SMEs and startups, the country is trying to attract investors to the capital market and is working with the World Bank to achieve this goal.

  • Logistics services: as this sector is a determining one for the development of cross-border trade, the country aims to transform from an importer of logistics services (in 2011 Rwanda spent USD355[9] million on foreign transport and logistics services) to a regional exporter. Actually the Government has launched 8 projects for the construction of logistics hubs.

A developing “business-friendly” environment

Rwanda is actually the 3rd African country (after Mauritius and South Africa) in the world ranking regarding the ease of doing business.

In the 2014 report of the World Bank and IFC’s Doing Business report, Rwanda has enhanced its ranking from 52nd[10] place in 2013 to 32nd[11] in 2014.

These satisfactory achievements are the results of a governmental agenda aiming to enhance the business environment. Starting in 2000, many business reforms have been initiated (Rwanda has reformed 26[12] business laws and brought them to international standards).  In fact, sustained efforts have been made through:

  • Improvement of credit access: through the establishment of institutions like Business Development Fund to support SMEs. The BDF started operations in 2011[13].
  • Streamlining of procedures for starting a business: an online information system was set in 2012 in order to provide an easy access to all investment related procedures in the country.
  • Reduction of the time to register property: this indicator has evolved from 370 days in 2004 to 32 days[14] in 2014.
  • Simplification of cross-border trade: a “Simplified Trade Regime” was set up to facilitate the whole process of clearing goods for small-scale cross border traders.
  • More accessibility to courts to resolve commercial disputes:  In 2008, a law established 4 new commercial courts dealing with all types of commercial disputes. These courts are located in Kigali, in the Northern Province and the Southern Province as well.

In brief, the example of Rwanda is an optimistic way to predict the development of African countries, as it shows that a strong political will, a clear vision and a deep commitment leads to concrete results and sustainable development.

Fatou Ndiaye, Analyst at Infomineo

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