Rwanda’s Invitation

The man who ended the Rwandan genocide is now talking trade and investment.

On March 14th 2012 Rwanda’s capital, Kigali, hosted to 120 government officials from 40 different African nations including: Kenya, Sudan, Egypt and South Africa coming together by the invitation of Paul Kagame, the Rwandan president. Standing 6ft at 55 years of age Kagame is ruthless and determined as ever. Taking office at the end of the Rwandan genocide and rising to prominence in Africa, now he is taking the lead in Africa’s development by leading the Rwandan economy into growth and out of poverty.

The central aim of the March meeting was to establish a political framework in which business is invited, protected and encouraged within Africa, leading to sustainable growth in Rwanda’s and therefore Africa’s economies instead of reliance on aid as a pillar for development.

The location is especially fitting for this conference as Rwanda, once infamous for 5 years of civil war culminating in the 1994 genocide, is now recognised for being one of the fastest growing economies in the world whilst ranking the least corrupt, according to Transparency International.

Roger Nord, the IMF African Department Deputy Director commented Is timely, because with aid budgets under pressure, more than ever, the key to accelerating economic development in Africa lies in harnessing private sector–led growth. And it is important because the private sector is the main source of future job creation— and Africa needs job-rich growth.”

In Rwanda Household consumption has increased an average of 24% from 2006 to 2010, with some Northern and Southern provinces increasing by 48%. The percentage of Rwandans under the poverty line from 2000 to 2010 fell by 14% especially in the capital of Kigali.

The rapid growth is accounted for by the doubling of purchasing power leading to average prices falling from 1994, at the same time economic output in GDP tripled. Larger output at lower prices means Rwanda is becoming productive, pulling its people out of poverty and into the workforce.

(Modern Kigali, Rwanda’s capital)

What has driven Rwanda’s economic turn-around? Sound economic policies enacted under President Kagame. The Rwandan president, who took office in 2003 and was re-elected in 2010 for another 7 year term, has put in place policies that aim to curb corruption, reduce legal interference and strengthen economic supporting law. These changes have encouraged the opening and running of small to medium-size business within the country.

Consider that under Mr. Kagame, registering a property in Rwanda only takes 25 days and has a framework of 5 procedures. This is crucial to being able to use property as collateral for loans, which Rwanda’s policies have also taken into consideration. It ranks 8th place on receiving credit due to its unrestrictive policies towards the pledging of collateral. Unrestricted collateral laws are vital to generating capital for business. In Rwanda starting a business now takes only 3 days and costs RWF 15000; the relative change of which is shown below.

(The cost of legally registering a business in Rwanda has exceptionally decreased since 2007)

Compare these facts to Spain, seen as a modern westernised developed economy, which ranks 44th in ‘ease of doing business’; one rank under Rwanda (out of a total of 183 countries). Spain, which has one of the largest economies in the world, has a similar time line to Rwanda when it comes to registering property, yet Rwanda now outranks Spain in having less restrictive collateral laws and business registry. In Spain it takes an average of 133 days to register a business and has far more inhibiting laws around such ventures; Rwanda in contrast is aligning itself with the market.

Yet while Rwanda is strong in property law it still falls short in its enforcement of contracts, where it takes 230 days, 24 court procedures and is very expensive. On average costing 75% of the contract itself with Lawyers expecting about 50% for their services.

 

(Rwanda locked between Burundi, Uganda and Congo (not shown) means import/ exports are hampered)

Trading across boarders is one of the biggest problem in Rwanda, a landlocked nation. One government study found it took $864 in bribes and 36 roadblocks to cross boarders from Mombasa (a main port in Kenya) through Uganda and into Kigali.

Yet these fall-backs do not seem to be inhibiting Rwanda’s growth. Again we turn to the IMF: ‘Rwanda is establishing a record of high growth, economic stability, and falling external debt. Decisively moving on from a war-scarred past, Rwanda is on a drive to attract entrepreneurs and risk-takers, and to be East Africa’s next enterprise zone.’: ‘Rwanda isopen for business‘ – and the markets are responding.

Foreign investment within Rwanda have increased 57% from 2009 to 2010, a total of $626 million was pulled in through investment, compared to just $32 million in 2003 according to the Rwanda Development Board. As foreign investment has came through Rwanda’s doors it has offset the government expenditure, therefore reducing the government debt: GDP which is currently standing at around 25% down from 107% in 2003.

Mr. Kagame personally met with investors in 2006 including Washington-based Costco Wholesale Corp. now the biggest buyer of Rwanda’s coffee. Through this meeting Mr. Kagame was introduced to Starbucks Corp. of Seattle, the world’s largest coffee-shop chain. They now both receive 25% of their coffee from Rwanda, a large export for the country.

Heineken, the world’s third largest brewer in volume, now owns 75% of Bralirwa SA, Rwanda’s largest brewer. The Rwandan company listed on the domestic exchange last year.

John- Paul Schuirink of Heineken has stated: “We are very happy with the performance of our business in Rwanda and very positive about the growth opportunities,” – “In emerging markets we are looking for population growth, economic growth and improving political stability. And we see all three of those in Rwanda.” Other investors in Rwanda include Johannesburg-based MTN Group Ltd. Africa’s biggest mobile-phone company, and Rabobank Netherlander, the highest-rated private lender.

The last word should come from Mr Kagame himself: ”In Africa today, we recognise that trade and investment, and not aid, are pillars of development.”

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One thought on “Rwanda’s Invitation

  1. Pingback: Rwanda issues its first international ten year bond | Logic Tank

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