• Rwanda’s real GDP was on course to grow by a robust 7.7% in 2012, driven by services and industry. Growth is projected to slow down in 2013 and 2014, due to foreign aid suspension, tight fiscal and monetary policies and weak global demand.

  • Rwanda was elected to the United Nations Security Council and pledged to champion the prevention of crimes against humanity. However, several development partners suspended aid following reports that Rwanda is supporting the insurgents in eastern Democratic Republic of Congo, which the government denies. A protracted suspension of aid could reverse the country’s socio-economic progress.

     

  • Human development continues to improve strongly, particularly school enrolment, parity in boys’ and girls’ education, as well as child and maternal health. The infant mortality Millennium Development Goal (MDG) has been achieved, and Rwanda is set to meet the targets for universal primary education, gender equality and under-five mortality. Poverty and income inequality have also retreated.

Overview

Real gross domestic product (GDP) growth remained strong in 2012, largely driven by the service and industry sectors. Agriculture grew by a moderate 3.0% during the first three quarters of 2012 due to unfavourable weather conditions. The diversification of markets for tea and minerals, particularly coltan, boosted the export sector, which increased by 24.8% in 2012. Development assistance is key to the 2013 economic outlook. Assuming that aid, suspended by some development partners in 2012, resumes in 2013, GDP growth is projected to moderate to 7.1% in 2013. This projection takes into account other factors, including programmed fiscal consolidation, which prioritises public spending towards strategic investments, which, in turn, dampens aggregate demand, as well as a tight monetary policy that is a deterrant to the expansion of private sector credit. A protracted suspension of foreign assistance, however, could undermine Rwanda’s economic prospects including a further reduction in real GDP growth and reverse progress towards the MDGs.

Headline inflation is expected to slow to 6.0% in 2013 because of a tight monetary policy and structural reforms to improve productive capacities, particularly in agriculture. However, meeting both this projection and the central bank’s medium-term inflation target of 5.0% is contingent on the resumption of aid. Sustained investments in agriculture infrastructure and improved farm inputs should improve productivity and help make growth more inclusive. Pent-up import demand for intermediate products (i.e., products that have undergone partial processing generally used as raw materials in a successive productive step); capital goods and energy products is expected to continue outstripping the expanding but still narrow export base. This will lead to persistent current account deficits in the short to medium term. Exports currently cover only around 20-25% of Rwanda’s imports.

In spite of the government’s efforts to diversify the economy, Rwanda is still heavily dependent on natural resources and commodities. Agriculture continues to be the largest source of employment, providing jobs to 73% of the workforce, yet only accounts for 36% of output. Commodities make up 77% of Rwanda’s exports. Although their contribution to GDP remains marginal, minerals (notably, cassiterite, coltan – columbite-tantalite – and wolfram or tungsten) accounted for 28% of total export earnings in 2012, the remainder being primarily agricultural commodities. The country’s structural transformation faces three significant challenges:

  1. Productivity remains too low, particularly in agriculture, to support the development of employment in other sectors; lower food prices; and to ensure that farming is profitable.
  2. High population density will continue to strain available natural resources and the environment.
  3. Constraints in both domestic and external financing have hampered efforts to diversify the economy.

Figure 1: Real GDP growth 2013 (East)

Table 1: Macroeconomic indicators

 2011201220132014
Real GDP growth8.37.77.17.3
Real GDP per capita growth5.34.84.24.4
CPI inflation5.77.365.3
Budget balance % GDP-2.4-1.9-1.4-3.7
Current account % GDP-8.5-10.5-10.2-9.9

Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

 20072012
Agriculture, forestry & fishing--
Agriculture, hunting, forestry, fishing38.535.8
Construction79.6
Electricity, gas and water0.40.3
Electricity, water and sanitation--
Extractions--
Finance, insurance and social solidarity--
Finance, real estate and business services10.59.5
General government services--
Gross domestic product at basic prices / factor cost100100
Manufacturing6.66.5
Mining1.11
Other services87.4
Public Administration & Personal Services--
Public Administration, Education, Health & Social Work, Community, Social & Personal Services5.15.3
Public administration, education, health & social work, community, social & personal services--
Social services--
Transport, storage and communication7.68.6
Transportation, communication & information--
Wholesale and retail trade, hotels and restaurants15.216.1
Wholesale, retail trade and real estate ownership--

Real GDP grew 7.5%, 9.9% and 7.3% in the first, second and third quarters of 2012 respectively; Rwanda expects to meet the 7.7% target for 2012. Services, which grew by 13.7%, and industry, which grew by 5.9% largely drove the GDP performance. Construction, transport and communication, finance and insurance buoyed the growth. Services and construction, spurred by public investments, such as the Kigali Convention Centre and the new Bugesera International Airport, are expected to continue driving economic expansion in the short to medium term. In addition, improved seeds, fertilisers and farm equipment will support growth in agriculture. Growth is projected to moderate to 7.1-7.3% in 2013 and 2014 however, due to fiscal consolidation, a weak global economy and the impact of the possible continuation of aid suspension.

Rwanda’s economy relies largely on services, which account for 46% of GDP in 2012. Tourism has become the largest foreign exchange earners for the country, earning USD 281.8 million in 2012, an increase of USD 30 million compared to the previous year. In addition to tourism, public administration, education, transport, as well as storage and communications are responsible for the expansion of the service sector over the past decade.

Growth in agriculture – 3% in the first three quarters of 2012 – was subdued relative to growth in services and industry. Given the lack of irrigation, agriculture remains highly vulnerable to the weather and the vicissitudes of climate change, as well as fluctuations in commodity prices.

The performance of the industrial sector remained upbeat in 2012, growing by 9.2%, 7.3% and 11.2% during the first, second and third quarters, respectively; mainly from utilities (electricity and water) and construction inputs. The mining sector contracted by 5% during this period, due to the decrease in both the production and international price of cassiterite. Given its major contribution to exports, the government is keen to invigorate the small mining sector. Rwanda registered USD 69.9 million worth of mining investments in 2012, compared to USD 24 million the previous year.

Exports grew by 24.8% due to the diversification of markets and favourable international prices for tea and minerals, particularly coltan. Although tea exports suffered in the first half of 2012 because of poor weather, they recovered in the second half of the year, thanks to higher prices and greater production. Coffee exports have been disappointing, due to a sharp fall in international prices. Coffee, tea and minerals accounted for 54% of total exports in 2012. Non-traditional exports such as textiles, beer and cosmetics have been developing rapidly, albeit from a very low base, suggesting that a processing industry may increase its share of GDP in the future.

Rising imports (primarily of food, construction materials, industrial products and fuel) overshadowed the export performance in 2012. Exports currently cover 22.9% of imports slightly up from 20.5% in 2011. However, given the low export base, the trade deficit widened to USD 1.28 billion, from USD 1.03 billion in 2011. High deficits will remain a significant challenge over the medium term, as the growing but still narrow export base fails to catch up sufficiently with the high demand for intermediate and energy products, and capital goods.

Remittances are a growing source of foreign exchange for Rwanda, expanding from just USD 25.1 million in 2006 to USD 175.2 million in 2012. 

In spite of the positive contribution of tourism and remittances, the current account deficit, including grants, reflected the trade performance and increased to 10.5% in 2012 (see Table 4). The current-account deficit is, however, projected to recede in 2013 and return to single digits in 2014 because of the government’s National Export Strategy. The National Export Strategy seeks to accelerate production and export growth for both traditional (coffee, tea, and minerals) and non-traditional (horticulture and business process outsourcing) sectors through various interventions such as the establishment of export promotion councils and Special Economic Zones.

A slump in private and official capital inflows (excluding project grants) from USD 511.2 million in 2011 to USD 480 million in 2012 further contributed to an overall balance of payments deficit of 0.1% of GDP in 2012. The combined effect of aid suspension and increased sales of foreign currency to finance imports contributed to a reduction in gross international reserves by 25% to USD 843.45 million at end-2012 compared to end-2011. This also translated into a reduction in the import cover of international reserves from 5.1 months in 2011 to 4.8 months in 2012.

Several development partners suspended their budget assistance in 2012, following a UN report that Rwanda is supporting insurgents in the eastern Democratic Republic of Congo, which the government denies, however. Rwanda relies heavily on foreign assistance, receiving USD 1.03 billion in 2010 from the Organisation for Economic Co-operation Development Assistance Committee (OECD-DAC) members; notably the United States, the European Union and the United Kingdom. In per capita terms, Rwanda is still one of the most heavily aid-dependent countries in East Africa. It has become less reliant on foreign assistance in recent years though: budget support financed 44.0% of total government spending in 2011, down from 52.5% in 2004.

Foreign direct investment (FDI), in contrast to development assistance (i.e., aid), increased by 50% to USD 159.8 million in 2012, flowing mainly into energy and banking. Tourism, agro-processing and construction also attracted new investors, including Nandan Agro-processing Industries Ltd from Singapore and South Africa’s cement manufacturer Pretoria Portland Cement.

With capital inflows projected to recover to USD 543 million for 2013, primarily to finance public and private investments, the overall balance of payments should register a surplus of 0.2% of GDP in 2013. Assuming aid disbursements resume in 2013, estimates for international reserves suggest they will cover 4.5 to 5.0 months of imports in 2013 and 2014.

Rwanda’s economic outlook is contingent on four key developments. First, the delayed disbursement of budget support is already constraining government spending and increasing the inflationary and balance of payment pressures. A protracted suspension of aid could reverse the country’s socio-economic progress. Second, the weak global demand and regional issues – particularly the results of the March 2013 general elections in Kenya – could adversely affect exports, FDI and tourism. Third, the government’s fiscal consolidation strategy is projected to contribute to a reduction in aggregate demand. Finally, the tighter monetary policy stance is expected to slow down the expansion of private sector credit. Falling aggregate demand and private sector credit will contribute to a reduction in private consumption, which is the biggest contributor to GDP growth. These developments are also expected to delay the implementation of the government’s Strategic Investment Programme, particularly the Kigali Convention Centre and the Bugesera International Airport, and potentially reduce investments in agriculture. Consequently, real GDP growth is projected to fall to 7.1% in 2013 and 7.3% in 2014.

Macroeconomic Policy

Fiscal Policy

The government continued to pursue a fiscal consolidation strategy in 2011/12 and 2012/13 to prioritise public spending, reduce domestic financing and increase public revenue mobilisation. As a result, the fiscal deficit narrowed in 2012, but is expected to increase over the medium term (see Table 3). 

Measures were introduced in the fiscal year (FY) 2012/13 to reverse the decline in tax revenues observed since 2010 and compensate for the fuel tax reduction adopted in FY 2011/12.1 These measures, which are expected to yield USD 45 million in additional public revenues in FY 2012/13, include revisions to the investment code, an increase in the tax rate on imported construction materials from 5% to 10% and the introduction of a gaming tax. In addition, pay-as-you-earn (PAYE) tax collections should yield more revenues, following the increase in public sector wages introduced to improve competitiveness and staff retention in the public sector. The new tax measures are expected to contribute to an increase in the share of total expenditure and net lending financed by domestic revenues from 47.3% in FY 2011/2012 to 52.6% in 2012/2013.

The suspension of budget support in FY 2012/13 amounted to 12% of the budget. The government has responded by postponing non-priority expenditures, using the central bank overdraft facility and issuing treasury bills. In the short term, the delay in aid disbursements is expected to put further pressure on the balance of payments and the fiscal balance, but more broadly on the exchange rate, inflation and GDP growth.

Expenditure allocations are in line with the priorities set out in the Economic Development and Poverty Reduction Strategy (EDPRS). Economic infrastructure, productive capacities and human development jointly account for over 70% of the FY 2011/12 and 2012/13 budgets. Recurrent and capital spending account for 51% and 47% of the budget respectively. The overall budget execution remains high, with 99% of the budget executed in 2010/11 and 2011/12.

The adoption of a new Chart of Accounts in July 2011 has improved the consolidation, coverage and recording of general budget transactions.2 It has also strengthened the harmonisation of planning, budgeting financial accounting and reporting across government levels. Yet there is still scope for improving the multi-year perspective in fiscal planning, expenditure policy and budgeting. In addition, full reporting by all budget agencies is still constrained by difficulties in combining the Integrated Financial Management System with other government systems and by limited capacities in public financial management.

Taxes accounted for 13.5% of GDP in 2011/12, up from 13.1% the previous fiscal year. New measures have further improved tax administration: electronic-filing and electronic-payments systems have been introduced, and an electronic single window for customs has become operational. A Queue Management System was also set up to facilitate quarterly value-added-tax (VAT) and personal income-tax payments for small- and medium-sized enterprises (SMEs). These measures contributed to an expansion of the tax base, with 8 304 newly registered taxpayers in FY 2011/12. Tax collections during July-December 2012 were 1.3% lower than the target, but 18% higher than during the same period in 2011.

Table 3: Public Finances (percentage of GDP)

 200920102011201220132014
Total revenue and grants28.525.624.525.128.124.3
Tax revenue14.21213.112.71413.7
Oil revenue------
Grants13.613.110.711.313.29.6
Total expenditure and net lending (a)29.525.726.926.929.527.9
Current expenditure16.614.713.914.515.214.3
Excluding interest16.214.213.514.114.814
Wages and salaries3.83.43.53.23.73.7
Interest0.40.50.40.40.40.3
Primary balance-0.50.4-2-1.5-0.9-3.4
Overall balance-1-0.1-2.4-1.9-1.4-3.7

Monetary Policy

A three-year Policy Support Instrument (PSI), approved by the International Monetary Fund (IMF) in June 2010, anchors Rwanda’s monetary policy framework. The fifth review under the PSI programme concluded in November 2012 re-affirming that Rwanda’s macroeconomic framework remains robust and stable.

Rwanda maintained a tight monetary policy in 2012 to keep inflation under 7.5% by the end of 2012. The central bank increased its policy rate – the Key Repo Rate (KRR) – from the 7% held since November 2011 to 7.5% in May 2012. The central bank decided to maintain its tight monetary policy stance for the first quarter of 2013 by leaving the KRR at 7.5%. While headline inflation dropped to 3.9% at the end of 2012 from 8.3% in 2011, the average annual rate increased from 5.7% in 2011 to 6.1% in 2012, reflecting higher food and fuel prices during the first half of 2012. Average core inflation, however, decreased from 5.7% to 3.9% during this period. Average headline inflation is projected to slow to 6.0% and 5.3% in 2013 and 2014, provided aid disbursements resume in 2013.

The increase in the KRR pushed up the weighted average interbank interest rate from 8.1% in December 2011 to 11.1% in December 2012. Yet, the average lending rates remained unchanged at 16.7% during this period. The government’s recourse to domestic borrowing to substitute for the suspended aid is expected to increase the interbank and lending interest rates in 2013.

Private sector credit grew by 33.9% in 2012, compared to 28.4% in 2011. The extra lending was largely absorbed by commerce and hotels (40.7%), public works and the building industry (22.4%). However, growth in private sector credit slowed down during the second half of 2012, suggesting a possible crowding out due to increased domestic borrowing by the government.

Reserve money has been programmed to expand by 16.3% in 2013, down from 17% and 23.4% in 2012 and 2011, respectively. Growth in private sector credit is projected to follow a similar trend due to the combined effects of a tight monetary policy and aid suspension, slowing down to less than 20% in 2013.

The central bank continued to implement a flexible exchange rate policy, intervening in the foreign exchange market to smooth out volatility. The Rwandan franc (RWF) remained largely stable during the first half of 2012, but fell by 4.5% against the US dollar by the end of the year. The local unit also depreciated by 8.6% and 5.2% against Great Britian's pound and the euro respectively in 2012. This reflects high demand for foreign currency to finance imports, combined with budget support suspension.

Economic Cooperation, Regional Integration & Trade

The National Policy and Strategy (NPS) on East African Community (EAC) integration, adopted in February 2012, ensure that the country adequately responds to the policies, decisions and obligations enshrined in the regional treaty. Moreover, the government has committed itself to ensuring that all new legislation be EAC compliant before ratification.

Rwanda’s trade with the EAC more than doubled between 2007 – when Rwanda joined the Community – and 2011. By 2012, the EAC accounted for 35% of total Rwandan exports, above the 32% recorded with Europe, the country’s traditional trading partner. Rwanda’s exports to the EAC, mainly cereals, coffee, tea and vegetables, remain dwarfed by imports, however.

Rwanda provides 100% mutual tariff concession to members of the Common Market for Eastern and Southern Africa (COMESA) that are part of the Free Trade Area protocol. As a result, imports from COMESA have grown from USD 162 million to USD 429.8 million between 2007 and 2011. Exports to COMESA also increased, from USD 23 million in 2007 to USD 131.6 million in 2011.

Rwanda’s primary export destinations during the first three quarters of 2012 were Tanzania (36% of exports), Kenya (22.8%), Democratic Republic of Congo (13.4%) and Uganda (11.9%). The country’s main import sources were China (12.7%), Uganda (14.1%), Kenya (8.3%) and India (8%).

Further steps have been taken to ease the movement of goods and persons within the region. Visa fees have been waived for all EAC residents, and discussions are being held with Kenya on the use of biometric national identity cards as travel documents between the two countries. A National Cross-Border Strategy was also developed in August 2012 to improve trade with neighbouring countries further and narrow the trade deficit. The strategy is to tackle the numerous non-tariff barriers that continue to hamper intra-regional trade. It will also foster stronger linkages between producers and manufacturers in Rwanda and in neighbouring countries, and improve regional infrastructure.

Table 4: Current Account (percentage of GDP)

 2004200920102011201220132014
Trade balance-8.5-14.5-14-20.1-20.3-20.2-20.4
Exports of goods (f.o.b.)4.74.55.38.57.46.96.7
Imports of goods (f.o.b.)13.11919.328.627.727.127.1
Services-3-3.5-4.4-3.5-4.2-3.8-3.1
Factor income-1.6-0.7-0.8-1-1.2-1.3-1.4
Current transfers1511.413.316.115.21514.9
Current account balance1.8-7.3-5.9-8.5-10.5-10.2-9.9

Debt Policy

The government’s comprehensive public debt management strategy seeks to minimise the cost of financing and repayment obligations, promote prudent risk management and ensure that debt is sustainable. A new medium-term debt strategy awaiting Cabinet approval in early 2013 will guide the issuance of sovereign bonds. It will also define a level of government domestic borrowing that is consistent with the development of domestic financial markets. To encourage credit to the private sector, the government reduced domestic borrowing from 1.8% of GDP in 2010/11 to -0.9% in 2011/12 – indicating loan repayments. However, to compensate for the aid suspension, it is projected to increase to 0.3% of GDP in 2012/13.  

An IMF/World Bank analysis confirmed in June 2012 that Rwanda continues to be at moderate risk of debt distress. Rwanda’s public debt, both external and domestic, amounted to USD 1.5 billion at the end of 2011, equivalent to 25.3% of GDP and slightly up from the USD 1.28 billion (or 23.4% of GDP) recorded a year earlier. The increase in total debt was largely due to non-concessional loans acquired to finance the government’s strategic investments, in particular the Kigali Convention Centre and RwandAir, the national air carrier. Borrowing incurred to finance these investments also pushed publicly guaranteed debt from 2% of total public debt in 2010 to 8% in 2011. External debt accounted for 71% of the total public debt in 2011 with over 70% of it owed to multilateral creditors. 

Interest payments on total debt remained unchanged at 0.4% of GDP in 2010/11 and 2011/12, but are expected to increase slightly to 0.6% between 2012/13 and 2014/15. This is due to the repayment of a short-term loan contracted to finance the Kigali Convention Centre.

Figure 2: Stock of total external debt and debt service 2013

Economic & Political Governance

Private Sector

The private sector employs over 90% of Rwanda’s workforce. Small- and medium-sized enterprises (SMEs) account for 98% of the estimated 123 000 businesses operating in the country and provide 84% of private sector employment. However, only 14 000 firms are registered with the Rwanda Revenue Authority, 40% of which are registered for the VAT and only 11% for income taxes. Key impediments to private sector development include the high cost of energy and transport, as well as poor business planning and management skills, particularly in SMEs. Rwanda has adopted a Private Sector Development Strategy to facilitate investment, job creation and growth in the private sector.

Rwanda continues to streamline business regulations. In spite of the decline in the World Bank report, Doing Business ranking from 48th out of 183 countries in 2012 to 52nd out of 185 countries in 2013, Rwanda is still among the top four reformers in sub-Saharan Africa. Remarkable progress has been made in facilitating business registration, with fees reduced from 8% of income per capita in 2011 to 4.3% in 2012. In addition, only two procedures are necessary to obtain a business registration certificate. Rwanda has also taken measures to improve the resolution of insolvency, an area where performance has been lagging. An advisor has been appointed to the Rwanda Development Board to support the business community with insolvency issues.

The overall ranking of Rwanda in the World Economic Forum’s Global Competitiveness Report 2012/13 improved by seven places to 63rd out of 144 countries, placing Rwanda 3rd in sub-Saharan Africa. The country continued to benefit from strong and well-functioning institutions, a good security environment and efficient labour markets. However, the ranking in areas such as flexibility in wage determination, hiring and firing practices, and pay and productivity worsened.

Financial Sector

Rwanda’s financial system has extended its reach and further improved its soundness. It comprises 14 banks, 497 microfinance institutions and Savings and Credit Co-operatives (SACCOs), as well as 49 non-bank financial institutions. The expansion of domestic banks and the entry of new foreign banks have heightened competition in the banking sector. This has resulted in the opening of new branches and more innovation such as agent and mobile banking. A total of 299 new branches and outlets were licensed in 2011/12 – 47% of the 683 branches across the country. However, the sector remains highly concentrated, with three of the largest banks accounting for an estimated 60% of the deposits, loans and assets of the entire industry.

Financial depth indicators have improved. In addition to the increase in credit to the private sector, the share of banking assets also increased from 23% of GDP in 2010 to 30% in 2011. The liquid assets to total deposits ratio decreased from 40.3% in December 2011 to 36.5% in December 2012 but remains well above the statutory 20% requirement. In the medium term, the reduction in official transfers is expected to further lower banking sector liquidity.

The Rwandan stock market is not yet a major source of financing for the private sector. Only four companies are listed so far: beer manufacturer Bralirwa, the Bank of Kigali, Kenya Commercial Bank and Nation Media Group (both of the latter are cross-listed Kenyan companies). An index measuring the performance of the stock market was established in November 2012.

Better supervisory capacities at the central bank and the establishment of a permanent financial stability committee in May 2012 have helped strengthen the financial sector. For instance, non-performing loans (NPLs) declined from 8% to 6% between December 2011 and June 2012 – below the 7% regulatory limit. The ratio of core capital to risk-weighted assets, a measure of capital adequacy, increased from 23.8% to 25.4% during the same period, well above the regulatory threshold of 15%. Profitability indicators also improved, with return on average equity rising from 13.7% in December 2011 to 14.3% in October 2012.

The latest FinScope survey reported that 72% of the adult population had access to formal and informal financial products in 2012, up from 52% in 2008. The population using banks also increased from 14% in 2008 to 23% in 2012, while the uptake of insurance services rose from 3% to 7% during the same period.

Public Sector Management, Institutions & Reform

Rwanda has made significant strides in building an efficient public sector. The quality of the public administration has improved since 2000 thanks to public sector reforms. For instance, a Pay and Retention Policy was introduced in July 2012 to address the high civil service turnover. Moreover, the government has now implemented fully the Integrated Personnel and Payroll Information System (IPPS), introduced in 2009 to better control payroll. It covers all public service employees in central government and districts. The IPPS is now integrated with other public-sector management information systems.

Rwanda’s public administration is further bolstered by a strong anti-corruption agency and a robust anti-corruption law. Transparency International’s Corruption Perception Index ranked Rwanda 50th out of 176 countries surveyed in 2012 and 4th in sub-Saharan Africa. Only 0.4% of the respondents surveyed by the World Economic Forum 2012/13 Global Competitiveness Report indicate corruption as a key impediment to doing business in Rwanda in both 2011 and 2012.

The establishment of the Joint Action Development Forum (JADF) has enhanced citizen participation. The JADF involves the citizenry in planning and budgeting processes and in monitoring service delivery at the district and sector levels. The Joint Sector Review reports that in 2011/12, 87% of citizens felt that they contributed actively to local government decisions and were being heard; up from 76% in 2010/11.

In addition, Rwanda’s legal system and governance structures for the protection and enforcement of property rights have steadily improved. However, the World Bank report Doing Business 2013 indicates that more needs to be done to protect investors and enforce contracts. The country’s ranking on the “efficiency of the legal framework in settling disputes” indicator also improved from 25th out of the 142 countries rated by the Global Competitiveness Survey in 2011/12 to 15th out of 144 countries in 2012/13. Moreover, investors’ rating of the country’s legal framework, captured in the Investor Perception Index conducted by the Rwanda Industrial Observatory, improved from 76.6% in 2010/11 to 78.3% in 2011/12.

Natural Resource Management & Environment

Rwanda is amongst the most densely populated countries in sub-Saharan Africa, which puts significant pressure on natural resources and the environment. Several frameworks are already in place to manage natural resources, the environment and climate change. The Green Growth and Climate Resilience Strategy (GGCRS 2012-2017) encourages the development of carbon-friendly infrastructure, in particular the utilisation of renewable energy sources, and strives to strengthen institutional capacity to ensure sustainable use of natural resources. The strategy also complements ongoing reforestation efforts and programmes to reduce dependence on wood for fuel. A land management information system has been developed. In addition, all districts are receiving assistance to enhance their capacity in land administration, land law and land surveying.

The government’s management of natural resources, environment and climate change has yielded positive results. The land area protected to maintain bio-diversity increased from 9.2% in FY 2009/10 to 10.13% in FY 2011/12. National forest cover also expanded from 21.4% to 24.5% of the total land area during this period. Over 16% of the critically degraded ecosystems including wetlands (56 118 hectares), lakeshores (2 454 hectares), riverbanks (1 432 hectares), and watersheds (1 266 hectares) have been mapped and rehabilitated, and are fully protected by law. A master plan to ensure a sustainable management of water is currently being prepared. The network set up to monitor and improve water management has been enhanced with the rehabilitation of 13 gauging stations to complement the existing 41 stations.

Political Context

The third flagship programme of the EDPRS, namely, governance,3 seeks to encourage citizens to participate in their political, social and economic development. Efforts to improve institutions, the adoption of supporting legislation, and revisions in administrative and regulatory frameworks contribute to this objective. Decentralisation provides a major vehicle towards national reconciliation and local communities’ participation. Moreover, the country’s 2003 constitution enshrines power sharing, mandating that the president, prime minister and speaker of the senate represent different political parties. If adopted, draft media bills, currently being discussed in the Rwanda Senate, should improve media regulation, advance transparency and encourage citizen economic and political participation.

In recognition of the country’s achievements in fostering peace and reconciliation, in October 2012 Rwanda was elected to the United Nations (UN) Security Council to represent Eastern and Southern Africa in 2013-14. Rwanda has pledged to work with fellow UN Security Council members to promote the views and aspirations of the developing world, particularly Africa, and to prevent crimes against humanity.

The government has also pledged to help resolve the insurgency in eastern Democratic Republic of Congo (DRC). Yet a UN Group of Experts report implicated Rwanda in the support of a rebel group, which resulted in the suspension of budget support from key development partners. The authorities have strongly denied these claims. 

Social Context & Human Development

Building Human Resources

Education: The free nine-year basic education programme has contributed to higher primary and secondary school enrolment. The net primary school enrolment rate has improved from 86.6% in 2005/06 to 91.7% in 2010/11, and Rwanda is on track to meet this Millennium Development Goal (MDG) target. Increased enrolment, however, resulted in a worsening of the primary school pupil-to-qualified-teacher ratio to 62:1 in FY 2011/12, following an improvement from 63:1 to 58:1 between FY 2009/10 and 2010/11.

The 12-year basic education strategy (12YBE), introduced in 2012, has resulted in an additional 48 055 students attending secondary school. There are now 534 492 students enrolled in secondary education, 52% of whom are girls. Moreover, literacy rates for the 15-24 year olds, a proxy for the efficiency and quality of the education system, have improved from 76.8% in 2005/06 to 83.7% in 2010/11.

Vocational education has benefited from an increase in the number of training centres from 98 in 2011 to 116 in 2012. As a result, enrolment increased by 15% to 13 303 students.

Health: The share of public spending on health (including donor support) has increased from 10.2% in 2009/10 to 16% in both 2010/11 and 2011/12. The successful implementation of the Community-Based Health Insurance scheme introduced in 1999 has improved access to health services. The scheme covered 91% of the population in 2011/12, 1 percentage point above the target and a substantial increase from the 35% recorded in 2006.

The better-resourced and more efficient health sector has resulted in improved outcomes. The infant mortality MDG target has been achieved, and under-five mortality improved from 103 per thousand live births in 2008 to 54.1 in 2011. If this trend is maintained, Rwanda will meet the under-five mortality MDG target in 2014.

Maternal mortality also improved greatly from 750 per one hundred thousand live births in 2005 to 540 in 2010, against the MDG target of 325 by 2015. This progress was partly because two-thirds of deliveries in 2011/12 took place in an accredited health facility, up from 45% in 2005. The proportion of pregnant women receiving at least four antenatal visits also increased from 13% to 35% during the same period.

Prevention and treatment of HIV/AIDS, tuberculosis and malaria: Rwanda is among the 25 low- and middle-income countries that have reduced the rate of new HIV infections by more than half between 2002 and 2012, according to UNAIDS. The current HIV prevalence rate for the population aged 15-49 years is estimated at 3%. About 98% of all pregnant women now have access to voluntary counselling and testing, as well as services preventing mother-to-child transmission. The proportion of HIV-infected infants receiving antiretroviral (ARV) treatment has increased from 87% in June 2011 to 91% in July 2012. The provision of ARV treatment to discordant couples immediately after HIV/AIDS is diagnosed, irrespective of the CD4 count (the type of white blood cells that help fight infection; the lower the count the more prone one is to infection), is expected to further reduce HIV prevalence. Routine testing and treatment of HIV-positive patients, coupled with initiatives targeting drug-resistant tuberculosis, have helped reduce tuberculosis mortality from 6% in 2007 to 3.5% in 2010. 

The fight against malaria has also achieved significant strides. Morbidity dropped from 11% in 2009/10 to 3.4% in 2010/11. The countrywide distribution of bed nets treated with insecticide and increased access to anti-malarial treatment were largely responsible for this progress.

Poverty Reduction, Social Protection & Labour

Equity of public resource use: Absolute poverty and income inequality retreated significantly during the second half of the decade to 2010. The proportion of the population below the national poverty line (RWF 118 000 or USD 197 per adult per year) declined from 56.7% to 44.9% between 2005/06 and 2010/11. These figures equate to over 200 000 households or approximately one million people. The poverty level in 2010/11 was below the government target of 46%, but still falls short of the 23.8% MDG target.

The majority of Rwandans have benefited from this reduction in poverty. Income inequality as measured by the Gini coefficient declined from 0.52 in 2005/06 to 0.49 in 2010/11. Yet poverty rates remain over twice as high in rural areas (61.9% in 2005/06 and 48.7% in 2010/11) than in cities (28.8% in 2005/06 and 22.1% in 2010/11). This suggests that economic opportunities remain largely concentrated in urban areas.

The government remains committed to accelerating the reduction in poverty. Over 70% of the FY 2012/13 budget is allocated to infrastructure development, improving productive capacities and human development. In particular, interventions to improve productive capacities include prioritising agriculture and rural development, co-operatives and SMEs. The government is currently drafting the second-generation EDPRS (EDPRS-II); it is expected to focus on economic transformation, rural development, productivity and youth employment and accountable governance.

Social protection and labour: The second EDPRS flagship programme, Vision 2020 Umurenge Programme (VUP), provides the framework for public interventions to achieve more equitable economic growth and create opportunities for the poorest and most vulnerable Rwandans. The VUP focuses on public works programmes, credit packages for co-operatives and SMEs, and social services and assistance to landless families unable to participate in public works programmes. Over 500 000 people have benefited from the VUP credit scheme, with women accounting for 41% of the recipients. Beyond social protection, the credit scheme has also supported profits and sales, higher productivity and enterprise development. The VUP programme was instrumental in the decline of extreme poverty (RWF 83 000 or USD 138 a year) from 35.8% in 2005/06 to 24.1% in 2010/11. The MDG target will be met by 2013/14 if this trend is maintained.

Rwanda’s labour market is widely regarded as efficient. Only 2.4% of respondents surveyed by the 2012/13 Global Competitiveness Report cited labour regulations as a key impediment to doing business both in 2011 and 2012. Rwanda’s labour laws contain various provisions protecting basic labour standards and the fundamental rights of employees and employers. It also provides flexibility in hiring and retrenching workers. Data is being collected to update the minimum wage of just RWF 100 per day. Yet, the Global Competitiveness Index ranking of Rwanda on labour market efficiency slipped from 8th out of 140 countries in 2011 to 11th out of 144 countries in 2012, suggesting there is scope for additional improvements.

 

Gender Equality

Rwanda has successfully been promoting equal access to education for men and women. The MDG target on parity between boys and girls in primary and secondary education enrolment has already been achieved. However, while women’s access to higher education has improved, females account for only 40% and 44% of vocational and higher education students, respectively.

The government has integrated gender into policy and strategic planning across all levels of government; plans to advance further gender equality are part of the on-going EDPRS-II elaboration. Inequalities in economic participation remain, however. For instance, 38.7% of male workers had remunerated non-farm jobs in 2010/11, compared to 18.1% of female workers. This falls short of the 50% MDG target, and marks a deterioration of the gender gap in non-farm jobs since 2005/06. Various programmes have been introduced to address these inequalities. For example, the co-operative movement and the Chamber of Women Entrepreneurs in the Private Sector Federation are offering training and capacity building in entrepreneurship for women. The Umurenge SACCOs are also being used to improve inclusion of women and the youth in the economy.

Rwanda became the first country in the world to achieve a female majority in Parliament. Rwanda’s Constitution mandates a 30% minimum female representation in politics and public sector management. This provision and the government’s commitment to gender equality have resulted in an increase in the number of parliamentary seats held by women from 17% in 1994 to 56% in 2010. There is still ample room for improvement in social attitudes towards women, however: 41% of women reported at least one incident of domestic violence in 2010.

Thematic analysis: Structural transformation and natural resources

Notwithstanding the government’s sustained efforts to diversify the economy, Rwanda is still heavily dependent on natural resources and commodities, which provide 77% of exports. Agriculture continues to be the largest source of employment, absorbing 73% of the workforce, but it accounts for only 36% of output. Coffee, tea, hides, skins and pyrethrum (a natural insecticide) provide most farming exports. Rwanda possesses very few agro-processing industries, except for tea and maize, although there are plans to process rice. The government is seeking to improve agricultural production and productivity through a number of measures, including the adoption of new crops and better land management. Around 7% of the government budget is spent on agriculture. This is significantly more than in neighbouring Uganda (4.5%) and Kenya (1.6%), but short of the African Union’s 10% target.

Rwanda is generally not considered a resource-rich country. It has so far not experienced the kind of major discovery recently observed elsewhere in the region (e.g. oil deposits in Kenya and Uganda, natural gas in Tanzania). Minerals, however, constitute an important part of Rwanda’s exports, although their contribution has been erratic.4 Cassiterite, coltan and wolfram together accounted for 28.2% of total exports in 2012. The country has 450 mine sites, relying on about 25 000 artisanal diggers. Despite significant increases in investment in 2012, the government argues that the mining potential remains largely untapped.

Rwanda is widely credited for both attaching a clear priority to, and having articulated plans for, the structural transformation of its economy (Vision 2020). One of the main objectives of the country’s economic strategy is to become a low middle-income country by 2020. To be able to do so, the Rwandan economy needs to expand by at least 11.5% a year over 2013-18.

Efforts to modernise Rwanda’s economy have been partly successful. Both industry and services expanded much faster than agriculture over 2000-11. The service sector alone contributed 52% of total growth between 2000 and 2011. Tourism, which has also become a significant source of export earnings, is largely responsible for this performance, with the hotels and restaurants sub-sector growing by an annual average of 16.9% over this period. Financial services and information and communications technology (ICT), two priority areas for the government, are still at a rudimentary stage, however. Only 3% of Rwandans above the age of six are computer literate. Construction has led the expansion of industry, growing at an annual average of 12.4% whereas manufacturing has been more sluggish at 8.1%. Although agriculture’s share of GDP has been retreating, the sector was still the second largest source of economic growth behind services, contributing 26% of total growth over the period 2000-11.

The transformation of the Rwandan economy, however, is still at an early stage and faces major challenges. First, agricultural productivity remains too low to support the development of employment in other sectors, reduce food prices and ensure that farming is profitable. The government has targeted the off-farm sector to provide around 60% of total employment by 2017. This requires the creation of 200 000 off-farm jobs a year, mostly in manufacturing, hospitality, construction and mining and transport and communication. A second challenge relates to environmental sustainability. Rwanda is the most densely populated country in East Africa with 416 people per square kilometre in 2012. This puts significant pressure on resources, and a third of rural households report being adversely affected by environmental problems, primarily soil erosion and poor soil fertility. Environmental degradation and climate change result in soil losses that are estimated to cost Rwanda the capacity to feed 40 000 people a year. The government recognises that faster economic growth will put additional pressure on natural resources. Finally, financial constraints also hamper efforts to diversify the Rwandan economy. Rwanda sustains a large current account deficit, and without more exports, the government will struggle to reduce its dependence on foreign aid. Unless current tensions with donors are resolved and the global economy recovers, Rwanda’s ambitious plans to diversify its economy may be delayed.

Notes

1. The fuel tax reduction, which resulted in a 10% reduction in the fuel price and a revenue loss of 0.2% of GDP, was introduced to harmonise fuel taxes in Rwanda with East African Community levels and to minimise the impact of transport costs on inflation in 2011/12.

2. The new Chart of Accounts is in line with the IMF Government Finance Statistics Manual (2001) and International Public Sector Accounting Standards.

3. The EDPRS priorities are articulated in three flagship programmes: Sustainable Growth for Jobs and Exports, Vision 2020 Umurenge and Governance.

4. On 1 April 2011, the Dodd-Frank Act, a bill prohibiting the smuggling of minerals from conflict areas came into effect. The law requires traders to trace the origins of their material or risk several punitive measures including reputational loss, civil penalties and criminal prosecution. As a result, Rwanda exported USD 151 million in minerals in 2011, up from just USD 66 million just the year before, as traders tried to clear their stocks ahead of the 1 April deadline.

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