Investment Strategy to Foster Structural Transformation in Rwanda1

Over the past 15 years, Rwanda has transformed its economy by moving workers out of agriculture into mostly services and some industry. This has been accomplished through strong public investment flows and efficient public investment management. Going forward, the challenge is whether the private sector can complement the infrastructure assets put in place by the public sector and maintain economic momentum. It will also require continued effort by the government in raising education standards, better matching qualifications offered to students to those most in demand by employers, and lowering electricity and transportation costs. If these challenges are met, Rwanda stands a good chance of maintaining its historically high growth rate and attain middle income status within 20 years.

Abstract

Over the past 15 years, Rwanda has transformed its economy by moving workers out of agriculture into mostly services and some industry. This has been accomplished through strong public investment flows and efficient public investment management. Going forward, the challenge is whether the private sector can complement the infrastructure assets put in place by the public sector and maintain economic momentum. It will also require continued effort by the government in raising education standards, better matching qualifications offered to students to those most in demand by employers, and lowering electricity and transportation costs. If these challenges are met, Rwanda stands a good chance of maintaining its historically high growth rate and attain middle income status within 20 years.

Over the past 15 years, Rwanda has transformed its economy by moving workers out of agriculture into mostly services and some industry. This has been accomplished through strong public investment flows and efficient public investment management. Going forward, the challenge is whether the private sector can complement the infrastructure assets put in place by the public sector and maintain economic momentum. It will also require continued effort by the government in raising education standards, better matching qualifications offered to students to those most in demand by employers, and lowering electricity and transportation costs. If these challenges are met, Rwanda stands a good chance of maintaining its historically high growth rate and attain middle income status within 20 years.

A. Introduction

1. Experience has shown that growth in economic output alone is not enough to improve the welfare of the population. Transformation of the economy from fundamentally wide scale subsistence agriculture to a more urbanized, integrated, and enterprise-dominated economy is the essence of modern economic development, and what sustains improvements in economic welfare. This has been the experience throughout the industrial world, as documented by Duarte and Rusticcia (2010).

2. Economic development is closely linked with this process of “structural transformation” where the agriculture sector becomes more productive, thereby releasing labor to the manufacturing/industry and services sectors. This process raises the growth rate of the economy both because of improvements in agricultural productivity (more output per any given input) as well as a shift toward more production of and employment in higher value added activities.

3. Sub-Saharan Africa (SSA) has just completed one of its best decades of growth, partly facilitated through structural transformation and investment. Transformation of output has occurred as agriculture, the lowest productivity sector, declined as a share of GDP across the continent, while the share of higher productivity sectors increased. The process of structural transformation was facilitated through increases in capital in all sectors.

4. This paper documents the role of investment in the process of structural transformation in Rwanda. The second section discusses the current state of structural transformation in Rwanda. The third section discusses the role of investment in the process and the continued bottlenecks that remain in the economy. The fourth section provides a cross country comparison of the quality of investment management and investment outcomes in Rwanda and steps that are being taken to improve the process. Section V concludes with a discussion of the potential for the private sector to drive the development process forward.

B. State of Structural Transformation in Rwanda

Sector Analysis

5. In SSA countries, over the 2000–10 decade, workers moved out of agriculture, where relative productivity levels are low, into the services and manufacturing sectors. This picture documented by Fox et al. (2013) reverses McMillan and Rodrik (2011) who analyzed developments in SSA during an earlier period (up to 2000) and found workers moving into lower-productivity sectors. The updated labor productivity calculations were based on combining sectoral output levels with corresponding trends in sectoral employment levels based on household survey data. Figure 1 plots average annual changes in employment shares over the 2000–10 period against relative productivity levels for agriculture, industry, and the services sector in 2000. During this decade of high growth, almost all SSA countries showed a pronounced shift in employment toward higher value added sectors. The only sub-Saharan African countries that did not, due to increases in the share of employment in agriculture, were Cote d’Ivoire and Mozambique.

Figure 1.
Figure 1.

Selected Countries: Labor Productivity and Changes in Employment Shares: 2000–10

(Percent)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

6. For Rwanda, the shift of employment toward higher value-added sectors has been comparatively rapid. In a cross-country comparison, through 2010, Rwanda experienced a large shift in the share of employment from agriculture to services. Interestingly, over the most recent three-year period, 2011–14, while the annual decline in the share of employment in agriculture remained about 1 percent per annum, more of the jobs created over this period occurred in industry (0.66 percent) rather than services (0.33 percent). In Rwanda, as elsewhere, industry/manufacturing output has the highest value added.2

7. Industry, and more particularly manufacturing, plays a smaller role in the Rwanda economy than elsewhere in Sub-Saharan Africa. Manufacturing is considerably below other East African countries although its importance is closing in on the average LIC (Table 1). There is a general recognition of the difficulty in stimulating manufacturing in a landlocked country such as Rwanda which is why the focus of its investment strategy has been on agriculture and services.

Table 1.

Employment and Output Shares

(2010 except where stated)

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Notes:

Employment data refers to a 2015 projection from Fox et al.(2013)

Total Factor Productivity Analysis

8. An alternative way of looking at economic transformation is through “total factor productivity.” Looking at the whole economy, this analysis estimates the contribution to growth from increases in productivity (i.e. more output per input via, e.g. more sophisticated machines, use of information technology) vs. increases in inputs (e.g. more labor, machines). In the figures below the standard analysis is presented using the number of workers and combining the number of workers with a measure of educational attainment (average number of years of education) to give a quality-adjusted labor series.3

9. In considering a few high-growth, non-resource-rich economies, the data suggests that growth has been largely dependent upon increases in inputs rather than increases in productivity, especially during the most recent five-year period. While growth has averaged between 5–7 percent over the 2010–14 period, growth in productivity was low in most cases (Table 2). The exception is Kenya, which had higher productivity growth. This may relate to the size and greater sophistication of its economy, with mobile banking providing access to capital to a much wider population. For Rwanda, despite a relatively constant growth rate over the period, growth in productivity contributed far more in the earlier 2000–10 period than in the last five years. A challenge going forward will be to maintain the momentum for productivity growth.

Table 2.

Output Growth Decomposition

(Contribution to annual growth rates)

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Source: Penn World Tables

C. Role of Investment in Rwanda to Foster Structural Transformation

10. Rwanda is a small landlocked country far from the sea, and it is extremely difficult to achieve economies of scale from the industrial sector. The country is therefore focusing on the development of services through establishing itself as a business tourism hub and improving agricultural productivity. Rwanda’s attractiveness is based on its cleanliness, security, good transportation and IT infrastructure and tourism opportunities. The authorities also recognize that some industry is needed to supplement export earnings and is focusing on light manufacturing (garments, shoes) and mining. It is also developing a policy of import substitution to conserve on foreign exchange needs and has identified cement, basic clothing, rice and sugar as products with the most potential of displacing imports.

11. Rwanda’s economic plan is contained in the most recent poverty reduction strategy plan (EDPRS2) covering the period 2013–18. True to the country’s comparative advantage, the plan focuses on improving agricultural productivity through increased irrigation, seed and fertilizer investment and promotion of services exports through large infrastructure investment. The plan aims to reduce poverty to 20 percent or below by 2020, and to increase foreign exchange earnings to place external balances on a sustainable basis, as external donor assistance is forecast to decline gradually in the future.

Agricultural Productivity

12. The government’s investment program in agriculture focuses on increasing productivity and diversifying output to promote regional exports. This strategy will improve rural livelihoods where most the population lives and help to generate needed foreign earnings. Productivity is being emphasized through expanded irrigation and fertilizer use, improved seeds, and consolidation of land used for larger-scale agriculture. Irrigation has the potential to triple crop production compared to rain-fed agriculture and reduce the vulnerability to weather events. Irrigation also prolongs the effective growing periods allowing for multiple cropping (two to four crops a year). Up to mid-2016, almost half of the targeted amount of acreage under irrigation was met, with delays associated with the difficult topography of the country.

13. The promotion of inputs remains challenging because many farmers still do not use fertilizer, and application and distribution practices could be more efficient. The crop intensification program was initiated in 2008 and has helped to improve seed availability, the use of extension advisory services, mechanization and post-harvest handling. Some targets have not been met. For seeds, the EDPRS2 target was 70 percent of agriculture land coverage by end 2018, but only about 12 percent of land was cultivated with improved seeds as of mid-2016. On the other hand, the provision of 45 kg per hectare of fertilizer targeted by end 2018 is achievable.

14. While agriculture investments have improved crop yields, there remains room for improvement. Table 3 shows crop yields in terms of kgs per hectare for a variety of staple crops consumed in the East Africa region. While yields have improved considerably in Rwanda for maize and sorghum, they have fallen for cassava (because of disease) and have remained flat for beans. Moreover, except for sorghum, the yields remain far below the most productive country in the region (Ethiopia in most cases).

Table 3.

Agriculture Yields

(Kg per hectare in 2014, except where noted)

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Data from Central Statistics Office, Ethiopia, 2011

Pauw et al. Year 2011

Data for 2015 & 2016 are from National Institute of Statistics Rwanda (NISR)

Data from Uganda Bureau of Statistics (UBOS), 2011.

Source: Food & Agriculture Organization (FAO) except where noted

Export products have become more diversified in recent years which will help to relieve the forex constraint going forward. Indeed, hides and skins, meat, dairy and cereals exports amounted to almost US$100 million in 2016 and new crops are being introduced to help diversify production and limit climate change risks.

Services

15. Rwanda’s objectives in the service sector are enshrined around increasing the external connectivity of Rwanda’s economy and boosting exports. The government has committed large resources in expanding RwandAir, and developing the Meetings, Incentives, Conferences, and Exhibitions (MICE) strategy and is in the process of securing financing for a new airport. Large new infrastructure has been set up in Kigali, including a new convention center and three new large hotels (Marriot, Radisson and Zinc).

16. For the strategy to be successful, services skills in the Rwandan work force need continuous upgrading. Improvements have gradually been made to the average level of education in the economy but this takes time. The graduation rate at the end of primary is below the SSA LIC average of 70 percent of the population (EAC countries are highlighted in red) and the dropout rate is higher than desired (Figure 2). The lower secondary school enrollment rate is also lower than the LIC average of 39.6 percent, and far below the leaders in SSA such as Kenya and Mauritius (mid 80s) where investment in high-quality education has been a strong objective of successive governments for decades (Figure 3). The repetition rate at secondary level is also higher than desired at about 11 percent of pupils. The authorities are addressing the lack of skills in Rwanda’s workforce by allowing the free flow of labor to Rwanda from other EAC countries, in particular, Kenya and Uganda.

Figure 2.
Figure 2.

Primary School Completion Rate

(2014 except where stated)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: The United Nations Educational, Scientific and Cultural Organization (UNESCO)
Figure 3.
Figure 3.

Lower Secondary School Completion Rate

(2014 except where stated)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: The United Nations Educational, Scientific and Cultural Organization (UNESCO)

17. There is a strong push to improve the quality of training in Rwanda because of a mismatch between skills provided through the Rwandan education system and the needs of employers. At the upper end of the education spectrum, Rwanda is attracting new college level education establishments. A World Bank grant is helping to establish in Kigali the Africa Center for Excellence in data science and the Africa Center for Excellence in Innovative Teaching and learning Mathematics and Science. Moreover, Rwanda’s Technical and Vocational Education Training (TVET) system has been given a recent impetus with strong financial support from the German and Swiss development agencies. However, challenges remain. A significant number of trainers need to have their own skills and experience upgraded to ensure that their students develop “employable skills”. At the lower end of the education spectrum, the government is offering laptops to primary school students through the one laptop per child program. Through April 2016, about 11 percent of primary aged children have been covered. The government is also partnering with Microsoft to offer digital solutions to the delivery of education. Of course, the success of these initiatives depends on availability of internet access and electricity which remains an issue (see below).

18. The increased focus on leisure and business tourism is already bearing fruit in Rwanda but foreign financing needs are growing. International passenger arrivals have doubled over 2010–15 to over 1.3 million visitors. Moreover, tourist revenue has increased each year from US$202 million in 2010 to over US$400 million in 2016. However, more action needs to be done to cover an ever-growing trade deficit estimated at US$1.3 billion in 2016.

Industry

19. While the overwhelming focus of the government’s economic strategy is on agriculture and services, there is a growing recognition of the need to stimulate exports on all fronts, including industry. To foster industrial exports, government investments have been made both in setting up special economic zones and in reformulating investment incentives to stimulate activities geared for exports.

20. The New Investment Code prioritises sectors in exports, manufacturing, energy, ICT, financial services, and construction with the previous VAT exemption being replaced by corporate income tax reductions. Investments of US$10 million can exempt a company from corporate income taxes, with a US$50 million investment unlocking a seven-year tax holiday. Some of the tensions in the new investment code is that the lower corporate tax provisions relate to all exports including traditional goods while all investments can also unlock generous tax holidays.

21. To further boost exports, a company in the Special Economic Zone can opt to be a part of the Economic Processing Zone, exempting it from VAT, import duties, and corporate tax. To qualify, the company is obliged to export a minimum of 80 percent of its production. The removal of tax liabilities for an exporting firm compensates for higher transportation costs.

Sectoral Bottlenecks

22. Notwithstanding tremendous improvement in economic activity in Rwanda over the past two decades, major bottlenecks remain in the economy, some of which affect all sectors. In agriculture, the level of irrigation, fertilizer use and availability of quality seed remain low with notable problems of administration as documented by the Office of the Accountant General (annual report 2015).

23. In services and industry, availability and cost of electricity remains a severe constraint although the government is putting tremendous effort in improving the situation. Recent estimates put the cost of electricity per kW hour at about 30 cents in Rwanda, considerably above its neighbors Uganda (16), Tanzania (17) and Kenya (22), although the industrial price at 15 cents per kW hour is closer to that of its neighbors. On top of this, the high cost of transportation adds another layer to the cost of imported inputs. The 2016 trade logistics component of the 2016 World Bank’s doing business indicators shows that Rwanda is ranked 156, below the Sub Saharan average, with the cost and time it takes to import goods a major trade deterrent.4

24. The government is addressing these issues in various ways. On energy, the country is trying to supplement concessional finance of projects with PPPs. Some success has been achieved through the Kivuwatt methane gas project and greater solar power provision. However, matching electricity generation with the transmission of electricity to the end user remains an issue. On transportation, serious effort has been placed in improving the road network and lowering non-tariff barriers with neighboring countries but these changes take time. Reports suggest that the number of days it takes to deliver a container from Dar es Salaam to Kigali is down from 22 days one year ago to 6 days currently and delays at the starting point of the transportation of goods (Dar es Salaam) are falling.

D. Role of Public Investment in Rwanda Compared to other Countries

Investment Outcomes

25. To assess the quality of investment it is necessary to monitor assessments of actual investment outcomes. Availability of investment outcome rankings is limited but one frequently cited source is the World Economic Forum (WEF) ranking of quality of infrastructure across developing countries.5

26. Based on this database, in 2016, Rwanda holds the second spot to Cote d’Ivoire among SSA LICs and LMICs. In Figure 4, the ranking is expressed in reverse order so the weakest performers are on the left side of the x-axis. South Africa and Namibia are the leading performers and far outrank the LMIC average

Figure 4.
Figure 4.

Global Competitiveness WEF Index for Infrastructure 2014

(Ranking in descending order)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: World Economic Forum.

27. Cross-country changes in the quality of infrastructure are slow but some countries have made significant improvements over the past 5 years, including Rwanda. Over the period 2010–16 countries which have made the most progress in the assessment of infrastructure quality are mainly from Eastern Europe with many improving in ranking by double digits. Among African LICs, Cote d’Ivoire, Tanzania, Mali, Rwanda and Sierra Leone have registered improved performances (Figure 5).

Figure 5.
Figure 5.

Global Competitiveness Index for Infrastructure

(Change in rank between 2010 and 2016)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: World Economic Forum

Public Investment Spending

28. How have these improvements in investment provision and quality come about? The public sector has played a key role. Rwanda has been particularly astute in channeling scarce foreign resources into productive investments. While the general view among academics is that foreign aid has not been particularly beneficial to countries, recent research at the IMF on SSA low income non-resource countries has shown that it has been a major driver of growth in these economies. In a growth regression for the six fast non-resource growing countries in SSA over the 1999–2010 period, the aid ratio was found to be highly significant and contributed ½ percent to per capita growth in Rwanda. 6

29. Among a sample of countries, Rwanda spends more resources on investment than most. Figure 6 reveals that over 2010–14, the public investment ratio in Rwanda averaged 12 percent, considerably higher than Kenya and Uganda and comparable to Mozambique (another country with large amounts of ODA).

Figure 6.
Figure 6.

Public Capital Spending, 2010–2014

(Percent of GDP)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: IMF African Department Database

30. The importance of public investment in Rwanda has gradually grown over time while private investment was fairly constant in relation to GDP until 2014. In 2008, public investment accounted for about 7 percent of GDP and by 2016 it had risen to 11 percent of GDP (Figure 7). These investments have helped to fuel the strong economy wide growth rate which has averaged about 7 ½ percent per annum over the 2010–15 period. The private investment rate remained fairly flat through 2014 but has surged subsequently with large investment outside the central government.7

Figure 7.
Figure 7.

Public and Private Investment

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: National Institute of Statistics Rwanda (NISR)

31. Foreign aid has made an important contribution to the financing of Rwanda’s investment. To benchmark the amount of foreign support received by Rwanda, official development assistance is presented as a ratio of GDP for a sample of SSA LICs. Figure 8 shows that Rwanda has received one of the highest amounts of foreign financial support among the sample of countries over the past decade at almost 9 percent of GDP per annum.

Figure 8.
Figure 8.

ODA Received by SSA LICs

(Percent of GDP, 2010─14 average)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: IMF African Department Database

Effectiveness of Investment Spending

32. Providing financing for public investment is a necessary but not sufficient condition for success. It also depends on the effectiveness of investment spending. While the concept of investment effectiveness is extremely important, up to now only a few indicators have been developed to try to capture it. One indicator that assesses public investment management (a key input into investment effectiveness) has been developed by Dabla-Norris et al. (2011). Their indicator is based on four stages of the public investment management cycle: project appraisal, project selection, project implementation and project evaluation. Each stage of the investment process has equal weight in the index and the index varies between 0–4.

33. Dabla Norris et al. have documented that Rwanda ranks high on Public Investment Management practices among developing countries for the year 2011 (Figure 9). Among the countries sampled, South Africa has the highest score while Rwanda is ranked above all other LICs. The other SSA low and low-middle income countries ranked closest to Rwanda are Zambia and Ghana; the other EAC countries (Kenya, Tanzania and Uganda) are far down the list. Cote d’Ivoire and Mali perform well on this index and they have recorded some of the fastest improvements in the quality of infrastructure over the past five years.

Figure 9.
Figure 9.

Public Investment Management Index

(Varies between 0─4)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: IMF PIM Database

34. While the ranking of SSA countries in terms of infrastructure outcomes is much more bunched than for the PIM indexes, there exists an empirical relationship between the two indexes. To support this point, we correlate the rankings for the effectiveness of public investment management with the indicator of investment outcomes (quality of infrastructure) for the same group of countries in the same year. The results reveal a correlation coefficient of −0.38 which is significant at the 99 percent level of confidence. It could be argued that it takes time to translate improvements in public investment management into improvements in investment outcomes. However, since the investment outcomes as documented by the global competitiveness index for infrastructure are highly correlated over time, the correlation between the PIM index in 2011 and the global competitiveness index in 2015 changes very little compared to the contemporaneous correlation.

Recent Policy Interventions

35. The Rwanda government has introduced a comprehensive system for monitoring and evaluating public investment projects above US$1 million. A detailed feasibility study is conducted for each project and is reviewed by the investment committee on a monthly basis8. The committee also discusses ways in which the project can be financed: internal financing, mixed sources such as PPPs and purely foreign sources (concessional, non-concessional funding, FDI). The investment committee has now been operational for 3 years (with local government projects added to the appraisal list in FY15/16 but appraised by a new District Investment Advisory Committee). Recently, the investment committee has been empowered to approve PPPs and Joint Ventures.

36. The National Investment Policy currently before Cabinet creates a more robust framework for oversight and implementation of projects with clear roles and responsibilities of stakeholders. The local authority ministry has been assigned the role of monitoring and evaluation of local government projects. A new autonomous government investment body has been set up to manage the portfolio of public shareholdings. The Project monitoring unit in MINECOFIN has been transferred from the budget unit to the responsibility of the Minister of State in charge of Economic Planning. These actions are expected to improve monitoring of financial and non-financial performance and create feedback loops into the prioritization process.

37. Rwanda is being recognized by other countries in Sub-Saharan Africa as a country at the forefront of project evaluation. Peer-learning is taking place between national planning institutions. Recently, staff from the Senegal Ministry of Finance spent time in Kigali learning about the processes that Rwanda has set up to better choose projects with the highest economic and financial return.

E. What can Realistically be Achieved over the Next 10 Years

38. Up to now, the investments needed to stimulate the process of structural transformation have mainly taken place through the public domain. Most of the financing of agriculture and services has come through the public pocket. This has led to a sharp rise in the public debt level from 18 percent of GDP in 2012 to a projection of 47.1 percent of GDP by 2018 and this implies that the room for further government borrowing is limited.

39. The government has put in place a plethora of infrastructure assets and, now, it is up to the private sector to make use of these assets to stimulate the economy further. Over the past decade private sector credit has doubled in Rwanda to reach 19 percent of GDP in 2015 (Figure 10). While this ratio remains below that of Kenya, Cote d’Ivoire and especially South Africa and Mauritius, it has risen above Tanzania and Uganda over the past 5 years (Figure 11).

Figure 10.
Figure 10.

Private Sector Credit for LICs

(Percent of GDP)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: IMF African Department Database.
Figure 11.
Figure 11.

Private Sector Credit for LMICs and MICs

(Percent of GDP)

Citation: IMF Staff Country Reports 2017, 214; 10.5089/9781484309889.002.A001

Sources: IMF African Department Database

40. Stimulating private investment in Rwanda is difficult because of the size of the economy and its land-locked status but the government is trying to address this through regional integration. The EAC trade block can help diminish the drawback of being landlocked by lowering the cost of imports and improving connectivity in terms of transportation. It has been successful in lowering non-tariff barriers and Rwanda is in the process of establishing a dry port in Kigali to ease in traffic transit through Kigali to Democratic Republic of Congo (DRC).

41. Realistically, Rwanda needs to look west as a destination for its exports because, up to now at least, it has been unable to compete with countries closer to the sea. Over the past 15 years, while Rwanda goods imports from Uganda have risen by almost 15 percentage points to 18 percent of the total, it has been unable to penetrate Uganda with its exports. On the other hand, it has been successful in exporting to Congo. The share of Rwanda exports to Congo (mainly re-exports) has doubled over the past 5 years and now represents 26 percent of the total ($172 million). Many of these are low value-added products because only limited transformation occurs in Rwanda (petroleum and used vehicles originating from outside of the continent). A typical product exported to Congo with some value addition is wheat flour but currently the wheat required to be converted into flour is imported from overseas because of the competitive price and quality of the import.

42. Infrastructure is being developed at the DRC border to speed up the movement of goods. A one stop border post is being finalized in Rubavu that will require only one inspection of goods between Rwanda and DRC. Moreover, development partners have helped finance a program to support traders at the border and bilateral trade meetings between the Rwanda and DRC presidents have started. This strategy has strong potential because the north Kivu region has population base of over 14 million within 100 miles of the Rwandan border.

F. Conclusion

43. Public investment has been instrumental in improving infrastructure in Rwanda over the past decade – but there remains an unfinished agenda. Because of the sharp build-up of public debt over the past few years, the room for maneuver of future public borrowing is limited. The government must focus its energies on choosing the highest value infrastructure projects in terms of economic return and make optimal use of scarce foreign exchange. In this respect, more use could be made of the business enterprise surveys to identify the sectors that are making progress in terms of productivity and turnover and assess the role of company taxation.

44. High returns exist from investing in education in Rwanda because of the current low education base, but the investment must be done carefully to ensure that the qualifications offered to students are those most in demand by employers. It is hoped that the new specialist universities being set up in Kigali will have this objective in mind. The investment in education can also help the government’s current business tourism strategy which is highly reliant on a labor force that can offer the quality of service demanded by consumers.

45. Notwithstanding a sharp rise in FDI in recent years, coordination problems remain between various Ministries. This has delayed and discouraged some investments, especially in manufacturing. More efforts are needed to find ways to ease the concerns of potential investors in investing in such a small country. A potential avenue is to match up potential private investors with private sector agents to help overcome financial constraints and achieve synergies.

46. Finally, because of Rwanda’s landlocked status and small size, continued efforts to gain stronger access to EAC markets and beyond is imperative and well understood by the authorities. Lower transportation costs will stimulate trade which, for Rwanda, is most likely to occur along its Western border.

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1

Paper prepared by Alun Thomas and John Kayemba.

2

The increase in the industry share is supported by data from the establishment surveys. Of course, these surveys cover a much smaller fraction of workers than the household surveys.

3

The methodology used for the analysis is described in more detail in IMF SSA REO October 2013

4

On doing business overall, Rwanda ranks 62.

5

The infrastructure outcome ranking is based on a subjective assessment by business leaders. However, the index has been shown to be strongly correlated with a ranking of outputs of transport, ICT, energy, and financial infrastructure (see Donaubauer, Meyer and Nunnenkamp (2014)).

6

REO October 2013.

7

Public investment is derived from the central government financial statistics and therefore misses out a portion of SOE investment financing

8

The Investment Committee comprises the Permanent Secretary of the Ministry of Finance (chair), Deputy General planning and national budget, the Chief Economist, the Director of external finance and the Director of macroeconomic analysis

Rwanda: Selected Issues
Author: International Monetary Fund. African Dept.