Rwanda's economic challenges

Rwanda is under heavy international criticism for its alleged support to the M23 rebels in Congo. Major donors such as the United States have threatened with suspending or reducing assistance, which would immediately lead to economic woes. Gie Goris visited the country of a thousand hills to better understand the country’s economic agenda and the challenges at stake.

  • Gie Goris Gie Goris

Gie Goris

MO*hoofdredacteur
15 November 2012

The scale model of Kigali 2020 shows an impressive white city with high rises and broad avenues, including meticulously designed greenery in the suburbs. Today, that visionary exercise in urban development is somewhat shoved aside under the stairs of a gleaming new office building and stands idle in a broken showcase. But when asked to comment, the civil servant of the planning unit still enthuses over the plans to turn the Rwandan capital into a Singapore-in-the-hills in just a few years. And indeed, even though the utopian scale model city has been shoved aside as an unachievable dream, building activity for a new Kigali is well under way. The ambition to turn Rwanda into a hub for Eastern and Central Africa, focusing on a service economy that relies on digital high tech and a well-trained population that masters three languages, remains government policy.

Since July 2000, Vision 2020 is the official long-term vision of the Rwandan government. It projects Rwanda will have 16 million inhabitants by 2020 – in 2000 there were only 8 million – and it aims to triple average per capita annual income (from 290 to 900 dollars). To get there, Rwanda must ‘transform from a subsistence agriculture economy to a knowledge-based society, with high levels of savings and private investment, thereby reducing the country’s dependence on external aid’.

In a recently published article An Ansoms of the Université Catholique de Louvain-la-Neuve and Donatella Rostagno of the NGO EurAc state that the success of the economic growth strategy conflicts with poverty reduction. The share of people living under the poverty threshold decreased between 2000 and 2005 from 59 to 57 percent, but in absolute number there were 560,000 more people living under the poverty threshold. 90 percent of these new poor live on the countryside. Moreover, Rwanda is in the category of high inequality countries, with a Gini index of 0.49, which is well above the alarm threshold of 0.40 that is used by the UN Development programme UNDP.

In the pas decade the government succeeded to increase private investments in the Rwandan economy by a factor six. They now make up 12 percent of GDP. But, according to Ansoms and Rostagno in Rwanda’s Vision 2020 halfway through: What the eye does not see, ‘competition is effectively limited to larger firms and to new conglomerates already in operation and expanding’. The ambition to create up to 125,000 new jobs every year outside agriculture, which is needed to absorb population growth in an already over-populated country, will definitely not be achieved. Over the last years, not more than 8,800 jobs on average were created annually in the formal sector. So, real growth for Rwandans must come from the 615,108 non-agricultural family businesses and the 115,279 microcompanies. Or from agriculture, which still provides 84 percent of Rwandans with an income.

Spirit of enterprise

On a hill opposite the busy city centre of Kigali Béatrice Muhawenima shows the workshop where the clothes, teddy bears and blankets that she sells in the city are manufactured. The Chinese treadle sewing-machines are neither digital nor high tech, but this small business does indeed generate jobs and is profitable. Béatrice started her business a few years ago with a microcredit of 370 euros to buy baby clothing in Uganda and sell it afterwards. Today, she has a credit line of about 25,000 euros and she regularly travels to Dubai to buy Chinese fabrics.

In the late 90s Alphonsine in Gitarama was down and out. She was a widow with four children and also had to look after five other orphans of her family. Along with four other women she started to save money through a solidarity group and she obtained a small loan from a microcredit institution for a few hens and ducks. With profits and a new loan, she bought a cow, says Alphonsine, who proudly walks by the stables that now house no less than nine cows. Even president Kagame praised her spirit of enterprise even though meanwhile his government gives far less support to family and smallholder farms than to commercial monoculture, even with 80 percent of Rwandans owning less than a hectare of land.

Rwandan authorities often get good scores in foreign assessments for their effective government. ‘Rwanda is a good place to invest’, confirms Paul Van Apeldoorn of Rabobank, who is currently the director of sales of the Banque Populaire du Rwanda. ‘The environment is stable, the government has a clear vision and regional strategy, which focuses on East Africa, so Rwanda is a country with a huge potential.’

A Rwandan NGO staff member could not agree: ‘The focus on East Africa is translated in the switch from French to English, among other things. Overnight, it was forbidden to teach in French, so a whole generation got poor education in bad English, or in Kinyarwanda on the country side. Many teachers lost their jobs, to the advantage of highly-trained new-comers who grew up in Uganda and returned to Rwanda after 1994.’ That way, this witness, who absolutely insisted on remaining anonymous out of fear for retaliation by authorities, fears that the government undermines its own ambitions to develop a knowledge economy.

Fibreglass cables

The supply of energy is another challenge for the Rwandan growth ambitions. Minister of Trade and Industry, François Kanimba, confirmed this during a meeting at the end of September. ‘Importing energy is very expensive for Rwanda because we have no sea port. Still, our current capacity of 120,000 MW must increase to 1 million MW by 2020, otherwise we cannot achieve our ambitions’, said Kanimba.

That is why Rwanda resolutely goes for renewable energy. Two American companies invest in solar power stations that should produce 10 MW. Also wind power, geothermal energy and hydropower are strongly explored. And in Kibuye, at Lake Kivu, a first of four platforms is currently being built to extract methane gas that is locked under the lake. This should provide for a sustainable production of about 100 MW for forty years. And all this for a kWh price that is one third the price of current petrol power stations.

The dirt road between Kibuye and Gisenyi is lined with yellow plastic poles. They show where an optical cable has been laid down and provide one more piece of evidence of Rwanda's digital ambitions. The journey of about 85 kilometres takes us five hours though, also because of a flat tire and a felled tree on the road. So, we have to travel into the night. The houses are just as dark as the road, except for a gasoline light or a cooking fire that is burning. According to the text of the bilateral agreement between Belgium and Rwanda 16 percent of Rwandans are to gain access to electricity this year. It remains unclear what benefit the other 84 percent of Rwandans can gain from this fibreglass cable.

This article uses material from a study trip to Rwanda that was organised by the Belgian Raiffeissen Foundation. Also Incofin participated to the trip. Both organisations are involved in micro financing in Rwanda.

 

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nsanzabaganwa (not verified)

Why chose to ignore, among other good steps, the recent data on poverty headcount released early this year? One million persons were lifted out of poverty, reducing percentage from 56.7 to 44.9, mostly driven by rural areas (Kigali city rate reduced by 4 percentage points, while Northern Province reduced by 17.7 percentage points from 60.5% in 2005/6 to 42.8% in 2010/11). This is unprecedented story in Africa and Rwanda was recognized for her outstanding performance.

Sally (not verified)

Well said Nsanzabaganwa!