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Rwanda: Looking beyond economic growth numbers (Part II)

May 13th, 2015 at 20:07 | By | Category: Economy, News analysis

 

The significant economic growth that Rwanda has been recording in the past decades has been the centrepiece of the country’s transformation story. However, we rarely question the nature of this growth or ask ourselves if the growing contentious risks that Rwanda is exposed to today will render the achieved economic progresses sustainable. The narrative below provides an insightful account of Rwanda’s economy in order to help stakeholders as certain the worldwide acclaimed development progresses of Rwanda beyond the economic growth numbers of the country. Click here to read Part I . 

Economic transformation

Whilst Rwanda’s growth has been noted, the country’s economy still has to transform to more productive sectors and create ample employment.In recent years, the country’s economy has undergone several structural changes. In particular, the service sector has become the prime sector contributing the most to Rwanda’s Gross Domestic Product (GDP) with an estimated sector contribution at 51.7% in 2014. As such, the service sector has surpassed the agriculture sector’s contribution to GDP which has declined to 33.4%. The industry sector’s contribution to the GDP stands at 14.9%. The glitch with this transformation is that the service sector tends to create fewer jobs. Decent employment from the service sector goes to those who have had quality education and gained relevant qualifications in Rwanda or abroad. As pointed out in part one of this article, due to low and unequal household income, only few can afford private schooling in Rwanda or abroad that offers better quality education than the public schools available in the country. Development of the agriculture sector, that employs most of the population in Rwanda, and the industry sector that tends to create more jobs, is ongoing and requires massive investments which the Rwandan government alone cannot raise.

In the meantime, unemployment,particularly among young people, remains fierce and poses a challenge in Rwanda despite the country’s acclaimed economic growth. The Official statistics show that unemployment in Rwanda was 3.40% in 2012. However, this figure masks high levels of underemployment. Among Rwandan youth, underemployment is estimated to be as high as 70%[1].  The country’s economy seemingly grows but barely creates any decent employment. In order to better understand the nature of Rwanda’s economic growth, one should also refer to the United Nations Industrial Development Organisation’s (UNDO) competitive industrial performance indicator. This shows the level to which growth has translated into economic transformation and subsequently created employment. Rwanda is ranked 129th out of 133 countries on the UNDO competitive industrial performance indicator.  According to a 2014 World Bank Rwanda economic report,  the failure of Rwanda to stimulate significant economic transformation is in great part due to the fact that its economy has been dependent on large public investments supported by significant foreign aid rather than being self-reliant, private sector and net export led.

 Private sector

Private sectorLegislation reforms undertaken by the government to attract private sector investments in Rwanda, have not yielded tangible results although Rwanda’s ranking on the World Bank Doing Business indicator and the World Economic Forum competitive index has significantly improved. These reforms alone, however, cannot attract the massive private investments in Rwanda which are needed to turn the economy private sector and export led. This is due to a number of practical issues that prevent private sector from flourishing in the country. Some of them being: 1) a low domestic consumption in Rwanda due to a small middle class with a low purchasing power, 2) a high cost of credit as a result of low levels of savings in the country due partly to a low level of household income as explained in part one of this article , 3) high transport costs as Rwanda is landlocked, 4) low access to electricity, 5) dependence on relatively few primary commodities for export in comparison to other countries in the Great Lakes region and East African Community   6) tight control of investment and credit by networks close to the government in Rwanda and privileged circles of Rwandans abroad, etc. Against that backdrop, foreign investors and most recently a significant surge of entrepreneurs from Rwanda and others from the Rwandan diaspora across the world, venture their capital elsewhere in Africa that is not in Rwanda.

Risks

Rwanda’s potential to attract investments and boost its economy is also challenged by growing peculiar and contentious risks which lead to questioning whether the country’s acclaimed economic progresses are sustainable.There isa social risk in terms of whether today’s Rwanda has genuinely managed to restore national unity and reconciliation among its population so as to assure investors that the country is free of conflict.  Independent views on the matter propose a different narrative of what is often portrayed that national unity and reconciliation is being achieved in Rwanda. According to the 2014 BT Rwanda Country report , “neither the electoral results nor the public opinion surveys commissioned by the Senate, the continuing activity of Force Democratique de Liberation in DRC (FDLR) nor the anti-RPF propaganda of the escaped or exiled Rwandese abroad can be taken as reliable sources to prove success or failure of the restoration of nation unity. In her recent published book titled Whispering Truth to Power: Everyday Resistance to Reconciliation in Post genocide Rwanda, Susan Thomson, Assistant Professor of peace and conflict studies at Colgate University in the United States of America,argues that many in the international community have praised Rwanda’s post genocide government for its efforts to foster national unity and reconciliation by downplaying ethnic differences and promoting “one Rwanda for all Rwandans.” She then reveals how the nation’s disenfranchised poor have been engaging in everyday resistance, cautiously and carefully—“whispering” their truth to the powers that be. This quiet opposition, Susan argues, suggests that some of the nation’s most celebrated post genocide policies have failed to garner the grassroots support needed to sustain peace.

The second risk relates to the internal politics affairs of Rwanda.The country is attributed to lack of political space, freedom of speech and human rights abuse. The country’s governance style is frequently described in the international media as authoritarian. Contemporary history has shown that developing countries where citizens experience chronic socio-economic hardship whilst at the same time being persistently prevented from exercising their fundamental rights,are likely to encounter social turmoil at any given time. Rwanda is not immune of such unfortunate fate. Therefore risk averse investors perceive Rwanda’s investment environment as risky and unattractive.

The question around who shot the presidential plane that triggered the wave of ethnic killings in 1994,ultimately leading to the genocide in Rwanda,exposes the country to additional political risk. The recent worldwide broadcasted “Rwanda’s Untold Story” documentary by BBC revealed evidence that challenge the widely publicised narrative of what exactly happened in Rwanda in 1994. The documentary undermined the political legitimacy of the current leadership in Rwanda.The witnesses’  testimonies in the documentary allegedly pointed fingers to the incumbent leadership in Rwanda as responsible for the shooting down of the presidential plane that triggered ethnic killing in 1994. This makes potential investors in Rwanda wary and lose confidence in Rwanda’s current governance and its judicial systems, when such confidence is essential to reassure the long term safety of foreign and domestic investments in the country.

Furthermore, the growing number of high ranking military officers, intellectuals and prominent business owners formerly close to the current leadership in Rwanda, and who are now either in exile, in prison or dead, is also worrying. The question evolves to whether such political rigidity, and the possibility to amend Rwandan constitution and allow the incumbent president to run for a third term in 2017, will not intensify antagonism among the elites and close aid of current leadership,ultimately triggering chaos in the country at some point in time before or after 2017. Rwanda’s internal politics is progressively becoming uncertain and this makes the country unattractive to private investments.  What is certain is that any constitutional adjustment in Rwanda will damage existing economic cooperation between the international community and Rwanda. The recent announcement by Belgium to cancel €40 million of aid to Rwanda over the country’s failure to meet media freedom and governance targets is a hint that aid donor countries are likely to suspend aid to Rwanda if the country’s constitution is changed in 2017.Any aid suspension or delay will surely affect the economy of Rwanda.

The last risk is on the geopolitical level. This refersto events happening in other countries that are members of the Great lakes region and the East African community (EAC) which prevent Rwanda from attracting private investments. For instance, it is still early to establish whether members of FDLR, a Rwandan rebel group that operates in the East of Democratic Republic of Congo (DRC) will ever vanish or seek to return to Rwanda by force. It is neither clear whether Rwanda’s alleged involvement in the East of DRC conflict has ended [2]. Consequently, a scenario of confrontation between DRC and Rwanda cannot be ruled out. War of words between Rwanda and its neighbouring countries, namely DRC and Tanzania, over the conflict in eastern DRC have been noted.It is uncertain whether arguments between these countries have completely ceased. These constant divergences between Rwanda and its neighbour countries (DRC & Tanzania) over the conflict in DRC put Rwanda in a difficult position, as its landlocked location makes it dependent on its neighbours to develop trade cooperation and attract private investors to boost its economy.

In addition, the ongoing political crisis in Burundi and the forthcoming presidential elections in Uganda also represent an obstacle to Rwanda.Burundi shares similar social characteristics with Rwanda, any political disagreement that is quick to be transformed into ethnic problemin Burundi, will easily escalate into Rwanda and create disorder in the region. Furthermore, any unconsidered involvement of any member state of the East African community in the ongoing political disagreement in Burundi could result in misunderstanding and spark tension between the member states.The incumbent Ugandan president who has been in power for 25 years has also announced that he will be running for the office again in 2016. Any social unrest over presidential elections or socio economic issues in Uganda would imply that Rwanda’s import and export goods that are channelled from Mombasa port in Kenya through Uganda are put on hold. Lastly, continuous Al-Shabaab’s terror attacksin Kenya also have major negative consequences on Rwanda imports and exports that pass by this transport route.

The way forward 

So far, Rwanda’s economic growth has been driven by large public investments supported by aid flow. This growth has not been sufficient in creating decent employments and bringing about economic transformation to the majority of Rwandans. Whilst it is clear that Rwanda needs to attract massive private investment to bring about economic transformation, the current country’s investment climate only appeals to investors who are willing to commit a limited capital because of low consumer purchasing power and the risks associated with investing in Rwanda. In order to attract plentiful and massive private investments flow in Rwanda, incumbent policy makers in Rwanda will have to address the ongoing socio economic issues facing the populationas described in part one of this article. At the same time, they should seriously attend to the internal social and political, and geopolitical risks that Rwanda is exposed to.

 

The views expressed by the author in the above article are solely the author’s personal views and not his employer. 

To read more article written by the author visit: www.insightfulquotient.com 

 

Written by Aime Sindayigaya edited by Jules Niyibizi

www.jambonews.net

[1]http://unctad.org/Sections/un_ceb/docs/ceb_2014_06_Rwanda03_en.pdf

[2]http://uk.reuters.com/article/2015/04/22/uk-congodemocratic-rwanda-idUKKBN0ND2R520150422

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