Economic situation
According to the Rwandan government (9.4%), the World Bank, GDP growth in the past year 2019 was around 10%, and according to current IMF data (10.1%). The forecasts for the current year were estimated from around 9% to around 3.5% due to the COVI-19 pandemic.
The annual growth rates are mainly based on the agriculture, construction and tourism sectors. The development of the processing industry is noticeably steady, but it remains relatively low.
A crucial weak point in the national economic system is the high trade deficit. The value of imported products is more than twice as high as the export value. Solution approaches in the area of export promotion could show partial successes using the example of mining. With the latest “Made in Rwanda” strategy to increase exports, the government has achieved significant successes in recent years.
As in other areas of Rwanda, the socio-economic development of the last two decades has been strongly shaped by recent tragic history. Pictures of a devastated country in 1994 immediately after the genocide are remembered. For the economy it meant a total collapse and the loss of decades of development.
From this economic collapse, the country has recovered surprisingly quickly and has a believed to be impossible development. Today, Rwanda is – in a continental comparison – exemplary in terms of economic modernization. In the capital Kigali, international luxury hotels, shopping centers and office complexes are emerging, the service sector is booming and the upswing in the infrastructure sector (energy and road construction projects) has continued in recent years. However, major challenges remain. The largest fields of work are in the field of industrial development and agriculture in particular. Feeding the population is one of the greatest challenges of all. The country is extremely densely populated and more than 70% of the population live from their work in agriculture.
According to extrareference, the economy of Rwanda has been in a stable growth phase for several years. With annual average growth rates of 7%, economic growth has remained stable at a high level over the past few decades.
There were exceptions in the crisis year 2009 when GDP was, as expected, low at 4.5%. Also in 2013 a comparatively modest GDP growth of 4.6% was registered, which is a strong decrease compared to 8% in 2012 and the lowest value since 2003. The background to this decline was the fact that some donor countries had temporarily frozen their funding commitments due to allegations that Rwanda was supporting the rebel organization M23 fighting in the east of the neighboring Democratic Republic of the Congo. This led to delays in budget spending during the second half of 2013. This revealed Rwanda’s high level of economic donor dependency, whereupon the government stepped up its efforts to reduce this dependency ratio more quickly.
In addition to government income from tax revenue, additional government funding is provided through budget support from the international donor community and borrowing, which in the 2019/2020 fiscal year represents 14 and 18% of the national annual budget, respectively.
Rwanda has a fairly good reputation for responsible spending, economic reforms and poverty reduction. On the part of donors, however, uncertainties regarding inflows are to be expected in the future, among other things because Rwanda is accused of playing a negative role in neighboring conflict-ridden countries (Eastern Congo and Burundi).
Economic policy
From 2007 to 2017, the focus was on the implementation of the poverty reduction programs (Economic Development and Poverty Reduction Strategy – EDPRS 1 and 2). Since 2017, the government has been following the follow-up program, The National Strategy for Transformation (NST). Important economic policy goals include the promotion of foreign and domestic investments, among other things by expanding the infrastructure, capitalizing the rural economy. A land reform law passed in 2005 is intended to provide more incentives for domestic investments than in the system of “customer ownership”, since extensive land registration has now taken place and is verifiable – land titles are systematically acquired. The aim is also to increase and diversify exports. The government is trying to promote alternative “cash crops” such as flowers or fruit. Tea and coffee production is also to be intensified. Remittances from the Rwandan diaspora are another source of investment.
Rwanda’s location in the middle of a region with over 140 million residents makes the country potentially a strategic starting point from which one has access to a significant regional market. The government has set itself the goal of making Kigali an important “hub” in the region. Extensive investments are in line with this goal in the transport sector. The existing road network has been or is currently being rehabilitated and expanded. The major construction project to extend the railway line from Isaka in Tanzania and from Kampala to Rwanda and Burundi are in the planning stages. In the area of air traffic, in addition to the modernization of Kigali Airport, the long-term planned construction of a new international airport in Bugesera – south of the capital – is under construction. Completion is expected in the course of 2020.
Another measure that is intended to strengthen Rwanda’s role as a regional trading center between the markets and ports of East Africa and Eastern Congo or Burundi is the establishment and upcoming expansion of an industrial “Special Economic Zone” (SEZ) near Kigali.
The government’s ongoing, market-oriented reform measures for the economy are also setting the trend. A policy that helps Rwanda to gain special recognition from international donors and partner countries. This shows, among other things, the relatively high ranking in the annual “Doing Business Report”, a report published by the World Bank that analyzes reforms to improve the business climate worldwide. In the current report, Rwanda was ranked 38th out of 190 countries in a global comparison and is second behind Mauritius (13th) on the African continent. The report is a highly regarded indicator and guide for foreign investors.
As in other African countries, the partnership with China plays an important role in Rwanda’s economic development. China’s main interest in Rwanda is not – as is often the case in other countries – in the exploitation of natural resources (minerals and land), but in other activities. Most of the larger infrastructure projects in Rwanda, for example, are carried out by Chinese construction companies, but the otherwise accompanying use of Chinese manpower is restricted by restrictive measures. Furthermore, Chinese companies invest in manufacturing and service industries in addition to retail. China obviously sees the country as a starting point for expanding its presence in the region. China’s long-term investment plans in Rwanda were made clear by the selection of Kigali as one of the three stops by China’s President, Xi Jinping, on his most recent trip to Africa in July 2018.
