Rwanda is at an interesting juncture. Over the last 12 years, it improved its Ease of Doing Business rank by 98 places – the highest globally, which resulted in strong FDI inflows in recent years.

At the same time, the young median age of its population demands sustained growth in jobs and income which makes expanding the economy’s size a necessity. So if Rwanda wants to grow its GDP from the current ~$9 billion to $20 billion by 2025, to what extent should it focus on each growth-driver to realize this target? This is what we explore here. Say if the proportion of each growth-driver has to move closer to the averages seen in rapidly growing emerging markets, that could indicate by how much each should grow in Rwanda. If Rwanda were to grow to $20 billion by 2025, its GDP has to grow at an estimated 11% CAGR. Such a high estimate may sound daunting, but China and Malaysia did achieve decadal double-digit growth in the initial years of their growth-journey. Even India’s Maharashtra province announced a vision to grow its economy by 15% CAGR to reach $1 trillion. So by how much should each segment have to grow to realize such a goal?

Let us start with Services: ~51% of Rwanda’s GDP is estimated to come from services. The average in large emerging markets has been ~60-70%. If Services have to make up ~60% of Rwanda’s GDP by 2025, it would have to grow at a 13% CAGR, higher than the 11% estimated GDP growth. Apart from sectors like trade, tourism and BFSI, deepening sectors like the digital economy would bring in efficiencies in public-services delivery and reduce the dependence on imported talent in skill-deficit areas in a small-population country like Rwanda. It would ensure delivery of subsidies to the intended recipients, like India’s Direct Benefit Transfer. Services also include ramping up the quality of skill-centres like India’s NSDC, to improve productivity. These would expand its addressable consumer-base and purchasing-power.

Moving to industry: ~18% of Rwanda’s GDP is estimated to come from industry, far less than the average ~30% seen in large emerging markets. So if its industry has move to even a 25% proportion, it would have to grow at a 15% CAGR. Rwanda’s gross investment at ~27% of GDP has lagged the ~35-40% seen in China and Southeast Asian nations in their initial years of industrialization. If Rwanda intends to push this to at least ~35% to drive capacity-addition, its gross investment has to grow at a 14% CAGR to make up. Investment correlates with productive imports like machinery. In Rwanda, import comprised ~35% of GDP, higher than the share of investment in the economy. But recent industrializing nations have seen that their share of imports to be ~50-60% of their share of investment. This means part of Rwanda’s imports may have been for non-productive purposes. That has to reduce. So if import grow at only 4% CAGR, its share can dip to 21% of GDP by 2025 (i.e. 60% of the share of investment, estimated at 35% of GDP). Where should investments go? Connectivity and infrastructure apart, it needs a huge influx in affordable housing for middle-class people. New industry clusters have to focus on the underdeveloped regions for inclusive growth across districts, something Rwanda is already doing as per its long-term vision. But this would also mean maintaining and continually improving its Ease of Doing Business parameters, despite its decadal jump.

Coming to agriculture: ~31% of Rwanda’s GDP is estimated to come from agriculture, higher than the sub-10% share in most large emerging markets. It has to continue its focus on improving farm-productivity, as agriculture employs more than 75% of its workforce. If it has to halve agriculture’s share to say 15% by 2025, it would grow at a 1% CAGR. But productivity improvement holds key. For this, it has re-skill unproductive labour for high-growth sectors like construction and tourism. That would mean investing in skill-training centres, like India’s NSDC. It also means investing in irrigation and market linkages to improve acreage yield and ensure the end-farmer gets the correct market price.

Moving to export: Only ~15% of Rwanda’s GDP is estimated to come from exports. Its export has to grow at a rapid 15% CAGR till 2025, if it has to meet the forex demand for imports and keep trade imbalance nil. It has made inroads in this area by driving its exports to Asia and Middle East, but the volumes have to be scaled up further. The RWF dropped by ~3.5% last year against the USD, which makes its exports competitive. Drawing up Free Trade Agreements, export-promotion schemes and deepening regional trade should open more opportunities for value-add products.

Last, Rwanda has a high share of private consumption to GDP - 78% vs. ~60% in large emerging markets. Ethiopia and Uganda have a similar per-capita, but they spend less and save more. Over-dependence on external borrowing is not healthy for the forex position, especially when imports may continue. It needs to ramp up its savings rate from ~10% to 30%+ by energizing its domestic financial sector with more products, assets, talent and regulations. That would incentivize more saving and postponing consumption.

All in all, these segmental growth-rate estimates to target a GDP of $20 billion by 2025 may sound over-ambitious. But it is not unachievable, if one looks at similar markets.

Sourajit Aiyer is an author and financial services professional, and researches for South Asia Fast Track.