Informal sector driving economic growth

Rwanda’s Gross Domestic Product (GDP) that gauges the health of the country’s economy accelerated to Rwf1. 013 trillion in the first quarter of this year up from Rwf863 billion at the same period last year.
Economy surviving external shocks. The New Times / T. Kisamira.
Economy surviving external shocks. The New Times / T. Kisamira.

Rwanda’s Gross Domestic Product (GDP) that gauges the health of the country’s economy accelerated to Rwf1. 013 trillion in the first quarter of this year up from Rwf863 billion at the same period last year.

In real terms, the economy grew by 7.7 per cent in the first three months of this year compared to 6.5 per cent at the same period last year, according to a report by the National Institute of Statistics of Rwanda (NISR).

The figures are in line with Government and the International Monetary Fund (IMF) growth projections.

The country’s output growth is expected to ease somewhat to 7.7 per cent in 2012 compared to 8.6 per cent that was recorded last year.

According to the report, the informal sector is still the main driver of the country’s economic growth. It accounted for 44 per cent of GDP in the first quarter of this year compared to just 26 per cent by the formal sector, 19 per cent through non-monetary production and government at 12 per cent.

While exports grew by 30 per cent compared to 58 per cent in 2011 private final consumption expenditure was 85 per cent as government final consumption expenditure was 14 per cent of GDP in the first quarter of 2012.

While the IMF says that the economy grew strongly in 2011, and significant progress in poverty reduction has been achieved, growth is expected to remain high in 2012 and inflation relatively modest, although risks from the global economy remain.

“As in recent years, economic activity was driven by a large increase in agricultural output, robust exports, and strong domestic demand, because Rwanda has remained relatively insulated from the slowdown in the advanced economies,” the IMF said in its latest report on the country’s economic outlook.

In the first quarter of the year, the service sector grew by 14 per cent aided by a surge in transport, storage and communication—which registered an increase of 19 per cent—and wholesale and retail trade which grew by 15 per cent.

Agriculture, which is the main employer of the country’s workforce, grew by three per cent driven a four per cent growth in food crops while exports fell by 24 per cent compare to the same quarter 2011.

Improved food output is the reason why the country managed to record low inflation rate. The inflation rate dropped to 5.92 per cent in June this year from 8.32 per cent in May.

The IMF forecasts suggest that inflation will reach 7.5 per cent by end-2012, partly on account of central bank’s tight monetary policy. However, government seeks to keep inflation at five per cent in the medium.

Activities in the industry sector grew by one per cent in the first quarter of 2012 compare to 15 per cent realised in 2011.

Mining registered a stagnant performance as manufacturing grew by four per cent while electricity, gas and water grew by 21 per cent. Construction slipped by one per cent compare to 24 per cent growth realised in the first quarter of last year.

Government is in the process of implementing the diversification strategy and accelerating growth to meet poverty reduction objectives.

 

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