Red tape could hinder foreign investments – Report

The political and economic environment is stable, regional as well as international markets are accessible and incentives in almost all economic sectors sweeten investment.

The political and economic environment is stable, regional as well as international markets are accessible and incentives in almost all economic sectors sweeten investment.

But even if in Rwanda, as stated by the World Bank Doing Business 2010 report, it is easier to start a business, register properties and guarantee investor protection than anywhere else in the region, there are still major challenges to tackle.

In a study analyzing the barriers to attract Foreign Direct Investment (FDI) in Rwanda, more than 90 percent of the respondents deplored long administrative procedures which give room to corruption.

Nearly three quaters of the 75 foreign investors questioned in the 2009 study, that was conducted by Kizito Habimana from the National University of Rwanda with the support of the German Technical Cooperation GTZ, state a weak judicial system due to a lack of skills to settle technical business issues.

Further constraints that foreign investors face are the small Rwandan domestic market - due to the weak purchasing power of the population - and a low return on investment.

The industry highly depends on raw materials and semi finished products from abroad, and often foreign technicians have to be recruited because of a lack of skills in Rwanda. Thus production and unit labor costs rise.

The third band of obstacles identified in the study refers to service. An inadequate infrastructure and high transport costs are pointed out by 91 percent and 83 percent respectively of the respondents.

Long term loans are hardly available and customer care and service delivery are poor – factors that hinder not only foreign investment but business in Rwanda in general.

In the last three years major improvements have taken place, as displayed in the World Bank report. Starting a business, employing workers, registering property and protecting investors will be a lot easier in 2010 than it was in 2008.

If the government, in joint effort with the other East African Community members, as well as the business community and the financing system succeed in continuing this positive development, Rwanda will have the chance to profit significantly from foreign investment.

Amongst others FDI can contribute to economic growth and employment creation, increase domestic savings and investment base and complement the government budget through taxes.

Competitiveness increases by the transfer of technology and know-how and rare goods and services are made available.

Currently FDI contributes by only 6.1 percent to Rwanda’s Gross Domestic Product (GDP), according to the 2009 UNCTAD World Investment Report.

Anyhow this rate is already higher than Burundi’s (4.4 percent) and very close to Kenya’s (6.6 percent), and with continuous efforts Rwanda might approach its neighbors in the North and East, Uganda and Tanzania, where foreign investment contributed by 28.8 and 37.2 percent respectively to the nation’s GDP of 2008.

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