Rwanda’s economy rebuilt from the scratch

Statistics show that in 1995, a year after the Rwanda Patriotic Front (RPF) took-over, real GDP increased by 9 percent, signalling the resurgence of economic activity in the country Rwanda’s economy was shattered by the 1994 Genocide against the Tutsi and the Gross Domestic Product (GDP) declined in three years during the war that led to the Genocide.
President Paul Kagame at the helm of the country’s economy, shares a light moment with Juma Mwachu, EAC Secretary General during this year’s EAC retreat. (File Photo).
President Paul Kagame at the helm of the country’s economy, shares a light moment with Juma Mwachu, EAC Secretary General during this year’s EAC retreat. (File Photo).

Statistics show that in 1995, a year after the Rwanda Patriotic Front (RPF) took-over, real GDP increased by 9 percent, signalling the resurgence of economic activity in the country

Rwanda’s economy was shattered by the 1994 Genocide against the Tutsi and the Gross Domestic Product (GDP) declined in three years during the war that led to the Genocide.

This posted a dramatic decline at more than 40 percent in 1994. However, statistics show that in 1995, a year after the Rwanda Patriotic Front (RPF) took-over, real GDP increased by nine percent, signalling the resurgence of economic activity in the country.

President Paul Kagame’s leadership has put up development programs to improve Rwanda’s economy and reduce its dependence on subsistence farming.

Rwanda has placed emphasis on different sectors which include, but not limited to tourism, mining and agriculture. Theses sectors last year helped the economy to post 11.2 percent of real GDP growth.

Due to increased investments and empowerment of the private sector, there has been improved tax revenue generation.

Government has also embarked on accelerated privatisation of state enterprises to stop their drain on government resources and continued improvement in export crop and food production.

According to state officials, these activities were the reason why the economy posted a 13 percent GDP growth in 1996, the highest since 1994. In terms of exports, tea and coffee have for many years been the country’s leading export earners.

In 2000 coffee production was only 14,578,560 tons. Coffee exporters now have an ambitious  target of $75m (Rwf41.4 b) revenue from exports this year.

In 2000, tea was Rwanda’s largest export, with export earnings reaching $18 million equating to 15 000 tons of dried tea. But last year the crop fetched $42 million.

The Rwanda Tea Agency OCIR- The is now targeting $54m (Rwf.30.3b) revenue for this year.

Tourism and minerals have in the recent past broke Rwanda’s over dependence on tea and coffee for her export revenue.

Rwanda’s mineral industry, which used to contribute only 5 percent of the foreign exchange earnings, is currently the country’s second top hard currency earner after tourism.

Concentrations of the heavy minerals Cassiterite, columbite-tantalite, and Wolframite are most important, followed by small amounts of Gold and Sapphires.  

Official figures from the Rwanda Development Board (RDB) show that the tourism sector last year received over a million visitors and raised an estimated $214 million.

The industry is estimated to grow to $224 million in 2009 while visitors will increase to 1.14 million.

Last year Rwanda started the extraction of Methane gas from Lake Kivu and this is expected to cut down the cost of electricity.

According to the Economic Development and Poverty Reduction Strategy (EDPRS) poverty has fallen in rural and urban areas.

However, more than one-third of the population is still under extreme poverty, meaning they cannot afford the level of expenditure needed to provide minimum food requirements of 2,500 kcal per adult per day.

One of the biggest macro economic problems the economy is saddled with is inflation which currently stands at 19.95 percent.

Francois Kanimba, Governor of the National Bank of Rwanda BNR recently said that current spells of double digit inflation will be brought back in the single digits. He is also not so much worried about inflation as long as the economy continues to post high growth levels.

“We are in a growth cycle where we have to agree or accept some trade-off between growth and inflation,” Kanimba says.

As a result of this persistent inflationary pressures, monetary policy has been set relatively tightly with reserve money growth of 13 percent per year on average.

This is expected to result from both the monetary stance and public investments targeted at removing skills and infrastructure bottlenecks. The latter will reduce costs of utilities and operational costs of doing business in
Rwanda and will induce a relaxation of structural constraints that have fuelled inflation in the past.

The Rwandan Franc has been in buoyant mood and it is expected that that the nominal exchange rate is likely to continue to appreciate if external inflows materialize as projected.

The Ministry of Finance working estimates puts the Rwandan franc at 525 against the US dollar in 2012, as compared to 549 at the end of 2006, which represents about one percent appreciation per year against the US dollar.

Government stance of recognizing that that the private sector is an essential engine of development has played a big role to increased local and foreign investments.

Foreign Direct Investment (FDI) statistics as provided by UNCTAD show that in 2001 FDI was $3.8 million or $ 2.30 per $1,000 of GDP while this increased to $7.4 millions in 2002. The figure also rose to $10.9 million in 2004. 

RDB , then Rwanda Investment and Export Promotion Agency (RIEPA) in 2005 reported FDI of $115.1 million and $104.9 million for 2006.

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