High population slowing economic growth

From 2002 to 2005 Rwanda’s economic growth averaged 5.6 percent, above the standards of sub-Saharan Africa.

From 2002 to 2005 Rwanda’s economic growth averaged 5.6 percent, above the standards of sub-Saharan Africa.

This shows Rwanda’s commitment to achieving a stable performance however; this is still far below both Vision 2020 and Poverty Reduction Strategic Programme (PRSP) targets and hides considerable variability from year to year.

The economy is still highly dependent on agriculture, especially food crops, meaning that economic growth is extremely vulnerable to climatic shocks.

The proportion of agriculture in GDP (around 43-45 percent) has not changed significantly since 1990, suggesting there has been no structural change in the economy over the period.

Rwanda’s basic poverty line (Frw64,000) and food poverty line (Frw45,000) correspond closely to the UN set Millennium Development Goals and the PRSP sets similar targets.

Progress on both counts depends on raising per capita incomes of those below the poverty line and is therefore affected by economic growth, the income distribution and the rate of population expansion.

At this point, it is difficult to assess whether poverty has increased or decreased but indicative analysis on available data suggests two emerging concepts. One based on relatively high economic growth over the period and assuming a fairly stable income distribution, the total percentage of people living below Frw64,000 should have fallen somewhat (although not nearly as far as the targeted 48 percent); based on falling or stagnant production of priority food-crops over the period at the same time as an expanding population, food security (and therefore the depth of poverty) may in fact have worsened.

The creation of jobs, particularly non-farming jobs is critical to transformation of the economy and poverty reduction. However the continued expansion of the working age population by around 170,000 individuals per year suggests that pro-poor measures such as HIMO and expanding coffee employment are currently of an insufficient scale to tackle this underlying problem.

The Economic Development and Poverty Reduction Strategy (EDPRS) target increased agricultural productivity whilst taking people out of subsistence agriculture is meant to support economic growth, poverty reduction and food security. Significant efforts were made, but were insufficient given the scale of the problems at the beginning of the period and poor implementation in the productive sectors.

Surplus labour in agriculture and underemployment has resulted in low incomes and worsening food security.

The expanding pool of labour (due to population growth) has to be absorbed via non-farm employment if incomes are to rise whilst agricultural productivity had to keep pace with the growing population.

This is critical, with a high and rapidly expanding rural population, tiny average land holdings by households is the norm today and this is no help to development.
Agricultural growth is currently the PRSP target of 5.3 percent, expanded fertiliser use is planned to contribute 4 percentage points of this target, but the targeted expansion from around 8,000 tonnes to 63,000 tonnes by 2005 saw no progress whatsoever.

Other strategies of improved wetland management, crop intensification and rural extension services have also seen little measurable progress.

The structural transformation of the economy still faces significant constraints, most notably in the development of a rural road network (to access markets for products), the expansion of rural electrification and in reducing the costs of doing business, these are also restrict employment creation.

Electricity shortages have interrupted pyrethrum processing, halting exports.

Initiatives creating non-farm jobs are extremely important and have seen some successes, which need to be expanded along with other new (non-land intensive) industries.

Tourism has been a success story here which should be built upon. Research suggests that expansion of women’s education is needed to ensure they benefit from these new employment opportunities.

There has however been a stable macroeconomic environment in the economy which means there’s potential for growth.

The government has ensured unprecedented debt relief, better tax administration, a controlled fiscal deficit and stable monetary policy resulting in controlled inflation.

The downside risk is that without critical interventions, macroeconomic management will not be sufficient to support growth and poverty reduction in a situation where a growing population is supported by the same limited supply of land, food and jobs.

In order for EDPRS to become a successful strategy for developing Rwanda, there must be improved coordination in government institutions.

Economic growth is strongly dependant on delivery in agriculture, infrastructure and private sector development, which are themselves strongly influenced by, for example, improvements in infrastructure and financial markets.

Strong systems of monitoring and accountability will be required to ensure that dependencies are recognised in targets. Joint objectives across ministries and agencies may be helpful here.

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