Umushykirano 2023 has ended and as always, it delivered a masterclass in leadership and civic participation. It happened under headwinds that are facing the country and the world at large. Despite the challenges and headwinds, there is a sense of hope and optimism for the country’s future. Yes, the journey is bumpy, but with a clear vision and determination to keep moving forward, success is always within reach. This reminds me of a recent discussion that I had. I received a call from a very disturbed Kigali businessmen who challenged me to explain to them in a language they can understand, how the economy can be said to be growing as fast as it is, yet businesses are collapsing, and ordinary citizens can barely make ends meet. Is it possible for the economy to grow while businesses are making losses? The answer is YES. To see how this could happen, we need to understand what GDP actually is and how it is computed. GDP is short for Gross Domestic Product, which means the quantity (not value) of all goods and services produced in an economy. Let me illustrate: Abakorerabushake Mills is a maize flour producer. In 2022, Abakorerabushake produced 20,000 tonnes of maize flour, down from 25,000 tonnes in 2021, due to drought. In 2023, production recovers to 25,000 tonnes. Trouble is, during 2022, the government opens the duty-free import window, and “tenderpreneurs” inundate the country with Zambian maize. Consequently, in 2023, Abakorerabushake suffers both depressed prices and depressed sales, and posts a huge loss. The GDP accountants will capture the 25 per cent increase in production, as well as the economic activities created by the imported maize, that is, the transportation, warehousing, packaging and distribution. Maize GDP will be up big time, even as Abakorerabushake and other millers chalk up losses. As observed, agriculture is the single largest sector, accounting for more than a third of the economy, what happens to agriculture has a big effect on the overall GDP growth figure. Last year’s long rains were late, and have been poor – another challenging year for agriculture. This year the story may be the opposite. It is readily apparent that a number that fluctuates with the weather is not an ideal measure of economic performance. In fact, in economics this is not what we mean by economic growth – we refer to it as “change in output”. It is useful for studying macroeconomic policy on managing inflation and the like, but not as a measure of progress towards prosperity or lack thereof. For prosperity questions, we are interested in how two – often very similar – countries start out at an income level of $500 per person and twenty years on, one is at $1,500 and the other $5,000. This boils down to the following simple question: how countries raise productivity. Why do I say this? You see, Rwanda has made significant progress in developing its infrastructure in recent years. The country has invested heavily in roads, bridges, free zones and other transportation infrastructure, as well as electricity and water supply. These investments have helped to improve access to basic services and reduce poverty in many areas. However, the country's growth rate has slowed down in recent years, and its reliance on infrastructure-led growth could potentially be a concern. According to the World Bank, Rwanda's GDP growth rate fell from 10.6% in 2018 to 9.4% in 2019 and then to 0.2% in 2020 due to the COVID-19 pandemic. Although the country's growth rate is still impressive compared to other African countries, it is clear that the infrastructure-led growth model is not sustainable in the long run. Furthermore, Rwanda's infrastructure-led growth has not translated into job creation or poverty reduction as much as it should have. Although the poverty rate has decreased from 56.7% in 2006 to 39.1% in 2019, poverty remains high in rural areas, where agriculture is the main source of income. According to the National Institute of Statistics of Rwanda, the unemployment rate increased from 14.9% in 2019 to 16.2% in 2020, reflecting the impact of the COVID-19 pandemic on the economy. Agriculture, on the other hand, has the potential to drive Rwanda's economic development and reduce poverty. The sector employs more than 70% of the population, and its share of GDP has been increasing in recent years, reaching 30% in 2020. Moreover, the agriculture sector has the potential to increase exports and improve Rwanda's balance of trade. Investing in agriculture can also create jobs, especially in rural areas where most of the population lives. According to the Food and Agriculture Organization of the United Nations, the agriculture sector has the potential to create up to 1.6 million new jobs in Rwanda by 2025. This would help to reduce poverty and improve the living standards of rural communities. To achieve this, Rwanda needs to focus on improving the productivity and competitiveness of its agriculture sector. This requires investing in infrastructure such as irrigation systems, rural roads, and storage facilities, as well as providing access to finance, training, and technology. It also requires implementing policies that promote sustainable agriculture and support smallholder farmers. The key being supporting smallholder farmers. In conclusion, Rwanda's infrastructure-led growth experiment is faltering, and it is time to shift the focus to agriculture. Agriculture has the potential to drive economic growth, reduce poverty, and create jobs, especially in rural areas where most of the population lives. By investing in agriculture and implementing policies that support sustainable and inclusive growth, Rwanda can achieve its development goals and build a more resilient economy.
