Experts weigh in on mitigating COVID-19 impact on economy

Photo: Kigali Today

Earlier this month, the International Monetary Fund (IMF) downgraded Rwanda’s economic growth forecast from 8 per cent to 5.1 per cent in 2020, as a result of the impact of coronavirus.

The pandemic has led to the shutdown of many economic activities in the country, including travel, tourism and hospitality, retail and trade, and manufacturing, among others.

 

The global epidemic has forced the world into recession as declared by the IMF last month. Such a crisis is expected to have a significant impact on the domestic economy this year.

 

An assessment by the government on the extent of the virus’ impact on the economy revealed that the service sector had been most impacted (compared to agriculture and industry).

 

Patience Mutesi, the country director of TradeMark East Africa, speaks at a past conference in Kigali. Photo: Sam Ngendahimana.

The Finance Minister, Uzziel Ndagijimana told The New Times recently that the tourism industry had missed out on about $10 million just in the months of March and April alone.

With most hotels across the country closed as there are no conferences, meetings or events as well as guests, he said that the hospitality industry was also missing out on revenue of about Rwf3 billion.

Globally, the outbreak of the deadly viral pneumonia has already shuttered businesses, halted tourism and hospitality activities, stifled travel, led cancelled conferences and events, and sent stock markets into free fall.

The world is now grappling with the health crisis that has turned into an economic crisis.

Angello Musinguzi, a senior manager at KPMG Rwanda, says financing to the private sector is a key component in this period.

“We need to see a vibrant financial sector led by commercial banks. The Central Bank should reduce their lending ratio for banks, and in turn, banks would reduce theirs,” he says.

This, he believes, would make it possible for businesses to easily access affordable funds and help the most hit sectors like hospitality and tourism to recover in the medium term.

“Even if COVID-19 goes away and we don’t avail affordable funds, we shall not achieve much,” he argues.

Musinguzi suggests that this is the right time for authorities to expedite the Kigali International Financial Center (KIFC), particularly reviewing tax and commercial laws and others related to finance.

“Investors will be looking for incentives post coronavirus so this is the right time to expedite the KIFC if Rwanda wants to easily attract more direct investments,” he notes.

The reality

The Government through the central bank has already availed a Rwf50 billion financial package to shore up the economy that has already been hit by the virus.

The financial support announced is helping banks with liquidity problems and facilitating lending to businesses that are already struggling.

Some commercial banks have also relaxed loan repayment terms and conditions, allowing their clients especially businesses with cash flow problems to repay their interest dues at a later period.

However, Henri Nyakarundi, the founder of African Renewable Energy Distributor (ARED), a company that retails solar kiosks in Rwanda and Uganda, argues that financial institutions may not necessarily play a big role in bringing back the economy to normal.

“Right now most banks or financial institutions need to save cash and also make sure their clients don’t default, so they are not going to give new loans,” he says.

The entrepreneur suggests only the government injecting cash would save struggling businesses, but he equally asserts that people will most likely raise cash from their existing networks like friends and family.

“In our case, our previous investors are trying to help us. But without the government injecting cash into developing small grant programmes for businesses it’s going to be a disaster,” he notes.

Nyakarundi says investors currently are only willing to invest cash in portfolio companies – businesses where they already have investments.

However, he adds that the biggest challenge is the informal sector that depends on day to day revenue – motorcyclists, carpenters, taxi conductors, cleaners, barbers, and per time agents, among others.

This is true for the most part because the informal sector accounts for the majority of employment opportunities.

The Labour Force Survey 2017 shows that nearly 91 per cent of the total employment in the country is trapped in the informal economy.

With the coronavirus pandemic, these employment have shrunk as hundreds of people have been forced to go back home by their employees who are already grappling with the impact of the virus.

Patience Mutesi, the Country Director of TradeMark East Africa (TMEA) Rwanda, insists that containment measures will address the pandemic and the economy will recover.

“Rwanda’s economy has proven to be resilient in worse situations so we are confident that it will bounce back post COVID-19 to the growth trajectory recorded over the years,” she says.

She, however, highlights that a series of actions will be needed to facilitate land-linked countries like Rwanda, whose supplies depend wholly on trade flowing through countries with ports. 

“Managing trade along the road and rail corridors will require first a number of confidence-building measures at key trade nodes of ports, logistics facilities and border posts to establish “safe trade’’ corridors,” she says.

Mutesi adds that the pandemic provides an opportunity for African countries to transform their economies through industrialisation and strengthening the productive capacities of the private sector by adding value to local raw materials.

“There is an imminent opportunity for countries to take advantage of the African Continental Free Trade Area market post the COVID-19 pandemic, and TradeMark East Africa wants to support that process,” she notes.

editor@newtimesrwanda.com

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