Rwanda has a domestic savings rate of about 12 percent as of 2017 with a target of 24 percent by 2024. Domestic saving is calculated by subtracting final consumption expenditure from the national GDP and is expressed as a percentage of GDP. The domestic savings rate is increasingly becoming a crucial subject as it will create a means towards self-reliance, investment, growth as well as economic resilience. It’s out of domestic savings that the country can reduce aid reliance and finance investments. This has seen the Government, along with stakeholders, roll out campaigns and initiatives to increase awareness and the general public’s participation in domestic savings. This includes explaining what constitutes domestic savings. For instance, personal savings by households and individuals in the form of cash or assets such as land which is common in Rwanda does not necessarily mean a growth in domestic savings. For the personal savings to have an impact on domestic savings, it has to be invested and financialised. This explains why though statistics show that financial penetration which has grown steadily over the years to about 89 percent as of 2016 and a growing section of Rwandans have financial savings instruments such as bank accounts, Saccos, and mobile money, the domestic savings rate has not grown much. Growth in financial savings instruments in Rwanda over recent years has not meant higher over domestic savings in the country. Experts say that nations with rapid economic development and growth like Rwanda seek to achieve have about 25 percent domestic savings. UNDP Resident Representative, Stephen Rodriques, said that it is important for Rwanda to raise domestic savings to adequately finance growth projections. Higher savings, he said, will also serve as a catalyst to attract more external financing by external financiers and investors as it reduced the cost of capital. A recent study on the subject financed by UNDP noted that among the interventions that could change the status quo include establishing intermediation and mobilization between personal and household savings to move resources from savers to financial units and investment. These interventions, ought to create avenues where the savers can invest through instruments such as capital markets, government bonds as well as investments. The report authors noted that this will lead to instances where savings by households and corporations are investable hence contributing to the country’s domestic savings. Beyond the introduction of a diverse range of financial instruments by banks and other financial institutions, the study called for avenues that enable ordinary citizens to invest their savings such as commercial papers. Experts say that there are multiple untapped opportunities such as informal savings groups. Jean-Bosco Iyacu, the Director of Programs at Access to Finance Rwanda, said that informal savings in Rwanda amount to about Rwf32 billion, which, if channeled to investments, would have a big impact on domestic savings. This would allow Rwandans to take advantage of opportunities created by the development of the economy and proactively motivate voluntary savings. While capital markets have been mentioned as an ideal avenue to grow domestic questions where citizens can invest in opportunities such as government bonds thereby growing savings, experts say there could be some structural issues holding them back. For instance, for the quarterly government bonds issued through the Central Bank, the minimum investment is Rwf100,000 which might be too high for ordinary citizens seeking to have a role in savings. Prof John Serieux, from the University of Manitoba, Canada, who led the UNDP study, said that studies show that at the moment, corporations are the biggest savers in Rwanda. He cited countries such as Singapore and South Korea as some of the best models to benchmark in growing and developing savings in the country. Leonard Rugwabiza, the Economic Advisor to the Minister of Finance and Economic Planning, however, said that coming from a low base does not mean it is not possible. He noted that while they are aware of the plan to double the savings rate by 2024 could be ambitious, it’s possible. editor@newtimesrwanda.com
