Rwanda’s economy grew by 5.2 per cent during the third quarter of 2016 with the country’s growth rate for 2016 projected to hit 6 per cent, according to government, the World Bank and the International Monetary Fund.
The services and agriculture sectors remain the biggest drivers of growth contributing 48 per cent and 33 per cent, respectively, to the total GDP during quarter three of 2016. The government targets to achieve 11.5 per cent growth rate per annual by 2018 to help propel Rwanda into a middle-economy status by 2020, according to the second Economic Development and Poverty Reduction Strategy (EDPRS II) blueprint.
To help support the realisation of these ambitious goals, economists and other experts are calling for increased investment and more public private partnerships (PPP). “We also have to watch the situation in the global and regional markets as it influences the performance of the local economy and has a lot of bearing on whether the country will be able to realise its growth objectives as per EDPRS II time frame.”
Dr Charles Ruhara, a lecturer at the University of Rwanda’s College of Business and Economics, said Rwanda must “keep an eye” on its forex exchange and integrate the market with other countries to remain competitive.
“Rwanda needs to strengthen economic integration with other countries in Africa and the rest of the world as this will enable it to improve its balance of trade position. We also need to examine the effect of foreign aid, especially on the exchange rate and export sector performance,” he said.
He noted that low income countries often face the problem of low domestic savings, which affects their ability to finance key investment programmes.
Besides, export earnings are also not usually enough to finance imports of capital goods, a situation that often forces countries to acquire foreign funds to buy equipment needed by the agriculture and manufacturing sectors. However, it is imperative such economies spend wisely, he added.
Dr Ruhara was speaking during the third Economic Policy Research Network (EPRN) annual conference in Kigali last week. The conference was held under the theme, “Rwandan economy towards the third Economic Development and Poverty Reduction Strategy (EDPRS III)”. It was organised by the Institute of Policy Analysis and Research (IPAR) - Rwanda and the German Development Agency (GIZ) and brought together researchers, academics and policy-makers. It aimed at building the capacity of local economists and researchers in different sectors of the economy.
Ruhara said foreign aid inflows should be directed toward the provision of public goods and spending on the imports that stimulate production of the private sector.
Interest rate question
Joseph Ndagijimana, the head of the department of economics at the University of Rwanda’s College of Business and Economics, said it is essential to ensure affordable and stable interest rates.
“We also need to create alternative sources of income for farmers through product diversification as well as institute measures that help cut public spending and emphasise production to achieve key economic goals and make them sustainable,” he told Business Times.
Ndagijimana urged financial sector players to tighten their credit appraisal processes by using credit reference bureau, among others to help keep the banking sector more competition.
National Bank of Rwanda (BNR) revised downwards the key repo rate from 6.5 per cent to 6.25 per cent in December, 2016, signalling the need for commercial banks to consider interest rate cuts and increase loan issuance to the private sector in the first quarter of this year.
PPP crucial for job-creation
Speaking at the conference, Christian Manishimwe, an economist and researcher, rooted for strong public-private partnerships, saying they would help attract new investments, create more jobs, and help make the economy competitive.
Manishimwe argued that PPP ventures have a multiplier effect through creating new jobs and providing much-needed income to transform Rwanda’s industry and agriculture sectors, which are the main drivers of growth.
In 2000, Rwanda embarked on structural transformation toward middle-income country by 2020. Several economic reforms have since been implemented and helped the country to achieve strong growth, thanks mainly to increase in production across key sectors.
“Despite such increases, Rwanda’s structural transformation is limited and the production far lower than expected. Therefore, there is need to focus on transforming the manufacturing, services and agriculture sectors as they have the potential to provide jobs for large numbers of Rwandans, including unskilled workers,” he said.
Statistics from the National Institute of Statistics of Rwanda (NISR) indicate that between 1995 and 1998 the industrial sector contributed up to 18 per cent of the total GDP. From 1999 to 2015, the sector contributed around 14 per cent of GDP, of which 36 per cent was contributed by the formal sector, with informal sector accounting for 64 per cent. During the same period, the manufacturing sector added an average of around 5 per cent to the country’s GDP.
However, under EDPRS II it is expected that industry and manufacturing will contribute 26 per cent, services 42 per cent, and agriculture 33 per cent of GDP by 2020.
Focus on export-oriented sectors
According to Roy Valence Gasangwa, a senior statistics analyst at Rwanda Revenue Authority’s planning and research department, Rwanda needs to transform the structure of its economy from production of traditional activities such as in traditional agriculture to modern and market and export-oriented activities, including agro-processing, industry, manufacturing and services.
Gasangwa also said growing economies like Rwanda faced major challenges, including lack of entrepreneurial culture, skills gap, lack of technologies, managerial and planning skills, as well as lack of access to information.
“These limit the country’s ability to explore and exploit the untapped investment opportunities, thus affecting the level of economic transformation,” he added.
He said the inability to exploit the country’s ICT infrastructure and the dominance of informal manufacturing, accounting for up to 64 per cent of total sector’s output, posed a serious threat to the country’s economic potential.
The researchers also called for more investment in rural infrastructure to ease market access and trade.
They said high transport costs, trade-related infrastructure, and low agricultural production were hurting the country’s agricultural exports.
“Potential benefits of regional trade are stills constrained by low agriculture production, informal cross-border trade, as well as exchange rate and logistics challenges,” according to analysts who attended the EPRN conference.
They noted that it is important to encourage bilateral trade among EAC countries and attract more investments in the agricultural sector to help increase productivity.
They also called for harmonisation of agricultural and trade-related policies to support the two sectors’ growth.
“Rwanda needs to increase its agricultural productivity and focus on areas where it has comparative advantage to reduce food supply inconsistencies to meet domestic and regional market demand,” they said.