For Rwanda to achieve the projected 6.2 per cent economic growth this year, there is need to urgently address private sector investment capacity, the World Bank has said.
In their 2017 economic update, released in Kigali yesterday, the Bank observed that economic growth this year is largely dependent on the ability and capacity of the local private sector as well as returns from large public and private investments in areas such as hospitality sector.
The Rwandan economy was projected to grow by 6.2 per cent in 2017, recovering from a slight dip in 2016 where it grew by 5.9 per cent.
However, the growth prospects remain uncertain, especially after a growth of 1.7 per cent in the first quarter compared to 8.9 per cent in the same period last year.
WB senior economist for Rwanda, Aghassi Mkrtchyan, said by their estimates, the economic growth is likely to be between 4.2 per cent and 6.2 per cent.
Mkrtchyan said that to achieve this year’s projections, the second half of the year ought to be characterised by improved private sector capacity and good performance of the heavy investments in sectors such as service.
“Expectation was 6.2 per cent for the year, it seems a bit challenging at this point and quite hard, although we could be surprised. Growth will be between 4.2 per cent and 6.2 per cent,” the economist said.
The Bank noted that economic trends of 2016 and part of 2017 reflected the extent of economic growth dependence on public investments, hence the call for increased private sector involvement.
“The Government largely maintained the rate of growth in public consumption of recent years. Investment growth also slowed mostly as a result of slow growth in public investments as part of authorities’ adjustment and fiscal restraint for 2016 and 2017. The development in 2016 and the first months of 2017 shows large extent to which the growth of Rwanda depends on public investments,” the Bank said.
Mkrtchyan said the growth this year will also be dependent on the continued recovery of commodities exported by Rwanda, recovery of agriculture as well as the stabilisation of exchange rate.
“The key risk is low activity by the domestic private sector. The question is how the private sector will respond toward opportunities,” he said.
Other risks to the economic performance this year include a volatile external environment.
The Bank’s economic update observed that the slowdown in economic growth in 2016 reflected the need to address growing external imbalances through fiscal restraint as well as exchange rate flexibility.
The slowdown last year was to a large extent exacerbated by drought in the region as well as low prices for exports.
Going forward, exports continue to play a critical role in economic development with economists saying that the country could achieve export-led-growth.
Exports have grown four-fold in the last decade from $400 million in 2007 to about $1.6 billion in 2016.
Among the facilitators of this is diversification from tradition exports such as tea and coffee to multiple products from manufacturing, new minerals, among others.
Efforts on the ground
However, Hamidou Sorgo, a senior private sector specialist at World Bank, called for increased diversification and value addition of the exports to increase returns and access more markets.
Rwanda Development Board (RDB) chief operating officer, Emmanuel Hategeka, said they were working with firms to support the private sector in aspects such as their capacity to export.
RDB recently introduced an open day every Friday morning where they look into challenges faced by the private sector.
Hategeka said the stagnation in private sector investment was as a result of multiple factors, including external shocks and externalities, which they were working to address.
However, he defended the sector, saying it was on a growth curve given its background and the Rwandan context.
“It is important to understand the context in which the private sector is emerging from. Previously, business was predominantly done by government. It is only recently that government began privatisation of investments and assets to spur private sector growth. We have come a long way,” he said.
Hategeka said that the government was also ready to improve the investment climate for both local and foreign investors.
Among the sectors where there is potential for local investors is the services sector in as areas such as ICT, financial services among others.
“We are trying to build a generation of young investors and entrepreneurs in aspects such as the ICT sector where we can see a lot of innovations coming from,” he noted.