There is urgent need to boost the capacities of a vast majority of Rwanda’s private sector operations if the aspirations of Vision 2020 are to be met. A report that tabulates the current state of the private sector indicates that stakeholders, among them government must urgently come to the assistance of the country’s private sector operations if the aspirations of transforming the economy into middle income status is to be met by the next decade.
The report dubbed “Establishment Census 2011” by the ministries of Trade and Industry, Public Service, and the National Institute of Statistics and the Private Sector Federation (PSF), gives a detailed breakdown of all business establishments in Rwanda.
The report gives, “comprehensive and updated data profile of all economic activities practised by business establishments”, such as a “detailed breakdown of establishments’ characteristics, geographical location, number of employees, registration status, legal status, ownership, sector and management capabilities.
It further classifies such businesses according to sizes and types thus providing an avenue to assist government and policy makers to establish and analyse baseline data to drive new policy directions on how the private sector can be repositioned to truly contribute towards the transformation of the economy.
For instance, the report states that Rwanda’s private sector is dominated by wholesale and retail trade with over 64,000 establishments accounting for 52.3 percent of the total number of firms in the country, followed by accommodation and food operators with over 33,000 firms at 27 percent.
Manufacturing, a key component of import substitution strategy that Vision 2020 seeks, has slightly over 4,500 enterprises representing 3.7 percent of total number of firms in the country.
However, this current structural imbalance seen in the report is bridged by the heavy public sector establishments within business that are mainly utilities (electric, gas, water, waste management etc.) taking up 29 of 73 establishments within the sector.
This indicates the strategic importance and value of public sector businesses in the running of the formal economy.
A major structural weakness of the businesses according to the report is the fact that a classification in terms of capital employed by all the firms reveals that a vast majority of enterprises in Rwanda are micro or small enterprises with over 70 percent having capital bases of Rwf 500,000 or less while 22 percent have capital bases of Rwf 500,000 or more.
Medium enterprises with Rwf 1.5 million or more capital account for 1.7 percent of all businesses while large scale operations with more than Rwf 75 million account for 0.9 percent of all businesses.
The report states that there are 123,526 establishments operational in Rwanda with a reasonably equal distribution between provinces.
Around 23.5percent are located in Kigali with Nyarugenge district being home to 10 percent of all establishments. Over 48.7 percent of all businesses were incorporated within the last two years reflecting the level of infancy within the private sector where only 15.4 percent were incorporated before 2005.
However, government is upbeat that the structural weaknesses as outlined in the report can be overcome and Vision 2020 can be achieved through various policy measures.
One way of ascertaining the likelihood of hitting Vision 2020 is by accessing the rate of investments in Rwanda over time.
The evolution of investment rate is key to determining the process of change unfolding within the private sector, according to various government agencies. The rate of investment otherwise known as Gross Fixed Capital Formation (GFCF), a figure expressed as a percent of Gross Domestic Product (GDP) has witnessed steady growth over time.
The Central Bank says that GFCF rose from less than16 percent in 2006 to 21 percent last year, translating into an accumulation of Rwf 227 billion over four years where GFCF stood at Rwf 274.7 billion in 2006 and rose to Rwf 501.2 billion by last year.
In order to hit Vision 2020 targets, the GFCF needs to rise to 30 percent of the GDP in the next nine years.