Is Rwanda on track to become a regional service hub by 2020?

SINCE 1998, the Government of Rwanda has continued to develop mechanisms intended to strengthen the country’s position to become a regional service hub.

SINCE 1998, the Government of Rwanda has continued to develop mechanisms intended to strengthen the country’s position to become a regional service hub.

The aim is for Rwanda to become a regional hub in areas such as banking, legal, retail, hotels, real estate, tourism, transport, education, healthcare, IT services, media and communications, to name but a fraction.

 

To enumerate, in 2000, the Government published a report dubbed Rwanda Vision 2020 - where it outlined a medium-to long-term target of transforming the country from an agrarian-dependent economy to a knowledge-based economy capable of establishing Rwanda as a genuine regional service hub.

 

It is generally known today that even if the agriculture sector was to be transformed into a high productivity sector, on its own, the sector would struggle to become an adequate source of long-term economic growth.

 

Instead, in the absence of plentiful natural resources, an approach to focus on Rwanda’s comparative advantage of cheap labour, a large multi-lingual population, and a strategic location as the gateway between East and Central Africa was chosen to become the launching pad of this ambitious vision.

Where are we today?

It is becoming common knowledge that Rwanda scores some of the top marks when it comes to reforms designed to promote ease of doing business.

Indeed, last year as it was the case in previous years, the World Bank’s Doing Business report ranked Rwanda only second to Mauritius in Sub-Saharan Africa and 32nd out of 189 economies worldwide on the ease of doing business.

Such ranking indicates that Rwanda has a regulatory environment that is more conducive to starting and operating a local company.

Evidently, Rwanda Development Board (RDB) proclaimed that Rwanda’s service sector experienced a steady growth in the last decade, and that in 2010, services accounted for 47 per cent of the Gross Domestic Product (GDP). 

RDB also states that in the same year, the service sector grew by an estimated 10 per cent mainly due to growth in transport, storage, communication (9 per cent), wholesale and retail trade (8 per cent) and financial services (24 percent).

Look deeper, however, and you realise that since then, growth in the service sector has slowed down.

This is illustrated in the annual economic report – fiscal year 2012/2013, by the Ministry of Finance – where it is apparent that compared to other sectors such as agriculture and industry where growth was recorded more quickly in the second half of the year than the first, growth in the service sector was slightly lower than the previous fiscal year; 8 per cent growth against 11 percent in 2011/2012.

Notably, two explanations were put forward to explain the decline in growth of the service sector; suspension and delays in the delivery of budget support funds, and a challenging international economic climate.

To begin with, superficially, Rwanda seems to have a somewhat civil relationship with her bilateral donors. In fact, many have praised the country’s leadership for its aid effectiveness strategy, including the ability to trickle down funds to lower authorities for appropriate use. 

Others have gone as far as reciting Rwanda as the benchmark for aid effectiveness. And yet, it seems that some donors were willing to exercise budgetary suspensions regardless of the consequences such actions would create, including the negative effect on consumption and credit growth.

Secondly, a challenging international economic climate meant that Foreign Direct Investment (FDI) slowed down as investors became far too cautious of where they invested.

Rwanda, like many DFI recipients, became a casualty of the financial crisis that began in 2008 and faced a reduction in investment in key areas such as energy, banking (especially credit growth), real estate and hotels.

Where we need to be

Having ascertained that Rwanda’s considerable dependence on foreign aid is increasingly becoming precarious to external events that are beyond our control, it is perhaps wise to continue devising ways to improve our financial autonomy.

More home-grown initiatives such as the Agaciro Development Fund should be explored, as well as more ways to access international financial markets for more private investors.

Equally important is the urgent need to improve the level of skilled capacity needed to fill the growing number of opportunities in the service sector.

The projected growth of the financial services means that more accountants, bankers and economists will be needed, the same way as hotel staff, shop attendants, and nurses will be needed when tourism and healthcare grow.

All things considered, whether Rwanda is on track to become a regional service hub by 2020 depends largely on the lenses of the assessor.

If you are an optimist like me, you are inclined to look at a broader picture in consideration of the ongoing investment in banking services, education, ICT, and major infrastructure projects that are likely to play a major part in the future of the service sector.

Here we can consider the new Kigali Convention Centre, Bugesera international airport – all of which will not only bring more jobs to the market but also attract international conferences which can create positive spillover effect.

If you are a sceptic, however, you may be worried that the over-reliance on aid is holding us back and that Rwanda remains too vulnerable to plan far ahead which may create an adverse effect on the country’s long-term vision.

Equally, a sceptic may be concerned over the high unemployment among the youth yet they are ones earmarked to take Rwanda to the next level. Other sceptics may believe that the service sector is subject to Baumol’s cost disease theory, which identifies services as being prone to slower productivity growth than primary and goods production.

The writer is a UK Parliamentary Intern and holds a Master of Science in Public Service Policy. 

Twitter: @Jsabex

Subscribe to The New Times E-Paper


For news tips and story ideas please WhatsApp +250 788 310 999    

 

Follow The New Times on Google News