REGIONAL INTERGRATION : EAC private sector: Capital and investment

In Rwanda, there are certain myths that often become fact; particularly with regards to the private sector. The task of debunking these myths is the first obstacle to creating a vibrant private sector.

In Rwanda, there are certain myths that often become fact; particularly with regards to the private sector. The task of debunking these myths is the first obstacle to creating a vibrant private sector.

The first myth is that Rwandans do not have the capital necessary to invest in the private sector.

This is false because whenever a Rwandan wants to buy a flash car, they find the money, but $5,000 to invest in a medium-sized business is considered a risk.

The second myth is that Rwandans are not entrepreneurial which is also.

They need the necessary stimulus to become so. The third is “development of the private sector will take time” another falsehood – a BOOM is called a boom because it is quick and instant like a bomb.

When looking around for capital one realises that there are several forms of capital, all of which are exploitable.

Firstly, natural capital— is all we see around us, the environment that can be converted sustainably into a primary good like timber, farmland and fish in our lakes.

Then you have infrastructural capital, all the public investment by our government will pay dividends as it will be quantifiable therefore able to secure debt.

Social capital is the one form of capital that Rwanda can fully exploit; the disadvantage of being a small country becomes an advantage provided there is strong leadership, therefore close social ties can be an advantage, this requires a collective effort to facilitate all emerging industries.

The form of financial capital is the one we all generally refer to as capital—cold hard cash.

There is abundant financial capital in Rwanda; it is just not being exploited.

Real estate is still the main vehicle for investment; this means that most of our capital is static and not circulating in the in the general economy, finding other avenues for investment is the first step in unlocking this capital.

Banks must also play their role; fewer loans for cars and more loans for business.

Firstly investing $20,000 in a Prado at 18% APR is criminal negligence on behalf of the bank, considering the asset depreciates while the debt accumulates.

A private sector meeting I once attended was about “Lack of capital” when there was $10 million worth of cars in the parking lot, and $20 million worth of debt.

How can the government encourage people to invest wisely in solid assets and not status symbols? Why not impose higher car taxes or maybe a ban on imports or non-essential goods? 

It costs the same to buy a bulldozer as it costs to buy a Prado, yet the bulldozer will bring in $500 a day, while the Prado will depreciate at $500 a month.

Banks have to more realistic in their risk assessment, they often set the interest rates high as a shorthand way of blanket risk assessment, therefore businesses suffer; they have to target investment into long-term viable projects.    
We should not forget the most important capital, human capital— this is about the talents and endless potential locked in Rwandans.

We cannot adequately quantify this talent but this value will increase the more we are educated and accumulate skills.

We might have lower skills sets compared to regional countries, but what we lack in skills we make up for in enthusiasm. Rwandans work longer and harder that most East Africans; this could be our comparative advantage in the EAC, much like the Eastern European nations in the EU are known for high productivity and competitive wages.

However, we will only be able to exploit manufacturing fully when the cost of energy and transport is reduced; otherwise we will have to produce high-cost/high quality goods that can justify the energy costs.

Potential is everything and Rwanda has it in spades; the issue is how to identify it, tap into it and unlock it. 

Ends

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