Building a knowledge economy
Against the background of the destruction from the genocide and the postwar resource constraints, Rwanda is a case study of success in postconflict reconstruction. Invigorated by its leadership and the ability to guide national development, Rwanda has made great strides in improving the business environment. Private investment has risen since the introduction of a revised tax code and implementation of business reforms after 2005. Exports have increased, and export diversification is beginning in areas prioritized by government. Reflecting these developments, the country moved from last on the transformation index in 2000 to 18th in 2010.
Elections are held at presidential, parliamentary, and local levels. Leaders are accountable to the electorate through performance contracts and annual progress reports. Although Rwanda has come a long way in reforming its civil service, low capacity results in high turnover, especially for mid-level positions, which adversely affects the continuity of government programs.
Government is working to strengthen the interaction and communication links between central and local government through consultative meetings and planning. Increased collaboration with development partners in harmonizing performance across sectors has improved the overall quality of the policy dialogue. Institutional capacity for planning and budgeting in the civil service in Rwanda is generally low due to the low human resource base. The National Institute of Statistics suffers from this weakness.
Rwanda moved up to 70th on the Global Competitiveness Index in 2012 (third in Sub-Saharan Africa after South Africa and Mauritius). Rwanda also improved its ranking from 143rd in 2009 to 67th on the World Bank’s 2010 Doing Business report. Committed to sustainable economic growth coupled with job creation, Rwanda has made impressive progress in rehabilitating and stabilizing its economy.
Rwanda’s Vision 2020 aims to build a knowledge-based economy and to become a private sector–led middle-income country by 2020. The Economic Development and Poverty Reduction Strategy is the mid-term framework to implement the long-term development agenda. The Rwanda Development Board is a one-stop center for attracting FDI and increasing jobs in the different sectors of the economy). An annual leadership retreat addresses short-term priority issues aimed at private sector–led growth. And the Strategic Investments Plan boosts Rwanda’s export growth through selected investments. Rwanda’s private sector is small but growing, comprising family businesses, small and medium- size enterprises, and a few large companies and cooperatives.
Falling transport and communication costs have fragmented much manufacturing production into trade in tasks. The opportunity to trade in tasks can simplify entry to international markets for industrial late-comers such as Rwanda, which no longer need vertically integrated industries to enter world trade.
Rwanda should thus take advantage of information technology-enabled shared services and business process outsourcing. It should also continue pursuing its long-term objective of positioning itself as a regional hub and a location that provides lower costs for high-value shared services. This will enable it to attract international companies in sectors such as banking to establish operations in Rwanda together with their service centers.
Rwanda’s opportunities in manufacturing lie in silk textiles, fruits, dairy products, and vegetable processing— and in services like niche tourism and business process outsourcing. Rwanda has also identified financial services, engineering, construction, ICTs, agribusiness, mining, and transport as priorities.
The government has established horticulture, hides and skins, handicrafts, and pyrethrum as priorities for investment promotion. But it will have to overcome productivity and human resource challenges.
Rwanda should continue to deepen its efforts in facilitating trade and promoting conformity with standards to increase exports in both regional and international markets. The government has reduced tariff barriers through the negotiations in the East African Community trade bloc. But several nontariff barriers to trade remain. Rwanda faces the highest cost for exporting containers in the East African Community. The time to export a container in Rwanda is 42 days, compared with 24 days in Tanzania. The cost of transporting a container from Mombasa to Kigali (including all customs payments) amounts to 53% of its value.
Rwanda’s growth with depth
- Transformation—18th of 21. Rwanda improved from last in 2000 (1999–2001) to 18th in 2010 (2009–11) on the overall economic transformation index.
- Growth. Average growth in GDP growth in the five years after the genocide—1996 to 2000—was 7.3% a year, but per capita growth was a low 0.6% a year, most likely reflecting the impact of returning refugees. From 2001 to 2010 GDP growth averaged 6.4% a year, and GDP per capita growth 4.2%. In the 15 years from the end of the genocide to 2010, Rwanda’s GDP per capita rose by 63%.
- Diversification—13th. The share of manufacturing in GDP is low—falling from 7.2% in 2000 to 6.8% in 2010. But the share of the top five products in exports fell from 96% in 2000 to 79% in 2010, a very significant improvement in commodity export diversification. The share of manufacturing and services in exports rose from 32% to 50% over the period—again, a significant movement on export diversification. Reflecting these movements, Rwanda’s rank on diversification improved from 18th to 13th.
- Export competitiveness—13th. Rwanda’s export competitiveness rank remained unchanged as its relative export intensity of production moved only from a low 0.32 in 2000 to 0.33 in 2010.
- Productivity—16th. Rwanda moved from last on productivity in 2000 to 16th in 2010. Manufacturing value added per worker as well as cereal yields doubled over the period—the former from $5,425 in 2000 (in 2005 US$) to $11,082 in 2010, and the latter from 862 kilograms per hectare to 1,876.
- Technology—13th. Rwanda significantly improved its rank on technology from 20th in 2000 to 13th in 2010. This was primarily on account of the share of medium and high technology in exports rising from under 3% in 2000 to almost 11% in 2010. The share in production stayed around 7%.
- Human well-being—19th. Rwanda’s rank remained unchanged. GDP per capita (PPP 2005 US$) increased from $660 in 2000 to $1,081 in 2010. But still Rwanda is very poor. According to the 2006 national household survey, 57% of the population was below the poverty line, with 37% of the population in extreme poverty.