Last week, National Bank of Rwanda (BNR) governor John Rwangombwa admitted 2015 has been a challenging but, ultimately, a successful year, owing mainly to negative developments in the global economy. What are the prospects like for 2016?

Prof. Thomas Kigabo, the chief economist at BNR, doesn’t expect 2016 to be much improved globally, but expressed strong confidence that the home economy will maintain its steady growth as seen this year.

"If you look at the International Monetary Fund’s latest projections for 2016, there isn’t much growth to expect, globally but locally, we see the fundamentals are quite strong, that is a good sign for us,” said Kigabo.

The International Monetary Fund, in October, revised downwards its growth expectations in the global economy from 3.3 per cent to 3.1 per cent this year. This weak growth is expected to only slightly strengthen to 3.6 per cent in 2016 on account of recovery in developed economies.

Locally, according to the National Institute of Statistics of Rwanda (NISR), the economy grew by 6.1 per cent in the third quarter, the months from July to end of September, slightly slower than the 7 per cent seen in the second quarter and 7.6 per cent between January and March.

Governor Rwangombwa said he expects strong performance to continue into the last quarter of this year, ending December, based on the ‘Composite Index of Economic Activities’ (CIEA) that is showing a growth rate of 10.2 per cent.

The composite index’ is basically a grouping of factors that BNR combines in a standardised way to provide it with a useful statistical estimate of the overall sector performance over a given period of time.

According to BNR statistics, released last week, the picture is looking pretty good with turnovers in the industry and service sectors having increased by 15.6 per cent in the last eleven months (January to November) this year, compared to 15.2 per cent over same period last year.

With only December statistics missing, the indicators posted in the first eleven months show strong evidence to conclude that the economy in 2015 will grow as projected or even stronger than the envisaged 7 per cent GDP expansion rate.

Traditionally, government likes to keep its expectations low. That was the case in 2014 where the economy capped a 7 per cent growth against the projected 6 per cent.

It’s likely to be the same case in 2015; the 7 per cent projection is widely expected by economy watchers to be surpassed.

For instance, the African Development Bank (AfDB) is expecting a 7.5 per cent growth for 2015 and sustained around the same rate in the year to come.

The growth in 2014 and 2015, BNR experts say, is a clear indicator that the country has fully put behind the contraction seen in 2013, when the economy grew by 4.6 per cent, on account of negative developments in development aid flows.

Powering growth

Going forward, the World Bank says, the private sector has a major role to play in ensuring Rwanda’s sustained economic growth; challenges such as unreliable electricity supply, it cautions, remain one of the major constraints to private investment.

However, Rwanda Energy Group chief executive Jean Bosco Mugiraneza believes electricity constraints will be less in 2016 with the coming on grid of the 25 megawatts capacity from the KivuWatt plant.

"The tests are complete from our side; they are now undergoing independent international certification which we expect to be done with by January, otherwise the power is flowing,” Mugiraneza told The New Times recently.

Although KivuWatt current is already flowing on grid, Rwanda will only start buying the power from the investor, ContourGlobal, after the Commercial Operations Day, which will be determined after international certification of the plant; this is expected sometime in January.

KivuWatt is supposed to ultimately generate 100mw and the 25 megawatts accomplishment accounts for the first phase of the project; ContourGlobal, the American energy firm responsible for the project, has already shifted focus to the second phase, targeting 75 megawatts.

The New Times understands that an extra-engine, the fourth, will be added on to the three-engine powered KivuWatt first phase, within a year’s time, to generate an extra 8 megawatts, on top of the 25 megawatts. The 8 megawatts will be counted as part of the 75 megawatts second phase output.

Apart from KivuWatt power, Rwanda is also hoping to start receiving the 30 megawatts imports from Kenya within the course of the next year, which will further boost local supply.

"With these developments and more in the pipeline, we expect to gradually lessen the impact of electricity constraints and spur more investment,” Finance and Economic Planning minister Claver Gatete said at a recent signing of a development agreement between Rwanda and Belgium.

Credit to private sector

With encouraging prospects on the energy front, Rwanda is likely to see a surge in private sector investment during the course of next year; however, these expansionary developments will require the support of the financial sector in extending credit facilities.

According to Prof. Kagabo, the strong economic indicators in the local economy should encourage commercial banks to churn out more credit to the private sector in a bid to continue with the trend seen this year.

The financial sector is ending the year in very good shape and BNR gave it a clean bill of health on all key fundamentals, with a tiny exception on non-performing loans (NPLs), which have remained slightly above the 5 per cent wish-mark, for both banks and micro-finance institutions.

Outstanding credit to the private sector increased by 26.3 per cent as of November 2015, compared to 17.5 per cent in the same period last year.

It’s a trend central bank moved to sustain into 2016 after it kept the key repo rate unchanged, at 6.5 per cent.

But, as BNR seeks to maintain an accommodative monetary stance into 2016, it will have to keep a cautious eye on inflationary movements which shot to 4.8 per cent in November on account of dry season that disrupted food supply and pushed food prices skywards.

In 2016, inflation will remain low globally mainly because of weak demand while, locally, BNR expects price movements to play between 4.5 and slightly above 5 percent.

Export performance

For every single dollar that Rwanda earns from her traditional exports, the country has to spend three more dollars in paying for its import bill, Finance minister Claver Gatete siad while making a presentation during last week’s national dialogue.

As a result, Rwanda has had a long standing balance of payment deficit, which can only be overturned by improving the performance of its exports sector.

In 2015, negative developments on the international market-weak demand on account of slow growth in major economies such as China, weakened commodity prices which saw the value of Rwanda’s exports dropping by almost 8 per cent with minerals being the most hurt.

The impact of that should have been a widening trade deficit; however, that was prevented by the equally low global oil prices which benefited Rwanda, as a net importer of petroleum products.

As a result, Rwanda’s trade deficit slightly reduced by 0.87 per cent to $1.63 billion, from $1.64 billion recorded in the same period last year.

Will things get better in 2016? The IMF expects global growth to pick up from 3.1 per cent this year to 3.6 per cent. Howevr, this growth may not be as strong as required to revive commodity prices on the international market.

To make matters worse, growth in China is projected to reduce further, keeping up a three-year consecutive drop; from 7.3 per cent in 2014, 6.8 per cent projected for 2015 and 6.3 per cent in 2016; this means demand for commodities such as minerals will remain low, a bad sign for Rwanda.

Poor export earnings might also continue to press pressure on forex rates; the Rwanda Franc is likely to have a tough year after depreciating by 7 per cent this year, the worst loss since 2010.

Without misconduct such as speculation, BNR says the pressures will be manageable.

So while 2016 prospects look good internally, the global outlook is not expected to be as supportive; focusing on local and regional opportunities could be wise for Rwanda in order to absorb the external shocks.

In 2015, Rwanda’s trade with East Africa reduced on both exports and import fronts. Exports to the region dropped by 18.8 per cent to $107.5 million in the first 11 months of the year, from $132.3 million over the same period last year.

Imports dropped by 8.9 per cent.

editorial@newtimes.co.rw