The Africa narrative has been changing over the last three decades. It was first the hopeless continent, and then a new light of hope and optimism was cast in the 2000s indicating that Africa was rising.  Growth was indeed rising, some countries benefited from the debt relief, foreign direct investments rose rapidly and commodity prices were equally on the rise.  Growth was resilient for the decade ending 2010. Fast forward, in 2016, Sub Saharan Africa grew at 1.4 per cent - the lowest in two decades.

Juxtaposed, with the population, there was negative per capita growth. Growth rebounded to 2.8 per cent in 2017 – which is barely any growth in per capita terms.

The overarching message – is that modest growth rates (lower than Africa rising) are being discounted by high population growth. In fact, Africa is the only continent that is yet to undergo demographic transition in terms of low fertility rates. The idiosyncrasy is that the poor that have more children than higher income bracket – thereby creating dependency and higher needs on public sector.  A poor household is larger than a medium income household.

High population growth has entrapped the many African countries into the low income (poor) country category.

In Eastern Africa (the East Africa Community and Horn of Africa), only Kenya is a lower middle income country with a GDP per capita above USD 1006 (lower threshold) despite being the second largest economy in that region after Ethiopia (the second most populous country after Nigeria).

Rwanda aims at attaining middle income by 2020.  Rwanda’s population is projected at 12.7 million in 2020, which means all factors constant, it requires a GDP of  USD 12.7 billion (population times the lower income threshold of USD 1006) in 2020 compared to the current  GDP of USD 9.1 billion.

This means the economy must expand by 40 per cent over remaining period or by over 14 per cent per annum.

Also compounding the current GDP per capita of USD 772 by the current 4 per cent per capita growth per annum means that middle income would be feasible in 2024 – consistent with the National strategy for Transformation.

However, this 2024 middle income projection for Rwanda holds exchange rate movements constant. A number of African currencies continue to endure depreciation against major trading currencies and the risk is even more pronounced over the first half of 2018.

This is in part attributed to the prevailing trade deficits and expected to widen due to recent increase in oil prices.

Also the recent World Investment Report 2018 indicated that Foreign Direct Investments to Africa reduced a 10 year low in 2017.   Rwanda franc has had an annualized depreciation against the US dollar of 6 per cent over the last six years and has so far depreciated by 4 per cent this year.  The projected increase in trade deficit to about 10 per cent of GDP in 2018 will likely increase the depreciation pressure on the Rwf.

Domestic currency depreciation has far reaching effects on economy both in the short term as well as long term.  An example is that 80 per cent of Rwanda’s debt of USD 4.4 billion (48% of GDP) is external and thus has to be paid in foreign currency.   Applying the depreciation of Rwf30 against the USD this year on external debt (USD 3.5 billion), tantamount to an increase in public debt in by Rwf by 105 billion – which is approximately 6 per cent of domestic revenue.

This is sizeable and continued depreciation would enhance Rwanda’s debt exposure from the current low debt stress.  Additionally, 40 per cent of the capital expenditure in budget FY 2018/19 is expected to be external and thus higher expenditure envisaged.

Lastly the low income trap is usually associated with a small middle income class. One simplistic indicator is the stock of privately owned cars on the roads. In Rwanda, the issued car number plate series from RAA to RAD translate to about 100,000 cars.  If this is a meaningful proxy of middle income, the class would be small. The car to people ratio in Rwanda is estimated at 1:100.

Broadly, the implementation of the policy reforms in the National Transformation Strategy should go a long way in mitigating the growth down side risks and medium term social economic vulnerabilities. This will be essential for meeting the Sustainable Development Goals.

The writer is a PhD holder,is a Kigali based economist.

The views expressed here in are personal.