Although small, densely-populated and landlocked, Rwanda seems to be firmly in the radar of potential investors. Why is it that investors are flocking to this country? Questions posed to some recent investors in the financial services sector provide many of the answers.
Although small, densely-populated and landlocked, Rwanda seems to be firmly in the radar of potential investors. Why is it that investors are flocking to this country? Questions posed to some recent investors in the financial services sector provide many of the answers.
With a GDP growth rate at an impressive 11,2% for 2008, recognition for being one of the safest and most transparent countries in Africa and a President who does all he can to court business leaders, the economic potential of the country is gaining attention.
In fact, Rwanda was ranked in the top 20 global reformers in the Doing Business 2009 Report published by the World Bank. Almost 15 years after the genocide which defined modern world view of Rwanda, the citizens seem eager to paint a different picture in people’s minds - especially those of potential investors.
There are numerous sectors showing growth and promise - notably construction, agriculture, tourism, ICT and retail. The largest single investment in Rwanda to date is ContourGlobal’s $325 million Kivuwatt project, which will be the first large scale facility to extract methane gas from Lake Kivu.
But investment in almost every other sector of the economy proves that smaller investments are not only possible but welcome.
Financial sector
Considering that just a few years ago a World Bank/IMF Financial Sector Assessment Programme mission diagnostic of the financial sector in Rwanda concluded that there were serious weaknesses in the system leading the government to urgently develop a Financial Sector Development Programme, it seems particularly impressive that despite constraints to business, the country has recently managed to attract interest from a range of companies in the banking and financial sector.
What is interesting about the investment into the financial sector is the fact that much of it has come from other African companies.
The Kenya Commercial Bank, KCB (which already operates in Kenya, Uganda, Tanzania and southern Sudan) entered the market in 2008 and reportedly plans to open 8 branches in the country.
Nigeria’s Access Bank (which has been expanding rapidly) has acquired 75% of the shares in Bancor S.A. - the 4th largest bank in Rwanda.
Group Managing Director, Aigboje Aig-Imoukhuede, says that it intends Bancor to become its anchor for development in the East African region, by growing its market share and building scale in countries such as Tanzania, Uganda and Kenya.
"Access Bank is planning to leverage its international alliances by attracting critical financing for the achievement of the socio–economic growth objectives of Rwanda. Particularly, in partnership with the International Finance Corporation (IFC), it intends to provide capacity development and managerial assistance to women in business”.
Another Kenyan Bank, Fina Bank, is also operating in Rwanda as is EcoBank, one of the largest independent retail banks in West Africa. UBA (United Bank for Africa) another Nigerian bank, is apparently eyeing this small East African country as well.
Blue Financial Services, a South African micro-finance institution, is the first micro-finance institute to partner with the Rwandan government to bring micro-finance to its employees.
Morné Reinders, Group Corporate Affairs Executive says, "Since a large portion of civil servants are unbanked, the Group is currently in the process of applying for a deposit taking license to expand its offering to savings products as well. Some research indicates that Rwanda is the most densely populated country in Africa. This enables Blue to reach the majority of the population through a select number of strategically placed branches.” He is full of praise for the authorities echoing many of the sentiments expressed by those eager to see Rwanda flourish.
"The Rwandan Government pro-actively addresses the perception of ‘brown envelopes’ needed to conduct business and shares Blue’s zero tolerance policy. Very closely aligned to this is the ease in which business can be conducted. To facilitate investment in that country, the Rwanda Investment and Export Promotion Agency (RIEPA) has been established. The actual red tape usually required to work through was largely mitigated by the active involvement and support of RIEPA” he claims.
Reinders cites the support received from the Rwanda Embassy in South Africa in guiding Blue’s expansion efforts as an example of how Africa can position itself as an investment destination of choice. Interest in the investment potential of Rwanda’s financial sector is not coming just from African companies though.
In June 2008 the Dutch Rabobank Group acquired a minority share in co-operative Banque Populaire du Rwanda (following several years of working with the company) and subsequent developments have provided a bit of a wake-up call for competitiors in the formal banking industry. ShoreCap International, a consortium of international financiers, acquired shares in the local Cogebanque last year.
German company African Development Corporation or ADC (with financing from Altira) has bought a 25% stake in the Rwanda Development Bank and has acquired a controlling stake in Simtel, the national electronic payment transactions provider.
Dirk Harbecke, CEO of ADC says, "We consider Rwanda as an exciting, stable and very promising hub for a further expansion into the East African Community. ADC is especially impressed by the drive of the private sector and the high number of creative entrepreneurs. The authorities spend a lot of time on building the right framework for private sector investments.”
When asked about future plans for Rwanda he replied, "ADC will continue to invest selectively in Rwanda and build on our excellent relationships with public and private sector, especially in the field of financial services.”
These investments in the financial sector are certain to improve competition, service levels and product offerings and will therefore smooth the path for investment into almost every other sector of the economy.
One has the impression that the authorities in Rwanda are well aware of the constraints and challenges to doing business in Rwanda but they are pro-active in addressing them and that sends a positive sign to investors eyeing the prospects of the region.