Achieving rapid private sector growth in Rwanda is unlikely without far-reaching reforms to economic policies, a new report released on November 13, by the World Bank has shown.
The report notes that reforms to enhance competition, skills, savings, innovation and ICT services are required to stimulate private sector development in the country.
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Athough there has been an increase in private firms participating in international trade, the report argues that the vast majority of them are in the informal sector and are quite small, with many of them operating in low value-added sectors, particularly wholesale and retail trade.
The World Bank notes that the government has made substantial progress in improving the investment climate. However, it says that further progress in strengthening the regulatory framework is essential to boost private sector growth.
Competition
Competition has been cited as one of areas that need urgent reforms.
Rwanda is said to have regulations that restrict competition, worsened by failure to effectively enforce rules against anticompetitive practices, impairing the functioning of markets and firm productivity.
The report also suggests that state-owned enterprises (SOEs), those business entities that are partially or fully owned by government, are crowding out the private sector.
According to the World Bank, over half of SOEs operate in markets that could be served efficiently by private sector firms, raising concerns that privileged access to resources by SOEs or rules that support SOEs could starve more dynamic private firms.
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The government has made efforts to privatise some SOEs, athough progress is said to be slow.The World Bank urged the government to update the legal framework on competition in order to increase private sector participation.
Access to information
According to Jeanne Francoise Mubiligi, Chairperson of the Private Sector Federation (PSF), access to information and crucial data is yet another challenge facing the private sector, one that the federation is working to solve.
"PSF has embarked on building a data bank and a business intelligence unit that will provide our members with crucial data and business information to help address supply chain disruptions among other challenges," she said.
Mubiligi also emphasised on the need for reliable infrastructure and access to affordable long term funding to support private sector growth in the country.
Leonard Rugwabiza, Senior Economic Advisor to the Minister at the Ministry of Finance and Economic Planning, said that the private sector should consider boosting savings.
"To reduce the cost of finance, savings must be increased to make funding available,” he said, adding that the private sector needs bankable projects that are productive and profitable.
He urged the private sector to boost collective investment schemes – investment vehicles that allow individuals to pull resources together for investment purposes – as a source of finance for their businesses.
Rwanda has an ambitious target to become an upper middle income country by 2035 and a high income country by 2050. The World Bank says this target will take greater reliance on more private sector involvement and investment.