On June 27, 2018, the first domestically built Volkswagen Polo rolled out of the brand new VW’s assembly plant in Kigali. This event resulted from a US$20 million investment made by the Volkswagen Group, the world’s largest automaker, in Rwanda. For Rwanda, this has been a landmark achievement. It is arguably one of the very first visible successes in Rwanda’s quest for attracting foreign investment.

Over the past decade, Foreign Direct Investment (FDI) has become widely recognized as a major contributor to growth and development. It can bring capital, technology, know-how and access to new markets. In comparison with other forms of capital flows, it is also more stable, with a longer-term commitment to the host economy. For the past 25 years, reforming the economy and promoting economic growth has been the main focus of the Rwandan Government. Regulatory and institutional reforms have been undertaken to make doing business in Rwanda more attractive. Now, through the Rwanda Development Board (RDB) and other bodies, attracting foreign investments has become one of its key strategies.

According to UNCTAD’s investment guide to Rwanda, the country has made good progress in attracting foreign investment, but challenges remain. The challenges investors are likely to encounter are primarily linked to three factors: 1) Rwanda is geographically landlocked, the closest sea being more than 2000 km away; 2) shortage of qualified human resources, in all domains; and 3) Rwanda does not have a strong history of a private sector-led economy. Some solutions to these challenges are long-term such as the creation of a well-educated and highly skilled workforce. Others are beyond the control of Rwanda, such as the improvement of land transport routes through neighbouring countries. Still, other solutions are within reach.

An investment can be compared to planting seeds. It comes with the expectation that something grows out of it. For FDI to achieve a return on investment, it requires, on the one hand, a vibrant and conducive business environment and on the other hand a market that can absorb its products. This is where local entrepreneurship comes in. Looking at the relatively modest financial contribution of local small and medium enterprises in Rwanda to the national economy, some argue that developing small and medium entrepreneurship should not be a high priority for the government. This however would be a capital mistake. Local entrepreneurs contribute to the availability of skilled manpower and they are prime drivers of a private sector-led economy by providing reliable products and services. Moreover, local entrepreneurs never work in isolation. They are an integral part of the business ecosystem, defining the business culture and contributing to the business environment in which companies operate. All of these elements play an important role in making Rwanda a country people want to invest in. In addition, Rwandan entrepreneurs will always be invested in Rwanda, even when the economy goes through bumpy times. This offers the kind of stability that is needed to make Rwanda an attractive country for investment for decades to come.

For local entrepreneurs, foreign investment poses both a threat and an opportunity. The obvious threat is that the international high-level competitors will drive them out of the market because of the expertise and financial resources that are available to them. But there are also numerous opportunities. Foreign investments tend to raise the standards of professionalism resulting in better products and better services, enticing Rwandan entrepreneurs to do the same. Foreign investment also creates new supply and complementary markets for Rwandan entrepreneurs can occupy. Foreign investments and local entrepreneurship are therefore strongly interlinked. In the same way as a tree cannot grow in a desert, foreign investment cannot succeed without a vibrant small and medium entrepreneurship ecosystem. Rwanda, therefore, needs to continue to strategically invest in local entrepreneurship as part of its overarching vision. In the long run, Rwanda can only be successful if Rwandan entrepreneurs can make most of the opportunities that come with foreign investment; and vice versa.

Alice Nkulikiyinka is the Country Director of Business Professionals Network (BPN) Rwanda. She is also a board member of Rwanda Development Board (RDB) and I&M Bank. With more than ten years of experience working in the Business Development Support sector, she is a leading expert on entrepreneurship and economic development in the country.