Rwanda reaps big from Serena, RwandAir

Ghanaian Professor Stephen Adei once said, ‘leadership is cause; everything else is effect.’ There is probably no better statement to summarise Rwanda’s successes than this quotation; everything the country is credited for, today, can be regarded as a sum total of Rwanda’s leadership. In a candid interaction with participants at the launch of the Rwanda-Kenya Business Forum held at the Kigali Serena Hotel last weekend, President Paul Kagame revealed how he laboured to explain to economists the benefits of direct government investment in Serena Hotel and RwandAir. Drawing up scenarios of guaranteed failures, the experts said such a move would not pay off. However, the decision to choose logic over theory paved way for one of the keys for Rwanda’s success and sheds some light on the kind of leadership style that has enabled Rwanda’s progress in record time. There are very few African countries receiving a substantial amount of aid in form of external budget support that could have dared to go against the advice from International Monetary Fund (IMF). But, maybe, a little ‘defiance’ is what most post-independent Africa needs to make a difference. That ability to know when to accept or reject advice even when it is the world’s most revered institution or consultants providing it. At the time of constructing Serena Hotel, Rwanda’s economy was thirsty for growth catalysts; peace and stability had breathed life in tourism, but there were no hotels to accommodate visitors. Experts wanted private investors to fill that gap. The Government put in place a number of incentives to attract private money. But the response was lukewarm. “The private sector will put their money where they want to, not where the Government tells them to,” said Kagame. Owing to that reality, Kagame’s administration seems to have decided on a strategy based on the principle of ‘leading by example’, where government acts as a model investor to encourage private players to follow suit. Economists are right; governments are not that good at running businesses, but like the President said, Rwanda is not in business to do business, but to encourage businesses to do business. Today, the private sector is fully in charge of the Kigali Serena Hotel, and, gradually, RwandAir will also find a suitable suitor. Logic vs economic theory Economists are certainly clever people on whose theories national economies are founded, but as the decisions of Rwanda have demonstrated, theories should not be allowed to supersede logic and context. In 2011, the International Finance Corporation (IFC), a member of the World Bank Group commissioned a study to assess the economic impact of the then 148-room Kigali Serena Hotel. The research found that the hotel had generated US$85 million of economic activity in its first few years of operation; with US$64 million related to the local Rwanda economy, primarily by way of payments to government, staff salaries and purchase of local goods. At the time of the study, the hotel directly employed 350 permanent staff. With jobs created indirectly through suppliers, the number of employees was estimated to be over 1,100 people. The study also found that Serena Hotel had paid the Government close to US$16 million in a period of five years, in concession fees, VAT, employee income tax, social security, corporate tax and district tax. Although the hotel is managed by Kenyan investors, the study found that there was only a handful of expatriate staff and 89 per cent of the wages and salaries were paid to local Rwandans who spent 70 per cent of their take-home pay on food, housing and education. The study also found that Serena Hotel had invested in cultivating local supplier networks with indigenous small and medium enterprises (SMEs), in the process promoting private sector development in Rwanda. For instance, local sourcing of fresh fruit and vegetables alone by Kigali Serena Hotel, the study found, had created some 177 jobs. The success of Kigali Serena Hotel has since inspired a number of investments from the private sector which has boosted the performance of Rwanda’s service sector. There are over 200 hotels and 4,500 hotel rooms in Rwanda, with investors enjoying an upper range average occupancy rate of 70 per cent, where foreigners account for 97 per cent of bed nights sold, according to information from Rwanda Development Board. According to the National Institute of Statistics, Rwanda’s gross domestic product (GDP) rose by 7.6 per cent in the first quarter of 2015, with the services sector where hotels are categorised contributing 48 per cent compared to agriculture’s 31 per cent. Then, there is the case of RwandAir. Despite experts predicting its failure and advising against investing in an airline, President Kagame chose to look beyond the airline’s profit at least in the short term, instead prioritising the potential for benefits for the people of Rwanda and the region. As President Kagame explained during the first Kenya-Rwanda Business Forum, the Government did not choose to invest in an airline for commercial purposes, but rather to facilitate local and regional businesses to make money. Within five years of government-aided operations, RwandAir has close to 20 destinations in at least 12 countries; this has boosted tourism and widened market opportunities for the private sector. “If you compare the so-called ‘loss’ and how much money local businesses have made, the benefits are significant, and I am yet to be proven wrong,” Kagame said amidst applause from the audience. The President’s audience of over 200 people included a delegation of business executives who traveled from Nairobi; more than half of who flew with RwandAir, according to Kiprono Kittony, Chairman of the Kenya National Chamber of Commerce and Industry. Like Serena Hotel, RwandAir too will be eventually handed over to a competent private firm, but the Government will have done its part – breaking the hard ground that may have been inaccessible to a private investor. What if Rwanda had obeyed expert advice not to invest in the hotel or the airline? Clearly, a little defiance is necessary to make the right decisions, and both Serena Hotel and RwandAir are a good example.

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Rwanda reaps big from Serena, RwandAir