Strong institutions, market efficiency boost Rwanda's global competitiveness

The World Economic Forum’s 2015/16 Global Competitiveness report, published this week, ranked Rwanda in 58th position of 140 economies, 3rd on the continent and 1st in East Africa with the authors of the study noting the country made gains in seven out of 12 pillars measured. Rwanda’s new ranking reflects a sustained back to back improvement from 66th in 2013 to 62nd in 2014 and 58th this year. But these gains come at a time when, according to the report, the global economy is still limping even after seven years since the 2008 economic crisis. “Seven years after the beginning of the financial crisis, its consequences are still felt around the world; the recovery has been less robust, more uncertain, and taken longer than many expected, suggesting a “new normal” of low economic growth and low productivity,” read the report. It noted that ‘enhancing competitiveness – understood as higher productivity – is a key driver of growth and resilience,’ the report noted; Rwanda was cited among countries where economies improved significantly giving new hope for stronger and sustained growth. Every year, World Economic Forum researchers analyze 140 economies against twelve pillars to gauge their competiveness and Rwanda’s improved ranking this year has been attributed to gains made in seven out of the twelve. The report found evidence that more competitive economies can systematically outperform those that are less competitive especially in terms of their ability to post stronger economic growth, withstand crises or to recover from them more quickly. How competitive is Rwanda? World Economic Forum defines ‘competitiveness’ as a set of institutions, policies, and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can earn. In Africa, Rwanda has maintained its position among the five top most competitive economies, ranked in third place behind Mauritius and South Africa while leading the pack in East Africa. As the fourth largest economy in East Africa, Rwanda appeared to be the only shining star in a region whose countries continue to be poorly ranked on the influential global index. The region’s leading economy, Kenya, is ranked in 99th position; Uganda is 115th, Tanzania in 120th while Burundi is in 136th in this year’s index, painting a generally uncompetitive picture of the region. Rwanda is located in sub-Saharan Africa, a region that has reportedly enjoyed solid growth rates of more than 5 percent, over the past 15 years but countries’ levels of productivity remain low pointing to weak competitiveness. Although most African countries are resource rich, the recent fall in commodity prices affected many a country’s trade competitiveness, and the normalization of United States economy may lead to increased investor scrutiny of emerging market risk, hence undermining growth prospects. Faced with these uninviting prospects, countries of the Sub-Saharan Africa region are encouraged, by the report, to prioritize ‘competitiveness-enhancing reforms.’ Late last month, US Federal Reserve chairperson, Janet Yellen, said she intends to raise benchmark interest rate before the end of this year after signs that the economy has finally found its feet after the 2008 crisis. Asked how increased interest rates are likely to impact a country like Rwanda, Finance and Economic Planning Minister Amb Claver Gatete told Sunday Times that the recovery of the US economy has already left countries in Africa witnessing a capital flight. “The effect of a stronger dollar is a result of capital flight from the continent going back to US to tap into the newly found growth, and that’s bound to affect us,” he said. With more capital flight prospects, countries in Africa will need to be highly competitive for their economies to either retain investors or attract new ones from other parts of the world. Strong institutions pay Having reliable and effective institutions is the first pillar measured under the global competitiveness index and Rwanda’s private and public institutions were ranked among the strongest in 17th place, globally. The institutions’ pillar looks at elements such as reliability of police services to provide security for business, transparency of government in policy making, undue influence in decision making by government officials, prevalence of irregular payments and bribes and public funds management. Rwanda scored highly under the pillar on account of good performance of the public sector characterized by low corruption levels and transparency in policy making. For example, during the survey, respondents were asked to rate the ethical standards of their countries’ politicians and Rwanda scored highly, with 5.5 on a scale of seven and ranked 8th globally with Singapore topping the scorecard with 6.3. Tanzanian and Kenyan respondents expressed low trust levels in their politicians and were ranked in 64th and 69th positions, respectively; Uganda and Burundi were ranked in 86th and 106th respectively. On the sub-indicator of ethics and corruption (looks at ethical conduct in public sector and levels of corruption) Rwanda was ranked 14th globally out of 144 countries. Rwanda was ranked 5th, globally, for having a secure environment for business to thrive; it scored 6.2 out of a possible seven points. Security, is another sub-indicator on which Rwanda scored highly; respondents were asked questions such as how much they trusted the police to keep law and order and whether they often suffer from acts of violence that lead to business costs. Market efficiency Rwanda also scored highly under the 6th pillar regarding efficiency of markets; the country was ranked among world’s top 50 most efficient markets in 44th position. Under the indicator, countries were evaluated on the soundness and effectiveness of their business laws to promote free and fair competition; here, Rwanda scored nearly five out of seven points and ranked in 34th position globally. For instance, on how effective Rwandan laws are in preventing monopoly and promoting fair competition, the country scored 4.6 out of seven points and seven points and ranked in 26th position globally. Challenges to competitiveness However there are sub-indices where Rwanda was exposed to be lagging behind or had lost ground; one such area is ease to start a business, an area that Rwanda was only a few years ago, ranked to be the best not only in the region but also in Africa. Under market efficiency, countries were also evaluated on the number of procedures involved in starting a business; Rwanda was ranked in 93rd position while Burundi was placed in 9th position globally. According to Rwanda Development Board, it takes just about six hours to register a business in Rwanda, which, ideally should be one of the world’s fastest procedures to undertake. Yet according to the global competitiveness report, there are about eight procedures required to register a business in Rwanda compared to Burundi’s three procedures which explains the difference. Nonetheless, commentators in Kigali welcomed the new competitiveness ranking on account of Rwanda’s back to back improvement and the government’s commitment to continue reforming policies for better results. “Over the last few years, we have seen positive rankings by various indices and consequently we have seen a surge in interest in Rwanda by major corporations and investors. It is likely that the trend will continue,” said Teddy Kaberuka, an independent economic analyst. editorial@newtimes.co.rw

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Strong institutions, market efficiency boost Rwanda's global competitiveness