EDPRS: Rwanda’s investment regime is designated as the engine of its economic transformation

BY GODFREY NTAGUNGIRA Rwanda’s recovery is now premised on its new focus of attracting new forms of investment inflows in the form of Foreign Direct Investments(FDIs). This policy shift is actually a departure from the previous one which was centered around dependency on aid which had characterized the post genocidal period of 1994-2004.Promotion of investments and trade is one of the key pillars of its roadmap into the future, the Vision 2020.Rwanda’s investment promotion is premised on the need to facilitate the structural transformation of the economy toward industry and services, underpinned by the creation and sustenance of a knowledge based economy. Although progress realized so far is impressive given the situation inherited in 1994, much remains to be done to upgrade the entire economic situation. A number of programs are on course in a concerted bid to help with the national efforts geared towards transforming Rwanda into a centre of excellence in ICT and public service. These two elements would be central to the strategy of turning Rwanda into an attractive business location as it is expected that its public service innovations which among other innovations is ICT driven is likely to have a very positive impact on how to regulate business across board within the newly emerging private sector. Investment Code Rwanda’s Investment Code defines investment as the creation or acquisition of new business assets or the expansion, restructuring or rehabilitation of existing business enterprise. Investment promotion involves all activities aimed at encouraging greater infusion of investments to fuel growth as well as enhancing the image of the country as an ideal location for investments. By its very nature, therefore, investment promotion is not sector specific. Instead, its scope is overarching and cross-cutting in nature. Rwanda’s leadership realizes that economic growth must be driven by focused public and private sector investments as well as taking the necessary legislative and policy initiatives aimed at enhancing the country’s attractiveness as a base for business. Accordingly; the Investment Promotion Policy is designed to provide a framework within which present and future investment strategies and actions will be undertaken in a focused manner if Rwanda is to realize its growth objectives in line with Vision 2020 development expectations. The strategies and programmes in this policy document are directed towards: * Expanded production and value addition in traditional exports: tea, coffee and tourism* Diversification of the export base: leather, horticulture, handcrafts, etc* Focus on high value, innovative products and services* Creation of Brand ‘Rwanda’ distinctively different from the rest* Enhanced institutional competitiveness in investment promotion Rwanda’s National Investment Strategy envisages the increase of total investment from 22% in 2005 to 30% of GDP by 2020. This envisaged accelerated growth will require significant expansion and deepening of investment as well as export performance. By implication; investment promotion must come into play to mobilize more infusion of capital, mainly private, necessary to drive targeted growth levels. Investment opportunities Investment opportunities are existent in just about any sector. Rwanda’s investment promotion is undertaken with the viguor of private sector style of operations. Welcoming and assisting private sector investments into the economy is steeped in what is known as red carpet promise. An investor seeking a gateway into Rwanda will find various forms of incentives. To boost the manufacturing sector Rwanda has embarked on an 11-year industrial Master Plan that will see the country revamp and rejuvenate the manufacturing sector to make it more sustainable and development oriented. The Rwanda Industrial Master Plan (RIMP) running from 2009 to 2020 focuses on how to revamp, develop and sustain the Country’s Manufacturing Sector over a medium and long term period, in line with Vision 2020. In the short term, each district shall be asked to identify areas that are to be reserved for Industrial activities, seek the Environmental body to clear the areas as regards the targeted industries and have these as available for investors. In pursuing a targeted investment approach during the period, appropriate facilities will be provided to enhance the investment environment and attract specific industries to the country. The Manufacturing sectorSector Growth and Contribution to Gross Domestic Product The manufacturing sector has been one of the important sources of the country’s growth, expanding by an average of 6.2%. The share of the sector in GDP increased from 6.8% in 2003 to 7.3% in 2007. This indicates that while the manufacturing sector grew substantially per annum, the growth in other sectors, particularly the services sector was as pronounced leading to a more sustained contribution of the manufacturing sector. Based on data collected from 44 large industries , there were approximately 46,000 people employed in the manufacturing sector. Based on the performance of 43 responding large manufacturing concerns reviewed in a 2008 Survey, the Mean Manufacturing output of these concerns increased from Rwf.157 Million in 2003 to Rwf. 622 Million in 2007. For these same entities, the output per employee averaged Rwf.3.2 Million per annum while the sales turnover per employee averaged Rwf.1.05 Million per annum. Shift towards higher technology and capital The shift towards higher technology and capital-intensive activities in the manufacturing sector was indicated by greater investments in higher technology and capital-intensive projects and a greater proportion of skilled workers employed. Capital intensity of investment projects is measured by the capital investment per employee (CIPE) ratio of projects approved. Compared to the 3 year period to December 2004, there was a remarkable improvement in the CIPE ratio of approved investments in the 3 year period to December 2007 with the ratio increasing from Rwf.13.7 Million per employee to Rwf.78.5 Million per employee. The manufacturing sector is envisaged to grow its contribution of GDP to 26.5% by 2020. For this to be achieved, the growth rate of the Sector will need to increase significantly from the current 7% to over 14% over the period. To achieve such growth prospects, various industries in the manufacturing sector have been targeted for further development and promotion. Manufacturing is expected to feed onto the export sectors by boosting its capacities by at least 15% to enable achievement of the Vision 2020 targets. Particular emphasis is to increase the value addition component of the exports made by the country. To achieve the targeted growth in the manufacturing sector, Rwanda will seek for and attract investments in higher value-added, technology oriented and knowledge-intensive activities. Greater efforts will also be made to enable existing industries to enhance their technological capabilities, as well as expand and diversify their products and activities. In the quest for greater competitiveness for investments, both the public and private sectors will be encouraged to enhance their collaborative roles. While the government will continue to make the investment environment more conducive, through enhancing the institutional and infrastructure support, regulatory regime and delivery system, private sector institutions will be encouraged to be more proactive in undertaking measures to enhance their productivity, efficiency and competitiveness. Industrial growth and poverty eradication Due to the increased economic activities brought about as a result of industrialisation, some progress has been achieved by the Country over the past 5 years, in terms of increasing overall incomes and reducing extreme poverty among a number of Rwandans. There was a marked reduction in the overall incidence of extreme poverty from 41.3% to 36.9% according to a recent survey. Poverty continued to be primarily a rural phenomenon, with over 90% of the poor residing in rural areas. Nevertheless, urban poverty, while low and declining, remains a concern. With greater economic opportunities in Kigali City generally viewed as the reason for the raising of the quality of life and economic prosperity, this may contribute to a rural-urban drift in turn, which may increase pressure on urban areas, and eventually contributing to urban poverty. Equity within Industrial growth While greater industrialisation and economic growth have been proven the world over to be driving forces for raising incomes and living standards over the years, they do not, by themselves, ensure that the benefits of growth are equitably shared among all segments of the society. To be developed in line with Rwanda’s Vision 2020, industrial growth requires a full partnership and fair economic participation among all sectors of the Rwandan society. The fundamental challenge of pursuing industrial growth with equitable distribution includes the need to gain the confidence of and commitment from all development partners. The overriding objective of the EDPRS framework is to achieve industrial competitiveness through innovation and transformation of the manufacturing and services sectors, while contributing to the other development thrusts of the Country’s mission as laid out in the Vision2020. Emphasis is given to upgrading technology in use by existing industries, attracting and generating quality investments, developing innovative and creative human capital, and integrating Rwandan industries and services into the regional and global networks and supply chains. This framework acknowledges that to attain middle income nation status, Rwanda needs to pursue policies and programmes which enhance its capacity to compete regionally and globally and bring about a better distribution of income and wealth through meaningful participation of all groups in the competitive and productive growth processes. Economic growth prospects The Rwandan economy is targeted to grow at 7% during the period of 2009-2020. This target is premised on: i. The manufacturing sector gaining significant growth momentum;ii. The services sector becoming a major source of growth;iii. Greater focus being given to developing the agriculture sector;iv. The private sector assuming a lead role in generating new investments; andv. The public sector enhancing its delivery system. After stabilization following the post genocidal reconstruction period from 1996-2000 where the Real GDP of the Economy grew at 10%, the country registered a moderate growth of 6.4% over the 2001-2006 periods. As per the Economic Development and Poverty Reduction Strategy (EDPRS), the economy is expected to grow at a higher rate of 8.1% by 2012. Subsequently, during the period 2013-2020, the economy is targeted to register an average annual growth of 9%. The Industrial Sector will continue to remain an important component, with growth rate expectation pegged at 12% annually by 2012. It is expected that the non-government services sector will assume a major role during the envisaged period, growing to contribute 42% to the economy in 2020. Greater focus will also be given to the development of the agriculture sector. Rwanda has experienced strong Trade performance indicators with exports growing at an average rate of 12.5% each year since 2001 and reaching an estimated US$ 152 Million in 2006, more than twice the receipts generated in 2002. Due to high capital requirements for the country’s development, import growth (averaging 15% between 2001 and 2006) has been outstripping export growth leading to a widening of the trade deficit as a percentage of GDP from 8% in 2001 to 12% in 2006. Between 2007 and 2012, the export growth rate is targeted to grow from the current 10% to 15% per annum. While the major components of exports still remain more or less traditional (Coffee, Tea and Mining), it is planned that new export items such as agro- based and food processing related products will play an increasingly dominant role. To supplement the product based export side, major services sub-sectors targeted for greater development and export promotion include tourism, business and professional services, and ICT related services. Agricultural sector The agricultural sector, while one whose contribution to GDP is expected to reduce in percentage terms, will however, still remain a significant source of growth. The Sector will be transformed over the EDPRS period with a view of refocusing it into a highly productive, high value, market oriented sector with forward linkages to other sectors. Efforts are being crafted to revise this situation. The target for the sector is increasing its contribution to GDP from Rwf. 560.63 billion in 2005 to Rwf.2,377 billion in 2020 or by 323.99%. The services sector growth and contribution to GDP Over the past 5 years, average annual growth of the services sector was 8%. In 2003, the sector contributed 43.7% to GDP. By 2007, the contribution of the sector had increased to 48.2% of GDP.At the services sub-sector level, the non-Government services sub-sector recorded an average annual growth of 8.7% with a contribution rising from 30.4% in 2003 to 34.9% of GDP in 2007. Research and development In general, local companies have not given adequate focus on research and development efforts to facilitate the shift towards higher value-added activities. This lack of focus by local companies has placed them at a disadvantage vis-à-vis their competitors in the region, in terms of quality, innovativeness and attractiveness of products and services. Human resource to boost economy In line with the Country’s Vision 2020, during the period starting 2005, Employment outside the Agriculture Sector is targeted to increase from 200,000 jobs to 1.4 million jobs. This plan is to be fostered through the significant growth to be recognized through the Services and Industry Sectors. The Services and Manufacturing Sectors combined are expected to account for more than 80% of the increased jobs in the economy over the target period. Reports indicate that the manufacturing industry, including beverages and tobacco, provided employment to 26,870 persons, or 59%, of the total employment in the manufacturing sector as at June 2008. As the Industry sector expands into higher value-added production, a greater number of food technologists, chemists and nutritionists, as well as skilled workers are expected to be employed to handle more sophisticated machinery and as part of the international requirements on product safety and quality. As Rwanda attracts more industries and the existing industries are expected to adopt greater forms of mechanization, automation and shift towards higher value-added activities, there will be a higher requirement for a knowledge-intensive workforce. This requirement is expected to be met by qualified Rwandans, as well as expatriates. Labour-intensive industries will be encouraged to plan their human resource requirements to progressively reduce their dependence on low-skilled labour. Rwanda’s national investment strategy envisages the increase of total investment from 22% in 2005 to 30% of GDP by 2020. This envisaged accelerated growth will require significant expansion and deepening of investment as well as export performance. By implication investment promotion must come into play to mobilize more infusion of capital, mainly private, necessary to drive targeted growth levels. Ends

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EDPRS: Rwanda’s investment regime is designated as the engine of its economic transformation