Cost of borrowing, utilities, key challenges for investors – report

Despite of the significant efforts made by government to ease doing business and thereby increasing investments in the country, there remains key bottlenecks that, if addressed, can boost these efforts. Some of these challenges, according to a parliamentary report, include expensive utilities like electricity, the cost of borrowing and taxes. The report was compiled by parliamentary standing committee on economy and trade from their analysis of the national investment policy enacted in April 2017. The same report was adopted by the Plenary Session of the Chamber of Deputies on Monday, July 18. The following are the major bottlenecks that the report exposed as impeding businesses and should be addressed, according to the legislators. Expensive loans Overall, the committee reported that the private sector decried the fact that getting financing was expensive. Reasons for that include high interest rate charged on loans by banks and other financial institutions plus strict collateral requirements. These factors, they said, are prohibitive mainly for start-ups and small and medium enterprises (SMEs). MP Théogène Munyangeyo, the Committee Chairperson said that the average loan interest was 15.92 per cent, according to the National Bank of Rwanda’s report of February 2021 on interest rate. Speaking to The New Times, Callixte Kanamugire, Chief Advocacy Officer at the Private Sector Federation said that the issue of expensive loans was also compounded by lack of timely access to the needed funding. He said that interest rates vary, depending on factors including the nature of the project, and the risk appreciation by the lender, but indicated they are largely between 16 per cent and 19 per cent. “High interest rates can be one of the factors that leads to non-performing loans. And, sometimes loans are not available on time. Generally, access to finance remains an issue,” he said, citing farmers who need financing but in some cases, some end up getting it after the farming season is over. Costly electricity and water Also, during the interaction with the Ministry of Trade and Industry, MP Munyangeyo said it was observed that businesspeople continue to voice concerns that the cost of electricity and water which is very high. Even during discussions with the Ministry of Agriculture and Animal Resources, he said, it was realised that the costly electricity was a challenge for irrigation schemes, which farmers cannot afford. As a result, the expected farm output is not attained. According to electricity tariffs set by the utilities regulator from January 21, 2020, for the industrial customer category, energy charge is Rwf134 per kilowatt-hour (KWh) for small businesses, Rwf103 per KWh for medium businesses, and Rwf94 per KWh for large businesses. A KWh is about the same amount of energy that can power a typical microwave for a one- hour period. Given that a small business in the industrial category consumes at least an estimated 22,000 KWh annually to run its operations, the cost would amount to about Rwf3 million per year (with a KWh priced at Rwf13). For water, the flat rate for industrial water use is Rwf736 per cubic metre (m3). Kanamugire said that for industries that use a large amount of water to enable their works, the water expenses are huge. Lack of infrastructure in industrial parks During the committee members’ engagement with the Private Sector Federation, Munyangeyo said, they were told that much as access to land in industrial parks was eased, there was lack of basic infrastructure in some of these parks. The said infrastructure include roads, water and electricity supply and internet which is a challenge to investors, both local and foreigners. Kanamugire said that the cost of land was high as a hectare could cost about Rwf400 million in developed industrial parks, which raises the cost of doing business. Low private sector participation in joint ventures The Committee report showed that there is inadequate uptake, by the private sector, of the Investment through Public Private Partnership (PPP) model and Joint Venture. Yet, among the key drivers to help achieve the targets of the national investment policy, there is partnering with the private sector whereby Rwanda wants to be a Private Sector Led Economy. Regarding investment, MPs said the Ministry of Finance and Economic Planning explained that there were 24 entities in which the Government has 100 per cent stake, in which it invested Rwf2,157.5 billion. Also, the Government invested Rwf24.5 billion in four entities where it owns 50 per cent of the shares, and there are 13 entities and international organisations in which it invested Rwf118 billion. MPs heard that, often, the Government invests with the aim of encouraging investors to venture, or to fund areas where individuals cannot get adequate resources to finance. Examples include public transport, water and energy infrastructures.

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Cost of borrowing, utilities, key challenges for investors – report