SAVINGS AND INVESTMENT: Forecasting economic growth in 2010

Looking at 2010, we can easily expect this year to be better than last. The fear that spread through the financial world in the wake of the credit crunch will gradually dissipate. This means that investor confidence should return to previous levels though they will be cautious at first. The EAC - Customs Union should be the most beneficial change to our economy; the effects should be tangible immediately as goods will take a much shorter to arrive. One of the causes of inflation is the delays that goods face in reaching Rwanda, this will stabilise supply of goods and thus prices. The banking sector will be more competitive as the sector has been restructured but a number of issues remain. The banking sector is not just banks, auxiliary services need to be developed. We need credit-rating agencies, credit auditors and most importantly debt collection agencies. The interest rate will have come down, KCB customers in Kenya pay 6-8 percent but in Rwanda 18-21 percent. It is irresponsible to lend to anyone at that rate, right now KCB is not allowed to lend at a lower rate but soon they will trigger a Dutch auction to lower rates. What will happen to all those who borrowed at 21 percent? The recent rise in tea prices means an old steady earner is back in style, we are now seeing investment in the sector at record levels. It is important not to forget such an important sector, if we can develop a better product then it is reliable if well-branded. Tourism did not suffer as badly as other sectors because gorilla trekking is a niche market, but regionally numbers were down and secondary tourists were down as well. The issue is how to develop services and activities for tourists to do here, apart from trekking. We also need to encourage regional visitors to visit as well as Westerners. Energy prices should also be steady and not suffer the shocks of 2008. High energy prices make it hard for heavy industry to develop in Rwanda , fuel is subsidized but this is not targeted enough. We will see specific policies targeted at deregulated strategic industries. On the fiscal side we should see a tightening of government spending. Last year the first instinct was to spend more and only cut spending as an afterthought. This year should see overall spending and borrowing reduced, this should bring inflation down and save jobs in the long-run. Rwanda is going through an election cycle in 2010, so don’t expect any major policy changes policy until after the election. The biggest unknown is sudden global events; all the major forecasters see a precarious global situation with regards to Iran and the middle-east. That is out of our control but what is in our control looks good. Ends