Investment Climate to keep Vision 2020 on track

The first ever report of the World Bank’s continuous efforts geared towards assisting with Rwanda’s reform efforts has provided an audit on what needs to be done to keep on track the country’s transformation agenda for the next 10 years. The report provides a crucial diagnostic tool that looks at constraints related to the growth of the private sector and other key economic reform programmes being championed by the government. Clare Akamanzi, Chief Operating Officer at Rwanda Development Board (RDB) said that the report which was launched early last week , is an important analysis forRDB to make reference to, as it seeks to develop Rwanda’s business climate as well as boosting its competitiveness. “Some of the recommendations are already in the process of being addressed. While some recommendations are new and therefore important to reflect on moving forward”, Akamanzi told Business Times. Known as the Investment Climate Assessment (ICA), the report is based on a survey of 340 enterprises in Kigali and Butare which have been compared with those outside Rwanda. “The main purpose of the assessment is to provide an opportunity to benchmark Rwanda’s investment climate as it stands with its global competitors”, the report a copy which was seen by The Business Times reads in part. In the context of marking how Rwanda’s reform agenda has progressed, its economy is compared to 2 sets of countries. The first comparison being East African Community (EAC) states and the others being a wider group of countries such as the Democratic Republic of Congo (DRC), South Africa, India, China, Vietnam and Thailand. ICA’s analysis has also been carried out from the perspective of Rwanda’s regional integration programme which seeks to address some of the constrains its businesses have been facing. The report recognizes the government’s measures in revamping its laws and regulations to make them more business friendly. In addition the survey shows that Rwanda’s employment growth has been robust in the past few years. Manufacturing and services sectors have been pointed out as registering growth rates reaching 16 percent between the year 2003-2006. The survey states that firms in Rwanda have greater access to formal sector finance compared to all other countries in the region except Kenya. Within the services sector the survey says that retailing and Information Technology firms have higher labour productivity and lower labour unit costs compared to firms in other countries. However, the report states that despite progress registered, challenges remain. For instance the report states that 56 percent of the population are still below national income poverty line. For the economy to tackle this level of poverty it needs to grow by at least 8 percent annually. For Rwanda to hit its vision 2020 targets, ICA states that its economy needs to grow its Foreign Direct Investment (FDI) inflows to 29.5 percent of its Gross Domestic Product(GDP) up from the current 12 percent. The report states that imports into Rwanda have been growing rapidly currently reaching 15 percent of the GDP which creates a trade deficit if compared to wealth generated internally. One way of tackling the imbalance is through boosting Rwanda’s exports receipts well beyond the current rates of 3 percent of the GDP. “To reduce the current trade imbalance and to fuel higher economic growth, the next phase of economic reforms requires focus on sector-specific constraints and structural impediments to sustainable growth”, the report states. While commenting on the contents of the report , RDB says that its data was compiled as of 2006 meaning that recent gains of the last 3 years could not have been adequately captured in its findings. RDB says that, investments particularly in methane gas extraction and power generation, in ICT infrastructure, skills development made so far have not been captured in the ICA findings. “There have been more banks and capital injection into the financial systemsince 2006. Our focus on these ongoing initiatives will be to work towards finalizing them”, Akamanzi added. Among the key recommendation to policy makers ICA says that manufacturing enterprises in Rwanda have much lower average productivity compared to countries regionally. Lack of foreign linkages within the private sector has been cited as reasons that has slackened Rwanda’s drive towards more robust exports. Although employment growth has been registered only about half of the companies surveyed made investments in fixed assets which were considered to be low level. While responding to the recommendations RDB says that it has ready solutions going forward. “For new recommendations, we have clear ambitions and targets to make Rwanda very competitive for private investments, and we will refer to these recommendations as we forge ahead”, Akamanzi said. ICA results indicate that wide ranging reforms have had a positive impact in reducing the costs related to doing business in Rwanda adding that government is keen to deepen the reform agenda for the purposes of making the business environment more attractive for regional investment and trade. Ends