Rwanda settles for steady growth

Estimates by the International Monetary Fund (IMF) suggest that Africa and the developing world have fared better in weathering the global recession. Looking at Rwanda, the numbers were still solid despite the global slowdown. Over the last five years we have seen the biggest growth spurt in Rwanda’s history, the numbers are staggering. The Gross Domestic Product (GDP) per capita in 2005 was $289 and today it is $589 while GDP growth has been steady at an average of 8 percent in the last four years. The high point was 2008 when we saw a staggering 11.4 percent growth and nominal GDP rose by some $700m.Then came the Kenyan crisis, which exerted pressure on fuel prices on the local market. The world credit market froze as demand and commodities prices went down. Rwanda still settled down to an average of 7 percent growth for the last two years. The 11 percent growth is not sustainable and scares investors. It is like a passenger choosing between a car that will take you at a steady 40 km/h,or a car driving at 80 km/h which has more chances of an accident. The earlier gains were coming from a lower scale, now our 7 percent growth is from a bigger pie overall. Total exports and services have been rising with a wider spread of revenue streams to depend on. Rwanda was entirely dependent on coffee and tea, but today’s big earners are remittances, minerals, agriculture, and tourism. The counter side to that is that our trade deficit is still ballooning from -$300m to -$1,100 billion. Some of this is needed to build our capacity but some is needless spending, we have tried to raise import duties but this has not stemmed demand, we need incentives to promote local investment not deterrents to imports. We need to increase exports but reduce imports, a hard thing to do. Remittances have risen to be a major source of cash injection, from $8m to $88m last year, it shows many positive indications, and Rwandans in the Diapora are sending money back and investing at grassroots level by helping relatives. The cost of sending money is still too high and reducing the fees charged will increase the overall volumes sent back. The government budget has remained the same and this might help the private sector expand if GDP increases while public spending stays the same. Governments that find a way to harness remittances can use them to spur growth or they can be non-productive and addictive. This year should see the government divesting itself from the private sector; there is a planned sell-off of Bank de Kigali, Sonarwa, and many more companies through the Rwanda Stock Exchange. This should see the private sector come in to fill the void, be it foreign or local investors but in 2009 the private sector contracted by 2 percent. Private sector credit went down in that time from $341 million to $334 million, this slowed the overall growth in the sector but it should rise this year. Consumer inflation has stabled after the highs of 23 percent in 2008 and it is projected that it will be maintained in the range of 5 to 6 percent. The numbers are healthy but we still need skills and innovation to truly drive growth. ramaisibo@hotmail.com