Nurturing a private sector driven economy

A landlocked country that suffered one the greatest mayhems in the history of mankind—the 1994 Genocide against the Tutsi, Rwanda has progressively turned a fresh page to rewrite its destiny. Seventeen years on, the country has become Africa’s “Rising Star”—attracting a lot of foreign direct investments, international recognition, love, friends and partnerships. The roadmap to her remarkable socio-economic transformation has not been very rosy. It involved a lot of sacrifice, commitment and determination. This is squarely linked to its people (the Rwandans) and especially the visionary leadership of President Paul Kagame, who is steadily becoming a global icon. After 1994, it became critical to think of innovative and sustainable ways of enhancing economic development. Thus, in 2000, Rwanda defined its socioeconomic development path through a 20-year ambitious programme dubbed Vision 2020, built on six pillars. Among those (pillars) is the private sector development as the engine for her economic development. To sustainably create an enterprising, vibrant and competitive private sector, policies and strategies had to be aligned accordingly. Weighing private sector development Putting Rwanda’s private sector growth in recent times can be benchmarked on; overall growth and development, knowledge and competencies, business flexibility, enterprise and entrepreneurship, costs and taxation and internationalisation and openness. These are international benchmarks, mostly used to annually gauge Organisation for Economic Cooperation and Development (OECD) economies. Rwanda has recorded phenomenal growth over the last couple of years—real growth averaging 7.8 per cent over the last five years—among the highest in the Sub Saharan Africa (SSA). For instance, in the fiscal year 2010/11, Rwanda beat all odds to post a 7.1 per cent real Gross Domestic Product (GDP) growth. With the strong fiscal and fiduciary controls, inflation was contained in single digits below 5 per cent throughout the year.However, trade imbalance widened in the same period as a result of low export revenues. These were generally attributed to global financial crisis that affected international prices and demand for Rwanda’s traditional agricultural and mineral exports, while import values continued to rise. The World Bank Doing Business Report, which was released in October this year ranks Rwanda the third easiest place to do Business in Africa and second five-year top global reformer. Alles Cally, the Managing Director of SWORATHE, a local tea processing and exporting firm says the biggest landmark in Rwanda’s doing business environment is land reforms. “The establishment of the land registration centre that has in a relatively short period streamlined land management system in the country is phenomenal. The local administration has also improved tremendously in terms of facilitating business. Here, I would cite Rulindo District Administration in the Southern Province,” Cally observes. Rwanda Revenue Authority (RRA) has consistently surpassed targets year-in-year out. Last year, collections of the period July-December 2010 rose to Rwf222.8b, surpassing the target of Rwf214.6b. This means paying taxes has become easier for the business community. “The business environment...has improved significantly. (There’s) some room for improvement but we are surely making positive headway. The introduction of modern taxpayer services like mobile scanners at the border posts, the blue channel system of customs declaration and payment and so on are all awesome efforts,” comments Mohammed Mazimpaka, a local businessman, who doubles as the President of Chamber of Commerce and Services.Looking back, five years ago, the taxation system has greatly improved and some established economies now come to Rwanda to consult about her tax system. Gerald Mukubu, the head of taxpayer services at RRA says that the authority has hosted officials from South Africa, East African Community member states, Singapore—to learn more about Rwanda’s taxation system. The secret lies in the partnership between government and the private sector—having to work closely with the business community at all levels to establish areas that need to be tackled to improve the taxation system. And, through frameworks like Kigali Investors Forum, Tax Issues Forum among others, tax and investment challenges are expeditiously solved to the benefit of the business community. Rwanda in the global world Enhancing regional and international integration is one of the pillars of vision 2020—mainly intended to expose Rwandans to the global business world, and attract foreign direct investments. Over the years, we have witnessed a rather ‘speedy’ accession to numerous trade blocs. In 2007, Rwanda acceded to EAC market of over 120 million people, which has boosted cross border trade. In addition, in 2010, in a historical move, Rwanda joined the Commonwealth which opened up a lot of trade opportunities with over 53 member states. In the multimillion dollar AGOA (Africa Growth Opportunity Act) market of the USA, Rwandans have benefited a lot through export of traditional cash crops like cut flowers, and value added products like tea, coffee and handicrafts. This is an indication of a positive attitude towards globalisation and openness towards foreign ideas and cultures. Sina Gerald, a local business magnate, whose company, Enterprise Uribwitso, specialises in agro-processing says: “The government has done its part, and it positively continues to do so in terms of creating an enabling (business) environment. In fact, we are making tremendous progress, especially if you look at the increasing number of newly registered companies. Over the last five years, I have made lots of business friends and partners across the globe through locally organised and foreign expos. Now we have specialised (sector-specific) expos, which will of course enhance business networking and partnerships.” Innovation is Key As the private sector grows, businesses increasingly compete on products with high level of knowledge and innovation. And in this competitive business world it is only innovation that keeps companies in business—especially those engaged in foreign trade. In Rwanda, we have seen initiatives like Business Plan Competition (BPC)—that encourage young business professionals and entrepreneurs to come up with innovative business plans.The BPC programme has been successful since its inception with supported projects creating 520 permanent and over 1,000 temporary jobs. A quick pick of a few BPC funded companies that have made it, include Gahaya links that deals in handicraft exports, Envirotech, a bio-gas production company and International Marble—now exporting tiles and ceramic products in the region, and used in building most of the posh houses in Kigali. A precondition for business competitiveness is that productivity and product quality counterbalance costs. Therefore production costs and tax conditions are important indicators for competitiveness for a thriving private sector. Although the cost of doing business in Rwanda is still high, government is committed to bring it down through initiatives like; simplifying tax procedures for small businesses, introducing the flat tax system and fast-tracking business support infrastructural projects. Private sector contribution to GDP The business community can happily pat their backs as they significantly contribute to the total GNP. For instance, in 2009, whereas the total GNP was Rwf726.8b, Rfw379.4bn came from domestic taxes. Rwanda tops the region in terms of tax compliance. In the ranking parameter on “Paying Taxes” on World Bank Doing Business in 2011, the country spectacularly moved from 43rd last year to 19th easiest place to pay taxes in the world. There are a lot of interventions going on in terms of trade facilitation, such as one border post or electronic single window project, introduction of mobile scanners to speed up clearance, online tax declaration, tax block system management, and introduction of 24 hour border operations. Overall, it definitely takes strong political will and commitment to enhance private sector development. The leadership of President Paul Kagame has been very instrumental in creating an enabling environment for this sector. Among the things that give the business community confidence and hope, the government in close collaboration with Private Sector Federation (PSF) has established frameworks and platforms for dialogue and business support. It has provided land to PSF to build the necessary business infrastructure for business development. It has continuously supported the federation in organising local and international exhibitions. And last but not least, it has directly supported private sector development programmes like Technical and Vocational Education and Training and Business Development Services. gracer@psf.org.rw

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Nurturing a private sector driven economy