Rwanda Country Brief: November 2009

Thursday, 03 December 2009

A brief overview of what happened in Rwanda in November: In the business environment, political risk, transactions, data releases, regulatory and legal changes, industry and regional news. BUSINESS ENVIRONMENT John Gara has been appointed to replace Joe Ritchie as CEO of the Rwanda Development Board (RDB) as part of an overall restructuring of the agency. This unfortunate political move may portend less effective days ahead for investment promotion in Rwanda. Ritchie, a successful retired options trader from Chicago, has been credited with leading the board in pragmatic directions. Still, Gara has credentials to show: he is a respected lawyer who recently advised the Commonwealth Secretariat and the UN on multilateral investment.   RDB’s National Doing Business Reform Taskforce coordinator lamented this month that slow endorsement of investor licenses and poor customer service are hindering national development. Financial institutions were singled out for dysfunctional national service networks and credit inaccessibility; financial institutions responded that part of the problem may be confusion among Rwandans regarding normal banking procedures.   KEY DEALS Along came Tigo: Millicom International Cellular launched Tigo this month as Rwanda’s third mobile phone operator. MTN commands over 80% of the market, but Millicom hopes to encroach by lowering costs and increasing penetration. With its extremely high tariffs, the market has room for a price battle and better customer service. However, government plans to bring in a fourth operator soon will likely prove excessive. Rwandatel, the country’s second mobile operator, also lost out this month to its own employees. The company has agreed to pay RWF188m (USD330,000) in compensation for claims by 120 workers of unlawful dismissal. Businesses in Rwanda often complain of how difficult it is to fire employees due to the country’s highly defensive labor practices. California’s Eco-Fuel Global and UK-based Eco Positive signed a USD250m deal on 23 November 2009 with the Rwandan government to begin one of the largest biofuel production projects in the world, which the government hopes will replace up to 20% of its fossil fuel needs. Rwanda may escape the troubles Tanzania has had with Jatropha by promoting commercial rather than small-scale development, and using marginal land to avoid displacing farmers or exacerbating food insecurity. POLITICAL RISK Rwanda has been accepted as a member of the Commonwealth group of nations, despite lacking historical ties with Britain. Rwanda has little to lose and at least a little to gain through increased trade and political ties with the ever-expanding global body. Membership will not force the government to do much it does not want to, like improve respect for human rights or democratic enfranchisement. Critics say the very admission of an authoritarian regime like Kagame’s is evidence that the group has lost the gumption or will to defend its own values. Rwanda’s friendship with Britain has also inspired France to reinstate diplomatic ties , severed in 2006 over genocide-related disputes.   Amidst the European fanfare, a former speaker of the Rwandan parliament told CNN this month that he fears a resurgence of ethnic violence if President Kagame is allowed to continue consolidating political power even as reconciliation programmes have done little to heal genocide wounds. The Rwandan government is very keen to portray a unified image of a country moving forward, so the continued underlying divisions receive little acknowledgement in official discourse. Earlier this year, acclaimed author Philip Gourevitch published an in-depth look at Rwanda’s Gacaca genocide courts, in which he finds old animosities are alive and well. However, the Rwandans Gourevitch interviews say Kagame is the only thing keeping the country in one piece; the true test of peace will not likely come until his term limit is up in 2017.   DATA The global crisis has worsened Rwanda’s already gaping trade deficit. Rwanda’s Central Bank governor estimated this month that exports from January to October 2009 were down 29% from the same period in 2008. Imports in 2008 totaled USD1.4bn while exports brought in only USD427m, according to the National Institute of Statistics (NISR). NISR numbers show the trade deficit for the first quarter of 2009 totaling RWF153bn (USD269m). Rwanda’s total export and import cargo going through the Mombasa Port was down by 12.3% in the first six months of 2009, according to port officials. That represents a significant dip in export value in the first two months of 2009. Coffee exports declined in both value and volume, while tea increased slightly in value but took a hit in volume. Mineral exports were also hit by value decreases of as much as 38%. The Central Bank has revised its GDP growth estimates for 2009 to between 4% and 5%, down from previous projections of 5.3% to 7%. The governor expects a turnaround in both GDP and exports in 2010 due to projections for solid agricultural growth in Rwanda and recovery of export markets abroad. The Rwanda Revenue Authority (RRA) announced in early November that it had overshot its tax collection target for the first quarter of the EAC fiscal year by RWF1.1bn (USD1.9m). Part of this success came from registering 2,800 new, mostly small and medium-scale tax payers. If this trend continues, it should take some pressure off large companies that continue to shoulder the bulk of the country’s tax revenues. REGULATORY AND LEGAL CHANGES This month the Rwandan Parliament became the third African country to ratify the AU’s 2007 African Charter on Democracy, Elections and Governance. The Charter promotes transparent elections and peaceful transfers of power. President Kagame has long been vocal about supporting these values, but again, the real test will not come until the end of his term limit in 2017. The Rwanda Environment Management Authority has also announced a six-month deadline for the removal of asbestos materials from all buildings in the country. Schools and hospitals are expected to be the most affected. INDUSTRY NEWS Tourism: Still stinging from the August Dubai World pullout, Rwanda’s tourism sector got a consolation prize this month: ‘Most Effective Stand Personnel' at the World Travel Market (WTM) Exhibition in London. The RDB also registered four new hotel and restaurant projects in October, worth RWF3.6bn (USD6.3m). However, a Rwandair crash in early November that killed one person will not be great for business – even if the company expects short-term sales to remain steady through code-sharing and the termination of its aircraft leasing contract with Jetlink. Agriculture: Horticulture exporter East African Growers (EAG) has temporarily suspended operations in Rwanda because of insufficient market demand in Europe. The company says business may resume in a few months. And the government announced plans this month to privatise its majority shareholdings in three Rwandan tea companies: Mata, Shagasha, and Gisakura. Tea may interest investors, as it has held its value during the global crisis better than most other East African commodity exports. Manufacturing: Bay View, an American-Slovac investment group, announced plans this month to open agro equipment and car assembly plants as well as a fertilizer production plant in Rwanda. Slovakia has been able to attract investment from major car manufacturers and now has the highest number of cars manufactured per capita worldwide. Bay View has an eye to the central and eastern Africa regional markets. However, transport and power costs as well as the small domestic market size will remain large barriers to manufacturing in Rwanda. Extractive Industries: Rwanda has finally managed to attract some commercial investment to its underdeveloped mining sector: Mauritius-based Gatumba Mining Concessions plans to invest at least USD2.5m to build 10 small processing plants for coltan in the country. Demand for coltan, used in the production of mobile phones, is expected to rise in the near term following recent declines in value of Rwanda’s mineral exports, including coltan, casserite, tin and wolfram. Construction: The Kigali City Council has ordered that part of the Kiyovu Golden Hills Hotel be demolished because it was built without an official construction permit. Construction activities in Kigali remain somewhat uncertain as officials begin to enforce zoning and other regulations set out in the wide-ranging Kigali Master Plan. The Nyarugenge District Master plan, which includes Rwanda's Central Business District (CBD), will be launched in December 2009 with plans to raze or renovate buildings throughout the urban center. Banking: The Bank of Kigali posted net profits of RWF4.5bn (USD7.9m) in the first nine months of 2009, up 24% from the same period in 2008. The bank says it has continued to provide credit despite a recent liquidity crunch in Rwanda. Still, plans expressed by Barclays last year to acquire the bank have not yet resurfaced, likely due to reticence to privatise on the government’s side. KCB Rwanda says it will benefit from the installation of a regional banking platform this month that will connect all of KCB’s East Africa and Sudan branches. The new software will make way for electronic financial products in Rwanda, including perhaps international Visa cards by next year. Telecoms: MTN Rwanda secured a RWF10bn (USD17.6m) syndicated loan facility from a consortium of Rwandan banks led by the Commercial Bank of Rwanda in late November 2009. MTN plans to invest in more towers and store outlets in hopes of guarding its market share from new entrant Tigo.   DEVELOPMENT FINANCE The African Development Bank announced this month that it will grant Rwanda USD7.9m over the next three years to promote private sector competitiveness. The money will be disbursed through the Ministry of Trade to the RDB and Central Bank. With its share, the Central Bank is expected to improve banking supervision, and access to credit and financial information, with special focus on SMEs. The ADB says it hopes regional integration will also facilitate the ease of doing business in Rwanda.   REGIONAL NEWS: EAC COMMON MARKET East Africa’s five heads of state signed the EAC common market protocol this month, which will officially come into effect July 2010. Rwandans must now balance a familiar fear that local industry may be overrun by competition from Kenya and Uganda, against benefits that will come from better access to cheaper inputs. Businesses may be encouraged to set up in Rwanda by the ability to source their skilled labor from across the region. This will be discouraging to inexperienced Rwandan workers in the short run, but should benefit the wider economy with productivity and knowledge transfers over time. In manufacturing, the high transport costs associated with Rwanda’s landlocked location and East Africa’s limited transport infrastructure make production for anything but the small local market unattractive. The country would do well to focus on services such as ICT that are not subject to expensive transportation, but will need to improve human resources to become successful in this area. Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment