Rwanda Country Brief: December 2009

Monday, 11 January 2010

A brief overview of what happened in Rwanda in December 2009: In the business environment, political risk, transactions, data releases, regulatory and legal changes, industry and regional news BUSINESS ENVIRONMENT The National Bank of Rwanda, the country’s central bank, lowered its lending rate from 9% to 7.5% in December 2009 in an effort to increase liquidity following a decline in credit to the private sector by 3.6% in the first half of 2009. Kenya Commercial Bank (KCB) says it will now be able to reduce its current lending rate of 16%. In his first month on the job, new Rwanda Development Board (RDB) CEO John Gara has received praise from his predecessor Joe Ritchie and announced plans to focus on agribusiness and clustering of economic policy. Ritchie, who will be taking on a new advisory role for President Kagame, says the country needs to improve its customer service and timeliness. In 2010 RDB’s Doing Business desk will modernize business registration by making it available online, and introduce enforceable client charters. The central bank governor has approved a Rwanda Diaspora Mutual Fund that will invest in high quality, short-term debt securities. It has already appointed a fund manager and Bank of Kigali as custodian. Remittances hit USD175m in 2009, up from USD139m in 2008, and are expected to rise further in 2010. A survey of Rwandans living in Belgium found that access to land is the greatest draw for the diaspora coming home to invest. Obstacles to investment were: lack of information (33%), refusal for political reasons (22%), access to credit (19%) and lack of organization (15%). Rwanda’s Ministry of Trade and Commerce said in December 2009 that rising international oil prices will not affect local fuel prices in Rwanda because the country has enough oil reserves to meet local demand in 2010 without any importation. And finally, the Rwanda Revenue Authority has unveiled three new vehicle scanners – capable of inspecting the contents of a vehicle entering the country in 10 minutes – that should greatly speed up border entry times. KEY DEALS Rwandan manufacturers Utexrwa signed a deal with Bayer to produce 140,000 mosquito nets treated by Bayer chemicals in the first half of 2010. Utexrwa executives say the project has the capacity to produce over 12m nets annually for local and export markets. Utexrwa will still have to compete with more efficient Asian net producers, but the company has the advantage of UN financial support and more importantly access to inland markets where high transport costs are an entry barrier to foreign manufacturers. Korea Telecom (KT) has launched a USD7.7m WiBro 3G internet network service in Rwanda. The company also developed the Kigali Metropolitan Network (KMN), which operates on a fibre optic cable that will serve individuals and institutions across the country. Already 46 government institutions are linked to the WiBro network. KT says it hopes to use these projects as an entry point to more investment in the country. Banque Populaire du Rwanda (BPR) announced plans to offer mobile banking from 2010. The former co-op recently achieved commercial status and has been busy rebranding its branch network, the largest in the country. These initiatives should bring more Rwandans into the banking system, which currently reaches only 14% of the population. DATA The Finance Ministry has set a target of 8% GDP growth in 2010, as the economy recovers from global crisis fallout that brought the expected growth rate for 2009 down to between 4% and 5%. Increased liquidity and improved agricultural yields are expected to drive growth in 2010. According to the RDB, Rwanda attracted USD600m worth of FDI in 2009. Total investments reached a high of USD1.1bn. General investment projects worth USD11m registered by RDB in November 2009 represented a 300% increase from October. Investments have been delayed because of the global crisis, but have been picking back up, sparking optimism for 2010. REGULATORY AND LEGAL CHANGES Parliament took stock this month of its accomplishments in 2009: 58 laws were passed, many related to economic growth. MPs also grilled government officials on public corruption, the proposed Electoral Bill, Gacaca courts, immigration, the Social Security Fund, the Worker Medical Insurance Fund, and capital markets policies. Both chambers wrapped up third quarter business on 4 December 2009, but (in a move unheard of in Africa) lawmakers came back for an additional two weeks of work at the end of the month to finalise the year’s unfinished business. Laws governing the national police and a reformed penal code were passed. And as of 18 December 2009, the RRA has waived a vehicle transfer tax that had required car sellers and buyers to purchase a cumbersome RWF5,000 tax clearance certificate that took up to a week to get.   INDUSTRY NEWS Tourism: RDB expects tourism revenues to hit USD203m in 2010. About 10% of that money will come from a new focus on bird tourism. Business traffic that brought roughly half of the visitors in the first half of 2009 is also expected to grow. RDB insisted this month that Dubai World’s two remaining projects in Rwanda – the Gorilla's Nest and Nyungwe Eco Forest Lodge – will go forward following December’s Dubai debt crisis, despite reports of little development activity at either site. More concretely, a consortium of investors has stepped in to build a USD60m five-star hotel at a site in Kigali that was abandoned by Dubai World earlier in the year. The hotel, expected to be completed in 28 months, will be managed by Marriot. Aviation: Following the suspension of its plane leasing contract with Kenya’s Jet Link due to a deadly accident in November 2009, Rwandair has purchased two CRJ200 planes and hired two Rwandan pilots to fly them. The airline says the purchase is just the start of expansion plans made possible by a 10-year, USD40m loan from the Eastern and Southern African Trade and Development Bank (PTA Bank). Agribusiness: The Rwanda Livestock Authority banned the export of live cows in an effort to encourage value addition in the sector, only to then lift the ban temporarily – for the next six months – after farmers decried the abrupt loss of their lucrative export market in the DRC. The government has agreed to help farmers form co-operatives during the reprieve so they can obtain bank loans to buy modern beef processing and transport equipment. High-quality Rwandan tea fetched record high prices in early December, up 30% from November. Tea supply in Rwanda is up, as are global prices because of low output in India, which means high returns for tea farmers. The RDB also announced this month that it will increase lending to the coffee sector next year as output is expected to increase. Bad news, however, for maize and bean crops in Rwanda’s Eastern Province, which have been destroyed by pests. Banking: Rwanda’s banking sector is making a comeback following a severe liquidity crunch resulting from mismatched deposits and loans in 2009. Authorities say raised capital requirements sheltered the industry from the worst effects of the global crisis and encouraged deposits, now on an upward trend. Non-performing loans are down to 11% and industry solvency stands at 19%, enough to encourage bank expansion and introduction of new IT platforms. Banks’ collective net equity capital hit RwF80bn (USD140m) this year and the IMF predicts normal growth in the sector for 2010. The Development Bank of Rwanda (BRD) and Bank of Kigali recorded large profits for 2010. The Commercial Bank of Rwanda (BCR) closed the year with a decent profit margin, after recording persistent losses in years past. New entrants KCB reported a loss but attributed it to high start-up costs. Loans given out by the Development Bank of Rwanda (BRD) in the first 10 months of 2009 were up 34% from all of 2008, although bank officials said lending was still slower than normal because of the liquidity crisis. BCR launched a new Flexi Deposit savings account in December as part of the bank’s efforts to reenter the market with new product launches after a series of internal problems. Also in its bid to become a fully-fledged commercial bank, the Banque Populaire du Rwanda (BPR) is improving service delivery and rebranding its large branch network. Former Georgian Prime Minister Lado Gurgenidze has been appointed to lead the Bank of Kigali on its quest for regional expansion as board chairman. Gurgenidze was previously executive chairman of the Bank of Georgia. Still, only 14% of the Rwandan population has access to banking services and the industry remains plagued by poor service provision. The Rwanda Banking Association is setting up a bankers institute training school in an effort to increase professionalism. The central bank also plans to launch Rwanda’s first credit reference bureau in mid-2010. Investment: Capital markets officials announced this month that government plans to offload a 25% stake in local beer manufacturer BRALIRWA have reached an advanced stage. The sale would be the first IPO for Rwanda’s young stock market. The government is also hinting at possible sales of its stock in MTN Rwanda, cement producer CIMERWA, BCR, and insurance company SONARWA. Rwanda will have to be cautious to avoid mistakes made in Kenya, where IPOs have caused uninformed and destabilizing feeding frenzies. Rwanda’s capital markets authority is already running a national investment education programme, and has instituted tough certification rules for stock brokers, which should help. The Social Security Fund of Rwanda also announced this month that it wants to increase its investment portfolio, currently dominated by real estate investments. The fund will continue to target the housing and mortgage industries, while also venturing into the capital markets, as well as leisure, infrastructure and ICT. INDUSTRY ASSOCIATIONS Ugandans living in Rwanda formed a business association in early December 2009 to promote already strong trade ties between the two countries. The Rwanda Private Sector Federation released codes of business ethics and corporate governance at the end of the month. This is a good start on a continent notorious for poor corporate governance standards but Rwandan companies have a long way to go to meet international levels of professionalism. Infighting is reportedly threatening to destroy the Institute of Certified Public Accountants of Rwanda. Anonymous members say the group’s president sent a list of certified accounting firms to the RRA that unfairly excludes many foreign firms that have been accredited by the National Bank of Rwanda – among them Ernst & Young, PricewaterhouseCoopers, KPMG, Deloitte & Touche and Grant Thornton. Many see the move as a bid by influential locals to shut out foreign competition.   DEVELOPMENT FINANCE The IFC has signed an agreement with the National Bank of Rwanda to provide long-term local currency loan swaps. Investors say the lack of long-term local currency loans in Rwanda has been a major impediment to development. The IFC’s goal is to develop a commercial swap market in the country. Seven months ahead of the reading of Rwanda’s 2010/11 budget, seven of the country’s largest donors have committed USD335.4m in direct budget support that the government says will allow it to plan programmes well in advance and raise other funds to cover deficits. Donors say they are happy with Rwanda’s demonstrated commitment to macroeconomic stability and business reforms. The Dutch government also signed an agreement this month to donate USD1.4m to the Supreme Court for construction and employee training. And the Japan International Cooperation Agency has signed on to support ICT training at Rwanda’s Tumba College of Technology, which could boost the country’s efforts to become an ICT regional hub. POLITICAL RISK Cabinet reshuffle: Rwanda has named a new Finance and Economic Planning Minister, John Rwangombwa, as part of a cabinet reshuffle. Rwangombwa was permanent secretary at Minecofin to James Musoni, the former minister. The two never got along very well, so the replacement may help move things along. But Rwandans say Rwangombwa was the problem, and his appointment may portend inefficiency and lazy leadership at the helm of this important government body. The local press also noted that the rise of skilled civil servant Vincent Karega to head the Ministry of Infrastructure is a positive development for the scandal-plagued body, as the former minister, Linda Bihire, was less than capable. Karega will now also chair the Council of Ministers for the Northern Corridor Transit Transport Coordination Authority, as Rwanda replaces Kenya as head of the EAC’s regional transport body. Kigali Province however will have to wait a bit longer for its own leadership reshuffle, as by-elections to replace two mayors and several Kigali city officials – including the executive secretary and the city engineer – have been postponed to January 2010. Claudine Nyinawagaga, former mayor of Gasabo District, which includes major suburbs of Kigali, resigned citing personal reasons but has since been linked to the ongoing Kinyinya land scandal,  i.e. the irregular expropriation of land for development by the Housing Bank of Rwanda and the national Social Security Fund. Nearly 10 city employees have been fired on corruption allegations since September 2009. In December 2009, dialogue week was held in parliament: Citizens were given the chance to confront the government, from MPs to mayors to Kagame himself, on service delivery failures, in person as well as through phone calls, SMS messages and an online diaspora forum. This forum allowing for some form of public dissent provides an encouraging balance to an administration routinely criticized for shutting out opposition. 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