Latest Rwanda developments in January 2010: Business environment, political risk, transactions, data releases, regulatory and legal changes, industry and regional news.
BUSINESS ENVIRONMENT
Massive structural changes took effect this month at the Rwanda Development Board (RDB). New departments for agriculture, tourism, trade and manufacturing, services, and information technology will be responsible for developing their respective sectors and report to a newly created Chief Operating Officer. One cross-cutting division will be in charge of investment promotion for all sectors. The hope is to both expand and focus the board’s attention to all key areas of the economy. But the reshuffle, which some observers see as unnecessary, may slow down work in the near term as everyone adjusts.
In a recent survey of foreign investors conducted by the National University of Rwanda and the German development agency GTZ, 90% of respondents were unhappy with excessive administrative red tape and corruption, and 75% said Rwanda’s judicial system is weak and lacks the technical skills to deal with complex business issues. The RDB says it will focus on removing red tape barriers to investment in 2010. To their credit, Rwanda’s commercial courts have reportedly cleared over 80% of the cases dumped into their laps since being established in May 2008. Simple cases are now being handled within three months, and complex ones in eight months. Judges sent for training in South Africa have now returned, which will hopefully further pick up the pace.
KEY DEALS
- The Exim Bank of India signed a deal with Rwanda’s Finance Ministry in late January to extend an additional USD60m credit line (on top of USD20m lent in 2009) to finance the Nyabarongo hydropower project. Construction of the dam began in May 2009. It is expected to be completed in 2013 and add a much needed 27.5MW to the national grid. But most of the goods and services going into construction are coming from India, which has slowed down the process.
- Rwandan parastatal Electrogaz also signed a partnership this month with Tunisian electricity supplier STEG International Services. STEG has experience in rural electrification that Rwanda wants to tap in order to bring electricity to 40,000 homes this year. Currently, only about 6% of Rwandans have access to electricity.
- Korea Telecom (KT) has made good on its plans to follow up last month’s launch of a 3G wireless network in Kigali with more investment. This month, the company won a USD56.5m contract to build a comprehensive nationwide communications backbone network that will provide internet access to 30 cities across Rwanda. The network should be up by the first half of 2011.
- South African group African Parks Network (APN) took over the management of the Akagera National Park in January. The RDB signed a 20-year joint management contract with APN worth USD10m for the first five years. APN says it plans to raise the cash from a variety of private sources. The group hopes to make the park more sustainable and free from donor support. This should provide a good boost to Rwanda’s lagging tourism sector.
POLITICAL RISK: 2010 Election
While victory for President Paul Kagame in Rwanda’s upcoming August 2010 election is a foregone conclusion, a rival has begun to stir up trouble. Victoire Ingabire, leader of the United Democratic Forces (UDF) opposition party, returned to Rwanda this month to launch her bid for the presidency. Ingabire immediately began raising old ethnic issues, criticizing Kagame for attempting to sweep serious ethnic divisions under the rug and excluding Hutus from reconciliation. Kagame is in many ways guilty of the first charge. Still, playing ethnicity cards in an election year is a dangerous and unwarranted tactic. But Kagame will do whatever it takes to keep tensions under wraps, and as long as he continues to deliver on the economy, Rwanda will keep its peace - for now. The lack of any succession planning, however, remains a risk factor.
DATA
- The RDB reported this month that registered investments for 2009 were up 41% by value to USD1.11bn despite global crisis pressures, buttressed by large deals signed with Countour Global, Tigo, Eco Positive and Eco-fuel Global. However, the board has revised down initial growth projections of 20% for 2010 due to continuing global crisis fallout.
- Inflation may jump to between 6 and 10% by the end of 2010, Rwanda’s Central Bank said this month. Inflation has been rising on the back of high food costs as well as the loosening of Rwanda’s formerly tight credit markets. It nearly hit 6% in November 2009, although it has since fallen slightly to 5.7% for December 2009. The bank hopes a stable exchange rate and strong agricultural production may keep inflation to single digits this year.
- The National Institute of Statistics of Rwanda (NISR) has admitted that collecting administrative data on infrastructure, education, labour, commerce and trade remains challenging. The NISR recently began reporting GDP growth on a quarterly instead of annual basis, but overall technical capacity needs to improve.
REGULATORY AND LEGAL CHANGES
Only 60% of Rwandan businesses met last year’s extended 31 December 2009 deadline to file 2008 tax returns through certified accountants. Medium to large taxpayers with an annual turnover of at least RWF400m were required to file certified declarations for the first time in Rwanda as of March 2009. Confusion over requirements and costs, and a dispute at the Institute of Certified Public Accountants of Rwanda (ICPAR) are to blame for the low compliance rates. It was reported in December that ICPAR had excluded top foreign audit firms from the accredited list it submitted last year to the Rwanda Revenue Authority (RRA). After considerable industry backlash, the list is now under revision and companies are being allowed to use international firms. Certified returns for 2009 are due by March 2010.
INDUSTRY NEWS
- Tourism: Tourism revenues were down 6% in 2009, with a 9% decline in the number of tourists arriving compared to the previous year. Airline ticket sales to Rwanda were down as well in 2009. The global crisis has certainly played a role. The drop may also be due to ongoing violence in neighboring DRC, as well as a failure by the government to package and diversify its travel offerings. The RDB hopes to get revenues back up by 7% to USD187m in 2010, as the global crisis ebbs and through new attractions including water sports at Lake Kivu. If East Africa will soon be marketed as a single tourist destination, arrivals in Rwanda should benefit. But fears that Lake Kivu’s methane gas bubble could explode at some point in the near future may pose further challenges. The Virunga National Park forest where Rwanda’s famous gorillas live is also in danger from residents who chop its trees down to use for charcoal.
- Agribusiness: After years of harvesting losses, bean growers in Rwanda’s Rwamagana district have taken up tobacco farming. They say the cash crop will allow them to make some money and diversify agricultural production in the country. Total tea revenues for 2009 have been calculated at about USD47m to USD48m, well short of the USD54m target for the year. The Rwanda Tea Authority attributes the shortfall to drought and pests. Still, Indian firm Jay Shree Tea & Industries Ltd. announced in January that it has put in a bid to acquire one of Rwanda’s tea estates. The Rwandan government has said it hopes to privatise much of the tea industry to make it more competitive.
- Banking: SIMTEL, Rwanda’s sole provider of inter-bank ATM services, will now manufacture ATM cards with Visa chips locally for Rwandan customers. Banks and customers alike have long complained about inefficiencies at SIMTEL. It currently takes three to six months to acquire an ATM card in the country. Local manufacturing should bring wait times down to a few days. Insiders say they are happy with the progress being made. The Rwanda Development Bank plans to increase funding in 2010 to microfinance institutions. The credit fund RDB established last year will be raised from RWF4bn to RWF5bn. However, Rwanda’s Central Bank said this month that a high number of non-performing loans and poor management is keeping micro-financiers from accessing the fund.
- Construction: DN International has embarked on a second housing project in Rwanda. The USD6.2m venture will construct 50 upscale units by the end of 2010. There is demand for these large houses, but an even greater and unmet demand for more affordable housing that poses a 25,000-unit annual shortfall. A delay in passing new mortgage legislation is partly to blame for holding back more housing projects. The Social Security Fund of Rwanda (SSFR) says its much needed 2,600-unit housing project at Gaculiro in Gasabo is back on track after reports last month that it had been put on hold pending changes in the executive cabinet. Unfortunately, the unintended consequences of large SSFR investments in real estate projects have been that less financing is now available to the rest of the private sector.
- ICT: Mobile subscribers hit 2.4m in 2009, signaling healthy growth for the telecoms sector driven in part by new entrant Tigo. Tigo Rwanda appointed a new CEO this month, Marcelo Aleman, who was formerly the company’s chief commercial officer. Just months after launching, much of the original Tigo Rwanda team has been replaced, with a few disappointing revisions. The government is working with mobile providers to reduce handset costs for end users and encourage further subscriptions. MTN Rwanda made a soft launch of its mobile money transfer service this month, with full commercial roll out expected in February. MTN also announced it is in the final stages of working with global wireless software giant Aradial to provide mobile WiFi internet options to its customers in Kigali.
- Investment: One of Libya’s sovereign wealth funds, Libya African Investments Portfolio (LAP), said this month it hopes to expand its holdings in Rwanda into mining, agriculture, real estate and tourism. LAP has already invested in Rwandatel and the Laico Umubano Hotel, and is about to break ground on a housing project in Kagarama. Senior government officials from Rwanda and Libya also met in early January to discuss increasing bilateral cooperation. LAP has been steadily increasing its investments across Africa, often through under-the-counter deals, in what many say is a bid to entrench political leverage. Across East Africa, Libya is represented through Tamoil, invested in the Kenyan Grand Regency (now Laico Regency) Hotel under disputed circumstances, and lost out on the Mombasa refinery that eventually went to Indian Essar.
The National Bank of Rwanda issued a USD4.4m two-year treasury bond in January, the fourth government bond to be listed on the Rwanda Over the Counter (ROTC) market. It carries a fixed interest rate of 9.5% and has solicited plenty of interest. Government bond issues have become a more common and effective way to raise cash across Africa in the last few years, even for relatively underdeveloped capital markets like Rwanda’s.
- Manufacturing: Rwanda’s leading food processing company Inyange Industries expanded into a new RWF15.3bn water bottle manufacturing plant in Masaka this month. The move was driven by high domestic demand, something that has inspired growth for fast moving consumer goods manufacturers throughout East Africa. And the Rwanda Revenue Authority (RRA) responded this month to an outcry from local manufacturers over competition from illicit goods coming into the country. The RRA says it seized RWF750m worth of smuggled goods last year, and has bought speed boats and hired experts to help its staff continue the battle. Rwanda’s only drug manufacturer, the Rwanda Pharmaceutical Laboratory (Labophar), announced plans in January to pursue WHO certification. Labophar wants to raise standards and eventually produce ARV medications for AIDS patients, but is limited by funding constraints.
- Mining: American investors Bay View Group have hired a new manger for their cassiterite mining concession in Rwanda and asked the country’s Criminal Investigating Department to look into theft of minerals and extortion at the mine that the group attributes to its former manager, Lambert Mucyo. Bay View has threatened to pull out all together if the mine can’t be turned around. That would be a blow to the underdeveloped sector, even as a new survey from South African company New Resolution Geophysics shows that Rwanda’s mineral deposits hold greater potential than previously thought.
INDUSTRY ASSOCIATIONS
A local reporter has accused the Rwanda Private Sector Federation (PSF) this month of being weak and ineffectual and leaving the development of Rwanda’s economy fully in government hands. The advocacy body is poorly managed and has failed to translate the concerns of business to the government. Its role has been seemingly taken over by the Rwanda Development Board, which has done a good job. But this represents a further breakdown of the lines between the public and private sectors in Rwanda, which may lead to trouble down the road.
DEVELOPMENT FINANCE
The Rwanda Development Bank has allocated RWF30bn for development projects in 2010. The extra cash comes on the back of the bank’s strong performance last year. Germany renewed vague pledges of budget support and development aid for Rwanda after a meeting between President Kagame and German Federal Minister for Economic Cooperation. But a similar visit by a Dutch delegation this month failed to renew budget support that the Netherlands cut off in 2008 and has not much renewed because of Rwanda’s involvement in illegal activities in the Congo. The Chinese government gave Rwanda a USD4.4m grant in late January and announced intentions to further business ties between the two nations and support security initiatives for the Great Lakes region. China has already invested heavily in roads, ICT and construction in Rwanda. The two governments have not yet decided what the new grant will address.
REGIONAL NEWS: Monetary Union/Railway
January 2010 marked the official launch of the uniform East African Community (EAC) customs union, with the common market on its way later this year. But Kenya and Uganda voiced misgivings this month about moving forward toward a monetary union scheduled for 2012. Officials are not keen to give up classified financial information or the ability to use monetary policy against economic shocks to a central authority just yet. EAC integration has progressed relatively quickly, but even the customs union has taken five years to phase in and still faces numerous hurdles to full operation. A single currency poses even larger up-front costs for longer term benefits and will thus take significantly more time to implement. And for the switch to work well, EAC economies will have to be more in sync than is likely by 2012.
The African Development Bank (AfDB) announced in mid-January that it will finance a phase two feasibility study for the high speed Dar-Isaka-Kigali railway that would connect Tanzania to Rwanda and Burundi. The study will look at possible public-private-partnership structures and should pave the way for governments to begin fundraising for the much-needed transport line. German Deutsche Bahn and US American BNSF have reportedly also submitted proposals for the construction of the railway line.
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