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Rwanda Country Brief: May 2010 Print E-mail
Wednesday, 02 June 2010
An overview of changes in the business environment, legal and regulatory news, key deals, sector updates, and development finance news.

Business Environment

The government has officially presented the new USD650m Bugesera International Airport and the USD4bn Dar to Kigali railway as public-private partnerships for which it is seeking investors. The Rusizi III, Rusumo and Rusizi IV hydropower plants and geothermal and methane gas development projects also made the list that was announced at a two-day investment forum held in Kigali in mid-May. These projects have been in the works for some time, and will continue to receive high-level government attention as important infrastructural baselines for development of Rwanda’s economy. Investors have expressed concern that the PPP structures remain undefined, as is often the problem in African countries. However, the government says it hopes to be flexible in determining the right arrangements through consultations with private investors.
 
In an effort to register 20,000 new businesses this year, the Rwandan Development Board plans to launch a single point registration system soon that will allow companies to register more quickly online. The Bank of Kigali also began an online service for Rwandans in the Diaspora this month, offering bank accounts that can be opened for free from abroad, as well as easy access real estate and small business loans. And the Kigali City Council announced plans this month to launch a three-year city road network upgrading programme in July 2010. Kicukiro District will get 36.4km of new roads, Gasabo District 37.7km, and Nyarugenge District 29.7km.
 
KEY DEALS
  • The investment forum held in Kigali in May yielded several new investments and private sector attention: India’s Opus Solutions announced a USD10m initial investment in its Africa Gateway project for electronic payment systems, and said it will shift its regional office for Africa to Kigali; Mara Holdings committed to a 40-acre, USD50m housing development project; MKP Capital Management proposed a long-term infrastructure development deal with the government through its South African construction firm subsidiary; American construction firm Lodestar CBC presented long-term real estate development plans; and Uganda’s Madhvani Group, amongst other agricultural investors, expressed interest in investing in Rwanda.
 
POLITICAL RISK
President Paul Kagame was officially elected in mid-May to represent his ruling Rwanda Patriotic Front (RPF) party in the upcoming August election. The appointment came amidst rising international coverage of instability and political oppression leading up to the polls. Time published a piece in late April entitled, “Is Rwanda’s Hero Becoming Its Oppressor?”, followed by an article in the New York Times labeling the country “orderly but repressive”, while the AFP quoted “nervous street interviews” in May confirming an oppressive state.
 
Yet another set of grenade attacks exploded in a popular Kigali market and bus station in early May, killing at least two people and injuring more than 30. It was the third such attack since February. A legal team also tried and failed to serve President Kagame with a wrongful death lawsuit in the US this month, filed by the wives of the former Rwandan and Burundian presidents who were killed in a plane crash that instigated the 1994 genocide. International questioning of President Kagame’s motives have increasingly coalesced around the case of opposition candidate Victoire Ingabire, who, after being arrested on charges of inciting genocide ideology, has vociferously accused Kagame of working to silence dissenting political voices.
 
Despite all the clamor, most observers agree that Kagame’s RPF remains a relatively stable party that will retain firm control over the country at least through the medium term. The quibbling opposition will continue to highlight political intolerance, with increasing attention paid by human rights groups and the press. But opposition parties and candidates like Ingabire remain weak and fragmented not least because they have failed to voice an attractive alternative policy platform. In the meantime, the RPF retains its powerful legitimacy, based less on repression than delivery of stability, economic growth and social services that reach a wide swath of the tiny country’s population.
 
 
DATA
  • Rwanda’s annual average inflation rate fell to 0.64% in April, down from 1.92% in March, according to data released by the National Institute of Statistics of Rwanda this month. The Central Bank has cited the low inflationary pressure in support of its move towards an expansionary fiscal policy to encourage economic recovery from the global crisis.
  • The Finance Ministry’s 2010/11 budget framework tabled in parliament this month plans to increase government spending to RWF952.6bn from RWF849bn, which represents a slight fall in percentage of expenditure to GDP. The budget deficit will grow due to a decline in external grants and increased public borrowing as the government pursues an expansionary fiscal policy. Recurrent expenditure will account for 58% of the budget, with development expenditures totaling 42%. The final budget is expected to be read on 10 June 2010, alongside the other EAC budgets.
 
REGULATORY AND LEGAL CHANGES

All SIM cards in East Africa will be registered by 2012, according to an announcement by the East Africa Communications Organisation this month. Authorities say anonymous access to telecommunications makes it difficult to track criminals and crack down on abuse. However, strict registration procedures will be difficult to implement in the current climate of widespread, easy access to mobile phones, and could cut into telecoms company profits.
 
The Rwandan Parliament passed an Aviation Security Act in late April that is expected to boost foreign passenger traffic and tourism, as well as conform with regional standards. Rwanda is attempting to improve international access to Kigali in order to market itself as a regional business hub.
 
INDUSTRY NEWS
  • Tourism: Marriot Hotels signed a partnership deal with the Rwandan government and New Century Development Ltd this month to build and manage a new USD60m hotel to be completed at the former Jali Club in Kigali by 2012. Marriot says it is optimistic about Rwanda’s prospects as an eco-tourism and international conference destination. US consulting firm, On the Frontier recently released a study finding that with the right marketing investment, Rwanda could earn USD40m a year from conference tourism. KLM announced this month that it will begin five flights a week between Amsterdam and Kigali within the next three months, a development that will greatly increase Rwanda’s appeal as an accessible conference destination.
  • Agribusiness: In an effort to stimulate the horticulture industry, the government has offered exporters free use of the cold room at Kigali International Airport for two months. The facility, which opened in May 2007, has never been used to capacity. RwandAir has also pledged to increase its available cargo space and lower costs to bolster horticulture exports. Horticulture exporters throughout East Africa were hit hard by falling European demand due to the global crisis and more recently by the volcanic ash crisis that suspended flights over Europe. However, sales have now begun to pick back up. 
  • Manufacturing: A major distributer of Bralirwa – Rwanda’s largest beer manufacturer – products in Western Province has been accused of trading beer for illegally mined minerals. Didas Ntabareshya is under investigation for involvement in a network of illegal traders that are believed to be smuggling cassiterite, wolfram and coltan from the Bisesero Concession owned by American investors Bay View Group. Officials say the minerals are used as part of a local bartering trade for goods like beer. Bralirwa says it is looking into the matter. Meanwhile, Barlirwa’s only competitor, Brasserie des Mille Collines (BMC), says it has succeeded in capturing 15% of the country’s beer market and plans to launch five new products by the end of 2010.
  • Banking: A fire that struck one of the servers for SIMTEL, the sole operator of inter-bank automated teller services in Rwanda, left ATM machines broken down across the country for a week in early May. Bankers have repeatedly decried the law that forces them to use SIMTEL services rather than running their own ATMs.
  • Rwanda Commercial Bank (BCR) says it will expand lending this year to the private sector as the country recovers from last year’s credit shortage. BCR will also resume mortgage lending and leasing services this year. Banks have been encouraged to lend by the Central Bank’s long-term deposit facility enacted last year and the recently lowered discount rate. 
  • Investment: High-powered local investment consortium Rwanda Investment Group (RIG) announced this month that it will hold off on plans to issue a USD50m corporate bond due to fears of high interest rates and lack of local market liquidity. RIG says it will wait for recent measures by the Central Bank to increase liquidity to kick in before going ahead. The group will also likely have to partner with regional and international stakeholders to cover the large amount of capital it seeks due to the limits of Rwanda’s tiny local market. 
  • ICT: New market entrant Tigo announced in May that it had more than doubled its subscriber base between January and March 2010, from 124,000 to 272,000. Rwanda’s third telecoms operator has been marketing low tariffs to gain customers and now says it will invest in increased coverage to keep up with demand.
 
DEVELOPMENT FINANCE
The European Union granted Rwanda EUR73.8m this month for roads, governance and rural development. Half of the funds will be channeled through direct budget support. The EU also announced this month that it will offer minor financial support for Rwanda’s August election, but will not field an election observation team. Despite the nod toward governance improvement, these two moves together likely signal a desire by EU lenders to overlook democratic deficiencies and instances of political oppression by President Kagame’s ruling party that have been raised by opposition candidates and human rights groups in recent months.
 
The UK’s Department for International Development (DfID) also approved GBP2m this month to support Rwanda’s regional trade facility and EAC integration strategy.
 
The Belgian Development Agency has committed EUR2m to local government capacity building in Rwanda. All in all, Rwanda’s Ministry of Finance announced this month that budget support from development partners will increase by 66% by 2013. Donors say they are impressed by the government’s improvement in service delivery. 
 
REGIONAL NEWS
Kenya, Tanzania, Uganda, Rwanda and Ethiopia have signed a landmark agreement regarding use of the Nile River Basin, after over a decade of talks about rights to the river water. Egypt and Sudan both refused to sign the treaty, which would replace the 1929 and 1959 agreements with the British under which the two countries together control 87% of the resource, with Egypt taking the majority. Egypt has said it will not sign any accord that reduces its quota. But upstream states say they are no longer willing to accept Egypt’s effective veto as they pursue irrigation and hydropower projects. Ethiopia especially, which holds the source of the Blue Nile, is planning to construct several major hydropower dams for power generation that would affect the flow of the river downstream. Rwanda relies indirectly on equitable management of the Nile basin for sustainable irrigation of its agricultural sector, in which nearly 90% of the population still works. Burundi and the DRC are expected to sign the agreement in coming months.
 
As populations soar and food security plummets, many experts say control over water will increasingly become a flashpoint for conflict in Africa. Top officials from Kenya, the DRC and Burundi visited Cairo in late May in an effort to find a diplomatic solution to the potential crisis. For a workable agreement to be reached, Egypt must recognize that its uncompromising stance is no longer tenable. Despite declared support from Italy and lobbying by Egypt to convince other countries to cut off funding for upriver projects, many western donors have expressed strong support for hydropower development in the region. Egypt can also no longer rely on American backing against so many states in eastern Africa, a region where the US sees growing strategic interests. But the depth of Egypt’s reliance on the Nile – given that Egypt receives much less rainfall than the other riparian states – along with the country’s relative bargaining power in Africa, means that resolution of the current stalemate remains a long way off.
 
Kenya and Burundi joined Uganda, Tanzania and Rwanda this month in officially ratifying the East African Community (EAC) Common Market Protocol, set to come into effect 1 July 2010. Ironically, after dragging its feet the most, Tanzania was the first country to sign. Tanzania also waived visa requirements this month for Burundians. Kenyans, Ugandans and Rwandans are already exempt.



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