An update on the business environment, public finances, key sectors, aid, and regional developments.
BUSINESS ENVIRONMENT
Rwanda has again received praise in the 2010 edition of the World Bank’s annual Doing Business as the leading reformer. This takes Rwanda to rank 67 on the World Bank’s scale to assess the ease of doing business around the world. In particular, the World Bank highlighted reforms to speed up business registration: It now takes only two days and three procedures to start a business. Rwanda is also the only country in the EAC where this process requires a single fee payment. In addition, Rwanda was the only EAC country to institute reforms that make obtaining credit easier, and its new company law 2009 was also highlighted.
Rwanda is followed by Kenya at rank 95, Uganda at 112, Tanzania at 131 and Burundi at 176. More information on the full Doing Business Report here, and for the East Africa analysis, click here.
In addition, Rwanda won the Commonwealth Business Council’s 2010 Africa Business Award for most improved investment climate.
POLITICAL RISK
- US lawyer released: US American lawyer Peter Erlinder has been released on medical grounds. Erlinder had travel to Rwanda to defend opposition politician Victoire Ingabire, but was arrested in May 2010 for denying the genocide. Erlinder had previously acted as the defence council for genocide suspects at the International Criminal Tribunal for Rwanda, and so must have anticipated his arrest, indicating that he had intended it as a political measure. Proceedings against him will continue, however. Ingabire, who had only recently returned to Rwanda to contest the presidential elections, had received significant media coverage, often overshadowing the efforts of other opposition groups who had worked in Rwanda for much longer.
- Dissident army general shot: Former army chief of staff and former Rwandan high commissioner to India Faustin Kayumba Nyamwasa who fled to South Africa in February 2010 has been shot in circumstances that appear like an assassination attempt. Faustin was a close supporter of Kagame through their military campaign, but later fell out with him.
- ournalist killed: Jean-Leonard Rugambage was shot outside the gate of his Kigali home. Rugambage worked for Umuvugizi, one of the two publications that had been suspended in April for six months (Umuvugizi continued to publish online). Police statements indicate that Rugambage may have been killed in revenge over his involvement in the genocide, but this is unlikely to
Rwanda’s government has denied any involvement in either incident. Government spokeswoman and Minister for Foreign Affairs Louise Mushikiwabo also disowned allegations of a general crackdown ahead of the August elections.
President Kagame is widely expected to get re-elected with an overwhelming margin in the presidential elections in August 2010, but at the very least, these events point at tensions within the regime. They also raise new doubts how long he can sustain his highly authoritarian leadership and whether he makes allowances for succession planning.
PUBLIC FINANCES
Budget 2010/2011: ‘Removing Bottlenecks to Exports of Goods and Services’
- Spending will increase by 9% to RWF952.6bn (USD1.73bn) in 2010/11, up from RWF849.0bn. Of this, 58.3% will be recurrent expenditures.
- Strategic priorities have been clustered into infrastructure, productive sector, human development and social sector, and governance and sovereignty.
- Also factored into the budget is government financial support for Rwandair, the broadening of energy access to households, fibre optic connectivity, construction of an International railway line, the new airport in Bugesera, and the construction of Kigali Convention Centre.
- Donor support is programmed to account for 35% of the budget, and the budget deficit will widen from 2.4% in 2009/2010 to 4% (including grants), which government plans to finance through RWF63bn in external borrowing and RWF95bn in domestic borrowing.
- Rwanda’s finance minister forecasts that GDP growth will accelerate from 6% in 2009/2010 to 7.6% in the new fiscal year, an estimate that the IMF considers overly optimistic.
SECTOR NEWS
Transport:
- Dutch airline KLM announced that they would start servicing Kigali from the introduction of the winter schedule on 31 October 2010. With a stop-over in Uganda’s Entebbe, KLM will fly to its hub in Amsterdam five times a week. Under a code share with Kenya Airways, KLM already offers a twice daily connection to Nairobi.
- Rwandair privatisation: The chairman of Rwanda’s national airline Rwandair, John Mirenge, stated that the privatisation of the airline has not been abandoned. At the moment, however, the government focuses on strengthening the company that recently acquired new planes (financed by PTA Bank) and recruited more qualified staff, in order to make the carrier more attractive to investors. Privatisation of the carrier is anticipated for 2014.
Telecoms:
- Telecoms operators accused the government of unfairly competing in the data business through its direct provision of services through the national fibreoptic cable. The Head of Information Technology (IT) department of the Rwanda Development Board, the backer of the government’s fibreoptic cable, defended the public venture by claiming that the private sector had been too slow in building their fibreoptic connectivity.
- In the paper prepared for the budget consultations, private operators MTN Rwanda, Rwandatel and Tigo Rwanda have asked the government to withdraw from playing a direct role in the telecoms sector and focus on creating an enabling environment through the regulatory authority.
- The telcos also criticised high regulatory fees and taxes as well as high operating costs due to limited infrastructure, electricity supplies etc, which in particular made the penetration of rural areas difficult and expensive.
Banking and finance:
- Kenya Commercial Bank (KCB) announced plans to roll out its KCBconnect in Kigali in the third quarter of 2010. In Kenya, this service allows users of Safaricom’s M-PESA mobile money service to transfer money between the mobile money account and the bank account. KCB will shortly open this service to other mobile money providers.
- The International Finance Corporation (IFC) has ended its leasing sector support programme. From USD3m in 2006, leasing services have increased to over USD30m by the end of May 2010, according to the Rwanda Leasing Association, who anticipate transaction volumes to double to USD60m in the coming year. With around 64%, the bulk of leasing goes to the transport sector. Leasing is also concentrated in Kigali with 90% of the leasing volumes. 42% of the leases are for amounts of less than USD50,000.
Agriculture:
- Rwanda’s Ministry of Agriculture launched the first phase of a water storage project to prevent soil erosion and water shortages. The entire project has an investment volume of USD56m, and will be financed by the ministry, the World Bank (USD34m), USAID (USD14m) and Canada (USD8m).
DEVELOPMENT FINANCE
Rwanda will receive USD50m from the multi-donor Global Agriculture and Food Security Program (GAFSP) to help fund its fund its strategic plan for agriculture and food security.
IMF PSI:
- Rwanda no longer needs structural adjustment funding by the IMF, but the Fund has approved a new three-year Policy Support Instrument (PSI), an unfunded monitoring agreement that former borrower countries maintain for policy advice and the implicit IMF stamp of approval that donors are keen to see.
- In its review preceding the renewal, the IMF gives a nod to Rwanda’s sound macroeconomic policies, higher investment and pursuit of an ambitious structural reform agenda, but also flags vulnerabilities arising from low levels of fiscal revenues, a narrow export base, a shallow financial sector, high aid dependence and volatile inflation.
- The IMF and Rwanda disagree on the extent of the economic slowdown in 2009: Whereas Rwanda estimates a GDP growth of 6%, the IMF’s estimate is lower at 4%, and the Fund also points out weaknesses in the data gathering for the GDP estimates.
- The full text of the review is here .
REGIONAL
Informal regional trade: Following Kigali’s arrest of rebel leader Laurent Nkunda and some level of normalisation in relations with Kinshasa in early 2009, informal cross-border trade with eastern DRC has intensified, according to a survey by Rwanda’s Ministry for Trade and Industry (MINICOM) and the Central Bank (BNR), both with regarding to volumes traded and the number of small traders crossing the border for business. Both countries have recently introduced a 24-hour service on the Gisenyi-Goma border post. Rwanda had removed all taxes on exports under RWF100,000, but traders still incur multiple taxes on the DRC side. Substantial volumes of unregistered trade are suspected.
Like Southern Sudan, Eastern DRC has limited own production capacity and therefore the demand for products from the East African Community (EAC), especially in the border regions, is strong. Vibrant intra-regional trade had been one of the factors that offset the impact of the global financial crisis, although due to its informal nature, there are no exact data to quantify the trading volumes.
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