Rwanda. Summary. Economic Indicators

Transcription

1 Rwanda Summary Moody s B2 / S&P B / Fitch B+ 1 Economy: Agriculture 31%, Industry 18%, Services 51% Rwanda has one of the highest growth rates in East Africa and a reputation for being one of the most business-friendly countries in the region. Rwanda benefits from solid economic management and the government is committed to continuing structural reforms with the support of the IMF. The tourism is important, however, ethnic tensions are high, and Rwanda is located in one of the most unstable regions in the world. A large portion of the population depends on subsistence agriculture and lives in poverty. The country has been under the presidency of Paul Kagame since 2000, and he was re-elected in Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subect to change. Source: Lazard, Haver Analytics, IMF, Ministry of Finance 641

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- B- CCC CCC Moody s S&P Fitch Moody s S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody s, Standard and Poor s, JPMorgan Bond Spreads Rwanda 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 642

3 Rwanda Strengths Economic Growth Outpacing Peers Rwanda has posted some of the fastest economic growth in the region, averaging 7.8% since 2000, placing it ahead of similar countries in the region, such as Tanzania and Kenya. 2 The service and finance sectors have led the economic expansion. One of the key factors behind the strong growth has been favorable macroeconomic policies, effective use of foreign aid, promotion of the private sector, and business-friendly conditions. The government wants to increase the economic growth by continuing to improve the productivity of the agricultural sector and to develop an efficient and competitive private sector, especially in information technology and tourism, and eventually lead Rwanda to middle-income status by The government s target is ambitious as it would require the economy to grow by 11.5% per year, whereas the International Monetary Fund expects an average growth rate of 7.3% in In order to achieve higher growth, the government will need to improve areas such as transportation and electricity supply, two major growth constraints. Electricity costs are double those of Tanzania, which are themselves among the highest in Africa. 5 The government is investing in key areas such as roads, rails, and energy necessary to reduce bottlenecks. Ease of Doing Business Some consider Rwanda the Singapore of East Africa because of its business-friendly conditions, something the government has been pushing for more than a decade. On the World Bank s 2017 Ease of Doing Business Index, Rwanda ranks 47 th in the world out of 190 countries, and second in Africa. 6 Rwanda has made significant progress improving business conditions, particularly in terms of starting a business, getting credit, paying taxes, and enforcing contracts. In the World Economic Forum Global Competitiveness Report , Rwanda ranks at 58 nd worldwide, 7 among the most competitive in Africa. This business-friendly environment has also been supported by the government s focus on fighting corruption in order to improve the country s international image, promote private investment, and control the different players within the economy. The government s commitment to fighting corruption has yielded very positive results, as Rwanda is one of the least corrupt countries in Africa; in the Corruption Perception Index 2016 it ranks 50 th out of 176 countries, 8 the 4 th least corrupt country in Africa. Market-Friendly Reforms and IMF Support The government has an excellent reputation and track record of approving key reforms and ranks among the top reformers in the world, according to the World Bank. 9 Since the current government came into power in 2000, it has pushed for economic policies to promote economic liberalization and modernization, which has contributed to the country s ease of doing business. The World Bank ranked Rwanda as the top economic reformer in the world in The international community is pleased with progress on macroeconomic policies, financial transparency, and governance. The government tends to promote property rights, currency convertibility, the removal of bureaucratic barriers, anti-monopoly policies, liberalization of trade, and promotion of private investment. Other reforms that Rwanda is undertaking include adjustments that promote export diversification and import substitution, reducing imports by 15% in Rwanda has had a Policy Support Instrument with the IMF since December 2013, and in 2016 also obtained a stand-by credit facility. 10 The IMF noted in its last review that Rwanda has a strong implementation track record of IMF supported programs

4 Lazard Emerging Markets Debt Tourism Tourism is one of Rwanda s best-performing sectors. In 2016 it generated more than US$400 million 12, compared to US$26 million in 2005, 13 and it is source of foreign currency inflows to the country. 14 Rwanda is considered one of the safest tourist destinations in Africa and is world-renowned for gorilla tourism as it is one of only two countries where it is possible to visit mountain gorillas. In 2014, a total of 1.22 million people visited Rwanda, 8% more than the prior year. 15 The success of the tourism sector is attributable to the government s policies to support private-sector investment in the sector and ease the visa process. Tourism is expected account for about 9% of GDP in 2017, employs about 10% of the working population and accounts for about 8% of total investment. 16 The government is seeking to diversify the tourism sector by making Rwanda a regional conference destination, and in July 2016 it inaugurated the Kigali Convention Center, which includes the center, a hotel, and an office park. Other ongoing projects to attract tourism include a new cable car to Mount Karisimbi, the fourth highest peak in Africa. 17 Grants Rwanda is a darling of the donor countries, as it is considered one of the countries that use grants most efficiently. Also, some donor countries have been impressed by the country s progress on economic reforms and poverty reduction since the genocide in As a result, Rwanda has received among the most donations of countries in Sub-Saharan Africa. In the past couple of years, donations have totaled more than 10% of GDP, financing about half of the budget, 18 but grants are declining and are expected to account for about 4% GDP in the medium-term. 19 Donations are very important as they help to finance a large part of the current account and fiscal deficits and help to sustain high economic growth. A large share of donations goes to the poorest segments of society. However, donations have sometimes slowed for political reasons. The international community has ignored democratic problems, although it has paid attention to Rwanda s involvement with its neighbor Democratic Republic of Congo. For example, in late 2012 and early 2013, some countries temporarily suspended donations after Rwanda was accused of financing some of the guerrilla groups (the M23) in the Democratic Republic of Congo. The grant suspension put pressure on growth as well as fiscal and current account financing. However, in the second half of 2013, donations started to pick up once again. The Democratic Republic of Congo army defeated the M23, thus regional conflicts are likely to decline. In 2014, donations were much higher than in 2013 as relations with the international community improved. Going forward, donor fluctuation will likely decline as most of the donor money is going to specific projects instead of general government budget purposes. Weaknesses Ethnic Tension Since its independence, the country s main ethnic groups, the Tutsis and the Hutus, have had a contentious and violent relationship. The problems started when the former colonies gave preference to the elites that were governed by the Tutsis at the expense of the Hutus. The ethnic tension was exacerbated three years before the country s independence in 1959 when the Hutus removed the ruling Tutsi king from power. The fighting escalated into a major civil war in the 1990s, and ethnic tension peaked in 1994 when the army killed about 1 million Tutsis. That same year, the Tutsi rebel groups defeated the government and took control of the country. A large number of Hutus left the country, as they were afraid that the Tutsis would retaliate. While most returned the following year, radical Hutu groups continue 644

5 Rwanda to operate outside the country. Today, tension still exists between the Hutus and Tutsis, although the government has worked to reduce ethnic tension, banning ethnic discrimination and severely punishing violations. Still, the bulk of the important government positions are in the hands of the Tutsis. Tension with Larger Neighbors Rwanda s neighbor, the Democratic Republic of Congo (DRC), is a major source of instability for the region and for Rwanda. In the past, the government of Rwanda has been accused of supporting guerrilla groups, which are fighting for the independence of eastern DRC. Rwandan support aims to terminate the radical Hutus that still operate in east DRC and to claim some of the mineral-rich part of eastern Congo. Government involvement has been very costly, especially since the international community tends to disapprove of the government s actions. For example, the international community recently suspended donations when Rwanda was accused of giving financing to one of the guerrilla groups, the M23. The government denies the claims and argues that Rwanda wants a peaceful eastern Congo given the positive economic and social spillover effects for Rwanda. Burundi is also a potential source of tension as the diplomatic relationship between the two countries has deteriorated. 20 Geography Rwanda is a land locked country, which makes the economy less competitive. Transportation costs tend to be high as all imports and exports must go through other countries. As a result, Rwanda is dependent on neighboring countries, which account for an important share of total exports. Railroads are nonexistent, and roads are in poor condition, as most are not paved. Rwanda has plans to improve access to the Indian Ocean by developing a rail link that will go through Tanzania as part of the US$5.2 billion Dar es Salaam-Isaka-Kigali/Keza-Musongati (DIKKM) rail project, 21 although execution has been delayed, possibly until Impoverished Population Despite a significant improvement in the last decade, the country remains very poor with a 2018 GDP per capita of only US$776. It is estimated that 45% of the population lives in poverty, though this is lower than the 57% recorded in Living conditions are poor as most of the population does not have access to basic goods. Moreover, 85% of the population does not have access to a social safety net. In the 2016 Human Development Index, Rwanda ranks 159 th out of 188 countries 24. Rwanda also faces a population that is growing too fast, resulting in one of the higher population densities in Africa. The population has grown from 2 million prior to independence to an estimated 12 million today. 25 The large population has made it challenging to reduce poverty, and it has also contributed to land degradation as most of the energy consumed comes from wood, peat, and charcoal. Meanwhile, the income distribution is a major problem despite recent improvement in the Gini coefficient. Low income levels and poor social conditions are likely to contribute to the tension within the country. External Imbalances Like other East African countries, Rwanda has a relatively large current account deficit, averaging 10.5% of GDP in the period , 26 and in the next five years the average current account deficit is expected to be only slightly lower at 9.2%. The current account deficit is a reflection of the country s low savings rate and lack of competitiveness. The current account deficit remains high as the country tends to import a large share of the products it consumes, especially oil, resulting in large trade balance deficits. The current account is financed with foreign direct investment, loans, and donations. However, the free- 645

6 Lazard Emerging Markets Debt floating exchange rate partially compensates for external imbalances, and the IMF considers foreign-currency adjustment the major adjustment tool, supported by fiscal and monetary adjustments. 27 Still, foreign reserves are relatively high for this small economy, totaling an estimated US$1 billion as of July 2017, 28 equivalent to almost 3.5 months of imports. Agriculture The economy and the population are highly dependent on the agricultural sector. Among the most important agricultural products are tea and coffee, accounting for one-fifth of total exports. Both products are considered top quality and are sold at a premium in international markets. Agriculture accounts for about one-third of GDP, about 50% of exports, and employs about 88% of the population. 29 Agriculture also generates 90% of all food consumed in the country. Moreover, 66% of the production is for subsistence. 30 Thus, economic performance tends to be very closely tied to agriculture. Bad weather conditions can cause the economy to contract, income levels to decline substantially, and inflation to increase. Weak Democracy and Authoritarian Government President Paul Kagame, who has been in power since 2000, controls all institutions, including the army and the police, and his party, the Rwandan Patriotic Front (RPF), has a majority in Congress. Moreover, the opposition appears to be constantly intimidated, and freedom of the press is very limited. Elections do not appear to be fair. For example, in the 2010 elections, none of the opposition candidates were allowed to participate. Moreover, party members and coalition members are tightly supervised. Finally, the ruling party indirectly controls an investment arm that controls over US$500 million, which in the past has been used to finance political events. 31 As a result of a 2015 referendum that approved a constitutional change, President Kagame was allowed to run for a third 7-year term in 2017 and two additional 5-year terms 32 which could extend his tenure until Kagame was reelected with 99% of the vote in Informal Sector The country s informal economy is estimated at 65% of GDP, which has negative implications for the economy by reducing tax revenues. The large informal sector also presents challenges in monitoring and analyzing the country s economic performance and, thus, may lead to undesirable economic policies. A large share of the informal sector operates in wholesale and retail trade. 646

7 Rwanda Country Background Size Capital Population 26,338 KM 2 (149th) Kigali 11.9 Million Religion Protestant 50.2%, Roman Catholic 44.3%, Muslim 2.0%, Other 3.0% Median Age 19 Years Literacy Rate 70.5% Independence 1 July 1960 Political System Government Leadership Executive Election 2024 Legislative Branch Presidential Republic President Paul Kagame; Prime Minister Edouard Ngirente Bicameral Parliament Economy Agriculture 31.5%, Industry 17.6%, Services 50.8% Labor Force Agriculture 75.3%, Industry 6.7%, Services 18.0% Merchandise Exports Coffee, Tea, Hides, Tin Ore Export Partners Democratic Republic of the Congo 31.3%, Kenya 15.7%, UAE 13.8%, Switzerland 8.7%, Burundi 5.7% Currency Rwanda Francs (RWF) As of November 2017 Source: CIA 647

8 Lazard Emerging Markets Debt Country Timeline 1959 Tutsi King Kigeri V, together with tens of thousands of Tutsis, forced into exile in Uganda following inter-ethnic violence Rwanda becomes independent with a Hutu, Gregoire Kayibanda, as president; many Tutsis leave the country Some 20,000 Tutsis killed following an incursion by Tutsi rebels based in Burundi Some 50,000 Hutu refugees flee to Rwanda from Burundi following ethnic violence there Forces of the rebel, mainly Tutsi, Rwandan Patriotic Front (RPF) invade Rwanda from Uganda President Habyarimana signs a power-sharing agreement with the Tutsis in the Tanzanian town of Arusha, ostensibly signalling the end of civil war; UN mission sent to monitor the peace agreement Habyarimana and the Burundian president are killed after their plane is shot down over Kigali; RPF launches a major offensive; extremist Hutu militia and elements of the Rwandan military begin the systematic massacre of Tutsis. Within 100 days around 800,000 Tutsis and moderate Hutus are killed; Hutu militias flee to Zaire, taking with them around 2 million Hutu refugees Rwandan troops invade and attack Hutu militia-dominated camps in Zaire in order to drive home the refugees Rwanda, DR Congo sign peace deal under which Rwanda will pull troops out of DR Congo and DR Congo will help disarm Rwandan Hutu gunmen blamed for killing Tutsi minority in 1994 genocide Main Hutu rebel group, FDLR, says it is ending its armed struggle. FDLR is one of several groups accused of creating instability in DR Congo; many of its members are accused of taking part in 1994 genocide Some 8,000 prisoners accused of genocide are released. Some 60,000 suspects have been freed since 2003 to ease prison overcrowding President Kagame wins new term in elections The US, Britain and the Netherlands halt aid to Rwanda over UN accusations that it is fuelling a rebellion in the Democratic Republic of Congo by training rebel troops. Rwanda denies the charge The International Criminal Tribunal for Rwanda holds its last hearings, 10 years after opening, and having convicted 93 individuals in connection with the 1994 genocide President Kagame announces that he will stand for the presidency again in 2017, after winning a December referendum on constitutional changes allowing him to serve a third term President Kagame gains a third term in elections. Source: BBC 648

9 Rwanda Notes 1 As of December IMF WEO Data, October accessed 27 November IMF WEO Data, October Growth and projection plan: RWANDA VISION 2020, Rwanda Ministry of Finance, July 2000, accessed on 12 December 2013, pdf. Electricity costs: Getting Electricity, Doing Business, accessed on 12 December 2013, doingbusiness.org/data/exploretopics/getting-electricity. 6 Economy Rankings, Doing Business 2017, accessed on 12 December 2017, org/rankings. 7 The Global Competitiveness Index , World Economic Forum, accessed on 27 November 2016, FINAL.pdf. 8 Corruption Perceptions Index 2015, Transparency.org, accessed on 27 November 2016, 9 Rwanda, Côte d Ivoire, Burundi Lead Sub-Sahara in Improving Business Regulations, The World Bank, 28 October 2013, accessed on 16 December 2013, accessed 27 November accessed 12 December accessed 12 December accessed 27 November As of October 2015, Source: Lazard, Haver Analytics accessed 27 November Travel & Tourism Economic Impact 2017: Rwanda, World Travel and Tourism Council, wttc.org/-/media/files/reports/economic-impact-research/countries-2017/rwanda2017.pdf accessed on 12 December 2017, /world2016.pdf accessed 27 November Rwanda, IMF Country Report No. 13/177, June 2013, accessed on 12 December 2013, org/external/pubs/ft/scr/2013/cr13177.pdf. 19 Rwanda Article IV July IMF Country Report 17/217 Issues/2017/07/13/Rwanda-Staff-Report-for-the-2017-Article-IV-Consultation-Seventh-Review-Under-the- Policy accessed 27 November accessed 12 December accessed 27 November Human Development Reports, United Nations Development Programme, accessed on 12 December 2017, 25 IMF WEO Outlook Data, October IMF WEO Outlook Data, October Rwanda IMF Country Report 16/153. June accessed 12 December Africa 2016 Statistical Handbook, African Development Bank, Documents/Publications/African_Statistical_Yearbook_2016.pdf 3 Institute of Policy Analysis and Research- Rwanda. August Wallis, William, Rwandan Patriotic Front: Party builds a formidable business group, Financial Times, 12 September 2012, accessed on 12 December 2013, a4be-00144feabdc0.html accessed 27 November accessed 12 December

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