Why is Rwanda unable to recover from the 2012 aid shock?

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Peter K in Rwanda requested for a brief explanation of this matter. My answer is that this is because Rwanda became heavily dependent on aid, and is unable to create an alternative source of national productivity and income.

To appreciate this challenge, let us recall that when it was still the donor darling prior to the 2012 aid suspension due to the country’s proxy wars in DR Congo, Rwanda was receiving huge amounts of aid. In 2011 alone, the total foreign aid to Rwanda was US$1,2billion as shown on the attached graphic. Rwanda’s top ten donors when aid was still flowing in 2011 are also shown on the attached table.

Besides the annual aid that kept increasing especially since 2004, donors in 2006 cancelled Rwanda’s debts totalling US$1.3billion.

Aid to Rwanda become so enormous that it constituted up 20% of gross national income. Even more shocking is the fact that 86% of capital formation (e.g. roads, water, electricity, public buildings) came from aid, according to the World Bank’s August 2014 Economic Update on Rwanda.
In comparison to its East African neighbours, Rwanda’s aid per capita was by far the highest. In 2011, Rwanda’s aid per capita was US$113, versus Kenya’s US$59; Burundi’s US$60; Tanzania’s US$53; and Uganda’s US$45.

10686949_832309560143325_5527318034517160810_nWhen aid donations were suspended or cut in 2012, troubles that are still felt today begun, including the following examples:

# Aid per capita in Rwanda plummeted from $113 in 2011 to $77 although it was still the highest in the region;

# Total foreign aid to Rwanda fell from $1.2billion in 2011 to $879million in 2012.

To answer the question why Rwanda finds it hard to recover from this loss of aid? The only way Rwanda can climb out of the ditch is to grow the private sector which in turn can diversify the economy in order to export more products to earn foreign currency, while reducing imports that currently include even eggs and milk. There is one major problem, however – the ruling regime is a predator of private enterprises. The illegal seizure of Union Trade Centre (UTC) is a prominent example.

Dr David Himbara

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