By David Himbara
The World Bank’s latest Rwanda Economic update (September 2022) shows what the update calls Rwanda’s “substantial supply-side challenges that limit productivity and competitiveness and trade potential”. These are: 1) lack of an enabling environment; 2) limited foreign and domestic investment in tradable sectors such as manufacturing, 3) limited skilled human capital, 4) low services productivity, 5) low agricultural modernization, and 6) poor governance, led by an ineffective judiciary sector. These challenges to Kagame’s Singapore of Africa may be summarized as follows:
1. Poor enabling environment: a) Costs faced by firms are high in Rwanda, particularly in energy, transport, and finance (the average nominal lending rate was about 17 percent in 2017, or 12 percent in real terms), “compared to costs in other economies at similar stages of development.” b) Access to finance, broadband internet, and affordable and reliable electricity remains a substantial barrier to firm growth; c) Assistance for industrial development fails to achieve its potential; and d) Poor coordination of incentives across government agencies, and the lack of a credible performance monitoring system.
2. Private investment in tradable sectors is low. Private credit in Rwanda finances mostly non-tradable sectors, such as construction and real estate, or to households. Tradable sectors such as manufacturing are neglected, receiving only 12 percent of the stock of private finance and unable to attract foreign direct investment and domestic investment.
3. Low level of human capital constrains productivity and trade growth. Rwandan workforce is “inadequately educated” and is cited by employers as the second most binding constraint (after lack of access to finance). Technical and vocational education and training (TVET) is not focused on the priority subfields. Enrollment in tertiary education is low. Relatively few graduates are specializing in key job-creation fields, such as science and engineering. “Rwanda has a higher level of stunting, and a lower completion rate for primary and secondary education, than the average for low-income countries.”
4. Productivity in services is low and falling. Despite the rapid expansion of the services sector productivity declined in “hotels and restaurants (70 percent decline in output per worker), construction (18 percent decline), and utilities (14 percent decline).”
5. Agriculture is no success story either. Smallholder farmers often lack the basics such as access to finance and record keeping. Land degradation remains a critical problem, as does increasing variability in rainfall patterns which impairs the livelihoods of small-scale, rainfed farmers.
6. Poor governance, rules and institutions continue to hamper country competitiveness. The ineffectiveness of the judiciary, including slow court procedures, limited training and specialization of justice sector employees, hamper competitiveness. Property rights are threatened due to lack of enforcement of intellectual property, coupled with difficulties facing the land management.
General Paul Kagame, over to you – your Singapore of Africa is in bad shape.
