Rwanda is Further Proof the World Bank’s Ease of Doing Business is Tainted

Open Letter to David Malpass, President of the World Bank

Dear Mr. President, as you are aware, the World Bank classifies Rwanda as one of the most business-friendly environments in the world. The Ease of Doing Business for 2020, for example, ranks Rwanda 38th out of 190 countries. This would mean that it is easier to do business in Rwanda than in 152 countries in Europe, Asia, Latin America, and Africa. Rwanda is placed alongside developed economies such as Switzerland which is ranked 36th, and ahead of the Netherlands at 42. In Rwanda, meanwhile, businesses operate in hostile and unpredictable environment in which companies are even seized and auctioned off illegally by the Rwandan government. Rwanda’s high ranking is further proof that the World Bank’s Ease of Doing Business is tainted. The Rwandan data should be included in the ongoing investigation of irregularities that led to the suspension of the Ease of Doing Business.

Mr. President, far from being a business-friendly environment, Rwanda is a high-risk country for doing business. The Rwandan government is a proven predator to private enterprise in protection of state-owned enterprises (SEOs), ruling party conglomerates, and military-run companies. The most recent confirmation that Rwanda is inimical to private enterprises is the ruling of the East African Court of Justice (EACJ) issued on November 26, 2020. EACJ determined that the Paul Kagame government seized and auctioned off a US$20 million Union Trade Centre (UTC) shopping mall located in the city of Kigali, Rwanda. The victim of this takeover is yet another Rwandan businessman,Tribert Rujugiro Ayabatwa, whose mall was auctioned for a mere US$8 million. The Court ruled that seizure and auctioning of the US$20 million business by the Rwandan government was illegal. When seized, UTC was Kigali’s busiest commercial hub hosting over 80 businesses that employed nearly 500 workers.

Mr. President, the UTC case is not an isolated incident. On the contrary, the list of domestic and foreign companies illegally seized, or forced out of business is long. Foreign companies forced out of Rwanda include Chevronfrom the US, Bakri International from Saudi Arabia, and Vanoil from Canada. The government seized and auctioned off companies of Rwandan leading businessmen including Assinapol Rwigara, Valens Kajeguhakwa, and Alfred Kalisa.

Mr. President, the illegal seizure and auctioning off all manner of private properties by the Rwanda government is widely known. This problem stems from the fact that Rwanda’s tiny private sector is dominated by the ruling party’s business conglomerate known as Crystal Ventures Ltd, the Rwandan military companies, and state-owned enterprises. The U.S. State Department’s 2020 assessment of Rwanda’s business environment describes the situation as follows:

”Some U.S. companies have expressed frustration that while authorities require them to operate as a formal enterprise that meets all Rwandan regulatory requirements, some local competitors are informal businesses that do not operate in full compliance with all regulatory requirements. Other investors have claimed unfair treatment compared to SOEs, ruling party-aligned or politically connected business competitors in securing public incentives and contracts.”

The World Bank’s 2019 Systematic Country Diagnostic similarly described the Rwandan business environment in the following terms:

”SOEs occupy a prominent position in Rwanda’s enterprise sector, and include four categories of firms: (i) enterprises in which the Ministry of Economy and Finance (MINECOFIN) has a majority or minority stake, including in air transport, financial services, agriculture, utilities, real estate, cement, services, and diversified holdings; (ii) Rwanda Patriotic Front (RPF) holdings (e.g. building materials, security, coffee, and dairy) organized into one holding company; (iii) public-private investment groups (e.g., energy, cement, metals, dairy, and tea holdings) in which other SOCEs have invested along with private investors; and (iv) Rwanda Defense Force (RDF) holdings, although most of these have been transferred to MINECOFIN.”

The Systematic Country Diagnostic called for transparency in Rwanda, noting that in addition to financial reporting that is rarely done, SOEs should publicly disclose the following:

”a) governance, ownership, and voting structures of the SOE; (b) remuneration of board members and key executives; (c) board member qualifications, selection process, roles of other company boards, and whether these other boards are considered as independent by the SOE board; (d) any material foreseeable risk factors and risk mitigation measures; (e) any financial assistance, including guarantees, received from the government and SOE commitments arising from public-private partnerships; (f) any material transactions with the government or government-related entities; and (g) any material issues relating to SOE employees or other stakeholders.”

Lastly, in the 2021–2016 Rwanda Partnership Framework, the World Bank concedes that ”Despite a remarkable improvement in its investment climate, and a rise in 2020 Doing Business rankings to 38th place, FDI has failed to take the place of declining aid flows.”

Mr. President, it appears that parts of the World Bank Group know that Rwanda’s environment is detrimental to doing business. That is why ranking Rwanda ahead of 152 countries in the ease of doing business is embarrassing. My unsolicited advice, therefore, is that the World Bank should include the case of Rwanda in the ongoing probe of data irregularities that led to the suspension of the Ease of Doing Business.

Most Sincerely,

David Himbara