By David Himbara
Rwandan head of state, General Paul Kagame, likes to boast about Rwanda’s top rankings in the World Bank’s Doing Business Index. Ranked 38th out of 190 countries, Rwanda tops African countries in the 2020 Doing Business Report, except for Mauritius. Kagame routinely presents this as evidence of his government’s high performance in creating prosperity. But in its latest Country Partnership Framework for Rwanda, the World Bank presents a dismal picture. Rwanda’s top-ranking in Doing Business has not delivered what it is intended to do. In the words of the World Bank, in Rwanda, foreign direct investment ”has failed to take the place of declining aid flows.”
The reason for Rwanda’s failure to replace foreign aid by investment is no mystery. Despite the superficial appearance of a friendly business climate as captured in the Doing Business Index, Rwanda’s business environment is, in reality, hostile. Investors face enormous challenges due to the fact that politically-connected companies dominate Rwanda’s tiny small private sector.
Why the Systemic Investment Response Mechanism faces serious challenges in Rwanda
The World Bank has introduced the tool known as the Systemic Investment Response Mechanism (SIRM) to assist countries such as Rwanda to clean up their business environments. SIRM helps countries to identify, track, and promptly resolve grievances that hinder new investments or put existing investments at risk.
SIRM will hit a brick wall in Rwanda. As the U.S. State Department’s 2020 Rwanda Investment Statement explains, ”the government, ruling party, and military continue to play a dominant role in Rwanda’s private sector.” Because of this anomaly, investors in Rwanda become frustrated by unfair treatment ”compared to SOEs, ruling party-aligned or politically connected business competitors in securing public incentives and contracts.” Will General Kagame curtail the activities of his ruling party’s business empire? I highly doubt that.