Population 10.422 mission
GDP 6.95 US$ billion
@rating
country
Business climate
assessment
| 2010* | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
7.2 |
8.6 |
7.7 |
7.5 |
|
Inflation (yearly average) (%)
|
2.3 |
5.7 |
7.9 |
7 |
|
Budget balance (% GDP)**
|
-13.3 |
-14.2 |
-13.2 |
-14 |
|
Current account balance (% GDP)
|
-5.9 |
-7.3 |
-11.3 |
-10.2 |
|
Public debt (% GDP)
|
14.6 |
18 |
18.7 |
19.1 |
| (e) Estimate (f) Forecast * Fiscal year: From July to June ** grants excluded |
||||
STRENGTHS
- Geological potential: tin, tungsten, gold
- Low debt
- Significant progress in governance
WEAKNESSES
- Heavily dependent on international aid and on raw materials prices
- Geographic isolation
- Subject to the political and social tensions of the neighbouring countries (DRC)
- Strong demographic pressure and highest population density in Africa
Risk assessment
Dynamic growth
Rwanda’s growth, mostly spared by the crisis, will remain steady in 2013. Domestic demand is the key driver of the economy. The services sector (trade, financial services, tourism) contributes half of GDP. Agricultural performance (34% of GDP) will benefit from the good climatic conditions of 2012, but its development is still restricted by strong demographic pressure, as food production for domestic consumption limits export capacity. The industrial sector (15% of GDP) is dominated by construction, with manufacturing held back by the lack of infrastructures and competition from Kenya. The programme of public investment in energy (production and distribution) and transport will also sustain activity as will private investment, encouraged by the development of micro-finance through savings and credit cooperatives (SACCO). Unemployment remains a major challenge. It particularly affects the young because they lack the skills needed for the economy. Inflation will slow thanks to more favourable food and energy prices and the impact of a tighter monetary policy in 2012.
Fiscal and current account balances in deficit, but a risk of over-indebtedness limited by prudent debt management
The fiscal deficit will remain very high in 2013. Spending will be directed towards productive capacity, health and also to a review of public sector wages (frozen since 2006). Admittedly, the measures aimed at combating tax evasion and broadening the tax base will enable a boost in revenues and the privatisation programme (telecommunications, banks) launched by the state should be a source of additional revenue. However, the decision of several countries (particularly the United States, the UK and the Netherlands) to suspend aid to Rwanda, suspected of supporting the M23 rebels in the DRC, deprives the country of significant resources. Aid accounts for 45-50% of fiscal revenue. Unless the flow of aid is renewed and if the government does not make some spending cuts, the country will have no choice but to borrow from local banks, at a risk higher interest rates and denying the private sector access to credit. The launch of the “Agaciro Development Fund” intended to collect funds directly from Rwandans (particularly from the diaspora) will not make up for the loss of foreign aid.
As for the external accounts, exports of food products (coffee, tea) will be hit by the fall in prices and those of raw materials (tin, tungsten) will be limited by a decline in production linked to tighter controls on the origin of exported minerals (Rwanda or the DRC). The trade deficit will be maintained, as imports of manufactured goods and energy, though expected to slow, will still be higher than exports. Expatriates’ transfers and tourism revenues are expected to grow slightly but will not cover the deficit, so the current account balance will again be negative in 2013, but will not deteriorate.
Over 80% of external debt (62% of public debt) is held with multilateral creditors. Rwanda’s risk of overindebtedness remains moderate due to prudent debt management, since the substantial debt relief benefiting the country, and access to favourable borrowing conditions.
Noticeable progress in governance, which is improving the business environment in a still difficult political context
Rwanda is a landlocked country bordering especially on the Congo (DRC), with which relations are strained by the accusations of Rwandan government support for the M23 rebels. President Paul Kagamé was comfortably re-elected in August 2010 for a second term. But he is slated, within his own party (Rwandan Patriotic Front -RPF) and by the army, although this is unlikely to prevent him finishing his term (2017).
The legislative and regulatory framework has been greatly strengthened. Protection of property is guaranteed by the constitution (2003), foreign investment is authorised in all sectors, as is repatriation of capital and profits. The country has moreover, made major efforts to combat corruption. But regional disparities persist in the implementation of these measures and progress is still to be made on civil liberties and the protection of contractual rights.
