Rwanda - Economy
Since 1996, Rwanda has experienced steady economic recovery. The Government of Rwanda remains dedicated to a strong and enduring economic climate for the country, focusing on poverty reduction, infrastructure development, privatization of government-owned assets, expansion of the export base, and trade liberalization. Rwanda faces many challenges, including its dependence on significant foreign aid (now over $500 million per year).
The Rwandan economy is based on the largely rain-fed agricultural production of small, semi-subsistence, and increasingly fragmented farms. It has few natural resources to exploit and a small, uncompetitive industrial sector. While the production of coffee and tea is well-suited to the small farms, steep slopes, and cool climates of Rwanda, the average family farm size is one-half hectare, unsuitable for most agribusiness purposes. Agribusiness accounts for approximately 33.6% of Rwanda's GDP and 45% of exports. In 2010 export earnings were led by tea and coffee followed by minerals, tourism, and pyrethrum (whose extract is used as a natural insecticide). Mountain gorillas and other niche eco-tourism venues are increasingly important sources of tourism revenue.
During the 5 years of civil war that culminated in the 1994 genocide, GDP declined in 3 out of 5 years, posting a dramatic decline at more than 40% in 1994, the year of the genocide. The 9% increase in real GDP for 1995, the first postwar year, signaled the resurgence of economic activity and massive foreign aid inflows. In the immediate postwar period--mid-1994 through 1995--emergency humanitarian assistance of more than $307.4 million was largely directed to relief efforts in Rwanda and in the refugee camps in neighboring countries where Rwandans fled during the war. In 1996, humanitarian relief aid began to shift to reconstruction and development assistance.
Since 2002, the GDP growth rate ranged from 3% to 11% per annum, and inflation ranged between 2% and 9%. The agricultural sector performed strongly in 2009, propelling Rwanda to 4% GDP growth. This was well above the sub-Saharan average growth for the year, despite Rwanda's declines in overall exports (28% between 2008 and 2009) and remittances in 2009, which were due in part to the global economic crisis. GDP growth was estimated at 8.2% for 2011.
The Government of Rwanda has sought to privatize several key firms. Since 2007, the telecom and mining sectors have been largely privatized. The government has sold off all but two government-owned tea estates and has made great strides in completing privatization of the banking sector. RECO, the utility monopoly, remains to be privatized, as do several other parastatals. The implementation of a value added tax of 18% and improved tax collections are having a positive impact on government revenues and thereby on government services rendered. Banking reform and low corruption also are favorable current trends. The tourism industry has potential for further growth given the current political stability, travel infrastructure, and extensive national parks as well as other potential tourist sites.
In 2006, Rwanda completed the Multilateral Debt Relief Initiative and the Heavily Indebted Poor Countries (HIPC) debt initiative, significantly lowering its foreign debt load. Agricultural reforms, improved farming methods, and increased use of fertilizers are improving crop yields and national food supply. In the World Bank's "Ease of Doing Business" report released in September 2009, Rwanda catapulted from number 143 to number 67; in the 2010 report, Rwanda improved its ranking to number 58.
Many challenges remain for Rwanda. Although the government is pursing educational and healthcare programs that bode well for the long-term quality of Rwanda's human resource skills base, Rwanda's fertility rate--averaging 4.6 births (2010 est.) per woman--will continue to stress services, and diseases such as HIV/AIDS, malaria, and tuberculosis will have a major impact on human resources. The persistent lack of economic diversification beyond the production of tea, coffee, and minerals keeps the country vulnerable to market fluctuations. The country's exports continue to lag far behind imports, and the weakness of exports and low domestic savings rates limit growth. Exports have increased ($295 million for 2011), but Rwanda depends on significant foreign imports ($1.3 billion for 2011). Private investment remains low, although investment insurance is available through the Africa Trade Insurance Agency, the Overseas Private Investment Corporation, and the World Bank's Multilateral Investment Guarantee Agency (MIGA).
Perhaps the largest constraint on private sector development is the limited availability and high cost of electricity, which is currently among the highest in the world at about $0.20 per kilowatt hour. Hydroelectric power development is underway, albeit primarily in the planning stages, as is methane development, but the country's energy needs will stress natural resources in wood and gas. Rwanda is examining the feasibility of peat-based energy. Strong highway infrastructure maintenance and good transport linkages to neighboring countries, especially Uganda and Tanzania, are critical given Rwanda's landlocked geography. Rwanda has no railway system for port access to Tanzania or Kenya. Transportation costs remain high and, therefore, burden import and export costs. Over 40% of Rwanda's imports originate in East Africa.
Rwanda is a member of the African Union (AU), the Commonwealth, the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Economic Community of Central African States (ECCAS), and the Economic Community of the Great Lakes Countries (CEPGL).
American business interests in Rwanda are modest, and the African Growth and Opportunity Act (AGOA) has yet to make a significant impact in Rwanda. In addition to long-standing tea production by an American firm, in 2008 a U.S. corporation concluded an agreement with Rwandan authorities to produce 100 megawatts of electrical power from methane extraction operations in Lake Kivu. In 2009 a U.S.-British consortium signed an agreement with the government to develop a biofuel project based on jatropha, and a U.S. mining company expanded its investment in local mineral production. In 2010, RwandAir signed a contract with Boeing for the purchase of two Boeing 737-800 aircraft, for an estimated $80 million. American exports of aviation, telecommunications, and construction equipment have increased in recent years.
In December 2011, the United States and Rwanda ratified the 2008 U.S.-Rwanda bilateral investment treaty (BIT) by exchanging treaty instruments of ratification signed by President Barack Obama and Rwandan Prime Minister Damien Habumuremyi. The treaty provides U.S. investors with legal protections that underscore the two countries' shared commitment to open investment and trade policies. The BIT is also intended to strengthen bilateral economic ties and enhance U.S. investor confidence in Rwanda, as well as Rwandan investor confidence in the United States.
Rwanda's government-run radio broadcasts in Kinyarwanda, English, and French, the national languages. News programs include regular re-broadcasts from international radio such as Voice of America, BBC, RFI, and Deutsche Welle. There is one government-operated television station. In addition to government-operated Radio Rwanda, there are a number of independent FM radio stations. There are few independent newspapers; most newspapers publish in Kinyarwanda on a weekly, biweekly, or monthly basis. Several Western nations, including the United States, are working to encourage freedom of the press, the free exchange of ideas, and responsible journalism.
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