Rwanda has achieved impressive development progress since the 1994 genocide and civil war. It is now consolidating gains in social development and accelerating growth while ensuring that they are broadly shared to mitigate risks to eroding the country’s hard-won political and social stability. Central to Rwanda’s goal is to ensure inclusive development and to provide equitable, efficient and effective pro-poor service delivery, while promoting local development in an environment of good governance. It seeks to foster citizens’ participation and empowerment as well as transparency and (upward/downward) accountability. Rwanda’s approach to promoting inclusive and stable politics and governance appears to be working. The country is at peace and among the most stable on the continent.

Economy and Development

Rwanda’s long-term development goals are embedded in its Vision 2020 which seeks to transform Rwanda from a low-income agriculture-based economy to a knowledge-based, service-oriented economy by 2020. It envisages real growth of eight percent annually, to be achieved through: (i) deepening reforms, including in the business environment; (ii) investing in major infrastructure (power, transport, and ICT); (iii) increasing agricultural productivity; and (iv) investing in skills development needed for economic modernization.  

Within this long term vision, the Economic Development and Poverty Reduction Strategy (EDPRS) assigns the highest priority to accelerating growth to create employment and generate exports. The strategy is framed around three strategic flagship programs:

• Flagship one (growth) targets economy-wide improvements in productivity. Its goal is to transform Rwanda’s economy away from subsistence agriculture towards increased commercial agriculture, as well as manufacturing and services.
• Flagship two (Vision 2020 Umurenge Program) focuses on ensuring growth is widely shared by creating economic opportunities for the poorest Rwandans.  VUP has three components: (i) public works; (ii) credit packages; and (iii) direct income support.
• Flagship three (governance) seeks to strengthen political and economic governance, and build institutions and capacity of the state. It envisages a wide range of reforms to strengthen public sector institutions and capacity and also includes aspects needed to create an attractive business environment including strengthening commercial justice systems, regulatory and administrative frameworks, and promoting principles of good corporate governance.

The government also recognizes the key role of the private sector in accelerating growth and reducing poverty, and is therefore looking for innovative ways to finance its development beyond traditional partners and instruments. It has accordingly been undertaking reforms to improve the business environment and to reduce the cost of doing business. Rwanda was named top performer in the Doing Business 2010 report, among the ten most improved economies in 2011, and ranked 3rd easiest place to do business in Africa in 2012.

Rwanda’s growth performance has been remarkably strong over the past two years. Real growth accelerated to about 7.2 percent in 2010 and 8.6 percent in 2011 from 4.1 percent in 2009. Production of non-tradables, such as construction and other services took off, accompanied by a booming mining sector. Continued high growth in services and construction was largely the result of the fiscal expansionary stance that the Government has followed since 2006, which in turn was financed by large foreign aid flows. In 2011, industrial sector growth overtook growth in services, due to soaring performance in mining and construction. Production in the mining sector increased in 2011 and continued to benefit from record world mineral prices. Agriculture remains a mainstay of the economy, albeit with declining importance. That said, over the past five years it has accounted for 35 percent of GDP, 73 percent of employment (according to the latest household survey of 2010/11), and 45 percent of export earnings.

Inflationary pressures resurfaced in tandem with rising global food prices and spikes in oil process in 2011. In common with neighboring countries, food and energy have been the leading inflation drivers. Food prices (35 percent of the consumption basket) increased from a negative 2.7 percent in December 2010 to a record 15.5 percent in February 2012. Energy inflation also rose. This led to headline inflation increasing nearly uninterrupted in 2011 from historic lows in the last quarter of 2010 (0.2 percent in December) to its highest levels since mid-2009. Core inflation peaked at 9.0 percent in September 2011 and remained persistently high. The Central Bank of Rwanda, Banque Nationale du Rwanda (BNR), started to lift its policy rate in October 2011 to contain inflation pressures. However, the key repo rate was only raised marginally by a cumulative 100 basis points to seven percent, leaving it negative in real terms. Core inflation only started to retreat in February 2012 after Government reduced fuel taxes for a second time in January 2012, in order to contain price pressures from energy products to the rest of the economy.

Rwanda remains highly dependent on grants from its Development Partners. About 40 percent of the budget is financed by grants, adding up to 11.0 percent of GDP in 2010/11. This can easily turn into vulnerability if donors were to reduce their foreign assistance to Rwanda in the context of the fiscal consolidation exercises being implemented by many of them, including in connection to the sovereign debt crisis in the Euro zone. At the same time, revenues are still among the lowest in the East African Region. Although these over-performed during 2010/11 reaching 14.0 percent of GDP owing to higher direct taxes and excise duties these higher revenues were offset by higher than projected expenditures in all categories except externally financed capital expenditures, resulting in a widening of the fiscal deficit to 3.8 percent of GDP, compared to 0.5 percent in 2009/10. Finally, as trade shifts increasingly to the EAC partners, losses in the collection of international trade taxes are expected to become permanent with such permanent shifts in the revenue structure needing to be addressed in further consolidation efforts.

Rwanda’s economic outlook for 2012 is positive, but with increasing medium-term risks. Real GDP growth is projected to slow down in 2012 and further more in 2013 and 2014, due to the impact of the fiscal consolidation efforts and the uncertainties of the global outlook. Rwanda’s growth outlook is tied to a recovery in the global economy, which would ensure robust export demand, stable commodity prices, increasing tourism arrivals and continued aid inflows. Any shock in international commodities prices would severely hamper Rwanda’s balance of payments and growth outlook and could increase domestic inflationary pressures.

Development Challenges

Rwanda has made great strides toward addressing its development challenges in recent years, including a significant reported reduction in poverty. While poverty still affects a large part of the population in Rwanda, according to the most recent national household survey, carried out in 2010/11, poverty decreased by 11.8 percent from 56.7 percent of the population in 2005/06.

However, for the next decade a number of key challenges remain. A first one is the need to increase the role of the private sector in the economy and its contribution to development and sustained growth. The private sector is still overwhelmingly informal and plays a limited role in contributing to economic activity. Despite Rwanda’s success in having established a sound investment climate, foreign direct investments remain low. Private sector investment is estimated at 10.9 percent of Gross Domestic Product, compared to 14.4 percent in the region in 2010. Poor physical infrastructure and the lack of electricity access and generation are other major constraints to increasing and diversifying exports of goods and services and further enhancing competitiveness. Rwanda also experiences significant capacity and skills gaps in the private sector and across the Government agencies that play significant roles in establishing the policy environment for private sector development.

 

The World Bank Group’s FY09-12

Country Assistance Strategy (CAS) for Rwanda was jointly prepared by the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) in an effort to achieve greater synergies and catalyze higher volumes of private resources to support Rwanda’s development. It supports the Government of Rwanda’s Economic Development and Poverty Reduction Strategy (EDPRS) and seeks to achieve greater impact through selectivity in line with Government of Rwanda’s preferences for engagement with the Bank, and to enhance harmonization with other donors. The CAS is therefore framed around two strategic themes:

• Promoting economic transformation and growth. The primary objective is to help Rwanda make progress in activating new drivers of growth that can be sustained over time. The substantial part of the financial envelope over the period thus focuses on the achievement of four key outcomes: (i) raising agricultural production in a sustainable way; (ii) improving access to and quality of key economic infrastructure services; (iii) improving the environment for private sector development; and (iv) strengthening management of public resources at central and local levels.
• Reducing social vulnerability. A secondary objective is to build on progress to date in the reform of basic service delivery mechanisms and thus to help ensure that the most vulnerable Rwandans also benefit from growth, and to help Rwanda make further progress in building a more stable society. A smaller financial envelope will involve support to: (i) the Flagship Vision 2020 Umurenge (village) initiative; (ii) reducing vulnerability of Rwandan children and mothers to high rates of mortality; and (iii) promoting peace and social cohesion through demobilization and reintegration.

A recent Country Assistance Strategy Progress Report shows that the delivery of the planned IDA lending program remains on track overall. A key challenge it identifies is weak implementation capacity in the central administration.

In accordance with the Government of Rwanda's division of labor arrangements, the Bank's investment lending is focused on the energy; agriculture; and transport (including ICT) sectors. The portfolio currently comprises 11 projects with net commitments of US$ 393 million. Approximate shares are agriculture (51 percent), energy (20 percent), and transport (15 percent). In addition, the World Bank provides one general budget support operation in each year.

Reflecting the importance of the regional integration agenda, Rwanda is also participating in five regional projects (total commitment US$ 69 million) some 80 percent of which is focused on regional infrastructure programs and trade facilitation issues.

 

Towards Market Oriented Agriculture.

Rwanda’s medium term 2008-2013 Economic Development and Poverty Reduction Strategy (EDPRS) concluded that increasing agricultural productivity and commercializing production would be critical to achieving Rwanda’s vision for structural transformation from subsistence agriculture to a middle income economy. It is in this respect that the World Bank embarked on the investment lending support first using a three phased Adaptable Program Loan, The Rural Sector Support Project (RSSP) that since 2001 has focused on intensifying production in the marshlands, followed by the Land Husbandry, Water Harvesting and Hillside Irrigation (LWH) Project that started in 2010 and focuses on developing horticulture production on the hillsides.

Since the beginning of RSSP1 in 2001, over 6,000 hectares of marshlands have been rehabilitated or developed; and nearly 10,000 hectares of hillsides have been sustainably developed. Maize yields have improved from 1.6 tons/ha to nearly 5 tons/ha; while rice yields have improved from 3 tons/ha to 6.30 tons/ha; and potato yields have improved from 17 tons/ha to nearly 20 tons/ha. In addition a number of rural infrastructures have been put in place to link productive areas to markets.

“In the past, I cultivated and harvested very little, I could not even save for the market. But after constructing terraces, I had a good harvest and a surplus for the market. I had an uncompleted house but now, I have been able to buy cement from the sales of my potato harvest and we are about to complete the house” - Colette Nyiraneza, a potato farmer testified.  So far, of the 51000 people who benefited from the first two RSSP programs, 42 percent are females as are 54 percent of the 6,748 people who have benefited from the LWH.

Preliminary results from the 2010/11 household survey indicate that the reported poverty reduction of 11.8 percent between 2005/06 and 2010/11 is likely to be attributed in part to improved agriculture production, increased number of agro businesses and increased farm wage employment.

Expanded Access to Electricity

The World Bank supported Urgent Electricity Rehabilitation Project focused on helping improve Rwanda’s electricity generation capacities. Accordingly, the 20 MW Heavy Fuel Power Plant in Jabana, became operational in May 2009. This plant, together with other domestic and regional hydro plants, constituted the back-bone of the Rwandan electricity supply and has enabled the government to eliminate load shedding and phase-out part of the rental diesel generators with maintained supply quality.

This was followed by support for an electricity rollout program the Electricity Access Scale-up and SWAp Development Project whose objective is to increase the number of households connected to the electricity grid to 350,000 by 2013 from the initial 110,000 in 2009. The number of customers so far connected has so far increased to about 270,000 by end 2011, the second year of program implementation.

Emphasis is now returning to increasing generation capacity. The Sustainable Energy Development Project provides advisory and technical support, including micro hydropower feasibility studies, IFC has provided loans to the private developers, and MIGA has provided a guarantee to the 25MW Kivuwatt methane plant.

An improved Investment Climate for Private Sector Participation

Investment climate reforms remain a priority in the World Bank Group’s engagement and support to the Government of Rwanda. IDA and IFC/Investment Climate Services have been collaborating through the IDA Competitiveness and Enterprise Development Project and the World Bank Group’s Rwanda Investment Climate Reform Program particularly on deepening commercial law reform, capacity building activities at the Rwandan Development Board, promoting public-private dialogue, streamlining cost and time to do business in Rwanda and supporting GoRs investment promotion efforts. Rwanda has emerged as a top global reformer - in two consecutive years of the DB report becoming the first Sub Saharan African country to do so. It undertook reforms in seven of the 10 business regulation areas measured by Doing Business report. In particular, it now takes a Rwandan entrepreneur just two procedures and one day to start a business. Imports and exports are more efficient, and transferring property takes less time as a result of a reorganized registry and statutory time limits. Investors have more protection, insolvency reorganization has been streamlined, and a wider range of assets can be used as collateral to access credit.

Development partners increasingly provide funds through general budget support, with the World Bank currently being the largest budget support donor. Donor coordination takes place within the context of the Development Partners Coordination Group, the Budget Support Harmonization Group, and a number of Sector Working Groups, with the last two being chaired by the Government and co-chaired by a donor. Joint Sector and Budget Support Reviews, underpinned by a Common Performance Assessment Framework, are held bi-annually.  Sector-Wide Approach memoranda of understanding are also in place between the Government and its development partners in the energy, agriculture and public financial management sectors.   

A significant percentage of ongoing World Bank-supported projects have mobilized support from other development partners including: (i) the Energy Access Project (Nordic Development Fund, OPEC Fund for International Development, Netherlands); (ii) the Demobilization and Integration Project (Sweden, Germany, Netherlands); and (iii) the LWH Project (USAID,  Canada, GAFSP).