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 from subsistence agriculture towards increased commercial agriculture, as well as manufacturing and services.
• Flagship two (Vision 2020 Umurenge) focuses on ensuring growth is shared by creating economic opportunities for the poorest Rwandans.  It has three components: (i) public works; (ii) credit packages; and (iii) direct supports.
• 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 reduce costs of doing business. The country was named top -performer in the Doing Business 2010 report and in 2011, it included Rwanda in the list of the ten most-improved economies.

Rwanda’s economy remained resilient over the five years to 2010, sustaining macroeconomic stability. It experienced a slightly delayed impact of the global economic crisis but is already showing signs of recovery.  According to the IMF, real GDP growth fell to 4.1 percent in 2009 from 11.2 percent in 2008, but rebounded to a healthy 7.5 percent in 2010.   The average growth rate of 2006-10 was 7.3 percent annually. Real GDP growth for 2011 is projected to be 7.0 percent and settle around 6.8 – 7 percent in the medium-term.

The services sector has been the largest contributor to GDP since 2006, contributing almost 46 percent of GDP in 2010.  Industrial services' contribution to GDP increased marginally, from 13.8 percent in 2009 to 13.9 percent in 2010. The share of the agriculture sector's contribution to GDP continued to decrease from 38.4 percent in 2006 to 34.6 percent in 2010. The agriculture sector continued to be an important growth driver and remains the main source of employment (about 80 percent of the population) in 2010, reporting 4.9 percent growth (after 7.7 percent growth in 2009), boosted by the ongoing Crop Intensification Program. The industrial and services sectors recovered from the global demand decline and the tight credit conditions in the domestic banking sector. Their 2010 growth rates were 8.4 percent and 9.6 percent, up from 5.8 percent and 1.4 percent in 2009, respectively.

Rwanda is highly dependent on grants from its Development Partners. About 40 percent of the budget is financed by aid, adding up to more than 10 percent of GDP. Revenues are still among the lowest in the East African Region, estimated to be 12.6 percent of GDP in 2010. 

The main effects of the 2008-09 global crisis on Rwanda's economy were decreased FDI and remittances, and decreased export and tourism receipts. Looking forward, rising fuel prices are the biggest threat. Compared to December 2010 the price of imported foods has increased by 15.4 percent and that of locally produced foods by 8.8 percent. A continued increase in fuel prices is likely to comprise the main risk for economic activity throughout 2011, but Government's recently approved budget for 2011/112 contains as a fiscal counter measure a reduction in fuel taxes.

In 2011, inflation increased significantly due to hikes in global food and oil prices. In July 2011, the Consumer Price Index (CPI) stood at 7.1 percent, year-on-year, up from 0.2 percent of December 2010. Overall, inflation pressures were moderate in Rwanda compared to other EAC states. Despite a predicted increase in food production by 10.6 percent in 2011, food prices showed since the beginning of 2011 for most staples again a clear rising trend. By July 2011 the index for bread and cereals increased by 20.4 percent as compared to December 2010. The price increases were more significant for imported foods, which rose by 15.4 percent, while prices of locally produced foods rose by 8.8 percent as compared to December 2010. However, in the last two months food prices for locally produced cereals started to ease off slightly due to good harvest expectations for the second season in Rwanda.

Development Challenges

Lack of more recent poverty data prevents an assessment of whether the high growth of 2005-2008 has translated into significant poverty reduction in Rwanda. In November 2010 a new improved national household survey, the EICV 3, was launched, which is based on a monthly rolling survey to adequately address seasonality. It will deliver updated poverty numbers by 2012.  According to the most recent national household survey, the Integrated Household Living Conditions Survey (EICV 2), carried out in 2006, 56.8 percent of the population in Rwanda lived below the national poverty line. Furthermore, with a population growth of about 2.7 percent annually, Rwanda needs to achieve GDP growth of 8 percent per annum to make a significant dent in poverty.

The economy is still dominated by subsistence agriculture which contributes over 36 percent of GDP, 80 percent of employment and 45 percent of exports. Expensive and limited supply of energy—electricity costs $0.22 per kWh compared to $0.08-$0.10 in the rest of the region—and high transport costs at $165 per ton per km compared to $95 per ton per km in the rest of the region, significantly raise the costs of doing business in Rwanda. Key labor market skills are also lacking—almost 75 percent of Rwanda’s labor force is unskilled and less than 10 percent of its working population is educated beyond primary level. There are still major challenges in service delivery at the district level, caused by weak administrative capacity in the areas of targeting, upward reporting, and program monitoring.

 

The World Bank Group’s FY09-12

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, while there have been some slippages, mainly in regional or infrastructure projects. As a key challenge it identifies the weak implementation capacity in the central administration.

The portfolio currently comprises 9 projects with net commitments of US$ 283.30 million. The top three sectors are agriculture (48 percent), energy (33 percent), and skills development /capacity building (21 percent). In addition, the World Bank provides one general budget support operation each year – a budget support operation in the amount of US$ 125 million is planned for FY12. 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.

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

 

RSSP: towards market oriented agriculture.

Under IDA’s Rural Sector Support Project II (RSSP II) over 5,000 hectares of irrigated marshlands and 10,000 hectares of hillsides have been rehabilitated, developed and imbued with the capacity to perform at optimum.  A total of 14 dams have been built and 3 more are under construction, with a target completion date of December 2011.

Rwanda presently imports 50 percent of the rice it consumes. However, progress under RSSP II is set to reverse this trend. Six new marshlands have been rehabilitated and are now being cultivated with rice, with most of the land now having the capacity to produce crops in two seasons each year. 

RSSPII has financed the increased production of food crops (such as bananas, potatoes, maize and wheat) in commercial quantities. By partnering with several maize cooperatives across country, RSSP II has nurtured a sharp rise in income per household for farmers. A cooperative, Umucyo increased its yield by 300 percent in its second year of being supported by RSSP II. From 56 tons of maize in 2008, total output was increased to 180 tons in 2010, earning an income of 71 million Rwf, representing 1,000% increase from the 6.7 million Rwf earned in 2008.  The exponential increase in income experienced by Umucyo and several other cooperatives came as a result of the training programs in business organization and marketing skills organized by RSSP II, to enable rural farmers to negotiate more effectively and manage their earnings, with further investments in mind.

Improving Governance

Through the Public Sector Capacity Building Project (2005-2011) the World Bank is supporting the Government of Rwanda's efforts in strengthening its financial management and public administration systems. Improvements have been implemented through a structured and sequenced approach underpinned by the PEFA framework. Rwanda's first PFM reform action plan (a three-year plan from 2006 to 2008) was successfully completed and is now being followed by implementation of a medium term (2008-2013) PFM reform strategy. At the same time a path-breaking Joint Governance Assessment was completed in 2008, to be updated every three years, providing Government and development partners with clear sign posts for areas requiring attention. Key institutional changes from this focus on improving governance have included: the establishment of an Accountant General's Office, an Office of the Chief Government Internal Auditor.

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.

As a result, an access expansion project, being supported by the World Bank Electricity Access Scale-up and SWAp Development Project aims to increase electricity access to 350,000 customers (from a base of a mere 110,000 in 2009) by 2013. The number of customers has increased to about 190,000 by end 2010, the initial year of the program implementation.

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 (CEDP) and the World Bank Group’s Rwanda Investment Climate Reform Program (RICRP) 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 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 (SWAp) memoranda of understanding (MOUs) are also in place between the Government and its development partners in the energy, agriculture and public financial management sectors, and will soon be concluded in the water and national statistics 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); (iii) the Public Sector Capacity Building Project (AfDB, Africa Capacity Building Foundation, Belgium); and (iv) the Land Husbandry, water Harvesting and Hillside Irrigation Project (USAID,  Canada, GAFSP).