Rwanda’s big push for regional integration and its investment in infrastructure to facilitate doing business both domestically and with its close neighbors is increasingly attracting the attentions of international investors. Minister of Trade and Industry François Kanimba discusses the country’s aims to become the regional center of choice for conferences, communications, industry and trade through its physical infrastructure and ease of doing business.
Africa is becoming a growing investment destination for both advanced and emerging economies. Would you please discuss this prominence the continent is gaining in the international arena, especially attracting those investments?
During the last 10-15 years there have been a lot of reforms on the continent to streamline the economic management framework. This is recognized and I think there has been a kind of global coalition to support reforms in Africa. Global financial institutions like the International Monetary Fund, the World Bank, big regional development financial institutions like ADB, and the key bilateral development partners, really came together to influence economic reforms and sector policies. I think in most African countries a number of macro-economic policy management frameworks are good and this has significantly impacted on the perception of Africa as far as foreign direct investment (FDI) is concerned. That is the reason why now you start to hear that Africa is the next frontier.
At the same time there are some realities we have to recognize too. Africa has a very young population that is growing fast, while developed countries have an ageing population. People talk about the potential of the demographic dividend in Africa. Secondly, when you look at what has been driving global economic growth in the last two decades, it was in part the Chinese economy with other emerging countries in South Asia. Now there is a change, particularly in China where the economic growth has significantly slowed down. Even the competitiveness of the Chinese economy is coming down due to the fact that wages have significantly increased and global investment, which has been converging in China in the last two decades, doesn’t see China as that attractive and is now looking to alternatives.
Today Africa is seen as a very strong alternative to attract potential FDI, which is looking for opportunities. I think from that perspective, Africa is now really in a position to receive increasing FDI. We already planned on how we, as African countries, will be prepared and will work together to make sure that the FDI that started now to come to Africa will not be disappointed in terms of how we will enhance the economic governance system to make sure that people who come to invest in Africa are getting facilities, are getting the real return on their investment. I know the levels of corruption, which are still high in some countries, but are significantly going down, discouraged investors. But now the risk for an external investor who comes to Africa is increasingly reduced. I think this is why the global investment community started to think about venturing into Africa; we need to make sure that we support this trend and we continue to improve the ease of doing business to attract FDI. I am convinced that the fact that we have a very young population and the wage bill in African countries is still low can contribute to attracting investors, as the cost of production is very attractive.
But we have some challenges as well to make sure that this potential demographic dividend can be exploited. We still have huge logistic challenges to access the global market. I think we really need, as African countries, to invest heavily in infrastructure but at the same time attract FDI to engage in infrastructure. We have to make sure that the cost of doing business across the border is reduced compared with our main competitors, particularly those emerging economies from South Asia.
Regional integration and industrialization are among Africa’s key priorities, and Rwanda is no stranger to it. Africa’s largest untapped market and its biggest opportunity are right on its doorstep. Please discuss Rwanda’s regional integration efforts regarding infrastructure.
As we are a landlocked country, we are working with our regional partners to develop regional infrastructure that will be a game changer, for example developing railways, which we think are key. That is the reason why Rwanda has been actually pushing some of our partners in the Northern Corridor to establish this Northern Corridor project, which brings together Kenya, Uganda, Rwanda and later on South Sudan. The whole focus so far has been to develop infrastructure. We will develop the railway from Mombasa up to Kigali via Kampala. We are also working on the Central Corridor with Tanzania, to develop the railway from Dar Es Salaam to Kigali. For Rwanda these are very high priority projects. They are very costly, but when you look at how this infrastructure is going to affect the competitiveness of the Rwandan economy, there is no doubt Rwanda is ready to invest, as long as our partners in the region are also ready to take part of this regional investment.
The Government of Rwanda is well aware that the private sector is the engine of growth. What are the tangible efforts in order to enhance the ease of doing business and how would you describe the business environment in Rwanda?
Rwanda is recognized as a very strong performer as far as the doing business reform is concerned. Our main focus has been on governance structures. Since the end of the 1995 genocide when the new government came to power, it has clarified its economic policy management framework. The first thing that was really done and has significantly impacted on the economic trend we have seen in this country is a recognition of the important role of the private sector to drive the growth, while at the same time building a capable State that can regulate the economy without creating any bottlenecks in the private sector and developing values for partnerships between the private sector and the government.
That is why the Government of Rwanda has disengaged from all the big public enterprises that were established after the country got independence in ‘62. Now these companies are in the hands of the private sector: sectors like the tea or coffee industries, big infrastructure, telecommunications and even the financial sector. The government has privatized most of the banks where it used to be the main shareholder, attracting foreign direct investment into the banking system, but at the same time the government has established a very strong regulator. When you see how the Central Bank has been strengthened in the last 15 years, it has significantly contributed to stabilizing the financial sector in the country and has attracted investment.
The same thing happened in the telecommunications sector. We have a very strong regulator, the Rwanda Utilities Regulatory Authority (RURA). All the telecommunication companies in Rwanda are private; the government sold almost all its assets. When you see the level of competition, the quality of the services, these have significantly affected the business environment, which has been eased.
On the corruption front, the Government of Rwanda has stated zero tolerance towards corruption since the year 2000, and this is not only a statement. Many Rwandans can confirm that Rwanda walked the talk when it comes to fighting corruption. This goes from high-level officials, to middle posts all the way down to the lower levels of public service. When you speak to foreign direct investors who came to Rwanda, one of the things that attracted them is the low level of corruption compared to other countries in the region. That is something that I think is part of the strength of Rwanda.
I want to mention two other things apart from establishing a robust governance system that has created a friendly environment for private people to operate. There are some key enabling sectors in which the government has invested heavily. The first one is ICT. Rwanda is among the few countries in Africa that have deployed broadband infrastructure covering the whole country, where all the administrative sectors are connected by fiber optics. We are among the few African countries that have high-speed internet. I think this has significantly contributed to shaping this very nice business environment for the private sector.
There are other sectors in which we have been investing significantly to achieve our Vision 2020, our long-term vision to transform Rwanda into a regional trade and communications hub. We are landlocked but we would like in the long run to be land-linked. This ICT strategy is part of it.
Another sector is the tourism potential of Rwanda, which I think can still be further developed and is one of the key areas the government has focused on. It is a sector that has been growing consistently and has reached double-digit growth. There is even more to come with the completion of the landmark infrastructure projects in Kigali; the Kigali Convention Center makes of Kigali a potential regional conference center. Now we have the capacity not only for conferencing facilities but also high standard hotels. In only a few years we have three or four five-star hotels that can really accommodate very high-class international travelers. I think this is going to significantly impact on our MICE strategy to make Rwanda a conference center.
That is also the reason why Rwanda is pushing to develop a national airline, RwandAir. In terms of service on board it is recognized as probably the best airline in the region. Our main purpose in developing this domestic airline is in line with our vision to make Rwanda a regional trade hub, a regional conference center. We need to make sure that in the medium to long term, Kigali will be connected with any capital city in Africa.
As we are all well aware, air transport on the continent is still a bottleneck. We cannot talk about regional integration when we are still struggling with issues of such nature. RwandAir has not yet reached its breakeven point financially, but in terms of economic externalities for Rwanda it is bringing a huge profit. That is how we see it. We hope in the long run it will end up being financially profitable. For now we are working to make sure that the regional trade and communication hub is there, and it cannot be there if you have no air connectivity to facilitate people moving around Africa.
Last but not least there is a regional integration process. Rwanda is popular in Africa in terms of facilitating people to come in. African citizens can get their visa at the Kigali International Airport and you can even apply online to get your visa; you do not need necessarily to visit a Rwandan embassy. I think this kind of facilitation is one of the key explanations of why people from all around the world like to come to Rwanda.
Since we are in the ICT capital of Africa I would like to ask you a question regarding innovation. Steve Jobs once said that innovation is what distinguishes between a leader and its followers. What is the innovation you are the most proud of?
My key innovation in this ministry has been to set up a program to support small and medium enterprises (SMEs). That is really my key priority and focus. Another innovation I am proud of is our clear Trade Logistics Development Strategy, which was developed in the last three years. As we want to develop Kigali as a regional trade hub, we have to work on cutting down the cost of trading across borders. We have a clear strategy, a clear vision. That is how I can define my own contribution since I was appointed as Minister of Trade and Industry.
How is Rwanda planning to enhance industry’s contribution to GDP, which stands in 2015’s second quarter at only 14%?
Economic growth in Rwanda has been mainly driven by services and some improvements in agricultural productivity. The growth of the manufacturing sector is still very low: as you mentioned it only contributed 14% to our GDP. Our second Economic Development and Poverty Reduction Strategy – EDPRS 2 – and the Vision 2020 have been targeting a 20% contribution to the GDP, but it has been a challenge to grow the share of the industrial sector in the total GDP. This means something more needs to be done to attract more investment into the industrial sector.
One of the key strategies is to make sure we facilitate manufacturers’ easy access to fully serviced land at an affordable cost. That is why we are developing a very ambitious industrial parks program, which supplements the on-going Kigali Special Economic Zone. With these industrial parks we are looking to enable investors to access land at very affordable costs, about $10 per square meter. Apart from the Kigali Special Economic Zone, which is almost completed, we have started to develop the second biggest industrial park in Bugesera. Bugesera is just 40-minutes drive from Kigali and is closer to where the new international airport will be developed. This new international airport is also part of our vision to make Rwanda a regional conference center and a regional communications hub. It is a big project in the pipeline; after the Kigali Convention Center it’s going to be the next big investment by the government. It will mobilize private investors to develop it in public-private partnership. So, close to this international airport we will develop the second biggest industrial park, 330 hectares. We see more and more private investors approaching us to develop this PPP; they see a lot of potential to attract investors in the manufacturing sector. We hope this will contribute to our industrialization.
In terms of specific areas, we are focusing on the textile and garment industry. It has huge potential to create employment and to diversify our export base. But, like in any other developing country, the textile industry has been hampered by the large dominance of second-hand clothes imported from developed countries. That is why the heads of states in the East African Community have decided to ban imports of second-hand clothes in the next three years, and Rwanda’s government has decided to speed up the implementation of this policy.
We have started already to increase taxes on second-hand clothes to create room for the domestic industry to kick off, and we are providing special incentives for investors who are investing in the garment and textile industry. This is going to be critical in terms of how the industrial sector will grow in Rwanda in the next five years. We see a lot of interest; we have already seen some Chinese companies coming to Rwanda to invest in textile and garment factories, and not only for the domestic market but also for exports as they can take advantage of some market preferences to export to the US through the renewed AGOA or to Europe through the ‘Everything But Arms’ initiative. We have also recently concluded negotiations of the economic partnership between the EAC and Europe, which will also enhance our quota-free, duty-free market access, etc. to a big region like this one.
What would you say are the competitive advantages of Rwanda?
Competitiveness is a complex thing; it depends on a lot of factors. Every country may have its competitive advantages and its competitive disadvantages. In Rwanda, some of the investors tell us “we prefer to come to Rwanda due to your good governance, your openness and your flexibility in economic policy management.”