While Rwanda has long focused on agriculture and services, it is now looking to develop manufacturing, in a bid to lower its dependence on imports, as well as boost value-added exports. Improving infrastructure and regional connectivity, special economic zones, and a capable workforce make it an attractive manufacturing base for both foreign investors and the growing pool of local entrepreneurs
Rwanda is broadly viewed as an unprecedented African success story following the country’s recovery from the 1994 genocide and subsequent emergence as a continental leader in terms of economic and social policy. The World Bank has lauded Rwanda’s “remarkable development successes” over the past decade, which the institution notes have helped to reduce poverty and promote equality.
UNICEF also notes that Rwanda is one of few African countries on track to achieve seven of the eight U.N. Millennium Development Goals and also points to the nation’s promotion of gender equality, with over half of the Rwandan parliament being made up of women, the highest proportion of female representation in the world.
The Eastern African nation’s rise to prominence since the turn of the century is even more noteworthy given the factors that would seem set to work against its development. One of the smallest countries on the African continent, Rwanda is also the most densely populated, with a high birth rate and a very young population: around half of the country’s inhabitants are aged under 18. It is also landlocked, denying it direct access to the busy shipping lanes of the eastern seaboard.
But where some see only drawbacks, others see opportunity and Rwanda prides itself on its entrepreneurial spirit, something President Paul Kagame has credited as being one of the foundation stones of the Rwandan economic infrastructure.
“There is a wave of entrepreneur passion spreading across youngsters driven by our leadership,” says Serge Kajeguhakwa, the Chairman and CEO of Energy Resources Petroleum, a regional heavyweight that supplies black and white fuel products across Central Africa. “Today’s Rwandan entrepreneurs are driven by the ‘we can do it’ principle. It is a perfect time to identify talent and to support them in any way we can, whether financially, morally or with training and knowledge. Driving different talents is quite exciting and involving. And Rwanda has talent.”
“One of the key strategies is to make sure we facilitate manufacturers with easy access to fully serviced land at an affordable cost. That is the reason why we are developing a very ambitious industrial parks program, which supplements the ongoing Kigali Special Economic Zone”
Minister of Trade and Industry
Indeed, Mr. Kajeguhakwa points to the reverse brain drain – the number of young, professional Africans returning to their countries of origin to help build a brighter future.
“In the next 40 to 50 years, African human resources will drive global development. With our natural resources and our human capacity, the only thing missing is the will. Actually, believing that progress is achievable is the main challenge to overcome in terms of the image that many Africans have about their continent. The gap must be closed, we must get away from aid, become self-sufficient, and this will only be the case if our young people get properly involved.”
Although Rwanda has one of the highest GDP growth rates in Africa, the country faces plenty of challenges still as it seeks to push ahead with wide-ranging policies to increase exports and promote the country abroad, while also reducing reliance on foreign aid and imports as the government seeks to continue its drive to turn Rwanda into a middle-income country by 2020. Key to realizing that goal will be the expansion of the country’s relatively small manufacturing sector.
“With so much of the world’s natural resources on the continent Africa has always been a shopping destination for the rest of the world. Historically, investment had always come from the international arena but with very little positive impact on the development of the continent for its own people,” notes Mr. Kajeguhakwa. “It is only natural now that we should seek to develop our own continent and bring it out of the third world.”
Economic growth in Rwanda has traditionally relied on the services sector and agricultural productivity but the manufacturing sector has generally lagged behind, a panorama that the government is keen to repaint. Manufacturing contributed just 15% to Rwanda’s GDP in 2015.
Rwanda’s Minister of Trade and Industry and EAC Affairs, François Kanimba, has set a target for the GDP contribution of the manufacturing sector to reach 20% by 2020 within the framework of the government’s second Economic Development and Poverty Reduction Strategy (EDPRS 2) but he admits that oiling the cogs of industry on the ground has “proven to be quite a challenge.”
As part of the government’s aim of positioning Rwanda as a regional leader in light manufacturing, the first special economic zone (SEZ) in the country was completed in Kigali to attract investment across a variety of sectors but specifically in agribusiness, information and communications, trade and logistics, textiles, and construction. A second SEZ is planned at Bugesera, a 40-minute drive from the capital, in conjunction with a new state-of-the-art international airport.
“The new international airport is also part of our vision to make Rwanda a regional conference center and a regional communications hub,” says Mr. Kanimba. “We have seen 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.”
The EDPRS 2 program focuses on four main areas that form the government’s medium-term platform towards achieving the goals laid out in Rwanda’s Vision 2020 initiative: economic transformation, rural development, productivity and youth employment, and accountable governance. The latter point has been one of Rwanda’s most eye-catching achievements since the turn of the century, when Mr. Kagame’s administration launched a zero-tolerance policy on corruption, the bane of attracting foreign direct investment from countries with legitimate concerns about doing business in a region long hamstrung by a far from reassuring track record in terms of transparency.
“The government’s stance on this issue is not just a statement,” states Mr. Kanimba. “Many Rwandans will confirm that Rwanda has walked the talk when it comes to fighting corruption. Foreign investors in Rwanda often comment that one of the things that attracted them initially is Rwanda’s reputation for a low level of corruption compared to other countries in the region.”
“There is a wave of entrepreneur passion spreading across youngsters driven by our leadership. Today’s Rwandan entrepreneurs are driven by the ‘we can do it’ principle. It is a perfect time to identify talent and to support them in any way we can, whether financially, morally or with training and knowledge”
Serge Kajeguhakwa, Chairman and CEO,
Energy Resources Petroleum
The government’s efforts across the board to improve education, infrastructure, and foreign and domestic investment have been praised by the international community and in 2010, in recognition of the country’s successful reform and roll-out of its economic policies the IMF awarded Rwanda a Policy Support Instrument (PSI) agreement. In late October 2016, an IMF team traveled to Kigali to carry out the sixth review to date of the PSI agreement and reported: “Performance under the program has been strong, with almost all program targets set through end-June 2016 being achieved. Nascent signs suggest that adjustment policies are proving successful at reducing the trade deficit for goods and services, further abetted by the recent completion of several large public investment projects.”
Among those projects is the ambitious rail network that will link Rwanda with its regional trading partners Kenya, Tanzania, Uganda, DRC and eventually South Sudan. Although a costly undertaking, as Mr. Kanimba notes, the railways will increase cross-border trade and therefore foster more regional inter-dependency and lessen reliance on goods imported from further afield: The East African Business Council estimates that some 70% of all goods consumed in the region are imported from Western countries.
“The private sector in Africa has always pushed for regional integration, because trade has no boundaries,” says Benjamin Gasamagera, Managing Director of the Safari Center and the Chairman of Rwanda’s Private Sector Federation. “If the private sector can become integrated across countries in a similar manner to the public sector, its drive would be much stronger. By reducing trade barriers and enhancing cross-border businesses, Africa will pave the way for its private companies to take the lead in terms of integration.”
An overarching strategy by the Rwandan administration to boost exports and promote the country on a global level is the ‘Made in Rwanda’ initiative, which is based on the precept of tapping into Rwanda’s pool of entrepreneurs and providing a platform for SMEs to flourish.
“Made in Rwanda is not an act of kindness; it’s not a campaign that calls for people to buy our local products for the sake of pleasing us,” Mr. Kanimba told a seminar on SMEs and financial management organized by the Business Professionals Network in Kigali late last year. “It’s about developing individuals who produce quality products that ensure customer satisfaction, efficiency and functionality. SMEs are the drivers of the economy. So, the government is banking on the SME sector as the backbone of the economy to achieve sustainable development.”
The SME sector contributes over 40% to the country’s GDP, makes up 70% of total manufactured outputs and employs 50% of the total national workforce, the minister added, making SMEs a key driver of the economy, particularly in the textiles industry, where Rwandan products are already exported to Europe and the U.S., with China primed to become a key partner not only in the domestic market but for through-exports to countries across the globe. In order to enhance the competitiveness of the textiles and garments industry, Rwanda has acted with the East African Community to stem the flow of second hand clothing into the region, which represents the biggest obstacle to fully developing the industry.
The ‘Made in Rwanda’ brand was showcased at the second Expo event of 2016, held at the Gikondo Expo center in Kigali in December. Organized in conjunction with the Private Sector Federation, more than 300 local exhibitors were in attendance. Speaking at the opening of the Expo, Prime Minister Anastase Murekezi noted that although export numbers have improved in recent years, Rwanda imported four times more goods than were sent abroad in 2015. “The journey is a really long one,” he added, although Rwanda’s trade deficit decreased last year by 5.1% largely on the back of the Made in Rwanda initiative.
Rwanda’s young population and entrepreneurial drive will remain key to sustaining the growth of one of Africa’s most fertile investment grounds. As Mr. Kajeguhakwa puts it: “We want to be able to transfer skills on to our people, our youth. In the next 20 years, we will be able to increase local production of goods to the extent that we will be able to reduce imports as much as possible.”