Banish all doubts, Rwanda is sure to be the Singapore of Africa by 2020


A visit to Rwanda on 6th April provided the greatest positive shock in this analyst’s professional career.

If you have any doubt that an African country can emulate the best performance seen in emerging Europe or Asia over the past few decades, then please allow us to take you to Kigali to challenge these assumptions.

Kigali airport. The first impression in Rwanda is created through the lack of hassle at the airport. Rwanda has concentrated its GDP in Kigali, making it easier to manage. Photo/MORGAN MBABAZI

From the ease of visa-free travel and a well organised and hassle-free airport, to the reassuring presence of police and security forces, street lights, low crime, good roads and broadband (due from the end of this month), we suspect there will be much to impress you.

A side trip to see the gorillas would be helpful for the country’s strong tourism revenues, too.

To be a Singapore of Africa is Rwanda’s ambition – and in our view, it is succeeding.

The country is politically stable, with the next presidential elections due in 2017.

There is a zero-tolerance attitude to corruption, and we heard this is effective.

It was the world’s best reformer, according to the World Bank’s 2010 Doing Business survey in 2010, 6,000 companies were registered in this country of 11million people, about equal to the number registered over the previous five years.

Away with aid

Keen to do away with foreign aid by 2020, the country is a darling of the aid agencies, with highly effective implementation and use of foreign inflows.

We saw clear evidence of forward planning and a strategy for the country.

With access to a market of 130 million people in the East African Community (Kenya, Uganda, Tanzania, Rwanda and Burundi), Rwanda aims to be a hub for investment for both East and Central Africa.

Lastly, and much to the distress of any macrostrategist, we failed to find significant macro risks for the economy.

How is this happening? Undoubtedly, President Paul Kagame has played a very significant role, and we’d not be surprised if Lee Kuan Yew’s book From Third World to First has, as well.

Singapore in the 1960s had per capita GDP of around $400, was vulnerable to ethnic and ideological conflict in a region beset by wars, was excessively dependent on foreign aid (UK military bases), and most CEOs could not find it on a map – but it was transformed by vision, infrastructure planning, the creation of an economic development bank, industrial parks to attract investment, and even beautification of the airport and city to give foreign investors a positive first impression, all underpinned by sound macropolicies.

The Rwandan Development Bank, the use of privatisation proceeds to roll out a fibre-optic broadband network, and the recent launch of a Special Economic Zone for industry and technology and warehousing just a kilometre from the airport might all be seen as following Singapore’s example.

Like Singapore at first, Rwanda is keen to attract any investors and is changing its requirement that investors export 80 per cent of production, though an Indian pharmaceuticals company’s $60 million investment (worth 1 per cent of GDP) is targeted at exports to the region.

We believe the concentration of GDP in a small area – Kigali, the capital – could be a significant advantage.

What’s next? The government intends to turn Rwanda into a service economy and a conference hub.

The ongoing construction of a $300 million conference centre, a planned new airport and the privately funded Marriott hotel under construction will allow continued expansion of the roughly $100 million earned through business tourism (roughly the same value as tea and coffee, or all mining exports).

Roads have been upgraded across the country, including to Burundi and Tanzania, with a route to northern Congo to be finished in mid-2012.

The next transport projects include extending the rail line from Tanzania to Rwanda by 2015.

The government intends to boost power generation from a sufficient 85 MW to 100 MW in 2012, and as much as 1,000 MW by 2017 through tapping methane gas in Lake Kivu and using recycled waste.

It plans to improve energy supplies through extending a 1,200km oil pipeline from Kenya.

Access to Uganda’s oil production is possible from 2015-2016.

At present, all petrol is trucked from Mombasa, which is one reason why a litre of petrol costs $1.67 in Kigali (vs about $1 in the US); improved access to energy could dramatically improve Rwanda’s competitiveness.

Fiscally fit

On the fiscal side, the cabinet just approved plans to introduce a flat 15% income tax rate, for individuals and corporations, to take effect in 2012.

To improve the country’s skill levels, free schooling has been extended from age 12 to 15, and a German company has been brought in to continue the roll-out of colleges, which will focus on vocational skills.

In the meantime, Rwanda is open to immigration to provide the skills the country needs.

The economy today is quite different from where Rwanda expects to be in 5-10 years. Services are expected to rise from 40 per cent to 60 per cent of GDP.

Today agriculture represents a third of GDP, half of merchandise goods exports and 35 per cent of the Per Capita Income basket, and it employs 80 per cent of the population in largely subsistence farming, with high dependence on the short and long rainy seasons that do so much to drive inflation – in December, inflation ended the year at zero, due to ideal weather in 2010.

Recent value-added developments include fully washed coffee beans that sell at twice the normal price, and a move into horticulture that may challenge export players, from Kenya to Colombia.

Land reform, the application of fertilisers and allowing land titles to be used as collateral might all support the country’s ambitions to become a regional exporter of agricultural products.

 

http://www.businessdailyafrica.com/Opinion+++Analysis/-/539548/1148338/-/item/0/-/dtj2i5/-/index.html


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