Rwanda now ripe for investment

Rwanda now ripe for investment

Guest analyst Luca Winer profiles Rwanda’s current investment opportunities and looks at the ongoing challenges that could derail its economic growth prospects.

Rwanda is landlocked, has few natural resources and is geographically small. The country is also still inextricably linked in many people’s minds with the genocide in 1994. At first glimpse, Rwanda is not an attractive place to invest capital. However, investors looking to tap into burgeoning markets with minimal risk could do worse than the Republic of Rwanda.

Rwanda is the fifth-best destination for investment in the world and the third best country in Africa, based on the country’s asset growth, preservation of value and repatriation of capital. Rwanda is also ranked the easiest country in the East African Community (EAC) to start a business, which makes it an attractive entry point into that region’s economic market. Post-1994, Rwanda has become exceptionally stable in both its domestic politics and its regional relationships. Rwandan President Paul Kagame’s ‘Vision 20/20’ and similar policies have allowed Rwanda’s economy to expand over 10 percent on average per year for the past five years. On top of this, governance in Rwanda is largely transparent, accountable and has some of the lowest corruption rates in Africa.

Rwanda’s economy has three particularly attractive features: It is the easiest country for foreign investors to access in the EAC and Common Market for East and Southern Africa (COMESA), it has an intriguing energy market, and the Rwandan government strongly encourages foreign investment, with measures designed to make investing in Rwanda simple and profitable. As Rwanda continues to integrate into the global market, these incentives may attenuate, but they are available for the time being. Transportation costs remain a key concern for investors in Rwanda, however. Although the government is aware of this issue and is taking steps to mitigate time lost and money wasted due to local roadblocks and border inspections, transportation inefficiency is still a substantial hurdle.

Rwanda as an Access Point into Larger African Economic Zones

As an EAC member, all goods manufactured in Rwanda can be sold in any other EAC state without being subject to tariffs, and has fewer non-tariff barriers to undergo. Rwanda is also part of COMESA, a major market of Africa that incorporates nineteen member states and encompasses over 444 million people. A free trade area was created in 2000 for 11 of the 19 member states, and integration of COMESA and the EAC is likely to continue, with the eventual elimination of tariffs and non-tariff barriers for goods traded in the region.

Currently, there is a dearth of raw material processing capacity in Rwanda, and foreign investment is being courted to improve it. Coffee and tea, Rwanda’s second and third biggest exports respectively, are key examples of goods that the Rwandan government is attempting to incentivize local companies to process. Foreign investment in this sector in Rwanda therefore could potentially result in easier access to these larger free trade arenas.

Methane Deposits in an Exploding Lake 

Lake Kivu contains significant underwater methane deposits

Lake Kivu contains significant underwater methane deposits

Rwanda and the DRC share a resource that has largely been under-exploited: Lake Kivu, a lake that contains underwater methane deposits. Energy infrastructure is needed here for potential geothermal power generation. To encourage foreign investment in these energy projects, the Rwandan government is open to proving support in terms of infrastructure, roads and transmission access.

For instance, Rwanda has recently improved its telecommunication sector by investing in the creation of a 2,300 kilometer fiber-optic ‘backbone,’ which runs throughout the country, even penetrating into rural areas. This, in conjunction with 75 percent of the population having access to the internet, is the type of infrastructure that Rwanda lacked until recently, and which has made conducting business much easier in all sectors, including energy.

The Rwandan Government’s Investment Incentives

Over the past few years, Rwandan officials have simplified how to register a company, obtain construction permits and apply for work visas. The government has strengthened and modernized the financial sector and banking infrastructure: banks are now interlinked so transfers of currency can occur without conversion to U.S. dollars. This reduces the time it takes to transfer capital from an average of four days and a loss of 5 percent, to one day, with a deduction of .2 percent of trade.

In 2009, the government created the Rwanda Development Board to integrate all government agencies responsible for foreign investment policies and restrictions under one roof. Additionally, Kigali is rated as one of the safest places for expats to live in Africa, with very low incidences of petty crimes and government corruption, which makes it easier to attract skilled workers.

A Key Deterrent to Investment: Transportation               

Despite all the positive aspects of the strong Rwandan economy, its transportation issues must be taken into consideration. The country still experiences substantial problems with road blocks, border checks and other non-tariff barriers. Some border stations are not open continually, creating delays entering and leaving the country. Rwanda has no railway and no access to the sea, so most transportation occurs via roads, most of which are paved and in good condition.

Conclusions: Rwanda is a Slow yet Stable Growth Opportunity

To date, most of Rwanda’s foreign investment comes from the EU and Germany in particular. Priority sectors under the Investment Code have continued to include infrastructure (especially power and transportation), agriculture, tourism, information and communications technology (ICT), real estate and construction, financial services, mining and general manufacturing. The government is discussing cutting incentives in one or more of these areas. So far, no decisions to do so have been made, but prospective investors should undertake on-the-ground due diligence on the specifics of continued investment allowances, tax discounts and exemptions and profit tax discounts for their particular sector as they explore the market.

Luca Winer formerly worked in risk analysis and financial due diligence. She has held research posts at several non-profits including Global Witness, Human Rights Watch and Friends of the Earth Middle East. She graduated from the University of Chicago, majoring in English and history of the Middle East and is currently pursuing a Master’s of International Relations at the London School of Economics.

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