What makes Rwanda one of Africa’s fastest growing economies?

KIGALI — In his office set aside the newly upgraded highway linking the Kigali Business District, Kicukiro district and Kigali International Airport, Herni Nyakarundi is staring at his laptop, busy controlling his company’s solar kiosks using GPS technology. 

Nyakarundi is one of many Rwandan entrepreneurs who decided to return home for business after he graduated in computer science from Georgia State University in the United States in 2007.

Nyakarundi now runs ARED, a tech company that offers low-cost tech solutions to poor communities. ARED developed smart solar kiosks that bring the distribution of digital services, and online and offline connectivity for rural and urban areas.

“Our idea is to build the largest distribution network and connectivity solutions so that we are able to provide data services at a low cost for low-income people,” said Nyakarundi.

He is part of a new system that encourages entrepreneurship and innovation to find solutions to the different challenges Rwanda is facing, creating jobs and growing the economy.

In the year 2000, the government established Vision 2020, a long-term development strategy with its main objective to transform Rwanda into a middle-income country by 2020, based on a thriving private sector.

Since then, the Rwandan economy has been growing steadily at seven percent every year, earning a reputation as one of Africa’s fastest-growing economies.

One of Rwanda's noted political commentators, Frederick Golloba-Mutebi, explained how the country’s economy has recovered after the devastating war and 1994 genocide against the Tutsi ethnic group.

“The economy was destroyed and through the process of economic reconstruction, it picked up with a tendency to go very fast, faster than the economies which are already developed,” said Golloba-Mutebi.

He added that President Paul Kagame's leadership has played a positive role in terms of the political stability the country has enjoyed since 1994.

“If there is no political stability in the country, you can’t expect production to take place, you can’t expect the right reforms to be implemented therefore you can’t expect fast economic growth,” added Golloba-Mutebi.

To maintain steady economic growth for almost two decades, the government invested time and resources into soft and hard infrastructure in order to attract foreign direct investment.

The government established key institutions that would help it achieve its objectives enshrined in Vision 2020.

The Rwanda Development Board (RDB) was put in place in 2009 to help oversee the country’s business regulations, foreign investments, tourism promotion, environmental conservation and broader economic and development planning.

According to Vision 2020, the Rwandan state is tasked with ensuring good governance, which includes accountability, transparency and efficiency in deploying scarce resources to key sectors of the national economy. 

The 2017 Corruption Perception Index ranked Rwanda the third least corrupt country on the African continent behind the Seychelles and Botswana. 

The country is not just creating a business-friendly environment but also diversifying the economy from being almost entirely dependent on agriculture to now being developing services and a growing manufacturing sector. 

According to the 2019 World Bank Doing Business index, Rwanda is the 29th easiest place to do business in the world - the only low-income country (LIC) in the top 30.

In 2018, the RDB registered over US$2 billion-worth of investments.

Around 173 investment projects worth US$2.006 billion, against a US$2 billion target set for the year, were registered, according to an RDB press release.

Of the total investments registered in 2018, an estimated 26 percent represents export-orientated projects. Across the different sectors, manufacturing, mining, agriculture and agro-processing accounted for 57 percent of investments registered.

Other sectors that attracted significant investments were tourism, healthcare, business services and ICT.

The economic growth that Rwanda has experienced was able to pull at least one million citizens out of poverty between 2005 and 2011, according to the Rwandan Household Living Conditions Survey.

Rwanda's GDP per capita in 1994 was $146. In 2017 it stood at $774 and is projected to have reached around $819.652 by the end of 2018, according to the International Monetary Fund.

However, despite the country’s achievements over the last quarter of a century, poverty remains widespread in Rwanda.

About 39 percent of the population lives below the poverty line and 16 percent lives in extreme poverty, according to government statistics. 

Despite sustained economic growth, the government's biggest challenge is still to eradicate the high rate of poverty and create employment for the majority of the population who are young. 

According to the National Institute of Statistics, people aged from 16 to 30 years old make up 26.6 percent of the total population of Rwanda and 85 percent of that population knows how to read and write.

In a country where 53 percent of the population is under 19 years old and where more than 16.7 percent of the population is unemployed, this demographic dividend can be a challenge instead of an opportunity. 

Golloba-Mutebi argues that the country needs to put more emphasis on the manufacturing sector that has a potential to create more employment, lift more of its citizens out of poverty and sustain economic growth.

“The manufacturing sector has grown very slowly. A lot of Rwandans don’t invest in production of industrial goods and for many countries without manufacturing growth reach a point where it slows down so Rwanda has to put a lot of emphasis in attracting investments in the areas of manufacturing and value addition,” he said.

The government, through the ministry of trade and industry, has recently launched a Made in Rwanda policy, to contribute to the country’s efforts to reduce its trade deficit and upscale local manufacturing.

Joselyne Umutoniwase is a local entrepreneur who registered her company with the RDB in 2012 and ventured into the fashion industry.

She said that there was a gap in the market for clothes manufacturing because the industry relied on used clothes imported from Europe and the US.

Over a period of six years, Rwanda Clothing, which started with just US$10,000, has grown to a value of 20 times that, Umutoniwase says. The company has also grown its workforce from five to 60 people. 

Speaking at the 2018 leadership retreat held at the Kigali Convention Centre, she said that an entrepreneur is a pillar of the Rwandan economy.

“If you leave out government employees and other working for foreign projects there is no other resource the country has except the entrepreneur who is able to produce and pay taxes, develop the country and create jobs,” she said. 

But local entrepreneurs still have a challenge when it comes to accessing capital and growing their business ideas into profitable ventures that will create more jobs and grow the economy.

Young entrepreneurs like Nyakarundi said that access to capital is a big challenge for startup companies. The most common option available is loans from commercial banks, he added. 

“Commercial banks are not fit for startups because when you start a business you try to figure out how things are going. You don’t know yet your market, your revenues among other things,” he said.  

In order to grow its startup ecosystem, Nyakarundi argues that Rwanda should have a structure of grants, investments, crowdfunding, venture capital and other financial ecosystems that can boost access to capital for young entrepreneurs.

“I cannot expect Rwanda to have all these ecosystems only a quarter of a century after the war and the genocide but that is one of the solutions the country should adopt in the future to grow a large base of entrepreneurs the country need to continue growing the economy,” Nyakarundi said.