Gazdasági elemzések
Rwanda

Rwanda

Population 12.1 million
GDP 787 US$
A4
Country risk assessment
A4
Business Climate
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Synthesis

major macro economic indicators

 

 

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 6.2 8.6 10.2 8.6
Inflation * (yearly average, %) 4.9 1.4 2.3 5.0
Budget balance ** (% GDP) -4.6 -4.6 -5.8 -6.2
Current account balance (% GDP) -7.7 -7.9 -9.4 -10.2
Public debt (% GDP) 48.9 53.1 55.2 56.9

(e): Estimate. (f): Forecast. *Urban inflation, main gauge of inflation. ** Fiscal year from 1st July - 30th June. 2020 data: FY19-20.

STRENGTHS

  • Geological potential: cassiterite, coltan, gold, precious stones (aquamarine, ruby, sapphire)
  • Tourism potential
  • Developing industrial base
  • One of the most favourable business environments on the African continent
  • Significant progress in governance and relative political stability

WEAKNESSES

  • High dependence on commodity prices and international aid
  • Isolation and exposure to geopolitical tensions in the Great Lakes region
  • High demographic pressure; population density among the highest in Africa

RISK ASSESSMENT

Domestic demand as a source for robust growth

In 2020, the growth momentum is expected to remain strong, driven by public investment. As part of the National Strategy for Transformation (NST), this investment should particularly support the construction sector. Besides completion of the Bugesera airport project, work is also poised to continue on the Gisagara thermal power plant and infrastructure in the special economic zones (Bugesera, Rwamagana), for example. The impetus from public investment should be followed by that of the private sector, providing benefit to the agriculture and mining sectors as well. The former will be driven by the expansion of export crops, especially coffee and tea, while the latter is expected to get support from initiatives to promote investment in mineral exploration and trade. Nevertheless, growth in the mining sector will remain vulnerable to price movements. The health of these two sectors will in turn shape the health of transport and trade. Private consumption, helped by measured inflation and private credit growth, is expected to benefit the service sectors, including telecommunications. Services will also likely be supported by tourism. The expansion of RwandAir, the national airline, with the opening of new routes, should accompany the expansion in this sector. Earnings from tourism, mining and agriculture should support export revenues, but the contribution of the trade balance to growth is expected to be negative given the likely faster growth of imports.

 

A more flexible fiscal policy to support the NST

In 2019/2020, NST execution will dictate budgetary priorities. This will maintain the budget deficit, which is expected to widen. About 40% of the budget resources will thus be allocated to capital investment expenditure, which will mainly target infrastructure in order to achieve the country's industrial ambitions. The increase in recurrent expenditure, particularly the wage bill, should be more contained to free up additional resources for investment projects. In terms of revenue, in a context of declining international budget support, efforts to improve the mobilisation of domestic resources will continue, in particular through a revision of the Excise Duty law. Financing will be mainly based on external borrowing, contributing to a continued upward debt trajectory. However, the risk of debt distress remains measured, given the large share of concessional loans in external debt (almost 90%).

 

Infrastructure projects weigh on the current account deficit

In 2020, the current account deficit is expected to widen, still burdened by a large trade deficit. In particular, imports of capital goods will continue to weigh heavily, despite a likely increase in export earnings. Infrastructure projects are also expected to increase the service deficit, despite improved tourism revenues. The trend towards increased repatriation of profits by foreign companies will continue to affect the income account. The transfer balance will remain in surplus, thanks especially to international aid and donations, but also to transfers by expatriate workers. Robust capital inflows, mainly FDI and project loans, should make it possible to finance the substantial current account deficit, contribute to the gradual accumulation of foreign exchange reserves, and contain the depreciation of the Rwandan franc..

 

Stable domestic environment despite border tensions

President Paul Kagamé secured a third consecutive term in August 2017, officially obtaining nearly 99% of the vote. The Rwandan Patriotic Front (RPF) and Mr Kagame’s grip on power was once again confirmed during the September 2018 legislative elections, as the RPF, acting within a broad coalition of six parties, won 74% of the votes and 40 of 53 seats. The opposition’s role is even more limited, as nine other seats were won by traditional allies of the RPF. Regularly accused of muzzling dissent and controlling the political space, President Kagame and the RPF are also credited with restoring peace and political stability. The country, which has been constantly improving in international rankings for 15 years, is continuing reforms aimed at improving the attractiveness of its business environment, including measures to reduce financing and transport costs. Ranked 38th (out of 190 countries) in the Doing Business 2020 report, the country’s business climate is not only one of the most attractive on the continent but also internationally competitive. Nonetheless, relations with neighbours in the Great Lakes region, notably with Burundi, remain difficult. In 2019, there were also tensions with Uganda amid mutual accusations of destabilisation at the border. An agreement signed in August 2019 should help appease these tensions. The precarious security situation in South Kivu (east of the Democratic Republic of the Congo) is also a source of tension with Rwanda’s Congolese neighbour. Measures adopted at this border to prevent the spread of the Ebola virus, which is proving hard to contain in eastern DRC, could add to the tension.

 

 

Last update: February 2020

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