Why Rwanda economy bounced back to strong growth

Rwanda’s economy is expanding at yet another record speed. It has returned to strong growth in the first quarter of 2014 after slowing down sharply last year.

Economic growth peaked 7.4 percent in the first three months of 2014 compared to 4.7 percent registered in the same period of 2013, giving hope that the East African nation’s economy is on the recovery path after slowing down sharply to 4.6 percent annual growth rate last year.

Why Rwanda economy bounced back to strong growth2

The recovery was solely backed by modest growth registered in the industry sector, services sector and agriculture sector which grew by 9 percent, 8 percent and 5 percent respectively.

Gross Domestic Product (GDP) at the current prices rose to Rwf1.3 trillion(USD1.9billion) in this year’s first quarter from Rwf1.1trillion(USD1.6 billion) in the same period of 2013, according to the GDP statistics released by the National Institute of Statistics of Rwanda(NISR) on June 24.

In the year 2000, when current leader Paul Kagame became president, Rwanda’s GDP was at Rwf 1.066trillion with more than 70 percent of the population living in extreme poverty. Year-on-year GDP growth has been on the sharp rise from Rwf1.7 trillion (USD2.4 billion) in 2006 to Rwf4.9 trillion (USD7.1 billion) by end of 2013, according to government data.

During this period (2006-2013), an estimated one million Rwandans jumped upwards the so-called poverty line, which gives an impression that Rwanda’s rapid economic growth registered since 2000 has trickled down to the poverty-stricken members of the Rwandan population.

During the first quarter of 2014, the services sector emerged the overall largest contributor to the GDP, occupying a whopping 48 percent followed by agriculture with 32 percent, industry with 15 percent while the remaining 5 percent came from adjustment for taxes and subsidies.

Why Rwanda economy bounced back to strong growth2

Unemployment, which economic growth should address, was however not tracked although NISR says it is launching a survey in July that will be tracking jobs created every year.  NISR could not also provide statistics on how the realised economic growth could have impacted poverty levels in Rwanda, currently estimated at 45 percent of the 10 million plus population.

Although the first quarter performance surpassed this year’s economic growth rate target of 6 percent and the annual population growth rate of 2.6 percent, it fell short of the medium term growth target of 11.5 percent, set in Rwanda’s second Economic Development and Poverty Reduction Strategy (EDPRS2).

The EDPRS is a four-year program which runs from 2013 through 2017 with the aim to steer-up economic growth and help to alleviate poverty from the current 45 percent of the population to below 30 percent by 2017, the year President Paul Kagame’s second term in office ends.

Commenting on the first quarter results and the targets set within the EDPRS2, Rwanda’s Finance Minister Amb. Claver Gatete acknowledged that last year’s performance was bad but this year’s first quarter performance was “an improvement”.

Amb.Gatete, the former governor of the 50-year central bank of Rwanda, further said that his country will continue to make improvements in the economy in order to meet growth targets.

“We need to maximise where we have potential and the things that are within our means. We want to make sure that we keep improving until we reach where we want,” Amb. Gatete said.

He singled out agricultural output as one of the major target areas which needs attention in order to improve productivity. Using the NISR agriculture survey as an example, the Minister pointed out low usage of fertilisers, low usage of improved seeds, and inadequate farming skills among the farmers as some of the areas that need attention in order to increase crop productivity, which is one of the potential contributors to Rwanda’s agricultural sector.

Coordinating farmers during the farming and post-harvest seasons, said the minister, is also crucial in increasing agricultural output, and this is being addressed through agricultural extension services although there is still more to be done to have these services reach all the parts of the country.

Irrigation to reduce over dependence on rain in order to mitigate climate change impact on farming, the use of agricultural machinery, terracing and other tools of modern farming are some of crucial tools the Minister said would improve farm and crop productivity.

Towards a knowledge-based economy

Rwanda’s long-term strategy to build a knowledge-powered economy received a necessary boost during the first quarter of 2014. The services sector outpaced agriculture, which employs 75 percent of the population to become the leading contributor to the GDP, a measure of goods and services produced within an economy.

The financial sector, which is largely dominated by the commercial banking sub-sector, insurance, pension, microfinance institutions and savings and credit cooperatives, has emerged one of the leading contributors to services sector.

But also the rise of the various private health services providers such as pharmacies, clinics and hospitals continue to expand the base of the services sector thus increasing its contribution to the overall GDP.

Tourism sub-sector, which is Rwanda’s leading source of foreign currency, ahead of traditional export commodities of coffee, tea and minerals, continues to aid the growth of the services sector, mainly because of the heavy private investments into accommodation and leisure facilities especially modern hotels, bars and restaurants currently sprouting in Kigali.

Hotels and restaurants, for instance, contributed 2 percent to the GDP in the first quarter of 2014 after their services increased in value from Rwf26 billion (USD37.6million) in the first quarter of 2013 to Rwf28billion (USD40.4million) in the same period this year.

Why Rwanda economy bounced back to strong growth2

However, the number of people who visited Rwanda on both leisure and business purposes in the first three months of 2014 has not been released.

Surprisingly, NISR Director General, Yusuf Murangwa, noted that there was an increasing share of the Information and Community Technology (ICT) to the GDP.  ICT, which Rwanda’s government has prioritised as the enabler of efficient service delivery, is also becoming an economic miracle after contributing 2 percent to the national GDP in the first quarter of 2014.  Mr. Murangwa noted that telecom activities, hardware and software maintenance activities were at the back of the growing share of the ICT to the GDP.

Rwanda has invested heavily in the national ICT infrastructure backbone mainly the fibre optic cable, which covers all the country’s 30 districts, in order to provide faster internet connection to the population and businesses to expedite service delivery. But also, the roll-out of the mobile phone based money sharing services by the telecom companies has eased access to financial services even in the remotest parts of the country.

Tags:

 

About the author

Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

More posts by | Visit the site of Ndaka

 

0 Comments

You can be the first one to leave a comment.

Leave a Comment