Rwanda Lara Van der merwe

1. Overview

Rwanda is a landlocked African country, bordered by Democratic Republic of Congo (DRC), Tanzania, Uganda and Burundi. With a population of 11.6 million, approximately 52% are female. Rwanda suffered social and political turmoil in 1994 when the genocide occurred where Hutus and Tutsis faced conflict.

Rwanda is a low-income agricultural based economy, but wishes to move into a service and knowledge based economic structure by the year 2020. 45% of Rwandan GDP is comprised of exports and imports of raw and processed goods. Rwanda is one of the fastest growing African economies, averaging an annual growth rate of 8% in GDP between 2001 and 2014. Although Rwanda has decreased their poverty population by 12% between 2005 and 2010, 63% of the population still lives below the poverty line (1.25 USD per day, World Bank).

IMF

In terms of economic development and standards of living, Rwanda has increased literacy rates, primary school enrolment, life expectancy and health care expenditure. Rwanda is also progressive in terms of gender equality, boasting a parliament that is is comprised of women as the majority at 64% compared to the world average of 22%

Inter-Parliamentary Union

As Rwanda is dependent on foreign aid, the economy may fluctuate relative to the funds that are allocated to the country. Rwanda has had aid from the International Monetary Fund (IMF) and the World Bank.

2. Comparing Levels of Development

Rwanda vs Singapore, Gapminder
This drop in life expectancy, specifically male, occurs around the years 1990 to 1996. This is due to the fact that the Rwandan genocide occurred at this point in time, causing for life expectancy as a whole to drop in Rwanda. Throughout the genocide, which lasted 100 days, 800,000 lives were lost.

3. Domestic factors and Economic Development

Rwanda has had a few projects and initiatives to boost economic development

Education

Rwanda has increased its primary school enrolment rate to nearly full attendance, at 96.5%. The role that education plays in the young ones' lives will ensure that they continue to develop their views and skill-sets needed to take on whatever job they wish to in the future. According to UNESCO, Rwanda has succeeded in reducing the out of school population in the country by more than 85% in the past five years.

Although the availability of education has rapidly expanded, the quality of the teaching has suffered as a result. With classes being filled with as many children as possible, schools have been forced to recruit less qualified teachers.

"It's true we've done a lot in terms of access to education but we have a lot to do in terms of improving the quality" - Rwanda's education minister Vincent Biruta

What Rwanda is focusing on is teacher training in order to ensure that the quality of Rwandan education matches the availability. In 2009, Rwanda has changed the language of instruction to English, moving away from French in order to strengthen ties with their English speaking neighbour countries. As a result, teachers are now teaching students in a language that they are still learning and becoming familiar with.

Additionally, Rwanda has great youth unemployment despite its booming economy. An estimate 42% of youths are unemployed, which greatly affects poverty levels and the quality of life for the specific population. In order to combat this, Rwanda is moving away from traditional teaching methods, and focusing the learning on the student and their application of what they learn at school. This is in an effort to make the students more employable, and perhaps diversify their skill set to decrease the unemployment rates

"It's not what you know, it's what you do with what you know" - Biruta

As Rwanda is trying to move into a service and knowledge based economy, the diversification of the workers' skill-set is an essential factor in the success of this transition. As the older populations are limited in terms of skills as they operated in an agricultural economy, any hopes of moving away from said structure lies in the youth. Therefore, an addition to making the learning more applicable for the students, Rwanda is trying to foster strong analytical skills and critical thinking. The 'sectors skills council' is called upon for aid in this specific goal.

Additionally, a US non-profit 'One Laptop per Child' delivered 110,000 laptops to Rwandan children between 2007 and 2011. This contributes towards integrating technology in education, and forming a bond between the two that will lead to a greater knowledge of the usage and benefits of technology in educational and subsequent economic development.

Education has contributed towards economic development as more children have access to education, and as a result are better off than they were without it. However, as the quality of the education has suffered, the question of the success is presented.

Property Rights

In terms of the property rights index, Rwanda possesses one of 30 and stands as the 13th most protected country in Africa. High property rights scores can contribute towards economic development in a number of ways, namely in agriculture. As mentioned before, Rwanda has an agricultural economy thus the possession of land and its cultivation is key to the maintenance and prospective growth of the economy.

If property rights are correctly administered and monitored, the possession of land in Rwanda could contribute towards an increase in output of produce. As the land is registered in the name of the proprietor, there is no doubt about the security of the harvests.

Rwanda can improve the strength of their property rights law, but it does not seem to be a great priority at the moment. However, it may become increasingly important to protect intellectual property in Rwanda's effort to move into a service and knowledge based economy

The Use of Appropriate Technology

Appropriate technology is the idea that specific technology is applied and sustained in areas that need it. It focuses on the ability to implement it, use it and maintain it.

Appropriate technologies that have been implemented in Rwanda, and their success status

Appropriate technologies suffer in Rwanda, however, as locally produced goods can prove to be costly. Imported goods from China and India are much cheaper, as they're produced large scale and just have to be adapted slightly to fit Rwanda's use. Locally produced technologies are expensive because Rwanda's productive capacity is greatly limited, and resources are scarce. Thus, appropriate technology, in theory, may aid Rwanda's economic development, but for now it's proving to be a set back. Many other factors have to come into play in order to ensure that appropriate technologies are sustainably produced and accessible.

Access to Credit - Including Micro Credit

Rwanda ranks top in Sub-Saharan Africa in terms of access to credit financing.

Root Capital has enabled Musasa, a coffee producer, to build better relationships with their workers. As seasonality greatly affects coffee production, the farmers often find themselves struggling to make ends meet before the season begins. They have little money left from what was earned from the previous season, and Root Capital has enabled them to loan money in order to take care of their existing problems.

As a result, Musasa and the farmers can consistently provide their coffee beans to global markets, serving as an exporting business in Rwanda. The farmers then have a steady flow of income, ensuring that their quality of life doesn't decrease.

Women Empowerment

The reason for the large proportion of females in the population is due to the fact that many men were killed or incarcerated during the 1994 genocide in Rwanda.

Rwanda has scholarship initiatives for disadvantaged women and girls in order to promote and encourage high academic performance. The first lady, Jeannette Kagame, is the founder of an organisation called the Imbuto Foundation. This foundation offers scholarships to both boys and girls, but focus on fostering an academic discipline among the girls.

Rwanda, in terms of representation, is doing fairly well. As mentioned previously, 52% of the country's population is female, but 63% of the parliament is as well. Thus, the representation of females in government exceeds the prevalence of females in the general population. Women's rights are outlined in constitution, and they are given the right to inherit land, obtain credit, and share the assets of their marriage. Gender representation in primary school is also equal, with as many girls in primary school as there are boys.

Women are given access to opportunities, but issues such as sexual violence still remains an obstacle in Rwandan society. Many women suffer from at least one act of sexual violence, sometimes at the hand of a partner, from the age of 15. Thus, true equality has not been reached in Rwanda as the rape culture has not been fully addressed or combatted.

Political Stability in Economic Growth and Development

In 2015, Rwanda's political stability index was -0.08, compared to a high of -2.15 in 1998. This was directly after the genocide, so the country was in turmoil both politically and socially.

The Rwandan Patriotic Front (RPF) has maintained the role of occupying party in Rwanda for a long time. Paul Kagame, the president, has been president for two consecutive 7 year terms, and was due to end his presidency with the upcoming elections in 2017. However, in 2015, amendments were made to the constitution that stated that the president can run for a third 7 year term, and Kagame has since confirmed that he will stand for re-election.

Jeannette Kagame, Paul Kagame

Political stability plays a key role in the consistency of development of a country, given that the ruling party passes legislation that allows for economic growth and development to occur. Rwanda has implemented several regulations that contribute towards the nation's development, thus the presence of a single ruling party for the past 17 years has ensured that no major upset could disrupt the occurring development.

Corruption in Economic Growth and Development

Rwanda lies in the middle of the corruption scale, suggesting that low levels of it are prevalent in the economy. However, with the numerous development and growth initiatives, corruption doesn't seem to take away from the success of these projects. There seems to be a tight control on the money and resources allocated towards the projects, using the primary school enrolment as an example. No funds have been withheld in order to make the goal a reality. More teachers have been appointed and schools have been built thus in the sector the corruption doesn't seem to have much of an effect.

However, political stability is another question. The RDF has been in power ever since the genocide, and Paul Kagame has been president for two, nearly three consecutive periods. It could be argued that political stability contributes towards the successful growth of the country, however it is not ideal in a purely democratic nation.

4. International factors as barriers to growth

Over Specialisation

Rwanda currently does not face any issues with over specialisation in the economy. Although production is mainly focused on coffee and tea, there is no evident dependence on the production of these goods.

Price volatility of primary products

Rwanda faces price volatility in their agricultural products, namely the food that has to feed the general population. This causes for a lack of nutrition in the diets of many of the families, affecting overall health levels in the long run. Rwanda does not suffer from price volatility in terms of imports, as they mostly import machinery from overseas.

For example, the price of cereals has drastically increased which causes concern for the well being of the Rwandan population. Cereals are a staple component of their diet, thus restriction to access to the good could cause an upset in their dietary regime.

Inability to access international markets

Rwanda is handicapped in terms of trade because of its lack of access to international markets. Although it is not necessarily trade protectionism or restrictions that are causing this lack of access, Rwanda's geography itself poses as a threat to growth. As the country is landlocked and lacks proper infrastructure, it is difficult to bring products into the country from overseas.

Rwanda also has high interest rates, standing at around 16-20% and irregular taxation applied to exporting countries. This is unattractive for potential foreign investment, as the process to get money back is highly bureaucratic. As a result, there are low levels of FDI because of the unattractive market. This limits access to international markets as well, as Rwanda does not have the necessary infrastructure or capital to grant the nation entry into the foreign market.

5. Means of achieving growth or economic development

Trade Liberalization

Trade liberalisation has allowed for Rwanda to come closer to meeting the Vision 2020 goals of transforming the economy into a more service and knowledge based one, as GDP has been increasing and the skill-set of the population has been diversifying. The introduction of foreign investors also allows for more capital to be allocated to projects such as infrastructure, bettering economic productivity, growth, and development.

In terms of trade liberalisation, the government has reduced barriers to trade in order to allow more production to occur. As a result, the Rwandan government has less input into the trade sector, specifically in the production of coffee. Subsequently, farmers have been given enough freedom to diversify their harvest

For some African countries, trade liberalisation has been a 'forced step', as demand has slowed down from China, who is a major importer of African goods. Thus, in order to try and strengthen regional and international ties, countries like Rwanda have had to open their markets for foreigners in order to maintain a consistent level of demand.

Diversification

The diversification of the Rwandan economy is a result of trade liberalisation. Diversification has occurred somewhat naturally, as it seems to be a result of the lack of government intervention in some markets. As the economy is diversifying, Rwanda sees that merchandise levels are rising and that the service sector is expanding. This could be as a result of the success in boosting education levels in Rwanda, as the manifold skill-set of the labor force allows them to work in different jobs.

The effects of the economic diversification coincides with the efforts to achieve Rwanda's Vision 2020 goals. This promotes and creates economic growth and development, as it not only expands into other sectors, but these sectors allow for international business to occur. They create better living standards for the Rwandan population, but they also generate access to the country's market.

As a means of achieving economic development, it is clear that in Rwanda's case the diversification of the economy contributed towards economic growth in the form of market freedom. The farmers have more freedom to produce what they can, and in turn will set a precedent for maintaining a diverse skill-set to benefit the economy.

Role of the WTO

The WTO is an organisation that aims to facilitate trade between nations. The organisation acts as a middle man in the process, ensuring that standards and agreements are met and upheld primarily to protect LDC's and promote growth.

In Rwanda, the WTO acts as an advisory body, suggesting the level at which tariffs must be implemented. However, Rwanda has gone against this guidance and implemented higher tariffs for some imports. This could be seen as an effort to protect local production, and perhaps to aid the introduction and adoption of appropriate technologies. Some forms of trade liberalisation have occurred, but Rwanda seems now to be equally focused on domestic production. After all, domestically created capital will stay in the country. There will be no risk of high levels of profit repatriation.

The WTO contributes to economic development as it allows for trade to take place in a protected and accounted manner. Both parties will be safer from agreement breaches, and the lesser developed country involved will often be the most protected.

6. Does aid, trade or FDI have the most positive impact on economic development?

In Rwanda's case, it seems to be a mixture of trade and aid that has contributed the most to the nation's economic development. The country's focus seems to be strengthening political and commercial ties with overseas countries, and has received a lot of support in achieving its goals. In order to do so, it may be argued that Rwanda is creating a brand for itself, advertising the country's diversity and unique natural resources to increase the prospects of more aid but also long term foreign relations.

With who?

Rwanda's main export partners are Kenya, DRC, China, Malaysia and the US. Interestingly, however, Kenyan demand comprises of approximately 32% of Rwanda's exports.

The primary contributor to aid in Rwanda is the US, and in 2014 has received 13.3 USD per capita. The US also donated more than 70% of the total aid Rwanda received that year.

Why Trade?

In terms of trade, at first glance Kenya has a GDP of 55 billion USD, while Rwanda's GDP is at 7.5 billion. This grants insight into the dynamic between the two countries, as Kenya has more purchasing power. This is shown by the current conversion rate of the Kenyan Shilling to the Rwandan Franc standing at 1:8 respectively. Therefore, Kenya has more money to spend in the international market, and is making use of purchasing Rwanda's unique resources like coffee.

As a result, in order to facilitate trade, a railway has been in construction between the two nations. They are working with Uganda, and building a Mombasa-Nairobi-Kampala-Kigali railway that would connect the three countries. This gives Rwanda an additional gain, as infrastructure will be present that hasn't before. Moreover, the infrastructure will not only benefit the local population, but also further liberalise the trade between the surrounding African territories.

Although trade has perhaps provided infrastructure and strengthened international ties, Rwanda has faced a current account deficit of 1.4 billion USD in 2016. The balance has been on the decline since 2007, perhaps due to international ties faltering post genocide.

Rwanda may also have become reliant on the importing of manufactured goods, which naturally is more expensive than the primary commodities and resources that Rwanda is exporting.

Why aid?

Aid has proven to be allocated to health care and educational sectors in Rwanda in order to stimulate development.

Kagame has expressed his hesitation when it comes to aid, as many believe that it does more harm than good. Corruption and misappropriation all lead to the suffering of the general population, while officials who keep the money just become richer. It also creates a sense of dependency as the country may not be able to function at necessary levels without the aid.

“No country can depend on development aid forever [...] Such dependency dehumanizes us and robs us of our dignity” - Kagame

Although Kagame has expressed his disdain towards aid, it has been an integral part in Rwanda's funding of various projects. For example, Rwanda's aid website states that various American and English schools are supporters and donors towards helping Rwanda develop education. Additionally, HSBC bank provides funds for teacher training, contributing towards Rwanda's issue with quality of education. There are also various international trusts set up to provide capital for healthcare services and disadvantaged children. Therefore it can be deduced that foreign aid and assistance, despite Kagame's disregard for the concept of it, has contributed immensely towards the success of Rwanda's projects.

In terms of which has the most positive impact, it would have the be trade in the long run. While it is true that aid can cause direct improvement and growth, Kagame's hesitancy when supporting it is justified. As an economy that is rapidly growing and wishes to greatly shift and diversify by 2020, Rwanda cannot become too reliant on foreign aid as cycles of debt could handicap the extent to which the nation can develop in the future.

Credits:

Created with images by Dave Proffer - "africa0703-0394a" • Dave Proffer - "Road between Nyamata and Kigali" • Dave Proffer - "Road between Gisenyi and Ruhengeri" • Dave Proffer - "Parc National Des Volcans" • Dave Proffer - "Hillywood at Ruhengeri" • Dave Proffer - "africa0703-0314a"

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