Rwanda has achieved impressive development progress since the 1994 genocide and civil war. It is now consolidating gains in social development and accelerating growth while ensuring that they are broadly shared to mitigate risks to eroding the country’s hard-won political and social stability.
Rwanda has enjoyed political stability since 1994. The last parliamentary elections held in September 2013 saw 64% of the seats taken by women candidates and the Rwandan Patriotic Front, which maintained absolute majority in the Chamber of Deputies. President Paul Kagame is serving his second and last term and presidential elections are due in 2017.
Rwanda’s long-term development goals are embedded in a strategy entitled Vision 2020, which seeks to transform Rwanda from a low-income agriculture-based economy to a knowledge-based, service-oriented economy with a middle-income country status by 2020.
In order to achieve these long-term development goals, the government of Rwanda has formulated a medium-term strategy. The second Economic Development and Poverty Reduction Strategy (EDPRS II)’s highest priority is growth acceleration and poverty reduction through five thematic areas: economic transformation, rural development, productivity and youth employment, and governance accountability. The EDPRS aims to achieve the following goals by 2018: increase gross domestic product (GDP) per capita to $1,000, reduce the poverty rate to below 30%, and reduce the extreme poverty rate to below 9%.
These goals build on remarkable development successes over the last decade which include high growth, rapid poverty reduction and, since 2005, reduced inequality. Between 2001 and 2014, real GDP growth averaged at about 9% per annum. Recovering from the 2012 aid shortfall, the economy grew 7% (year-on-year) in 2014, 2.3 percentage high than in 2013.
Going forward, the private sector, which is still largely informal, will have to play a bigger role in ensuring economic growth. Poor infrastructure and lack of access to electricity are some of the major constraints to private investment. Some reforms have been successfully implemented to improve the business environment and reduce the cost of doing business. As a result, Rwanda was one of the top reformers in the Doing Business 2015 report, and is now ranked the third easiest place to do business in Sub-Saharan Africa.
In addition, reducing the country dependency on foreign aid (30% to 40% of the budget) through domestic resource mobilization is critical. While Rwanda has been effectively using aid for development, the country remains vulnerable to fluctuations in aid flows. In 2012, Rwanda experienced a sudden and sharp decline in aid. Through appropriate fiscal and monetary policies, high growth and stability was maintained in 2012: economic growth was 8.8% and inflation rate was 6.3%. However, starting in mid-2013, Rwanda experienced a lagged effect of the aid shortfall, causing economic growth to decelerate to 4.7%. The government has successfully increased the tax to GDP ratio from 11.9% in 2009-2010 to 14.8% in 2013-2014, nevertheless, domestic revenues mobilization remained low.
Rwanda is on track to meet most of the Millennium Development Goals (MDGs) by the end of 2015. Strong economic growth was accompanied by substantial improvements in living standards, evidenced by a two-thirds drop in child mortality and the attainment of near-universal primary school enrolment. A strong focus on homegrown policies and initiatives contributed to a significant improvement in access to services and in human development indicators. The poverty rate dropped from 59% in 2001 to 45% in 2011 while inequality measured by the Gini coefficient reduced from 0.52 in 2006 to 0.49 in 2011.
Accelerating economic growth that is private-sector driven and creates jobs
Improving the productivity and incomes of the poor through rural development and social protection
Supporting government accountability through public-financial management and decentralization.
The CPS is jointly prepared by the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) in an effort to achieve greater synergies and catalyze higher volumes of private resources to support Rwanda’s development. It builds on the government’s second Economic Development and PovertyReduction Strategy (EDPRS2) and on its proposed Division of Labor (DoL) among Development Partners (DPs).
The World Bank Group portfolio in Rwanda currently comprises of thirteen national and six regional active projects with net commitments of $751 million. Project objectives have ranged from helping farmers manage marshland and hillside cropping to rehabilitating water supply systems and providing electricity to rural households. Some of the key projects or sectors funded by the World Bank include the Rwanda Electricity Access Scale-up and Sector Wide Approach (SWAp) Development Project ($130 million), public sector governance ($100m), agriculture ($169 million), social protection ($140 million), and feeder roads ($45million).
International Finance Corporation (IFC)
IFC’s strategy in Rwanda focuses on i) improving the investment climate; ii) building up the capacity of small and medium enterprises (SMEs) and microenterprises; and iii) proactively supporting the development of projects with high impact in the financial, tourism, agribusiness, and infrastructure sectors. Its advisory programs cover diverse areas including: investment climate advisory services, entrepreneurship development, and infrastructure advisory services.
Multilateral Investment Guarantee Agency (MIGA)
MIGA currently has one active project (KivuWatt) in Rwanda with at total gross exposure of $95.4 million. MIGA remains open for business in Rwanda across all of its political risk insurance product lines, including transfer restriction, expropriation, breach of contract, war, civil disturbance, and the non-honoring of sovereign obligations.
Through a three-phased Adaptable Program Loan (APL), the WBG supports The Rural Sector Support Project (RSSP) which focused on intensifying production in the marshlands, followed by the LWH Project in 2010. The LWH Project aims at increasing productivity on hillsides and developing parts of these hillsides for irrigated horticulture production.
Since the beginning of RSSP1 in 2001, over 7,200 hectares of marshlands have been rehabilitated or developed, and nearly 30,000 hectares of hillsides have been sustainably developed by LWH since 2010. Maize yields have improved from 1.6 tons/ha to nearly 5 tons/ha; while rice yields have improved from 3 tons/ha to 6.30 tons/ha; and potato yields have improved from 7 tons/ha to nearly 20 tons/ha. In addition a number of rural infrastructures have been put in place to link productive areas to markets.
So far, of over 61,000 people who benefited from the RSSP projects, over 44% are females as are 50% of the 87,000 people who have benefited from the LWH. The impact created by these two programs is transforming rural Rwanda.
Expanded access to electricity
The World Bank is taking the lead and supporting the Country’s Electricity Access Roll out program under the ongoing Electricity Access and Sector wide Approach Project (EASSDP) project ($130 million). It has supported the government’s efforts to increase its national access rate to the electricity grid from about 6% in 2009 to about 20% as of December 2014. The electrification program has led to an extension of the number of working hours and reduced spoilage of fresh products due to the availability of refrigeration and cooling. The challenge is now to increase the capacity of electric generators and reduce the cost of the generation mix. Rwanda has the highest tariff in the East African Community at about $0.22/kWh. This is due largely to heavy reliance on high cost diesel generation which constitutes about 45% of the generation mix. WBG active operations in the generation sector include: (i) the 80MW Regional Rusumo Hydroelectric project ($340 million); and (ii) MIGA guarantee ($95.4 million) Kivuwatt 25MW gas to power project. The project will initially add a 25MW generation capacity, and an additional 75MW at a later stage.
Strengthening social protection
Through the Social Protection System Project, the WBG has helped expand the Vision 2020 Umurenge Program (VUP), the government’s main safety net program. In 2013-2014, VUP was present in 240 of the country’s 416 geographical sectors, up from 30 sectors when the program was first launched in 2008. The number of poor people benefiting from the program has grown from an estimated 75,000 people benefitting (from 18,000 households) in the original 30 sectors to over 630,000 beneficiaries in 216,000 households by 2014. Under the VUP, 65% of households which benefit from direct support through unconditional cash transfers are headed by women, while 47% of households participating in public works are headed by women.