Attitude toward Foreign Direct Investment
The Government of Rwanda (GoR) is focused on private sector-led development to achieve its aim of reaching middle-income status by 2020 and reducing the country’s reliance on foreign aid. Over the past decade, the GoR has undertaken a series of pro-investment policy reforms intended to improve the investment climate, wean Rwanda's economy off foreign assistance, expand trade in products and services, and increase levels of foreign direct investment.
Rwanda enjoys strong economic growth–which averaged over 7 percent annually from 2010 to 2015, high rankings in the World Bank's Doing Business report (#62 out of 189 countries in the 2016 report, second best in Africa behind Mauritius), and a reputation for low corruption. The country presents a number of opportunities for U.S. and foreign direct investment, including in clean and renewable energy, infrastructure, agriculture, tourism, mining, and information and communications technology.
Despite its business-friendly reputation, FDI inflows into Rwanda, while growing, lag behind some of its peers in the EAC at 4 percent of GDP in 2014. Potential and current investors cite a number of hurdles and constraints, including Rwanda’s landlocked geography and resulting high freight transport costs, a small domestic market, limited access to affordable financing, and frequently inconsistent application of tax, investment, and immigration rules.
The Rwanda Development Board was established in 2006 to fast track and facilitates investment projects, with the express intention of integrating all government agencies responsible for the entire investor experience under one roof. This includes key agencies responsible for business registration, investment promotion, environmental clearances, and other necessary approvals. The aim is to provide investors with a one-stop shop. The RDB offers one of the fastest business registration processes in Africa. New investors can register online at the RDB’s website and receive a certificate in 6 hours at RDB’s Office of the Registrar General, and the agency’s “one-stop shop” helps foreign investors secure required approvals, certificates, and work permits.
Despite the RDB’s investment facilitation role, some foreign investors complain that while registration is easy, implementation can be less smooth due to delays in government payments for services or goods delivered, changes in memorandum of understanding (MoU) conditions during contract negotiations, and/or additional tax assessments. Investors also face difficulty in obtaining or renewing work visas due to the GoR’s demonstrated preference for hiring local or EAC residents over third country nationals.
Investors have also cited the inconsistent application of tax incentives and import duties as a significant challenge to doing business in Rwanda. Under Rwandan law, foreign firms should receive equal treatment with regard to taxes, as well as access to licenses, approvals, and procurement. Foreign firms should also receive VAT tax rebates within 15 days of receipt of relevant documents by tax authorities, but firms often complain that the process for reimbursement can take months and often involves lengthy audits by the Rwanda Revenue Authority (RRA).
Rwanda’s judicial system suffers from a lack of resources and capacity, including well-functioning courts. Investors occasionally cite the GoR’s inconsistent approach to contract sanctity and say the government sometimes fails to enforce court judgments in a timely fashion. The U.S.-Rwanda Bilateral Investment Treaty, which entered into force on January 1, 2012, provides for international arbitration of certain types of investment disputes. The host government has honored international arbitration clauses in contracts when invoked, though sometimes reluctantly.
In 2008, the GoR implemented business reform legislation, which included new bankruptcy regulations and arbitration laws. In 2009, it enacted a new intellectual property law and a law to strengthen investor protections by requiring greater corporate disclosure, increasing the liability of directors, and improving shareholders’ access to information.
In 2011, the GoR reformed tax payment processes and enacted additional laws on insolvency and arbitration. Under the 2012 penal code, the government may compel a firm to disclose proprietary information to government authorities under the auspices of a criminal investigation of fraudulent bankruptcy or other alleged criminal offense. These laws were designed to facilitate international business and further improve the investment climate.
Historically, the government has encouraged foreign investment through outreach and tax incentives.
Investors can obtain an Investment Certificate from RDB as long as the investment meets the required threshold of USD 250,000 for a foreign investor and USD 100,000 for a local or regional (COMESA) investor. For investment in existing projects, investors remain on the original investment certificate issued for the project and the investment is captured as reinvestment.
Foreign investors can acquire real estate, though there is a general limit on land ownership, and both foreign and local investors can acquire land through leasehold agreements that extend to a maximum of 99 years.
In 2007, the GoR established the Rwanda Public Procurement Agency to ensure transparency in government tenders and divestment of state-owned enterprises. Rwanda’s ranking in Transparency International’s Corruption Perception Index has improved significantly, falling from 102 in 2008 to 45 in 2015, Africa’s fifth least corrupt nation, according to the index. A 2015 report by Rwanda’s Office of the Auditor General cited “fundamental accounting, corporate governance, financial management, and contract management” problems in the majority of public entities but said violations had fallen significantly from years past.
There are no laws requiring private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.
Other Investment Policy Reviews
The government of Rwanda has requested Organization for Economic Cooperation and Development (OECD) and New Partnership for Africa’s Development (NEPAD) support in benchmarking Rwanda’s progress in investment climate reforms against the Policy Framework for Investment (PFI). In response to this request, NEPAD-OECD is developing a project in partnership with the GoR with the aim of improving the business climate and enhancing capacity. The project also supports Rwanda’s ongoing efforts to implement its National Programme of Action (NPA) under the African Peer Review Mechanism (APRM). One of the NEPAD-OECD Initiative’s priorities is to support the strengthening of the business climate and investment-related components of the APRM.
The World Trade Organization (WTO) published a Trade Policy Review in 2013 covering all of the East African Community (Burundi, Kenya, Rwanda, Tanzania, and Uganda). The main areas for improvement revolve around the five member countries implementing the common external tariff (CET) and their struggles to harmonize trade, export, and tax policies.
The last Investment Policy Review (IPR) of Rwanda by the United Nations Conference on Trade and Development (UNCTAD) was published in 2006: http://unctad.org/en/pages/PublicationArchive.aspx?publicationid=508
Laws/Regulations on Foreign Direct Investment
Rwandan policies, laws, and regulations are generally favorable towards foreign investors. In May 2015, the GoR published a new investment code (Law N.06/2015 of 28/03/2012 relating to investment promotion and facilitation) replacing one enacted in 2005 and aimed at providing more tax breaks and attractive incentives to help facilitate private investment in Rwanda. The new code outlines incentives for international companies headquartered in Rwanda that include a preferential corporate income tax rate of zero percent if a company fulfills certain minimal capital (at least USD 10 million in both tangible and intangible assets in Rwanda) and local staff requirements. Any registered investor is eligible for a 15 percent corporate tax rate (down from 30 per cent) for priority sectors such as energy generation, mass transportation or telecommunications. Additional corporate income tax holidays of up to seven years are also available. The Investment Code also includes equal treatment between foreigners and nationals with regard to certain operations, free transfer of funds, and compensation against expropriation. The key sectors targeted for investment include information technology, health, tourism, manufacturing, and other export-oriented industry and energy projects, which are vital to clearing bottlenecks to development.
To read the full investment code please visit: http://www.rdb.rw/uploads/tx_sbdownloader/Investiment_promotion_law.pdf
In June 2015, the GOR proposed a law governing public-private partnerships (PPPs) as a step toward courting investments in key development projects. Passed by the Chamber of Parliament in November 2015, the proposed PPP law provides a legal framework concerning establishment, implementation, and management of PPPs. Transparency, fairness, competition, non-discrimination, efficiency, effectiveness, protection of public property and public interest, and accountability, will be the principles governing the procurement process for PPPs, according to the GoR.
The draft law stipulates that the application of PPPs must be closely aligned to government development goals and strategies with contractors opting to apply for the management of government contracts or investing in infrastructure projects on the basis of lease-operate-develop (LOD), build-operate-transfer (BOT), build-operate-own, as well as any other PPP arrangement that may be prescribed by guidelines or policies supplementing the draft law on PPPs. As of March 2016, the proposed law on PPPs is still pending final approval.
The Rwanda Development Board was established in 2006 to fast track and facilitates investment projects, with the express intention of integrating all government agencies responsible for the entire investor experience under one roof. This includes key agencies responsible for business registration, investment promotion, environmental clearances, and other necessary approvals. The aim is to provide investors with a one-stop shop. The RDB offers one of the fastest business registration processes in Africa. New investors can register online at the RDB’s website (http://org.rdb.rw/busregonline) and receive a certificate in 6 hours at RDB’s Office of the Registrar General, and the agency’s “one-stop shop” helps foreign investors secure required approvals, certificates, and work permits.
The industry sector (manufacturing, construction and mining) is currently small, contributing on average 14 percent of GDP in 2015 according to the National Institute of Statistics of Rwanda (NISR), with a GoR target of 20 percent of GDP by 2018. The Ministry of Trade and Industry (MINICOM) serves as the Chief Industrial Promotion Agency, leading the process of policy design, formulation of regulations and strategies on industrial development. In 2009, MINICOM designed the first Rwanda Industrial Master Plan (RIMP) (2009-2020) as a roadmap for upgrading, modernizing and expanding the industrial sector in Rwanda.
In addition to tax incentives, Rwanda offers incentives for investors in the following priority sectors: manufacturing, information and communication technology, tourism, and value-added agriculture. Rwanda is also hoping to lure additional investors with Special Economic Zones and several industrial parks as one way of bolstering its fledgling manufacturing sector.
In 2006, the GOR launched Special Economic Zones (SEZ), a program to address private sector constraints such as availability of industrial and commercial land, the cost of energy, limited transport linkages, market access, bureaucracy, and availability of skills. By initiating the SEZ, the government pledged to make available land for small and large scale industrial development, as well as reliable infrastructure, competitive fiscal and non-fiscal regulations and streamlined administrative procedures. The first two major SEZ projects established were the Kigali Free Zone (KFZ) and the Kigali Industrial Park.
The SEZ program within RDB is managed by the Special Economic Zones Authority of Rwanda (SEZAR), an independent agency responsible for planning the national SEZ regime, designation of land as individual SEZs, coordinating with public agencies, licensing and permitting SEZ enterprises (developers, operators and users), monitoring performance and ensuring compliance with SEZ rules and legislations.
To boost exports, a company basing itself in the Special Economic Zone can opt to be a part of the Economic Processing Zone. A number of criteria must be satisfied in order to qualify, such as extensive records on equipment, materials and goods, suitable offices, security provisions, and a number of property constraints. Holding an Export Processing Zone license will exempt a company from VAT, import duties, and corporate tax. The company is then obliged to export a minimum of 80 percent of production.
The GOR encourages foreign investors to invest in Rwanda and in this regard has elaborated a set of extra fiscal incentives for companies based in the SEZ, including but are not limited to:
Local and foreign investors have the right to own and establish business enterprises in all forms of remunerative activity. The Rwandan constitution stipulates that every person has the right to private property, whether personal or in association with others. The government cannot violate the right to private ownership except in the public interest and only then after following procedures that are determined by law and subject to fair compensation. The 2009 Company Act establishes licensing regulations for business operations. http://rwanda.eregulations.org/media/Companies%20Act%20-%20Official%20Gazette%20n%C2%B0%2017%20bis%20of%20270409.pdf
The law also allows private entities to acquire and dispose of interests in business enterprises. Foreign nationals may hold shares in locally incorporated companies. The government has continued to privatize state holdings though the government, ruling party, and military continue to play a dominant role in Rwanda’s private sector.
Since 1995, Rwanda has been carrying out an ambitious privatization program to eventually sell off 72 commercially oriented state-owned enterprises (SOEs). The program has attracted foreign investors in strategic areas ranging from telecommunications and banking to tea production and tourism. Since the program started, 52 companies have been fully privatized and 20 more are in the process of privatization. Though generally deemed successful, some observers have questioned the transparency of certain transactions as a number of transactions were undertaken through mutual agreements directly between the government and the private investor, rather than public offerings.
State-owned enterprises currently exist in a number of sectors, including banking, agriculture, construction, insurance, coffee, mining, industrial production and transport. In some of these sectors, the government is not directly involved in the running of the business, but remains a shareholder. The government is generally open to competition from private investors in all of these sectors.
There is no mandatory screening of foreign investment. However, the RDB does evaluate the business plans of investors who seek tax incentives in order to record incoming foreign investment and better allocate incentives to qualified foreign investors.
Rwanda's Ministry of Trade and Industry published a Competition and Consumer Protection Policy in July 2010 to promote and protect effective competition in trade and commerce and to protect consumers from unfair and misleading market conduct.
Although Rwanda already has legislation in place to regulate competition, the GOR is in the final stages of setting up the Rwanda Inspectorate and Competition Authority (RICA), a new independent body with the mandate to promote fair competition among producers. The body will reportedly aim to ensure consumer protection and enforcement of standards. While the mandate of RICA is similar to that of the Rwanda Standards Board (RSB), RICA will be a regulatory body to enforce technical regulations and laws related to trade, while the RSB will continue to set quality standards for goods.