1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
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, and increase levels of foreign direct investment. The country presents a number of opportunities for foreign direct investment, including in renewable energy, infrastructure, agriculture, mining, tourism, and information and communications technology (ICT).
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 (#59 out of 190 economies in the 2016 report, second best in Africa), and a reputation for low corruption. Rwanda economic growth decelerated to 5.9 percent in 2016 following a reduction in agricultural productivity due to prolonged drought in different parts of the country. 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, payment delays with government contracts, and frequently inconsistent application of tax, investment, and immigration rules.
The Rwanda Development Board was established in 2006 to fast track investment projects by integrating all government agencies responsible for the entire investor experience under one roof. This includes key agencies responsible for business registration, investment promotion, environmental compliance clearances, and other necessary approvals. New investors can register online at the RDB’s website and receive a certificate in as fast as six hours, and the agency’s “one-stop shop” helps 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 often cite tax incentives included in deals signed by the RDB that are not honored by the Rwanda Revenue Authority (RRA), Rwanda’s tax authority, as a serious problem. Rwanda’s Directorate General of Immigration and Emigration does not always honor the employment and immigration commitments of investment certificates and deals, according to a number of investors.
Investors also cite 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 receive VAT tax rebates within 15 days of receipt by the RRA, but firms complain that the process for reimbursement can take months and even years in some cases, and often involves lengthy audits by the RRA. RRA aggressively enforces tax requirements on firms and individuals and imposes very punitive fines for errors – deliberate or not – in tax payments.
Limits on Foreign Control and Right to Private Ownership and Establishment
Rwanda has neither statutory limits on foreign ownership or control nor any official economic or industrial strategy that discriminates against foreign investors. 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 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. Foreign investors can acquire real estate, though there is a general limit on land ownership. While local investors can acquire land through leasehold agreements that extend to a maximum of 99 years, there are stricter limits on land ownership for foreign investors. In May 2015, the GOR published a new Investment Code aimed at providing tax breaks and other incentives to boost foreign investment. The Investment Code includes equal treatment between foreigners and nationals with regard to certain operations, free transfer of funds, and compensation against expropriation.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD) and New Partnership for Africa’s Development (NEPAD) have started 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). 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 implementation of the common external tariff (CET) and harmonization of trade, export, and tax policies. The report can be found here:
The government does not have a formal program to provide incentives for domestic firms seeking to invest abroad, but there are no restrictions in place limiting such investment.