Rwanda

Executive Summary

Rwanda has a history of strong economic growth, high rankings in the World Bank’s Ease of Doing Business Index, and a reputation for low corruption. Rwandan GDP grew 9.5 percent in 2019 before declining 3.4 percent in 2020 due to the global COVID-19 pandemic, the first recession since 1994. In late 2020 and early 2021, the Government of Rwanda (GOR) took significant policy reforms intended to return the economy to growth, improve Rwanda’s competitiveness in selected strategic growth sectors, increase foreign direct investment (FDI), and attract foreign companies to operate in the newly-created Kigali International Financial Centre. In February 2021, the GOR amended the Law on Investment Promotion and Facilitation (Investment Code), the Law on Anti-Money Laundering and Counter-Terrorism Financing, and the Company Act. The GOR passed a new law governing partnerships and a law governing mutual legal assistance in criminal matters. The Rwanda Financial Intelligence Centre (FIC) was also created to curb money laundering and terrorism finance. The country presents a number of foreign direct investment (FDI) opportunities in sectors including: manufacturing; infrastructure; energy distribution and transmission; off-grid energy; agriculture and agro-processing; affordable housing; tourism; services; and information and communications technology (ICT). The new Investment Code includes equal treatment for both foreigners and nationals in certain operations, free transfer of funds, and compensation against expropriation; the 2008 U.S.-Rwanda Bilateral Investment Treaty (BIT) reinforces this treatment.

According to the National Institute of Statistics for Rwanda (NISR), Rwanda attracted $462 million in FDI inflows in 2018, representing five percent of GDP. Rwanda had a total of $3.2 billion of FDI stock in 2018, the latest year data is available. In 2020, the Rwanda Development Board (RDB) reported registering $1.3 billion in new investment commitments (a 48 percent decline from 2019, and an 89 percent decline from 2018, due to COVID-19), mainly in manufacturing, construction, and real estate. FDI accounted for 51 percent of registered projects. With $324.7 million committed in seven projects, the United States topped origination countries with 13.2 percent of the total investment commitments to Rwanda.

Due to the economic impacts of COVID-19, Standard and Poor’s downgraded the Rwandan economic outlook from “Stable” to “Negative,” citing higher public debt and deteriorating exports, tourism revenues, and diaspora remittances. Moody’s changed Rwanda’s outlook from stable to negative due to potential lowering of returns on past GOR’s investments in transportation and tourism that would “raise credit risks associated with Rwanda’s relatively high debt burden, which had been rising before the coronavirus shock and is being exacerbated by it.”

Government debt has rapidly increased over the past few years to more than 70 percent of GDP in 2021, but most of these loans are on highly concessionary terms. The result is that the GOR holds cheaper debt than the average low-income country while maintaining a higher debt-carrying capacity. Development institutions such as the World Bank, African Development Bank, International Monetary Fund, and others have offered to lessen or suspend debt repayment terms for less developed countries such as Rwanda because of COVID-19. However, as of March 2021, Rwandan authorities had not requested debt service suspension from official bilateral creditors as envisaged under the Debt Service Suspension Initiative (DSSI) supported by the G-20 and the Paris Club. As of March 2021, Rwanda had neither incurred external payment arrears nor accumulated domestic arrears.

Many companies report that although it is easy to start a business in Rwanda, it can be difficult to operate a profitable or sustainable business due to a variety of hurdles and constraints. These include the country’s landlocked geography and resulting high freight transport costs, a small domestic market, limited access to affordable financing, and payment delays with government contracts. Government interventions designed to support overall economic growth can significantly impact investors, with some expressing frustration that they were not consulted prior to the abrupt implementation of government policies and regulations that affected their businesses.

While electricity and water supply have improved, businesses may continue to experience intermittent outages (especially during peak times) due to distribution challenges. The GOR is planning to meet more than 100 percent of the country’s power generation needs through various power projects in development. Some investors report difficulties in obtaining foreign exchange from time to time, which could be attributed to Rwanda running a persistent trade deficit.

Note:  According to NISR, stock of U.S. FDI in the country stood at $182.67 million in 2018 (most recent data available)