Rwanda: Taking On the Future, Staying Ahead of the Curve

Managing Director, International Monetary Fund, addresses the Rwandan parliament and people during her visit to the country.

I would like to thank Honorable Donatille Mukabalisa and Minister Gatete for their kind introduction, and members of parliament and the people of Rwanda for their warm hospitality.

It is a special privilege to be here in Rwanda and speaking before this parliament. Your country boasts immense wealth of nature, people, and culture. Over the past two days, I have had the opportunity of experiencing myself the beauty of Rwanda’s “mille collines”.

Sublime beauty, but a setting inevitably tinged with sadness for a first-time visitor to your country. This morning, I had the sobering experience of visiting your Genocide Memorial. The shock is profound, and the words “never again” must reverberate in all who see it. But as President Kagame said during the recent commemoration: “Twenty years ago, Rwanda had no future, only a past. Today, half of all Rwandans are under 20”. This is the future that is before you – a future for all Rwandans.

As the Rwandan proverb goes: “Umusógongero w’îsí ni ûmubâno” – savoring the world only takes place when you get along. The world makes no sense without friendship.

Today Rwanda can take pride in having overcome extraordinary adversity. You are building a resilient and inclusive economy. This parliament is a case in point–more than 60 percent of you are women. This is the world’s highest and more than double the average for parliaments in other countries. I am proud to stand before you!

To build on these achievements, Rwanda has chosen to embark on another transition–to become a middle income country. A country that is more self-reliant, more export oriented, and with a vibrant private sector. To achieve this vision, Rwanda needs to continue to lead by example and keep a strong focus on inclusive policies.

President Kagame once said: “Rwandans know how to talk, how to walk, and how to dance.”

So in bringing the three themes I want to discuss today closer to your hearts, I will appeal to Rwanda’s rich dance culture:

(i) First, the Intore or victory dance – a stock take of Rwanda’s success within a regional and global context;

(ii) Second, the Umuganura or harvest dance – a look at the lessons that Rwanda today can offer to its peers in Africa and the world; and

(iii) Finally, the Ikinimba dance – the commitment to the future – some thoughts on what might help in managing the transition to a stronger, more diversified and more inclusive economy.

1. The Road from Mozambique–good news, some headwinds ahead

Let me start with the conference that the IMF co-hosted in Mozambique last year called “Africa Rising.” This event brought together officials, business executives and civil society from 42 African countries and many other parts of the world.

Minister Gatete and Governor Rwangombwa joined us in Maputo, and the discussions reflected the much more upbeat narrative on Africa that is slowly but surely asserting itself.

Most countries in Sub-Saharan Africa showed extraordinary resilience in the face of the Great Recession in 2009. In fact, many have bucked the recent global trend of slow growth by expanding at a healthy clip for ten years or more. Sound policies, stronger institutions, and a more educated population have positioned Africa as a major investment destination for both advanced and emerging economies. In a growing number of countries, we are indeed seeing “Africa Rising”.

Your country epitomizes that narrative. Since the early 2000s, Rwanda has grown at an average of about 8 percent–well above the regional average and on par with emerging Asia. Per capita income has more than trebled, and while poverty is still high–at about 45 percent of the population–the poorest have shared the benefits of growth. This is a remarkable feat–a genuine Intore story.

Still, as many African policymakers emphasized in Mozambique, important challenges remain for the region. Many countries need to make growth more inclusive and invest more in human capital to equip future generations to join the global economy. Africa also faces a huge infrastructure gap, which must be financed in a sustainable manner. And let us not forget that some countries are still grappling with fragility and failing to harness the benefits of rising prosperity on the continent.

These challenges are surmountable. But they become more daunting in an uncertain global environment. So, as I said in Mozambique, just as Africa is “rising,” it should be “watching” as well.

Why do I call for vigilance? Because according to our latest forecasts, global economic activity this year will be weaker than we had projected only a few months ago. And this is despite the boost from lower oil prices. With the exception of the United States and the United Kingdom, momentum is slowing in many advanced and emerging economies, including China–one of Africa’s main trading partners.

This slower growth has implications for an Africa that is now more integrated into the global economy than ever before. Growth forecasts for Sub-Saharan Africa have been pared down due to lower oil and commodity prices. Still, the overall outlook remains promising, and at close to 5 percent, the region is expected to post the world’s second highest growth rate in 2015.

Even so, a number of downside risks loom large, with the potential for increased volatility and vulnerability, including in Africa.

Consider a scenario of persistently lower oil prices. This may be a boon for oil importers, putting more money in the pockets of households and providing governments with the u opportunity to reduce costly and inefficient energy subsidies. Oil exporters, however, will see increased external and balance sheet vulnerabilities.

Consider another scenario that we have been talking about for some time and that is now imminent–that of monetary policy normalization in the United States. Even if this process is well-managed and well-communicated – and I believe that it has been and will be – there could be negative effects for emerging markets and global financial stability. African economies could also be impacted.

Of course, compounding these risks is the persistence of geopolitical tensions as we have seen in Ukraine, the Middle East, and even in Africa.

What is the bottom line? Sustaining growth is a first order priority–reigniting it where it is deficient, and supporting it where it is waning. Sound policy fundamentals are paramount, although policy specifics will differ by country.

So what does the current situation portend for Rwanda? Your country today is taking on the future with a strong foundation laid over the past two decades. It is a positive example for countries striving to exit fragility, offering valuable lessons on how homegrown initiatives can be adapted to promote inclusiveness and social cohesion. And it is demonstrating leadership in reforming the business environment, building investments and jobs.

2. Rwanda today–a house in order, leading by example

This brings me to my second topic–the “harvests” that Rwanda can offer the world and future generations.

Let me start with where we stand. Rwanda today is a dynamic economy with good governance standards. Second generation reforms have helped sustain growth, and even accelerate it beyond the rebound that came after 1994. Women have been empowered and now offer a practical case of “gender in economics”. Rwanda is an economic success story.

This is not accidental. It is the upshot of strong and concerted policies and a deliberate focus on inclusiveness.

Prudent fiscal and monetary policies were instrumental in maintaining macroeconomic stability. This was a necessary pre-condition for growth, but not sufficient for inclusive growth. A clear focus on inclusive policies and institutions was essential.

Let me highlight two aspects.

Let’s start with how fiscal policy played a role. Fiscal space from debt relief was efficiently used, allowing a scale up in priority spending–that is spending on health, education and social protection. This type of spending is now about 13 percent of GDP, up from just 4 percent in 1999. In fact, protecting social spending from competing fiscal pressures is a key feature of IMF support, including in Rwanda.

At the same time, resources from foreign aid–which remain at about 15 percent of GDP–have been effectively used for economic development and poverty reduction. So sound economic management is key.

Still, and perhaps what struck me most about Rwanda, is the unrelenting focus on homegrown interventions to make growth more inclusive and improve social services, especially for women and the rural poor.

I find Rwanda’s approach to empowering women particularly telling. As you probably know, the status of women in the economy and society is a topic dear to my heart. Rwanda is setting standards.

The parliament is a clear example of how much the gender gap in political representation has been narrowed. Women have broken glass ceilings in other spheres as well, making up about 30 percent of ministers and half of Supreme Court justices. Today, girls have the same access to primary and secondary education as boys, and Rwanda is well on its way to achieve the Millennium Development Goal for education.

How were these results achieved? Through a set of legal and institutional frameworks that ensure that gender equality is mainstreamed in all social and economic aspects.

Not only does the 2003 Constitution enshrine women representation, but there are laws that further ensure equality in land ownership and inheritance. Our own analysis has shown that education and legal rights are key to unleashing women’s full potential and their contribution to the economy.

Think of the “complete farmer” approach–another homegrown initiative that helped reduce rural poverty by focusing on raising agricultural productivity. Or the Girinka program–the one cow per poor family initiative–to overcome childhood malnutrition and ensure that the tide of prosperity lifts all boats.

I was also impressed by the reliance on Rwandan traditions that exalt social solidarity and inclusiveness. The Umuganda–the last Saturday of every month, where every adult contributes to a variety of civic duties in their communities–is an appealing way to foster social cohesion.

Like the tunes and beats of the umuganura dance, all these initiatives are part and parcel of Rwanda’s success–the harvest from its longstanding strong and inclusive policies.

But how about the future? How can we translate Rwanda’s current achievements into even stronger outlook?

3. Taking on the future–staying ahead of the curve

This brings me to my last topic–the key policies to accomplish Rwanda’s vision for the future. Without a doubt, Rwanda’s success has been impressive. But to achieve its goal of middle income status, its growth model will need to evolve.

Think of this evolution as the Ikinimba dance–celebrating youth and the commitment to a brighter future.

What are the key dimensions of a future growth model? I can see a three-pronged approach focusing on: (i) mobilizing domestic resources to reduce dependency on aid; (ii) encouraging private sector development to reduce reliance on the public sector; and (iii) harnessing the potential of regional integration to support export diversification and overcome geographic constraints.

The reform priorities articulated in the government’s 2020 Vision are appropriately aligned with this evolution. But let me highlight what I see as key policies along the three dimensions and how the Fund can help.

First dimension, fostering self-reliance. Mobilizing domestic revenues will be critical in creating fiscal space as reliance on aid gradually recedes. At 16 percent of GDP, the tax collection effort is still low compared to peers in Africa, and well below the 25 percent target set by the East African Community.

The Fund has been heavily engaged with Rwanda in providing technical assistance and capacity building in revenue administration and collection. We will continue this support to broaden the tax base and strengthen administration so that Rwanda can bridge this gap.

Second dimension, promoting the private sector. An efficient business climate is essential in fostering private sector job creation and structural transformation.

Rwanda has made important strides over the years, such as cutting red tape for construction permits, making it easier to get electricity, and strengthening the legal rights of borrowers and lenders. At 46 out of 189 countries in 2015, Rwanda is now in the top three sub-Saharan performers according to the World Bank Doing Business Indicators.

Even so, infrastructure gaps continue to hold back the private sector from flourishing. In particular, key infrastructure projects in transportation, water and energy need to come on stream to unlock its full potential. And of course, all of this needs to done within a reasonable resource envelope so as not to jeopardize hard-won debt sustainability.

Here again, the Fund has been engaged with the government in exploring optimal combinations of financing sources–increases in revenue and judicious resort to external borrowing–to finance critical infrastructure projects.

Equally important for the development of the private sector is the skilling of the labor force to reap the dividends from the demographic transition. Rwanda is again leading other countries in this aspect–it has moved beyond the focus on primary education to an emphasis on secondary level education for its citizens.

Third dimension, increasing export diversification. Rwanda needs to open up and reach out to its neighbors for its export-oriented businesses to innovate and flourish.

On the one hand, developing a vibrant non-agricultural sector may require some hand-holding. Supporting household enterprises and small and medium sized businesses through targeted “mentoring” and access to finance can be steps in the right direction.

On the other hand, export diversification hinges on successful access to markets. For a land-locked economy such as Rwanda, regional integration is a potent instrument to tap into bigger markets and new products. Deeper engagement in the East African Community would allow you to benefit from regional infrastructure projects in key areas, including power generation and transportation. These steps are surely critical in unlocking Rwanda’s growth potential.

Conclusion

Let me conclude.

The reforms I talked about are ambitious. Yet they are necessary to sustain Rwanda’s success into the future. And I am confident that policymakers will deliver. After all, they are bound by imihigo–another homegrown initiative to improve governance and service delivery to the broader public.

But you should rest assured that your country is not travelling alone. The Fund is proud to be Rwanda’s travel companion. We have been by your side–with financial assistance to help overcome the challenges of fragility and institution building, and with policy support program and technical assistance to cement the gains from macroeconomic stability.

And we will continue to be by Rwanda’s side as it strives toward its development goals. This is the “Africa partnering” we committed to in Mozambique–a pledge I restate today in front of you.

Thank you.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.