The so-called ‘Rwandan Economic miracle’ is a mirage

In an article written in the Guardian in April 2014, former British Prime Minister Tony Blair called Rwanda ‘ A beacon of hope ”.

Rwanda’s president Paul Kagame likes to blow his own horn that he has built what he calls an African “economic lion.” Writing in the Wall Street Journal in May 2013, he boasted that in pursuit of his economic agenda, he “looked to East Asia’s so-called ‘tiger’ economies for inspiration” and that as a result “Rwanda is now firmly on the path to economic maturity.” Kagame in other words claims that he has built the “Singapore of Africa.”

Most observers, including Kagame’s critics of his horrendous human rights record seem to have swallowed his storyline that he has built a formidable economic powerhouse, his suppression of freedoms notwithstanding. The critics see something of a trade off between development and basic freedoms whereby Kagame has succeeded in the former. There is some wishing.

To get a glimpse into the Rwandan economic realities, look no further than the latest World Bank’s Economic Update dated August 2014 which confirms what we already know – namely that Rwanda development “success” is mirage. The overall finding in the report is that even before the aid shock, when donors suspended or cut off aid to Rwanda in 2012 (due its proxy wars in DR Congo), the country had “failed to stimulate a significant transformation of the economy, which is characterized by a large public sector, the dominance of the non-tradable sectors, and limited private investment.” Put differently, Rwanda’s high growth rate that has averaged 8 percent annually between 2003 up to 2012 before shrinking to 4.7 percent in 2013 due to aid shock was led by non-tradable services, and public sector investment which was essentially financed by aid grants.

Few statistics from the Economic Update provide further insights into Kagame’s so-called economic lion:
• 73% of Rwandan economy is made of “nontradables;” meaning that services or goods used for domestic consumption are not comparable to imports or exports;
• Foreign aid as a share of Gross National Income (GNI) is high at 20% (by comparison neighboring countries rely much less on aid against their GNI: Kenya (7.2%), Tanzania (10.4%), Uganda (10.4%), and Sub-Sahara African average (3.4%);
• Foreign aid accounts for 86% of gross fxed capital formation (i.e. net additions of capital stock such buildings, roads, and other infrastructural assets);
• Structural bottlenecks such as the underdeveloped private sector, weak infrastructure continue to undermine economic growth.

The Rwandan private sector and economic infrastructure in particular expose the myth of Kagame’s economic lion. Rwanda’s private sector is comprised of the following:

• Large taxpayers defined as having an annual turnover of USD1.4million number 354 or 0.3% of all taxpayers;
• Medium taxpayers who have annual turnover of USD74,000-1.4million, who number 1,938 or 0.7% of all taxpayers;
• Small taxpayers with annual turnover of USD14,000-74,000 who number 110,916 or 98% of all taxpayers.

In 2013, the 354 large taxpayers or 0.3% taxpayers paid 64% of all taxes in Rwanda. The miniscule size of the Rwandan private sector explains why only 309,648 people held jobs in the formal sector in 2012 – out of 5.5 million economically active population. Over 5.2 million Rwandans aged between 16-65 are therefore still trapped in subsistence agriculture in rural Rwanda and in informal sector for those who have managed to migrate to still limited urban centres.

A sub-story of the Rwandan private sector is the rise of crony capitalism which revolves around the ruling party’s conglomerate known as Crystal Ventures Ltd (CVL) that dominates key sectors such as gro-processing, real estate, construction and telecommunications. Using insider information, and access to social security funds, CVL has become Rwanda’s largest holding company that feeds off state contracts and procurement. The Group is now the second largest employer, after the government, with assets of USD500million, a large sum in Rwandan terms.

It is the economic infrastructure, in particular the energy sector, however, that gives the lie to Kagame’s development miracle. No less than 85% of energy consumption in Rwanda is from biomass, 11% from petroleum products and only 4% from electricity. The annual average per capita consumption of electricity in Africa averages 457 kWh, but this drops to 124 kWh if South Africa is excluded. Per capita energy consumption in Rwanda is only 41 kWh – with installed electricity amounting to a meagre 115 megawatts of electricity, the bulk of which is consumed in the Capital City, Kigali.

The widely promoted Rwandan economic success is largely due to foreign aid as illustrated above. Even after cuts and suspension shock, aid grants still loom large in Rwanda. For example, while Rwanda’s domestic financing for the 2014/2015 national budget is projected to be USD1.4billion, aid grants and concessionary loans will provide USD952million or 38% of the budget. By regional comparison, Rwanda is an aid junkie with aid per capita of USD77, compared to Burundi at USD53; Kenya at USD61; Tanzania at USD59; and Uganda at USD46.

The Rwandan president should lie low instead of shouting on rooftops that he has spearheaded the making of an African economic lion – he will be lucky if Rwanda becomes an economic mouse. As for the alleged economic and human rights tradeoff, we may be witnessing a case where it is loss-loss on both fronts.

* Rene C Mugenzi is the chairman and founder of the London based Global Campaign for Rwandan’s Human Rights, www.rwandansrights.org

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