Financial Times’ Special Report on Rwanda

Stephen DeAngelis

October 1, 2009

This is the fourth post in a series about East Africa. In the last two posts [Africa and America and The Plight and Hope of East Africa], I’ve discussed East African issues that have somehow involved Rwanda. The Financial Times recently published a Special Report that examines a number of issues affecting that small, landlocked country including: social engineering, the economy, relations with the Congo, politics, land reform, and reconciliation. The lead article discusses “the huge efforts being made to put the country’s tragic legacy behind it” [“Social engineering in pursuit of peace,” by William Wallis, 22 September 2009]. Wallis writes:

 

Landlocked, with limited resources, tricky neighbors and the highest population density in Africa, the odds would seem stacked against Rwanda as it seeks to put a tragic past behind it and build a more prosperous, stable future.”

 

Wallis goes on to report that Rwanda’s resources are limited, but not as limited as people once thought:

 

Under verdant mountains and sinuous valleys tilled by legions of subsistence farmers are hidden deposits of gold, coltan and cassiterite. A vast store of methane lies compressed beneath the waters of Lake Kivu on its western border. Efforts are under way to exploit this to boost national electricity output from just 35 megawatts. If Uganda’s recent discoveries stretch south, there may be even some oil. While opportunities are opening up, no one is deluded that natural resources will lift the economy from its peasant roots. Nor is it obvious in the near term that the country can flourish in the slipstream of better endowed neighbors.”

 

Despite the odds against it, Rwanda is moving forward. Wallis continues:

 

The country has a record for efficient use of the resources available. This attribute, rare in the region, has made Rwanda a favourite among western donors, on whom the government relies for nearly 50 per cent of its budget. It is also gradually shifting from the devastation of genocide, to the recovery underway. Officials in Kigali bristle therefore at development theories suggesting landlocked African states have a weaker chance of taking off. Rwanda is looking beyond the continent for models, notably to Asia.”

 

Rwanda’s president, Paul Kagame, is actively pushing to shift Rwanda from an agricultural-based economy towards a knowledge-based economy, with a vibrant service sector. As one of Kagame’s top advisers, David Himbara, declares, “Being landlocked does not mean being e-locked or air-locked.” Kagame’s economic strategy is aimed at tripling “annual national income to more than $900 per capita by 2020. … To achieve this, the government has embarked on a pervasive program of social engineering, prioritizing economic development, often at the expense of individual and political rights.” Wallis continues:

 

Nevertheless an impressive array of international backers supports the notion that Mr Kagame has done what was necessary, however ruthless, to restore security and lay foundations for development. Resulting economic growth — gross domestic product expanded by 11.2 per cent last year — is most obvious in Kigali, now one of Africa’s safest and cleanest capitals. Much of the state budget, though, is targeted at rural areas. … Demographic pressure or even climate change could yet reverse progress and lift the lid off popular frustrations. The regime may struggle too to maintain current levels of foreign aid if it continues to suppress political rights. But it remains hyperactive. In recent months, Mr Kagame has begun to make peace with Congo. He is driving regional efforts at integration. To draw higher levels of inward investment, the government has slashed red tape, moving Rwanda 72 places up the World Bank’s global league table for ease of doing business.”

 

The biggest concern, Wallis notes, is that Rwanda’s progress seems to rely on the vision and authority of one man — President Kagame. Wallis reports that one of Kagame’s foreign allies has remarked, “Nothing grows in the shadow of big trees.” And Paul Kagame is a very big tree in Rwanda. In an accompanying article, Wallis discusses a topic I’ve written about quite a bit — the importance of trade versus aid [“Debate with donors over aid versus trade“]. President Kagame has publicly supported Dambisa Moyo, a Zambian economist who wrote a book entitled Dead Aid.

 

In the book, Ms Moyo proposed a series of market-centered solutions in place of foreign aid to Africa. Aid, she argued, encourages corruption, fosters dependency and stifles development. A barrage of attacks from anti-poverty campaigners followed. Mr Kagame, though, was quick to take up some of Ms Moyo’s points and invited her to address the annual retreat he holds for senior members of his administration. ‘As long as poor nations are focused on receiving aid, they will not work to improve their economies,’ he wrote in the FT.”

 

Although Ms. Moyo’s ideas may attract criticism, she’s correct that developing countries won’t ever get on the path to prosperity until they can attract foreign direct investment. I believe that foreign aid and other charitable development efforts are critical, but they should complement a strategy aimed at attracting investment. With 50 percent of his budget still coming from foreign donors, I doubt that President Kagame is ready to toss all foreign aid aside. Wallis reports that among the limitations in Rwanda that discourage more foreign investment are “the small scale of opportunities, and the fact that the skill-set of the predominately farming population lags far behind the goal of transforming Rwanda into a hub for services, high-end tourism and transport.” Wallis acknowledges, however, that Rwanda has a business “environment safe from crime and relatively free of corruption. In a region plagued by both that is a significant asset.”

 

In another article, Wallis examines Rwanda’s geography and asks, “Location: asset or encumbrance.” He writes:

 

Rwanda pays a heavy price for its geographical location. The cost of trucking a container from Mombasa [Kenya] on the Indian Ocean coast to Kigali, the capital, 1,500kms and three border crossings away, can be three times the price of shipping the same container from the US. Transport alone accounts for more than 40 per cent of the cost of imported goods. In reverse, the premium that Rwanda’s quality tea and coffee exports attract is eaten away by the slow journey from the country’s verdant hillsides to the auction rooms in Mombasa.”

 

Given those numbers, it should come as no surprise that Mr. Kagame supports both regional integration and infrastructure construction. One of the infrastructure projects that Rwanda is eager to see advanced is expanding and upgrading a dilapidated rail line running from “Dar es Salaam to Isaka in the west of the country.” Rwanda officials would like to see line extended into Kigali as well as into neighboring Burundi.

 

The cost of laying hundreds of kilometers of track would run into the billions of US dollars. But initial studies suggest there is the potential for freight traffic on the line to grow at an annual rate of 6.7 per cent from 3.7m tons a year in 2007, to between 16m and 21m tons in 2030, making the project potentially viable as a public-private partnership. Given the existing costs of road transport, the savings to Rwanda would be enormous over time.”

 

Among the most significant reforms underway in Rwanda is land reform [“Bid to unlock potential of land,” by Barney Jopson, Financial Times, 22 September 2009]. Jopson writes:

 

Using a database of satellite photographs and an army of surveyors, the government wants to demarcate all 7.9m plots of land and record them by the end of 2014. The project is the most sophisticated of its kind in Africa and the sort of ambitious scheme with which President Paul Kagame’s Rwanda is becoming synonymous. The hardest part is resolving disputes without violence. … [Dispute resolution is emotionally charged because] eighty per cent of Rwandans depend directly on agriculture; they live at a density of 350 people sq km, the highest in Africa; and the population is growing at 2.6 per cent a year. That is a stark reminder that Rwanda’s future depends on what happens to the impoverished millions who hoe the soil. … The government says the best way to make areas less volatile is to make them more prosperous, which is why it has rolled out grand plans for raising agricultural productivity. It wants to rehabilitate degraded soils and broaden the use of fertilizer and high-yielding seeds; more food processing and more diversification into coffee and tea; upgraded feeder roads; and rural electrification. But none of these can happen unless the government sorts out land tenure, because a farmer who has only informal rights to his plot has little incentive to invest heavily in it. That was how things until 2005 when a land law was passed that paved the way for replacing unwritten customary claims with formal property rights. It gave women equal land rights to men for the first time too.”

 

Clearly, Rwanda has a long way to go to achieve its vision. Fortunately, it is headed in the right direction. The country must successfully transition to a service economy if it going to accommodate its burgeoning population. The faster it can achieve prosperity the quicker its demographic pressures will be relieved. The best things about Rwanda’s strategy for development are that it is based on realistic expectations, is taking a holistic approach, and is using realistic timelines. With broadband connectivity for the country just around the corner, it now needs to concentrate on investing in the human capital that can take advantage of this new connectivity.