ppt nilgun gokgur rwanda’s party statals- april 27 2012
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RWANDA’S PARTY-STATALS:
Are they contributing or impeding development?
Nilgün Gökgür
nilgun.gokgur@gmail.com
Scholar-In-Residence
Institute of Development Policy and Management (IOB), University of Antwerp, Belgium
April 27, 2012 - ANTWERP
2
OUTLINE
• DEFINITION OF PARTY-STATALS
• RWANDA’S ACHIEVEMENTS IN PERSPECTIVE
• PARTY-STATALS IN ENTERPRISE LANDSCAPE
• THREE BIG INVESTMENT HOLDINGS AND SUBSIDIARIES
– CRYSTAL VENTURES LIMITED – CVL (Former Tri-Star)
– HORIZON GROUP LIMITED – HORIZON GROUP
– RWANDA INVESTMENT GROUP SA - RIG
• CROSS-OWNERSHIP WITH SOEs AND MILITARY ENTERPRISES
• DEVELOPMENT IMPACT OF PARTY-STATALS – PARTY-STATAL EFFICIENCY
– DISTRIBUTION OF BENEFITS AMONG STAKEHOLDERS • RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS
• OWNERS AND OPERATORS
• DOMESTIC AND INTERNATIONAL COMPETITORS
• UNEMPLOYED AND UNDEREMPLOYED RWANDANS
• ORDINARY RWANDAN AS CONSUMERS
• CONCLUSIONS AND RECOMMENDATIONS
3
WHAT ARE RWANDAN PARTY-STATALS?
Party-statals are not state-owned enterprises (SOEs)
Party-statals are owned either fully or partially by the ruling party (RPF) together with directly or indirectly by the Government of Rwanda (MINECOFIN), directly and indirectly by the military (MINADEF), and RPF-connected business elite
There is NO political distance between Rwandan state and the party-state statals; “elite capture” in play
No publicly available data exist on their legal status, exact shareholding structure, assets, accumulation of economic rent or profits, allocation of operating surplus to investment and social obligations; and their borrowings from the financial sector and payback rate
No donor requested a study on impact assessment on stakeholders—government, donors, owners and operators, competitors, labor and ordinary Rwandans as consumers
4
PARTY-STATALS
Ruling Party (RPF), State, Military and Business Elite Connectivity
GOVERNMENT
of RWANDA
MINIDEF
MINECOFIN- 30
SOEs
RPF-linked
Business Elite
Horizon Group Ltd
2006
2 fully-owned;
6 partially-owned
(CVL, SOEs, RDB,
and one UK firm as
equity partners)
Crystal Ventures
Limited (CVL -
Former Tri-Star since
1994)
8 fully-owned;
2 partially owned
(GoR, SOEs, and
Horizon Group as
equity partners)
Rwanda Investment
Group SA (RIG)
2006
3 majority-owned
with GoR as an
equity partner;
3 partially owned
with SOEs as equity
partners
RULING PARTY -RPF
5
RWANDA’S GROWTH AND DEVELOPMENT IN PERSPECTIVE
ECONOMIC GROWTH (8% on average over the last decade)
REDUCTION IN POVERTY and INEQUALITY
Poverty declined from 56.7% in 2005/06 to 44.5% in 2010/11
Gini Coefficient decreased from 0.52 in 2005/06 to 0.49 in 2010/11
GOVERNANCE INDICATORS
Economic Governance (government effectiveness and regularity
quality)
Institutional Governance (rule of law and control of corruption)
Political Governance (voice and democratic accountability,
political stability and absence of violence)
PRODUCTIVE EMPLOYMENT CREATION RECORD ALARMING
Decline in on-farm employment from 89% of the working
population in 2001/2 to 72% in 2010/11
Without commensurate increase in employment /job creation
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ECONOMIC INDICATORS EXPLAINING GROWTH
Source: Compiled from IMF, World Economic Outlook Database, September 2011
2006 2007 2008 2009 2010 2011
GDP Growth
9.2 5.5 11.2 6.0 7.6 8.8
Share of Public Investments in GDP
6.9 7.8 10.4 10.0 11.1 10.7
Share of Domestic Private Investments (including SOEs) in GDP
12.8 12.4 13.1 11.3 11.7 12.0
Share of Foreign Direct Investments in GDP
1.2 2.2 2.2 2.3 0.8 1.5
Share of Government Revenue in GDP
12.1 12.3 14.9 12.8 13.2 14.1
Share of Official Grants in GDP
8.0 9.7 9.5 10.0 11.7 12.9
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SECTORAL SHARE OF GDP
Sectors 2006 2007 2008 2009 2010 2011
AGRICULTURE 38 36 32 34 32 32
INDUSTRY 14 14 15 14 15 16
Mining 1 1 1 1 1 1
Manufacturing 7 6 6 6 7 7
Electricity&Water 0 0 0 0 0 0
Construction 6 6 8 7 7 8
SERVICES 42 45 46 45 47 46
Adjustments 6 6 6 6 6 6
TOTAL 100 100 100 100 100 100
Source: Compiled from NISR, GDP – NATIONAL ACCOUNTS 2011
RWANDA’S ENTERPRISE LANDSCAPE
Employment in enterprise sector constitutes only 16% of non-agricultural workforce of
1,406,000 according to EICV3, Main Indicators Report, NISR, 2010/11; remaining 84% work
predominantly in Household Enterprises (HEs), a sub-set of micro enterprises with one worker
and un-paid household help, and 2% in public works.
Source: Compiled from Establishment Survey 2011
Type of Businesses Number of
Businesses
% Persons
Employed
%
Enterprise sector (including party-statals)
116,839 95 224,659 80
Cooperatives 1,877 1 25,264 9
Non-Profit Organizations 4,238 3 16,968 6
Public/Mixed Sector/Health and Education
572 1 15,105 5
TOTAL 123,526 100 281,946 100
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EMPLOYMENT BY ECONOMIC SECTOR IN 2011
Source: Compiled from NISR, Enterprise Survey 2011
Share of Employment
Share Of Businesses
AGRICULTURAL SECTOR 8 0.5
INDUSTRIAL SECTOR 13 4.1
-Mining 0.1 0.0
-Manufacturing 9.4 3.7
-Construction 2.0 0.0
-Electricity/Water 0.1 0.3
SERVICES SECTOR 79 95.4
-Retail trade/repair of motor vehicles and cycles/transportation, storage
34.1 52.5
-Accommodation/food service activity 21.2 26.7
-Other services 23.7 15.8
TOTAL IN PERCENTAGES 100 100
TOTAL EMPLOYMENT AND BUSINESSES 281,946 123,526
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DISTRIBUTION OF EMPLOYMENT BY SIZE-CATEGORY IN 2011
Source: Compiled from NISR, Establishment Survey 2011
Kigali City
Southern Province
Western Province
Northern Province
Eastern Province
TOTAL
LARGE (+100 Workers)
Businesses 51 16 22 12 5 106
Employment 12,600 4,900 17,800 8,800 900 45,100
MEDIUM (30 – 100 Workers)
Businesses 204 123 74 71 41 513
Employment 10,100 5,800 3,400 3,400 1,900 24,600
SMALL (4 – 30 Workers)
Businesses 3,147 1,508 1,518 1,242 1,133 8,548
Employment 25,400 12,800 11,500 9,700 8,200 67,000
MICRO (1 – 3 Workers)
Businesses 25,767 22,253 24,147 20,750 21,412 114,329
Employment 34,300 27,400 29,400 27,000 26,400 144,600
FACTORS EXPLAINING TINY SIZE OF ENTERPRISE SECTOR
• Unsuccessful/failed privatization program • Not proper sequencing of reforms for competition and regulation
• No proper competitive tendering process
• No Competition Law-Policy or Competition Commission
• Only in November 2011 Competition and Consumer Protection Law passed the Parliament / Ineffective Competition Unit at MINICOM
• Expansion of Party-statals over last 18 years
• Now owners and operators of several privatized entities
• Increasing cross-ownerships with the SOEs and the military enterprise and among themselves
• Inevitable and unavoidable “elite capture”
• Economic weight (share in GDP, investments and employment) and share in financial sector NOT yet measured but high and increasing….
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THREE INVESTMENT HOLDINGS and SUBSIDIARIES IN VARIOUS
ECONOMIC SECTORS, 1994-2012
CRYSTAL VENTURES
LIMITED
FULLY-OWNED
Real Contractors 2005
NPD/CONTRACO 1996
MUTARARA Enterprises 1995
INYANGE Industries 1997
BOURBON COFFEE SHOPS
2007
GRAPHIC PRINTING
SOLUTIONS 2009
INTERSEC SECURITY 1994
MEDIA GROUP SYSTEMS ?
PARTIALLY-OWNED
MTN RwandaCell 1997
Building Material Investments
(BMI) Limited—East African
Granite and Ruliba Clays 2009
HORIZON GROUP LIMITED
FULLY-OWNED
Horizon Construction 2006
Horizon Logistics 2006
PARTIALLY-OWNED
Horizon Sopyra 2009
Gaculiro Property Developers
(GPD) 2008
Building Materials Industries
(BMI) 2009
Commercial Complex in Kigali
2010
Green Horizon 2010
Africa Agropharm 2011
RWANDA INVESTMENT
GROUP (RIG) SA
MAJORITY-OWNED
CIMERWA 2006
RWANDA Energy Company
2008
Peat Energy Company 2009
Multisectoral Investment
Group (MIG) 2008
MINORITY-OWNED
Ultimate Concepts 2010
Kigali Convention Center 2011
(in the process of getting its
financing together despite
having reached IMF’s ceiling
of US$ 250 for non-
concessionary loans)
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PARTY-STATAL CROSS-OWNERSHIP WITH
STATE-OWNED AND MILITARY ENTERPRISES
Year Established
Direct and Indirect Equity Participation in Party-Statals
Caisse Sociale du Rwanda (CSR)
1962 CVL, Building Materials Industries (BMI), Real Contractors (Kacyiru Apartments); Horizon Group, Gaculiro Property Developers (GPD), Building Materials Industries Ltd.(including East Africa Granite Industries and Ruliba Clays Ltd.); RIG, CIMERWA, Kigali Convention Center
Primeholdings 2003 RIG directly, Ultimate Concepts, Kigali Convention Center directly, and indirectly in all other subsidiaries
Military Medical Insurance Scheme (MMI)
2005 Horizon Group directly and indirectly in all its subsidiary companies
ZIGAMA-Credit and Savings Society (CSS/Micro Finance Institution)
1999 Horizon Group, Horizon Construction, Horizon Sopyrwa, Horizon Logistics, Gaculiro Property Developers (GPD), Green Horizon, Commercial Complex in Kigali City, Building Materials Ltd., Africa Agropharm
Source: Compiled from data on party-statal websites and SOEs from MINECOFIN
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IMPACT ON PARTY-STATALS ON EFFICIENCY
• FAVORABLE ACCESS TO STATE RESOURCES THROUGH GOVERNMENT CONTRACTS
• PRIVILEGED POSITION IN PROCUREMENT
• NO INCENTIVE MECHANISM TO DETECT INEFFICIENCY AND RENT-WITHDRAWAL SIMILAR TO ASIAN COUNTRIES
• CASE STUDY: MERGING HOUSING BANK OF RWANDA (HBR) WITH RWANDA DEVELOPMENT BANK (April 2011) AFTER POOR PERFORMANCE OVER THE YEARS
• GUARANTEES OF FIXED ASSETS AND FIXED RENTS
• PARTY-STATALS OPERATE WITH CONFIDENCE IN FIXED RENTS AS WELL AS FIXED GUARANTEES IN THE ABSENCE OF ANY PROPER RENT-MANAGEMENT SYSTEM
• CASE STUDY: CIMERWA; GoR HAD TO INCREASE ITS EQUITY IN CIMERWA TO BORROW AND GUARANTEE LOANS FROM KENYA COMMERCIAL BANK AND AFRICAN DEVELOPMENT BANK FOR THE NEW PLANT; CIMERWA DID NOT INVEST AND INCREASE PRODUCTION, RWANDA HAD TO IMPORT AT HIGH PRICES. (October 2100)
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IMPACT OF PARTY-STATALS ON STAKEHOLDERS
• RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS (NEGATIVE)
• INCREASE AND DECREASE IN NET FISCAL FLOWS FROM INEFFICIENTLY OR EFFICIENTLY OPERATING ENTERPRISES
• OWNERS AND OPERATORS OF ENTERPRISES (POSITIVE)
• INCREASE IN PROFITS AND DIVIDENDS FROM EFFICIENT OPERATIONS
• CROSS-SUBSIDIZATION POSSIBLY LEADING TO NEGATIVE GAINS
• DOMESTIC AND INTERNATIONAL COMPETITORS (NEGATIVE)
• DOMESTIC BUSINESSES WITHOUT CLOSE TIES TO RPF EXCLUDED
• HIGH MARKET CONCENTRATION OF PARTY-STATALS
• LARGE DEMAND ON DOMESTIC BANK BORROWING
• PREFERENTIAL TREATMENT IN GOVERNMENT PROCUREMENT, IN TAXATION, IN USE OF SUB-CONTRACTORS RPF-LINKED SMEs
• INTERNATIONAL BUSINESSES WITHOUT CLOSE TIES TO GOR EXCLUDED
• UNEMPLOYED AND UNDER-EMPLOYED RWANDANDS (NEGATIVE)
• ORDINARY RWANDANS AS CONSUMERS (NEGATIVE)
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CONCLUSIONS AND RECOMMENDATIONS
TRANSPARENCY-LED REFORMS
ENHANCING TRANSPARENCY AND DISCLOSURE
MEASURING AND MONITORING STATE AND PARTY-STATAL RELATIONS IN TWO SEPARATE CATEGORIES: TWO CONSTRUCTION COMPANIES: CVL’s NPD/CONTRACO (civil
works) and HORIZON CONSTRUCTION (building roads): PERHAPS NATION-BUILDERS BUT AT WHAT COST?
REST OF CONTRUCTION PARTY-STATALS, CONSUMER GOODS PRODUCERS, AND OTHER PARTY-STATALS
FORMULATING PRODUCTIVITY-AND-JOB-RICH GROWTH
SEPARATING SOEs AND MILITARY ENTEPRISE FROM PARTY-STATALS
INCREASING COMPETITION AMONG CONSUMER GOODS PRODUCING PARTY-STATALS AND THE ENTERPRISE SECTOR
DEVELOPING EXIT STRATEGY FOR PARTY-STATALS
ASSETS COULD BE TRANSFERRED TO PUBLIC SECTOR
ASSETS COULD BE TRANSFERRED TO A TRUST FUND
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