Rwanda

Kigali

key figures• Land area, thousands of km2 26• Population, thousands (2004) 8 481• GDP per capita, $ (2003) 201• Life expectancy (2000-2005) 39.3• Illiteracy rate (2004) 28.4

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FOLLOWING THE 1994 GENOCIDE, Rwanda has maderemarkable progress during the last ten years. Theaverage real GDP growth between 1995 and 2004 was8 per cent. Rwanda, however, remains highly dependenton foreign aid which, during 2000-04, accounted forabout 50 per cent of the current budget and about80 per cent of the development budget, even thoughthe share of government revenues to GDP has recentlyincreased. Progress in Rwanda’s structural transformationhas remained slow, as a stagnating manufacturing sector(as a share of GDP) indicates. Little progress has alsobeen made in increasing exports which, combined withcontinuously high debt financing, implies a worseningof Rwanda’s external debt sustainability. While thepoverty rate increased sharply from 47.5 per cent in1990 to 78 per cent in 1994, it has declined steadilysince 1994, reaching about 60 per cent in 2000. Yet,given that Rwanda’s poverty line is defined as livingbelow the cost of a basket of basic goods and services,which was equivalent to about $0.45 a day in 2000,Rwanda remains one of the poorest countries in theworld. Overall achievements in health policies and

outcomes are significant, especially with regard toimmunisation rates, although progress relative to someindicators remains slow(including the percentage ofunderweight children).Considerable progress has alsobeen made in education. Basedon the sharp increase inprimary school enrolment ratios over the last few years,Rwanda could reach universal enrolment by 2010.The proportion of girls in primary schools is on a parwith that of boys. Rwanda, which was among thepoorest countries in terms of the human developmentindex (HDI) during the late 1990s, ranked 159 out of177 countries in the Human DevelopmentReport 2004. Rwanda has been identified as a potentialcandidate for the Millennium Development Goals(MDG) fast-tracking which, if realised, would giveRwanda a considerable boost in terms of povertyreduction and growth1. Finally, while significant progresshas been made in terms of internal and externalreconciliation, regional instability remains a threat.

Good policies and improved relations with neighbours are pivotal to continuedinternational support and reconstruction.

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Figure 1 - Real GDP Growth

Source: IMF and domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.

1. See the Millennium Project’s Report to the UN Secretary-General Investing in Development – A Practical Plan to Achieve the Millennium

Development Goals, January 2005

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Recent Economic Developments

Following the strong performance achieved sinceRwanda began to reform its economy in 1995,economic growth collapsed in 2003. Real GDP growthfell from 9.4 per cent in 2002 to 0.9 per cent in 2003– mostly due to unfavourable weather conditions –which led to a contraction in key agricultural outputof 3.1 per cent in 2003. Real GDP growth recoveredpartly in 2004, with an estimated real GDP growth rateof around 4 per cent2. Furthermore, given theconsiderable human resource constraints that Rwandacontinues to face, Rwanda’s economy remains highlyvulnerable to exogenous shocks.

Agriculture remains with 41.3 per cent of GDP thestrongest sector, as over 90 per cent of Rwanda’s8.4 million population rely on subsistence agriculture.Together with previous price deteriorations of Rwanda’smain exports, the 2003 drought implied a considerablesetback for the Rwandan economy. Even thoughRwandan coffee prices increased by 36 per cent in2003, the export volume of coffee, which was historicallyRwanda’s main cash crop, fell by 25.7 per cent from2002 to 2003. The export volume of tea, which washistorically Rwanda’s second most important cash crop,fell by 1.7 per cent from 2002 to 2003. Hence, the

export values of tea have overtaken those of coffee forthe fourth year. With overall favourable weatherconditions experienced during 2004 and recent priceimprovements, export volumes for coffee and tea areestimated to have grown close to 25 per cent in the firstten months of 2004. Rwandan coffee farmers are alsoin the process of shifting their production from low tohigh quality coffee to achieve higher prices. Productionof food crops (including bananas, roots and tubers)contracted by 11.2 per cent in 2003, compared to the2002 bumper harvest, when production increased by38.9 per cent (based on national accounts data that arecurrently being revised). There are indications of arecovery in 2004 as the government, supported bydonors (including the ADB-supported Inland LakesIntegrated Development and Management Project),has promoted the use of improved seeds, intensified theproduction, and expanded cultivation areas.

The industrial sector grew by 4.4 per cent in 2003,on the strength of construction and public works whichincreased by nearly 15 per cent, while manufacturingand mining activities contracted and output inelectricity, gas and water (if taken together) remainedconstant in real terms. The service sector grew by4.8 per cent in 2003, on the strength of publicadministration, which grew by close to 10 per cent, while

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Figure 2 - GDP Per Capita in Rwanda and in Africa (current $)

Source: IMF.

2. The estimation of Rwanda’s actual growth for 2004 has been complicated by a long overdue re-evaluation of the time series for

agricultural output in the national accounts.

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GDP at factor cost

Services

Government services

Transport and communications

Trade, hotels and restaurants

Tourism

Construction

Electricity and water

Manufacturing

Mining

Agriculture

Figure 4 - Sectoral Contribution to GDP Growth in 2003 (percentage)

Source: Authors’ estimates based on IMF and domestic authorities’ data.

MiningManufacturing

Trade

Construction

Agriculture

Services

Government services

TourismTransport and communications 42%

15%

9%1%

1%

11%

7%

10%

7%

13%

Figure 3 - GDP by Sector in 2003 (percentage)

Source: Authors’ estimates based on IMF and domestic authorities’ data.

transport and communications contracted by about7 per cent. Commerce and tourism, as well as otherservices, grew moderately. Partly due to statisticalrevisions in progress, estimates for 2004 indicate ahighly uneven picture within the industrial sector, withmining and quarrying growing at over 80 per cent,while the manufacturing of textiles and clothing areestimated to contract by about 25 per cent.

The share of overall consumption in GDP grew bynearly 1 percentage point in 2003, owing to a strongincrease in public sector consumption (including publicworks and public administration), while privateconsumption remained subdued. Overall, total domesticinvestment increased from 16.9 per cent of GDP in2002 to 18.4 per cent in 2003. The overall compositionof expenditures is estimated to have remained relatively

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Table 1 - Demand Composition (percentage of GDP)

Source: IMF and domestic authorities' data; estimates (e) and projections (p) based on authors’ calculations.

1996 2001 2002 2003 2004(e) 2005(p) 2006(p)

Gross capital formation 14.4 18.4 16.9 18.4 20.3 21.0 21.1Public 9.3 6.6 4.9 5.6 7.1 7.8 7.8Private 5.1 11.8 12.0 12.8 13.2 13.2 13.3

Consumption 105.8 97.4 100.0 100.8 99.5 99.5 99.1Public 11.5 11.7 11.8 15.1 15.2 16.5 16.3Private 94.3 85.8 88.1 85.7 84.3 83.0 82.8

External sector -20.2 -15.8 -16.9 -19.3 -19.8 -20.5 -20.3Exports 6.0 9.2 7.7 8.3 8.4 8.2 8.3Imports -26.2 -25.1 -24.5 -27.6 -28.2 -28.8 -28.6

stable from 2003 to 2004, as preliminary results seemto indicate that the government continued to play anactive role and the business climate has improved.

Macroeconomic Policies

Fiscal and Monetary Policy

Since emerging from the 1994 genocide, whenabout one third of the population was killed or displaced,the needs for rebuilding economic infrastructure,government institutions, as well as human capital havebeen enormous. This resulted in an excess of governmentexpenditures over revenues, mostly financed by a largeinflow of grants (amounting to 8.2 per cent of GDP).Yet, the Rwandan government has made importantprogress in macroeconomic stabilisation, especially by

increasing domestic revenues. Tax revenues increasedfrom 10.5 per cent in 2001, to 11.5 per cent in 2002,and to 12.7 per cent in 2003. Tax revenues are expectedto remain around this level over the medium term.The relative sharp increase in total revenues from 2002to 2003 can largely be attributed to tax and structuralreforms, including the widening of the VAT coverageand the increase in the VAT rate from 15 per cent to18 per cent in July 2002, and the re-organisation ofRwanda’s tax administration. Furthermore, thegovernment has intensified the systematic collection ofarrears and dividends from public enterprises as wellas the service of on-lent debt.

Total government expenditure increased from21.3 per cent of GDP in 2002 to 24.1 per cent ofGDP in 2003 which was largely due to a sharp increasein current expenditure. The share of current expenditure

Table 2 - Public Finances (percentage of GDP)

a. Only major items are reported.Source: IMF and domestic authorities' data; estimates (e) and projections (p) based on authors’ calculations.

1996 2001 2002 2003 2004(e) 2005(p) 2006(p)

Total revenue and grantsa 16.7 19.6 19.4 21.6 25.4 25.1 25.3Tax revenue 8.5 10.5 11.5 12.7 12.5 12.4 12.3Grants 7.4 8.2 7.2 8.1 12.1 11.8 12.2

Total expenditure and net lendinga 22.5 20.9 21.3 24.1 25.5 27.4 27.2Current expenditure 13.1 14.2 16.3 18.0 18.2 19.5 19.3

Excluding Interest 11.5 13.4 15.3 16.8 16.8 18.3 18.1Wage and salaries 4.5 5.2 4.9 4.9 4.5 4.6 4.5Interest 1.6 0.8 1.0 1.2 1.4 1.3 1.2

Capital expenditure 9.3 6.6 4.9 5.6 7.1 7.8 7.8

Primary balance -4.2 -0.5 -0.9 -1.3 1.3 -1.1 -0.7Overall balance -5.8 -1.3 -1.9 -2.5 -0.1 -2.4 -1.9

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in GDP increased from 16.3 per cent of GDP in 2002to 18 per cent of GDP in 2003, while the share of capitalexpenditure in GDP increased from 4.9 per cent to5.6 per cent. However, the 2004 estimate for capitalexpenditure indicates a sharp increase in capitalexpenditure by about 2.5 percentage points, mostlyfor poverty reduction measures, financed by grants.Within current expenditures, defence and securityexpenditure decreased slightly (from 2.9 per cent ofGDP in 2002 to 2.7 per cent of GDP in 2003). Thewage bill remained constant (at 4.9 per cent of GDPduring 2002 and 2003), and is estimated to decreaseslightly in 2004. In line with Rwanda’s PRSP, the shareof current priority expenditure has increased from6.1 per cent of GDP in 2002 to 6.5 per cent in 2003,and is estimated to increase more sharply to 8.2 per centin 2004.

The main reason for the increase in currentexpenditures in 2003 was due to a near doubling ofexceptional expenditures from 2.3 per cent of GDP in2002 to over 4 per cent of GDP in 20033. Includinggrants, the overall deficit amounted to 2.5 per cent ofGDP in 2003 (up slightly from 1.9 per cent of GDPin 2002), and is estimated to decrease to 0.1 per centof GDP in 2004. Excluding grants, the deficit hasincreased from 9.1 per cent in 2002, to 10.6 per centin 2003, and is estimated to increase to about 12.2 percent in 2004, as sharp increases in poverty-reducingcapital expenditures were financed mostly by grants.

Since 1994, Rwanda has adopted far-reachingreforms to make monetary policy more effective,including the rehabilitation of the National Bank ofRwanda (NBR, Rwanda’s central bank), the adoptionof a new central bank law, and the introduction ofindirect monetary policy instruments. Yet, monetaryaggregates grew strongly during 2003 as a result of ahigher than anticipated financing of the budget deficitby the banking sector and an increase in bank lendingto public enterprises and investment projects. Broadmoney (M2) increased by 15.2 per cent during 2003

and resulted, together with the drought influenced lowagricultural output, in an increase in inflation of 7.7 percent in 2003. The inflation rate reached a maximumof 11.2 per cent in February 2004 and is estimated atabout 8 per cent in 2004.

Since 1995, Rwanda has moved towards increasinglymarket-determined interest rates and exchange rates.Weekly foreign exchange auctions were introduced inJanuary 2001, whereby the NBR offers a predeterminedamount of foreign exchange on a marginal price basisand intervenes occasionally to smooth out disturbances.Yet, the fragile health of some commercial banksrestricted their participation in the inter-bank, securities,and foreign exchange markets. The government hastherefore taken actions to improve the soundness of thebanking sector. It sold its majority shares in theCommercial Bank of Rwanda (BCR) to the UK-basedActis Group, and the Continental African Bank ofRwanda (BACAR) to the Kenya-based FINA Bank. Itis anticipated that these sales will considerably improvethe soundness of Rwanda’s banking sector. Rwandahas also enhanced the effectiveness of its central bankand increased its efforts to bring banks into compliancewith prudential regulations. The level of official reservesfell from the equivalent of six months of imports in 2002to five months of imports in 2003, due to a drought-related increase in imports and decrease in exports, aswell as delays in the disbursement of about $65 millionin budgetary assistance by various donors. Preliminaryestimates indicate that the reserves reached the targetedgoal of the equivalent of seven months of imports byend-2004.

External Position

Compared to many other developing countries atthe same income level, Rwanda’s trade regime is relativelyopen. Rwanda has made progress in reducing the leveland dispersion of tariff rates and has no explicit non-tariff barriers. Yet, given the large current accountdeficit excluding official transfers (which increased

3. Exceptional expenditures were introduced in 1998 to cover spending on assistance to victims of the genocide, the demobilisation and

reintegration of soldiers, civil service reform, education assistance to returning refugees, and the establishment of governance institutions.

It is projected that these exceptional expenditures will be reduced to about 1 per cent of GDP by 2007.

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from 16.6 per cent of GDP in 2002 to 19.2 per centof GDP in 2003, and is expected to remain at around19 per cent of GDP over the medium term), Rwandahas intensified actions to increase exports. InAugust 2004, the cabinet approved a revised exportpromotion strategy. Actions have also been taken toestablish an export-processing zone (EPZ), andnegotiations are in progress for Rwanda to join theEast African Community (EAC) and the SouthernAfrican Development Community (SADC). Rwandais also initiating a diagnostic trade integration study

under the World Bank’s Integrated Framework. Basedon current trends, Rwanda will continue to dependheavily on foreign assistance. Including transfers, thecurrent account deficit increased from 8.7 per cent ofGDP in 2002 to 10.9 per cent of GDP in 2003.

Though total exports of goods decreased from$67.3 million in 2002 to $63 million in 2003, theyare estimated to recover in 2004, reaching$76.6 million. Exports of tea increased slightly from$22 million in 2002 to $22.5 million in 2003, and

Table 3 - Current Account (percentage of GDP)

Source: IMF and domestic authorities' data; estimates (e) and projections (p) based on authors’ calculations.

1996 2001 2002 2003 2004(e) 2005(p) 2006(p)

Trade balance -11.3 -8.5 -9.7 -10.8 -11.1 -11.6 -11.3Exports of goods (f.o.b.) 4.5 5.5 3.9 3.7 4.0 4.0 4.1Imports of goods (f.o.b.) -15.8 -14.0 -13.6 -14.5 -15.1 -15.6 -15.4

Services -10.3 -9.3 -9.2 -10.7Factor income -1.1 -1.3 -1.1 -1.5Current transfers 20.9 11.3 11.3 12.1

Current account balance -1.8 -7.8 -8.7 -10.9

are expected to increase to $23.2 million in 2004.Exports of coffee increased slightly from $14.6 millionin 2002 to $15 million in 2003, and are projected toincrease to $21.1 million in 2004. Due to sharpdecreases in world prices of coltan (following thediscovery of relative cheap extraction of coltan inAustralia), exports of Rwandan coltan continued todecrease from a high of $41.1 million in 2001, to$14 million in 2002, and $6.4 million in 2003. Giventhe relatively high extraction costs of Rwandan coltan,the recent trend of decreasing coltan exports is expectedto continue. Current projections indicate that theextraction of Rwandan coltan will come to an end by2010. Nevertheless, imports continued to increasefrom $235 million in 2002 to $244 million in 2003,and are projected to increase to $265 million in 2004.As a result of these developments, Rwanda’s tradedeficit increased from 9.7 per cent of GDP in 2002to 10.8 per cent of GDP in 2003. The trade deficit isestimated to hover at around 15 per cent over the nextfew years.

Owing to the combination of three factors (poorexport performance, continued recourse to foreignloans to finance fiscal and external deficits, and fallingdiscount rates) Rwanda’s NPV debt-to-export ratio hasrisen sharply to unsustainable levels, even thoughRwanda is currently receiving assistance under theHeavily Indebted Poor Country (HIPC) initiative.Rwanda reached its enhanced decision point inDecember 2000. At that point, it was estimated thatRwanda would have an NPV debt-to-export ratio of193 per cent in 2003. The actual level for 2003 howeverturned out to be 315 per cent. The ratio is expectedto worsen during the next few years, reaching amaximum of about 370 per cent in 2005. Negotiationsare ongoing to reach the HIPC completion point in2005; however, it is unclear by how much Rwanda’sdebt relief may be topped up at the completion point.Rwanda’s domestic debt has declined considerably from16.3 per cent of GDP in 2002 to 5.4 per cent of GDPin 2003, and is – according to the government –expected to be eliminated over the medium term.

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Structural Issues

In accordance with the 2002-04 economic reformprogramme, the government continued to implementkey structural reforms targeted at: a) the developmentof the private sector; b) a sound and competitive bankingsector; c) an increased effectiveness and efficiency of thepublic sector; d) improvements in economic governance;and e) enhancements in Rwanda’s infrastructure. Withregards to private sector development, the governmenthas continued to establish a regulatory framework thatis more conducive to business, including a revision ofthe labour code in 2003. With regard to financial sectorreforms aimed at increasing the health andcompetitiveness of the banking sector, the governmenthas sold majority shares in two public banks to foreigninvestors. In the area of public sector reform, theformulation of an action plan to revamp the publicadministration was a key achievement in 2003. Theaction plan is currently being implemented. Withregard to governance, a new constitution was adoptedin May 2003.

While Rwanda’s business environment faces severeconstraints because of lack of human capital andstructural bottlenecks (including high transportationcosts and energy shortages), Rwanda fares relativelywell compared with most other sub-Saharan Africancountries. Based on a 2004 World Bank report4 assessingthe business climate around the world, it takes fewerprocedures and fewer days to start a business in Rwandaand to enforce contracts, though the costs of startinga business and of enforcing contracts are slightly higher.Rwanda’s business environment is less favourable withregard to: a) indices that measure how difficult it is tohire new workers; b) how rigid the restrictions are onexpanding/contracting the number of working hours;and c) how difficult and costly it is to dismiss redundantworkers. It is expected that these indicators will improvesignificantly over the next few years based on the 2003revision of the labour code.

The government aims at improving the businessenvironment through ongoing reforms to promotedomestic and foreign investment and enhancing the

4. Doing Business in 2004: Understanding Regulation; available on the World Bank website.

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Figure 5 - Stock of Total External Debt (percentage of GNP)and Debt Service (percentage of exports)

Source: World Bank.

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competitiveness of firms. The Rwanda Investmentand Export Promotion Agency (RIEPA) has establisheda “one-stop shop” for investors which has, incollaboration with Rwanda’s Private Sector Federation,achieved considerable progress in promoting privateinvestment. The investment code has been refined tocater for export promotion and tax incentives, especiallytargeted at promoting private investment. Thegovernment has also established an Arbitration Centreto deal with commercial disputes. However, the highcosts of utilities and transportation remain keyconstraints for Rwanda’s private sector development,especially in the manufacturing sector. These constraintsare complicated by the fact that Rwanda is landlockedand very hilly in its natural topography. In 2002,Rwanda also established a National Tender Board(NTB) with the objectives of rationalising publicprocurement. Although the NTB was able to curbdelays and corruption in public procurement, its roleand mission have not been clarified due to gaps in thelegal and institutional framework governing theprocurement system. To improve the publicprocurement system and enhance the effectiveness ofthe NTB, the government undertook an initialassessment of the procurement system in April 2004.It is planned that a broader assessment will becompleted in 2005, resulting in the formulation of theCountry Procurement Assessment Review (CPAR).Yet, it is already clear that the measures taken so farhave begun to make significant improvements in themanagement of public resources by reducing the riskof fraud, embezzlement and corruption.

Following a careful examination of successfulprivatisation cases worldwide, Rwanda enacted aPrivatisation and Public Investment Law in 1996. ThisLaw gave the government powers to liquidate, restructureand divest partially or wholly any public enterprise thatwas non-performing. Privatisation of public enterprisestook effect in 1998, after a total of 90 public enterpriseswere earmarked for privatisation. As of end-October 2004, 52 enterprises have been privatised,eight enterprises are in the final stages of being privatised,seven have been liquidated, and 23 are yet to be privatised(including the mining company Redemi, the printingand stationary company Imprisco, and the transport

company Onatracom). Current efforts concentrate ontourism and telecommunications. In an effort to promotetourism in Rwanda, formerly state-owned hotels,including Hotel Diplomate, Hotel Izuba and HotelAkagera, are being rehabilitated and face-lifted forprivatisation. Regarding the telecommunication industry,Rwandatel and Rwanda-cell have been the key players(in the installation of fixed phones and internet provider,and cellular phones, respectively), although two othertelecommunication companies, Afritel and Artel, havealso started to operate in Rwanda, especially in the ruralareas. The government plans to privatise Rwandateland to sell off its shares in Rwanda-cell. Of the40 enterprises that remained state-owned as of end-October 2004, seven were financial institutions. Theelectricity utility is under a private management contractand a couple of tea factories, previously belonging toone public enterprise, were privatised. Over the mediumterm, the government aims at privatising the whole teasector, as well as the whole energy and telecom-munication sectors.

The key focus areas of Rwanda’s strategy to improveinfrastructure are water, energy and roads. Thegovernment is undertaking specific projects to increasethe supply of clean water in urban areas. It hasundertaken measures to improve rural electrification,through the development of micro-plants and/or theextension of the distribution network, including theuse of solar energy. Regarding transportation, a basicnetwork of roads exists, especially between Kigali andother major cities, but there are considerable gaps inrural areas that hamper agricultural growth. Theimprovement of Rwanda’s infrastructure is one of thesix broad priority action areas of Rwanda’s PRSP. Thestrategy to improve infrastructure includes detailedaction plans for: a) road transportation; b) railway andair travel; c) transport and communications at thegrassroots level; and d) the energy sector.

In addition to Rwanda’s central bank, regionalcredit unions and small private micro-financeinstitutions, there are seven financial institutions inRwanda:

• the recently-privatised Banque Commerciale duRwanda (BCR);

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• the recently privatised Banque ContinentaleAfricaine du Rwanda (BACAR);

• three other public commercial banks5; • the Union des Banque Populaires (UBPR); and • Rwanda’s publicly-owned insurance agency

(Société Nationale d’Assurance, SONARWA).

All banks suffer from a large share of non-performingloans which amounted to 35.6 per cent of their totalportfolio at end-March 2004. Due to the fragile situationof Rwanda’s banking sector, the government hasrepeatedly injected funds into public banks. A re-capitalisation of the Rwanda Development Bank (BRD)is planned in 2005. Most banks and credit unions areeither failing to comply with Rwandan bankingregulations, and/or are exempted from regulatory andtax obligations. While the recent privatisations areexpected to improve the efficiency of the bankingsector, the overall fragility of the banking sector is likelyto remain for some years. Supported by USAID, a newmicro-finance project was initiated in June 2003, aimingat increasing micro-finance activities among women’ssolidarity groups and village banking structure. Withinthis new project, 86 per cent of the participating micro-finance institutions achieved operational self-sufficiencyand 82.5 per cent achieved financial self-sufficiency. Of1 161 total clients served, 70 per cent are women.

A comprehensive public sector reform was adoptedin July 2004. This strategy contains three strategicorientations:

• a review of the role of the state in the context ofdecentralisation of powers and partnership withthe private sector and civil society in general;

• improvements in professionalism of the publicsector; and

• the production of a functional analysis ofinstitutions and the development of strategicmanagement tools and systems for the publicsector.

The strategies are complemented by a detailedimplementation plan. In the area of public finance,the action plan – which has already started to be

implemented – calls for: a) the adoption of aconstitutional law outlining the principles of publicfinance management and financial instructions forestablishing the principles and rules of financialmanagement; b) the integration of investment/development budgets; c) establishing linkages betweenthe resources allocated to programmes and expectedresults in terms of public services rendered and/orimpact on poverty; d) improvement of budgetaryexecution and control; and e) building of capacitiesfor conducting internal and external auditing. Thereform also calls for the introduction of a moderninformation and communication technology (ICT)(including the set up of electronic databases, the useof the intranet and internet, and the automation ofintegrated management tasks and systems) and a publicsector capacity building programme. Finally, to increasethe efficiency and accuracy of the national statisticalsystem, the authorities completed in 2003 the legalframework for a new quasi-autonomous NationalInstitute of Statistics.

Based on registration records of Rwanda’s RevenueAuthority (RRA), there existed about 9 600 small- andmedium-sized enterprises (SMEs) in Rwanda in 2002,of which 62 per cent were involved in transport, 19 percent in retail, 5 per cent in professional services, 4 percent in importation, and 10 per cent in other sectors.However, there are many small enterprises that are notregistered as they are operating in the informal sector.The informal sector is dominated by micro-enterprises.Based on a recent survey, there exist about 70 000 micro-and small-sized-enterprises (MSEs), of which nearly halfare active in commerce. In 2002, the Rwandanauthorities, in collaboration with the United NationsIndustrial Development Organization (UNIDO),created CAPMER, a centre aimed at promoting SMEsin Rwanda. This centre assists SMEs in accessing bankloans, especially from the Rwandan Development Bank(BRD), and by elaborating business plans and feasibilitystudies. CAPMER and its partners also provide trainingin marketing, technology and management for SMEs.A variety of donors have also improved the capacity ofrural finance providers through technical and

5. Banque de Kigali (BK), the Banque Rwandaise de Développement (BRD), and Caisse Hypothécaire du Rwanda (CHR).

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institutional support and training that has helpedmicro-finance institutions to manage and extend creditand savings mobilisation in the rural sector. Technicalassistance provided to the Union des Banques Populaires(UBPR, Rwanda’s Credit Union) and to the RwandaMicrofinance Forum, has strengthened theseinstitutions’ capacity to effectively manage and tracktheir savings and credit portfolio. To improve thesoundness and supervision of micro-finance institutions,and as a first step toward facilitating accessibility, theNBR is currently establishing a database on micro-finance institutions. Besides lack of sufficient access tofinance, MSEs also face: a) inadequate access andfacilities for technical know-how and training; b) anabsence of innovativeness and new ideas; c) a limitedaccess to the formal sector; and d) a lack of marketdevelopment facilities for MSEs.

Political and Social Context

In contrast with the highly-centralised governmentsystem prevailing in the past, increasing participationof the people of Rwanda in public life has beenencouraged in recent years. Supporting policies andinstitutions have been established, including adecentralisation policy and the adoption of a newconstitution in May 2003. These actions have beenfollowed by a presidential election on 25 August 2003and legislative elections in September-October 2003.However, there has been some criticism regarding thelack of transparency and tolerance for politicalopposition6. Before the adoption of the newconstitution, the government released about 25 200detainees, mostly persons who had confessed tocommitting genocide, an action in the spirit ofappeasement and national reconciliation. To foster thejudicial system, the Ministry of Justice launched in2003 a nationwide computer network linking thecentral Ministry of Justice, the Attorney General,provincial prosecutor offices, and the court system.

Regarding regional peace, there was some progress,including the signature in August 2004 of an agreement

between the Democratic Republic of Congo (DRC),Rwanda and Uganda to pacify the region with thedisarmament of all armed groups operating in the threecountries. On 20 November 2004, African leadersfrom eleven Great Lakes countries also signed thebroader Dar es Salaam Declaration, a United Nationsbacked peace framework for the Great Lakes region.Yet, a few rebel groups have continued operating andtemporary fights continue to erupt.

Gender gaps remain important in Rwanda. TheHuman Development Report (HDR) 2004 of theUnited Nations Development Programme (UNDP)ranked Rwanda 129 out of 144 countries in terms ofthe status, treatment and participation of women.Rwanda ranks equally poor in the gender-relateddevelopment index (GDI), although women’sparticipation in economic and political life is very highin some aspects. For example, Rwanda has, with 45 percent of seats in parliament held by women, the world’ssecond highest ratio of females in parliament. Female-earned income amounts to 62 per cent of male-earnedincome. The authorities have been promoting genderequality and the empowerment of women. A Ministryof Gender and Women in Development was createdand mandated to spearhead the elimination of genderimbalances in all sectors. In addition, grassroots-basedNational Women Councils were created. A law onsuccession and matrimonial regimes was enactedimproving the rights of women to property ownership.Besides ratifying the international convention of allforms of discrimination, gender sensitisation campaignshave been ongoing across the country. A NationalGender Policy has made gender empowerment andinclusiveness a constitutional requirement. All publicsector institutions, beginning with the civil service,must be reviewed in their structures, behaviour andhuman capital to make them conform to the gender-related provisions of the constitution.

Poverty remains high in Rwanda. Erratic rainfallsduring 2003 increased the areas in which emergencyfood supplies were needed to obtain the most basic foodsecurity. However, there were a number of improvements

6. See, in particular, US-AID/Rwanda Annual Report FY 2004, dated October 5, 2004.

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in some social indicators, notably in the area of educationand health. HIV/AIDS continues to take a heavy tolldespite significant efforts – with the support of thedonor community – to expand HIV/AIDS servicesthroughout the country. As of end-2003, 34 servicecentres offered Voluntary Counselling and Testing(VCT) and 39 service centres offered Prevention ofMother to Child Transmission (PMTCT). The totalnumber of orphans due to HIV/AIDS is projected toincrease from 264 000 in 2001 to 356 000 in 2010.While health indicators deteriorated sharply in theearly 1990s, considerable progress has been made since1995, though some indicators have not yet reachedthe levels that were already achieved in 1990. Forexample, while the under-five mortality rate stood at141 per 1000 live births in 1990, it rose sharply to 219during the genocide, and stood at 196 in 2000. Afterthe immunisation campaign was restarted in 1995,reaching a coverage of close to 70 per cent in 1997, itdeteriorated owing to lack of supervision andmonitoring to less than 50 per cent in 1999. Alarmedby the sudden rise in reported measles, a new campaignand improved monitoring has now resulted inimmunisation rates above 70 per cent. Theimmunisation coverage for DPT3 has been the mostsuccessful in recent years, reaching close to 90 per centin 2003. Yet, malaria remains the major cause ofchildren’s mortality, followed by acute respiratoryinfections and diarrhoeal diseases. Malnutrition andmicro-nutrient deficiencies also remain serious problemsin Rwanda, even though the rate of severe malnutritionfor children under five has been reduced from 29 percent in 1990 to about 24 per cent in 2000 (which isthe latest available data on this indicator). In terms ofhealth policy, a Health Sector Strategic Plan wasscheduled to be presented for final adoption inDecember 2004. The plan is based on a results-orientedmedium-term expenditure framework (MTEF), linkingplanning, costing, and monitoring tools, and integratingthe results of planning and costing simulations into thesubsequent year’s budget. In two provinces, a pilotperformance-based payment scheme has beenintroduced for higher impact services, notablyimmunisations. The government has also begun toimplement micro-insurance schemes (mutuelles); theircoverage has increased from 4 per cent of the population

in 2002 to about 7 per cent in 2003. Finally, in orderto reduce the urban-rural bias in the provision of healthservices, the government has introduced salarysupplements for health workers assigned to remoteareas.

With regard to progress made in the educationsector, the net primary enrolment rate rose from 73.3 percent in 2001 to 74.5 per cent in 2002 and 80 per centin 2003; the number of primary schools increased from2 143 in 2001 to 2 177 in 2003. With regard tosecondary education, enrolment ratios are alsoincreasing, and transition rates from primary tosecondary education have shown encouragingimprovements, rising from 43 per cent in 2002 to54.2 per cent in 2003. While the share of girls inprimary education is on a par with that of boys, therate of girls enrolled in secondary schools is, with 48 percent, slightly below parity. The quality of primary andsecondary education remains poor, mainly due to ashortage of qualified teachers, a heavy curriculum, andthe lack of appropriate instructional material. Whilethe proportion of qualified primary school teachershas increased from 81.2 per cent in 2002 to 85.2 percent in 2003, the continued shortage of qualifiedteachers has led to large classes and a double-shiftsystem. The qualitative problems are reflected in sizeablegaps between enrolment, attendance, and completionrates. Dropout rates were at 14.2 per cent and repetitionrates at 32 per cent in 2003. In terms of policies, theMinistry of Education took two major decisions in2003. First, it eliminated all fees on primary education,and second, it finalised the Education Sector StrategicPlan (ESSP) for 2003–08. The ESSP is a forward-looking, rolling development plan intended to makethe education sector policy operational.