Dianna Games
18 February 2008
opinion
Johannesburg — KIGALI, the hilly capital of Rwanda, is experiencing a building boom. Multistorey blocks and smart new houses are under construction everywhere.
A major convention centre, the country's first, is due for completion in 2011. A five-star hotel, shops, restaurants and conference rooms will be attached to a retail centre and office park in a city that has patchy development and just a handful of international hotels. The complex is to be built by local investors (25%), and the Libyan African Investment Portfolio.
An impressive new complex of government buildings was recently completed and is now occupied by, among others, the Rwanda Revenue Authority. A colleague who accompanied me to the offices last week muttered: "I thought you said Rwanda had a tiny tax base."
In fact it has. There are an estimated 250000 taxpayers, while two foreign companies - the Netherlands-owned brewery Bralirwa and MTN - make up a sizeable chunk of all tax paid.
Nevertheless, in a country where donor activity is one of the biggest contributors to economic activity, there seems to be a lot of "real" money floating about.
Despite this, Rwanda has just a handful of banks and access to finance, particularly long-term funds, has been a constraint for business.
The restructuring of the financial sector has not been happening fast enough for the private sector's needs, nor the demands of an economy that has been growing at about 5% a year in recent years.
The launch of the Rwanda Capital Market this month has caused a stir in the market. If it works efficiently, it could be a boost for the growth spurt the country needs.
The new securities exchange is an initiative that has been driven by President Paul Kagame and it will be run by the government until it finds its feet.
The launch, attended by regional stock exchange officials, elevated Rwanda's status from an observer in the East Africa Securities Exchange Association to a participant, leaving Burundi as the only member of the East African Community without a capital market of any sort.
The Rwanda exchange has already seen some action, opening with a two-year government treasury bond and a 10-year corporate bond launched by the Rwanda Commercial Bank (BCR), 36% of which is held by Actis.
The government has issued two treasury bonds, one worth $18m, and plans to issue a $36m bond this year to support capital markets growth. It stopped issuing treasury bills in December to support the launch of the bond. The first bond was oversubscribed, raising double the amount envisaged.
Insurance companies, social security funds and medical aids have their funds tied up mostly in banks and treasury bills and assets but the interest in the new instruments shows pent up demand for broader penetration of the economy. The market is offering two-year bonds at 8% interest, compared with the 5,25% offered by treasury bills and is expected to offer a cheaper finance option than the banks.
The BCR is raising money on the market to finance its mortgage investment plan, a facility that is new territory in Rwanda. Despite the boom in the property market, there is relatively little bank lending into the sector.
Some bankers maintain the market is still risky due to factors such as insecurity of land tenure, the lack of laws on sequestration and no back up on issues of eviction.
It is early days but a secondary market is planned once the securities exchange has proved its worth -- although it is expected to be confined to local companies in the beginning.
One banker said the exchange had started off slowly and there was a danger it might remain that way . But generally, the response to the launch has been positive, providing as it does a deepening of the financial sector.
It also provides a new way to channel capital in a country that has, for too long, been dominated by donor money -- and it signals the government's determination to get away from this dependency relationship. But most importantly, it is a tangible symbol of progress and stability in a country that is desperate to lure foreign investment to boost post-genocide reconstruction.
Games is director of Africa @ Work, a research and publishing company.
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