The Independent (Kampala)

12 December 2012

Rwanda: Aid Cuts Will Not Stop Rwanda Economy

Photo: Steve Terrill
Receiving aid (file photo).

Rwanda's economy is expected to grow faster than initial projections for 2012, the National Bank of Rwanda (BNR) Governor, Claver Gatete, has said.

Gatete said although recent donor aid cuts cannot go unnoticed; they are not potent enough damage the healthy Rwandan economy.

"We are going to maintain our macroeconomic regulations to ensure that the Rwandan economy continues to flourish and attract more investments," he said.

The BNR is basing its optimism on current positive trends in some sectors of the economy, especially in the financial sector which is mainly dominated by the banking industry, and continuing private foreign capital inflows.

Gatete explained that even as donors withheld aid, private foreign capital continued to flow into Rwanda.

"Since a lot of capital has been coming into the country even during the hard global economic crisis, this is what will yield the expected high growth," he said.

Clare Akamanzi, the Acting Chief Executive Officer (CEO) of the Rwanda Development Board (RDB), the institution charged with speeding up investments in the country, says Rwanda may register over US$1billion in investments this year surpassing the initial target of around US$800 million.

Last year, investments registered hit US$626 million.

Stability factor:

Over the same period, Rwanda's Gross Domestic Product (GDP) expanded by 9.4% beating the initial projection of less than 9%. The growth was mainly fueled by good performance in all sectors coupled with low inflation.

While inflation in some neighboring economies went as high as 30%, Rwanda managed to maintain it at 8.3% by December 2011, which was the lowest in the five member bloc of the East African Community (EAC) bringing together Rwanda, Kenya, Tanzania, Uganda and Burundi.

The reason for increased investments this time--both domestic and foreign--is the stable economic growth and business environment. Rwanda makes it easier to start a business, pay taxes and register property which helps to attract more investors.

Rwanda also has attractive investment opportunities in various sectors with energy especially in electricity generation, construction especially commercial and residential houses and agro processing topping the list. Others include financial sector mainly investment banking, Information Technology Communications (ICTs) especially software development and skills development especially in higher learning education.

The central bank says the increase in investments has resulted in increased imports mainly of capital goods and resulted in a 4% depreciation of the Rwandan Franc against the US dollar. But the Central bank says the depreciation is not "alarming".

Banking boom:

The banking industry, according to the regulator, BNR, continues to register increases in the amount of loans to the businesses which are further assurance that the economy is expanding with high demand for of capital.

BNR statistics indicate that the total loans this year have increased to Rwf839.574billion from Rwf631.267billion by end of December in 2011, representing an increase of about 32%. Banks have even exceeded the highest loan to deposit ratio which, at 94%, stands slightly above the standard measure of 80%.

The increase in loans, says Anand Sanjeev, the Managing Director of Banque Commerciale du Rwanda (BCR) which was recently bought by Kenya's I&M Bank, is attributed to low lending rates which are currently between 15.9% and 17%, according to the latest BNR statistics.

Sanjeev says that commercial banks are increasingly lending to the Small and Medium Enterprises (SMEs) which comprise over 80% of the taxpayers in Rwanda, and are considered the next movers of the economy.

Gatete said the central bank will propose to the government to limit public spending and prioritise its expenditures.

"Government spending now is what we will have to deal with in order to ensure that it is done within the limits of available funds while long term solutions are being pushed to politically to ease the case."

Gatete says the fine performance of the financial sector may help prop-up growth in the entire economy which is largely dependent on the agriculture sector.

"Judging from what we have witnessed in the financial sector in the recent three quarters, there is more enthusiasm that the little money that donor countries have delayed to disburse will not deter our country's growth," Gatete said recently during a press conference in Kigali.

Many western donors have suspended aid to Kigali following allegations that the Rwandan government was backing Congolese rebel group M23.

The EU, Germany, Sweden and Holland have all delayed aid disbursements to Rwanda, increasing fears that a deficit in the development budget may hinder growth which was projected at 7.7% this year.

Belgium also recently suspended military aid and the U.S government froze US$200,000 meant to support the newly opened senior army officers' college.

However, UK government which had equally suspended its aid to Rwanda later unfroze part of it and recently opened a debate on whether the remaining portion should be released.

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