22 July 2014

Rwanda: Public-Private Sector Investment Models Impressive - UN Report

Rwanda is one of the 10 African countries that have registered impressive economic growth performance over the past decade, a new report by the United Nations Conference on Trade and Development (UNCTAD), has indicated.

The Economic Development in Africa 2014 report, launched yesterday in Kigali by the United Nations Economic Commission for Africa, indicates that Rwanda has the best model on public-private sector investments compared to other African countries.

According to the report, Rwanda reduced its increment capital output ratios from 5.23 indices (1990-1999) to 2.18 in the past decade. Increment capital assesses the marginal amount of investment capital necessary for an entity to generate the next unit of production.

Ethiopia was second with 2.68 indices followed by Uganda (3.02), Equatorial Guinea (3.2), Tanzania (3.6), Burundi (4.5) and Kenya 4.6 indices.

According to the report, Rwanda has been investing heavily in the public sector to a tune of 51.1 per cent of its GDP compared to 48.9 per cent private sector-led investments.

The country's average growth rate increased from 0.14 per cent between 1990 and 2000 to 8.1 per cent during the 2000-2010 period, thanks to huge capital accumulation.

The average investment ratio rose from 11 per cent in the period 1990-1999 to 17 per cent in the period 2000-2011, the report indicated.

However, there was a significant shift in the composition of investment between 1990-1999 and 2000-2012 across Africa, with a reduction in the public sector investments in most countries.

"If we compare the last two decades, some of the countries that have made significant progress in enhancing productivity of capital include Angola, the Congo, Guinea-Bissau, Liberia, Sao Tome and Principe and Zambia. However, the countries where capital had high productivity in the period 2000-2011 were Rwanda, Angola, Equatorial Guinea, Ethiopia, Liberia, Mozambique, Nigeria, Sierra Leone, and the Sudan," Andrew Mold, the United Nations Economic Commission for Africa chief of sub-regional data centre and senior economic affairs officer, said at the launch.

"Rwanda has good prospects of sustaining its recent growth in the medium to long term. Government efforts aimed at strengthening the private sector have contributed significantly to the increase in investments over the past two decades."

"The low efficiency of public investments in Africa weakens the link between public and private capital, reduces the return on private investments, making it more challenging to attract such flows. Therefore, although there has been an improvement in total investment in Africa, more work needs to be done, particularly in the area of public investments, to maximum impact," experts said.

Economies advised

According to the authors of the report, achieving sustainable development in Africa requires broadening the sources of growth both on the demand and supply side of the economy.

According to the report, more public investment, particularly in infrastructure, is needed to attract private investment on the continent.

African policymakers have to adopt a more coherent approach to promoting investment for it to play an effective role in driving economic transformation.

The report noted that African countries have generally focused heavily on price stability at the expense of national objectives, leading to a high cost of capital, reduced lending and incentives for investment.

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