Rwanda needs at least $3.4 billion annually for critical investments in structural transformation that would see the country achieving higher productivity and become a knowledge-based economy, according to the latest African Development Bank (AfDB) report.
The country focus report launched on July 31, titled "Driving Rwanda's Transformation: The Reform of the Global Financial Architecture," is in line with AfDB's annual economic outlook report.
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It assesses the experiences of individual countries in accessing finance necessary to fund their structural transformation and calls for an overhaul of the global financial architecture to help turn around African economies.
Structural transformation is defined as shifting an economy's structure from low-productivity, labor-intensive activities to higher productivity, capital and skill-intensive activities.
According to the researchers, the growth patterns from 1990 to 2022 show that Rwanda is still in the early stages of structural transformation, whereby labor has shifted from low-value agriculture to low-productivity service sectors, such as wholesale and retail, with limited impact on overall total factor productivity.
This is a result of structural changes made over the period rather than increased productivity within agriculture, services, and manufacturing.
While there have been commendable efforts in creating a supportive institutional and policy environment, the report noted that investing in human capital, research, innovation, climate action, and reducing infrastructure costs is crucial for Rwanda to achieve productivity growth.
"Technological progress can significantly drive Rwanda's structural transformation by improving production methods, business practices, transportation, and access to information," it stated.
Mama Keita, East Africa Director for the United Nations Economic Commission for Africa (UNECA), noted that while the country needs to move from labour-intensive to a skills-based economy, the reshaping of global financial architecture is equally important for developing countries to access critical financing for such transition.
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The reform would enable developing countries to access concessional resources, secure climate finance, attract private capital, and build capacity for the domestic financial markets to support accelerated economic transformation.
Stella Nteziryayo, Chief Economist in the Ministry of Finance and Economic Planning, said that moreefforts are needed to change the perception that Africa is a risky continent.
"Sometimes we are contributing to it when we don't give enough information about our policies and present them in a meaningful way, which would give confidence to financiers to invest in our countries," she said
Much as the credit rating agencies play a role, Nteziryayo observed that investors don't solely rely on the rating when making a financing decision, highlighting that Rwanda is considering various policy reforms under the second National Strategy for Transformation (NST2).
"However much we made some progress during the period of NST1, we understand there is a huge batch of people coming into the market, we need to focus on how they are going to be absorbed by the labour market," she said.
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The agriculture sector remains the backbone of Rwanda's economy despite the low productivity over the past two years due to climate change. Nteziryayo acknowledges the need for more sensitisation efforts to mobilise more investment to move from subsistence to commercial farming.
The report highlighted unfavorable credit ratings by multinational development banks (MDBs) and private credit rating agencies, among others, as a major constraint for Africa to access financing.
"There is an initiative the bank [AfDB] is driving to see how Africa's nature can be asset monetised because this is also one way of creating financing," said Aïssa Touré, AfDB's Rwanda Country Manager.
The report indicates that reforms to approaches of multinational and private credit rating agencies used to determine the credit worthiness of countries are necessary to better reflect the economic capabilities of countries like Rwanda.
