FOREIGN PRIVATE CAPITAL IN RWANDA
Year 2017
24
and EAC had $ 277.6 million (11.7 percent) were especially from Kenya. Asia
accounted for $ 238.1 million (10 percent). Stock of investment from international
and regional organizations stood at $ 281.0 million (11.8 percent). Other countries
classified elsewhere had $ 80.1 million (3.4 percent)
Table3.14: Foreign Private Investment Stock & Inflows by Region in 2016
($ m)
Region
Stock
Inflows
OECD
412.6
83.0
OECD-Non EU
277.6
32.0
EAC
228.4
60.5
COMESA-(Non-EAC)
585.8
168.8
SADC-(Non EAC & COMESA)
274.2
24.5
Asia
238.1
8.0
Other
80.1
7.0
I.Org.
281.0
120.9
Total
2,373.5
499.1
Source: Foreign Private Capital 2017
3.3. Foreign Direct Investment
3.3.1. Foreign Direct Investment inflows and stock
Foreign direct investments include three categories: equity capital, loan from
affiliates (shareholders, parent or fellow companies) and retained earnings. In
2016, the FDI inflows declined by 9.9 percent, from $ 379.8 million in 2015 to
$ 342.2 million. The decline in FDI was on the account of lower inflows of new
equity and loans compared to 2015. The big chunk of FDI inflows were loans
from affiliates which amounted to $ 137.1 million representing 40 percent, equity
capital of $ 86.7 million accounting for 25.3 percent while retained earnings were
$ 118.5 million accounting for 34.6 percent. Both equity capital and borrowing
from affiliates inflows decreased by 21.1 percent and 35 percent in 2016,
respectively compared to level of 2015, while retained earnings doubled from $
58 million in 2015 to $ 118 million in 2016.
In terms of stock, FDI grew by 19.8 percent to $ 1,680.2 million in 2015 from
$1,401.8 million in 2015, driven by 127 percent increase in retained earnings
and 13 percent increase in loans and 12.8 percent increase equity) in 2016
compared to 2015.
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 25 Table3.15: Inflows and Stocks of FDI by type 2013-2016 ($ million) 2013 2014 2015 2016 Inflows Stock Inflows Stock Inflows Stock Inflows Stock Equity 74.2 373.6 129.6 503.2 110 607.4 86.7 685.1 Loans 144.4 337.3 311.8 504.9 210.9 693.1 137.1 788.4 RE 39 126.7 17.5 144.2 58.9 73.4 131.5 166.7 Changes 0 0 0 0 0 27.9
40.1 Total 257.6 837.7 458.9 1,152.20 379.8 1,401.80 342.3 1,680.3 Source: Foreign Private Capital 2017 3.3.2 Foreign Direct Investment Inflows and Stock by sector The first four recipients of the foreign direct investment inflows in 2016 were ICT sector with $ 113.1 million, electricity, financial and insurance activities with $ 70.3 million, gas steam with $ 21.8 million and tourism with $ 4.3 million. Regarding stock, only four sectors represented 75 percent of all FDI stock in 2016. ICT took the lead with $ 541.5 million, followed by finance and insurance ($ 338.01 million), manufacturing ($ 213.9 million) and tourism ($ 171.01 million). The stock in these sectors increased by 24 percent, 20 percent, 14 percent, and -2 percent, respectively. Figure 7: FDI Inflows and Stocks by Sector in 2016 ($ million) Source: Foreign Private Capital 2017
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 26 3.3.3 Foreign Direct Investment Flows and Stocks by origin By country of origin, Mauritius, USA, China, Kenya, Luxembourg and Switzerland were the major source of FDI inflows, totaling 79 percent of total inflows in 2015. The big chunk of stock is from Mauritius, South Africa and Kenya. Table 3.16: Top ten Foreign Direct Investment Flows and Stocks by origin in 2016 ($ million) Country Inflows %Share Country Stock % Share Mauritius 167.10 48.8 Mauritius 543.7 32.3 Netherlands 31.50 9.2 South Africa 169.5 10.0 United Arab Emirates 29.80 8.7 Kenya 150.3 8.9 Kenya 22.10 6.4 Panama 94.8 5.6 Luxembourg 13.70 4 US 87.4 5.2 US 10.20 2.9 Ghana 67.3 4 China 7.50 2.1 Luxembourg 61 3.6 IFC 6.70 1.9 Libya 60 3.5 India 6.20 1.8 Norway 53 3.1 United Kingdom 5.50 1.6 Netherlands 46 2.7 Others 41.90 12.2 Others 347.2 20 Total 342.20 100 Total 1680.2 100 Source: Foreign Private Capital 2017 3.4. Foreign Portfolio Investment Portfolio investment which involves the purchase of stocks, bonds, commodities, or money market instruments by non-residents, remains the lowest component of foreign investment in Rwanda mainly due to the low level of financial market development. Its stock increased to $ 100 million in 2016, equivalent to 3.03 percent from $ 97 million recorded in 2015. The significant amount of foreign portfolio investment inflows was recorded in 2011 when for the first time shares were listed on Rwanda Stock exchange, there after we see a stable and low inflows below 6 percent. In 2016, Rwanda recorded foreign portfolio inflows of $ 2.9 million compared to $ 2.5 million in 2015. This is mainly due to the fact that residents bought shares sold by non-residents.
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 27 3.5. Other investments Other investments accounted for 19.7 percent of the overall liability inflows and are made of long term and short term loans from unrelated sources. In 2016, a total of $ 195.9 million of loan inflows were reported, of which $ 92.9 million (98.3 percent) were long term (equal or more than 1 year), and $ 1 million (1.4 percent) short-term (less than one year). 3.5.1 Other investment inflows and stocks by Sector The sectorial distribution of other foreign investment inflows in 2016 shows that they were mainly concentrated in the financial sector which received $ 111 million followed by manufacturing sector with $ 34 million. In terms of stock, ICT had $ 156.5 million, followed by manufacturing with $ 116 million, Agriculture with $ 60.9 and Tourism with $ 52.2 million. Figure 8: Other investments inflows and stocks by sector in 2016 ($ million) Source: Foreign Private Capital 2017 3.5.2 Other Investments Inflows and Stock by Source in 2016 In 2016, IFC was the major lender with disbursement of $ 59.9 million, followed by PTA and Sudan with $ 41 and 18 $ respectively. In terms of stock, PTA was the major source, with $ 110 followed by IFC with $ 102 million, with $ 67.4 million. FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 28 Table 3.17: Other Investments Inflows and Stock by Source, 2016 ($ million) No Origin Inflows Origin Stock 1 IFC 59.9 PTA 110.2 2 PTA 41.2 IFC 102.5 3 Sudan 18.2 German 67.4 4 US 11.4 United Kingdom 58.7 5 Egypt 10.4 Kenya 45.9 6 EIB 9.9 Zambia 43.4 7 Luxembourg 8.6 EIB 29.4 8 Belgium 8.2 Sweden 24 9 Turkey 7.8 AFD 21.4 10 Others 20.3 Others 40 Total 195.9 Total 747.1 Source: Foreign Private Capital 2017 3.6. Income on investments The trend for profits realized became positive since 2011 as shown in the table 3.16. In 2016, the overall net profit amounted to $ 131.4 million rising from $ 65.0 million in 2015, equivalent of 102.5 percent. Out of the profit of $ 131.4 million recorded in 2016, reinvested earnings were $ 93.3 million, representing 71 percent of total profits. Table 3.18: Income on investment 2014 - 2016 ($ million) Item 2014 2015 2016 Net Profit/Loss 46.5 65.0 131.4 Dividends Declared 22.4 10.2 38.1 Dividends Paid 34.2 32.2 34.9 Valuation changes 1 0.0 0.0 Retained Earnings/Loss 23 54.8 93.3 Source: Foreign Private Capital 2017 3.6.1 Income on investment distribution by sector The major profit making sectors were ICT, finance and insurance specifically the banking sub-sector, whole sale and agriculture. The share of dividends declared
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 29 to net profit is 29 percent whereas the retained earnings are 71 percent. The reinvested earnings to net profit increased by 70.2 percent in 2016 compared to 2015. A big proportion of profits is retained at the rate of 71percent in 2016. The findings further indicate that the retained earnings and dividends paid are proportioned to the profits made, the more the sector makes the profits, the more it distributes dividends and the more it retains as seen in table 3.20. Table 3.19: Income on investment distribution by sector in 2016 ($ million) Sector Net Profit/ Loss Dividends Declared Dividends Paid RE Agriculture 11.9 1.5 0.8 10.4 Education (1.5)
(1.5) Electricity 4.6
4.6 Finance and insurance 46.7 13.9 13.7 32.9 Human health 0.7
0.7 ICT 58.5 19.2 17.5 39.3 Manufacturing (4.3) 2.5 2.1 (6.8) Mining and quarrying 1.4
1.4 Professional (1.0)
(1.0) Real estate activities (5.4)
(5.4) Tourism (14.5) 0.1 0.7 (14.6) Transport and storage (0.3) 1.0
(1.3) Whole sale 34.5 0.1 0.1 34.4 Total 131.4 38.1 34.9 93.3 Source: Foreign Private Capital 2017 In terms of profits made, ICT sector dominated with 44.5 percent followed by finance and insurance with 35.5 percent. Sectors like education, manufacturing, professional, real estate, tourism and transport retained losses at the end of 2016. The sectorial breakdown of dividends paid shows that most dividends are in ICT sector with 50.1 percent, and Finance and Insurance with 39.2 percent. 3.7. Return on equity by sectors in 2016 Return on equity is the amount of net income returned as a percentage of
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 30 shareholders’ equity. It measures company’s profitability by revealing how much profit a company generates with the money shareholders have invested. Net income is for the full calendar year (before dividends are paid to common stockholders but after dividends to preferred stock.). ROE is useful for comparing the profitability of a company to that of other firms in the same industry. In our case, we use it to calculate sector profitability. According to Aswath (2007), the ROE is calculated as follows:
Net Profit
ROE = Average FDI Equity Stock X100 The net profit is the net income of the year before dividends is paid to common stockholders, whereas FDI Stock includes accumulated equity capital and accumulated retained earnings as presented in table 3.20. The main objective of foreign investors in investing in foreign economies is to maximize their global profits. Firms invest abroad when the expected return exceeds the costs (Caves 1982). Among other factors, the rate of return on investments positively affected FDI inflows in Sub Saharan Africa (Opolet et al 2008). In Rwanda, profitability of 12.8 percent continues to be higher than the world average return of 6.0 percent. Table 3.20: Foreign Direct Investment Return on Equity 2014 - 2016 (%) Sectors 2014 2015 2016 Administrative and support service activities 20.1 (2.90) 8.00 Agriculture 12.0 44.56 55.39 Construction 30.5 37.60 38.00 Education (0.5) (0.50) (61.81) Electricity, gas, steam 19.4 59.39 12.37 Financial and insurance activities 27.1 20.93 32.08 ICT (0.0) 3.22 25.44 Manufacturing 28.6 10.85 (4.53)
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 31 Mining
(6.07) 3.87 Other service activities 10.0 (50.05) 6.47 Tourism (0.1) 2.31 (17.92) Transportation and storage (0.0) 11.02 (5.00) Wholesale and retail trade 4.0 22.79 73.60 TOTAL 10.1 11.8 12.8 Source: Foreign Private Capital 2017 Considering profitability by sector, wholesale and retail trade sector, agriculture, construction, financial and insurance services, ICT, administrative and support services, electricity, mining and other services activities recorded the profit in 2016. As the table 3.18 above indicates, the remaining sectors including education, tourism, transport and storage, manufacturing made losses in 2016. The global average rate of return on FDI in 2016 was 6.0 percent, while it was 12.8 percent for Rwanda. According to the world investment report (2017), Rwanda is doing well in FDI profitability as shown in the table 3.21.
Table 3.21: Inward Return on FDI Equity 2013-2016 (percent) Years 2013 2014 2015 2016 Global 6.5 6.7 6.1 6.0 Rwanda 16.1 10.1 11.8 12.8 Source: World Investment Report, 2017 3.8. Private Sector External Debt Private sector external debt is mainly comprised of non-equity instruments (mainly loans) contracted abroad by companies operating in Rwanda. In 2016, its stock was $ 1,563.4 million, an increase of 20.0 percent when compared with 1,302.8 million recorded in 2015 (table 3.22). Long-term loans from related parties continued to account for the largest share of private sector external debt (PSED) during 2016, principal repayments (including interest accrued but not paid) represented 19.1 of total disbursements in 2016. Sectors 2014 2015 2016