FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 32 Table 3. 22: Foreign Private Sector Debt2014 – 2016 ($ million) Type Maturity 2014 2015 2016 AFFILIATES 505.0 721.0 816.2 Loans LT 459.9 641.4 710.2 ST 45.0 79.6 106.1 NON AFFILIATES 504.7 581.8 747.1 Loans LT 463.2 539.7 689.2 ST 6.8 7.3 13.7 Trade Credits ST 28.2 28.4 38.2 Other LT 6.5 6.5 5.9 TOTAL 1,009.6 1,302.8 1,563.4 Of which: LT 929.6 1,187.5 1,405.3 ST 80.0 115.3 158.0 Source: Foreign Private Capital 2017
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 33 CHAPTER FOUR INVESTOR PERCEPTION The Investor Perception part was added in the Foreign Private Capital census 2016 as recommendation from investors in the previous census to capture their feel on different issues pertaining to investment in Rwanda and was conducted with the purpose of providing an absolute indication of perception of the business climate in Rwanda. The Index is a composite indicator measuring investor perceptions across 8 themes: (1) Legal framework; (2) Governance; (3) Taxation and investment framework; (4) Infrastructure; (5) Access to finance; (6) Domestic resources; (7) Support services; and (8) Trading across borders. Investors responded to questions on a number of sub-theme issues, providing ratings on a scale of 1 to 7 where 1 indicates that this issue is very problematic and 7 indicates that the issue is not a problem at all. Rwanda business climate continues to perform better with the score for the Investor Perception Index (IPI) 2016 standing at 72.6. For the eight themes which are sought to affect the business climate in Rwanda, legal framework leads with 82.1 followed by infrastructure with 80.1, taxes and investment standing at 78.9, governance with 77.5 and support services with 77.0 while low performance is reported on finances and domestic resources with their IPI standing at 57.8 and 60.7 respectively. Figure 9: Perception Index !"#$%&'43)'<&#=>'!%=?&@.%A !!"#$%$#&#'( )&"**)++&#( )%"$&$%&*%( )%")#$+%%)#( )+"%+!)$#,'( :7' :9' :;' ;3' ;5' ;7' ;9' LJM">"-N'.E'>&#=>'"/DG-$G./D'-.'D-.,''=/GO +.?,&GGC&'=+G./' PQ=D&'.E',$%+R=D"/#'S'%&#"D-&%"/#'>=/1' T<&#=>'E%=?&@.%A'E.%'=++.$/G/#'=/1'=$1"G/#' UQ=D&'.E',$%+R=D"/#'S'%&#"D-&%"/#',%.,&%-N' 8JM">"-N'.E'>&#=>'"/DG-$G./D'-.'&/E.%+&'&2"DG/#'
=@' -./01234(50460783.(-.90:( -.9;6<2341( Source: Foreign Private Capital 2017 FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 34 4.2. Results by Theme The Index on investor perceptions was computed across 8 themes: (1) Legal framework; (2) Governance; (3) Taxation and investment framework; (4) Infrastructure; (5) Access to finance; (6) Domestic resources; (7) Support services; and (8) Trading across borders. 4.2.1 Legal Framework The legal framework recorded an IPI of 82.1 thanks to the ability of legal institutions to enhance established law whose IPI stands at 84.4 followed by registering property, accounting and auditing frameworks and land registration with their IPI standing at 83.9, 83.2 and 81.6 respectively. The IPI for property and land registry performed better due to the established web-based Land administration information system that has reduced significantly the time required to transfer p r o p e r t y . L a n d r e g i s t ry h a s o n o n e h a n d i n c r e a s e d e f fi c i e n c y , t r a n s p a r e n c y
and security which limits citizens and businesses to question unreasonable procedures but on the other hand it also speeds up mortgages application and access to other credit lines. Figure 10: Legal Framework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ource: Foreign Private Capital 2017 4.2.2 Governance The results revealed that governance recorded a good performance with its IPI standing at 77.6 thanks to the continued political stability and security sub- theme whose IPI is 96.6 followed by the reliability of the Government to deliver on its promises with 89.0 while the value of IPI for corruption measures reflects different values for different levels. At central level there were reported more efforts to combat corruption with its IPI standing at 72.9 high from the 66.3 and 63.0 at local and judiciary levels respectively. FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 35 Figure 11: Governance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ource: Foreign Private Capital 2017 4.2.3 Tax and Investment framework Rwanda’s tax and investment framework has performed better with its IPI standing at 78.9 due to easing of remitting funds in and out of Rwanda which stands at 82.8. Taxes related indicators though performed better, they are below the preceding investment indicator except for the tax incentives for exports which stands at 82.0. Overall, the IPI for all taxes related indicators stands at 79.0 with the customs and excise duties recording an IPI of 76.7 and the ease in dealing with taxes issues standing at 79.4 and fairness and consistency of services rendered by RRA stood at 77.8. However, the number is still promising after RRA initiated electronic filling and payment systems compulsory starting 2014/2015 which has reduced significantly the time required for a business entity to prepare, file and pay taxes. Finally, competition with imports contributed less compared to other indicators under taxes and investment theme with its IPI standing at 75.5 signaling that local businesses are producing goods at higher costs thus less competitive with foreign goods. Figure 12: Tax and Investment Framework !"#$%&'44)'V.C&%/=/+& #$"'#),'')#( ##"$),%+( !$")'!&'#$#( )'",%,#&$$+( '#")&&'#)( 3' 53' 73' 93' ;3' 433' 453' W.%%$,G./'"/'X$1"+"=%N' YW.%%$,G./'=-'-R&'<.+=>'<&C&>' W.%%$,G./'=-'-R&'W&/-%=>'<&C&>' 7H&>"=M">"-N'.E'V.C&%/?&/-'-.'F&>"C&%'./'"-D' *%.?"D&D' *.>"G+=>'D-=M">"-N' -./01234(50460783.(-.90:( -.9;6<2341( Source: Foreign Private Capital 2017 FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 36 4.2.4 Infrastructure Results show the overall improvement of the infrastructure sector with its IPI standing at 80.1 driven by better performance of access to telephone (86.8), access to electricity (81.6) and access to internet (80.1). The IPI on electricity is of great importance as it has a direct implication on production process as both domestic and foreign investors prefer areas that offer a reliable and competitively priced supply of electricity. In addition, water supply, transport and waste services performed better scoring at 77.0, 78.3 and 76.9 respectively.
With regards to cost, electricity cost leads with an IPI of 48.4 followed by transport (59.7), internet (60.4), water (60.9), telephone (61.2) and finally waste services with 64.2. Figure 13: Infrastructure !"#$%&'47)'J++&DD'-.'E"/=/+& ,"**',,#$&( **"++!'+&)'( #",%++)$!#( '"!,#''!&( #!"+%+&#&( 3' 43' 53' 63' 73' 83' 93' :3' ;3' ' 0/-&%&D-'%=-&' ' Q2+R=/#&'%=-&' '0/b=G./' F.?&DG+'?=%A&-'D"c&' JC=">=M">"-N'.E'>.+=>'d/=/+&D' -./01234(50460783.(-.90:( -.9;6<2341( Source: Foreign Private Capital 2017 4.2.5 Economic and financial factors Rwanda’s economic and financial factors reportedly performed moderately with an IPI of 57.8 mainly from the low scoring of all the categories namely interest rate (50.7), exchange rate (55.4) and inflation (56.0). The scores for these macroeconomic indicators capture Rwandan economy in the period under review. First, high interest rates have been increasing the borrowing costs and make harder for businesses to start new projects or expansions and hence negatively affecting the company growth. Secondly, in 2016 the Rwanda franc (FRW) was under pressure mainly driven by mismatch of a high imports bills and low exports receipts as well as high demand for dollars from different companies and governments projects under the Public Private Partnership (PPP) framework which needed to mobilize hard currency from the domestic market. FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 37 Figure 14: Access to finance 51 55 56 60 67 !"#$%&'47)'J++&DD'-.'E"/=/+& ,"**',,#$&( **"++!'+&)'( #",%++)$!#( '"!,#''!&( #!"+%+&#&( 3' 43' 53' 63' 73' 83' 93' :3' ;3' ' 0/-&%&D-'%=-&' ' Q2+R=/#&'%=-&' '0/b=G./' F.?&DG+'?=%A&-'D"c&' JC=">=M">"-N'.E'>.+=>'d/=/+&D' -./01234(50460783.(-.90:( -.9;6<2341( Source: Foreign Private Capital 2017 4.2.6 Domestic Resources Rwanda’s domestic resources performed moderately with an IPI of 60.7. The main drivers to this moderate performance are observed in the low availability of domestic suppliers (58.8), access to and cost of low materials (59.9), availability and cost of land (60.6), availability of skilled labour (60.6) and finally competitiveness of labour costs (63.4). Figure 15: Domestic Resources 63 61 61 60 59 !"#$%&'47)'J++&DD'-.'E"/=/+& ,"**',,#$&( **"++!'+&)'( #",%++)$!#( '"!,#''!&( #!"+%+&#&( 3' 43' 53' 63' 73' 83' 93' :3' ;3' ' 0/-&%&D-'%=-&' ' Q2+R=/#&'%=-&' '0/b=G./' F.?&DG+'?=%A&-'D"c&' JC=">=M">"-N'.E'>.+=>'d/=/+&D' -./01234(50460783.(-.90:( -.9;6<2341( Source: Foreign Private Capital 2017 4.2.7 Support Services Support services in Rwanda, provided by public sector institutions to private sector operators performed better with an Investor Perception Index of 77.0. Company registration and licensing recorded an IPI of 89.2 prompting it to lead other indicators in the support services theme following the online business registration and licensing. The process to get a working permit follows with a score of 86.4. The IPI on construction also performed better standing at 75.6 following the adoption of a new building code and new urban planning regulations. FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 38 Figure 16: Support Services 89 86 76 67 66 Source: Foreign Private Capital 2017 4.2.8 Trading Across Borders Trading across borders performed moderately with an IPI standing at 66.7. The score is dominated by ease of dealing with customs with a score of 75.6 following the government’s effort to make trade across the borders easier by removing the mandatory pre-shipment inspection for imported products. Time required to obtain export certificates follows with a score of 71.4 while the ease and cost to comply with standards for exports stands at 70.6. Under this theme the low performance was recorded on the transportation costs. The average score of transport costs stands at 61.8 mainly driven by the highest costs recorded under air transports with an IPI of 56.6 followed by the transport costs to Mombasa (59.4) while Dar es Salaam performed better than the previous indicators with its IPI standing at 66.0. Figure 17: Trading Across Borders 71 71 67 66 59 57 76 Source: Foreign Private Capital 2017
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2017 39 CONCLUSION R wanda continues to record a positive trend in foreign private capital as the stock of foreign investments stood at $ 2,527.9 million in 2016. In 2016, foreign private capital inflows rebounded to $ 541.2 million, a growth of 13.6 percent compared to the previous year. Much similar to the African trend in FDI which declined by 3 percent, FDI in Rwanda also declined by 9.9 percent in 2016. This decline is on account of lower inflows of new equity and loans from affiliates. The respondents attribute the decline in equity capital and FDI loans to uncertainty associated with elections period and slowdown in the global economy. Despite the decline in loans and equity we observe an uptick in retained earnings, which doubled from the previous realization. The foreign private capital inflows into Rwanda in 2016, were dominated by foreign direct investment inflows (63.2 percent). In terms of country of origin, most of the inflows were mainly from Mauritius ($ 167.2 million) followed by IFC ($ 66.7 million), PTA ($ 41.3 million) and Netherlands ($ 33.4 million) with a combined share of 56.1 percent of total FPC inflows in 2016 and the investments were mainly in finance and insurance, manufacturing as well as ICT sectors accounting for 69.0 percent of total inflows. In addition, the share of retained earnings to profit made stood at 71.1 percent in 2016 and the FDI rate of return stood at 12.8 percent which gives an indication of the country’s investments profitability. There is therefore the need to continue consolidating efforts geared towards improving the investment climate so that investors can gain higher returns and reinvest. The level of private external loans is increasing as its stock stood at $1,563.4 million at the end of 2016. The government should consider including the PSED scenario in its debts sustainability to mitigate the potential insolvency risk that may accrue in the future. The ranking for Rwanda doing business continues to improve and this was confirmed by the investor’s perception on investment climate in Rwanda. The major area of concern raised in the perception include high interest rate, exchange rate depreciation, high labor cost and scarcity of domestic resources. The prospects for 2017 are for higher flows, as we expect a rise in the next year’s FDI inflow owing to the fact that 2017 new investment projects attraction was growing to over $ 1.1 billion worth of foreign private investment projects registered in that year, with some new companies expected to start making profits.