1 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 NATIONAL BANK OF RWANDA BANKI NKURU Y’U RWANDA FOREIGN PRIVATE CAPITAL IN RWANDA CENSUS REPORT – 2021
2 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021
3 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 The Rwanda Foreign Private Capital 2021 Census is the twelfth in a series of annual censuses, jointly conducted by National Bank of Rwanda, Rwanda Development Board, National Institute of Statistics of Rwanda, and Private Sector Federation. This census collects data on inflows and outflows of foreign investments with the private sector in Rwanda. This report presents 2020 findings on Foreign Private Capital inflows, and the data used was collected on 274 private companies, registered at the Rwanda Development Board. The Foreign Private Capital Census would not have been successful without the involvement and cooperation of key stakeholders. The National Bank of Rwanda wishes to extend appreciation to our valued respondents for their cooperation in providing information. We also acknowledge and appreciate the technical and financial support provided by partner institutions to make this exercise a success. The Foreign Private Capital census is an important activity for the Government of Rwanda, given that it summarizes stocks and flows of foreign investments by instrument, sector and origin, and it is a base on setting policy measures that attract foreign investments and improve the business climate in Rwanda. In addition, the results from this census are used in the compilation of the Balance of Payments, the International Investment Position and the National Account Statistics of Rwanda. Foreword RWANGOMBWA John Governor
4 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 EXECUTIVE SUMMARY • The FPC 2021 census covered 274 enterprises, of which 227 responded, representing a response rate of 82.8 percent. • Findings revealed that FPC inflows decreased by 23.5 percent, amounting to $ 386.4 Million in 2020 from $ 505.0 Million, mainly due to negative impact of the Covid19 pandemic. • The FPC inflows were mainly driven by Direct Investment ($ 274.1 Million), followed by Other Investment ($ 110.2 Million) and Portfolio Investment ($ 2.0 Million). • In terms of sector composition, the financial sector led with 46.4 percent of share, followed by ICT sector (13.0 percent), Electricity and Energy sector (12.0 percent), Manufacturing sector (10.8 percent) and Agriculture sector (9.9 percent). • The FPC by origin were led by Mauritius with a lion share of 35.2 percent, followed by the United States of America (12.7 percent), Kenya (8.6 percent) and Netherlands (5.8 percent). • Return on FDI. The Net Profit of the same companies reduced by 11.5 percent, amounting to $ 146.3 Million, from $ 165.3 Million recorded in 2020. • The FPC 2021 discusses the private sector non-equity investment, i.e. the Private Sector External Debt (PSED) that are considered in direct investment and other investments. In 2020 the PSED inflows reduced by 35.5 percent to $ 204.6 Million, from 317.5 Million registered in 2019. • In other findings, the FPC 2021 census showed a decrease in total FPC companies’ turnover of 17.0 percent, amounting to $ 2,297.1 Million, from $ 2,768.9 Million registered in 2019 and accounting for 22.2 percent of GDP 2020. • Lastly, the report summarizes the investors’ perceptions about the business environment in Rwanda. These views help to inform policymakers about the need for improving the investment climate to attract foreign investments in the country. The findings show that the Investor Perception Index stood at 78 percent, with higher improvement in infrastructure and support services indices.
5 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 TABLE OF CONTENTS LIST OF TABLES 5 LIST OF ACRONYMS 6 CHAPTER 1. INTRODUCTION 7 CHAPTER 2. INVESTMENT DEVELOPMENT AND CLIMATE 9 2.1. GLOBAL AND REGIONAL FDI TRENDS 9 2.2. INVESTMENT’S OPPORTUNITIES IN RWANDA 10 2.3. RECENT INVESTMENT PROMOTION EFFORTS 11 CHAPTER 3: FOREIGN PRIVATE CAPITAL IN RWANDA 15 3.1. BRIEF METHODOLOGY 15 3.2. FOREIGN PRIVATE CAPITAL IN RWANDA 17 3.2.1. FPC BY SECTOR OF ECONOMIC ACTIVITY 19 3.2.2. FPC BY ORIGINS AND BY REGIONS 20 3.3. FOREIGN DIRECT INVESTMENT (FDI) IN RWANDA 22 3.3.1. FDI INFLOWS AND STOCK BY SECTOR 23 3.3.2. FDI INFLOWS AND STOCK BY ORIGIN 24 3.3.3. INCOME ON EQUITY 25 3.3.4. RETURN ON EQUITY 26 3.4. OTHER INVESTMENTS 27 3.4.1. OTHER INVESTMENT INFLOWS AND STOCKS BY SECTOR 27 3.4.2. OI INFLOWS AND STOCK BY ORIGIN 28 3.5. PORTFOLIO INVESTMENT 29 CHAPTER 4. PRIVATE SECTOR EXTERNAL DEBT (PSED) 30 4.1. PRIVATE SECTOR EXTERNAL DEBT TREND 30 4.2. PRIVATE SECTOR EXTERNAL DEBT BY MATURITY AND TYPE 31 4.3. PRIVATE SECTOR EXTERNAL DEBT BY INVESTOR RELATIONSHIP 32 4.4 PRIVATE SECTOR EXTERNAL DEBT BY SECTOR 33 4.5 PRIVATE SECTOR EXTERNAL DEBT BY SOURCE COUNTRY 33 CHAPTER 5. FOREIGN AFFILIATES STATISTICS 34 5.1. COMPENSATION OF EMPLOYEES 34 5.2. TURNOVER 36 5.3. CONTRIBUTION TO INTERNATIONAL TRADE 37 CHAPTER 6. INVESTORS’ PERCEPTION 38 CONCLUSION 40
6 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 LIST OF FIGURES Figure 1: FDI inflows, by Group of Economies, 2007-2020 (in USD & percent) 11 Figure 2: Regional Population size (in Million, people) 12 Figure 3:T otal Registered Investment (USD billion, 2016-2020 13 Figure 4: Visa openness Index 14 Figure 5: Global Corruption Perception Index 15 Figure 6: Economic Freedom Index Scores 15 Figure 7: FPC 2021 Census’s Distribution and Response Rate (in percent) 17 Figure 8: FPC Inflows and Stocks ($ Millions) 19 Figure 9: Income on Investment ($ Million) 24 Figure 10: ROE on FDI (Ratio in percentage) 25 Figure 11: OI Inflows and Stocks ($ Millions) 26 Figure 12: PI Inflows and Stocks ($ Millions) 28 Figure 13: Private External Debt T rend: Ratios & percent Changes 30 Figure 14: External Debt Stock by sector and maturity in Million USD 30 Figure 15: Distribution of Employment by Gender in 2020 34 Figure 16. Investor Perception Index 38 LIST OF TABLES T able 1: FPC Inflows by Category ($ Millions) 19 T able 2: FPC Stocks by Category ($ Millions) 19 T able 3: FPC Inflows and Stocks by Sector of Activities (percent Shares) 20 T able 4: FPC Inflows and Stocks by Origin ($ Millions) 21 T able 5: FPC Inflows and Stocks by region ($ Millions) 21 T able 6: FDI Inflows and Stocks by Category ($ Millions) 22 T able 7: FDI Inflows and Stocks by Sector of Activities ($ Millions) 23 T able 8: FDI Inflows and Stocks by Origin ($ Millions) 23 T able 9: OI Inflows and Stocks by Sector of Activities ($ Millions) 26 T able 10: OI Inflows and Stocks by Origin ($ Millions) 27 T able 11: Private debt inflows by 2020 in Million USD 31 T able 12: Private Sector External Debt by Sector 31 T able 13: Private Sector External Debt by Source Country in Million USD 32 T able 14: Compensation of Employees by sector ($ Millions) 34 T able 15: FPC Census Employment by Position in 2020 34 T able 16: FPC 2021 Entity T urnovers by Sector ($ Millions) 35 T able 17: FPC 2021 Exports – Imports of Goods and Service in 2020 ($ Millions) 36 7 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 NBR National Bank of Rwanda BOP Balance of Payments COMESA Common Market for Eastern and Southern Africa EAC East African Community FDI Foreign Direct Investment FPC Foreign Private Capital GDP Gross Domestic Product ICT Information Communication and T echnology MEFMI Macroeconomic and Financial Management Institute NISR National Institute of Statistics of Rwanda PCMS Private Capital Monitoring System PSED Private Sector External Debt PSF Private Sector Federation PTA Preferential T rade Area RDB Rwanda Development Board FRW Rwandan Franc SADC Southern African Development Community UNCTAD United Nations for Commerce T rade and Development WEF World Economic Forum WIR World Investment Report LIST OF ACRONYMS 8 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 CHAPTER 1. INTRODUCTION Rwanda’s development strategy as enshrined in the 2017-2024 National Strategy for T ransformation (NST 1) aims at implementing reforms in pursuit of high and sustainable growth for Rwanda. Investment promotion remain one of the key policy strategies consistent with the overall macroeconomic targets. Priority area 5 of the national strategy for transformation clearly spells out the need to increase domestic savings and position Rwanda as a hub for financial services to promote investment. In line with this, the Government of Rwanda has undertaken a series of policy reforms aimed at improving Rwanda’s investment climate and increase foreign direct Investment (FDI) and other private capital flows. Due to these efforts, the Foreign Private Capital (FPC) flows have grown in the recent decades and their sources have increased following continued globalization, thus internationally harmonized, timely and reliable FPC statistics are key to the analysis of developments and trends in the capital flows at country, regional and global levels.
9 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 Conceptually, the FPC refers to foreign liabilities (inward investments) owed to non- residents in terms of equity and non-equity, and foreign assets (outward investment) claimed to the rest of the world. The FPC is composed of; Foreign Direct Investment (FDI), Portfolio Investment (PI), Financial Derivatives and Employee Stock Options, and Other Investments (OI). The FPC 2021 cycle records information for the year 2020 from all resident companies that hold foreign liabilities and/or foreign assets. The 2021 FPC census is designed based on the IMF’s Sixth edition of the Balance of Payment and International Investment Position Manual (BPM6), published in 2009, the Coordinated Direct Investment Survey (CDIS), Organization for Economic Co-operation and Development (OECD), benchmarking definition of Foreign Direct Investment and the 2010 Manual on Statistics for International T rade in Services (MSITS 2010). The census provides inputs to Balance of Payments (BOP), International Investment Position (IIP) and National Account Statistics compilation. The questionnaire was administered to 274 enterprises with foreign capital, out of which 227 responded, translating into a response rate of 82.8 percent. This report presents the survey findings to the magnitude, types and direction of FPC liabilities inflows, Foreign Affiliates T rade in Services as well as investor perceptions in Rwanda. The rest of the report is organized as follows: chapter 2 discusses macroeconomic development and investment climate, chapters 3,4 and 5 presents and analyses the quantitative survey findings on foreign direct capital, external sector private debt, foreign affiliates and investor perception respectively and chapter 6 presents conclusion and recommendation. 10 FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021 CHAPTER 2. INVESTMENT DEVELOPMENT AND CLIMATE According to IMF world Economic outlook published in July 2021, the global economy declined by 3.2 percent in 2020 compared to a growth of 2.8 percent recorded in 2019. The decline in the global economic growth was mainly attributed to the outbreak of covid-19 pandemic and the associated containment measures that had ripple effect on several sectors, particularly trade, transportation and tourism. However, the decline in growth started to moderate in the second half of 2020 as many economies started to reopen from the lockdowns and the global economy is expected to recover to 6 percent in 2021 and 4.9 percent in 2022. 2.1. Global and Regional FDI Trends In 2020, foreign direct investment sharply declined due to covid-19 crisis. Global FDI dropped by 35 percent to USD 1 trillion from USD 1.5 trillion in 2019, 20 percent lower than 2009 depression after the global financial crisis (WIR, 2021). The decline is more pronounced in developed economies, where FDI fell by 58 percent due to swings
11
FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021
caused by corporate transactions and intra-firms financial flows. In developing economies,
FDI moderately declined by 8 percent due to resilient flows in Asia, as a result developing
countries accounted for two thirds of the total global FDI, up from just below half in 2019.
Figure 1: FDI inflows, by Group of Economies, 2007-2020 (in USD & percent)
Source: UNCTAD
2.2. Investment’s Opportunities in Rwanda
2020 was an unusual year for the world with the novel Coronavirus pandemic disrupting
the entire global economy. Rwanda reported its first COVID-19 case in March 2020 and
the Government of Rwanda had a very quick and robust response to the pandemic from
the very onset.
Having ensured that all safety and prevention measures were in place, the country
safely reopened its businesses and its borders in May and August 2020, respectively.
The Government of Rwanda, together with the private sector, kick-started initiatives to
hasten the recovery of the economy. These included; the creation and roll out of the
Economic Recovery Fund, the Manufacture and Build to Recover Program, and the
Domestic T ourism Campaign among other tax reliefs and incentives. These initiatives
aim to enable businesses sustain their operations, encourage further investments in
Rwanda and create jobs.
Rwanda’s investment opportunities are driven by a conducive investment climate
and major driving factors include; growing demand in Rwanda and the region, readily
available factors of production, supportive business environment, reputation for low
12
FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021
corruption, quality infrastructure and ICT innovations, competitive labor force and
uniquely positioned to serve its neighboring markets. The figure below shows the size of
the regional market which both domestic and foreign investors can tap into.
The number of population highlighted in red color indicate Rwanda’s preferred access
areas based on close proximity, adding up close proximity numbers for each neighboring
country totals to 80 Million people.
Figure 2: Regional Population size (in Million, people)
Source: world Bank population data 2017 , RDB and BCG
The country through Rwanda Development Board (RDB) presents a number of FDI
opportunities, including manufacturing, infrastructure, energy distribution and
transmission, off grid, energy distribution, agriculture and agro-processing; low cost,
housing; tourism, services, information and communications technology (ICT) and
green innovation. In addition, the Investment Code provides equal treatment between
foreigners and nationals for certain operations, free transfer of funds, and compensation
against expropriation; the 2008 U.S.-Rwanda Bilateral Investment T reaty (BIT) reinforced
this treatment.
2.3. Recent Investment Promotion Efforts
In 2020, Rwanda withered through the COVID-19 global crisis investment promotion
efforts yielded results by recording investment commitments worth USD 1.3 billion,
expected to create over 24,703 jobs. Asia accounted for 26.2 percent (USD 341.5mn)
of the total investments value registered. China (USD 282mn) and USA (USD 205mn)
made the largest share of Investments registered. The City of Kigali continues to lead in
13
FOREIGN PRIVATE CAPITAL IN RWANDA | CENSUS REPORT – 2021
attracting investments compared to other provinces, attracting 87 percent of the total
investments registered in 2020.
Figure 3:Total Registered Investment (USD billion, 2016-2020
Total Registered Investments (USD billion), 2016-2020
2.5
2
1.5
1
0.5
2016
1.18
1.67
2.01
2.45
1.30
2017
2018
2019
2020
0
Source: RDB
Over the past decade, the Government of Rwanda has undertaken a series of policy
reforms intended to improve the investment climate, in order to increase FDI levels. New
investors can register online at the RDB’s website and receive a certificate in as fast as
six hours, and the agency’s “one-stop shop” helps investors secure required approvals,
certificates, and work permits.
In 2020, The World Bank Ease of Doing Business Report indicated that Rwanda made
doing business easier by exempting newly formed small and medium businesses from
paying for a trading license during their first two years of operation. In addition, the
Government of Rwanda reduced the time to obtain water and sewage connections in
order to facilitate construction permits and improved building controls by requiring
construction professionals to obtain liability insurance. The country also upgraded
the employment assistance rules and it improved its regulations on employees’ weekly
rest allowances, working hours, severance pay and reemployment priority rules after
redundancy dismissals. In efforts to increase competitiveness in attracting foreign
investment, Rwanda has created an enabling investment environment:
A. Business-Friendly Regulation
•
No.2 in Africa for Ease of Doing Business
•
7-year Corporate Income Tax (CIT) holiday for investors investing over USD 50M
•
Business environment assessed annually resulting in new investor-friendly reforms
each year