National Bank of Rwanda National Institute of Statistics of Rwanda FOREIGN PRIVATE INVESTMENT IN RWANDA 2011
The National Bank of Rwanda
iv Foreign Private Investment in Rwanda 2011
FOREWORD
The Rwanda Working Group on Foreign Private Capital (FPC) composed by the staff
from National Bank of Rwanda, Rwanda Development Board, National Institute of
Statistics of Rwanda and Private Sector Federation presents the report on the third
cycle of FPC Census results for the calendar year 2011.
All new companies registered as foreign direct investments by Rwanda Development
Board in 2011 as well as those which declared Foreign Assets and Liability in the
previous census were included in the current exercise. A total of 140 companies were
surveyed. They were 122 for the year 2010 against 152 entities for 2008-2009 where
42 of respondents declared not engaged in transaction with foreign companies.
The information presented in this report was provided by senior management of
companies visited during the census, including Managing Directors, Chief Executive
Officers and Finance Managers. In addition to completed questionnaires, companies
provided financial statements which assisted in data validation.
The FPC census shall be a continuous activity as it is important for the Government
of Rwanda in its efforts to attract and retain foreign private capital in the country.
Furthermore, the findings shall contribute to formulation of appropriate foreign
private capital policies and will be used to improve Rwanda’s Balance of Payments and
International Investment Position statistics.
We take this opportunity to thank all companies that participated in the exercise
by providing the requested information, and the Macroeconomic and Financial
Management Institute for Eastern and Southern Africa (MEFMI) for technical assistance
through training on FPC concepts, analysis and the software for data processing. We
also thank our partner institutions involved in conducting this census and the FPC
working group for their commitment to make this census a success.
John RWANGOMBWA
Governor, National Bank of Rwanda
The National Bank of Rwanda Foreign Private Investment in Rwanda 2011 v LIST OF ACRONYMS BNR:
National Bank of Rwanda BOP:
Balance of Payments BOU:
Bank of Uganda BV:
Book Value COMESA: Common Market for Eastern and Southern Africa CSR:
Caisse Sociale du Rwanda EAC:
East African Community EDPRS: Economic Development and Poverty Reduction Strategy FAL:
Foreign Assets and Liabilities FALIPS: Foreign Assets and Liabilities & Investor Perception FDEI:
Foreign Direct Equity Investment FDI:
Foreign Direct Investment FPC:
Foreign Private Capital FPEI:
Foreign Portfolio Equity Investment GDP:
Gross Domestic Product IIP:
International Investment Position IP:
Investor Perceptions ISIC:
International Standards of Industrial Classification MEFMI: Macroeconomic and Financial Management Institute MOU:
Memorandum of Understanding NISR:
National Institute of Statistics of Rwanda OECD: Organization for Economic Co-operation and Development PCMS: Private Capital Monitoring System
The National Bank of Rwanda vi Foreign Private Investment in Rwanda 2011 PSED:
Private Sector External Debt PSF:
Private Sector Federation PSI:
Private Sector Investment PSIC:
Private Sector Investment Census RBS:
Rwanda Bureau of Standards RDB:
Rwanda Development Board RIEPA:
Rwanda Investment and Export Promotion Agency RRA:
Rwanda Revenue Authority RWF:
Rwandan Franc RWG:
Rwanda Working Group (on Private Capital Monitoring) SADC:
Southern African Development Community TNC:
Transnational Corporations WEF:
World Bank Economic Forum
The National Bank of Rwanda
Foreign Private Investment in Rwanda 2011 vii
TABLE OF CONTENTS
FOREWORD................................................................................................iv
LIST OF ACRONYMS.....................................................................................v
TABLE OF CONTENTS..................................................................................vii
LIST OF TABLES..........................................................................................viii
LIST OF FIGURES........................................................................................viii
ACKNOWLEDGMENT...................................................................................1
EXECUTIVE SUMMARY ...............................................................................2
CHAPTER I. INTRODUCTION...........................................................3
1.1 Monitoring investment in Rwanda..................................3
1.2 Investment promotion efforts.........................................3
1.3 Reasons for investing in Rwanda.....................................4
1.4 Methodology...................................................................6
1.4.1 Objective of the census.....................................................6
1.4.2 Scope of the Census........................................................7
1.4.3 Sensitization....................................................................7
1.4.4 Census frame..................................................................7
1.4.5 Questionnaire.................................................................7
1.4.6 Training and field work activities....................................7
1.4.7 Questionnaire Administration........................................7
1.4.8 Data processing..............................................................8
CHAPTER II. RECENT MACRO ECONOMIC DEVELOPMENT
AND GLOBAL TRENDS IN FOREIGN PRIVATE
INVESTMENTS..............................................................9
2.1 Global and Regional Perspective.....................................9
2.2 Global Trends in Foreign Direct Investment (FDI)..........10
2.3 Macro-economic environment of Rwanda....................11
CHAPTER III. QUANTITATIVE SURVEY FINDINGS......................14
3.0 Introduction..................................................................14
3.1 Foreign Liabilities..........................................................14
3.1.1 Composition of Foreign Private Investment Flows and
Stocks................................................................................................................14
3.1.2 Foreign Direct Investment.............................................15
3.1.3 Foreign Portfolio Investment......................................15
3.1.4 Other investments......................................................15
3.2 Foreign liabilities by sectors.........................................16
3.2.1 Inflows and stocks by sectors in 2011.........................17
3.2.2 Inflows and stocks by source in 2011.........................16
3.2.3 Foreign private investment inflows and stock by
regional grouping, 2011.............................................16
3.3 Income on Equity........................................................17
3.4 Return on equity by sectors in 2011........................ .18
3.5 Private Sector External Debt (PSED) 2011.................18
3.5.1 Private Sector External Debt inflows 2011..................19
3.5.2 Private Sector External Debt stocks 2011....................19
3.6 Private Foreign Assets (PFA).......................................19
3.7 Macro-economic analysis of survey findings.............20
3.8 Other findings............................................................20
3.8.1 Entity turnover............................................................20
3.8.2 Employment...............................................................21
3.8. 3 Compensations of employees.....................................22
3.8.4 Type of investment....................................................23
3.8.5 Corporate social responsibility...................................24
CONCLUSION ............................................................................25
REFERENCES .............................................................................26
ANNEXES...................................................................................27
The National Bank of Rwanda
viii Foreign Private Investment in Rwanda 2011
LIST OF TABLES
Table 1: Top Ten Countries in Doing Business in Sub-Saharan Africa............5
Table 2 : R w a n d a ’s D o i n g B u s i n e s s P e r f o r m a n c e b y C a t e g o r y 2 0 1 2 a n d 2 0 1 3 . . . . . . . . . . . . . . . . 6
Table 3: Response rate per sector in 2011.............................................. ..8
Table 4: Global macro-economic developments (real GDP
growth percent) ...................................................................... 10
Table 5: Selected macroeconomic performance indicators
2005-2011..................................................................................12
Table 6 : Inflows and stocks by source in 2011 in $ million.......................17
Table 7: Income on equity in $ million......................................................18
Table 8: Profitability of sectors ................................................................19
Table 9: Private Sector External Debt inflows 2010 & 2011
($ million).............................. .....................................................19
Table 10: Private Sector External Debt stocks 2011 ($ million) : .............19
Table 11: Some analytical ratios of FAL flows and stocks (percent)...........20
Table 12: Distribution of employment in 2011.........................................21
Table 13: Total compensation of employees for 2011 in $ million............22
Table 14: Type of investment with foreign liability 2011 in $ million........23
LIST OF FIGURES
Figure 1: Recent global trend in foreign direct investment,
2006-2011...............................................................................10
Figure 2: Resources Structure (in percentage of GDP , at 2006
constant prices).......................................................................12
Figure 3: Foreign Private Investment Inflows ($ million) from
2009-2011...............................................................................14
F i g u r e 4 : Trend in Foreign Private Investment inflows.........................14
Figure 5: Foreign Private Investments Stocks 2009-2011.........................14
Figure 6 : Composition of FDI by type, 2011...........................................15
Figure 7: Foreign Direct Investment Inflows and Stock by
Sector in 2011..........................................................................15
Figure 8: Other investments inflows and stock by sector.......................16
Figure 9 : Foreign Private Investment Inflows and Stocks by sectors
($ million), in 2011...................................................................16
Figure 10: Foreign Private Investment stocks and inflows by
Regional Grouping, in 2011.....................................................17
Figure 11 : Private foreign assets flow in $ million......................................20
Figure 12 : Entity turnovers by sectors in 2011
(in millions USD)......................................................................21
Figure 13: Distribution of employment by sectors 2011...........................22
Figure 14 : Compensation of employees by sectors in 2011
($ million)................................................................................23
Figure 15: Actual Investment by sectors in 2011......................................24
Figure 16 : Corporate social responsibility by type in 2011
($ million)................................................................................24
The National Bank of Rwanda
Foreign Private Investment in Rwanda 2011 1
ACKNOWLEDGMENT
On behalf of partner institutions, Rwanda Development Board, National Institute of Statistics of Rwanda and Private Sector Federation, the National
Bank of Rwanda wishes to express its sincere appreciation to the Rwanda Working Group on FPC for successfully carrying out the third round of foreign
private capital census and producing this report.
Our sincere appreciation also goes to Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) for the technical
assistance granted to Government of Rwanda from the launch of this project in 2009. Their assistance includes demand assessment on FPC monitoring,
providing software for data entry, training of technical team on data upgrading methodology and analysis.
Special thanks are extended to the companies that responded to the questionnaire and provided complementary information such as financial statements.
Without their input, it would not have been possible to make an assessment of the current magnitude of FPC. We will continue to efficiently cooperate
in next censuses and/or surveys for the best of business organization. We kindly invite the companies which did not respond to our questionnaire to
participate in the next FPC census planned to take place during the second half of 2013.
The National Bank of Rwanda
2 Foreign Private Investment in Rwanda 2011
EXECUTIVE SUMMARY
The Government of Rwanda continues to promote a private sector-
led free market economy, aiming at fostering both local and foreign
investment by undertaking reforms with the objective of making the
country a favorable place for investment.
In an effort to effectively monitor and manage foreign private
capital, the National Bank of Rwanda in collaboration with Rwanda
Development Board (RDB), National Institute of Statistics of Rwanda
(NISR) and Private Sector Federation (PSF) conducted the Foreign
Private Capital Census, collecting data for the year 2011. A total of
140 enterprises were enumerated, out of which 128 responded,
representing a response rate of 91.0 percent.
The objectives of this census include setting up the Private Capital Flows
(PCF) database in conformity with international standards, and determining
the magnitude and trends of Foreign Private Capital (FPC) and providing
actual foreign investment statistics in Rwanda for the year 2011.
Rwanda recorded an increase in foreign private investment inflows from
$ 343.0 million declared in 2010 to $ 356.7 million declared in 2011,
equivalent to 4.1 percent increment. In 2011, foreign private investment
inflows were largely in form of other investments $ 187.9 million
accounting 46.7 percent of total foreign private investment inflows.
Foreign Direct Investments (FDI) were $ 119.1 million accounting for 30.2
percent, and portfolio investment totaled $ 87.3 million; 22.1 percent.
These flows were mainly driven by equity and non-equity liabilities
from affiliates. Sectors which attracted highest flows were Finance
and Insurance with 23.1 percent followed by ICT with 20.7 percent,
Manufacturing with 19.5 percent and agriculture for 16.3 percent.
The findings of the census indicate that from $315.73 million in 2008,
$ 446.28 million in 2009 and $ 590.5 million in 2010, total stock of
foreign capital amounted to $ 832.3 million in 2011. The big part of this
investment came from European Union ($ 266.3 million; 32.0 percent),
followed by EAC ($ 121.6 million; 14.0 percent) , COMESA Non EAC ($
117.1 million; 14.1 percent), SADC (Non EAC) ($ 110.8 million; 13.0
percent), OECD -Non-EU ($ 76.8 million; 9.2 percent), International and
regional organizations ($ 61.3 million; 7.4 percent) , Asia ($ 41.6 million;
5.0 percent) and others countries ($37.0 million; 4.2 percent).
On country basis, South Africa, Kenya, United Kingdom and Germany were
leading accounting for 34.6 percent of total stock end 2011. The largest
proportion of foreign private liabilities/investment was in form of Foreign
Direct Investment (FDI) accounting for 59.6 percent. Other investment and
portfolio investment accounted for 29.9 percent and 10.4 percent respectively.
It is important to note that the rise of portfolio investment was due to the
development of the Rwanda stock exchange where equity securities are traded
easily.
Sectors with the highest shares of foreign liabilities stock were ICT with
37.6 percent followed by finance and insurance sector with 23.4 percent
and manufacturing with 15.7 percent of total liabilities.
The stock of Private Sector External Debt (PSED) as at end 2011 stood at
$ 420.7 million increasing from $ 298.1 million in 2010, mainly driven by
loans from unrelated sources with share of 57.9 percent.
Return on equity (ROE) in 2011 was 19.5 percent up from 13.4 percent in
2010. Administration and Support services, Construction, Agriculture and
manufacturing sectors registered the highest return on equity of 170.3
percent, 50.3 percent, 46.7 percent and 20.9 percent respectively.
During the period under consideration, dividends paid to foreign shareholders
slightly increased from $ 14.6 million in 2010 to $ 14.8 million in 2011. The
ratio of dividends declared to net profit was 94.1 percent while the ratio of
retained earnings to net profit was 5.9 percent. This is an indication that
most of the profit was remitted rather than reinvested.
Other findings on foreign and joint owned companies indicate that compared
to the year 2010, combining local investments and foreign investments in
companies that declared foreign investments, actual investments increased
by 30.4 percent, entity turnover by 51.8 percent, employment by 88.0
percent, and compensation of employees by 14.4 percent.
The increase of percent ratios of FDI inflows to gross fixed capital formation
from 12.4 percent in 2009 to 25.9 percent in 2011 and of FDI inflows to GDP
from 2.7 percent to 5.5 percent in 2011, suggest that foreign resources were
becoming increasingly important in terms of investment as evidenced by the
share of FDI in relation to gross fixed capital formation.
In conclusion, foreign private investments in Rwanda continued to grow and
contribute to sustained economic growth. The increase in inflows (4.1 percent)
of foreign liabilities from $ 343.0 million declared in 2010 to $ 356.7 million in
2011 indicates more attraction of foreign investment from abroad responding
to continuously improving business environment and existence of investment
opportunities. The Government needs to continue accurately and consistently
capture, and monitor these flows to assess the impact of policies made in the
area and their impact on the country’s development and their capacity to
complement local resources.
The National Bank of Rwanda
Foreign Private Investment in Rwanda 2011 3
CHAPTER I. INTRODUCTION
Foreign direct investments are identified as an important source of
financing for developing countries. The International Monetary Fund
defines Foreign Direct Investments as investments brought in a country by
non-resident unit being individuals or companies. Generally, foreign direct
investment is a long-term undertaking.
The investor resident in a country foresees a durable interest in investing
in another country to diversify the risks of his investments and generate
more revenues from funds invested abroad. The country of destination
of funds benefits a lot from direct investment in terms of reduction in
unemployment, increase in financial resources, equipment and expertise.
1.1 Monitoring investment in Rwanda
In recent years, Rwanda has actively attracted foreign direct investment by creating
and sustaining a high conducive investment climate through radical reforms which
make it easier for businesses to get started, get loans, pay taxes, etc.
In the past, data on foreign capital flows relied on information provided by banks.
However, it was noted that there were a number of challenges experienced in
sourcing BOP data using information from banks for FPC purposes, particularly
in respect of coverage and classification. It was not possible to capture non-cash
types of investment such as investment in form of equipment, expertize and
reinvested earnings. In addition, it was also observed that bank reporting was
not always accurate and that there was no enforcement mechanism to ensure
accuracy in the reporting of all bank transactions.
As a consequence, there was misclassification of current, capital and
financial accounts transactions in some instances. This is mainly why
efforts to use a census based approach of compiling statistics on FPC had
been undertaken in 2007 by BNR jointly with the Rwanda Investment and
Export Promotion Agency (RIEPA), now RDB, with a reasonable response
rate of 58 percent from a sample of about 65 companies.
In the meantime, Rwanda continues to work strongly on investment
climate to attract foreign investments to complement internal resources.
Currently, a whole package for investment promotion in general can be
found within Rwanda Development Board.
The package includes among others: regulatory framework, registration
facilities and requirements, change of registered businesses, closing
businesses, disclosure requirements, and other facilities such as working
permit, government’s protection of investments, settlement of disputes,
transfer of funds special economic zone facilitations, public private
partnership (PPP) where RDB is chief negotiator between public and private.
In order to track the FPC impact on economic growth in Rwanda and
maintain conducive investment environment in pursuit of more investment,
there is a need for a sound and consistent monitoring system to guide the
formulation of national investment policies on one hand and to assess the
effects and results of all efforts made in facilitating and attracting foreign
investments. To this end, an Inter-Institutional Agreement for monitoring
and analyzing the situation of foreign assets and liabilities, investor
perception, corporate social responsibility, and related data in Rwanda
was made. This agreement led to the establishment of Rwanda Working
Group (RWG) under the memorandum of understanding signed between
the partner institutions: the National Bank of Rwanda (BNR), the National
Institute of Statistics of Rwanda (NISR), the Rwanda Development Board
(RDB) and the Private Sector Federation (PSF).
The responsibility of this working group includes among others, production
of good quality statistics, compliant with international data reporting
standards and meeting the needs of the various policy makers, and
users. BNR and NISR collect this information for Balance of Payments and
National Account compilation while RDB and PSF need it for monitoring
purposes. The establishment of this joint working group avoids the
duplication of Census on foreign private investment, reducing thus the
burden on companies and the waste of country’s resources.
Beside the inter-institutional commitment, the FPC data collection activity
requires an important contribution of the respondents. An awareness
campaign is therefore organized before the starting of each round,
aiming at sensitizing companies on reporting of required information. The
managers of companies are given explanations on the relevance of the
exercise related to data collection so that an impact analysis of capital
flow on economic development is assessed. They are also informed about
results of the round that comes to the end.
1.2 Investment promotion efforts
The Government of Rwanda resolves to improve the investment climate
and attain desired levels of both local and foreign investment as a priority.
The World Economic Forum’s Global Competitiveness Report 2012- 2013
ranked Rwanda the 3rd easiest place to do business in Africa and 2nd five
years Top Global Reformer after Georgia and the first in EAC.
The National Bank of Rwanda
4
Foreign Private Investment in Rwanda 2011
Rwanda was ranked number eight globally in starting a business with
only 2 procedures in span of 6 hours. Rwanda is considered as the
most competitive place to do business in East Africa and 3rd in Sub-
Saharan Region. Rwanda moved from 43rd last two years to 25th
easiest place to pay taxes in the world. For Rwanda’s development,
the emergence of a viable private sector that can take over as the
principle growth engine of the economy is crucial.
Although foreign direct investment will be encouraged, local-based
businesses remains a crucial component of economic development in
Rwanda. The public sector will not be involved in providing services and
products that can be delivered more efficiently by the private sector. The
government is therefore committed towards a comprehensive privatization
policy that will help reduce costs and prices and widen consumer choice.
The State will only act as a catalyst; ensuring that infrastructure,
human resources and legal frameworks are geared towards
stimulating economic activity and private investment. Recently, RDB
launched a powerful web base electronic link that potential investors
can visit and get important information on Rwanda.
1.3 Reasons for investing in Rwanda
There are reasons why investors can have confidence in Rwanda and direct
their investments to potential economic sectors with promising returns.
I.
Good macroeconomic environment: Rwanda enjoyed a year-
on-year average real GDP growth rate of 8.16 percent between
2007 – 2011, among the highest in major African economies and
neighboring countries, a moderate inflation of one digit and stable
exchange rate.
II. Good governance: Politically stable with well-functioning
institutions, rule of law and zero tolerance for corruption, clear
vision for growth through private investment.
III. Investor friendly climate: World Bank Doing Business Report
2012 ranked Rwanda the 2nd top global reformer for five years
consecutively and 3rd easiest place to do business in Africa. It is
among the best competitive place to do business in Africa and
1st in East African Community. On credit ranking by Fitch in 2011-
2012, Rwanda was upgraded to B. Rwanda is among top 4 African
countries in terms of internet connectivity according to Oracle in
2012. New special economic zone was developed and is operational.
More zones are planned for all the districts in the country.
IV. Access to markets: Rwanda is a Market of over 10.5 million people
with a rapidly growing middle class. It is located centrally bordering
with 3 countries in East Africa and Democratic Republic of Congo. The
country adhered to EAC Common Market and Customs Union with
market potential of over 125 million people.
V.
Untapped
investments
opportunities:
Potential
investment
opportunities abound, particularly in the following sectors:
•
Infrastructure: Opportunities in rail, air , water transportation to
further develop Rwanda as an EAC hub;
•
Agriculture: Potential for agriculture productivity growth and value
addition;
•
Energy: Power generation, off grid generation and significant methane
gas opportunities;
•
Tourism: Unique assets creating booming sector, growth potential in
birding & business/conference tourism
•
Information and Communication Technology: Priority sector for
Vision 2020;
•
Other attractive sectors include real estate and construction,
financial services and mining.
VI. Rwanda is Highly Competitive. Rwanda is now the third most
competitive country in Sub-Saharan Africa after Mauritius and
the huge economy of South Africa and this is at a time when the
competitiveness of Africa is increasing overall. Globally, Rwanda is
in the upper half of the WEF’s Global Competitiveness Index,
ahead of many historically stronger countries in Europe and
the Americas, including Greece and Argentina. And Rwanda’s
competitiveness is growing fast this year Rwanda jumped 10
places in the WEF’s world competitiveness rankings.
VII. Excellent Business Environment. Rwanda has the third strongest
regulatory framework in Sub-Saharan Africa, only slightly behind South
Africa. The inflation rate in Rwanda is regarded as the most stable in
the world and Rwanda is among the strongest financial markets in
Africa. Rwanda is also ranked 8th globally by the World Bank doing
business report in starting a business.