The National Bank of Rwanda Foreign Private Investment in Rwanda 2011 11 industries, the emergence of a middle class is fostering the growth of FDI in services such as banking, retail trade and telecommunications, as witnessed by an increase in the share of FDI in services in 2011. The overall fall in FDI to Africa was due principally to a reduction in flows from developed countries, leaving space to developing countries to increase their investment share within the continent (from 45 per cent in 2010 to 53 per cent in 2011 in Greenfield investment projects). Cross-border mergers and acquisitions (M&As) rose by 53 percent in 2011 to $526 billion, spurred by a rise in the number of mega deals with more than $3 billion. This reflects both the growing value of assets on stock markets and the increased financial capacity of buyers to carry out such operations. Greenfield investment projects, which had declined in value terms for two previous years, held steady in 2011 at $904 billion. Developing and transition economies continued to host more than two thirds of the total value of Greenfield investments in 2011. Although the growth in global FDI flows in 2011 was mainly driven by cross-border M&As, the total project value of greenfield investments remains significantly higher than the cross-border M&As, as it has been the case since the financial crisis. The UNCTAD FDI Attraction Index, which measures the success of economies in attracting FDI (combining total FDI inflows and inflows relative to GDP), features 8 developing and transition economies in the top 10, compared with only 4 a decade ago. A 2011 newcomer in the top ranks is Mongolia. Just outside the top 10, a number of other countries saw significant improvements in their ranking, including Ghana (16), Mozambique (21) and Nigeria (23). Comparing the FDI Attraction Index with another UNCTAD index, the FDI Potential Index, shows that a number of developing and transition economies have managed to attract more FDI than expected, including Albania, Cambodia, Madagascar and Mongolia. Others have received less FDI than could be expected based on economic determinants, including Argentina, the Philippines, Slovenia and South Africa. The UNCTAD FDI Contribution Index – introduced in World Index Report (WIR) 12 ranks economies on the basis of the significance of FDI and foreign affiliates in their economy, in terms of value added, employment, wages, tax receipts, exports, research and development (R&D) expenditures, and capital formation (e.g. the share of employment in foreign affiliates in total formal employment in each country, and so forth). These variables are among the most important indicators of the economic impact of FDI. According to the index, in 2011 the host economy with the largest contribution by FDI was Hungary followed by Belgium and the Czech Republic. The UNCTAD FDI Contribution Index shows relatively higher contributions of foreign affiliates to local economies in developing countries, especially Africa, in value added, employment, export generation and Research and Development expenditures. 2.3 Macro-economic environment of Rwanda Rwanda is a very proactive and forward looking country and has a vision to elevate the country to a middle income economy as well as service and knowledge based economy by 2020. Rwanda has a steady GDP growth rate 8.6percent average year-on-year from 2005 - 2011. The country is characterized by a stable inflation and exchange rate, friendly business climate and qualified as high reformer by World Bank Doing Business rankings 2012. In 2011, Rwanda’s economy grew by 8.6 percent from 7.2 percent achieved in 2010. Agriculture production growth was 4.7 percent led by food crops production (+5 percent), and this reflects the ongoing investments under the crop intensification program (CIP) through the provision of fertilizers and improved seeds, land consolidation and increased irrigated areas. The industry sector grew by 17.6 percent led by mining and quarrying (+49.5 percent), construction (+23.6 percent) and manufacturing industries (+8.0 percent). Construction activities have begun to recover through the resumption of credit facilities benefited from the ongoing and new public and private projects. The growth in services sector was 8.9 percent led by wholesale & retail trade (+9.3 percent) as well as finance and insurance activities (+20 percent) reflecting the increasing monetization of the economy and profitability of banking and insurance activities. GDP per capita in nominal terms reached 357.8 thousand francs from 315.0 thousand francs in 2010 improving by 13.6 percent while in USD, GDP per capita was USD 594.8 from USD 540.1 in 2010 registering an increase of 10.4 percent in 2011. Services sector maintained its first position in the contribution to GDP with 45.7 percent of GDP at constant prices of 2006, followed by agriculture sector with 33.6 percent and the industry sector with 15.1 percent. The National Bank of Rwanda 12 Foreign Private Investment in Rwanda 2011 Figure 2: Resources Structure (in percentage of GDP , at 2006 constant prices) Source: BNR annual report 2011 Table 5: Selected macroeconomic performance indicators 2005-2011 Indicator 2005 2006 2007 2008 2009 2010 2011 Real GDP growth (percent) 9.4 9.2 7.7 11.5 6.2 7.2 8.6 Nominal GDP per Capita (US$) 288.6 332.6 391.4 479.6 520.5 540.1 594.8 Average Exchange Rates (RFW/US$) 557.8 548 547.0 546.8 568.3 583.1 600.3 Current Account Deficit (percent of GDP Excluding Transfers) 14.6 12.3 11.9 15.2 19.6 18 19.4 Gross Reserves ( In Months of goods im- ports) 7.6 6.8 7 5.1 6.2 6.0 5.8 Annual average inflation (percent) 9.1 8.9 9.1 15.4 10.3 2.4 5.7 Gross Domestic Investment (percent of GDP) 16 16 18 23 22 21 22 Source: BNR annual report 2011 In 2011, inflation in Rwanda was maintained at moderate levels despite global and regional high inflationary pressures. This relatively better performance is explained by the improved food production, efficient management of the monetary policy, a stable exchange rate which limited the pass-through of imported inflation to domestic market and a good coordination of fiscal and monetary policies. Annual headline inflation stood at 8.3 percent in December 2011 from 0.2 percent in December 2010. The annual average inflation increased to 5.6 percent in 2011 after 2.4 percent in 2010.
The National Bank of Rwanda Foreign Private Investment in Rwanda 2011 13 The key drivers of inflation were food and non-alcoholic beverages (+3.96 percent), housing, water, electricity, gas and other fuels (+1.50 percent), transport (+1.09 percent) and education (+0.69 percent), representing about 87 percent of annual headline inflation in December 2011. Out of 8.3 percent of headline inflation in December 2011, above mentioned products and services contributed 7.24 percent. Concerning the global external sector, Rwanda ended the Year 2011 with a positive balance of payments leading to a buildup of official reserves of $ 234.5 million. The situation resulted mainly from a significant increase of official and private capital inflows which have been offsetting the structural current account deficit. The current account deficit worsened from USD 421.4 to USD 461.5 million, due especially to trade balance and Services & income deficits. Nevertheless, net current transfers reached USD 880.5 million from 657.3 million in 2010, driven especially by official current transfers and remittances. The Capital and Financial account balance increased by 37 percent in 2011 compared to 2010 with decline in Capital transfers but big increase of financial account. Capital account balance decreased by 31percent while financial transactions account balance increased by 127percent due especially to high public external debt disbursement and high FDI flows in 2011 compared to 2010. End December 2011, Official reserves are estimated at 5.8 months of goods imports from 6 months end 2010. In the year 2011, Government was faced with the objective of maintaining a prudent fiscal policy and financing of capacity building and infrastructure for economic development. Although total grants increased by 10.9 percent from Rwf 397.4 billion to 440.8 billion in 2011, overall fiscal deficit including grants decreased from Rwf 51.1 billion to Rwf 4.7 billion. Government spending increased from Rwf 879.4 billion in 2010 to Rwf 987.2 billion in 2011. The Government’s overall macroeconomic strategy continued to concentrate on reinforcing economic growth by stimulating domestic sources of growth, promoting higher productivity and helping to stabilize the economy. The proportion of tax revenues to GDP slightly increased from 13percent to 14percent implying a more tax concentration on GDP in 2011 compared to 2010. Direct tax collection amounted to Rwf 198.6 billion against Rwf 162 billion achieved in 2010; an increase of 22.5 percent. To complement its own resources, Government has been also borrowing. Domestic debt was complemented by external debt dominated by concessional borrowing from multilateral creditors. During the year 2011, development in key M3 aggregates was in line with the dynamics in economic activities. The broad money increased by 26.7 percent against 17.0 percent achieved in 2010, driven especially by the acceleration of Net Foreign Assets by 29.4 percent and Net Domestic Asset which increased by 12.8 percent. It is in the presented Rwanda economic environment that investment in general evolved in 2011. The conducted survey is related to foreign investment covering the year 2011. The findings are presented in the following chapter focusing mainly on quantitative findings of the survey.
The National Bank of Rwanda 14 Foreign Private Investment in Rwanda 2011 CHAPTER III. QUANTITATIVE SURVEY FINDINGS 3.0 Introduction The findings of this census present the results of stocks and flows of foreign investments for the year 2011. They are in form of assets and liabilities, classified into 3 categories: foreign direct investments, portfolio investments and other investments. This chapter presents the results in these categories by country of origin and sector of investment. 3.1 Foreign Liabilities A foreign liability is an outstanding claim that a country, an institutions or a company owes to another country or institution or company located in another country. Foreign liability also includes due payments to international organizations such as the International Monetary Fund (IMF, 2008). 3.1.1 Composition of Foreign Private Investment Flows and Stocks 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, as reflected in Figure 3. Figure 3 : Foreign Private Investment Inflows from 2009-2011 Source: Foreign Private investment 2011 Figure 4: Trend in Foreign Private Investment inflows Source: Foreign Private investment 2011 In terms of stocks, total foreign private investment increased by 39.7 percent to close at $ 832.3 million in 2011 from $ 590.8 million recorded in 2010. In 2011, foreign private investment stocks were in form of FDI for $ 495.5 million followed by other investments of $ 249.1 million and portfolio Investment of $ 86.8 million (see figure 5). Note that the effect of reclassification and exchange rate changes was considered for the valuation of the stocks. Figure 5: Foreign Private Investments Stocks 2009-2011 Source: Foreign Private investment 2011
The National Bank of Rwanda Foreign Private Investment in Rwanda 2011 15 3.1.2 Foreign Direct Investment An Investment is considered to be a Foreign Direct Investment (FDI) if non-resident entities or individuals hold 10 percent or more of the equity share in a resident entity, including all levels of Fellow Enterprises and Direct Investments of even less than 10 percent of shareholding (IMF, 2008). In 2011, the FDI inflows were $ 119.1 million, dominated by loans from shareholders contributing to 77.0 percent and equity capital accounting for 22.1 percent and retained earnings of 0.9 percent. Compared to 2010, FDI inflows in 2011 decreased, from $ 250.5 million in 2010 to $ 119.1 million in 2011 due to decrease in new share capital by 52.4 percent. FDI stock which is composed of equity capital, share- premium, accumulated retained earnings, capital reserves and loans from related companies increased from $ 422.1 million in 2010 to $ 495.5 million recorded in 2011 mainly due to loans from affiliates. In 2011, FDI accounted for over 59.6 percent of total stock liabilities. Figure 6 : Composition of FDI by type, 2011 Source: Foreign Private investment 2011 3.1.2.1. FDI Inflows and Stock by sector In 2011, most of the Foreign Direct inflows were directed to mining ($ 35.2 million). Finance and insurance sector follows with $ 27.4 million and ICT with $ 24.8 million. The following figure provides the foreign direct investment inflows and stocks by sector of investment in 2011. Figure 7: Foreign Direct Investment Inflows and Stock by Sector in 2011 Source: Foreign Private investment 2011 During the same year of 2011, a sectorial breakdown of stocks of other investments shows that the ICT ($ 177.9 million) and Finance and Insurance ($ 115.3 million) sectors dominated the stock of FDI. 3.1.3 Foreign Portfolio Investment Foreign Portfolio Investment (FPI) comprises ownership of investment of less than 10 percent excluding transactions with fellow companies and direct investment enterprises (IMF, 2008). FPI stock increased from $ 1.5 million in 2010 to $ 86.8 million in 2011, mainly due to the start of the Rwandan Stock Exchange where shares of listed companies are transacted. FPI accounted for 10.4 percent of the total liabilities in 2011. In terms of inflows, FPI was $ 82.3 million. 3.1.4 Other investments Other investments cover mainly long term and short term loans from unrelated sources. In 2011, a total of $ 150.2 million of loans inflows were reported, of which $ 136.7 million (91.6 percent) were long term and $ 8.3 million (5.5 percent) in form of trade credits and accounts payables with $ 5.0 million (3.4 percent). Other investments accounted for 29.9 percent of the overall liability inflows. 3.1.3.1 Other investment inflows and stock by Sector The sectorial findings of other foreign investment inflows show that these were mainly concentrated in the mining sector at $ 72.6 million. Other sectors such as ICT, Finance and insurance and others recorded net foreign inflows except for agriculture which recorded a negative net foreign flow The National Bank of Rwanda 16 Foreign Private Investment in Rwanda 2011 largely explained by higher repayments of short term debts (mainly trade credits and advances) compared to disbursements (see Figure 8). Figure 8: Other investments inflows and stock by sector Source: Foreign Private investment 2011 3.2 Foreign liabilities by sectors This section provides information on the stocks and flows of Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and other investments by sector. 3.2.1 Inflows and stocks by sectors in 2011 In 2011, Finance and insurance sector was the largest attracting 23.1 percent of total liability inflows. It was followed by Information and Communication (ICT) with 20.7 percent, manufacturing with 19.5 percent and agriculture with 16.3 percent. Finance and insurance occupied the first place in 2010. Stock of foreign investment in ICT amounted to $ 312.8 million followed by finance and insurance with $ 194.8 million and manufacturing with 130.3 million. Figure 9 : Foreign Private Investment Inflows and Stocks by sectors ($ million), in 2011. Source: Foreign Private investment 2011 3.2.2 Inflows and stocks by source in 2011 Total inflows of foreign liabilities originated mainly from Kenya ($ 66.7 million), Switzerland ($ 47.1 million), South Africa ($ 46.4 million) and Mauritius ($ 36.7 million) accounting for 55.6 percent in 2011. For stock, South Africa, Kenya, United Kingdom and Germany were leading accounting for 34.6 percent. Mauritius is among the large investor countries due to the fact it hosts most of holding companies even though the ultimate controlling companies are not based in Mauritius. The census took into consideration only the investing company.