2 Foreign Private Investment and Investor’s Perceptions Report-2010 eyeing an increase in investments. It expects local and foreign investments to grow by 25 to 30 percent of GDP by 2012 as Gross Domestic Production is estimated to grow at 7 percent thus reducing poverty levels. 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. This methodology does not capture non-cash forms of investment such as investment in form of equipment 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 transactions by banks. As a consequence, there was misclassification of current, capital and financial account transactions in some instances. However, efforts to use a survey based approach of compiling statistics on FPC had been undertaken in 2007 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 mean time since that period, Rwanda continues to work strongly on investment climate to attract foreign investors as internal resources remain low and insufficient. 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 business, closing business, disclosure requirements, and other facilities such as working permit, government’s protection of investments, settlement of disputes, transfer of funds and etc. In order to track the FPC impact on our development and economic growth; and maintain our conducive investment climate in pursuit of more investment attractions, there is need for a sound and consistent monitoring system to guide the formulation of national investment policies. To this end an Inter-Institutional Agreement for implementing, monitoring and analysis of foreign assets and liabilities, investor perception, corporate social responsibility, and related data in Rwanda was made. This agreement led to the formation of a working group (RWG) under the memorandum of understanding signed between the leading institutions of: 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). This working group priorities includes among others ensuring good quality statistics are produced that can meet the needs of the various policy makers, avoidance of adhoc surveys, effects of investment on employment, constraints to full implementation of pledged investments, investors perceptions, compliance to international data reporting standards, etc...
3 Introduction Beside this inter-institutional commitment, the FPC data capturing activity requires an important contribution of the respondents. An awareness campaign was therefore organized aiming at sensitization of companies to reporting on required information. The managers of companies were given explanations on the relevance of the exercise the country was launching explaining to them that it is mainly related to data capturing so that an analysis of capital flow on economic development can be assessed on one hand. And on the other hand, this activity aims at capturing information on how investors assess the country’s investment environment for further improvement. These two main reasons required BNR, RDB, NISR and PSF to join efforts for better results. 1.2. Ease of Doing Business in Rwanda Rwanda recorded notable improvements with regard to ease of doing business and ranked 58 (out of 183 economies) in 2011, from a rank of 70 the previous year (see Table 2). In 2011, Rwanda was among the 10 most-improved economies and a consistent reformer of business regulation, along with, Cape Verde, Zambia, Peru, Vietnam, Grenada, and Brunei Darussalam. In Sub-Sahara Africa, Rwanda emerged 4th in 2011 after registering remarkable improvements with regard to getting credit, trading across borders, dealing with construction permits, starting a business and paying tax.
4 Foreign Private Investment and Investor’s Perceptions Report-2010 Figure 2: Top Ten Countries in Doing Business in Sub-Saharan Africa Source: World Bank Doing Business Report 2011 Economy Ease of Doing Business Rank Starting a Business Dealing with Construction Permits Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Closing a Business Mauritius 20 12 39 69 89 12 12 22 61 71 South Africa 34 75 52 91 2 10 24 149 85 74 Botswana 52 90 127 44 46 44 21 151 70 27 Rwanda 58 9 82 41 32 28 43 159 39 183 Ghana 67 99 151 36 46 44 78 89 45 109 Namibia 69 124 36 136 15 74 99 153 41 53 Zambia 76 57 158 83 6 74 37 150 86 97 Seychelles 95 109 61 62 152 59 38 36 69 183 Kenya 98 125 35 129 6 93 162 144 125 85 Ethiopia 104 89 53 109 128 120 47 157 57 82
5 Introduction
In the period under review, Rwanda made dealing with construction permits easier by passing new building regulations and
implementing new time limits for the issuance of various permits. Access to credit was enhanced by allowing borrowers
the right to inspect their own credit report and mandating that loans of all sizes be reported to the central bank’s public
credit registry. In addition, Rwanda reduced the number of trade documents required and enhanced its joint border
management procedures with Uganda and other neighbors, leading to an improvement in the trade logistics environment.
Challenges particularly in the area of trading across borders and closing a business, however, persist (see Figure 3 below).
Figure 3: Rwanda’s Doing Business Performance by Category 2010 and 2011
DOING BUSINESS 2011 RANK DOING BUSINESS 2010 RANK CHANGE IN RANK
58 70 12
Topic Rankings DB 2011 Rank DB 2010 Rank Change in Rank
Starting a Business 9 12 3
Dealing with Construction Permits 82 88 6
Registering Property 41 37 -4
Getting Credit 32 61 29
Protecting Investors 28 27 -1
Paying Taxes 43 46 3
Trading Across Borders 159 169 10
Enforcing Contracts 39 40 1
Closing a Business 183 183 No change
6
Foreign Private Investment and Investor’s Perceptions Report-2010
1.3. Objective of the survey
In the long run, the objective is to improve the private capital
management in line with the country development. This
requires creation, maintenance and reinforcement of national
capacity and assessing the country’s realizations. Within this
context, the program or the working group are required to
meet the following specific objectives:
•
Establish a strong and performing framework of regular
and complete system of collection of data relating to
private capital flows to improve the balance of payment
compilation in line with international standards following
the IMF BOP manual. Information on investment plans
ha has been systematically collected during the last
decade but the actual level of investments has not been
monitored. Equally most information available to date
covers inward investment to Rwanda (foreign liabilities)
and not the investment of Rwandan companies abroad
(foreign assets)
•
Collect information on stock of foreign private capital for
a better compilation of International Investment Position;
•
Create a friendly working environment between public and
private sector that enhances the sharing of information
and drives improvements in business conditions in general
and investment conditions within Rwanda in particular;
•
Be informed on investors’ perceptions and concerns
regarding the investment environment and hence identify
gaps required to be addressed for better services in
response to the needs of investors with a proven positive
impact;
•
Create an exhaustive database on investments for
strong policy analysis and recommendations aiming at
reconsidering and improving the foreign investment
climate. The survey of foreign investment is an important
source of information that can be useful for the country
of investment and the investor himself. It helps to
capture information on how the investors assess the
country’s investment environment and thus assist the
country taking appropriate decisions. On the investors’
side, the foreign private capital survey is also a source of
information especially for green field options available for
new investments. Therefore, the survey results facilitate
adequate decision making for both public and private
sector. Note also that the foreign private capital data
capturing is becoming an important requirement from
international organizations that are compiling comparable
investment data.
•
To enrich and update the national database with vital
information on private entities to guide planning and
policy making by disseminating high quality data in timely
manner for easy access to users.
7 Introduction 1.4. Scope of the survey This first private capital survey in Rwanda aimed at capturing information on FPC for the period of 2008-2009. A list of investors registered with the Rwanda Development Board as well as the list of large, medium and small taxpayers from RRA were used. All companies registered as foreign direct investments by Rwanda Development Board were included in the survey, and this was combined with a purposive sample of large, medium and small taxpayers captured in the RRA database. One hundred and fifty two companies were given questionnaires. Only 86 of 128 respondents to the questionnaire had foreign assets and liabilities data. The survey was designed to capture mainly information on general company information and shareholding structure, capital flows and stocks for 2008-2009 and investor perceptions. 1.5. Global and Regional Perspective The global economy expanded successively for four years up to 2007 as Gross Domestic Product (GDP) rose to an average of 5.0 percent, owing to a broad-based surge in the emerging and developing economies (World Economic Reports). However, the global economy slowed down markedly to 0.2 percent in 2008 following shocks in the mature financial markets. During 2009, the global economy entered into a severe recession owing to massive financial crisis and acute loss of confidence. Hence, output contracted by 0.6 percent in 2009. Advanced economies were the hardest hit, with output growth declining to 1.5 percent in 2008 before contracting by 3.2 percent in 2009. The world’s largest economy, the United States of America (USA), failed to register growth in 2008 and contracted by 2.6 percent in 2009 compared to a solid growth of 2.0 percent in 2007. In the Euro area, economic output declined to 0.5 percent in 2008 and shrunk by 4.1 percent in 2009 in contrast to an expansion of 2.6 percent in 2007. Though growth momentum in China and India eased, GDP output remained robust at 9.6 percent and 6.4 percent in 2008 and 9.1 percent and 5.7 percent in 2009, respectively. Recent developments indicate that economic recovery is underway and broad based though sluggish in most advanced economies and a few emerging economies. As such, global activity was forecasted to expand by 4.8 percent in 2010. Respective output growth for emerging and developing economies was projected at 7.1 percent and 6.4 percent, respectively, in 2010. Economic growth in the Sub-Saharan region moderated to 5.5 percent in 2008 from 6.9 percent in 2007, as many of these countries were less affected by the first round effects of the financial crisis. Despite a weakening external environment, economic expansion in oil-exporting countries softened moderately with GDP growth declining to about 7.4 percent from nearly 7.9 percent in 2007, owing to a substantial improvement in the terms of trade in 2008. For oil importers,
8 Foreign Private Investment and Investor’s Perceptions Report-2010 output growth marginally slowed down to 5.0 percent in 2008 from 5.3 percent in 2007. Notwithstanding this, other oil importers that did not benefit from the higher commodity prices experienced a deteriorating terms of trade, averaging 15–20 percent in 2008. In 2009, however, the second round effects had affected the region such that output grew by 2.6 percent in 2009. Nevertheless, the impact was contained by rapid implementation of countercyclical policies made possible by the policy room that many of these economies had built prior to the downturn. In the Sub-Saharan region, output growth was estimated to accelerate to 5.0 percent in 2010. 1.6. Global Trends in Foreign Direct Investment (FDI) The global FDI grew for four consecutive years in tandem with global economic performance and reached a record high of US$1,979 billion in 2007 (World Investment reports). The growth was broad based as the advanced, emerging and the Sub-Saharan Africa economies experienced continued growth in FDI. The sustained rise in FDI in 2007 was driven by relatively high economic growth in many parts of the world coupled with expansion in cross-border mergers and acquisitions (M&A) across countries and sectors. After uninterrupted growths in FDI in the period 2003–2007, global FDI inflows fell by 16.0 percent to US$1,662 billion in 2008. This decline was, in general, a reflection of the turmoil in the financial markets and the accompanied worldwide economic downturn. Regionally, FDI inflows into developing countries rose by 21.0 percent in 2007 to reach a new record level of US$500 billion. Inflows to Least Developed Countries (LDCs) alone reached US$13 billion, a 4.0 percent increase over the previous year. Meanwhile in Africa, FDI inflows rose to a historic high of US$53 billion in 2007. The inflows were supported by a boom in global commodity markets as well as by increased cross- border M&As in the extraction industries and related services, and the banking industry. These cases might illustrate a trend towards greater diversification of inflows in some of the LDCs, away from traditional sectors like oil and gas. Nigeria, Egypt, South Africa and Morocco were the largest recipients. In 2008, however, the regional pattern of FDI flows varied by groups of economies. In developed countries, both FDI inflows and outflows plunged, with inflows declining by 41.8 percent to US$1,018 billion, and outflows by 17.5 percent to US$1,572 billion during 2008. The declines were registered in all three components of FDI inflows (equity, reinvested earnings and other capital flows mainly intra-company loans). In contrast, developing economies saw FDI inflows rising by 11.5 percent to record levels of US$630 billion, with their shares in global FDI inflows growing to 37.0 percent and 7.0 percent in developed and developing economies, respectively in 2008, from 27.0 percent and 5.0 percent in the previous year. It should be noted that the downturn in FDI inflows into developing and transition economies began almost one year after it had started in developed countries, reflecting the time lag associated with the initial economic downturn and consequent slump in