9 Introduction demand in developed-country markets, which are important destinations for goods produced by developing countries. There were declines in FDI inflows in late 2008 and early 2009, particularly in developed countries. In Africa, inflows rose to a record level of US$72.2 billion, with the fastest increase of 63.0 percent over 2007 recorded in West Africa. Sectoral analysis had shown that globally, the agriculture and extractive industries weathered the crisis relatively well, compared with business- cycle-sensitive industries such as metal manufacturing. In addition, FDI in industries such as agribusiness, services and pharmaceuticals were somewhat resilient. Overall, policy trends during 2008 were mostly favorable to FDI, both nationally and internationally. However, in some countries a more restrictive FDI approach had emerged as there was growing evidence of undisclosed protectionism. Recent trends indicate that global FDI inflows drastically fell further by 37.0 percent to US$1,114 billion in 2009 while outflows fell some 43.0 percent to US$1,101 billion in 2009. FDI flows contracted in almost all major economies, except for a few FDI recipients such as Denmark, Germany and Luxembourg, and investment sources such as Mexico, Norway and Sweden. Both M&As and Greenfield investments declined due to reduced ability of Transnational Corporations (TNCs) to raise capital either through financial institutions, stock markets or internal resources. Nevertheless, most of the drop in FDI was due to a substantial decrease in M&As deals rather than Greenfield operations. Whilst some sectors were resilient in 2008, FDI inflows and outflows slumped in the primary, manufacturing and service sectors in 2009. FDI was, however, showing signs of recovery in 2010, sustained by a resumption of equity investment as well as increases in intra-company loans and reinvested earnings.
10 Foreign Private Investment and Investor’s Perceptions Report-2010 1.7 Macro-economic development of Rwanda Rwanda is a small developing country in Eastern Central Africa. It shares borders with the Democratic Republic of Congo in the West, Uganda in the North, Burundi in the South and Tanzania in the East. It is classified among countries with very high population density on the African continent. Like many other developing countries, Rwanda has also been affected by the global economic recession and the Real Economic Growth stood at 6.1percent in 2009 against 11.5 percent in 2008. While the primary sector performed well (+7.7 percent) boosted by continuing high growth in agricultural production due to favorable weather conditions and ongoing Government Crop Intensification Program, industry (+1.3 percent) and services (+5.7 percent) performed moderately compared to previous periods. This situation was due mainly on the fall in global demand and tightened banking system credit conditions, following the liquidity crunch experienced by banks at the beginning of 2009. The tertiary sector maintained its first position (44.9 percent) in the structure of GDP , followed by the primary sector (35.5percent) and industry (13.7%).
11 Introduction Figure 4: Selected macroeconomic performance indicators 2005-2010 Indicator 2005 2006 2007 2008 2009 2010 Real GDP Growth (%) 9.4% 9.2% 7.7% 11.5% 6.1% 7.5% Nominal GDP per Capita (US$) 288.6 332.6 391.4 479.6 520.5 540.5 Average Exchange Rates (RFW/US$) 557.81 548 547.01 546.85 568.27 583.13 Current Account Deficit (% of GDP , Excluding Transfers) -14.6% -12.3% -11.9% -15.2% -19.6% -18.0% Gross Reserves ( in months of imports) 7.6 6.8 7.0 5.1 6.2 6.0 Annual average Inflation (%) 9.10% 8.90% 9.10% 15.40% 10.30% 2.40% Gross National Savings (% of GDP) 12.1% 8.9% 14.3% 19.6% 15.8% 14.7% Gross Domestic Investment (% of GDP) 16% 16% 18% 23% 22% 21% Source: BNR annual reports 2008 and 2009 12 Foreign Private Investment and Investor’s Perceptions Report-2010 The underlying inflation, which excludes fresh food and energy, dropped to 3.5% in December 2009 from 22.1% in December 2008, while the annual average inflation dropped to 10.3% from 15.4% during the same period. This trend of inflation was due to decline in import prices, good performance of agricultural production, the stable exchange rate and the lower money supply. Rwanda’s external sector was affected by the global economic and financial crisis which resulted in low international prices of minerals, while imports continued to increase. Rwandan trade balance deficit worsened between 2008 and 2009, from -14.0% to -16.7% of GDP and the current account deficit excluded transfers remain very high under the review period. However, despite the negative effect of the global economic recession on the external sector, Rwanda managed to close the year with a positive balance of payments, representing 1.2% of GDP following 1.3% in 2008, due to excess of capital and financial account. Significant increase in external budget support together with the increase in private transfers led to an increase in gross official reserves which represented 6.2 months of imports against 5.1 months at end 2008. This development contributed to maintain a relatively stable nominal exchange rate of the Rwandan Franc for the 4th consecutive year. The Government revenue increased by 10.5% in 2009 as result of sustained economic growth, and government efforts to broaden tax base and grants increase. Tax revenue ratio to GDP was 12.2% against 12.7% the previous year. On the other hand, government expenditures increased by 13%. Capital and current expenditure represented respectively 9.9% and 10.4% of GDP and 41.0% and 59.0% of total expenditure. The total domestic outstanding debt declined by 15.7% in 2009. Non-banking sector remained the major source of domestic debt; its share slipped from 58.3% in 2008 to 56.4% as the banking system was facing liquidity problems in early 2009. With regard to external public debt, after the debt cancellation in 2006, the total external public debt stock increased by 28% in two years term; of which more than 85% were owed to multilateral creditors. The remaining 15% of the total external public debt is owed to bilateral creditors. Broad Money grew by 6.9% at end 2009 against 17% planned at the beginning of the year. This increase in money supply was generated exclusively by the increase in net foreign assets resulting from the important external budget support disbursements, as well as private capital inflows via the banking system. Contrary to an increase of 23% planned at the beginning of the year, the outstanding credit to private sector fell by 1.8% as a consequence of the liquidity crunch experienced by the banking system between the last quarter 2008 and the second quarter 2009.
13 Methodology
However, following the policy measures aiming to improve
liquidity conditions and banks’ lending capacity, the credit
to private sector has been significantly recovering for the
last two months of 2009. Authorized loans to the economy
by commercial banks increased by 26.4% and 47.2% during
November and December. During the period under review,
currency in circulation declined by 5%, mainly explained by
the progressive financial deepening with fast-expanding banks’
branches and microfinance institutions countrywide, as well
as the administrative measures undertaken to restrict the
cash withdrawal and encourage the use of banks’ accounts in
payments.
CHAPTER II: METHODOLOGY
2.1. Sensitization
Before launching this important survey for the first time in
the country, a lot of efforts were put in place to construct
an attractive foreign private capital climate. It was therefore
required that a sensitization campaign be organized. The
objective was to maximize the chance of reporting real data
as requested. The sensitization was made via an awareness
campaign directed to high management of companies such
as Managing Directors, Chief Executive Officers, and Finance
managers.
2.2. Enterprise register
The enterprise register was mainly based on RDB database
and RRA large tax payers list. Initially 212 companies were
identified which operate in different sectors such as Agriculture,
Construction, Energy, Financial services, Food processing, Fuel,
Hotel, ICT and Communication, Insurance, Manufacturing,
Mining, Real Estates, Restaurant, Retail and Wholesale,
Services, Tourism and Transport. Nevertheless, in some cases
a same company had more than one name and registered
in different ways and others had closed. This contributed to
a reduction of the initial list and only 152 companies were
retained for the survey.
As stated earlier, the RDB database gives a list of FDI and local
companies registered with them. The list from RRA does not
make any distinction between local and foreign companies
and the use of their information was only based on the staff
knowledge of companies.
2.3 Survey
All 152 companies were visited and given questionnaires.
The enumerators met with the managing director or at least
the finance manager of each company. It may happen that
all the companies having the FAL were not identified as it
was intended in the census, especially due to the problem of
existing information on this kind of companies.
14
Foreign Private Investment and Investor’s Perceptions Report-2010
2.4. Tools
2.4.1 Questionnaires
The data was captured using a questionnaire put in place by
the working group, comprising 5 parts:
•
Part 1 captured the General Information of the company:
Name, shareholding structure, Relationship with fellow
enterprises abroad, the company turnover, the company’s
industrial classification and main activity, the employment
structure and compensation of employees, imports from
and or exports to abroad, level of investments, gains or
losses on exchange or sales operations, profits, losses,
dividends, retained earnings and social responsibilities
performed.
•
Part 2 captured information on foreign equity investments
in the company by country of origin. It differentiates the
equity of less than 10% to that of more than 10% according
to the Balance of Payments manual 6.
•
Part 3 captured information on non-equity such as
borrowing, long term or short term as well as other
liabilities to be specified as indicated in the questionnaire.
•
Part 4 captured information on investment abroad such
as the company’s holding of share abroad, loan to foreign
companies, as well as other assets held abroad.
•
Part 5 captured information on investor’s perceptions
such as the effects of economic and financial factors to
the business of the company, cost of services, labors, and
environment and health factors to the business regulatory
system. This part requires also the company to provide the
near future direction of their investments.
Every company’s response to questionnaire had to be
supported by the company’s financial statements and related
notes that companies were also strongly requested to provide
at the same time of questionnaire collection.
2.5. Training and field work activities
Before the survey commenced, a pre-survey training was
organized for a week. It took place in July 2010 at Gisenyi.
The training involved representatives from all collaborating
institutions and MEFMI. The main objective of the training
was to orient the researchers on the questionnaire to help
them understand foreign private capital (FPC) concepts, learn
fieldwork techniques and strategize on how to attain high
response rates.
2.5.1. Technical assistance
The country received technical assistance from MEFMI in the
15 Methodology
form of a mission. The mission, conducted at the NBR, involved
technical staff from the NBR, NISR, PSF and RDB. During the
mission, discussions were held regarding data uprating and
robustness.
2.5.2. Questionnaire Administration
The survey targeted 152 private entities of which 128 have
responded representing 84 percent (84%). Most of the
companies surveyed are located in Kigali city because of
concentration of formal businesses.
Other companies are located out of Kigali city but have their
head offices or representation offices in Kigali city where
generally CEOs, CFOs and Accountants can be accessed. A
summary of questionnaire administration is shown in Table 1.
Table 1: Questionnaire Administration
Responded
with FAL
Responded
without FAL
Not
Responded
Total
External
liabilities
80
External
Assets
6
Total 86 42 24 152
2.6. Data processing
Data entry and processing were performed using a PCMS
–software developed by MEFMI for its member countries.
Enumerators were trained on the system and entered data
themselves in the system. This phase was very important
and contributed to the team knowledge of the system as it
will be used also for the following rounds of data collection.
The system presents many facilities such as exporting data
in excel or word, charts for data analysis and reporting.
Through technical assistance to which the Rwanda FPC project
contributed to funding, MEFMI trained the staff on the use of
the system. It is an online system that has security key and no
one can access data of another country. The password assists
you accessing data of your country unless other country has
put the information to be accessed by all users of the system.
As the team entered data into the system, they also have the
facility of correcting errors to present final results.
2.7. Up-rating Methodology
In order to obtain better FPC estimates representative of the
targeted population, the survey data was up-rated using sector
specific factors. These sectoral factors we derived using annual
turnover for both years 2008 and 2009 obtained from Rwanda
revenue authority VAT register and argument with turnovers
on selected companies provided by the economics surveys
section of the Bank of Rwanda. The Data under various FPC
16 Foreign Private Investment and Investor’s Perceptions Report-2010
aspects were then generated; grouped by turnover category and the appropriate sectoral up-rating factors were applied to obtain
better estimates of the various aspects of FPC for the population. The table 3 below presents the sectoral uprating
factors used:
Table 2: Sectoral Uprating Factors
No Sector 2008 2009
1 Accommodation and Food
Services
1.1062 1.0891
2 Administrative and support
services activities
1.0000 1.0000
3 Agriculture Forestry and Fishing 1.0000 1.0000
4 Arts, entertainment and
recreation
1.0000 1.0000
5 Construction 1.1313 1.2343
6 Financial and Insurance 1.2529 1.5279
7 Information and Communication 1.2049 1.0997
8 Manufacturing 1.0082 1.0117
9 Mining and Quarrying 1.0000 1.0000
10 Professional, scientific and
technical activities
1.0000 1.0000
11 Real Estate Activities 1.0680 1.0504
12 Transport and storage 1.0036 1.0188
13 Wholesale and Retail Trade 1.6236 1.5145
Overall 1.2230 1.2318