29
Quantitative Findings
Corporate social responsibility include donations, financing
of environmental, infrastructure, educational programs,
health and other social, cultural or community services that
benefit the country. The contributions of corporate social
responsibility stood at RWF 904.4 million in 2008 against RWF
849.4 million in 2009. On average, most of the corporate social
responsibility expenditures were on health and welfare (30.3
percent) followed by donation to vulnerable groups (14.0
percent) and education (12.8 percent).
3.2.5.
Corporate social responsibility
Corporate social responsibility include donations, financing
of environmental, infrastructure, educational programs,
health and other social, cultural or community services that
benefit the country. The contributions of corporate social
responsibility stood at RWF 904.4 million in 2008 against RWF
849.4 million in 2009. On average, most of the corporate social
responsibility expenditures were on health and welfare (30.3
percent) followed by donation to vulnerable groups (14.0
percent) and education (12.8 percent).
Table 12: Private corporate social responsibility for 2008-2009 in
RWF million
Corporate Social Responsibility
2008
2009
Education
171.9
52.4
Health and welfare
212.8
318.5
Safety and Security
70.3
66.2
Arts and Culture
1.6
82.7
Sports Development
66.1
57.3
Environment
102.9
32.1
Water
0.3
17.6
Road
10.5
3.6
Religious
2.8
0.6
Donation to vulnerable groups
145.6
97.4
Donation to other charity organization 76.3
95.3
Other
43.1
25.8
Total
904.4
849.4
Source: Foreign Private Investment & Investor Perceptions Survey,
2010
30 Foreign Private Investment and Investor’s Perceptions Report-2010 CHAPTER IV.
FINDINGS ON INVESTORS’ PERCEPTIONS
This section reports on findings from the perception side of the
questionnaire. The Foreign Assets and Liabilities and Investor
Perceptions (FALIPS) 2010 considered different variables
affecting the private sector growth and how they impact on the
business climate in Rwanda. The perception part was intended
to identify areas where the government needs to put strength
to improve the business environment. The respondents were
required to rate the following factors which in one way or the
other affect their business: effects of economic and financial
factors, efficiency and cost of support services, effect of Labor,
environment and health factors, efficiency of regulatory and or
government agencies, direction of investments and sources of
useful information.
4.1. Effect of Economic and Financial factors to business
Respondents considered domestic market size, access to
international markets, and access to local and international
business finance as having a strong positive effect to their
businesses as shown in the table below. These factors are
considered to be crucial for business establishment. On the
other hand, inflation, exchange rate, interest rates, customs
duties and corporate taxes are recorded as having a strong
negative effect on the reported companies.
42 Foreign Private Investment and Investor’s Perceptions Report-2010 Figure 12: Effect of Economic and Financial factors to business Figure 13: Efficiency of support services Source: Foreign Private Investment & Investor Perceptions Survey, 2010 Source: Foreign Private Investment & Investor Perceptions Survey, 2010 In light of the above, it would be appropriate for the government through the central bank to continue maintain macro-economic stability by maintaining low levels of inflation and interest rates and ensure exchange rate stability. In addition, with regard to corporate tax , customs and excise duty the government through the revenue authority could consider making tax payment more flexible . On the other hand, to enhance investments, there is a need to accelerate the growth of the domestic economy which will in turn contribute to the growth of the domestic market. Further still, the government could enhance access to international markets by making cross border trade more efficient by streamlining clearing procedures.
4.2. Efficiency of support services The efficiency of support services was globally well rated. Immigration, telecommunication and internet services were indicated to be the most efficient support services with a strong positive effect to business operations. This can be attributed to government’s efforts to facilitate the private sector and attract
32 Foreign Private Investment and Investor’s Perceptions Report-2010
Figure 14: Cost of support services
Source: Foreign Private Investment & Investor Perceptions
Survey, 2010
foreign investments in sectors like communications. There is
need, however, for the government to enhance efficiency of
other support services like electricity and banking services.
4.3. Cost of support services
Immigration, municipal and licensing services were shown as
having a positive impact on business operations and improves
business environment in Rwanda. Immigration services were
ranked highly following improvement in the issuing of work
permits and visas to foreign investors.
Respondents identified the costly support services which have
a direct impact on their business entities. Electricity service was
ranked the most costly services that increase the operational
costs of business entities which were surveyed (see fig.8). The
second costly service is road transport which negatively affects
businesses since it increases production cost. To reduce the
high costs of electricity services, there is need to construct
more micro hydro-electric power dams to generate electricity
to boost the existing national hydro-electric power output. And
similarly domestic road transport networks could be increased
and existing roads be well maintained.
4.4. Effect of labor, environment and health factors on
business operations
Among the labor factors, security was ranked highly positive
compared to other factors. This was followed by the productivity
of local skilled and unskilled labor and contribution to Social
Security.. However, the availability of local skilled labour was
rated as having the strongest negative effect on businesses.
33 Quantitative Findings Concerning health related factors, Malaria and AIDS were considered to have negative effect on the health status of employees, which impact the productivity of businesses in a negative way. In the environmental factors category both soil degradation and climate were rated as having a negative impact on businesses (see fig. 9). Figure 15: Effect of labor, environment and health factors on business operations Source: Foreign Private Investment & Investor Perceptions Survey, 2010 Source: Foreign Private Investment & Investor Perceptions Survey, 2010 4.5 Effects of financial crisis on business operations The financial crisis affected the business community negatively in various components of their operations. The most affected component was turnover and the less affected one was foreign lending rates. Other components which were affected negatively include access to domestic and international credit; import costs, investment inflows and export demand (see fig. 16). Figure 16: Effects of financial crisis on business operations.
34 Foreign Private Investment and Investor’s Perceptions Report-2010 Source: Foreign Private Investment & Investor Perceptions Survey, 2010 4.6 Efficiency of regulatory and other government agencies on business entities As reflected in figure 17, all regulatory and other government agencies were rated highly efficient by respondents. Services provided by institutions such as Rwanda Development Board, Local authorities (Kigali city, districts) and the Directorate General of Immigration were ranked higher compared to others. However services provided by Rwanda Revenue Authority and EWSA should be improved in order to effectively support business operations in Rwanda. Figure 17: Efficiency of regulatory and other government agencies on business entities 4.7 The future direction of investments Respondents were requested to give an outlook of the future direction of their investments plans over a period of three 3 years. Most of them planned to expand their investments in areas of staff training, recruitment of nationals, investment in technology and improvement of existing facilities. These investments plans are a demonstration of investor confidence in the Rwanda’s investment climate. On the other hand, some investors planned to scale down on the recruitment of expatriates and instead hire local skilled labour with competence to handle jobs that were previously done by expatriates. Results from the survey show that investors are not planning to diversify in other sectors. It is therefore critical for Government through Rwanda Development Board to make sure that potentialities in other sectors are marketed and presented to new investors through different investment promotion strategies.
35 Quantitative Findings Source: Foreign Private Investment & Investor Perceptions Survey, 2010 Source: Foreign Private Investment & Investor Perceptions Survey, 2010 Figure 18: Future direction of investments Figure 19: Useful Sources of information 4.8 Useful Sources of information Respondents were asked to rank different sources of information for their business. In this regards, internet, government agencies and publications, local and regional media were highly ranked. Other sources of information which were considered as quite useful were; workshops, conferences, trade fairs and international seminars.
36
Foreign Private Investment and Investor’s Perceptions Report-2010
CHAPTER V: CONCLUSION AND
RECOMMENDATIONS
5.1. Conclusion
•
The foreign private investment and investor’s perceptions
results revealed that, private sector investments in Rwanda
have continued to grow and provide drive for sustained
economic growth. Increase in stock of foreign liabilities
by 34.0 percent between 2008 and 2009 present both
positive developments and challenges to policymakers on
its management. On the positive side, it indicates increased
attraction of foreign investment and assets abroad. On
the other hand, the increase in private sector external
debt, specifically from unrelated companies could create
pressure on foreign reserves. Appropriate monetary policy
intervention is therefore needed to contain the situation.
•
During the period under review, findings of the survey
indicated that, actual investments increased by 24.2
percent, entity turnover by 22.8 percent, employment
by 29.7 percent, and compensation of employees by 30.7
percent, implying positive trends. This is an indication that
Rwanda is a competitive investment destination and the
private sector continues to contribute to economic growth.
There is need to sustain the achievements registered in
the attraction and retention of private investments.
•
The investors’ perceptions highlighted critical issues of
concerns from private investors on business environment
and institutional agencies affecting the key activities of
private sector which require to be addressed. Among the
others, the levels of inflation, interest rates and exchange
rate, negative effect of corporate tax , customs and excise
duty, small size of the domestic market, inaccessibility
to international markets, efficiency and high costs of
electricity, banking services.
•
The survey observed that, foreign private liabilities remain
solid despite the global finance crisis. This was partially
attributable to diversity of investments sources; Over
56.0 percent of total investment came from countries less
affected by the crisis, namely COMESA, SADC, EAC and
ASIA.
5.2. Policy recommendation
From the above observations, it is evident that FPC is an
important source of development. However, if it is not
properly monitored and managed, FPC can be a source of
economic instability. This justify the need for the government
to strenghen efforts aimed at monitoring and managing FPC
inflows.
Further, the following policy interventions are recommended
to enhance FPC flows
37 Conclusion and Recommendations • Investment monitoring: The survey highlighted the need for continuous effort to monitor investments. This would call for a regular joint investment monitoring system that would help in strengthening data quality and formulating policies aimed at attracting and retaining investments. • Debt sustainability: Governemt is advised to include private sector debt on its debt sustainability analysis as survey results indicated that loans from unrelated companies on average accounted for 75.0 percent of total outstanding private sector debt. This among others will enable government to approprietely allocate its foreign reserves in line with the composition of the overall external debt. • Interest rates: the findings of the FPC 2010 revealed that the magnitude of external borrowing to finance investment increased substantially. This may partially be attributed to inadequate long-term financing and high interest rates on domestic credit facilities which are critical for private sector development. National banks in collaboration with financial institutions are advised to lower the cost of borrowing. • Inflation was identified as a major constraint to the private sector growth and development. According to investment perceptions high inflation erodes the values of financial assets and creates uncertainty about future prices which discourages savings and investments. This inflation which is mainly imported (fuel in particular), could be addressed through investing on alternative source of energy. • Investment financing: to expand the scope of financing, private entities need to be sensitized on the importance of joining the capital markets to raise equity and debt finance. Private entities should be encouraged (e.g. through tax incentives) to list their stocks into the Rwanda capital market in order to mobilize financing through issuance of equity shares and tradable debt securities. • Infrastructure development: this will address the demands of the private sector which requested improved development of rural roads and energy infrastructures. There is need to ensure adequate supply of electricity in the long-term to commensurate with the growth in demand of energy. In addition, ICT infrastructure needs to be enhanced in order to increase efficiency and reduce cost of communications. • Access to international markets: this has been a concern to investors; the government is advised to ease the cost of air transport, development of cross border roads and railways to facilitate access to external markets. • Sectoral diversification: results from the survey showed that investors are not planning to diversify in other