Foreign_Private_Capital_Rwanda_2013.pdf - Page 1

National Bank of Rwanda

FOREIGN PRIVATE CAPITAL IN RWANDA

YEAR 2013

National Institute of Statistics of Rwanda

FOREWORD

This report presents the findings of the a nnual Foreign Private Investment Census 2014. It is the fifth in a series of annual census jointly conducted by the National Bank of Rwanda, the Rwanda Development Board, the National Insti tute of Statistics of Rwanda and the Private Sector Federation. The Census collected data on foreign direct investment, portfolio and foreign borrowing in resident enterprises and other variables pertaining to private sec tor investment. The Foreign Private Capital Census 2014 , collecting data of the year 2013, covered 183 companies made of new companies registered as foreign direct investments by Rwanda Development Board in 2013 as well as those which declared Foreign Assets and Liability (FAL) in the previous censuses.

This annual foreign private investment census would not have been successful without the involvement and cooperation of key stakeholders: the enterprises, government agencies and technical staff. The National Bank of Rwanda acknowledges and appreciates their valuable contribution. The information provided by the respondents during the census is used for statistical pu rposes only and strict confidentiality is ensured through presentation of the results in aggregate form.

The Foreign Private Investments census is an important activity for the Government of Rwanda in its efforts to attract and retain foreign private capi tal in the country to complement local resources. The information generated is used in the compilation of the co untry’s Balance of Payments, International Investment Position statistics and shall contribute to improve private investment policies.

John RWANGOMBWA
Governor, National Bank of Rwanda

LIST OF ACRONYMS

BNR

National Bank of Rwanda BOP

Balance of Payments
BV

Book Value
COMESA

Common Market for Eastern and Southern Africa EAC

East African Community FAL

Foreign Assets and Liabilities FDEI

Foreign Direct Equity Investment
FDI

Foreign Direct Investment
FPC

Foreign Private Capital
GDP

Gross Domestic Product
GF

Grossing-up Factor LDCs

Least Developed Countries LLDCs

Landlocked Developing Countries MEFMI

Macroeconomic and Financial Management Institute
NISR

National Institute of Statistics of Rwanda
OECD

Organization for Economic Co-operation and Development PCMS

Private Capital Monitoring System PFA

Private foreign asset PSED

Private Sector External Debt
PSF

Private Sector Federation
RDB

Rwanda Development Board
RIEPA

Rwanda Investment and Export Promotion Agency RWF

Rwandan Franc RWG

Rwanda Working Group (on Private Capital Monitoring) SADC

Southern African Development Community
SIDCS

Small Islands Developing States TNC

Transnational Corporations WEF

World Bank Economic Forum

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TABLE OF CONTENTS

FOREWORD................................................................................................................................................ i LIST OF ACRONYMS .............................................................................................................................. ii LIST OF TABLES ...................................................................................................................................... v LIST OF FIGURES ................................................................................................................................... vi EXECUTIVE SUMMARY ...................................................................................................................... vii CHAPTER ONE ......................................................................................................................................... 1 INTRODUCTION ....................................................................................................................................... 1 1.0 Introduction ................................................................................................................................... 1 1.1 Global and regional trends in Foreign Direct Investment ............................................................. 2 1.2 Monitoring foreign investment in Rwanda ................................................................................... 4 1.4 Reasons for investing in Rwanda .................................................................................................. 7 CHAPTER TWO. ....................................................................................................................................... 8 METHODOLOGY AND GENERAL FINDINGS ................................................................................... 8 2.0. Introduction ................................................................................................................................... 8 2.1. Census frame and response rate .................................................................................................... 8 2.2 Up rating methodology ................................................................................................................. 9 2.3 General findings .......................................................................................................................... 10 2.3.1 Entity turnover .................................................................................................................... 10 2.3.2 Exports-Imports .................................................................................................................. 11 2.3.3 Employment ........................................................................................................................ 12 2.3.4 Compensations of employees. ............................................................................................. 14 2.3.5 Corporate social responsibility ............................................................................................ 15 CHAPTER THREE .................................................................................................................................. 17 FOREIGN PRIVATE INVESTMENTS IN RWANDA ........................................................................ 17 3.0 Introduction ................................................................................................................................. 17 3.0.1 Foreign Private Capital attraction in Rwanda ..................................................................... 17 3.1 Foreign Private Investment by sector of economic activity ....................................................... 20 3.2 Foreign Private Investment by country of origin ........................................................................ 20

3.3. Foreign Direct Investment .......................................................................................................... 22 3.3.1. Foreign Direct Investment inflows and stock ..................................................................... 22 3.3.2 Foreign Direct Investment Inflows and Stock by sector .................................................... 23 3.3.3. Foreign Direct Investment Flows and Stocks by origin ..................................................... 24 3.4. Foreign Portfolio Investment ...................................................................................................... 24 3.5. Other investments ....................................................................................................................... 25 3.5.1. Other investment inflows and stocks by Sector .................................................................. 25 3.5.2. Other Investments Inflows and Stock by Source in 2013 .................................................. 26 3.6. Income on investments................................................................................................................ 26 3.6.1. Income on investment distribution by sector ..................................................................... 27 3.7. Return on equity by sectors in 2013 ............................................................................................ 28 3.8. Macro-economic analysis of census findings ............................................................................. 29 3.9. Private Sector External Debt 2013 .............................................................................................. 31 3.9.1. Private Sector External Debt inflows 2013 ......................................................................... 31 3.9.2. Private Sector External Debt stocks 2013 ........................................................................... 32 3.9.3 Private Sector External Debt Stock by Maturity and Type ................................................. 33 3.9.4 Private sector external debt inflows by credit type ............................................................. 34 CHAPTER FOUR ..................................................................................................................................... 35 CONCLUSION ......................................................................................................................................... 35 REFERENCES .......................................................................................................................................... 37 ANNEXES ................................................................................................................................................. 38

LIST OF TABLES

Table1.1: FDI flows by region, 2011–2013 (US$ billions) ---------------------------------------------------------------------------- 3 Table1.2: Top Ten Countries in Doing Business in Sub-Saharan Africa 2013-2014 -------------------------------------------- 4 Table1.3: Rwanda’s Doing Business Performance by Category 2013 and 2014------------------------------------------------- 5 Table2.4: Distribution and response rate per sector in 2013 -------------------------------------------------------------------------- 9 Table2.5: Entity turnovers by sectors in 2011-2013 (US$ million) ---------------------------------------------------------------- 10 Table2.6 Exports-Imports in 2013 (US$ million) --------------------------------------------------------------------------------------- 12 Table2.7: Employment by residence in 2013 --------------------------------------------------------------------------------------------- 12 Table2.8: Distribution of employment by sector 2011-2013 ------------------------------------------------------------------------- 13 Table2.9: Compensation of Employees 2011- 2013 (US$ million) ----------------------------------------------------------------- 14 Table2.10: Corporate Social Responsibility by Distributing Sector 2011 - 2013 (US$ million) ---------------------------- 16 Table3.11: New Foreign Private Investments registered (2009 – 2013) --------------------------------------------------------- 18 Table3.12: Foreign Private Investments Inflows by Category 2008-2012(US$ million) ------------------------------------- 19 Table3.13: Inflows and Stocks by Origin in 2013 (US$ million) ------------------------------------------------------------------- 21 Table3.14: Inflows and Stocks of FDI by Type 2011-2013(US$ million)--------------------------------------------------------- 23 Table2.15: Foreign Direct Investment Flows and Stocks by origin in 2013(US$ million) ---------------------------------- 24 Table3.16: Other Investments Inflows and Stock by Source (US$ million) ------------------------------------------------------ 26 Table3.17: Income on investment (US$ million) ---------------------------------------------------------------------------------------- 27 Table3.18: Income on investment distribution by sector in 2013 (US$ million) ------------------------------------------------ 27 Table3.19: FDI profitability 2013 ---------------------------------------------------------------------------------------------------------- 29 Table3.20: Selected indicators of FDI flows and stocks (percent) ----------------------------------------------------------------- 30 Table3.21: Economic regional comparisons in FDI Return on Equity 2011 -2013 (percent) ------------------------------- 31 Table3.22: Private Sector External Debt flows 2012 – 2013 (US$ million) ----------------------------------------------------- 32 Table3.23: Private Sector External Debt stocks 2010-2013 (US$ million) ------------------------------------------------------ 33

LIST OF FIGURES

Figure2.1: Distribution of employment by type in 2013 .............................................................................................. 13 Figure2 2: Corporate social responsibility by type of recipient in 2013 (US$ thousands) ......................................... 15 Figure3.3: Foreign Private Investment Inflows and Stock by 2013 ........................................................................... 19 Figure3.4: Foreign Private Investment Inflows and Stocks by Sector (US$ million), in 2013. ................................... 20 Figure3.5: Foreign Private Investment Stocks & Inflows by Region in 2013 (US$ million) ....................................... 22 Figure3.6: Foreign Direct Investment Inflows and Stocks by Sector in 2013 (US$ million) ...................................... 23 Figure3.7: Other investments inflows and stocks by sector in 2013 (US$ million) ..................................................... 25 Figure3.8: Private sector external debt inflows by relationships (US$ million) ......................................................... 34

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EXECUTIVE SUMMARY

The Government of Rwanda continues to promote private sector development, aiming at fostering both local and foreign investment by undertaking reforms with the objective of making the country a favorable place for investment.
The Foreign Private Capital Census (FPC) 2014 is the fifth in a series of annual censuses conducted by the National Bank of Rwanda in collaboration with National Institute of Statistics of Rwanda, Rwanda Development Board and Private Sector Federation . The main objective of the census is to collect information required for the compilation of Rwanda balance of payments, international investment position statements and determines the magnitude and tre nds of FPC. The 2014 FPC census provides actual flows and stock of foreign private capital statistics in Rwanda for the year 2013.

A total of 183 questionnaires were administered during the census from which 170 enterprises responded, representing a response rate of 92.9 percent. Overall, the 156 enterprises d eclared total turnover of US$ 1,565.0 million during 2013, which is equivalent to about 23.9 percent of GDP. The findings indicated that total employment by enterprises that responded was 34,114 employees as at the end of 2013 from 32,834 employees in 2012 which is an increase of 3.9 percent. Compensation of employees increased from US$.139.0 million in 2012 to US$ 301.6 million in 2013. Profitability doubled from US$.22.2 million in 2012 to US$.44.2 million recorded for 2013 coming mostly from manufacturing and finance & insurance sectors.

The Foreign Direct Investment (FDI) transactions during 2013 indicated an increase of 1.1 percent from US$ 255.0 million recorded during 2012 to US$ 257.6 million. Foreign Portfolio investment inflows increased from US$ 1.0 million in 2012 to US$ 1.7 million in 2013. The inflows of other investments made of debt from foreign non -affiliates rose from US$153.3 million in 2012 to US$168.4 million in 2013, an increase of 9.9 percent, on account of higher net disbursement duri ng the period . Most of the flows were mainly from Switzerland (US$ 96.0 million) followed by South Africa (US$ 45.5 million), Preferential Trade Area (US$ 44.6
million) and Canada (US$ 38.5 million) accounting for 52.5 percent of total FPC in 2013.

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The fin dings of the census indicate that the stock of foreign private capital increased from US$1,109.0 in 2012 to US$ US$ 1,404.1 million in 2013. Stock of foreign investment in ICT amounted to US$ 455.7 million followed by finance & insurance with US$ 339.4 million and manufacturing with US$ 256.5 million.

The stock of Private Sector Ext ernal Debt (PSED) as at end 2013 stood at US$ 814.5 million increasing from US$ 621.2 million in 2012, mainly driven by loans from unrelated sources with share of 56.7 percent.

FDI is becoming increasingly important as a source of investment funds as it occupies 16.7 percent of Gross Fixed Capital Formation (GFCF) in 2013; in average it has grown by 22.3
percent per yea r over the last five years . The ratio FDI/GFCF shows the con tribution of FDI in country‘s financing of capital formation. The importance of FDI to the economy is also shown by the increasing share of FDI stocks to GDP during the last five years, with an average annual growth of 12.8 percent. In 2013, the share of FDI inflows to GDP was 3.9 percent showing its contribution to the country’s economic growth. On annual average, over the last five years it has contributed 4.9 percent to GDP.

The f oreign private investments in Rwanda continued to grow and contribute to sustained economic growth. The increase in inflows of 4.5 percent of foreign liabilities from US$ 409.3 million declared in 201 2 to US$ 427.7 million in 201 3 and the growth of retained earnings by 100.0 percent, reflect high confidence of foreign investors in the Rwandan economy and the country’s capacity of foreign investment attraction. This is a response to continuously improving business environment and proof of existence of investment opportunities within the country. The Government is committed to con tinue accurately and consistently capture and monitor these flows to assess the investors’ responsiveness to related policies, the foreign investment’s impact on the country’s development and their capacity to complement local resources.

CHAPTER ONE INTRODUCTION 1.0 Introduction

Foreign Private investment (FPI) refers to inwards investments in terms of equity or/and non -equity (debts) from nonresidents into Rwanda and outward investments of Rwandan residents to the rest of the world. It comprises foreign dir ect investment which is the most important component, portfolio and other investments. Foreign private investment flows have become an important source of investment for many developing countries, although they tend to be sometimes volatile and less predictable due to changing international environment.

According to UNCTAD (2014), FDI is less volatile and growing sources of finance for investment in developping countries as indicated by its share in gross fixed capital formation ( GFCF). During the last th ree years (2011-2013) FDI inflows to the developing economies were in average around US$ 744 billion while the average outflows from this region were around US$ 439 billion . In the same period, FDI inflows to Africa rose by 4 per cent to reach at US $57 billion in 2013 from $US 54.8 billion in 2012.

Expectations for sustained economic and population growth s continue to attract market -seeking FDI into consumer -oriented industries. Intraregional investments are increasing, led by South African, Kenyan and Nigerian corporations. Most of the ir outflows investments were directed to other countries in the continent (UNCTAD , 2014).

Compared to portfolio investments, FDI are less volatile with long term investment horizon attracted by high economic growth rates an d strong macroeconomic fundamentals while Portfolio investment tend to be attracted by high relatively short term returns and stock exchange market development.

1.1 Global and regional trends in Foreign Direct Investment

With the timid recovery in glo bal economy, FDI flows in 2013 rose by 9% to US$1.45 trillion from US$1.33 trillion in 2012, despite some volatility in international investments.

In 2013, FDI flows to developing economies exceeded those to developed countries by US$ 222 billion amounting to US$ 778 billion in 2013 from US$ 729 billion in 2012 and representing 54 percent of global FDI inflows. Developed countries held US$ 556 billion in 2013 increasing from US$ 517 billion in 2012, which is equivalent to 9.47 percent increase.

Asia and Latin America continued to be th e dominating destination of FDI with US $ 426 billion and US$ 292 billion respectively, while FDI inflows to Africa slightly increased to US$ 57 billion in 2013 from US$ 55 billion in 2012. Foreign Direct Investment flows to developing Asia increased by 3 percent from US$ 415 in 2012 to US$ 426 billion in 2013. This increase was reflected across all sub regions except in west Asia where FDI inflows fell by 8.3 percent.

In East and South East -Asia, FDI increased respectively by 3.9 percent and 12.5percent from US$ 334 in 2012 to US$ 347 billion and from US$ 32 in 2012 to US$ 36 billion in 2013. FDI world outflows reached US$ 1,411 billion and were dominated by developed and developing
economies’ respectively by 61 percent and 32 percent of total outflows in 2013. The transition economies held 8 percent.

The BRICS countries (Brazil, the Russian Federation, India, China and South Africa) continued to be the leading sources of FDI among emerging investor countries. Total outward FDI from developing Asian countries increased by 7.9 percent from US$ 302 billion in 2012 to US$ 326 billion in 2013, accounting for 23 percent of global flows, over the share of European Union 17.7 percent ( UNCTAD, 2014).

Table1.1: FDI flows by region, 2011–2013 (US$ billions) Region
FDI inflows

2011 2012 2013 World 1 700 1 330 1 452 Developed economies 880 517 566 European Union 490 216 246 North America 263 204 250 Developing economies 725 729 778 Africa 48 55 57 Asia 431 415 426 Latin America and the Caribbean 244 256 292 Oceania 2 3 3 Transition economies 95 84 108 Structurally weak, vulnerable and small economies 58 58 57 LCDs 22 24 28 LLDCs 36 34 30 SIDS 6 7 6 Memorandum: percentage share in world FDI flows Developed economies 51.8 38.8 39 European Union 28.8 16.2 17 North America 15.5 15.3 17.2 Developing economies 42.6 54.8 53.6 Africa 2.8 4.1 3.9 Asia 25.3 31.2 29.4 East and South-East Asia 19.6 25.1 23.9 Latin America and the Caribbean 14.3 19.2 20.1 Oceania 0.1 0.2 0.2 Transition economies 5.6 6.3 7.4 Structurally weak, vulnerable and small economies 3.4 4.4 3.9 LCDs 1.3 1.8 1.9 LLDCs 2.1 2.5 2.0 SIDS 0.4 0.5 0.4

Source: World Investment report, 2014

Besides the UNCTAD reports on the global foreign private flows, countries around the globe have committed to collect this information following international standards data collection methodology and share their information with UNCTAD for comparability and communication. Rwanda has also committed to annually conduct this exercise and share the results.

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