Foreign_Private_Capital_Rwanda_2015_0.pdf - Page 1

National Bank of Rwanda

FOREIGN PRIVATE CAPITAL IN RWANDA

2015

National Institute of Statistics of Rwanda

FOREWORD

This report presents the findings of the a nnual Foreign Private Investment Census 2015. It is the sixth 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 information pertaining to private sec tor investment. The Foreign Private Capital Census 2015, collecting data of the year 2014, covered 200 companies composed of new companies registered as foreign direct investments by Rwanda Development Board in 2014 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 from National Institute of Rwanda, Rwanda Development Board and National Bank of Rwanda. The National Bank of Rwanda acknowledges and appreciates their valuable contribution. The information provided by the respondents during the census is used for statistical purposes only and strict confidentiality is ensured through presentation of the results in aggregate form.

The Foreign Private Investments census is an important activit y for the Government of Rwanda in its efforts to attract and retain foreign private capital 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 Po sition 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 UNCTAD

United Nations for Commerce Trade and Development WEF

World Bank Economic Forum WIR

World Investment Report

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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 ............................................................. 1 1.2 Regional investment trends ........................................................................................................... 2 1.3 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 Data quality and estimation for non-response ............................................................................... 9 2.3 General findings .......................................................................................................................... 10 2.3.1 Entity turnover .................................................................................................................... 10 2.3.2 Contribution on external trade ............................................................................................ 11 2.3.3 Employment ........................................................................................................................ 12 2.3.4 Compensations of employees. ............................................................................................. 13 2.3.5 Corporate social responsibility ............................................................................................ 14 CHAPTER THREE .................................................................................................................................... 16 FOREIGN PRIVATE INVESTMENTS IN RWANDA ............................................................................. 16 3.0 Introduction ................................................................................................................................. 16 3.1 Foreign Private Capital attraction in Rwanda ............................................................................. 16 3.2 Foreign Private Investment in Rwanda ....................................................................................... 17

3.2.1 Foreign Private Investment by sector of economic activity ............................................... 19 3.2.2 Foreign Private Investment by country of origin .................................................................... 20 3.3. Foreign Direct Investment .......................................................................................................... 21 3.3.1. Foreign Direct Investment inflows and stock ..................................................................... 21 3.3.2 Foreign Direct Investment Inflows and Stock by sector .................................................... 22 3.3.3. Foreign Direct Investment Flows and Stocks by origin ..................................................... 23 3.4. Foreign Portfolio Investment ...................................................................................................... 23 3.5. Other investments ....................................................................................................................... 24 3.5.1. Other investment inflows and stocks by Sector .................................................................. 24 3.5.2. Other Investments Inflows and Stock by Source in 2013 .................................................. 24 3.6. Income on investments................................................................................................................ 25 3.6.1. Income on investment distribution by sector ..................................................................... 26 3.7. Return on equity by sectors in 2014 ............................................................................................ 27 3.8. Macro-economic analysis of census findings ............................................................................. 28 3.9. Private Sector External Debt ....................................................................................................... 30 3.9.1. Private Sector External Debt inflows 2014 ......................................................................... 30 3.9.2. Private Sector External Debt stocks 2014 ........................................................................... 31 3.9.3 Private Sector External Debt Stock by Maturity and Type ................................................. 31 3.9.4 Private sector external debt inflows by creditor type .......................................................... 32 CHAPTER FOUR ....................................................................................................................................... 33 CONCLUSION ........................................................................................................................................... 33 REFERENCES ........................................................................................................................................... 35 ANNEXES .................................................................................................................................................. 36

LIST OF TABLES

Table1. 1: Foreign Direct Investment, by region, 2012-2014 (Billions of dollars and percent) ----------------------------- 3 Table1.2: Top Ten Countries in Doing Business in Sub-Saharan Africa 2015-2016 -------------------------------------------- 5 Table1.3: Rwanda’s Doing Business Performance by Category 2014 and 2015 ------------------------------------------------- 5 Table2.4: Distribution and response rate per sector in 2014 -------------------------------------------------------------------------- 9 Table2.5: Entity turnovers by sectors in 2011-2014 (US$ million) ---------------------------------------------------------------- 10 Table2. 6: Exports-Imports in 2014 (US$ million) ------------------------------------------------------------------------------------- 11 Table2.7: Employment by Category in 2014 --------------------------------------------------------------------------------------------- 12 Table2.8: Distribution of employment by sector 2011-2014 ------------------------------------------------------------------------- 13 Table 2.9: Compensation of Employees 2011- 2014 (US$ million) ---------------------------------------------------------------- 14 Table2.10: Corporate Social Responsibility by Sector 2011- 2014 (US$ million) --------------------------------------------- 15 Table3.11: New Foreign Private Investments registered (2009 – 2014) --------------------------------------------------------- 17 Table3. 12: Foreign Private Investments Inflows by Category 2008-2014(US$ million) ------------------------------------ 18 Table3. 13 : Foreign Private Investments flows 2014 (US$ million) -------------------------------------------------------------- 19 Table 3.14: Inflows and Stocks by Origin in 2014 (US$ million) ------------------------------------------------------------------- 20 Table3. 15: Foreign Private Investment Stocks & Inflows by Region in 2014 (US$ million) ------------------------------- 21 Table3.16: Inflows and Stocks of FDI by Type 2012-2014 (USD million) ------------------------------------------------------- 22 Table2.17: Top ten Foreign Direct Investment Flows and Stocks by origin in 2014(USD million) ----------------------- 23 Table 3.18: Other Investments Inflows and Stock by Source (US$ million) ----------------------------------------------------- 25 Table 3.19: Income on investment (US$ million) --------------------------------------------------------------------------------------- 26 Table3.20: Income on investment distribution by sector in 2014 (US$ million) ------------------------------------------------ 26 Table 3.21: FDI profitability 2014 --------------------------------------------------------------------------------------------------------- 28 Table3.22: Selected indicators of FDI flows and stocks (percent) ----------------------------------------------------------------- 29 Table3.23: Economic regional comparisons in FDI Return on Equity 2011 -2014 (percent) ------------------------------- 29 Table3.24: Private Sector External Debt flows 2012 – 2014 (US$ million) ----------------------------------------------------- 30 Table 3.25: Private Sector External Debt stocks 2010-2014 (US$ million) ----------------------------------------------------- 31

LIST OF FIGURES

Figure2.1: Distribution of employment by type in 2013 .............................................................................................. 12 Figure2 2: Corporate social responsibility by type of recipient in 2014 (US$ th ousands) ......................................... 15 Figure3.3: Foreign Private Investment Inflows and Stock by 2014 ............................................................................ 18 Figure3.4: Foreign Private Investment Inflows and Stocks by Sector (US$ million), in 2014. ................................... 19 Figure3.6: Foreign Direct Investment Inflows and Stocks by Sector in 2014 (USD million) ...................................... 22 Figure3.7: Other investments inflows and stocks by sector in 2014 (US$ million) ..................................................... 24 Figure3.8: Private sector external debt inflows by relationships (US$ million) ......................................................... 32

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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 P rivate Capital Census (FPC) 2015 is the sixth 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 in Rwanda. The FPC 2015 census provides actual flows and stock of foreign private capital
statistics in Rwanda for the year 2014.

A total of 200 questionnaires were administered during the census from which 189 enterprises responded, representing a response rate of 94.5 percent. Overall, all the enterprises declared total turnover of US$ 1,789.8 million during 2014, which is equivalent to about 22.8 percent of GDP. The findings indicated that total employment by enterprises that responded was 37,120 employees as at the end of 2014 from 34,114 employees in 201 3 which is an increase of 8.8 percent. Compensation of employees rose from US$ 301.6 million in 2013 to US$ 320.7million in 2014. Profit made decreased from US$ 73.6 million in 2013 to US$ 46.5 million recorded for 2014 and the most profitable sectors were mostly manufacturing and finance and insurance services sectors.

The Foreign Direct Investment census revealed that foreign direct inflows have increased by 78.1 percent from US$ 257.6 million recorded during 2013 to US$ 458.7 million in 2014. Foreign Portfolio investment inflows increased from US$ 1.7 million in 2014 to US$ 5.6 million in 2014. The inflows of other investments made of debt from foreign non-affiliates decreased by 74.8 percent from US$168.4 million in 20 13 to US$ 96.0 million in 2014 , this shows the change from non- affiliates to intercompany borrowing.

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Most of the foreign private investments in flows were mainly from Mauritius ( US$ 113.6 million) , Switzerland (US$ 106.3 million) followed by United States (US$ 70.0 million), all the 3 accounting for 51.7 percent of total foreign private inflows in 2014. The findings of the census also indicate that the stock of foreign private capital increased from US$ 1,404.1 in 2013 to US$ US$ 1,752.0 million in 2014 . Stock of foreign investment in ICT amounted to US$ 613.4 million followed by finance & insurance services with US$ 411.2 million and manufacturing with US$ 277.3 million.

The stock of Private Sector Ext ernal Debt (PSED) as at end 2014 stood at US$ 973.6 million increasing from US$ 779.2 million in 2013 , mainly driven by intercompany debts with share of 51.9 percent.

FDI is becoming increasingly important as a source of investment funds as it takes 22.1 percent of Gross Fixed Capital Formation (GFCF) in 2014 from 16.7 in 2013 ; The ratio FDI/GFCF shows the contribution of FDI in country‘s f inancing 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 14.1 percent. In 2014 , the share of FDI inflows to GDP was 5.8 percent showing its contribution to the country’s economic growth.

Over the last five years, foreign private investments in Rwanda continued to grow. The consistent increase in foreign private inflows of 40.0 percent in the five last years , reflect high confidence of foreign investors in Rwanda 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 continue accurately and consistently capture and monitor these flows to assess the investors’ responsiveness to related policies, the foreign investment 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 Rwand a and outward investments of Rwandan residents to the rest of the world. It comprises foreign direct 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.
Expectations for sustained economic and population growth s continue to attract market -seeking FDI into consum er-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 and 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

According to UNCTAD (2015), Global foreign direct investment (FDI) inflows fell by 16 per cent in 2014 to $1.23 trillion, down from $1.47 trillion in 2013. The decline in FDI flows was influenced mainly by the fragility of the global economy, policy uncertainty for investors and elevated geopolitical risks. New investments were also offset by some large disinvestments. The decline in FDI flows was in contrast to growth in GDP, trade, gross fixed capital formation and
employment.

UNCTAD forecasts an upturn in FDI flows to $1.4 trillion in 2015 and beyond ($1.5 trillion in 2016 and $1.7 trillion in 2017) due to growth prospects in the United States, the demand- stimulating effects of lower oil prices and accommodating monetary policy, and continued investment liberalization and promotion measures. Forecasts for macroeconomic fundamentals and FDI flows to the latter now account for 55 per cent of the global total . Developing Asia n countries drove the increase while flows to Latin America declined and those to Africa remained flat. FDI flows to developed countries dropped by 28 per cent to $499 billion. Inflows to the United States fell to $92 billion (40 per cent of their 2013 level), mainly due to Vodafone’s divestment of Verizon, without which flows into the United States would have remained stable. FDI flows to E urope also fell by 11 per cent to $289 billion. Among European economies, inflows decreased in Ireland, Belgium, France and Spain while they increased in the United Kingdom, Switzerland and Finland continued high levels of profitability and cash reserves. Among multinational enterprises (MNEs) support the expectation of higher FDI flows. However, a number of economic and political risks, including ongoing uncertainties in the Eurozone, potential spillovers from geopolitical tensions and persistent vulnerabilities in emerging economies, may disrupt the projected recovery.

1.2 Regional investment trends FDI flows to developing econ omies increased by 2 per cent to reach their highest level at $681 billion in 2014, accounting for 55 per cent of global FDI inflows (table1.1). Five of the top 10 host economies now are developing ones. However, the increase in developing country inflows is, overall, primarily a developing Asian story. FDI inflows to that region grew by 9 per cent to $465 billion, constituting the lion’s share of the total FDI in developing economies. Africa’s overall inflows remained flat at $54 billion, while those to Latin America and the Caribbean saw a 14 per cent decline to $159 billion, after four years of consecutive increases. FDI to transition economies dropped by more than half to $48 billion. Inflows to developed economies as a whole fell by 28 per cent to $499 billion, decreasing both in Europe and North America. Flows to Europe fell by 11 per cent to $289 billion, one third of their 2007 peak, while in North America FDI dropped 51 per cent to $146 billion.

Table1. 1: Foreign Direct Investment, by region, 2012-2014 (Billions of dollars and percent)

Region FDI inflows FDI outflows
2012 2013 2014 2012 2013 2014 World 1 403 1 467 1 228 1 284 1 306 1 354 Developed economies 679 697 499 873 834 823 Europe 401 326 289 376 317 316 North America 209 301 146 365 379 390 Developing economies 639 671 681 357 381 468 Africa 56 54 54 12 16 13 Asia 401 428 465 299 335 432 East and South-East Asia 321 348 381 266 292 383 South Asia 32 36 41 10 2 11 West Asia 48 45 43 23 41 38 Latin America and the Caribbean 178 186 159 44 28 23 Oceania 4 3 3 2 1 0 Transition economies 85 100 48 54 91 63 Structurally weak, vulnerable and small economiesa 58 51 52 10 13 10 LDCs 24 22 23 5 7 3 LLDCs 34 30 29 2 4 6 SIDS 7 6 7 2 1 1 Memorandum: percentage share in world FDI flows

Developed economies 48.4 47.5 40.6 68.0 63.8 60.8 Europe 28.6 22.2 23.5 29.3 24.3 23.3 North America 14.9 20.5 11.9 28.5 29.0 28.8 Developing economies 45.6 45.7 55.5 27.8 29.2 34.6 Africa 4.0 3.7 4.4 1.0 1.2 1.0 Asia 28.6 29.2 37.9 23.3 25.7 31.9 East and South-East Asia 22.9 23.7 31.0 20.7 22.4 28.3 South Asia 2.3 2.4 3.4 0.8 0.2 0.8 West Asia 3.4 3.0 3.5 1.8 3.1 2.8 Latin America and the Caribbean 12.7 12.7 13.0 3.4 2.2 1.7 Oceania 0.3 0.2 0.2 0.1 0.1 0.0 Transition economies 6.1 6.8 3.9 4.2 7.0 4.7 Structurally weak, vulnerable and small economiesa 4.1 3.5 4.3 0.7 1.0 0.8 LDCs 1.7 1.5 1.9 0.4 0.6 0.2 LLDCs 2.5 2.0 2.4 0.2 0.3 0.4 SIDS 0.5 0.4 0.6 0.2 0.1 0.1 Source: UNCTAD, 2015

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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