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percent) dominated by investments from Mauritius while OECD-Non EU had US$ 234.8 million (13.5 percent) coming mostly from USA and Switzerland. EAC had US$ 217.5 million (12.4 percent) dominated by investments from Kenya and SADC (Non EAC & COMESA) with US$ 164.8 million (9.4 percent). Stock of investment from international and regional organizations such as ADB, PTA and IFC stood at US$ 230.0 million (13.1 percent). Asia accounted for US$ 86.3 million (4.9 percent). Other countries classified elsewhere had US$ 59 (3.4 Percent) million.
Table3. 15: Foreign Private Investment Stocks & Inflows by Region in 2014 (US$ million)
Region
Stock
Flows
OECD
398.1
88.7
OECD-Non EU
234.8
198.6
EAC
217.5
29.9
COMESA-(Non-EAC)
360.8
114.1
SADC-(Non EAC & COMESA)
164.8
4.9
Asia
86.3
43.2
Other
59.7
9.8
I.Org.
230.0
71.8
Total
1,752.0
561.1
Source: Foreign Private investment 2015
3.3. Foreign Direct Investment
3.3.1. Foreign Direct Investment inflows and stock
Foreign direct investments are made of three categories: equity capital which is new investment in a company, loan from affiliates or from shareholders and retained earnings. In 2014, the FDI inflows significantly increased by 78 percent, from USD 257.4 million in 2013 to USD458.9 million dominated by loans from shareholders of USD 311.8 million representing 67.9 percent, equity capital of USD 129.6 million accounting for 28.2 percent while retained earnings were USD17.5 million accounting for 3.8 percent. Both equity capital and borrowing from affiliates flows increased in 2014 by 74.7 percent and 115.9 percent, respectively compared to 2013, while retained earnings decreased by 60.4 percent from USD 44.2 million in 2013 to USD 17.5 million in 2014.
22
Table3.16: Inflows and Stocks of FDI by Type 2012-2014 (USD million)
FDI Components
2012
2013
2014
Inflows
Stock
Inflows
Stock
Inflows
Stock
Equity capital
87.4
245.23
74.2
373.6
129.6
503.2
Loans
145.6
408.54
144.4
337.3
311.8
504.9
Retained earnings
22
61.73
44.2
126.67
17.5
144.2
Other changes
0
5.5
-5.4
0
0
0
Total
119.1
495.1
257.4
715.5
458.9
1152.3
Source: Foreign Private investment 2015
3.3.2 Foreign Direct Investment Inflows and Stock by sector
Top ten sector of activity accounted for 96 percent of all FDI inflows in 2014. Most of the Foreign Direct inflows went to mining with USD 136.2 million, ICT sector with USD 116.1 million, Tourism sector with USD 71.8 million, and Finance & Insurance sector with US$ 68.8 million. On stock stand point, ICT took the lead with USD 453.4 million, followed by finance and insurance (USD 229.6 million) and manufacturing (USD 172 million), that is 39.3 percent, 19.9 percent, and 14.9 percent, respectively. Figure3.5: Foreign Direct Investment Inflows and Stocks by Sector in 2014 (USD million)
Source: Foreign Private investment 2015
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3.3.3. Foreign Direct Investment Flows and Stocks by origin
By country of origin, Mauritius, Switzerland, US, Luxembourg and India were the major source of FDI inflows, totaling 81.6 percent of total inflows in 2014. Switzerland FDI stocks are less than the inflows in 2014 due to the inflow under form of short term trade credit and other accounts payables in mining sector mostly repayable in less than a year.
Table2.17: Top ten Foreign Direct Investment Flows and Stocks by origin in 2014 (USD
million)
Country
Inflows
% Share
Country
Stock
% Share
Mauritius
113.5
24.7
Mauritius
296.0
25.7
Switzerland
101.1
22.0
South Africa
163.5
14.2
US
69.0
15.0
Luxembourg
125.6
10.9
Luxembourg
52.1
11.4
Kenya
101.7
8.8
India
38.6
8.4
US
86.0
7.5
Kenya
25.7
5.6
Netherlands
76.1
6.6
Netherlands
16.9
3.7
Libya
60.0
5.2
Malaysia
13.0
2.8
India
49.7
4.3
Italy and Vatican City
7.8
1.7
Nigeria
32.7
2.8
Nigeria
5.7
1.2
Malaysia
23.1
2.0
Others
15.4
3.4
Others
138.1
12.0
Total
458.9
100.0
Total
1,152.4
100.0
Source: Foreign Private investment 2015
3.4.
Foreign Portfolio Investment
Portfolio investment which involves the purchase of stocks, bonds, commodities, or money
market instruments by non-residents, remain the lowest component of foreign investment in
Rwanda mainly due to the low level of financial market development. Its stock increased to US$
95.0 million in 2014, accounting for only 5.4 percent from US$ 89.4 million in 2013 of the total
liabilities stock.
Since the first listing on Rwanda Stock exchange in 2011 where we recorded a huge number of
portfolio inflows, the following years the trade flows on RSE were low nearly at US$ 1.0
million. In 2014, we recorded US$ 5.6 million compared to US$1.7 million in 2013. This
change mainly came from Rwandans who sold their stock shares to non-residents.
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3.5. Other investments
Other investments accounting for 17.2 percent of the overall liability inflows and are made of long term and short term loans from unrelated sources. In 201 4, a total of US$ 96.3 million of loans inflows were reported of which US$ 94.8 million (98.6 percent) were long term ( equal or more than 1 year), and US$ 1.3 million (1.4 percent) short-term (less than one year).
3.5.1. Other investment inflows and stocks by Sector
The sectorial distribution of other foreign investment inflows in 201 4 show that they were
mainly concentrated in the ICT sector which received US $ 44.9 million. Financial activities
came second with US$ 24.1 million followed by transportation with US$20.0 million. In terms
of stock, ICT had US$ 159.9 million, followed by the finance and insurance had US$ 123.5
million, Agriculture US$ 60.7 million, manufacturing US$ 53.4 million and Tourism US$ 45.7
million. The decrease of inflows in mining sector was explained by the shift of trade c redits to
non-affiliates in 2014 to support of affiliated companies in 2014.
Figure3.6: Other investments inflows and stocks by sector in 2014 (US$ million)
Source: Foreign Private investment 2015
3.5.2. Other Investments Inflows and Stock by Source in 2013
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In 2014, (IFC) was the major lender with disbursement of US$ 45.0 million, followed by Canada (US$ 18.1 million), and EABD (US$ 7.5 million). Inflows from East African Development Bank and European Investment Bank were US$ 7.5 million and US$ 6.4 million, respectively. In terms of stock, Germany was the major source, with US$ 67.2 followed by Preferential Trade Area (PTA) with US$ 61.6 million, and United Kingdom with US$56.7 million.
Table 3.18: Other Investments Inflows and Stock by Source (US$ million)
Country
Inflows
Stock
IFC
45.0
43.7
Canada
18.1
13.2
EABD
7.5
6.0
EIB
6.4
9.5
SWITZERLAND
5.1
18.7
FRANCE
3.6
20.8
NIGERIA
3.0
3.2
KENYA
2.6
14.3
SOUDAN
1.0
1.0
US
0.9
6.1
NETHERLANDS
0.5
12.7
Others
2.03
354.9
Total
95.7
504.1
Source: Foreign Private investment 2015
3.6. Income on investments
Since 2011, generally foreign private investments in Rwanda have been making profits and this is shown by the table 3.18. In 2014, the overall net profit amounted to US$ 46.5 million dropping from US$ 73.6 million in 2016. Out of the profit of US$ 46.5 million recorded in 2014, reinvested earnings were US$ 23.0 million, decreasing from US$ 44.2 million registered in 2013. The profit decreased in 2014 compared to 2013 due to newly registered companies in 2014, many start-ups in recent years and low profitability for existing companies. The major profits making sectors were finance and insurance specifically in banking sector, manufacturing and agriculture. The retained and reinvested earnings are net profit minus dividends declared. The ratio of dividends declared to net profit was 48.2 percent and the ratio of retained earnings to net
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profit was 49.5 percent. The reinvested earnings to net profit decreased by 48.2 percent in 2014 compared to the previous year. A big proportion of profits is retained at the rate of 49.5 percent in 2014.
Table 3.19: Income on investment (US$ million) Item Amount ($ m)
2010 2011 2012 2013 2014 Net Profit/Loss -34 21.8 59.9 73.6 46.5 Dividends Declared 15.1 21 37.9 26.5 22.4 Dividends Paid 14.2 14.8 22.9 20.9 34.2 Valuation changes
(0.5)
2.8 1.0 Retained Earnings/Loss -49.1 1.3 22 44.2 23.0 Source: Foreign Private investment 2015
3.6.1. Income on investment distribution by sector
The average retained earnings on investment in 2014 was 49.5 percent of total profit. The findings indicated that the more the sector makes the profit, the more it distributes and the more the sector makes profits, the more retained earnings as seen in table 3.19.
Table3.20: Income on investment distribution by sector in 2014 (US$ million) Sector Net Profit/ Loss Dividends Declared Dividends Paid Retained Earnings Administrative 0.1
0.1 Agriculture 1.8 0.6 0.6 1.1 Construction 1.5
1.5 Education (0.5)
(0.5) Financial 30.0 5.9 6.7 24.1 Manufacturing 23.7 7.4 11.4 12.4 Mining (6.1)
(6.0) Telecommunications (3.7) 8.0 15.4 (12.6) Other (0.2) 0.4
3.0 Total 46.5 22.4 34.2 23.0 Source: Foreign Private investment 2015 In terms of profit made, ICT sector dominated with 64.6 percent and manufacturing followed with 50.9 percent of the total profit, sectors like mining, ICT and Education retained losses at the
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end of 2014. In the calculations, other changes in volume affected the retained earnings by US$ 1.0 million.
Dividends paid to foreign shareholders increased from US$ 20.9 million in 2013 to US$ 22.4 million in 2014 . ICT sector held 35.7 percent of total declared dividends , followed by manufacturing with 33.0 percent.
3.7. Return on equity by sectors in 2014
Return on equity is the amount of net income returned as a percentage of shareholders equity. It measures company’s profitability by rev ealing how much profit a company generates with the money shareholders have invested. Net income is for the full calendar year (before dividends paid to common stock holders but after dividends to preferred stock.). ROE is useful for comparing the profitability of a company to that of other firms in the same industry. In our case, we use it to calculate sector profitability. According to Aswath (2007), the ROE is calculated as follows:
During the period under review, the overall return on equity attributa ble to for eign direct investments was 10.1 percent decreased from 16.1 % in 2013 . This change is attributed to loss made in 2014 by newly registered companies, start –ups which have not reached the break -even point and low profitability for existing compan ies in 2014 , mostly dominated by insurance companies.
The net profit is the net income of the year before dividends paid to common stock holders,
whereas FDI Stock includes accumulated equity capital and accumulated retained earnings as
presented in table 3.21.
The main objective of foreign investors in investing in foreign economies is to maximize their
global profits. Firms invest abroad when the expected return exceeds the costs (Caves 1982).
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Among other factors, the rate of return on investments positively affected FDI inflows in Sub Saharan Africa (Opolet et al 2008). In Rwanda, profitability of 10.1 percent continues to be higher than the world average return of 6.1 percent.
Table 3.21: FDI profitability 2014
Sectors
Average
Profit
ROE
Administrative and support service activities
0.7
0.1
20.1
Agriculture
14.6
1.8
12.0
Construction
4.8
1.5
30.5
Education
1.0
(0.5)
(0.5)
Electricity, gas, steam
0.2
0.0
19.4
Financial and insurance activities
110.8
30.0
27.1
ICT
160.0
(3.7)
(0.0)
Manufacturing
82.7
23.7
28.6
Mining
25.1
(6.1)
Other service activities
1.0
0.2
20.0
Tourism
20.6
(1.5)
(0.1)
Transportation and storage
6.9
(0.2)
(0.0)
Wholesale and retail trade
31.5
1.3
4.0
TOTAL
460.1
46.5
10.1
Source: Foreign Private investment 2015
Considering profitability per sector, construction sector came first with 30.5 percent followed by
manufacturing with 25.5 percent and financial services activities come third with 22.9 percent.
Education, ICT, mining, tourism, transportation and storage made losses in 2014. These are the
most affected sectors due to their big numbers of start-up companies and the global economic
environment that affect them.
3.8.
Macro-economic analysis of census findings
Table 3.21 shows some key analytical ratios of foreign assets and liability flows and stocks. In terms of inflows, FDI became increasingly important as a source of investment funds as it stood at 22.1 percent of Gross Fixed Capital Formation (GFCF) in 2014. The ratio FDI/GFCF shows the contribution of FDI in country‘s financing of capital formation.