Foreign_Private_Capital_Rwanda_2015_0.pdf

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The importance of FDI to the economy is also shown by the increasing share of its stock to GDP of 14.6 percent in 2014. In 2014, the ratio of FDI inflows to GDP was 5.8 percent which grew by 47.5 percent from the previous year.

The share of PSED stock to GDP shows a similar increasing trend from 11.9 percent in 2013 to 11.9 percent in 2014. Its service to GDP rose from 15.3 percent in 2014 to 21.9 percent in 2014, due to increasing level of debt.

Table3.22: Selected indicators of FDI flows and stocks (percent) Indicators
2013 2014 FDI Inflows/GFCF
16.7 22.1 FDI Inflows/GDP
3.9 5.8 FDI stock/GDP
12.8 14.6 PSED Stock/GDP
11.9 12.3 PSED Service / PSED Stock
15.3 21.9 Return on assets of non-residents
6.8 7.2 Return on equity of non-residents
16.1 10.1 Source: Foreign Private investment 2015

Using the world available data on FDI return on equity, in 2013 the rate of return on FDI in Rwanda compared to main economic regions was higher. The global rate of return on FDI was 6.8 percent, slowing from 7.6 percent in 2013. While the global average rate of return on FDI for 2014 was 6.4 percent in average, this indicator reached 10.1 percent for Rwanda. According to the world investment report (2015). Rwanda is doing well in FDI profitability as shown in the table3.22.

Table3.23: Economic regional comparisons in FDI Return on Equity 2011-2014 (percent) Years 2011 2012 2013 2014 Rwanda 19.5 20.6 16.1 10.1 World
6.9 7 6.1 6.4 Source: World Investment Report, 2014

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3.9. Private Sector External Debt
Private Sector External Debt (PSED) is the amount of current and not contingent liabilities that require payment (s) of interest and/or principal by the debtor at some point(s) in the future and owed to non-residents by private residents of an economy (IMF Debt Guide, 2009). Private sector external debt flows and stocks are made of borrowing from affiliates included in FDI and from non-affiliates included in other investments as well as debt securities.

3.9.1. Private Sector External Debt inflows 2014 Disbursements of the Private Sector External Debt (PSED) in 2014 increased to US$ 406.8 million from US$ 312.9 million in 2013, a growth of 30.0 percent. The intercompany debt inflows which are part of foreign direct investments totaled US$ 311.8 million from US$ 144.4 million in 2013. These flows come from affiliated companies or shareholders abroad.

Debt inflows from unrelated sources which are classified as other investments in financial account of Balance of payments were US$ 95.0 million, decreasing from US$ 168.4 million in 2013, equivalent to the decrease of 43.6 percent. This shows that foreign companies have resorted to intercompany loans instead of borrowing from banks in 2014. The debt from non- affiliates represents 23.4 percent of total debt from abroad in 2014. The private debt servicing repayment was US$ 212.9 million in 2014 of which 67.7% repaid to foreign affiliates.

Table3.24: Private Sector External Debt flows 2012 – 2014 (US$ million) Type
Maturity Disbursement Repayment

2013 2014 2013 2014 AFFILIATES
144.4 311.8 95.0 144.2 LT
130.2 274.5 90.5 114.6 ST
14.2 37.3 4.5 29.6 NON AFFILIATES
168.4 95.0 24.6 68.7 LT
153.6 95.0 13.5 67.3 ST
14.8

1.5 TOTAL
312.9 406.8 119.6 212.9 Of which:
LT
283.8 369.4 104.0 181.8 ST
29.0 37.3 15.6 31.1 Source: Foreign Private investment 2015

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3.9.2. Private Sector External Debt stocks 2014

Private Sector External Debt (PSED) stock includes both long and short term borrowing from affiliates (FDI related borrowing) and non-affiliates (non-related entities abroad). Private sector external debts are largely in form of loans, trade credits, debt securities and other accounts payable. In this section, the stock of PSED is presented and analyzed according to type, maturity (long term (LT) and short term (ST)) and relationship. According to the census, the Private Sector External Debt (PSED) stock has been increasing since 2010, standing at US$ 973.4 million as at 31 December 2014 increasing by 24.8 percent compared to end 2013.

Table 3.25: Private Sector External Debt stocks 2010-2014 (US$ million)
Type
STOCKS

2013 2014 AFFILIATES 337.3 505.0 LT 300.0 459.9 ST 37.3 45.0 NON AFFILIATES 442.4 468.7 LT 416.8 444.5 ST 3.9 2.4 TOTAL
779.7 973.6 Of which: LT 719.1 906.7

ST
60.7 66.9 Source: Foreign Private investment 2013

3.9.3 Private Sector External Debt Stock by Maturity and Type

In 2014, 93.1 percent of the stock of PSED were in form of long term borrowing while 6.9 percent was short term borrowing, same trend as in 2013 where 92.2 percent of stock of PSED was long term and 7.8 percent for short-term.

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3.9.4 Private sector external debt inflows by creditor type

Globally, the inflows of PSED end of 2014 were largely from affiliates amounting to US$ 311.8 million, a proportion of 76.6 percent of the total PSED inflows. Debt from non-affiliates decreased to the level of the previous year at US$ 95.0 million from US$ 145.1 million in 2013.

Figure3.7: Private sector external debt inflows by relationships (US$ million)

Source: Foreign Private investment 2015

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CHAPTER FOUR CONCLUSION Rwanda has continued to receive a significant amount of foreign private investments in recent years mostly in form of foreign direct investment and other investments (debts). Contrary to the global trend that shows decline in the foreign private investments in 2014, Rwanda foreign private sector inflows increased by 31.1 percent to US$ 560.8 million from US$ 427.7 million recorded in 2013 , indicating increased attraction of foreign investments from abroad . The Rwandan FDI profitability of 10.1 percent expressed in rate of return on equity continues to be above the world average of 6.4 percent in 2014.

In 2014 , foreign private capital inflows into Rwanda were dominated by foreign direct investment inflows (81.8 percent). The level of other investments inflows remained more or less the same as in 2013 at 17.2 percent. In terms of country of origin, 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 and investing mostly in finance and insurance as well as in manufacturing sectors accounting to 53.0 percent of total inflows.

In addition, the retained earnings to profit made stood at 49.8 percent in 2014 and the FDI rate of return of 10.1 percent give an indication of increased investors’ confidence and investment
opportunities in the country. It is therefore recommended to continue with efforts to improve investment climate further so that investors can gain higher returns and reinvest. The measures being taken in the area of reducing cost of doing business are in line with the objective of encouraging new investments and re-investment of earnings need to be strengthened Also, the efforts need to aim at expanding investment opportunities and promote diversification.

The country needs to continue sustain the achievements registered in the attraction and retention of private investments. As way forward, the results of this study should be used as an indication of foreign private investment sectorial performance and as an evaluation tool of current interventions as well as the design of new policies and programs focusing on priority investment

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issues. They also should be used in the Balance of Payments and International Investment Position to improve the country’s external sector statistics.

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REFERENCES

Aswath D. (2007), Return on Capital (ROC), Return on Invested Capital (ROIC) and Return on Equity (ROE): Measurement and Implications, Stern School of Business. Business Monitor International (2011), Emerging markets monitor, World Bank, Washington,USA.
Competitiveness Report (2014). Based on average ranking; United Nations Publications, Switzerland. Caves, R.E. (1982), “Multinational Enterprises and Economic Analysis”, Cambridge
University Press, Cambridge and New York International Monetary Fund (2009). Balance of payments, manual sixth edition, Washington, USA. International Monetary Fund (2012). World economic outlook, Washington, USA. National Bank of Rwanda (2012). Annual report 2011, Kigali, Rwanda. National Bank of Rwanda (2013). Annual report 2012, Kigali, Rwanda. National Bank of Rwanda (2012). Foreign Private Investment and Investor’s perception 2011 report, Kigali, Rwanda. The World Bank (2011). Doing business 2012 The World Bank (2012). Doing business 2013 World Bank (2013). Doing Business’ Rankings 2012 & 2013, World Economic Forum Global 11.

World Bank (2014). Doing Business’ Rankings 2013- 2014, World Economic Forum Global 11.

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ANNEXES

Annex 1: Rwanda Working Group on Foreign Private Investment Monitoring and Analysis

Coordination 1.BAJIJI Innocent, Manager Aftercare and Facilitation, RDB 2.MANZI Sebastien, Director of Economic Statistics Unit, NISR. 3.KAMALI Wilson, Director Statistics Department, BNR.

Team Leader NTIRUSHWAMABOKO Dominique, BNR Technical team

1. GASAZA Tite, BNR
2. MANZI Felix, RDB
3. MPAYIMANA Fabien, NISR
4. MUGENZI Celestin, BNR
5. MUHORAKEYE Josephine, RDB
6. MUHOZA Modeste, RDB
7. MUTABARUKA Pierre Andre, RDB
8. MUYUMBU Innocent, RDB
9. MUVUNYI Yves, BNR
10. NDWANIYE Desire, BNR
11. NIKUZE Alice, RDB
12. NUWAGIRA Wilberforce, BNR
13. UMUTONI Josiane, NISR
14. UWINGENEYE Joyeuse, RDB

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Annex 2: Foreign Private Capital Stock and Inflows by source in 2014 (US$ Million) Source Stock Inflows Austria 10.4 10.4 African Development Bank 17.6 14.5 Australia
3.9 0.3 Belgium 4.7 6.3 Botswana 0.8 0.8 Burundi
2.1 2.1 Canada 38.5 38.5 China (mainland only) People`s Republic of
5.9 5.9 Congo, Democratic Republic of 0.2 0.3 Cyprus
25.8 2.0 Denmark 0.0 0.1 Ethiopia
0.0 0.0 European Investment Bank (EIB) 5.1 6.0 Export Import Bank (EXIM) 21.6

France 9.8 19.7 Germany
47.7 3.8 Ghana
0.3 Hong Kong
8.0 India
13.7 3.1 International Freephone (UIFN)
9.5 Israel
0.7 Italy and Vatican City
2.2 0.3 Kenya 146.1 33.5 Lebanon
0.9 0.1 Libya
59.5 0.5 Luxembourg
81.7 0.1 Madagascar
0.0 Malaysia 10.1 Mauritius
212.7 32.1 Netherlands 74.6 10.8 Nigeria
27.0 4.0 Norway 2.0 0.1 Others 43.3 1.0 Panama
4.6 0.7 Preferential Trade Area (PTA) 70.5 44.6 Romania 0.0 Senegal
0.1

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South Africa 162.6 45.5 Sudan

Swaziland 0.7 0.7 Sweden
24.6 Switzerland
38.1 96.0 Seychelles 2.9 3.0 Tanzania 22.0 12.0 Togo
15.7 1.1 Uganda 19.9 14.6 United Arab Emirates
8.3 0.3 United Kingdom
67.4 6.6 US 80.3 6.3 Total 1,404.14 427.72