FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 23 to US$ 5.5 million in 2014. This mainly due to the fact that some non-residents sold their shares to residents. 3.5. Other investments Other investments accounted for 19.7 percent of the overall liability inflows and are made of long term and short term loans from unrelated sources. In 2015, a total of US$ 93.9 million of loans inflows were reported of which US$ 92.9 million (98.3 percent) were long term (equal or more than 1 year), and US$ 1 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 2015 shows that they were mainly concentrated in the financial sector which received US$ 49.8 million followed by Manufacturing sector with US$ 13.6 million. In terms of stock, ICT had US$ 156.5 million, followed by the finance and insurance with US$ 152.3 million, manufacturing with US$ 67 million, Agriculture with US$ 60.7 and Tourism with US$ 45.7 million. Figure 8: Other investments inflows and stocks by sector in 2015 (US$ million) Source: Foreign Private Capital 2015 3.5.2 Other Investments Inflows and Stock by Source in 2015 In 2015, Kenya was the major lender with disbursement of US$ 29.4 million, followed by European Investment Bank and IFC with US$ 13.4 each. Inflows from IFC and Philippines were US$ 9.0 million and US$ 7.5million, respectively. In terms of stock, Germany was the major source, with US$ 67.3 followed by FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 24 Preferential Trade Area (PTA) with US$ 66.7 million, and United Kingdom with US$56.7 million. Table 3.15: Other Investments Inflows and Stock by Source (US$ million) S/N Origin Inflows Origin Stock 1 Kenya 29.4 Germany 67.3 2 Exports Imports Bank 13.5 PTA 66.7 3 IFC 13.5 United Kingdom 56.8 4 Philippines 9.0 IFC 54.5 5 PTA 7.5 Zambia 43.5 6 EADB 6.4 Kenya 41.5 7 ADB 3.2 Sweden 24.0 8 DRC 3.1 Exports Imports Bank 20.1 9 US 2.4 Switzerland 18.8 10 Others 5.8 Others 185.4 11 Total 93.9 Total 578.6 Source: Foreign Private Capital 2015 3.6. Income on investments The trend for profits realized became positive since 2011 as shown in the table 3.16. In 2015, the overall net profit amounted to US$ 65.0 million rising from US$ 46.5 million in 2014, equivalent of 39.8 percent. Out of the profit of US$ 65.0 million recorded in 2015, reinvested earnings were US$ 54.8 million, representing 84.3 percent of total profits. Table 3.16: Income on investment (US$ million) Item 2010 2011 2012 2013 2014 2015 Net Profit/Loss -34 21.8 59.9 73.6 46.5 65.0 Dividends Declared 15.1 21 37.9 26.5 22.4 10.2 Dividends Paid 14.2 14.8 22.9 20.9 34.2 32.2 Valuation changes
-0.5
2.8 1 0.0 Retained Earnings/Loss -49.1 1.3 22 44.2 23 54.8 Source: Foreign Private Capital 2015
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 25 3.6.1 Income on investment distribution by sector The major profits making sectors were finance and insurance specifically the banking sub-sector, manufacturing and agriculture. The share of dividends declared to net profit is 15.7 percent whereas the retained earnings is 84.3 percent. The reinvested earnings to net profit increased by 39.8 percent in 2015 compared to 2014. A big proportion of profits is retained at the rate of 84.3 percent in 2015. The findings indicate that the retained earnings and dividends paid are proportioned to the profits made, the more the sector makes the profits, the more it distributes dividends and the more it retains as seen in table 3.20. Table 3.17: Income on investment distribution by sector in 2015 (US$ million) Sector Net Profit/ Loss (After Tax) Dividends declared Dividends paid Reinvested Earnings Administrative (0.0)
(0.0) Agriculture 7.8 2.1 1.4 5.7 Construction 3.1
3.1 Education (0.0)
(0.0) Electricity and Gas 9.3
9.3 Finance and Insurance 23.8 2.7 7.9 21.1 Human health (0.0)
(0.0) ICT 6.4
16.2 6.4 Manufacturing 8.7 4.1 6.0 4.6 Mining (1.9)
(1.9) Other services 0.0
0.0 Professional (0.6)
(0.6) Real estate activities (0.2)
(0.2) Tourism 1.4 0.8
0.7 Transportation 0.6 0.1 0.1 0.5 Water supply 0.0
0.0 Wholesale & retail trade 6.7 0.5 0.5 6.2 Grand Total 65.0 10.2 32.2 54.8 Source: Foreign Private Capital 2015
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 26 In terms of profit made, Finance and Insurance sector dominated with 36.6 percent followed by Electricity and gas with 14.2 percent. Sectors like mining, professional consulting, real estate activities and Education retained losses at the end of 2015. The sectorial breakdown of dividends paid shows that most dividends are in ICT sector with 50.5 percent, followed by Finance and Insurance with 24.5 percent and Manufacturing with 18.8 percent. 3.7. Return on equity by sectors in 2015 Return on equity is the amount of net income returned as a percentage of shareholders equity. It measures company’s profitability by revealing how much profit a company generates with the money shareholders have invested. Net income is for the full calendar year (before dividends are paid to common stockholders 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: The net profit is the net income of the year before dividends is paid to common stockholders, 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). 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.
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 27 Table 3.18: Foreign Direct Investment Return on Equity (Percentage) Sectors 2014 2015 Administrative and support service activities 20.1 (2.90) Agriculture 12.0 44.56 Construction 30.5 37.60 Education (0.5) (0.50) Electricity, gas, steam 19.4 59.39 Financial and insurance activities 27.1 20.93 ICT (0.0) 3.22 Manufacturing 28.6 10.85 Mining
(6.07) Other service activities 10.0 (50.05) Tourism (0.1) 2.31 Transportation and storage (0.0) 11.02 Wholesale and retail trade 4.0 22.79 TOTAL 10.1 11.8 Source: Foreign Private Capital 2015 Considering profitability by sector, construction sector came first with 30.5 percent followed by manufacturing with 25.5 percent and financial services activities 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 which affected them. The global average rate of return on FDI in 2015 was 6.1 percent, while it was 11.8 percent for Rwanda. According to the world investment report (2015), Rwanda is doing well in FDI profitability as shown in the table 3.23. Table 3.19: Inward Return on FDI Equity 2013-2015 (percent) Years 2013 2014 2015 Global 6.5 6.7 6.1 Rwanda 16.1 10.1 11.8 Source: World Investment Report, 2016
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 28 3.8. Private Sector External Debt Private sector external debt is mainly comprised of non-equity instruments (mainly loans) contracted abroad by companies operating in Rwanda. In 2015, its stock was US$ 1,302.8 million, an increase of 29.0 percent when compared with 1,009.6 million recorded in 2014 (table 3.20). Long-term loans from related parties continued to account for the largest share of private sector external debt (PSED) during 2015, principal repayments (including interest accrued but not paid) were higher than disbursements resulting to net outflows of US$ 132.5 million. Table 3. 20: Foreign Private Sector Debt (US$ million) TYPE MATURITY 2014 2015 Stock Disbursements Repayments Other changes Stock AFFILIATES 505.0 211.6 21.8 26.1 720.9 Loans LT 459.9 164 4.1 21.6 641.4 ST 45.0 47.7 17.6 4.5 79.6 NON AFFILIATES 504.7 93.9 21.8 5.1 581.9 Loans LT 463.2 92.6 21.2 5.1 539.7 ST 6.8 1 0.5
7.3 Trade Credits ST 28.2 0.2 0
28.4 Other LT 6.5
6.5 TOTAL 1,009.6 305.5 43.5 31.2 1,302.8 Of which: LT 929.6 256.6 25.4 26.7 1,187.5 ST 80.0 48.9 18.2 4.5 115.2 Source: Foreign Private Capital 2015
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 29 Table 3. 21: Private Sector External Debts Disbursements in 2015 by sector (US$ million) Source: Foreign Private Capital 2015 The activities that received large disbursements during 2015 are ICT, Tourism; Finance and Insurance and Manufacturing which, in aggregate, accounted for 73.7 percent of the total PSED disbursements in 2015. Figure 9: Private Sector External Debt Disbursements in 2015 by origin (US$ million) Source: Foreign Private Capital 2015 The major sources of PSED were USA, Mauritius, Kenya and China accounting 56.8 percent of all disbursements in 2015.
FOREIGN PRIVATE CAPITAL IN RWANDA Year 2015 30 CONCLUSION R wanda continues to register a positive trend as the stock of foreign investments stood at US$ 2,077.9 million in 2015. Since 2010, Rwanda’s foreign private capital inflows continue to grow despite a decline observed during 2015 compared with 2014. The decline was mainly in FDI on account of lower inflows of new equity and loans compared to 2014 following the slowdown in the global economy. The foreign private capital inflows into Rwanda in 2015, were dominated by foreign direct investment inflows (79.8 percent). In terms of country of origin, most of the flows were mainly from Mauritius (US$ 155.6 million) followed by United States of America (US$ 70.1 million), Kenya (US$ 51.5 million) and China (US$ 23.5 million) accounting for 63.1 percent of total FPC flows in 2015 and investing mostly in finance and insurance, manufacturing and ICT sectors accounting to 56.8 percent of total inflows. In addition, the retained earnings to profit made stood at 84.3 percent in 2015 and the FDI rate of return stood at 11.8 percent which gives an indication of the country’s investments profitability. There is therefore the need to continue consolidating efforts geared towards improving the investment climate so that investors can gain higher returns and reinvest. The prospects for 2016 are for higher flows, as we expect a rise again for the next year’s FDI inflows, as 2015 new investment projects attraction was at its best with over 800 million US$ worth foreign private investment projects registered in that year, with some big new projects especially in Services sector but also Energy and Water sector and ICT. The measures being taken in the area of cost reduction of doing business are key in encouraging new investments and re-investment of earnings need to be strengthened. The country needs to continue sustaining the achievements registered in the attraction and retention of private investments. As way forward, the results of this census should be used to guide policy makers on 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 issues.