Foreign_Private_Investments_in_Rwanda_2012.pdf - Page 1

National Bank of Rwanda

FOREIGN PRIVATE INVESTMENT IN RWANDA 2012

National Institute of Statistics of Rwanda

IGN PRIVATE INVESTMENT IN RFWANDA 2012

FOREWORD

On behalf of partner institutions, Rwanda Development Board, National Institute of Statistics of Rwanda and Private Sector Federation, the National Bank of Rwanda leading this activity takes this opportunity to thank all companies that participated in the exercise by providing the requested information. We also thank the Rwanda Foreign Private Capital working group for their commitment to make this census a success. We commend the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) for spearheading these surveys in the region.

This report presents the fourth cycle of F oreign Private Capital Census results for the calendar year 2012. The census cov ered 163 companies including new companies registered as foreign direct investments by Rwanda Development Board in 2012 as well as those which declared Foreign Assets and Liability (FAL) in the previous census.

The information presented in this report was provided by senior management of companies visited during the census, including Managing Directors, Chief Executive Officers and Finance Managers. In addition to complet ed questionnaires, companies provided financial statements used to validate provided information.

The Foreign Private Investments census is an important activity for the Government of Rwanda in its efforts to attract and retain foreign private capital in the country. The findings of the census shall contribute to update foreign private capital policies and will be used to improve Rwanda’s Balance of Payments and International Investment Position statistics.

RWANGOMBWA John 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
FPEI:

Foreign Portfolio Equity Investment
GDP:

Gross Domestic Product
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

TNC:

Transnational Corporations WEF:

World Bank Economic Forum

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TABLE OF CONTENTS

FOREWORD............................................................................................................................................... 1 LIST OF ACRONYMS .............................................................................................................................. ii TABLE OF CONTENTS .......................................................................................................................... iii LIST OF TABLES ...................................................................................................................................... v LIST OF FIGURES ................................................................................................................................... vi EXECUTIVE SUMMARY ...................................................................................................................... vii CHAPTER I. INTRODUCTION ........................................................................................................... 1 1.1. Global Trends in Foreign Direct Investment (FDI) ...................................................................... 1 1.2. FDI flows to developing economies ............................................................................................. 2 1.3. Monitoring foreign investment in Rwanda ................................................................................... 4 1.4. Reasons for investing in Rwanda .................................................................................................. 7 CHAPTER II. CENSUS FINDINGS ......................................................................................................... 8 2.0. Introduction ................................................................................................................................... 8 2.1. Foreign Private Investment by sector of economic activity ........................................................ 11 2.2. Foreign Private Investment by country of origin ........................................................................ 11 2.3. Foreign Direct Investment .......................................................................................................... 14 2.3.1. Foreign Direct Investment inflows and stock ..................................................................... 14 2.3.2 Foreign Direct Investment Inflows and Stock by sector .................................................... 15 2.3.3. Foreign Direct Investment Flows and Stocks by origin ..................................................... 16 2.4. Foreign Portfolio Investment ...................................................................................................... 16 2.5. Other investments ....................................................................................................................... 17 2.5.1. Other investment inflows and stocks by Sector .................................................................. 17 2.5.2. Other Investments Inflows and Stock by Source ............................................................... 18 2.6. Income on Equity ........................................................................................................................ 19 2.6.1. Income on equity distribution by sector .............................................................................. 19 2.7. Return on equity by sectors in 2012 ............................................................................................ 21 2.8. Private Sector External Debt (PSED) 2012 ................................................................................ 22 2.8.1. Private Sector External Debt inflows 2012 ......................................................................... 23 2.8.2. Private Sector External Debt stocks 2012 ........................................................................... 23

2.9. Private Foreign Assets (PFA) ..................................................................................................... 25 2.10. Macro-economic analysis of survey findings ......................................................................... 26 2.11. Other transactions ................................................................................................................... 27 2.11.1. Entity turnover .................................................................................................................... 27 2.11.2. Exports-Imports 2012 ......................................................................................................... 28 2.11.3. Employment ........................................................................................................................ 29 2.11.4. Compensations of employees. ............................................................................................. 30 2.11.5. Actual investment ............................................................................................................... 31 2.11.6. Corporate social responsibility ............................................................................................ 32 CONCLUSION ......................................................................................................................................... 34 REFERENCES .......................................................................................................................................... 35 ANNEXES .................................................................................................................................................... i

LIST OF TABLES

Table 1: FDI flows by region, 2010–2012 (billions $) ---------------------------------------------------------------------------------- 3 Table 2: Top Ten Countries in Doing Business in Sub-Saharan Africa ------------------------------------------------------------- 4 Table 3: Rwanda’s Doing Business Performance by Category 2013 and 2014 -------------------------------------------------- 5 Table 4: Response rate per sector in 2012. ------------------------------------------------------------------------------------------------- 9 Table 5: Foreign Private Investments pledges (2008 – 2012) ------------------------------------------------------------------------- 9 Table 6: Foreign private investments inflows by category 2008-2012($ million) ---------------------------------------------- 10 Table 7: Inflows and stocks by origin in 2012 ($ million) ---------------------------------------------------------------------------- 12 Table 8: Inflows and Stocks of FDI by type ($ million) ------------------------------------------------------------------------------- 15 Table 9: Foreign Direct Investment Flows and Stocks by origin ($ million) ---------------------------------------------------- 16 Table 10: Other Investments Inflows and Stock by Source ($ million) ------------------------------------------------------------ 18 Table 11: Income on equity ($ million) ---------------------------------------------------------------------------------------------------- 19 Table 12: Income on equity distribution by sector in 2012 ($ million) ------------------------------------------------------------ 20 Table 13: FDI profitability of some sectors (2011-2012) (percent) ---------------------------------------------------------------- 22 Table 14: Private Sector External Debt flows 2010 – 2012 ($ million) ----------------------------------------------------------- 23 Table 15: Private Sector External Debt stocks 2010-2012 ($ million) ------------------------------------------------------------ 24 Table 16: Some analytical ratios of FDI flows and stocks (percent) -------------------------------------------------------------- 26 Table 17: Economic regional comparisons in FDI Return on Equity ------------------------------------------------------------ 27 Table 18: Entity turnovers by sectors in 2012 ($ million) ---------------------------------------------------------------------------- 28 Table 19: Exports-Imports in 2012 ($ million) ------------------------------------------------------------------------------------------ 29 Table 20: Distribution of employment by sector in 2012 ----------------------------------------------------------------------------- 30 Table 21: Total compensation of employees in 2012 ($ million) ------------------------------------------------------------------- 31 Table 22: Investments in assets by sector in 2012 ($ million) ----------------------------------------------------------------------- 32 Table 23: Corporate social responsibility by distributing Sector in 2012 ($ million) ----------------------------------------- 33

LIST OF FIGURES

Figure 1: Foreign Private Investment Stocks 2010-2012 ($ million) .......................................................................... 10 Figure 2: Foreign Private Investment Inflows and Stocks by sector ($ million), in 2012. .......................................... 11 Figure 3: Foreign Private Investment stocks & inflows by Region in 2012 ($ million) .............................................. 13 Figure 4: Foreign Private Investment inflows 2010-2012 ($ million) ......................................................................... 13 Figure 5: Foreign Private Investment Stocks 2010-2012 ($ million) .......................................................................... 14 Figure 6: Foreign Direct Investment Inflows and Stocks by Sector in 2012 ($ million) ............................................. 15 Figure 7: Other investments inflows and stocks by sector in 2012 ($ million) ............................................................ 17 Figure 8: Private sector external debt by relationships ($ million) ............................................................................ 25 Figure 9: Distribution of employment by type in 2012 ................................................................................................ 29 Figure 10: Investments in assets in 2012 ($ million) ................................................................................................... 31 Figure 11: Corporate social responsibility by type of recipient in 2012 ($ million) ................................................... 33

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EXECUTIVE SUMMARY

The Government of Rwanda continues to promote a 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.

Since 2010, with the objective of effectively monitor and manage foreign private capital, the National Bank of Rwanda in collaboration with Rwanda Development Board (RDB), National Institute of Statistics of Rwanda (NISR) and Private Sector Federation (PSF) conduct the Foreign Private Capital Census, collecting related annual data. During the year 2013, data for the year 2012 were collected. A total of 16 3 enterprises were enumerated, of which 153 responded, representing a response rate of 93.9 percent.

The objectives of this census include setting up the Foreign Private Capital Flows database in conformity with international standards, and determining the magnitude and trends of Foreign Private Capital (FPC) and providing actual foreign investment statistics in Rwanda for the year 2012.

In 2012, private sector foreign liabilities i nflows to Rwanda increased by 14.8 percent to $ 409.3 million compared with $ 356.6 million recorded in 2011. The capital inflows were dominated by FDI, amounting to $ 255.0 million, and accounting for 62.3 percent of total inflows, followed by other investments of $ 153.3 million, accounting for 37 .5 percent and foreign portfolio equity investment of $ 1.0 million.

Sectors which attracted the highest flows were ICT with 41.4 percent, followed by mining with 13.8 percent, tourism with 12.3 percent and manufacturing with 10.8 percent.

The findings of the c ensus indicate that from collected stock of $315.73 million in 2008, $ 446.28 million in 20 09, $ 590.5 million in 2010 , and $ 832.3 million in 2011 the total stock of foreign private capital amounted to $ 1,109.0 million in 2012. Stock of foreign investment in ICT

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was 40.0 percent followed by finance and insurance with 20.4 percent and manufacturing with 14.6 percent.

European Union (EU) countries held the highest stock amounting to $ 318.7 million (28.9 percent) up from $ 266.3 million recorded in 2011 followed by COMESA (Non - EAC) with $ 240.0 million (21.8 percent) increasing from $ 117.4 million in 2011. EAC had $ 139.7 million (12.7 percent) up from $ 121.7 million in 2011, SADC (Non EAC & COMESA) had $ 117.5 million (22.0 percent) up from $ 110.8 million in 2011 and OECD (Non-EU) had $ 135.9 million (13.0 percent) up from $ 76.8 million in 2011. Asia accounted for $ 43.8 million (4.0 percent) increasing from $ 41.6 million in 2011. Others countries had $46.5 million from $ 37.1 million in 2011. Stock of investment from i nternational and regional organizations was $ 67.4 million (6 percent).

Total inflows of foreign private liabilities originated mainly from Mauritius ($ 143.6 million), USA ($ 55.2 million), Switzerland ($ 54.1 million) and Luxembourg ($ 43.2 million) accounting for 72.3 percent in 2012 . For stock, Mauritius, South Africa, Kenya, Luxembourg, United Kingdom and USA were leading with 51.6 percent. Mauritius is the larger investor due to the fact that it hosts many holding companies even though the ultimate controlling companies are
from different parts of the world.

The stock of Private Sector E xternal Debt (PSED) as at end 2012 stood at $ 593.2 million increasing from $ 420.7 million in 2011 , mainly driven by loans from unre lated sources with share of 60.1 percent.

Return on equity (ROE) in 2012 was 20.6 percent up from 19.5 percent in 2011, transport and storage had the highest return on equity of 130.6 percent, followed by administrative and support services with 73.5 percent, Electricity, gas and air conditioning with 59.8 percent, mining with 54.0 percent and Agriculture with 28.2 percent. Comparing the year 2012 to the year 2011, the overall net profit increased to $ 59.9 million in 2012 from $ 21.8 million in 2011.

Other findings on majority foreign owned companies indicate that compared to the year 2011 , combining local investments and foreign investments in companies that declared foreign investments, actual investments in assets decreased by 16.5 percent from $ 1083.8 million to $ 905.million, entity turnover s grew by 13.1 percent from $ 995.0 million to $ 1,073.4 million , employment grew by 6.9 percent from 30,717 to 32,834 and corporate social responsibility
increased by 33 percent from $ 3 million to $ 4 million.

FDI to Gross Fixed Capital Formation (GFCF) shows that it is becoming increasingly important as a source of i nvestment funds as the ratio FDI/GFCF rose from 16.0 percent in 2009 to 28.0 percent in 2012; increasing by 23.8 percent per year on average over the last 4 years. The share of FDI stock to GDP during the four years went up from 7.1 percent in 2009 to 17.4 percent in 2012, showing how much FDI contributes to GDP.

In brief, foreign private investments in Rwanda continued to grow and contribute to sustained economic growt h. The increase in inflows (14.8 percent) of foreign liabilities from $ 356.7 million declared in 2011 to $ 409.3 million in 2012 and the growth of retained earnings by 95.4 percent, reflect high confidence of foreign investors in the Rwandan economy and the country’s capacity of foreign investment attraction from abroad responding to continuously improving business environment and existence of investment opportunities within the count ry. The Government is committed to continue accurately and consistently capture and monitor the se flows to assess the responsiveness to policies made in the area and their impact on the country’s development and their capacity to complement local resources.

CHAPTER I. 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 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. 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). In 2012, Latin America had the highest FDI/GFCF with 20.9 % followed by Africa with 12.3 % , develope d economies with 9.0 % and Asia with 6.5%. During the last three years (2010 -2012) FDI inflows to the developing economies were around USD 690 billion of which 60% invested in Asia, while the average outflows from this region were around USD 420 billion of which 72% originating from Asian developing countries (UNCTAD , 2013). Compared to portfolio, 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.

1.1. Global Trends in Foreign Direct Investment (FDI)

Despite turmoil in global economy, FDI flows reached $ 1.5 trillion in 2011, exceeding the pre - financial crisis average but remaining below their 2007 peak of $ 1.8 trillion . However, the sovereign debt crisis in Europe and the uneven global recovery have led to a decline by 18% in global FDI flows to $ 1.35 trillion in 2012. In 2013, global FDI are projected to remain close to the 2012 level, slightly increasing to $1.45 trillion as macroeconomic conditions improve and investors regain confidence in the medium term, TNCs may convert their record levels of cash holdings into new investments. FDI flows may then reach the level of $1.6 trillion in 2014 and $1.8 trillion in 2015. However, significant risks to this growth scenario remain. Factors such as structural weaknesses in the global financial system, possible deterioration of the macroeconomic environment, and significant policy uncertainty in areas crucial for inv estor confidence might lead to a further decline in FDI flows (UNCTAD, 2013).

1.2. FDI flows to developing economies

In 2012, FDI flows to developing economies exceeded those to develop ed countries by $ 142 billion amounting to $703 billion in 2012 from $ 735 billion in 2011 and representing 52 percent of global FDI inflows. Asia and Latin America continued to be the best destination of FDI with
$ 407 billion and $ 244 billion respectively, while FDI inflows to Africa slightly increased to $ 50 billion in 2012 from $ 48 billion in 2011.

Foreign Direct Investment flows to developing Asia decreased by 7 percent to $ 407 billion in 2012. This decline was reflected across all sub regions but was most severe in South Asia, where FDI inflows fell by 24 percent. China and Hong Kong (China) were the second and third largest FDI recipients worldwide while Singapore, India and Indonesia were among the top 20. Driven by continued intraregional restructuring, lower -income countries such as Cambodia, Myanmar, the Philippines and Viet Nam were attractive as FDI locations for labor-intensive manufacturing.

In 2012, FDI inflows were driven partly by investments in the extractive sector in countries such as the Democratic Republic of the Congo, Mauritania, Mozambiq ue and Uganda. At the same time, there was an increase in FDI in consumer -oriented manufacturing and services, reflecting demographic changes. Between 2008 and 2012, the share of such industries in the value of Greenfield investment projects grew from 7 percent to 23 percent of the total.

Developing economies’ outflows reached $426 billion in 2012, representing 30.6 percent of the world total out flows of $ 1,391 billion the same year . Despite the global downturn, TNCs from developing countries continued their expansion abroad dominated by Asian countries.

The BRICS countries (Brazil, the Russian Federation, India, China and South Africa) continued to be the leading sources of FDI among emerging investor countries. Flows from these five economies rose from $7 billion in 2000 to $145 billion in 2012, accounting for 10 percent of the world total flows. In the ranks of top investors, China moved up from the sixth to the third largest investor in 2012, after the United States and Japan.

Total outward FDI from developing Asian countries remained stable at $308 billion, accounting for 22 percent of global flows, the same share as the European Union. The moderate increase of FDI outflows in East and South -East Asia by 1.5 % was offset by a 5.2 percent decrease in inflows from South Asia during the year 2012. Outflows from China continued to grow, reaching $84 billion in 2012 from $ 79 million in 2011. Turkey has emerged as a significant investor, with its outward investment growing by 73 percent in 2012 to reach $ 4 billion.

Table 1: FDI flows by region, 2010–2012 (billions $)

Region FDI inflows FDI outflows 2010 2011 2012 2010 2011 2012 World 1 409 1 652 1 351 1 505 1 678 1 391 Developed economies 696 820 561 1 030 1 183 909 Developing economies 637 735 703 413 422 426 Africa 44 48 50 9 5 14 Asia 401 436 407 284 311 308 East and South-East Asia 313 343 326 254 271 275 South Asia 29 44 34 16 13 9 West Asia 59 49 47 13 26 24 Latin America and the Caribbean 190 249 244 119 105 103 Oceania 3 2 2 1 1 1 Transition economies 75 96 87 62 73 55 Structurally weak, vulnerable and small economies 45 56 60 12 10 10 Least developed countries 19 21 26 3.0 3.0 5.0 Landlocked developing countries 27 34 35 9.3 5.5 3.1 Small island developing States 4.7 5.6 6.2 0.3 1.8 1.8 Memorandum: percentage share in world FDI flows
Developed economies 49.4 49.7 41.5 68.4 70.5 65.4 Developing economies 45.2 44.5 52.0 27.5 25.2 30.6 Africa 3.1 2.9 3.7 0.6 0.3 1.0 Asia 28.4 26.4 30.1 18.9 18.5 22.2 East and South-East Asia 22.2 20.8 24.1 16.9 16.2 19.8 South Asia 2.0 2.7 2.5 1.1 0.8 0.7 West Asia 4.2 3.0 3.5 0.9 1.6 1.7 Latin America and the Caribbean 13.5 15.1 18.1 7.9 6.3 7.4 Oceania 0.2 0.1 0.2 0.0 0.1 0.0 Transition economies 5.3 5.8 6.5 4.1 4.3 4.0 Structurally weak, vulnerable and small economies 3.2 3.4 4.4 0.8 0.6 0.7 Least developed countries 1.3 1.3 1.9 0.2 0.2 0.4 Landlocked developing countries 1.9 2.1 2.6 0.6 0.3 0.2 Small island developing States 0.3 0.3 0.5 0.0 0.1 0.1 Source: UNCTAD, World Investment Report 2013

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.

1.3. Monitoring foreign investment in Rwanda

With the objective of complementing internal resources, Rwanda has actively attracted FDI by creating and sustaining a high conducive investment climate through important reforms which make it easier for businesses to get started, get loans, pay taxes, etc.
A whole package for investment promotion in general can be found within Rwanda Development Board. The package for investment promotion includes among others: regulatory framework, registration facilities and requirements, change of registered businesses, closing businesses, disclosure requirements, and other facilities such as working permit, government’s protection of investments, settlement of disputes, transfer of funds, special economic zone
facilitations, public private partnership (PPP) where RDB is chief negotiator between public and private sectors.
The World Economic Forum’s Global Competitiveness Report 2013- 2014 ranked Rwanda the 2nd easiest place to do business in Africa. The table 2 below shows the Rwanda rank across 11 indicators of doing business compared to other African countries for the Year 2013-2014.

Table 2: Top Ten Countries in Doing Business in Sub-Saharan Africa 2013-2014 Economy Ease of Doing Business Rank Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency Mauritius 20 2 22 1 7 7 2 1 1 7 2 Rwanda 32 1 14 2 1 1 3 3 31 2 22 South Africa 41 7 1 27 15 5 1 4 7 12 8 Botswana 56 12 11 13 2 11 7 6 23 14 1 Ghana 67 20 37 6 4 5 5 9 8 4 16 Seychelles 80 16 10 25 9 40 9 2 2 13 3 Zambia 83 6 7 29 17 1 12 9 32 20 5 Namibia 98 23 2 4 43 9 12 18 20 10 9 Cape Verde 121 8 28 28 6 14 24 11 4 1 38 Swaziland 123 39 5 34 24 9 21 7 13 41 4 Source: World Bank Doing Business Report 2013-2014

During the period under review, Rwanda eased access to construction permits by passing new building regulations and implementing new time limits for the issuance of various permits.

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