Rwanda

Kigali

key figures• Land area, thousands of km2 26• Population, thousands (2005) 9 038• GDP per capita, $ PPP valuation (2005) 1 594• Life expectancy (2000-2005) 43.6• Illiteracy rate (2005) 27.3

African Economic Outlook 2005-2006 www.oecd.org/dev/publications/africanoutlook

RwandaAll tables and graphs in this section are available in Excel format at:

http://dx.doi.org/10.1787/067115816684

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ELEVEN YEARS AFTER THE GENOCIDE that devastatedthe country and left nearly one million people dead,Rwanda continues to implement its programme foreconomic, structural and social reform. The programmehas already met a number of major milestones. Afterexperiencing low growth in 2003 due to poor weatherconditions, real GDP growth recovered to 4 per centin 2004 and was estimated to reach 4.2 per cent in 2005.The economy remains essentially based on subsistenceagriculture and progress in Rwanda’s structuraltransformation remains slow, as indicated by a stagnatingshare of manufacturing in GDP. Rwanda remains oneof the poorest countries in the world in terms of incomepoverty as well as in terms of human development.Due to the bad weather Rwanda experienced in 2003and 2004, little progress has been made recently in

reducing income poverty, especially in rural areas. Avariety of social indicators have been improving,however, largely due to targetedinterventions. Following the2005 Group of 8 (G8) agreementon multilateral debt relief,Rwanda’s external debtsustainability is expected toimprove significantly. Nonetheless, Rwanda’s high aiddependency remains a concern. There has also been littleprogress made in increasing exports, and continuouselectricity shortages and high oil prices imply majorchallenges for future economic development. Whilesignificant progress has been made in terms of internaland external political reconciliation, regional instabilityremains a threat.

Economic recovery is reflected in improvements in social indicators but poverty remains widespread.

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Figure 1 - Real GDP Growth and Per Capita GDP($ PPP at current prices)

Source: IMF and domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.

Recent Economic Developments

Following Rwanda’s exceptionally low economicperformance in 2003, mostly due to unfavourableweather conditions, real GDP growth recovered from0.9 per cent in 2003 to 4 per cent in 2004 thanks to

robust growth in manufacturing, transport, constructionand communications. Agricultural growth in 2004 wasonce again negative in real terms due to continuingunfavourable weather conditions. Adverse weatherconditions also hampered the harvest at the beginningof 2005, but since then, weather conditions have

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improved, and real GDP was estimated to grow onceagain at 4 per cent in 2005, with moderate growthaccelerations of 4.2 per cent and 4.6 per cent in 2006and 2007, respectively. Given the agriculturalcontraction in real terms in 2004, the share of agriculturein GDP decreased to 35.3 per cent, the share of industryin GDP increased to 14.2 per cent, while the share ofthe service sector in GDP increased to 27.8 per cent1.

More than 90 per cent of Rwanda’s population of8.6 million rely on subsistence agriculture. Based oncurrent population projections, the present urbanpopulation of close to 2 million is expected to morethan double within the next ten years, while the ruralpopulation of close to 7 million is projected to decreaseslowly. Population growth and increased urbanisationwill continue to pose a challenge to Rwanda’s foodsecurity, which – compared to 2003 – nonethelessimproved in 2004 and 2005, partly thanks to Rwanda’sintroduction of the New Rice for Africa (NERICA)initiative, which has increased the country’s rice self-sufficiency to 65 per cent. In 2004, about 600 000people experienced food insecurity at some point in theyear and required food aid, which amounted to 30 000metric tonnes.

Rwanda’s agricultural-sector strategy is based ontransforming agriculture and raising rural incomes byencouraging the use of modern inputs in the productionof priority crops. The persistence of low yields, however,indicates that fertilisers remain seriously under-used.The production of food crops (including bananas,

roots and tubers) partly recovered in 2004, with afurther positive outlook for the medium term as thegovernment’s efforts i) to promote the use of improvedseeds, ii) to increase productivity and iii) to expandcultivated areas are slowly bearing fruit.

In real terms, the industrial sector grew by 5.5 percent in 2004, mainly thanks to the strength ofmanufacturing, which increased by 6.3 per cent. Theservice sector grew at a rate of 7.1 per cent in 2004 onthe strength of transport and communications, growingat 11.6 per cent, and the finance, insurance, real-estateand business sub-sectors, growing at 11 per cent. Onthe other hand, tourism and government services nearlystagnated.

The increased growth in several economic sectorsmentioned above stimulated an increase in the growthof private consumption in 2004 and 2005, but therewas little growth in private investment. The balance ontraded goods and non-factor services measured atconstant prices improved in 2004 but showed littlechange in 2005, thus stimulating growth in 2004 buthaving little effect on demand in 2005. Meanwhile, thefiscal stance was expansionary in 2003 and 2004 butbecame restrictive in 2005.

Compared with 2003, overall consumptionincreased by 2.5 per cent in real terms in 2004 owingto a strong increase in private-sector consumption,while public consumption contracted, even in nominalterms. Thus, the share of consumption in GDP

1. Due to recent changes in methodology, a total of 22.7 per cent of GDP cannot be properly allocated to sectoral shares of GDP.

Agriculture

MiningManufacturing

ConstructionEnergy

Finance and business services

Government services

Other services

Transport and communications

35.3%

7.1%

0.6%

22.7%

9.8%6.2%

0.9%3.9%

7%0.4%6.2%

Wholesale and retail trade;hotels and restaurants

Tourism

Figure 2 - GDP by Sector in 2004 (percentage)

Source: Authors’ estimates based on domestic authorities’ data.

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decreased to 97.6 per cent in 2004, though it wasestimated to increase to 99.2 per cent in 2005 andprojected to once again decrease after that. The shareof total domestic investment increased from 18.4 percent of GDP in 2003 to 20.5 per cent in 2004, reflectinga more than 50 per cent increase in public investment,partially offset by a small contraction of private

investment in real terms. The share of public investmentin GDP was estimated to increase further in 2005,while the share of private investment in GDP wasestimated to decrease further in 2005. Hence, theoverall composition of expenditures has shiftedconsiderably towards private and public investmentand is projected to shift further in 2006 and 2007.

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Other services

Government services

Finance and business services

Tourism

Transport and communications

Wholesale and retail trade

Construction

Energy

Manufacturing

Mining

Agriculture

Figure 3 - Sectoral Contribution to GDP Growth in 2004 (percentage)

Source: Authors’ estimates based on domestic authorities’ data.

Table 1 - Demand Composition (percentage of GDP)

Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.

1997 2002 2003 2004 2005(e) 2006(p) 2007(p)

Gross capital formation 13.8 16.9 18.4 20.5 20.6 22.0 23.1Public 8.3 4.9 5.6 8.5 8.9 10.1 10.6Private 5.6 12.0 12.8 12.0 11.7 11.9 12.5

Consumption 104.1 100.0 100.8 97.6 99.2 98.2 96.8Public 9.6 11.8 15.1 12.9 13.8 14.1 13.9Private 94.5 88.1 85.7 84.7 85.3 84.1 83.0

External sector -17.9 -16.9 -19.3 -18.1 -19.8 -20.2 -19.9Exports 7.8 7.7 8.3 10.3 9.3 9.4 9.3Imports -25.7 -24.5 -27.6 -28.4 -29.1 -29.6 -29.2

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Macroeconomic Policies

Fiscal Policy

Rwanda’s large development needs continue to bereflected in an excess of government expenditures overrevenues, mostly financed by a large inflow of aid,which is provided now mainly in the form of grants.For the years 2001 to 2004, 39 per cent of Rwanda’sordinary budget and 78 per cent of its developmentbudget were financed by foreign aid. The share of total

government expenditures in GDP increased from24.1 per cent in 2003 to 26.1 per cent in 2004 andwas estimated to increase to 26.3 per cent in 2005. The2004 increase in total government expenditure wasdue for a sharp increase in the share of capitalexpenditures, which increased from 5.6 per cent ofGDP in 2003 to 8.5 per cent in 2004, while the shareof current expenditures decreased from 18 per cent in2003 to 15.9 per cent in 2004. For 2005, the sharesof both capital and current expenditures in GDP wereestimated to increase moderately.

Table 2 - Public Finances (percentage of GDP)

a. Only major items are reported.Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.

1997 2002 2003 2004 2005(e) 2006(p) 2007(p)

Total revenue and grantsa 17.2 19.4 21.6 25.9 25.7 25.9 25.0Tax revenue 9.8 11.5 12.7 12.8 12.9 13.0 13.2Grants 6.8 7.2 8.1 12.0 11.7 11.9 10.8

Total expenditure and net lendinga 19.6 21.3 24.1 26.1 26.3 27.1 27.1Current expenditure 11.5 16.3 18.0 15.9 17.2 16.9 16.4

Excluding interest 10.2 15.3 16.8 14.8 15.9 16.2 16.0Wages and salaries 5.1 4.9 4.9 4.6 4.5 4.5 4.4Interest 1.2 1.0 1.2 1.1 1.3 0.8 0.4

Capital expenditure 8.3 4.9 5.6 8.5 8.9 10.1 10.6

Primary balance -1.2 -0.9 -1.3 0.9 0.8 -0.4 -1.6Overall balance -2.5 -1.9 -2.5 -0.2 -0.5 -1.1 -2.0

Within current expenditures, the shares of defenceand security expenditures continue to decrease from ahigh of 3.3 per cent of GDP in 2001 to 2.3 per centof GDP in 2004 and were projected to decline slightlyfurther in 2005. The share of the wage bill in GDP alsodecreased from 4.9 per cent in 2003 to 4.6 per cent in2004 and was estimated to decrease further in 2005.The 2004 decrease in the share of current expenditureswas mainly due to a drastic cut in exceptionalexpenditures from 4.1 per cent of GDP in 2003 to2.3 per cent of GDP in 20042.

The share of total government revenues (excludinggrants) in GDP increased from 13.5 per cent in 2003to 13.8 per cent in 2004 and was programmed to reach

14.6 per cent in 2005. The increase was supported byincreased tax revenues resulting from a number ofreforms, including broadening in coverage of the value-added tax and increasing its rate from 15 per cent to18 per cent in July 2002, and from the re-organisationof Rwanda’s tax administration. Furthermore, thegovernment has further intensified the systematiccollection of profit remittances and cumulative arrearsfrom public enterprises as well as the service paymentson debt on-lent to other enterprises.

The overall budget deficit, excluding grants,increased significantly in 2004, reaching 12.2 per centof GDP, nearly two percentage points higher than in2003. The share of the overall budget deficit in GDP,

2. Exceptional expenditures were introduced in 1998 to cover spending on assistance to victims of the genocide, the demobilisation and

reintegration of soldiers, civil-service reform, education assistance to returning refugees and the establishment of governance institutions.

It is projected that these exceptional expenditures will be reduced to about 1 per cent of GDP by 2007.

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excluding grants, was increased in 2005 and is expectedto increase further in 2006, before decreasing in 2007.The overall deficit including grants, however, amountedto only 0.2 per cent of GDP in 2004 (down from2.3 per cent of GDP in 2003), and 0.5 per cent of GDPin 2005.

Monetary Policy

Throughout the last ten years, Rwanda adoptedfar-reaching reforms to make monetary policy moreeffective, including the rehabilitation of the NationalBank of Rwanda (NBR, Rwanda’s central bank), theadoption of a new central-bank law and the introductionof indirect monetary policy instruments. The mainaim of Rwanda’s monetary policy is to reduce relativelyhigh inflation rates by conducting a prudent monetarypolicy. Nevertheless, monetary aggregates grew stronglyduring 2003 and 2004 due to a higher-than-anticipatedfinancing of the budget deficit by the banking sector,and an increase in bank lending to public enterprisesand investment projects. Broad money (M2) increasedby 15.2 per cent during 2003 and by 12.1 per centduring 2004, which, together with low agriculturaloutput and increasing oil prices, resulted in relativelyhigh inflation rates of 7.7 per cent in 2003 and 10.2 percent in 2004. While broad money continued to growfast at the beginning of the year, the NBR has takenactions to reduce inflation by reducing the excessreserves of the banking sector and monitoring creditgrowth in the private sector. It was estimated that theseactions, together with increased food production, wouldbring Rwanda’s inflation rate down to about 6 per centby the end of 2005. The NBR has targeted a lower rateof inflation of about 4 per cent for 2006 and 2007.

Since 1995, Rwanda has moved towards increasinglymarket-determined interest rates and exchange rates.Weekly foreign exchange auctions were introduced inJanuary 2001, whereby the NBR offers a predeterminedamount of foreign exchange on a marginal price basisand intervenes occasionally to smooth out disturbances.Nonetheless, the fragile health of some commercialbanks restricted their participation in the inter-bank,securities and foreign-exchange markets. Thegovernment has therefore taken actions to improve the

performance of the banking sector. It sold its majorityshares in the Commercial Bank of Rwanda (BCR) tothe United Kingdom (UK)-based Actis Group andthose in the Continental African Bank of Rwanda(BACAR) to the Kenya-based Fina Bank. Starting inMay 2005, the NBR allowed banks to lend in foreignexchange to exporters. The government has also soughtto enhance the effectiveness of the NBR and continueswith its efforts to bring commercial banks intocompliance with prudential regulations. For example,in May 2005, it suspended the chairman of a bank thathad continued to breach prudential regulations. Whilethe level of official reserves fell from the equivalent ofsix months of imports in 2002 to five months of importsin 2003 due to a drought-related increase in importsand decrease in exports, as well as to delays indisbursement in budgetary assistance by various donors,it slowly improved through 2004 and reached nearlysix months of imports at the end of June 2005.

External Position

Rwanda’s relatively open trade regime exposes thecountry to considerable fluctuations in world prices ofimports and exports. Largely due to increases in oilprices, Rwanda’s imports (expressed in $) grew by 4 percent in 2003, 12.5 per cent in 2004 and an estimated33.3 per cent in 2005 as a result of increased dependenceon thermal energy. In terms of GDP shares, importsof goods increased to 14.9 per cent in 2004 and anestimated 15.8 per cent in 2005. Meanwhile exports(expressed in dollars) contracted by 6.3 per cent in2003. They then increased by more than 50 per centin 2004 but were estimated to grow by only 2.1 percent in 2005. In terms of GDP shares, exports increasedfrom 3.7 per cent in 2003 to 5.3 per cent in 2004before decreasing to an estimated 5.1 per cent in 2005.Hence, while the current-account deficit decreasedsignificantly from 2003 to 2004, it was estimated toincrease in 2005 to 22 per cent of GDP if excludingofficial transfers and to 9 per cent of GDP if includingofficial transfers. The situation is not expected toimprove significantly within the next few years. Rwandahas doubled its net inflows of foreign direct investment(FDI) from 1.5 per cent of gross fixed capital formation(GFCF) in 2003 to 3 per cent of GFCF in 2004. FDI

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inflows to Rwanda, however, remain among the lowestin Africa.

Rwanda’s main exports are coffee, tea and coltan.World coffee prices continued to increase in 2004,stimulating an increase in coffee production. Thus, theexport volume of coffee, which is Rwanda’s main cashcrop, increased by more than 80 per cent from 2003 to2004. At the same time, Rwandan coffee farmers continueto shift their production from low- to high-quality coffeein order to achieve premium prices. The export volumeof tea, which is Rwanda’s second most important cashcrop, declined by about 9 per cent from 2003 to 2004,

reflecting the fact that Rwandan tea prices increasedonly marginally in 2004, which motivated some farmersto shift to the production of coffee. Weather conditionswere on balance favourable in 2005, but prices for teaand coffee stagnated, discouraging further expansion ofproduction. Thus, export volumes for coffee and tea areestimated to remain broadly at 2004 levels. Due to therecovery of world prices in coltan in 2004, Rwanda wasable to double its exports of coltan from 2003 to 2004.Given, however, that Rwandan coltan is usually notcompetitive in world markets due to Rwanda’s highextraction costs, the medium-term outlook for Rwanda’scoltan exports is not optimistic.

Table 3 - Current Account (percentage of GDP)

Source: Domestic authorities’ data; estimates (e) and projections (p) based on authors’ calculations.

1997 2002 2003 2004 2005(e) 2006(p) 2007(p)

Trade balance -10.0 -9.7 -10.7 -9.6 -10.7 -11.1 -10.8Exports of goods (f.o.b.) 5.0 3.9 3.7 5.3 5.1 5.1 5.0Imports of goods (f.o.b.) -15.0 -13.6 -14.5 -14.9 -15.8 -16.2 -15.8

Services -8.8 -7.2 -8.5 -8.5Factor income -1.8 -1.1 -1.8 -1.9Current transfers 15.5 11.2 13.3 17.1

Current account balance -5.0 -6.7 -7.8 -2.9

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Figure 4 - Stock of Total External Debt (percentage of GNI)and Debt Service (percentage of exports of goods and services)

Source: World Bank.

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Given the importance of export-led growth forRwanda’s economic future, it is vital for efforts to bestepped up in strengthening and implementing thecountry’s international trade strategy. The strategy thathad initially been developed in 2004 is currently beingadjusted based on the results of a diagnostic studyunder the trade-related integrated framework. Actionshave been taken to establish an export-processing zone(EPZ), and negotiations are in progress for Rwanda tojoin the East African Community (EAC) and theSouthern African Development Community (SADC).

Rwanda reached its enhanced completion pointunder the Heavily Indebted Poor Country (HIPC)initiative in April 2005. Total debt relief under theEnhanced HIPC Initiative from all of Rwanda’s creditorsis estimated at $1.4 billion in nominal terms. Thisassistance is equivalent to a reduction in net present value(NPV) terms of $695.5 million. In the first ten yearsafter reaching the completion point, Rwanda is expectedto save approximately $48 million annually in debt-service costs. Given that close to 90 per cent of Rwanda’sexternal debt is to multilateral creditors, the recentlyagreed 100 per cent debt cancellation on all debt owedto the African Development Fund (ADF), theInternational Development Association (IDA) and theInternational Monetary Fund (IMF) will significantlyimprove Rwanda’s external-debt sustainability.

Structural Issues

Recent Developments

Rwanda has taken action to address the criticalissue of sustainable rural development. A new land lawthat improves the land-tenure and property rights wasapproved by parliament in mid-2005 and signed intolaw in November 2005. The successful implementationof the law is tantamount to defining the land-tenuretypes that will exist in the future, which is essential forcreating a more favourable investment climate foragricultural development. Specific training will beneeded in a number of areas, including markettransactions, mortgages, the legal elements of titling andregistration, dispute resolution and land-use planning

for the new law to generate maximum economicbenefits. To ensure environmental sustainability of therural development strategy, the government createdthe Rwanda Environmental Management Agency(REMA), which implements the nation’s policy forenvironmental protection, giving priority to developingan information system and strengthening institutionalarrangements for environmental management.

In an effort to enhance effectiveness across allpublic-service agencies, Rwanda has continued toimplement the public-service reform it began in 2003.The strategy clarifies broad functional requirementsand provides a strong framework for identifying needs,budgeting, managing and evaluating capacity-buildingprogrammes. The public-sector capacity-buildingprogramme is an integral part of the reform programme.Nonetheless, it is the private sector that is regarded asthe engine for Rwanda’s economic growth, and thegovernment is committed to creating an enablingenvironment for its development. Strategic measuresundertaken include a “one-stop shop” for investors,the refinement of the investment code, restructuringof the centre for support of small and medium-sizedenterprises Centre d’Appui aux Petites et MoyennesEntreprises (CAPMER), the institution of an ArbitrationCentre dealing with commercial disputes, theestablishment of a Commercial Chamber, the draftingof a new Accounting Law and the establishment ofthree commercial courts. Final steps are also underwayfor the institution of a National AccountingCommission and Regulation Agency for the profession.The Rwanda Utilities Regulatory Agency (RURA) aswell as the National Bureau of Standards are fullyoperational.

Nonetheless, Rwanda’s business environment facessevere constraints related to a lack of human capital andto structural bottlenecks, especially in terms of hightransport costs and energy shortages. Based on theWorld Bank report Doing Business in 2006: CreatingJobs, Rwanda ranks 139 out of a total 155 countriescovered. Of the 36 sub-Saharan African countriescovered, Rwanda ranks 22. Of the ten areas covered inthe report, Rwanda’s main problem areas, contributingto the relatively low ranking, are the heavy burdens on

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business related to getting credit and trading acrossborders, and the closing of failed businesses.

Rwanda enacted a Privatisation and PublicInvestment Law in 1996. This law gave the governmentpowers to liquidate, restructure and divest, partiallyor wholly, any public enterprise that was classified asnon-performing. Privatisation of public enterprisestook effect in 1998, with a total of 90 public enterprisesearmarked for privatisation. At the end of October2005, 53 enterprises had been privatised. At that time,the latest privatisation was that of thetelecommunications company RwandaTel. Sevenenterprises were in the final stages of being privatised,another seven had been liquidated and 23 were yet tobe privatised (including the mining company Redemi,the printing and stationary company Imprisco, andthe transport company Onatracom). Whileprivatisations have been carried out across all sectors,current efforts concentrate on tourism. In an effort topromote tourism in Rwanda, a number of formerlystate-owned hotels, including Hotel Diplomate (nowIntercontinental Hotel), Hotel Izuba (now Kivu SunHotel) and Hotel Akagera, have been renovated andeither privatised or put under private management.

The key focus areas of Rwanda’s strategy to improvethe country’s infrastructure are water, energy andtransport infrastructure. The government is undertakingspecific projects to increase the supply of clean waterin urban areas. The water-sector strategy aims atincreasing the supply of this vital public utility and accessto it. Recent progress includes a draft law on water-resource protection as well as the establishment of ageographic information management system (GIS) forthe water sector. The water supply system, however, stillrequires extensive upgrading and rehabilitation in orderto be consistent with the government’s long-termobjective of increasing the current access rate to drinkingwater of nearly 60 per cent to 85 per cent in 2015. Thegovernment has started to contract private firms toensure the long-term sustainability of the rural water-supply systems while strengthening the decentralisationof water sources management. The Urban Water Supplyand Sanitation (UWSS) programme will increase urbancoverage from 73 per cent to 78 per cent and is

anticipated to reduce leakage from 43 per cent to 23 percent by 2007. Another programme aimed at increasingsanitation and hygiene education in schools and athome has also been initiated.

In the energy sector, the chronic shortage ofelectricity was aggravated in 2004 and 2005 by sharplyincreasing oil prices. The government has undertakenmeasures to improve rural electrification through thedevelopment of micro-plants and/or the extension ofthe distribution network, including measures to facilitatethe use of solar energy. There is recognition that thelong-term solution to the chronic shortages is theincreased production of electricity and the exploitationof new and renewable sources of energy. Meanwhile,in the short to medium term, Rwanda still depends onimports of energy and fuel at high prices. Although thecurrent energy crisis was partially addressed throughthe purchase of generators in 2004, the purchase andstorage of the fuel needed to run these generators willhave continuing implications for the future. This isalso expected to increase the cost of electricity, whichwill have implications for the rural-electrification policy.It is thus envisaged to subsidise a “lifeline” tariff for low-use customers. Wood energy represents approximately94 per cent of Rwanda’s energy sources. It is the mostaccessible resource for the majority of the population,whose purchasing power is still very low. Negotiationswith private companies on the extraction of methanegas are in the final stages, and production of electricityand related gas products is expected to begin by 2006.In March 2005, the government entered into a jointventure with a foreign consortium to exploit theconsiderable methane-gas reserves of Lake Kivu.

Transport Infrastructure

Landlocked and covered by a hilly terrain, Rwanda’stransport infrastructure development is more challengingthan that of most African countries, both for domesticand international links, especially since the 1994 warand genocide devastated the country’s transportinfrastructure. Considering the four modes of transport– road, rail, air and water – Rwanda is heavily relianton road transport. Rail is totally non-existent, whilewater and air modes are just marginally utilised. During

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the last ten years, Rwanda has undertaken tremendouspolicy reforms and investments that have laid a strongfoundation to improve its transport infrastructure.While mainly donor-funded and concentrating onroad construction and repairs, transport networks haveimproved national service delivery in the country andimproved internal market access.

Rwanda’s road transport is made up of a14 000 kilometre-long road network, servicing some34 500 vehicles at an average of 2.5 cars per km andan average road density of 1.7 km/1 000 inhabitants.While only 19 per cent of the classified network ispaved, road transport in Rwanda accounts for 90 percent of the entire transport system. Although a basicnetwork of roads exists, especially between Kigali andother major cities, there are considerable gaps in ruralareas, which hamper agricultural growth. For its roadsurface connection with the external world, Rwandauses two corridors: the so-called Northern and CentralCorridors. The Northern Corridor links Rwanda to thePort of Mombasa (Kenya) through Uganda and entailsa distance of 1 800 km. The Central Corridor linksRwanda to the Port of Dar es Salaam (Tanzania), acrossa distance of 1 400 km. The state of both corridors hasdeteriorated in the last few years due to insufficientmaintenance relative to the increasing traffic volume,raising already high transport costs for Rwanda. Inrecent years, Rwanda’s interest in the Central Corridorhas increased as a result of improved services deliveryat the port of Dar es Salaam. It is in this regard thatRwanda plans to develop a container terminal at theIsaka railway junction in Tanzania, 450 km from Kigali.In the long run, however, a more cost-effective accessto the Tanzanian coast is envisaged through a railwayextension.

Air transport in Rwanda plays the dual role ofenhancing economic integration in regional and globalmarkets and of promoting tourism. Air-transportinfrastructure comprises one international airport,which serves the capital, Kigali, and five airfields, threeof which are fully operational. The Kigali InternationalAirport has a passenger capacity of up to 500 000annually but currently handles an average of only140 000. It is served by five international airlines as well

as one national carrier. Owing to limited competitionand a small market, the cost of Rwanda’s air transportis higher than international averages. With a view toimprove the country’s air services, Rwanda has justcompleted an overhaul of the Kigali InternationalAirport with a repaved and extended runway, a newtaxiway, an increased aircraft parking area, newnavigational aids, fire-fighting equipment and arefurbished lighting system. Plans to redevelop theKamembe Airport in the south-west of the countryare also underway, to make it the second internationalairport of the country. Within the framework of a newvision of the fast growing City of Kigali, the long-termplans include the construction of an alternative andlarger international airport in Bugesera, some 50 kmaway from Kigali.

Rwanda is endowed with several lakes and rivers,but only Lake Kivu is fully navigable by both passengersand goods. It covers a distance of 120 km and servesthree towns: Gisenyi to the north, Kibuye to the centreand Cyangungu to the south. Following the improvedsecurity and promise of peace in the DemocraticRepublic of Congo (DRC), water transport on LakeKivu has sparked some interest, prompting thegovernment to initiate a programme to promote andencourage private-sector investment in its development.The main challenge to this strategy, however, is anabsence of a boatyard for boat, tug, and bargemaintenance and repair. A study on the economicviability of such an investment ought to be seen as aprerequisite to exploiting the full potential of watertransport on Lake Kivu.

The entire transport infrastructure in the countryis state-owned, including the airports and airfields.The government’s decentralisation policy, however, hasdevolved the responsibility for development andmaintenance of local unpaved and communal roads tothe local authorities. On the other hand, the inter-provincial and city roads are maintained by privatecontractors through a road maintenance fund, financedfrom vehicle registration fees, fuel-tax levies and axle-load fines. A road-maintenance agency was proposedand is due to commence operations in 2006. Rwanda’stransport policy rests with the Ministry of Infrastructure,

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which is charged with two goals: i) to enhance thecountry’s integration into the regional economy ; andii) to improve the availability and quality of localtransport infrastructure. Numerous initiatives areunderway, including attempts to seek alternatives to thedominant road transport. Rwanda is active in regionalNew Partnership for Africa’s Development (NEPAD)programmes, which provides a framework for thecountry’s regional integration strategy. Although theemphasis of the road-transport strategy is on theconservation of existing roads, the present state of theRwandan road network requires extension. In thisrespect, a variety of technical studies for the construction

of new roads has been undertaken. At the same time,adequate financing for the construction andmaintenance of feeder and communal roads needs tobe ensured in the decentralisation process.

Looking back to the transport-sector situation asit was at the end of 1994, Rwanda has done remarkablywell thanks to the generous support of its developmentpartners. Nonetheless, Rwanda has started to search foralternative financing sources for its medium- and long-term infrastructure investments. One such alternativeis the promotion and encouragement of private-sectorinvestment in transport infrastructure. The other is an

3. PDL HIMO stands for Programme de développement local a haute intensité de main-d’œuvre.

Rwanda’s Labour Intensive Local Development Programme (PDL HIMO)3

In November 2003, the President of Rwanda launched a new programme with the objective to contributeto poverty reduction by carrying out employment-intensive and income-generating investments using localresources. The HIMO approach: i) creates jobs with a view to reduce rampant unemployment; ii) providesinfrastructure that is urgently needed for rural development; iii) protects and conserves the environment;iv) achieves the demobilisation and reintegration of soldiers and; v) increases revenues and purchasingpower within the rural areas. The approach appears to be a sure way to increase the demand for non-agricultural goods and services, a demand that in itself can induce the emergence of non-agricultural activitiesand the creation of non-primary activities in the rural areas.

HIMO initiatives are equally expected to contribute to the improvement of the incomes of women, youngpeople and the poor, and to stimulate the spirit of saving and the capacity to invest in rural areas. Hence,all HIMO activities are complemented by significant training and savings programmes. The accumulatedsavings of HIMO employees can then be used as start-up capital for income-generating investments followingthe completion of a HIMO project. The HIMO programme is projected to provide 322 000 direct jobsand 564 000 induced jobs during the five-year period of the programme. The typical wage of HIMO-projectemployees amounts to RWF400 (Rwanda francs, about $0.80) per day. The projected total cost of thePDL-HIMO programme is estimated at approximately $220 million, about 90 per cent of which is expectedto be provided by donors through Rwanda’s Common Development Fund (CDF).

With regard to the provision of transport infrastructure, HIMO aims at: the building of bridges; therehabilitation, improvement and maintenance of rural roads and; the pavement of streets in urban/suburbanimpoverished areas. The first HIMO infrastructure project assisted one of the poorest districts of Rwanda(Mudasomwa) by fully rehabilitating a 12.5 km-long rural trail connecting three rural centres (Gasarenda,Mushishito and Gakoma). Work for this project began on 26 November 2004 and was completed on14 October 2005. The project employed about 600 workers. The total costs of the project amounted toabout $120 000 (RWF61 million).

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ingenious initiative to stimulate local labour-intensiveprogrammes to develop communal transport roadsand bridges through Rwanda’s Labour Intensive LocalDevelopment Programme (PDL-HIMO); see box.Nonetheless, the main responsibility for at least co-ordinating Rwanda’s transport infrastructure will remainwith the central government.

Political and Social Context

Rwanda is a relatively safe country in a turbulentvicinity that must constantly weigh its need for internaland external security against the need for thedemocratisation and decentralisation that the countryrequires to achieve sustainable development. Regardingregional peace, there has been continued progressfollowing the signature in August 2004 of an agreementbetween the DRC, Rwanda and Uganda to pacify theregion with the disarmament of all armed groupsoperating in the three countries. On 20 November2004, African leaders from eleven Great Lakes countriesalso signed the broader Dar es Salaam Declaration, aUnited Nations (UN)-backed peace framework for theGreat Lakes region. Nevertheless, the RwandanInterahamwe militia operating in the DRC and accusedof participating in the 1994 genocide have maintainedunabated presence despite the agreement to disarm.Looking forward, improving regional stability in theGreat Lakes region will be a key factor for achievingthe country’s development potential.

Rwanda has made considerable progress towardsincreasing the participation of its people in public life.Supporting policies and institutions have beenestablished, including a decentralisation policy and theadoption of a new Constitution in May 2003. Thesubsequent presidential and first-ever multi-partyparliamentary elections saw the election of PresidentKagame and an unprecedented 49 per cent of womenlegislators. Before the adoption of the new constitution,the government released about 25 200 detainees, mostlypersons who had confessed to committing genocide,an action in the spirit of appeasement and nationalreconciliation. Another group of 30 000 persons whohad mainly confessed their role in the genocide were

also released in 2005, just as the transitional justicesystem known as Gacaca was beginning its activitiesnation wide after two years of pilot trials.

Despite achievements in electing women in decision-making positions, gender gaps remain important inRwanda, all the more so in rural areas. The HumanDevelopment Report (HDR) 2005 of the UnitedNations Development Programme (UNDP) rankedRwanda 122 out of 140 countries in the gender-relateddevelopment index (GDI). Female-earned incomeamounts to 62 per cent of male-earned income. Theauthorities are very actively promoting gender equalityand the empowerment of women, including throughthe institution of a Ministry of Gender and Womenin Development, which is mandated to spearhead theelimination of gender imbalances in all sectors. Inaddition, grassroots-based National Women Councilswere recently set up. A law on succession andmatrimonial regimes was enacted to improve the rightsof women with regard to property rights. Besidesratifying the international convention against all formsof discrimination, gender-awareness campaigns havebeen undertaken throughout the country. A NationalGender Policy has made gender empowerment andinclusiveness a constitutional requirement. Many public-sector institutions have started to review their structures,behaviour and human capital to make them conformto the gender-related provisions of the Constitution.

Rwanda is an active participant in NEPADprogrammes and, together with Ghana, is one of thefirst two countries to undergo external review underthe African Peer Review Mechanism. A draft report tounderpin the review was presented at the Forum ofHeads of State and Government meeting in Abuja,Nigeria in June 2005. The actual peer review wasexpected to be undertaken in January 2006. Thegovernment continued throughout 2005 to promotefinancial accountability among its officials, while alsoexercising experimental fiscal initiatives to reduce publicspending. For example, a new policy was passed inearly 2005 to abolish all government vehicle fleets. Anumber of outsourcing measures to private businesseshave also been introduced for some government services.The decentralisation policy was also revised in 2005,

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reducing the number of provinces from 12 to 5 andthat of districts from 106 to 30. Sub-districts, whichform the primary local development anchor, have alsobeen reduced from more than 1 000 to about 400. Allthis is expected to improve fiscal responsibility andliberate budgetary resources for economic development.Fiscal decentralisation to local government, however,has been relatively disappointing; only slow progresshas been made towards meeting the target of 10 percent of net domestic income devoted to the CDF,which is one of the principal sources of revenue for localgovernment.

Rwanda’s first Poverty Reduction Strategy Paper(PRSP), which was completed in June 2002 afterextensive consultations with civil society, is based onsix strategic pillars: i) rural development and agriculturaltransformation, ii) human development, iii) economicinfrastructure, iv) good governance, v) private-sectordevelopment and vi) institutional capacity building. Inthe future, it will be important to make further progressin monitoring and reporting on progress within sectors,and in requiring improved evidence-based analyses tosupport prioritisation of development goals. Detailedanalysis of poverty reduction progress carried out inconsultation with other partners will, in fact, be requiredto underpin the new PRSP, which is in its final stagesof formulation. Nonetheless, poverty remains high inRwanda, even as the ongoing household living-conditions survey is expected to register someimprovement compared with the latest country-widedata of 2000. In the UNDP HDR 2005, Rwandaranks 159 out of 177 countries in terms of humandevelopment, even though Rwanda’s HumanDevelopment Index (HDI) has improved significantlyfrom a low 0.34 in 1995 to 0.45 in 2003.

HIV/AIDS continues to take a heavy toll despitesignificant efforts – with the support of the donorcommunity – to expand HIV/AIDS services throughoutthe country. As of the end of 2004, 48 service centresoffered Voluntary Counselling and Testing (VCT) and59 service centres offered Prevention of Mother toChild Transmission (PMTCT), an approximately 20 percent increase since the end of 2003, with the numberof VCT centres expected to increase further to 180 by

the end of 2005. According to the Joint United NationsProgramme on HIV/AIDS (UNAIDS) update ofDecember 2005, Rwanda’s epidemic appears to havestabilised at the national aggregate level (reporting anadult HIV prevalence rate of 5.1 per cent), but differinglocalised trends are visible, with HIV prevalence inpregnant women rising in some places, staying stablein others and decreasing in a few locations (such asGikondo, a Kigali suburb). Overall, HIV prevalenceis more than twice as high in urban areas (6.4 per centmedian prevalence in 2003) as in rural areas (2.8 percent), with Kigali by far the worst-affected despitesome evidence of declining infection levels in 1998-2003among pregnant women younger than 35 years of age.The prices of antiretroviral (ARV) drugs have beencontinuously reduced, and the number of peoplereceiving ARV therapy rose from 8 700 in 2004 tomore than 13 200 by June 2005 and to 17 500 by theend of the year. There are evident signs of progress asthe preliminary November 2005 results of aDemographic and Health Survey Plus (DHS+) showa reduced national prevalence rate of 3 per cent amongadults.

There are a number of important improvements ina variety of social indicators, notably in the area ofeducation and health. While health indicatorsdeteriorated sharply in the early 1990s, considerableprogress has been made since 1995, though someindicators have not yet reached the levels that werealready achieved in 1990. For example, while the under-five mortality rate stood at 141 per 1 000 live birthsin 1990, it rose sharply to 219 during the genocide andstood at 196 in 2000. By mid-2005, it had improvedto 152. After the immunisation campaign was restartedin 1995, it reached a coverage of close to 70 per centin 1997 then deteriorated to less than 50 per cent in1999 due to the lack of supervision and monitoring.Alarmed by the sudden rise in reported cases of measles,a new campaign and improved monitoring has resultedin 2004-05 immunisation rates of 87 per cent. Theimmunisation coverage for Diphtheria, Pertussis andTetanus (DPT3) has been the most successful in recentyears, reaching close to 93 per cent in 2004. Thanksto the Rwanda Expanded Programme for Immunisation(EPI), the immunisation coverage for DPT3 was

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expected to reach 97 per cent in 2005. Malaria remainsthe major cause of children’s mortality, followed byacute respiratory infections and diarrhoeal diseases.Malnutrition and micro-nutrient deficiencies alsoremain serious problems in Rwanda, even though therate of severe malnutrition for children under five wasreduced from 29 per cent in 1990 to about 24 per centin 2000, and then it registered a steady improvementto 19.2 per cent by mid-2005.

With regard to progress made in the educationsector, the net primary enrolment rate rose from 73.3 percent in 2001 to 74.5 per cent in 2002, 80 per cent in2003, 84 per cent in 2004 and 93.3 per cent in 2005,and the number of primary schools increased from2 143 in 2001 to 2 191 in 2004. With regard tosecondary education, enrolment ratios are also increasingand transition rates from primary to secondaryeducation have shown encouraging improvements,rising from 43 per cent in 2002, to 54 per cent in2003, to 57 per cent in 2004 and 60 per cent in 2005(in both public and private schools). While the shareof girls in primary education is on par with that of boys,the rate of girls enrolled in secondary schools is, at48 per cent, slightly below parity. The quality of primaryand secondary education remains poor, mainly due toa shortage of qualified teachers, a heavy curriculum andthe lack of appropriate instructional material. Whilethe proportion of qualified primary-school teachershas increased from 81 per cent in 2002 to 85 per cent

in 2003 and to 87 per cent in 2004, the continuedshortage of qualified teachers has led to large classes anda double-shift system. The qualitative problems arereflected in sizeable gaps between enrolment, attendanceand completion rates. Drop-out rates were at 14.2 percent and repetition rates at 32 per cent in 2003, thenwent down to 19 per cent in 2005. Beginning in 2003,Rwanda eliminated all fees on primary education. Inthe same year, it finalised the Education Sector StrategicPlan (ESSP) for 2003-08. The ESSP is a forward-looking, rolling development plan intended to makethe education sector policy operational.

In tertiary education, the main recent developmentsinclude the passing of the Higher Education Bill andthe establishment of the Students Financing Agency forRwanda (SFAR), which are expected to improvegovernance of the tertiary-education sector whilstincreasing private participation and allowing increasedaccess for those from poor households. Complementingthe six public higher-learning institutions, five privatehigher-learning institutions were opened since 2003,bringing the total number of private higher-learninginstitutions to nine. Most of the Youth Training Centres(for vocational training), however, are inadequatelyfunded and need rehabilitation. The long-termeducation strategy stresses the priority of having onewell-equipped and well-staffed technical school in eachprovince and at least one vocational-training centre ineach district.

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