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Rwanda The Emerging Economy To Watch

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The tiny East African nation has proven to be a role model for the continent.

During her November 2018 visit to Rwanda, World Bank CEO Kristalina Georgieva described the country as one that has enjoyed impressive growth and often has bold ambitions.

In recent years, at business summits across the world, it’s not uncommon to hear such praise about Rwanda. Various speakers have singled it out as one of the emerging economies to look out for in terms of investment opportunities, value for money and economic growth.

The statistics explain why Rwanda has become Africa’s poster child for progress. The country has reduced reliance on donations and currently, domestically funds about 84% of the budget up from about 36% two decades ago.

In the last fiscal year (2017-2018), the economy grew by 8.9%.

Barely 24 years after the horrific genocide against the Tutsi, when the East African nation lost over a million lives and the devastation left a trail of trauma and economic ruin, its achievements have often been described as miraculous.

At the center of the tiny country’s recovery is President Paul Kagame, who led the revolt that ended the genocide.

Kagame has led his country from penury to prosperity. His government has co-invested alongside private capital to reduce risk and create a more appealing proposition.

For instance, when one of Africa’s leading telecoms groups, MTN, was keen on entering the Rwandan market in 1998, the government boosted their confidence by purchasing a 20% stake in the company.

This was driven by an ambition to not only attract the firm to the country but to ensure citizens have access to affordable telecom services. Years later, the government offloaded its stake in the firm through an initial public offering, allowing citizens to be part of a meaningful income-generating firm.

MTN is just one example of the strategic approaches taken by the Kagame-led government. The same has been replicated in multiple sectors, including finance and agriculture.

The last two decades on the Rwandan economic front have also been characterized by improving the investment ecosystem to create interest from the international and local business community.

While most would concentrate on the odds against the country, such as its small size, and its landlocked location, amidst a volatile region, Kagame sought to give investors every reason to put their money in Rwanda.

In a continent that has always been associated with corruption, the Rwandan government adopted a zero-tolerance stance on graft.

This was paired with the improvement of service delivery across all sectors, eliminating the need for bribes to access public services.

READ MORE | Paul Kagame: ‘Together Is When We Are Going To Succeed’

The most recent Corruption Perceptions Index by Transparency International placed Rwanda as third least corrupt country in Africa.

The reforms have for the last two decades addressed challenges that have often kept investors up at night. Steps that are cumbersome in countries across the world, such as business registration, were eased to a six-hour activity, while tax declaration and registration were simplified to online processes.

The World Bank ranked Rwanda 29th globally in its 2018 Ease Of Doing Business Report and put it second in Africa. The index tracks business efficiency across the world.

Many African economies are known for distinct exports or income streams that have remained unchanged for years. Rwanda chose a different path by embarking on a concerted effort to diversify exports and revenue streams.

This approach has seen services become the leading driver of gross domestic product growth  in the last three years, taking over from agriculture.

Diversification has been achieved, in part, through an increased focus on tourism, driven by initiatives such as the Meetings Incentives Conferences and Exhibitions (MICE) strategy which in less than five years placed Rwanda among the top conference destinations in Africa.

In May 2018, the International Congress and Convention Association (ICCA) ranked the capital Kigali as the third most popular conference and event destination on the continent, after Cape Town in South Africa, and Casablanca of Morocco.

The ranking considered as the country’s capacity to accommodate international meetings and events, together with landmark infrastructure such as a modern airport and a state-of-the-art conference center.

The country has projected doubling revenues from conference tourism.

READ MORE | A Country On A Roll

According to Clare Akamanzi, the Chief Executive of the Rwanda Development Board (RDB), the country collected a total of $42 million from 192 conferences in 2017 and was projecting $74 million in 2018.

The diversification strategy has opened up investment opportunities for local and international investors (Marriott, Radisson Blu, Park Inn, Serena among others) and created thousands of jobs in the hospitality industry.

The Rwandan media was in November abuzz with news that all hotels in the country’s capital were fully booked for conferences during the month. Conference organizers and tour operators were also said to be stretched to capacity.

Statistics from the RDB indicate there were about 10,488 hotel rooms in the country in 2017, while aviation traffic is expected to grow to about 1,151,300 in 2018, from 926,571 in 2017.

The trend is expected to persist going forward. Rwanda will by the end of 2020 have a new modern airport located in the Bugesera District, a 25-minute drive from the capital.

While pursuing externally-driven growth, Kagame has not forgotten about the home front. This led his government to adopt a ‘Made in Rwanda’ strategy in 2016, which has reduced the trade deficit by about 36% and increased the value of total exports by about 69% from about $558 million to $943 million. Local producers have fast become empowered to produce for the local and export market.

The Rwandan leader has turned his attention to regional integration in the six-member East African Community to counter complaints about Africa’s small, fragmented markets.

The consolidated market of over 200 million citizens is more reassuring to investors and makes a business case for joint infrastructure projects such as the Standard Gauge Railway, which will connect the major Kenyan centers of Mombasa and Nairobi.

Lisa Kaestner, a practice manager for finance competitiveness and innovation at the International Finance Corporation, says: “I see Rwanda is keen on this and trying to support through the East African Community. This is one way to reduce the cost of doing business. If you look at it through the doing business lenses, all countries are trying to improve.”

Kagame’s continental mission has been evident in his various roles at the African Union (AU).

As the chairperson of the AU Reforms team, Kagame has advocated for less donor dependency and more sustainable funding by African states.

He has often challenged African countries who contribute less than 30% of the AU’s budget and turn to external donors with a begging bowl, which has been blamed for influencing the body’s decisions and priorities.

As  AU chair, Kagame has sought an adjustment of terms between Africa and the rest of the world for mutual benefit. This, he has argued, is more sustainable in the long run and presents an avenue for growth among all parties, as opposed to aid, which maintains dependence.

Months after assuming the chairmanship of the AU, in March 2018, Kagame hosted over 50 African heads of state and government in Kigali for the signing of the African Continental Free Trade Area.

As a trade bloc, the trade agreement envisions a continental market of 1.2 billion people, with a combined gross domestic product of more than $3.4 trillion.

So far, 49 countries have signed the agreement, with nine ratifications. The development is a huge step towards encouraging industrialization and job creation across Africa.

Peter Mathuki, Executive Director of the East African Business Council, says: “The country’s leadership is on grip to lift the EAC country to middle income level faster than most African countries. The fast economic growth is premised on pillars of good governance, easy-to-do business climate and zero tolerance to corruption… Rwanda is indeed Africa’s rising star and driver for economic transformation.”

– Collins Mwai 

Current Affairs

Famed Cullinan Mine Banks On Big Diamonds To Drive Down Debt

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Maipato Kesebang normally grows maize, jugo beans and sweet reed on her 20-hectare plot of land northwest of Gaborone, Botswana’s capital. But last year, worsening drought and heatwaves destroyed much of her harvest.

“The little that grew feebly we just ate. Nothing was left for storage or to sell,” she said.

Usually when her crops fail she turns to collecting wild spinach to sell, to support her two sons. But even that is now disappearing as climate change brings harsher weather and more people turn to harvesting the vegetable to survive, she said.

So last year, for the first time, she signed up to Ipelegeng, a long-standing government safety net program that provides temporary jobs for those struggling to make ends meet.

Now she works one month out of four cutting back overgrown grass and trees, desilting dams and drains, collecting litter or cleaning streets.

She’d prefer to work every month – but demand is so high for the jobs that there aren’t enough slots, she said.

“We only work for a month, then we go home and wait for three months before we apply again. That’s because there are too many people now needing the relief,” said Kesebang, as she pulled weeds on her parched plot of land.

As harsher droughts and hotter weather linked to climate change ruin crops more frequently in Botswana, the country is facing a new challenge: growing demand for social assistance programs.

SWELLING RANKS

About 68,000 people worked for Ipelegeng as of March 2018, according to figures from Statistics Botswana, up from about 64,000 in March 2016. Of those on the rolls, about 47,000 were women, according to the agency.

To accommodate rising demand, Botswana’s government last August increased the number of Ipelegeng slots by 5,000, after declaring 2018-2019 an expected drought year.

That will cost the country an extra $2.7 million – money that it does not readily have as its national budget does not specifically set money aside for drought relief, said Billyboy Siabatho, deputy director of the rural development council at the Ministry of Local Government and Rural Development.

“Often, when drought comes, we end up borrowing from funds that would have been set aside for infrastructure development projects,” he said.

Ipelegeng’s main objective is to provide short term employment and relief, while helping carry out development efforts the country sees as important, he said.

“During drought periods, there are fewer farming activities. Therefore most people relocate from farms to villages, looking for alternative sources of income,” Siabatho said.

“Due to limited job opportunities in rural areas, most people rely on Ipelegeng as an alternative source of employment,” he noted.

But as droughts continue to worsen in southern Africa, Siabatho wonders whether the government will be able to keep pace with growing demand.

He also worries whether people will begin to see dependence on safety nets as an easier route than farming, as crop failures worsen.

Botswana’s government, aware of the risks from worsening drought, began in December working on a new drought management strategy that aims to improve planning and budgeting for threats and not focus simply on responding to them, Siabatho said.

‘BEANS ARE BURNING’

For Kesebang, such help can’t come soon enough. Her farm, a few kilometers out of the town of Molepolole, sits in Kweneng District, which has the highest poverty levels in the country, of over 50 percent, according to 2018 report by Statistics Botswana.

Most of the 567 pula ($55) she earns each month she works for Ipelegeng goes to keep her youngest son in primary school.

“I buy books and uniform. Often nothing is really left. Life has become difficult,” she said.

The new planting season isn’t looking much more promising either, she said. Most of the maize, beans, sweet reed and watermelon she planted in late December are struggling, she said.

“The beans are already burning. I have no hope of harvesting maize. Maybe the watermelons will survive,” she said, hopefully.

She’s already given up plowing three-quarters of her farm, to avoid greater losses, she said, though she has allowed a friend to try her luck farming a four-hectare section.

For now, Kesebeng heads to town each day to join hundreds of other temporary workers trimming tree branches that obstruct traffic.

Harsher weather isn’t hitting only the poorest farmers, either. Oduetse Koboto, who heads the environment and climate change unit at the United Nations Development Programme, said he saw little harvest from his own farm last year, in part because of floods.

“I planted tomatoes on 1.5 hectares. I expected to make 200,000 pula ($19,000). I lost. I had also planted a hectare of green peppers, expecting 600,000 pula ($58,000) from it. I lost all that too,” he said.

His 600 mango trees produced not a single useable fruit, he added, and “this is regardless of the fact that I use drip irrigation, solar pumping, and spent on farm maintenance all year round”.

“Imagine what the poor in villages must be going through,” he said.

RISING COSTS

Botswana for over a decade has invested in helping farmers boost grain production and improve food security, including through measures such as better access to credit, technology, seeds and water.

But with droughts worsening, improving harvests remains a challenge – and the country continues to import over 80 percent of its food from South Africa.

“Low production in the agricultural sector due to drought has led to high import bills in cereals, dairy, poultry products and feeds, to name but a few,” Siabatho said.

Costs for programs like Ipelegeng also are rising, he said, noting that the program now costs over $28 million a year to run.

For Kesebang, stress levels are also rising. After watching her new crops wilt, she was nearly hospitalized as a result of anxiety and high blood pressure, she said, and had to remain in Molepolole for two weeks.

Recent rains have now given her a bit more optimism.

“A week into February it rained at least twice. The few plants that survived are recovering. I have hope,” she said. -Reuters

Sharon Tshipa

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South Africa’s Eskom Extends Power Cuts, Needs Bailout By April

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South African power utility Eskom cut electricity for a fourth straight day on Wednesday, as the department of public enterprises warned the struggling state-owned firm needed a cash injection by April to survive.

Eskom, which supplies more than 90 percent of the power in Africa’s most industrialized economy but is laden with more than $30 billion of debt, is battling a shortage of capacity that threatens to derail government plans to lift the sluggish economy.

President Cyril Ramaphosa said last week that the government would support Eskom’s balance sheet but said details would be announced in a budget speech by the finance minister on Feb. 20.

The department of public enterprises, which oversees Eskom, said in a presentation to parliament that Eskom was technically insolvent and would “cease to exist” at the current trajectory by April, unless it gets the bailout. The minister, Pravin Gordhan, however, ruled out privatization of the utility.

The department also said Eskom was struggling to keep its mainly coal-fired plants running due to coal shortages and poor maintenance, with 40 percent of breakdowns a result of human error.

The cash-strapped company said it would cut 3,000 megawatts (MW) of power from the national grid from 0600 GMT on Wednesday, likely until 2100 GMT. This follows a similar cut on Tuesday and 4,000 MW on Monday in the worst power cuts seen in several years that drove the rand currency down on Monday. The rand was slightly firmer against the U.S. dollar on Wednesday.

Around a third of Eskom’s 45,000 MW capacity was offline on Tuesday.

The power cuts are prompting frustration among ordinary South Africans, with traffic gridlock in major cities during rush hours as traffic lights stop working and switched-off fans leave office workers sweating in the summer heat.

Business owners with no access to backup power sources have also been hit.

“We’re struggling,” said Eunice Mashaba, a manager of a textile shop north of Johannesburg who said he had to close the shop early on Tuesday because most customers do not carry cash but have to rely on debit or credit cards for payment.

Ramaphosa announced a plan last week to split Eskom into three separate entities in an effort to make it more efficient as he tries to lift the economy before an election in May, but faces opposition from powerful labor unions and from within his ruling African National Congress party. -Reuters

-Olivia Kumwenda-Mtambo and Wendell Roelf

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A Bad Omen? Emerging Markets ‘Most Crowded Trade’ For First Time

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Investors made a U-turn on emerging markets, naming them the most crowded trade, in Bank of America Merrill Lynch’s survey for the first time in its history.

This marked a big reversal from last month, when fund managers said “short EM” was the third most-crowded trade – showing how fast the mood can shift in an uncertain market.

It could prove to be a bad omen for emerging markets, though, as assets named “most crowded” usually sink soon afterwards.

Previous “most crowded” trades have included Bitcoin, and the U.S. FAANG tech stocks, which led the selloff in December.

Emerging-market stocks .MSCIEF are up 7.8 percent so far this year, and flow data on Friday showed investors pumped record amounts of money into emerging stocks and bonds.

Emerging-market assets had a torrid 2018. Crises in Turkey and Argentina ripped through developing countries already suffering from a strong dollar and rising U.S. yields pushing up borrowing costs.

But a dovish turn by the Fed at the start of the year, indicating the world’s top central bank would not raise interest rates as quickly as previously expected, sparked fresh enthusiasm among investors.

Major asset managers and investment banks such as JPMorgan, Citi and BlueBay Asset Management ramped up their exposure to emerging markets in recent weeks..

The Institute of International Finance (IIF) predicted a “wall of money” was set to flood into emerging market assets.

However, there are some indications momentum may be waning. Analyzing flows of its own clients, investment bank Citi noted they had turned cautious on emerging-market assets over the last week, with both real money and leveraged investors pulling out funds following four weeks of inflows.

BAML did not specify whether the “long EM” crowded trade referred to bonds, equities or both.

Outside emerging markets, investors’ main concern remained the possibility of a global trade war. It topped the list of biggest tail risks for the ninth straight month, followed by a slowdown in China, the world’s second-largest economy, and a corporate credit crunch.

Overall, BAML’s February survey – conducted between Feb. 1 and 7, with 218 panelists managing $625 billion in total – showed investor sentiment had hardly improved. Global equity allocations fell to their lowest levels since September, 2016.

“Despite the recent rally, investor sentiment remains bearish,” said Michael Hartnett, chief investment strategist at BAML.

SECULAR STAGNATION

Investors remained worried about the global economy, with 55 percent of those surveyed bearish on both the growth and inflation outlook for the next year.

“Secular stagnation is the consensus view,” BAML strategists wrote.

Following this theme, investors were most positive on cash and, within equities, preferred high-dividend-yielding sectors like pharmaceuticals, consumer discretionary, and real estate investment trusts.

As investors added to their cash allocations, the number of fund managers overweight cash hit its highest level since January, 2009.

The least preferred sectors were those sensitive to the cycle, like energy and industrials – which BAML strategists see as good contrarian investments if “green shoots” appear in the global economy.

Worries about corporate debt were still running high, with this month’s survey showing a new high in the number of investors demanding companies reduce leverage.

Some 46 percent of fund managers find corporate balance sheets to be over-leveraged, the survey found, and 51 percent of investors want companies to use cash flow to improve their balance sheets. That’s the highest percentage since July 2009.

Europe, one of investors’ least-favored regions, showed a slight improvement. A net 5 percent reported being overweight euro zone stocks, from 11 percent underweight last month.

But investors’ reported intention to own European stocks in the next year dropped to six-year lows as the profit outlook for the region continued to lag.

Allocations to UK stocks increased slightly from last month but the UK remained investors’ “consensus underweight”, BAML said. It has been so since February 2016. -Reuters

-Josephine Mason, Helen Reid, and Karin Strohecker

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