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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.

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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 

Economy

South Africa’s Informal Sector: Why People Get Stuck In Precarious Jobs

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South Africa has a jobs crisis. In the fourth quarter of 2018, 6.14 million people were out of work, an unemployment rate of 27.1%, which is one of the highest rates in the world, along with sub-Saharan African countries like Lesotho, Mozambique and Namibia.

South Africa’s labour market has another important distinction. Only about three million people who are working – about 18% of all employed (16.53 million) – are in the informal sector. That’s much lower than other developing countries. For example in India and Ethiopia, up to 50% of those with jobs are employed in the informal sector. The figure is as high as 90% in Ghana and Mali.

There are two schools of thought around the role and value of a country’s informal sector. Some argue that it’s an important alternative to the limited opportunities available in the formal sector; a survivalist strategy that allows those without much formal education to work and earn money. In addition, others argue, the informal sector is also an important space for entrepreneurs.

But there are some who disagree, arguing that employment in the informal sector tends to be poorly paid and precarious. A mere 20% of informal sector employees are hired permanently, compared to 70% of those in the formal sector.

Little is known about how many people transition between the two sectors, a phenomenon called “churning”. Addressing this knowledge gap is important for a number of reasons. These include the fact that informal workers may be spending some time in the formal sector, getting valuable skills and work experience to boost their chances at formal employment, with the hope that they eventually settle permanently in the formal sector, which would be good news.

Conversely, knowing whether there’s a high rate of transition from the formal to the informal sector would be cause for concern because it would suggest high rates of retrenchment and fewer formal job opportunities.

The data

We set out to understand “churning” between South Africa’s formal and informal sectors. To do this we analysed data from the country’s National Income Dynamics Study – a study that was conducted four times between 2008 and 2015 by the Southern Africa Labour and Development Research Unit based at the University of Cape Town’s School of Economics.

We found there was a lot of movement between the informal and formal sectors during these years. But there were very few instances of people making successful, lasting transitions from informal to formal sector employment.

This emphasises South Africa’s skills mismatch. The formal sector requires skills that those in the informal sector simply don’t have. More education and support is necessary to bridge this gap.

Our data were drawn from the National Income Dynamics Survey, which is the first national household panel study in South Africa. It examines the living standards of individuals and households over time.

By analysing data from the four waves of the study we were able to make some key findings about churning, and about the informal sector more broadly. These included:

  • Only 8% of those surveyed were inactive (7%) or unemployed (1%) in all four waves – that is, throughout the seven-year period. About 54% were employed in one to three waves, meaning they worked transitorily but not continuously;
  • only 3% worked in the informal sector in all four waves;
  • only 12% always worked in the formal sector during the seven years under review; and,
  • 8% of individuals worked throughout the seven years under review but transitioned between the two sectors.

These results clearly indicate that a high proportion of the labour force participants have been in and out of employment (which is not surprising, given the country’s high unemployment rate), some workers enjoy the privilege of always working in the formal sector, and most importantly, churning between the informal and formal sectors definitely takes place to some extent.

The findings also emphasised how precarious the informal sector is. For instance, 67% of those who started off working in the formal sector in 2008 remained there seven years later. This suggests that for those who initially secured work in the formal sector, retrenchment likelihood is not as high as perhaps anticipated. The retention figure in the informal sector was just 39%. Only 27% of those in the informal sector successfully transitioned to the formal sector.

The country’s many social inequalities were evident in the data. Black women without school leaving certificates aged between 25 and 44 years were most likely to remain in the informal sector. Highly educated white men living in the urban areas of Gauteng and KwaZulu-Natal provinces were most likely to successfully transition from the informal to the formal sector.

Filling the gaps

Given what we’ve learned from this research, how might the government and policy makers deal with those who “churn”?

First, the country’s education system must do more to produce skilled labour in the areas the economy requires. Formal firms could help here, by providing assistance and information on what skills are needed and how to develop these. This implies that strengthening the partnership between industry and universities is important, as this would help those who are able to access higher education.

Those who don’t go on to higher education, or don’t complete their secondary schooling, also need to be helped. The government should more actively provide workshops and specialised assistance to enhance entrepreneurship skills and advise small informal firms on growth strategies. These incentives will assist in their growth, long-term sustainability and successful transition to the formal sector.

In addition, larger, more established formal firms can also play a role by helping to develop and train informal sector workers and providing expert guidance to informal firms. This assistance can be incentivised through tax reductions and the prospects of a larger collective market via the informal sector.

Lastly, the government should continuously alleviate the numerous barriers to the informal economy. These include limited credit and training opportunities, poor infrastructure and the red tape that makes it difficult to start a business.

Moegammad Faeez Nackerdien Lecturer, University of the Western Cape

Derek Yu Associate Professor, Economics, University of the Western Cape

-The Conversation

The Conversation

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Current Affairs

SMMEs Meltdowns Continue Because Of Eskom Power Cuts

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Small medium and micro enterprises (SMMEs) that are feeling the strain from Eskom’s load-shedding are appealing to the South African government to come up with a solution, because they are forced to shut their doors.


South Africa has been experiencing stage 4 load-shedding from the beginning of March. As a result, power cuts are forcing small businesses to shut their doors as swiping facilities and security cameras do not function.

Johannesburg based Gim Bekele, who owns a clothing store in Randburg, says they are losing a significant number of customers as a result of load-shedding.

“When there is load-shedding we are forced to closed the shop because people can’t come in when it is dark. The cameras are not working as well as the cashier machines,” he says.      

“So that means we lose out on a lot of money. On a normal day without load shedding we make above R5,000 but when there is load shedding, it is a struggle to even reach R1,000,” says Bekele.

READ MORE | #Budget2019 | South African government not taking on #Eskom’s debt

Bekele says between the loss of customers and an increase in the monthly expenses he can no longer afford to pay his employees. 

“I had to let go of two employees because I could no longer afford to pay them.  The rent is high, and now we are barely meeting our sales target because of load shedding, how could we continue to pay for their salaries as well?” 

“We can’t even afford a generator at this point,” added Bekele.

Another entrepreneur, Shaodong Zhuang who owns a takeaway shop in Randburg says his stock is compromised.

“I usually sell fresh meat and some of my meat gets spoiled and I have to throw it away,” says Zhuang.

I am basically making a small change. Our government is really not good. The people are suffering heavily because they are not running things properly.

Energy expert Adi Nchabeleng says that small businesses should brace themselves because there won’t be any turn around soon, but they could expect to see some form of solution a year from now.

“It is a delayed reaction that caused this whole advent of load-shedding.  The current executive and the new democratic dispensation inherited the current dispensation of Eskom years ago and they didn’t do anything with any of power stations.  They just used them as they are,” says Nchabeleng.

Nchabeleng says that it is unfortunate that small businesses have to take the heat for poor planning.

“If they do not have enough electricity reserves it means their shops and businesses must be closed. A lot of people are going to be out of jobs… So the impact of load-shedding on businesses is so severe.

“In order for the business to survive, you need to spend R500 ($7,25)-R1,000 ($14,49)daily, just to make sure that the generator has fuel, and I don’t think the government understands the seriousness of this matter,” says Nchabeleng.

“They have not woken up to the reality of what the people go through,” he added.

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

He advises that in order for small businesses to weather the electricity crises, they need to reduce their expenditure but he does not foresee that as the best solution for employees. 

“The usual expenses that the majority of businesses will choose to cut are their staff. They will say ‘when we have load-shedding we don’t need workers.’ We cannot go for that solution, we need to look at a much more different solution in relation to businesses,” says Nchabeleng.

He believes that the South African government should take responsibility for providing SMMEs with assistance.

“I would suggest that the government compensate the losses incurred by small businesses. This is a direct cost problem; this is not something that happened sporadically. The government knew that there was going to be load-shedding, they knew that there was not going to be enough power available,” says Nchabeleng.

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Chilling Words From The Man Who Broke The Bank Of England

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The multimillion-dollar circus called Davos rolled into the Swiss ski-resort yet again, in January, in all its big deal bombast and bean counting glory. This year, African debate was scant: the man who broke the Bank of England foretold of a broken world laden with fear and doom; there was scary talk of cyber terrorism; just another day, another Davos, for the World Economic Forum.


If you want an example of how the dash of Davos can descend into self-parody, you should have taken a look at the huge banner draped across the posh Belvedere Hotel throughout the World Economic Forum in the mountain ski-resort.

It was on the main street through Davos where thousands of delegates slip and slide to scores of functions – with at least one or two slipping over every day – along a line of shops taken over by big money corporate sponsors.

Much more money is being made elsewhere in this ski-resort: the people who live here go away for the week and let out their homes for a king’s ransom; $30,000 for the week is nothing unusual.  

READ MORE |World Will Improve Where It Matters Most In 2019

Most people saw an irony in the banner, yet clearly the people who spent a fortune on putting it up there couldn’t have.

“Free trade is great,” says the banner on behalf of Brexit-bound Great Britain.

“Didn’t someone tell them they were about to leave one of the greatest free trade zones in the world?” says one passer-by with a cynical chuckle.   

The crack summed up some of the irony that swirls around when cohorts of bean counters, highly-paid administrators and bosses gather in an Alpine icebox to solve the problems of the world.

The bigwigs weren’t there and this year, there was less buzz and fewer queues outside the briefing rooms.

Donald Trump, who made a big splash at Davos last year, stayed at home trying to figure out his government shutdown. The four ‘Ms’ – May, Modi, Macron and Mnangagwa weren’t there either; at least two of them tied up with fighting fires, from Brexit to economic meltdown, in their own backyards.

 Empty hot seats, at Davos, at a time when the world is crying out for the wisdom of sage leaders.

Instead, it was left to business leaders, like the Australian-born CEO of billion-dollar turnover infrastructure giant Arup, Greg Hodkinson, to cut to the chase.

“We need clear political leadership in this fractured world… otherwise we are going to get easy political leadership preying on people’s fears,” says Hodkinson at one of the first panels of WEF 2019, on infrastructure.

READ MORE | Why The Richest And Most Powerful Go To Davos

Hodkinson, who has worked in infrastructure for 40 years, also said investment in infrastructure could no longer ignore the future, or the deteriorating environment.

 “Carbon should be priced into infrastructure projects and that will act as an economic trigger for private money to come in because not only will it mean more revenue, it will help us put more money into saving the environment,” says Hodkinson.

According to the WEF Global Risks Report for 2018, some of the top risks by impact are posed by the elements: floods and storms; water crisis, plus earthquakes, tsunamis, volcanos and electric storms.

“By 2040, the investment gap in global infrastructure is forecast to reach $18 trillion against a projected requirement of $97 trillion. Against this backdrop, we strongly recommend that businesses develop a climate resilience adaptation strategy and act on it now,” warns Alison Martin, Group Chief Risk Officer, Zurich Insurance Group, in the report.

The money is there, according to Hodkinson, but needs to be channeled with foresight.

“Even if someone is building a car parking garage, I ask what else can they do with it because they won’t need it one day,” says Hodkinson.

“The money is there. Investors sank six trillion dollars into United States junk bonds last year; if investors are prepared to roll the dice on junk bonds, what about infrastructure investment?”

Investors, on this day at Davos, heard that 65% of world infrastructure projects are unbankable without government guarantees. Private money is needed to fill the gaping infrastructure gap, yet negotiations between investor and government officials can prove difficult.

READ MORE | World Bank Sees Global Growth Slowing In 2019

Just ask Heng Swee Keat, the Cambridge-educated finance minister of Singapore, the former Parliamentary Private Secretary to the father of infrastructure on the industrious little island who harnessed private money for public good – the legendary late premier Lee Kuan Yew.

The finance minister warned relationships between public and private sectors could be “lumpy”.

“I remember a man coming to me and saying he was never going to invest in infrastructure in your country again, I asked him ‘why’ and he said, because the last time we invested and made money the government came back to us and asked ‘why are you making so much money’,’’ chuckled Swee Keat.

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