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Steady As She Rises

Like a phoenix rising from the ashes, Rwanda is powering towards a stable free market economy. Be warned, there are plenty of potholes on the road to prosperity.

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According to the World Bank’s Doing Business Survey, Rwanda is the 45th (out of 183) easiest country in the world to do business in. It takes only two procedures and three days to open a business in Rwanda, compared to an average of eight procedures and 37 days on the rest of the continent.

Early morning view from a hill into the tropical cloud forest in Nyungwe

Rwanda by far offers the most business friendly environment in the East African Community (EAC). Truly remarkable for a country scarred by a genocide, less than two decades ago, that saw 800,000 people die in 100 days.

Rwanda’s strong performance is thanks to the government’s drive for regulatory reforms. In 2011 alone, the government has: lowered registration fees for businesses; introduced a credit bureau to provide credit rating data and reduced the frequency of value-added tax filings, from monthly, to quarterly. Reforms have also been underway in the banking sector. The International Monetary Fund (IMF) noted government’s restructuring and modernizing in oiling the wheels of the financial sector and concluded that although the financial sector has a few vulnerable banks, overall the sector can withstand a major shock.

Reforms are likely to continue in years to come given the ruling, Rwanda Patriotic Front’s political dominance. President Paul Kagame secured a landslide victory in 2010, which not only ensured his presidency until 2017, but also ensures policy continuity. Political stability, coupled with policy certainty, will go a long way to attract investors.

A central policy focus for the government will be an East African Community initiative in pursuit of a powerful and sustainable economic and political bloc. The European debt crisis could slow the EAC’s pace of establishing monetary and fiscal union. Member states will avoid rushing matters to ensure that they do not wind up in the same mess as the Europeans.

The economy grew 7.5% in 2010. The government expected growth to decline to 7.0% in 2011, but given the performance of the economy as of the second quarter of this year the government revised its forecasts. Government expects growth to average 7.2% per annum between 2011 and 2015. Growth will be supported by investment expenditure to improve the infrastructural base.

The recently signed Bilateral Investment Treaty (BIT) with the United States is likely to boost trade and investment between the two countries. This was the first new BIT with an African country and signals Washington’s seal of approval on Rwanda’s macroeconomic outlook and reform agenda.

Inflation in Rwanda remains benign in comparison to its neighboring countries. Inflation increased to 7.8% year-on-year in October, from 6.6% in September. Rising inflation pressures prompted the central bank into action in October. The National Bank of Rwanda increased benchmark interest rates to 6.5% from 6.0% in a bid to stem these rising inflation pressures. Rising inflation poses a risk to growth and the central bank has to strike a delicate balance. With inflationary pressures being external—food and oil—the impact of monetary tightening is likely to be limited.

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