Money sent home by citizens living abroad is a major source of foreign exchange for Rwanda, with an estimated $104.25 million received in 2011, a 42.8% increase compared to the previous year.
With this rise in remittances, Rwanda’s government is now focused on getting Rwandans living abroad to help drive investment to sustain the country’s rapid economic growth.
The government wants to issue a diaspora bond to soak up spare cash from 100,000 Rwandans living overseas through the National Bank of Rwanda. The Bank, according to Governor Claver Gatete, is currently studying the models of other countries that have issued similar diaspora bonds.
“We had to send people on the ground; they are now studying the models of other countries. We want to make sure that this year it is launched. There is no doubt about it. We are targeting diaspora because we want to give them an alternative to invest. This is the best and the easiest way to make an investment without leaving your desk,” says Gatete.
Rwanda joins the growing list of other African countries such as Ghana, Kenya, Nigeria, South Africa, Uganda and Tanzania that have backed the World Bank’s call for issuance of diaspora bonds to woo their citizens abroad to invest in their own countries. The Bank urges African economies to tap into an estimated $40 billion a year.
Countries such as Ghana and Kenya have already launched their bonds while Nigeria will join Rwanda in launching their bonds this year. A caveat is that Kenya’s infrastructure bond, issued last year, failed to attract the required amount because of weak local currency shilling.
The African Development Bank, which also supports the issuance of such bonds, has hinted on helping African nations market their financial instruments.
Raising investment capital through diaspora bonds is not a new idea. Israel and India have thrived on them. Diaspora bonds operate like any other government bonds and are highly secure for investment, especially when the issuers are creditworthy.
Rwanda is rated credit worthy because of its sound economy, sustainable debt and increasing levels of domestic revenue and exports. In 2010, the economy expanded by 7.5% while in 2011, it was expected to rise by 8.8%. This year, the central bank expects growth to slow to 7.6%, owing to uncertainties in the global economy. Inflation, which closed the year at 8.3%, is expected to slow to 7.5% this year—all favorable signals to investors.
Rwanda is one of a few highly attractive African investment destinations because of low corruption, investor-friendly policies and its geographical location in the heart of East and Central Africa—combined local and foreign private investments reached $626 million last year, from $350 million in 2010.
Gatete says that the bond will be issued in the local currency—the Rwandan franc (RwF) to avoid dollarization of the economy. Its proceeds could be used for monetary policy implementation since it will be issued by the National Bank. This means that it could be injected into the money markets.
“It’s not government borrowing, but we could use the bond for different ways to give chances to the diaspora to invest,” says Governor Gatete, adding that the value, maturity period and coupon of the bond will be announced when it is ready for the market.
The current Rwandan government, led by President Paul Kagame, has adopted strong measures to include the diaspora in the nation’s development. This has helped the diaspora come together to form a global network—the Rwanda Diaspora Global Network (RDGN), which has a permanent office in Rwanda and brings together Rwandans across the world.
The network has between 25,000 and 30,000 members in Canada and the United States, more than 40,000 in Belgium, which has the single largest population of Rwandan diaspora, and just over 1,000 members in Australia.
Sending money to Rwanda remains expensive, but with the fund in place the cost would go down, appealing to low-income earners overseas.