Rwanda: Improving the Investment Climate for Private Sector Development

Overview

Rwanda has steadily reformed its commercial laws and institutions since 2001 with support from the World Bank Group. Rwanda was named the top reformer in Doing Business 2010, having jumped 76 places from 143 to 67 in the annual ranking of 183 countries, the biggest improvement ever by any country. As a result of the government’s commitment to reform, it is now easier, faster and less expensive to do business in Rwanda.

Challenge

After the 1994 genocide, the Government of Rwanda faced the daunting challenge of tackling the structural barriers to poverty reduction. The government was fully aware that strong growth, led by private sector investment, was key to helping the Rwandese population improve living conditions and build a solid foundation for reconciliation. The government has been committed to pursuing the reform agenda and removing barriers to entry or growth of private businesses. It has recognized the challenge in overcoming a perception of Rwanda as a high-risk, landlocked and small country, unattractive to existing and potential investors. The government has accordingly embarked on an ambitious agenda of reforms to establish a conducive environment for private sector development.

Approach

Two World Bank projects supported the government in its effort to improve the investment climate: (i) the Competitiveness and Enterprise Development Project, started by the International Development Association (IDA) in 2001, and, (ii) the Rwanda Investment Climate Reform Program, initiated through the World Bank Group’s Investment Climate Advisory Services in 2007.

The Competitiveness and Enterprise Development Project was designed to establish a proper environment for growth of the private sector and emergence of a more competitive investment climate – both measures that ultimately work to reduce poverty in Rwanda. It focused on preparing commercial laws, supporting the government’s privatization program through technical assistance for specific transactions, and improving the financial sector mainly through capacity building and bank restructuring. This project was later complemented by the Rwanda Investment Climate Reform Program, which mainly focused on providing support to facilitate business entry, business operations, taxation, trade logistics, and public private dialogue. The two projects fostered active partnerships and exploited synergies across program components. They provided targeted technical assistance to improve the investment climate and developed institutions to help build sustainable capacity and sustain the reform momentum.

Results

Rwanda has steadily reformed its commercial laws and institutions since 2001 with support from the World Bank. Rwanda made the biggest-ever improvement in the Doing Business reform category by jumping 76 places in one year, ranking 67 out of 183 countries in the 2010 report. The financial sector is also healthier, and together this progress reflects:

• Reforms have been adopted in 7 of the 10 doing business topics;
• Major laws were prepared and adopted, including a company law, a secured transactions law, an insolvency law, a labor law, a law establishing the commercial courts, and another establishing the commercial registration agency. A Doing Business unit has been set up within the Rwanda Development Board (RDB) and is effectively leading the preparation and implementation of the investment climate reform agenda through enhanced public-private dialogue. The one-stop center in the RDB is also more effective.

As a result, it is now easier, faster and less expensive to do business in Rwanda:

• Time to start a business was cut from 14 days to three days and the number of procedures was cut to two from eight. The cost of starting a business has dropped from 109 percent to 10 percent of income per capita between 2008 and 2009;
• Time to register a property was reduced to 60 days from 371 days and the cost to register property dropped from 9.6 percent of property value to 0.5 percent between 2007 and 2009;
• Time to import was reduced from 42 to 35 days, and time to export was reduced from 42 to 38 days between 2008 and 2009.
• Fiscal administrative procedures for businesses are being streamlined and the Value Added Tax law amended, resulting in the reduction in the number of tax payments from 34 to 26 and reduction in time to prepare, file tax returns and pay taxes from 160 hours to 148 hours between 2009 and 2010.
• All banks now comply with the required minimum capital adequacy ratio of 15 percent and the non-performing loans ratio has been decreasing falling to 12 percent in 2009 from more than 30 percent in 2000.

Rwanda’s image as an investment destination has considerably improved and investments are increasing:

• In 2009, the total amount of registered investment increased 31 percent to US$1.11 billion from US$800 million in 2008.
• In 2009, nine of the 51 non-operational investment projects were revived with a total investment of US$ 127 million, creating more than 500 jobs.

Partners

Complementary partnerships were developed within the World Bank Groupto maximize effectiveness. Indeed, the Doing Business unit within the Rwanda Development Board was funded by IDA, and advised by IDA and IFC. The business laws prepared with the support of IDA were also reviewed by IFC. Partnerships were also developed with other partners providing support to investment climate reforms including Investment Climate Facility for Africa (ICF), the US Agency for International Development, the UK’s Department For International Development (DFID), and Germany’s GTZ. The Rwanda Investment Climate Reform Program was financed by leveraging funds from IFC, Private Enterprise Partnership for Africa, DFID, and the Dutch and Italian governments.

Moving Forward

The Competitiveness and Enterprise Development Project is closing in June 2011. The project is continuing to build the capacity of the Rwanda Development Board in order to sustain reforms after project closing. A new program to support financial and private sector development is being prepared. The program is expected to focus on supporting the government’s effort in trade development, investment promotion and public-private partnerships in infrastructure. The second phased of the Rwanda Investment Climate Reform Program is expected to commence in November 2010. It will seek to address two main challenges: 1) Broadening the investment climate reform agenda in Rwanda beyond the main indicators of the Doing Business survey, and support the government in doing so through the establishment of an effective national Public Private Dialogue platform; 2) Capitalizing on recent investment climate improvements by accelerating investment and growth in specific sectors of the economy.