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Rwanda -- Economy

With one of the lowest urbanization rates in Africa-- only about 8% of the population lives in towns [1]-- the majority of Rwandans are subsistence farmers. There are a few coffee and tea plantations and processing plants in the northern part of the country, but these industries suffered looting and destruction in 1994. With economic aid from the international community, tea and coffee are being rehabilitated and have reached pre-1994 production levels. Coffee is Rwanda's main export, accounting for 60% of the countries foreign exchange earnings. Tea accounts for about 30%. Rwanda has a small industrial sector that only employs about 3% of the population. Other than agricultural processing, there is also a brewery. The industrial sector was hard hit by the recent turmoil and has just begun to recover.

The Rwandan economy was completely devastated by war in 1990-1994. The present government is trying to help the economy recover by adopting a neo-liberal approach [1]. This includes trying to increase the revenue from exports of coffee and tea by privatizing large sectors of this government run industry. There is also an attempt to diversify the type of foreign exchange earning exports. One of the major problems that the Rwandan economy is facing is that energy imports use more foreign exchange reserves than exports. Another approach is to cut government spending by reducing the number of civil service employees and selling government run parastatals. Another serious obstacle that the recovery of the economy faces is that in Rwanda, as a landlocked country, transportation costs are high. With assistance from donor countries, and in cooperation with the East African community, Rwanda is planning to improve its transportation infrastructure. Rwanda is a poor country with an economy based largely on subsistence agriculture. The scarcity of arable land and a rapid rate of population growth has severely strained the country's efforts to develop its economy. Since 1959 Rwanda's political and social instability has had serious economic repercussions.

Intense demographic pressure, the shortage of arable land, and lack of access to the Indian Ocean have been three critical problems in Rwanda's economic development. New challenges arose in 1994 when several social problems brought on catastrophic changes to the country's economy. These included the murder of hundreds of thousands of Rwanda's citizens in ethnic violence, the flight of over a million, and the return of large numbers of refugees who had fled the country.

Today, Rwanda is slightly more urbanized than in 1993. Kigali's population has increased by nearly 100,000 and has now reached 300,000. Seventy percent of this new urban population consists of arrivals from rural areas. Nonetheless, Rwanda remains one of the least urbanized countries in Africa. Only 8% of the population lives in towns, an increase of only 5% since 1965. Most Rwandans continue to work as subsistence farmers. Virtually all potential farmland has been brought under cultivation, though some land has recently gone fallow because farmers have fled or been killed.

The Belgian colonial government converted Rwanda to a cash-based economy by setting up enforced tea and coffee production. These two crops have remained the country's main exports ever since. A policy to diversify the country's export base was implemented recently under an IMF-sponsored Structural Adjustment Program (SAP) launched in 1990, but this program was abandoned in 1994.

Rwanda`s government is the nation's main employer. Since independence, the ruling party has allocated government positions primarily according to a patronage system that rewards party loyalty and regional origin. After the political crisis of 1994 and the flight of much of the civil service, the new government promised to end the patronage system and to introduce strict criteria for competent performance in state employment. It has also pledged to privatize most parastatals. Rwanda's two most profitable parastatals, Electrogas and Rwandatel, which control the energy and telecommunications sectors respectively, are soon to be privatized.

A government policy encouraging over-cultivation of arable land with the aim of keeping out refugees was an important factor leading to the 1990 invasion. It has subsequently been changed to allow returnees to re-acquire their land, but implementation of the new policy has been beset by complications. Other measures orienting the economy towards the free market have been undertaken by the government. Tariff bands have been reduced. The Rwandan franc now floats freely. There are numerous independent foreign exchange bureaus in Kigali. Depositors may maintain foreign exchange accounts; expatriates may repatriate their money, unless it comes from sales of tea and coffee. In this case, they must change 90% of their moneys at a Rwandan bank. The World Bank works closely with the Finance Ministry in formulating economic policy; together they recently announced a new growth plan for low inflation, privatization and aid directed at infra-structural recovery rather than emergency relief. Agricultural policy is aimed at improving the production of subsistence and commercial crops. Rwanda is still heavily dependent on international aid for food, though land cultivation increased by 34% and the amount of food harvested by 6% between 1996 and 1997. The total cereal and pulse deficit for 1997 reached 192,000 tons. The government lacks resources to increase production significantly, and so strives to create a stable political climate, to ensure that farmers suffer no major disruptions, and to enable aid agencies to carry on their work. The government has also sought help from international donors to increase commercial agricultural production.

Rwanda's major exports are coffee, tea, tin cassiterite, Wolfframite, and pyrethrum. Coffee makes up between 50% to 80% of the total export. Because of declines in export earnings and increased need for imports, Rwanda's policy has been directed at ensuring that net private and official transfers are sufficient to keep the current account deficit at acceptable levels. The government also has taken steps to ensure that tea, coffee and industrial production at least maintains pre-war levels. The government has loosened restrictions on foreign exchange in an attempt to stimulate nontraditional exports. It has established reasonably tight control of its border with Uganda in an effort to reduce smuggling. Rwanda was unable to import or export goods easily through Uganda until the RPF came to power in 1994. This route now functions well. An alternative route through Tanzania to Dar es Salaam is more arduous and costly, although Tanzania has facilitated the operation of this route in efforts to compete with Mombassa in Kenya. Political insecurity has disrupted much of the trade between Rwanda and the Congo. Trade with Uganda is booming, in part because of family and business networks operated by returned refugees. The same was true of Burundi until neighboring countries imposed sanctions in 1996.

Rwanda is a member of three regional trade organizations: the Common Market for Eastern and Southern Africa (COMESA), the Communauté Economique des États de l'Afrique (CEEAC), and the Communauté Economique des Pays des Grands Lacs (CEPGL). The country has also made a bid to join the East African Cooperation (EAC).

Rwanda's economy is almost exclusively agriculturally based. More than 90% of the population makes its livelihood by producing food crops or through industrial work involving the processing of crops. Agriculture contributes more than 40% of the nation's GDP. The most fertile agricultural areas in the country are the mountain regions forming the Congo-Nile watershed and the central plateau, where two crops can normally be harvested each year. Principal food crops include bananas, sweet potatoes, cassava, sorghum and beans. Principal export crops include coffee, tea, pyrethrum, cotton and cinchona.

Cattle have played an important political and social role in the country under the Tutsi, whose dominance was traditionally based on the ubuhake (a feudal patron-client relationship based on possession of cattle). Most farmers have some livestock, though animal husbandry is generally considered a supplemental source of income.

Fishing in Rwanda is underexploited. Lake Kivu is well-stocked and could support an annual catch of 5,000 tons. The potential of Lake Ihema has also underutilized.

Manufacturing is a relatively minor source of Rwanda's revenue, employing about three percent of the labor force and contributing only about 17% of the nation's GDP. The small manufacturing sector is based on processing agricultural products and low-technology consumer items such as beer, matches, sugar, and soap. Industry suffered severe setbacks in 1994, when many skilled workers were put to death or were forced to flee. Half of the country's 120 working factories were damaged or looted.

GDP: purchasing power parity$3 billion (1996 est.)

GDPreal growth rate: 13.3% (1996)

GDPper capita: purchasing power parity$440 (1996 est.)

GDPcomposition by sector:
agriculture: 37%
industry: 17%
services: 46% (1995 est.)

Exports:
total value: $62.3 million (f.o.b., 1996 est.)
commodities: coffee 74%, tea, cassiterite, wolframite, pyrethrum (1995)
partners: Brazil, EU
Imports:
total value: $202.4 million (f.o.b., 1996 est.)

commodities: foodstuffs 35%, machines and equipment, capital goods, steel, petroleum products, cement and construction material (1995) partners: US, EU, Kenya, Tanzania

Source: CIA World Fact Book

[1] The Economist Intelligence Unit. 1998-99. Country Profile. Rwanda and Burundi. The Unit: London, pp. 16-18.