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Economy of Rwanda

From Academic Kids

Rwanda is a rural country with about 90% of the population engaged in agriculture. It is the most densely populated country in Africa; is landlocked; and has few natural resources and minimal industry. Primary exports are coffee and tea. The 1994 genocide destroyed Rwanda's fragile economic base, severely impoverished the population, particularly women, and eroded the country's ability to attract private and external investment. However, Rwanda has made significant progress in stabilizing and rehabilitating its economy. In June 1998, Rwanda signed an Enhanced Structural Adjustment Facility with the International Monetary Fund. Rwanda has also embarked upon an ambitious privatization program with the World Bank. Continued growth in 2000 depends on the maintenance of international aid levels and the strengthening of world prices of coffee and tea.

Economy - in greater depth

The Rwandan economy is based on the largely rainfed agricultural production of small, semisubsistence, and increasingly fragmented farms. It has few natural resources to exploit and a small, uncompetitive industrial sector. While the production of coffee and tea is well-suited to the small farms, steep slopes, and cool climates of Rwanda and has ensured access to foreign exchange over the years, farm size continues to decrease.

Prewar population was growing at the high rate of 3% a year. By 1994, farm size, on average, was smaller than one hectare, while population density was more than 450 persons per square kilometer of arable land.

In the 1960s and 1970s, Rwanda's prudent financial policies, coupled with generous external aid and relatively favorable terms of trade, resulted in sustained growth in per capita income and low inflation rates. However, when world coffee prices fell sharply in the 1980s, growth became erratic.

Compared to an annual GDP growth rate of 6.5% from 1973 to 1980, growth slowed to an average of 2.9% a year from 1980 through 1985 and was stagnant from 1986 to 1990. The crisis peaked in 1990 when the first measures of an IMF structural adjustment program were carried out. While the program was not fully implemented before the war, key measures such as two large devaluations and the removal of official prices were enacted. The consequences on salaries and purchasing power were rapid and dramatic. This crisis particularly affected the educated elite, most of whom were employed in civil service or state-owned enterprises.

During the 5 years of civil war that culminated in the 1994 genocide, GDP declined in 3 out of 5 years, posting a dramatic decline at more than 40% in 1994, the year of the genocide. The 9% increase in real GDP for 1995, the first postwar year, signaled the resurgence of economic activity.

The Government of Rwanda posted a 13% GDP growth rate in 1996 through improved collection of tax revenues, accelerated privatization of state enterprises to stop their drain on government resources, and continued improvement in export crop and food production. Tea plantations and factories continue to be rehabilitated, and coffee, always a smallholder's crop, is being more seriously rehabilitated and tended as the farmers' sense of security returns. However, the road to recovery will be slow. Coffee production of 14,578,560 tons in 2000 compares to a pre-civil war variation between 35,000 and 40,000 tons, while 2000 tea production reached 14,391,434 tons. Tea is now Rwanda’s largest export. Rwanda's natural resources are limited. A small mineral industry provides about 5% of foreign exchange earnings. Concentrates of the heavy minerals cassiterite, columbite-tantalite, and wolframite are most important, followed by small amounts of gold and sapphires. Production of methane from Lake Kivu began in 1983, but to date has been used only by a brewery. Depletion of the forests will eventually pressure Rwandans to turn to fuel sources other than charcoal for cooking and heating. Given the abundance of mountain streams and lakes, the potential for hydroelectric power is substantial. Rwanda is exploiting these natural resources through joint hydroelectric projects with Burundi and the Democratic Republic of the Congo.

Rwanda's manufacturing sector contributes about 20% of GDP and is dominated by the production of import substitutes for internal consumption. The larger enterprises produce beer, soft drinks, cigarettes, hoes, wheelbarrows, soap, cement, mattresses, plastic pipe, roofing materials, textiles, and bottled water. By mid-1997, up to 75% of the factories functioning before the war had returned to production, at an average of 75% of their capacity. Investments in the industrial sector continue to mostly be limited to the repair of existing industrial plants. Retail trade, devastated by the war, has revived quickly, with many new small businesses established by Rwandan returnees from Uganda, Burundi, and the Democratic Republic of the Congo.

Industry received little external assistance from the end of the war through 1995. Beginning in 1996-97, the government has become increasingly active in helping the industrial sector to restore production through technical and financial assistance, including loan guarantees, economic liberalization, and the privatization of state-owned enterprises. In early 1998, the government set up a one-stop investment promotion center and implemented a new investment code that created an enabling environment for foreign and local investors. An autonomous revenue authority also has begun operation, improving collections and accountability.

Possibilities for economic expansion, however, are limited by inadequate infrastructure and transport and the small available market in this predominantly subsistence economy. Existing foreign investment is concentrated in commercial establishments, mining, tea, coffee, and tourism. Minimum wage and social security regulations are in force, and the four prewar independent trade unions are back in operation. The largest union, CESTRAR, was created as an organ of the government but became fully independent with the political reforms introduced by the 1991 constitution. As security in Rwanda improves, the country's nascent tourism sector may expand. Centered around the attractions of a population of mountain gorillas and a game park, tourism has potential as a source of foreign exchange if the country's tourism infrastructure is improved.

In the immediate postwar period--mid-1994 through 1995--emergency humanitarian assistance of more than $307.4 million was largely directed to relief efforts in Rwanda and in the refugee camps in neighboring countries where Rwandans fled during the war. In 1996, humanitarian relief aid began to shift to reconstruction and development assistance. The United States, Belgium, the Federal Republic of Germany, the Netherlands, France, the People's Republic of China, the World Bank, the UN Development Programme and the European Development Fund will continue to account for the substantial aid. Rehabilitation of government infrastructure, in particular the justice system, is an international priority, as is the continued repair and expansion of infrastructure, health facilities, and schools.

Rwanda's government-run radio broadcasts 15 hours a day in English, French, and Kinyarwanda, the national languages. News programs include regular re-broadcasts from international radio such as Voice of America and Radio France International. There is a fledgling television station. There are several independent newspapers, mostly in Kinyarwanda, that publish on a weekly, biweekly, or monthly basis. Several Western nations, including the U.S., are working to encourage freedom of the press, the free exchange of ideas, and responsible journalism.

GDP: purchasing power parity - $5.9 billion (1999 est.)

GDP - real growth rate: 5.3% (1999 est.)

GDP - per capita: purchasing power parity - $720 (1999 est.)

GDP - composition by sector:
agriculture: 44%
industry: 20%
services: 36% (1998 est.)

Population below poverty line: 51.2% (1993 est.)

Household income or consumption by percentage share:
lowest 10%: 4.2%
highest 10%: 24.2% (1983-85)

Inflation rate (consumer prices): 10% (1998)

Labor force: 3.6 million

Labor force - by occupation: agriculture 90%, government and services, industry and commerce

Unemployment rate: NA%

Budget:
revenues: $202 million
expenditures: $361 million, including capital expenditures of $NA (1998 est.)

Industries: cement, agricultural products, small-scale beverages, soap, furniture, shoes, plastic goods, textiles, cigarettes

Industrial production growth rate: 8.7% (1998 est.)

Electricity - production: 159 million kWh (1998)

Electricity - production by source:
fossil fuel: 2.52%
hydro: 97.48%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 165 million kWh (1998)

Electricity - exports: 3 million kWh (1998)

Electricity - imports: 20 million kWh (1998)

Agriculture - products: coffee, tea, pyrethrum (insecticide made from chrysanthemums), bananas, beans, sorghum, potatoes; livestock

Exports: $70.8 million (f.o.b., 1999 est.)

Exports - commodities: coffee, tea, hides, tin ore

Exports - partners: Brazil, Germany, Belgium, Pakistan, Spain, Kenya

Imports: $242 million (f.o.b., 1999 est.)

Imports - commodities: foodstuffs, machinery and equipment, steel, petroleum products, cement and construction material

Imports - partners: Kenya, Tanzania, US, Benelux, France

Debt - external: $1.2 billion (1998)

Economic aid - recipient: $591.5 million (1997); note - in the summer of 1998, Rwanda presented its policy objectives and development priorities to donor governments resulting in multiyear pledges in the amount of $250 million

Currency: 1 Rwandan franc (RF) = 100 centimes

Exchange rates: Rwandan francs (RF) per US$1 - 349.53 (January 2000), 333.94 (1999) 312.31 (1998), 301.53 (1997), 306.82 (1996), 262.20 (1995)

Fiscal year: calendar year

See also

Template:WTOpl:Gospodarka Rwandy

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