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TAGS: ETRD USTR BTIO ECON RW
SUBJECT: RWANDAN PRIVATE SECTOR OVERVIEW 
 
 
SUMMARY 
--------------- 
¶1. Reports on Rwanda's development identify the private 
sector as a necessary engine for economic growth.  This 
cable, the first in a series, provides an analysis of the 
Rwandan private sector and the overall business environment. 
It provides a brief overview of the private sector, 
describes the Rwandan Private Sector Federation and the 
Rwanda Investment and Export Promotion Agency, and 
identifies the key business issues in Rwanda. 
 
¶2.  The government of Rwanda (GOR) has adopted several 
initiatives to boost domestic exports and to welcome foreign 
investment.  It has also developed an inclusive approach to 
the private sector by engaging it in the development of 
business regulations.  Many challenges lie ahead for the 
Rwandan private sector, including a landlocked geography, 
limited access to long-term financing, foreign investor 
concern over domestic and regional political stability, and 
a small domestic market with limited purchasing power. 
However, the GOR's responsiveness to the demands and 
concerns of the private sector contributes to an improving 
business environment, such as lowering corporate tax rates 
and removing value added taxes on imported services. END 
SUMMARY. 
 
 
OVERVIEW OF PRIVATE SECTOR 
--------------------------------------------- - 
¶3.  Rwanda's private sector is comprised mostly of micro and 
small-scale enterprises (MSSEs).  There are nearly 70,000 
formal and informal MSSEs, employing less than 30 people 
each; 100 to 200 small and medium-sized enterprises (SMEs), 
employing more than 30 individuals each; and about 60 large- 
scale enterprises employing more than 100 individuals each. 
The private sector is broken down into services (35 
percent), agriculture (47 percent), and industries (18 
percent). 
 
¶4.  In a 2005 study, the World Bank ranked Rwanda 58th out 
of 155 countries in terms of "ease of starting a business" 
and 139th for "ease of doing business."  The report based 
the rankings, in part, on Rwanda's landlocked geography, low 
income per capita, and large informal economy.  Its low 
rankings were also attributed to the fact that entrepreneurs 
must go through nine steps to launch a business and that the 
process takes longer than 21 days on average. 
 
¶5.  Most private businesses cite the following constraints 
that hinder the development of their enterprises: limited 
access to funds, especially long-term financing; small 
market with weak purchasing power; high transportation costs 
for imports and exports; lack of technical and management 
capacity; inadequate infrastructure; and limited access to 
reliable electricity. 
 
 
RWANDAN PRIVATE SECTOR FEDERATION 
--------------------------------------------- --------------- 
- 
¶6. Private sector representation started in Rwanda prior to 
1994, in the form of the Rwanda Chamber of Commerce.  A 
government-driven institution, the Chamber of Commerce 
suffered from three significant limitations: lack of 
autonomy, weak representation, and lack of relevant 
services.  As a result, various industry sectors and 
constituencies created stand-alone associations to better 
serve their needs.  The Rwandan Private Sector Federation 
(RPSF) was founded in December 1999 to consolidate these 
associations and to provide a more unified representation of 
Rwanda's business interests.  The Federation has grown to 
twenty-three associations with the recent addition of six 
provincial associations. 
 
¶7. The RPSF exists within a framework called the Public- 
Private Partnership (PPP), which was created in 2002 and is 
overseen by the Prime Minister.  The Prime Minister convenes 
meetings four times a year, and the RPSF meets with the 
President once a year.  The goal of the PPP is for the GOR 
to gain greater appreciation for issues concerning the 
business community, and for the two to work together in 
creating an environment conducive to doing business.  The 
President and the Executive Secretary have strong links to 
the government, as does most of the Board of Governors.  The 
RPSF has identified six constituency-based priorities: (1) 
strengthen Rwanda's private sector companies; (2) build 
human capacity for Rwanda's private sector; (3) facilitate 
sustainable funding sources for the private sector; (4) 
develop vibrant private sector member associations; (5) 
provide dispute arbitration and business assistance; and (6) 
advocate on behalf of the private sector within the PPP. 
 
 
RWANDA INVESTMENT AND EXPORT PROMOTION AGENCY 
--------------------------------------------- --------------- 
------------------------ 
¶8.  The Rwanda Investment and Export Promotion Agency 
(RIEPA) is a public body charged with promoting and 
facilitating trade and investment in Rwanda.  RIEPA's 
mission is to assist investors with required permits and 
documentation, to liaise with authorities to secure land and 
implement projects, and to help promote Rwandan exports. 
RIEPA has 40 employees and is led by a Director General, two 
deputies, and an export promotion coordinator who are 
nominated and approved by the cabinet to indefinite terms. 
 
¶9.  Since its inception in 1998, RIEPA has registered more 
than 250 investors, but only a modest number of foreign 
investors.  It has also hosted annual trade fairs and 
international investment conferences in attempts to spur 
investment in Rwanda and promote the private sector.  RIEPA is 
additionally leading an effort to create the Rwandan Free 
Export Economic Processing Zone to offer tax incentives to 
businesses that produce export-oriented products. 
 
 
SUCCESS STORIES 
-------------------------- 
¶10.  The RPSF provides the business community with a forum 
through which to lobby the government on important issues 
and to discuss private sector proposals.  It has extended 
development services to the business community in four 
provinces and hosted an Investment Dialogue Conference 
supported by the Ministry of Commerce and RIEPA.  While some 
members complain that the RPSF has yet to deliver on its 
promises, it has achieved important and tangible results. 
Since its inception, the RPSF has repeatedly pressed the 
government to reduce the corporate tax rate from 35 percent; 
this year it will be reduced to 30 percent. 
 
¶11. Another RPSF success story was the removal of a value- 
added tax (VAT) on imported goods and services.  This charge 
was, in essence, double taxation, as companies were being 
charged a VAT for importing equipment and consulting 
services, while their end customers were also being charged 
a VAT for the same goods and services.  The RPSF identified 
this VAT as an impediment to a favorable business climate 
and worked with the Ministries of Commerce and Finance to 
have it removed, demonstrating the GOR's willingness to 
listen to the concerns of the business community and to 
improve Rwanda's overall investment environment. 
 
¶12. The RPSF and RIEPA are also consulted on the drafting of 
Rwanda's commercial laws, and spearhead other policy issues 
aimed at improving the overall business climate.  For 
example, the RPSF is currently drafting a position paper for 
Parliament to eliminate the registration charge (1.2 percent 
of declared capital) applied to all companies.  While an 
important source of income for the government, this charge 
has the negative impact of increasing the cost of doing 
business in Rwanda. 
 
 
CHALLENGES 
-------------------- 
¶13.  The RPSF recognizes that it faces serious challenges. 
Resources are limited, both in terms of staff and budget. 
The RPSF staff (35 permanent employees) spends most of its 
time meeting with the government and donors, representing 
the interests and concerns of the private sector.  Due to 
its limited resources, two important parts of its 
mandate-capacity of member associations and enterprise 
competitiveness-receive little attention. 
 
¶14. In meetings with the various member associations of the 
RPSF, EconOff noted that of the 23 associations, only 8 
appear to be fully functioning while the other 15 are either 
struggling or defunct.  Not only are there too many member 
associations, but not all of them are effective. 
Association leaders told EconOff that their organizations 
faced three main challenges: they need help in better 
defining their role within the RPSF; support in organizing 
themselves and setting up relevant programs; and training 
for their members. 
 
¶15.  RIEPA has the challenging task of attracting investment 
in a country with high transportation and production costs 
and a small market with low purchasing power.  Nonetheless, 
it can only gain the confidence of the private sector by 
continuing to introduce foreign investors to Rwandan 
businesses through investment conferences and trade shows. 
Because of these challenges, aside from hosting foreign 
investors and international conferences, RIEPA has not had 
quantifiable successes in promoting trade. 
 
 
COMMENT 
--------------- 
¶16.  Rwanda's private sector is particularly weak because of 
the country's history, its predominantly agrarian economy, 
and the dominance of micro and small-scale enterprises 
(MSSEs).  Yet, this group of firms is the foremost source of 
tax revenues.  The success of Rwanda's private sector will 
ultimately determine the level of prosperity for the average 
citizen.  The very existence of the RPSF and RIEPA is 
evidence of the GOR's commitment to creating an attractive 
business environment.  While some critics may complain that 
the RPSF leadership is comprised of former ministers, its 
close ties to the GOR have provided the RPSF with access to 
the appropriate decision-makers.  It provides a good 
lobbying tool for business leaders to press their concerns, 
promoting transparency and debate in policy formulation, but 
has not yet been able to produce tangible benefits for 
individual businesses.  To succeed in the long-term, the 
RPSF will need to streamline its bureaucracy, address its 
resource constraints, and translate its priorities into 
specific action to benefit its member associations. 
 
 
ARIETTI