VZCZCXYZ0007
RR RUEHWEB

DE RUEHLGB #1146/01 3611236
ZNR UUUUU ZZH
R 271236Z DEC 07
FM AMEMBASSY KIGALI
TO RUEHC/SECSTATE WASHDC 4993
INFO RUEHNR/AMEMBASSY NAIROBI 1104
RUEHDR/AMEMBASSY DAR ES SALAAM 1033
RUEHJB/AMEMBASSY BUJUMBURA 0215
RUEHKM/AMEMBASSY KAMPALA 1792
RUEHFR/AMEMBASSY PARIS 0393
RUEHKI/AMEMBASSY KINSHASA 0349
RUEHDS/AMEMBASSY ADDIS ABABA 0149

UNCLAS KIGALI 001146 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT FOR AF/C 
DEPARTMENT PASS USTDA: EEBONG 
DEPARTMENT PASS USTR: WJACKSON 
DEPARTMENT PASS COMMERCE: RTELCHIN 
DEPARTMENT PASS OPIC: BCAMERON 
ADDIS FOR LISA BRODEY 
 
E.O. 12958:  N/A 
TAGS: EFIN ECON PGOV EINV ENRG ETRD EPET BTIO RW
SUBJECT: LIFE MORE DIFFICULT FOR LOW-INCOME RWANDANS 
 
REF: Kigali 1005 
 
¶1.  (SBU)  SUMMARY. Inflation in Rwanda is officially 
reported at under 10 percent but the reality behind the 
numbers is much more serious for low-income Rwandans, the 
majority of the population.  Certain food prices have 
increased as much as 350 percent and virtually none less 
than 10 percent over the past year or two.  Life has become 
increasingly difficult for urban Rwandans, as many 
eliminate educational spending, or become more indebted to 
local banks to make ends meet.  Explanations for the 
increased food prices range include cross-border trading 
inefficiencies, poor harvests, and excess foreign reserves 
coming into the country through foreign aid.  END SUMMARY. 
INFLATION DATA 
¶2.  (SBU)  The Ministry of Finance established the National 
Institute of Statistics of Rwanda (NIS) in 2006 to collect 
economic data and to compile relevant statistics, including 
inflation.  The Rwandan consumer price index (CPI) is 
calculated through a basket of goods that is overwhelmingly 
weighted towards food (37 percent) and housing costs (16 
percent), including rent, water, and electricity.  Ernest 
Mwuzi, Director at NIS, reported that NIS publishes the CPI 
every month and takes an average of the previous twelve 
months for the annual rate of inflation. 
¶3. (SBU)  Lars Engstrom, IMF country representative, says 
that his office signs off on the NIS inflation numbers and 
that he believes the NIS inflation figures to be accurate. 
Not only does Engstrom report confidence in NIS inflation 
data, but he credits the Rwandan Ministry of Finance and 
Central Bank with keeping inflation within the acceptable 
single digit target. 
COST OF LIVING RISING 
¶4.  (SBU)  While Engstrom reported that the Rwandan 
inflation numbers are accurate and within target, he 
acknowledged that inflation data does not tell the full 
story regarding the daily life of everyday Rwandans, most 
of whom live on less than a dollar a day.  Inflation, as 
calculated by the IMF and NIS, includes the costs for 
clothing, transport, restaurant dining, hotel stays, and 
recreation, for example, which are not typical items in 
most poor Rwandans' monthly expenses.  Engstrom warned that 
inflation data is a tool to help guide monetary policy, not 
necessarily an accurate measure of the quality of life or 
the cost of living for all socio-economic groups.  The 
basket of goods used to calculate inflation is large enough 
to dilute changes in food prices if the non-food items 
increased at a much lower rate, he noted. 
¶5.  (SBU)  Informal surveys and questionnaires of Embassy 
local staff, housekeepers, and guards conducted 
periodically by the Embassy economic staff over the past 
two years showed that individuals' top ten expenses - rent, 
rice, sugar, milk, potatoes, cooking oil, school fees, 
beans, flour, and charcoal have increased significantly and 
steadily. (Note: this Embassy survey represents the growing 
urban population living in Kigali and other towns, not the 
80-85 percent of the population that lives on subsistence 
agriculture in the countryside).  As Mwuzi explained, there 
are seasonal fluctuations in food prices, but most staples 
in a Rwandan diet have increased from a year or two ago. 
For example, prices for potatoes in November dropped 50 
percent, back to where they were last year.  But sugar, 
beans, and charcoal have each sustained increases of 300 
percent in two years.  Milk, cooking oil, and many 
vegetables have experienced increases of 100 percent since 
2005, while school fees and rent increases have ranged up 
to 50 percent since 2005. (Note: a few individuals reported 
no changes in prices over two years). 
¶6.  (SBU)  Individuals surveyed responded, almost 
universally, that making ends meet -- feeding the family 
and sending children to school -- is much more difficult 
now than it was two years ago, and even six months ago. 
Several respondents reported having to move to smaller and 
cheaper homes, reducing the number of meals they take in a 
day, withdrawing their children from school, and taking out 
more loans.  In fact, all respondents reported making ends 
meet through bank loans, mostly small microfinance loans to 
pay for electricity, school fees, weddings, or funerals. 
POSSIBLE EXPLANATIONS 
¶7.  (SBU)  Secretary General of the Ministry of Commerce, 
Justin Nsumviyunga, explains that Rwanda is a net importer 
of almost all staples and thus is affected by the internal 
dynamics of its neighboring countries.  For example, he 
reported that 40 percent of the beans sold in Rwanda come 
from the Democratic Republic of Congo (DRC).  He argued 
that conflict in Eastern DRC affects both the ability to 
grow crops and the ability to get them to market. 
Nsumviyunga predicted that continued instability in Eastern 
DRC will further destabilize food availability and prices 
in Rwanda.  Similarly, Nsumviyunga reported that wholesale 
fuel prices have increased 38 percent since June due to "a 
worldwide shortage."  The GOR controls pump prices to 
mitigate the increase in the world oil price, but 
Nsumviyunga surmised that the GOR may no longer be able to 
match these increases from its budget and, thus, consumers 
will have to bear the weight of these increases (Note: 
gasoline prices in Rwanda recently increased 11 percent). 
Increased fuel costs are not only reflected directly in the 
CPI, but impact the cost of imported food, which relies on 
transport costs to reach Rwanda. 
¶8.  (SBU)  World Food Program (WFP) country director Maarit 
Hirvonen pointed to the recent floods and droughts in the 
north of the country as possible explanations for the price 
increases.  She believed these natural phenomena, including 
lower rainfall in some regions, have reduced the domestic 
supply.  (Note: a recent USAID survey found the effects of 
the recent floods to be locally contained, with little 
impact on national food supplies and prices).  Hirvonen 
further reported that storage facilities are seriously 
lacking around the country, and thus the ability to store 
bumper harvests and lessen the impact of later poor 
harvests is severely limited.  Luckily for Rwanda, failed 
harvests, natural disasters, and overall food security have 
in the past been effectively dealt with via WFP and 
organizations such as the Red Cross and World Relief. 
¶9.  (SBU)  Abdul Nur Ndarubogoye, a wholesale importer of 
sugar, rice, and cooking oil reported that he, along with 
his competitors, buys as much quantity as he can afford, 
knowing that the market is undersupplied.  However, he and 
other wholesalers and retailers lack access to sufficient 
capital to carry much stock - they are at the mercy of 
temporary price spikes as much as Rwandan consumers. 
Delays in customs, poor roads, and other non-tariff 
barriers create additional challenges which affect their 
ability to bring products to market quickly and 
consistently.  These market inefficiencies may partly 
explain the sustained price increases experienced in the 
past few years. 
¶10.  (SBU)  Rwanda receives a great deal of aid - almost 50 
percent of the budget is funded by donors, which does not 
include large amounts of project support and off-budget 
donor aid.  Each increase in donor commitment essentially 
results in more money chasing the same amount of goods, 
including essential food items.  Engstrom explained that 
the simplest way to relieve this inflationary pressure is 
to reduce the build up of foreign currency in the country 
through "sterilization" by the Central Bank (through 
issuance of treasury bills).  These efforts have been 
largely effective, he noted, but the Bank lacks the full 
range of monetary tools to do so as comprehensively as more 
advanced economies. (Note: a U.S. Treasury officer has been 
assisting the Bank in setting up a treasury bond market, a 
more supple monetary tool). 
¶11.  (SBU)  Comment.  According to the IMF, Rwanda should 
be commended for keeping inflation in the single digits 
over the past two years.  However, the main determinant of 
inflation, the CPI, is a single basket of goods, and it 
does not always accurately reflect how the most 
disadvantaged populations in Rwanda live.  Life continues 
to be difficult for those on the lowest ends of the socio- 
economic spectrum - not a phenomenon unique to Rwanda, but 
significant nonetheless.  Anecdotal evidence suggests many 
average families are increasingly struggling to make ends 
meet.  Storage facilities for good harvests, infrastructure 
development to bring food and other goods to market 
efficiently, the easing of cross-border trade barriers, 
investment in modern agricultural techniques, and real 
peace in the region - all are necessary to bring Rwanda's 
people a better life.  End comment. 
SIM