Download 2015 Quarter 1 RWANDIAN SNAPSHOT

RWANDIAN
SNAPSHOT
2015 Quarter 1
Inflation – Price inflation remained largely stable in March, with the urban consumer price index (CPI) inflation rate (the headline index for monetary policy
purposes) increasing marginally from 0.7% y-o-y in February to 0.8% y-o-y in March. The transport and fresh vegetables sub-indices continued to record
deflation in March, decreasing by 3.9% y-o-y and 2.5% y-o-y, respectively. In turn, sub-indices that showed notable increases over the month include housing,
water, electricity, gas & other fuels (3.8% y-o-y), and restaurant & hotels (2.9% y-o-y).
Growth – The Rwandan economy expanded by 6.2% y-o-y in Q4 2014, lifting the annual GDP growth rate to 7% for 2014 from 4.6% in 2013. Economic
growth in 2014 was driven by a 9% expansion in the services sector, while the industrial (+6%) and agricultural (+5%) sectors also recorded commendable
growth. The services sector will continue to be the main driver behind economic growth, powered by strong consumption by both government and the private
sector.
National development plan – The International Monetary Fund (IMF) recently completed the third review of Rwanda’s economic performance under the
country’s Policy Support Instrument (PSI) programme. The current PSI was approved by the Fund on 2 December 2013 and runs until 2016, with the primary
aim of managing a successful transition from a public sector-led, aid-dependent economy to a more private sector-led economy. Overall, the IMF provided a
generally positive report, commending prudent fiscal policy and effective monetary policy.
OPPORTUNITIES
STRENGTHS
The rapidly expanding and well-diversified services sector supports domestic Significant progress in terms of economic reform. Rated as the world’s best
business development.
reformer since 2006 in the World Bank’s 2015 Doing Business report.
Ongoing integration within the East African Community (EAC) offers
Solid real GDP growth outlook.
significant business opportunities.
Fast-expanding mining sector (cassiterite, coltan, wolfram).
Low external debt levels.
Large-scale infrastructure projects (energy, transport) aimed at addressing the Favourable relationship with most donors, as well as transparency in the
infrastructure shortfall.
government’s handling of aid money.
VULNERABILITIES
WHAT IS BEING DONE?
Economic structure: relatively narrow export base; heavy reliance on
agricultural sector and global commodity prices.
Significant infrastructure deficit and development needs.
Sizeable twin deficits (fiscal and current accounts); lack of fiscal selfsufficiency.
One of the poorest countries in the world in terms of GDP per capita.
Solid progress is being made in terms of economic diversification, as seen by
an improving business environment. The services sector continues to expand
rapidly.
Kigali is directing significant resources towards development of the energy
sector in particular.
Progress on this front is slow. The structural trade deficit results in a current
account deficit. Although improving, external financing (donor support)
accounts for approximately 40% of the budget.
Although still low, GDP per capita has increased in recent years. Good
economic growth prospects auger well for this indicator going forward.
MEGA TRENDS
Population
12,337,138 (July 2014 est.); Age 15 - 64: 55.4%
Population growth rate (%)
2.63% (2014 est.)
Life expectancy at birth
Total population: 59.26 years; male: 57.73 years; female: 60.83 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 2.85%; People living with HIV/AIDS: 195,352 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 70.5%; male: 73.2%; female: 68.0% (2015 est.)
and write)
Urbanisation
Urban population: 26.9% of total population (2013); Urban population growth: 6.4% (2013)
Population below $1.25 (PPP) poverty line 63.0% (2011 est.)
Unemployment rate
10.0% (2012 est.)
Employment (% of total)
Agriculture: 78.8%; Industry: 3.8%; Services: 16.6% (2005 est.)
Labour participation rate (% of total
population ages 15+)
85.9% (2013)
Business languages
Kinyarwanda, French, English
Telephone & Internet users
Main lines in use: 45,338; Mobile cellular: 6.69 million; Internet users: 1.07 million (2013)
Sources: CIA World Factbook, World Bank, National Institute of Statistics Rwanda, UNESCO, ITU, UNAIDS & NKC Research
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Total
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Rwanda
175
55
Doing Business 2015 (1 best, 189 worst)
189
46
Global Competitiveness 2014-15 (1 most, 144 least competitive)
62
Economic Freedom 2015 (1 most, 178 least free)
65
144
178
HDI Ranking 2013 (1 most, 187 least developed)
0
Source: NKC Research
187
151
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
B+/Stable
B+/Stable
N/R
In early March, Standard and Poor’s Ratings Services (S&P) revised Rwanda’s long-term foreign & local currency sovereign credit rating upwards by one
notch from “B” to “B+” with a stable outlook. The outlook on the rating was previously revised from stable to positive in September last year. According to
the agency, Rwanda’s external financing risks are decreasing due to stable donor flows and the government’s ability to access domestic and foreign capital
markets. In addition, the agency has stated that economic growth has rebounded from the poor performance in 2013, while fiscal consolidation remains on
track. In turn, Fitch Ratings affirmed Rwanda’s long-term foreign & local currency Issuer Default Rating (IDR) and short-term IDR at “B+” on January 25,
maintaining the outlook at stable. This follows a one-notch rating upgrade at the end of July 2014. According to the agency, the rating balances the strong
economic growth performance and prudent economic policies on the one hand, and falling donor grants together with a modest deterioration in the country's
external position on the other hand. Fitch notes that economic growth prospects are strong, supported by a recovery in the agricultural sector and
accommodative monetary and fiscal policies. Furthermore, the country has a track record of prudent and coherent macroeconomic management, including
maintaining moderate inflation, and a sound financial system.
Rwanda is currently not rated by Moody's Investors Service.
Infrastructure
Diversity of
the Economy
Banking
Sector
Continuity
of Economic
Policy
GDP Growth
Improving; but
still limited
Dominated by
agricultural
sector
Fair, and
improving
Generally stable
Strong
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Twin deficits
Fair
Low
Fair
Daily Trading
Volume
Highly variable, some
days no trading
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Rwanda Stock Exchange
6 (including cross-listed
companies)
Limited
$4.1bn (RSE, April 10)
Food & Beverages
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Underdeveloped
Limited
28-days to 364-days
(T-bills); 1-Yr to 7-Yr
(Govt. Bonds)
N/a
Yes
Macro-economic overview
Rwanda has made substantial progress on the economic front. Extreme poverty has been reduced significantly and the government has made great strides in
improving the business environment. The government’s current economic strategy has the clear priority of removing impediments to private sector
development and making the economy more attractive for potential investors. Authorities have made significant progress in this regard, with Rwanda being
labelled as one of the most economically competitive economies in Africa, boasting one of the most accommodative business environments on the continent.
Real GDP growth has shown a strong recovery from the 4.6% expansion in 2013 to reach 7% in 2014, and growth prospects remain positive. The country is in
the process of becoming more self-reliant and export oriented, and is developing a vibrant private sector, albeit at a steady pace.
Nevertheless, Rwanda continues to face numerous economic challenges. In addition to the country’s general development needs, notably infrastructure and
basic services, Rwanda consistently records deficits in both the fiscal and current account balances. Moreover, donor dependence remains one of the country’s
most salient sources of risk, and, while improving, further progress in this regard would significantly improve the country’s resilience against exogenous
shocks. Furthermore, political risk is currently considered to be low, but any deterioration in political stability, either spawned domestically through the
Rwandan Patriotic Front’s (RPF) authoritarian tendencies or externally through conflict in neighbouring Democratic Republic of Congo (DRC), would have
detrimental effects on the country’s development prospects.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
34.6%
Service/GDP
47.8%
Industry/GDP
17.6%
The services sector is the highest contributor to GDP in Rwanda, and has been a primary driver behind economic growth in recent years. The government’s
focus on reforming the business climate and supportive policies to attract foreign investment have turned the country into a promising services hub, with
sectors such as information and communication technology (ICT) and financial services showing strong growth prospects. However, while the services sector
dominates formal economic activity, the majority of the population is engaged in the agricultural sector. The overall economy continues to be mainly
agricultural-driven with semi-subsistence, rain-fed farming and animal husbandry as the dominant sources of economic activity. The sector is also a salient
generator of foreign currency, particularly through coffee and tea exports. In turn, the industrial sector is driven by the construction and manufacturing subsectors, the former supported by public investment, the latter encouraged through accommodative economic policies. In addition, the mining & quarrying subsector has shown strong growth in recent years, and has become one of the country’s most important foreign currency generators.
Real GDP Growth & Net FDI/GDP
10.0
8.0
Source: NKC Research
7.0
8.0
6.0
6.0
5.0
4.0
4.0
2.0
0.0
3.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
Strong performances in the services and agricultural sectors have lifted Rwanda’s GDP growth figures in recent quarters, signalling a recovery from the recent
lows reached in H2 2013. Quarterly real GDP growth remained above 6% y-o-y for all four quarters of 2014, elevating the annual real GDP growth rate up to
7% from 4.6% in 2013. Furthermore, the World Bank recently revised its 2015 real GDP growth forecast for Rwanda upwards from 6.6% to 7.5%, and this is
expected to increase to 7.7% in 2016. The Bank notes that falling international oil prices are expected to contribute to lower inflation, a more stable exchange
rate, an improvement in the country’s external balances, and smaller electricity subsidies, which will in turn provide policymakers with more flexibility.
Turning to foreign direct investment (FDI), the Buffet Foundation recently committed to invest $500m to transform agricultural production in Rwanda. Under
the new 10-year investment project, the foundation will develop irrigation systems on nearly 1,000 km2 of farmland to benefit domestic farmers, while an
agricultural training institute will also be established in the country. The foundation plans to invest around $100m this year.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
Main Imports: % share of total
2016F
Fuel
Industrial products
Food products
2014E 2015F
2016F
Fuel
15.13
12.91
13.42
Industrial products
13.84
17.29
17.79
Food products
10.04
11.29
11.14
Construction materials
9.50
12.18
11.23
2014E 2015F
2016F
Construction materials
Main Exports: % share of total
Coltan
Tin
Coffee
Coltan
17.46
12.31
12.78
Tin
11.99
10.49
10.68
Coffee
9.95
7.94
7.93
Tea
8.63
7.68
7.86
Tea
Source: NKC Research
0.0
0.1
0.2
0.3
0.4
0.5
Rwandan exports disappointed in 2014, largely due to adverse price developments affecting the country’s most important export commodities. The country
generated just under $600m in merchandise exports in 2014, reflecting a 14.7% decrease compared to the 2013 figure. Prices of tea (-13.5%), cassiterite (3.1%), coltan (-16.6%), and wolfram (-11.4%) decreased on an annual basis. Coffee was the only principal export that recorded an increase in the average
price received, with the cost per kg increasing by 36% on an annual basis. The country’s largest exports over the year were coltan ($105m, down 22.1% y-oy), cassiterite ($72m, up 17.8% y-o-y), and coffee ($60m, up 8.7% y-o-y). In turn, total imports increased by 3.7% in 2014, reaching $1.9bn. Capital goods
dominated imports over the period, indicative of the government’s investment programme. The largest import categories over the year were petroleum
products ($291m), industrial products ($266m), and food products ($193m). Overall, this resulted in a trade deficit of just over $1.3bn for the year, which is
14.8% wider than the 2013 deficit.
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Current Account & Budget Balance
(% of GDP)
0.0
0.0
-5.0
-2.0
-10.0
-4.0
Source: NKC Research
-15.0
-6.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
The Rwandan government has put forward financing adjustments to its budget for the current fiscal year (ending June) to ensure that the implementation of the
second Economic Development and Poverty Reduction Strategy (EDPRS2) remains on track. The government proposed an expenditure increase of RWfr6.4bn
(around $9m), bringing the total budget to RWfr1.76trn (around $2.51bn). According to the Rwandan minister of finance, the initial budget had partly been
affected by the delayed disbursements of foreign loans and grants, while there is also a possibility that tax revenues will not meet targets. Overall, the revised
budget proposes a RWfr117.9bn increase in the fiscal deficit to RWfr295.6bn (equivalent to around 5.5% of GDP according to our calculations, notably wider
than the original budget forecast of around 3.1% of GDP). Turning to the external balances, we have adjusted our current account forecasts to incorporate the
recent drop in international energy prices. Petroleum products are the country’s largest imports category, and the reduction in oil prices will directly be
reflected in Rwanda’s imports bill. Rwanda is expected to record a current account deficit equivalent to 7.8% of GDP this year, notably narrower than our
previous forecast of an 11.4% of GDP deficit.
Average CPI (% change, y-o-y)
12.0
Source: NKC Research
10.0
8.0
6.0
4.0
2.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
Following the March Monetary Policy Committee (MPC) meeting, the National Bank of Rwanda (NBR) decided to maintain the current accommodative
monetary policy stance for the second quarter of the year, with the objective of continuing to support the financing of the economy. The country’s key policy
rate was maintained at 6.5%, a level at which it has been since June 2014. According to NBR figures, the accommodative monetary policy stance had notable
effects in the second half of 2014. More specifically, credit to the private sector increased by 19.6% in 2014, compared to a growth rate of 11.1% in 2013. In
addition, over the January - February period this year, credit to the private sector expanded by 19.2% y-o-y, compared to a 13.1% y-o-y increase a year earlier.
Furthermore, following the recent Financial Stability Committee (FSC) meeting, it was observed that the financial sector remains sound and resilient. Banks
and microfinance institutions registered adequate capital ratios, while both asset quality and return on assets have improved between September and December
2014.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Stephen Ineget – designation is Partner
Tel +250 25 25 7970
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
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