rwanda national export strategy - minicom

RWANDA NATIONAL EXPORT STRATEGY
administration does not offer incentives for businesses, especially SMEs, to pay taxes. Recent studies cite
tax as a significant hindrance to operating in Rwanda. 31 Many of the rules are new, and few tax collectors
have an adequate understanding of business to properly apply rules related to deductions and
depreciation. As a consequence, numerous businesses and banks complain that tax liabilities are uncertain
because it is difficult to predict what will be allowed or disallowed, which raises business risks.
Issue #2 Rwanda should continue improving the regulatory environment directly affecting
businesses. Rwanda has made significant progress in the World Bank‘s Doing Business Indicators,
moving up 85 places from 143 rd in 2009 to 58 th place overall in 2011. The main areas for improvement
according to the World Bank were closing a business (Rwanda ranked 183 rd out of 183 countries), trading
across borders (Rwanda ranked 159 th ), and dealing with construction permits (Rwanda ranked 82 nd ). 32 Tax
incentives for exporters and clear government procurement procedures would also help improve the
business environment for exporters. In countries with better rankings, such as Georgia and Mauritius, flat
taxes were recently introduced and had a positive impact on business development and the WB ratings.
4.2.5 FINANCE & INVESTMENT
While the Doing Business indicators show that Rwanda has made remarkable progress in terms of
registering property, accessing credit, and protecting investors, there is still room for improvement in subareas
such as the number of days to register property (55 in Rwanda vs. the OECD average of 25), ramp
up the development of credit registries (which until recently existed in much of sub-Saharan Africa, but
not Rwanda), and in shareholders‘ rights to sue officers and company directors for misconduct (Rwanda
lags both Sub-Saharan Africa and the OECD). 33 This impacts the long-term investment and financing
levels in the country, and will need to be addressed to unlock financing in Rwanda‘s private sector.
Over two-thirds of businesses queried in the Private Sector Federation‘s 2008 Business Investment
Climate Survey cite finance as a major challenge. 34 Lack of collateral is ranked as the biggest challenge,
but as illustrated by figure 3 below, there are additional constraints.
These constraints are particularly difficult to overcome for exporters as they seek new market access,
relationships with foreign traders, and lines of credit to develop distribution. Rwanda is not the only
developing country that needs to increase finance and investment, and it can follow other examples by
adopting operational efficiencies used by export-leading countries (e.g. export insurance schemes and
credit services for trade finance), to lower the cost of capital for its businesses.
Notwithstanding the chart below, progress has been registered in several areas including:
Use of formal financial services increased from 1.4 million citizens in 2007 to almost 2 million in
2009.
GoR reduced bank reserve requirements from 8% to 5%, and BNR‘s lending interest rate to
commercial banks decreased from 9% to 7% in 2010.
Private sector credit surged 40% in 2008 and held fairly steady in 2009 (with only a 2% decline).
At a macroeconomic level, private direct investment increased from US$103 million in 2008 to US$119
million in 2009, and approximately US$1 billion in FDI has been committed in the last decade.
31 See PSF, GTZ (2008) Cutting the cost of red tape for business growth in Rwanda and PSF (2008) Business Investment Climate Survey (BICS)
32 World Bank‘s Doing Business Indicator‘s website: http://www.doingbusiness.org
33 World Bank Doing Business Indicators for Rwanda: http://www.doingbusiness.org/exploreeconomies/?economyid=160#GettingCredit
34 PSF Business Investment Climate survey, July 2008, n=909: Qn. 8. How important are the following issues in constraining your access to
finance?
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