Investment Policy Review - Rwanda - UNCTAD Virtual Institute

Investment Policy Review of Rwanda
The need for a well-defined and realistic assessment of the potential contribution of FDI still remains.
Beyond general expectations and considerations, and some more detailed sectoral policies, Rwanda lacks
a strategy that:
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Has a clear conception of the prospects, including limitations therein, for attracting FDI;
Utilizes FDI to help overcome development constraints by contributing capital, entrepreneurship,
skills, know-how and technology.
It is difficult to forecast accurately the level of FDI a country is likely to attract, particularly when
major reforms are being implemented in the investment framework and the economy is expected to
undergo significant transformation, as is the case in Rwanda. The experience of other economies over
the past decades offers some guidance as to what Rwanda can expect, however. While a few countries
have experienced exceptionally high FDI inflows per capita for a sustained period of time, these are very
particular cases that Rwanda cannot hope to replicate. 62
The relative level of FDI inflows (FDI per capita) is strongly correlated with the relative level of
national investment (total investment excluding FDI, as a percentage of GDP). Over the past decades,
the countries that have succeeded best in attracting foreign investors were – in general terms – those
that also recorded high levels of national investment. This correlation is strong, regardless of whether
one considers all developing countries together, or whether one looks at it from a regional perspective
(figure III.1). It holds not only for sub-Saharan countries with relatively modest FDI inflows, but also
among fast-growing east Asian countries with high FDI inflows.
This correlation indicates that foreign investors are more attracted by economies where local
investment itself is dynamic, and that FDI complements national investment more than substituting for
it or competing with it. While FDI brings specific benefits to an economy, it is illusory for any country
to expect it to substitute for a lack of national investment. 63 The vast majority of foreign investors do
not operate in enclaves. To the contrary, they seek and benefit from a dynamic local private sector, and
are dependent upon the availability of skills, infrastructure and networks of suppliers, all of which are
determined mostly by the level of national investment (public and private).
Rwanda should thus form realistic expectations about the level of FDI and its impact on the
economy, and be conscious that national investment will be the main driving force behind its economic
transformation. Dynamism among national investors will be a key determinant of Rwanda’s attractiveness
to foreign investors, and both types of investments are likely to reinforce each other. Given the current
low level of relative inflows of FDI as compared to other countries in similar situations, Rwanda can
hope to attract much higher FDI inflows in the near future. Attracting as much FDI per capita as other
LDCs have over the past decade would imply a ten-fold increase over what Rwanda has attracted on
average during 1994-2004. The same order of magnitude would apply if one considers other relative
measures of FDI inflows (table III.1), and would be even larger if Rwanda were to achieve the same
relative performance as developing countries as a whole.
62
These countries include Hong Kong (China), Singapore, fiscal havens and a few countries with large natural resources and a small population.
63
Even though there may be a few notable exceptions, typically driven by the exploitation of natural resources.
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