At the Petite Barrière border crossing between Rwanda and the Democratic Republic of Congo, there is a lively cross-border trade exchange.
Copyright© Violeta Gonzalez/EIF, via flickr, CC BY-NC-ND 2.0
Economic situation Dynamic growth
The government's stated aim is to improve living conditions for all by promoting economic growth. One important partner in that endeavour is the private sector. That is why the government is very eager to attract foreign investors, in particular.
From 2015 to 2019, Rwanda saw economic growth rates between four and 9.5 per cent. Then, as a result of the COVID-19 pandemic, the economy shrunk by 3.4 per cent in 2020. Sectors that were particularly hard hit by the global economic crisis and local measures to counter the pandemic were tourism, trade, construction and industrial production – all drivers of growth of the past few years. Even agriculture suffered in 2020, partly because it is closely interlinked with other economic sectors, partly because heavy rainfall led to harvest losses.
In 2021, the Rwandan economy expanded significantly (a plus of 10.9 per cent). The International Monetary Fund (IMF) is predicting economic growth of six per cent for 2022.
Obstacles
President Kagame's governing party also plays a dominant role in some of the country's major economic activities. Whilst companies that are closely affiliated with the government do lend significant impetus to development, their dominant role is discouraging private companies from investing in Rwanda.
Difficult geographic and structural conditions are also hampering economic development. Rwanda is a small, extremely densely populated mountainous country without access to the sea. By regional standards, companies there face high energy and transport costs. There is a lack of skilled staff and of well-developed infrastructure. There is a particular need for improvement in the area of energy supply. More than 50 per cent of people do not yet have access to electricity.
Through its regional programmes, Germany is helping to improve energy supply by installing transmission lines between Rwanda, Burundi and the Democratic Republic of the Congo. The construction of hydropower stations and solar home systems is also being promoted.
The country's high population density and growth (2.5 per cent in 2021) are resulting in excessive use of the country’s natural resources. To compare: whereas in Germany average population density is 238 people per square kilometre, in Rwanda it is 525. There is increasing land degradation resulting from the high population density. This is resulting in less and less farmland being available. At the same time rural areas, in particular, are increasingly feeling the effects of extreme weather events, such as droughts and heavy rainfall, and of damage caused by erosion.
Development potential
The growth sectors in Rwanda are the construction industry, mining and the services sector, in particular. The latter now accounts for a much larger share of GDP than agriculture. The areas of financial services and IT in particular offer huge potential for development.
Tourism is another sector that has great potential. The Rwandan government is also working hard to stem uncontrolled deforestation and to place remaining forests under protection, not least because tourism plays such an important role for the country's economy. In addition, the capital city of Kigali has successfully made its mark as an international conference venue with a new conference centre and numerous new hotels.
As at: 05/01/2023