Economy of Rwanda - History

History

In the 1960s and 1970s, Rwanda's prudent financial policies, coupled with generous external aid and relatively favorable terms of trade, resulted in sustained growth in per capita income and low inflation rates. However, when world coffee prices fell sharply in the 1980s, growth became erratic.

Compared to an annual GDP growth rate of 6.5% from 1973 to 1980, growth slowed to an average of 2.9% a year from 1980 through 1985 and was stagnant from 1986 to 1990. The crisis peaked in 1990 when the first measures of an IMF structural adjustment program were carried out. While the program was not fully implemented before the war, key measures such as two large devaluations and the removal of official prices were enacted. The consequences on salaries and purchasing power were rapid and dramatic. This crisis particularly affected the educated elite, most of whom were employed in civil service or state-owned enterprises.

During the 5 years of civil war that culminated in the 1994 genocide, GDP declined in 3 out of 5 years, posting a dramatic decline at more than 40% in 1994, the year of the genocide. The 9% increase in real GDP for 1995, the first postwar year, signaled the resurgence of economic activity.

After the Rwandan Genocide, the Tutsi-led government began a major program to improve the country's economy and reduce its dependence on subsistence farming. The failing economy had been a major factor behind the genocide, as was overpopulation and the resulting competition for scarce farmland and other resources. The government focused primarily on building up its manufacturing and service industries and eliminating barriers to trade and development.

The Government of Rwanda posted a 13% GDP growth rate in 1996 through improved collection of tax revenues, accelerated privatization of state enterprises to stop their drain on government resources, and continued improvement in export crop and food production. Tea plantations and factories continue to be rehabilitated, and coffee, always a smallholder's crop, is being more seriously rehabilitated and tended as the farmers' sense of security returns. However, the road to recovery will be slow. Coffee production of 14,578,560 tons in 2000 compares to a pre-civil war variation between 35,000 and 40,000 tons. By 2002 tea became Rwanda’s largest export, with export earnings from tea reaching US$ 18 million equating to 15,000 tons of dried tea. Rwanda's natural resources are limited. A small mineral industry provides about 5% of foreign exchange earnings. Concentrates of the heavy minerals cassiterite (a primary source of tin), and coltan(used to manufacture electronic capacitors, used in consumer electronics products such as cell phones, DVD players, video game systems and computers).

Cassiterite production peaked at 1,000 tonnes in 1990, but was under 700 tonnes in 2000. Recorded coltan production has soared from 147 tonnes in 1999 to 1,300 tonnes in 2001, and coltan was the country's biggest single export earner in 2001. It has been under-acknowledged to date that at least part of the increase in production is because of new mines opening up in Rwanda. However, it is also true, as has frequently been observed, that the increase is because of the fraudulent re-export of Congolese coltan. In addition to the well-publicised involvement in this trade of the Rwandan Defence Force (RDF), another important factor in the coltan re-export is that international dealers are under pressure not to buy from the DRC, thus increasing the incentive for DRC coltan to be re-exported as Rwanda's. Rwanda is also alleged to be trading in fraudulently exported gold and diamonds from the DRC

Deposits of wolframite (a major source of tungsten) is also mined, along with small amounts of gold and sapphires. Production of methane from Lake Kivu began in 1983, but to date has been used only by the Bralirwa Brewery.

Depletion of the forests will eventually pressure Rwandans to turn to fuel sources other than charcoal for cooking and heating. Given the abundance of mountain streams and lakes, the potential for hydroelectric power is substantial. Rwanda is exploiting these natural resources through joint hydroelectric projects with Burundi and the Democratic Republic of the Congo.

Rwanda's manufacturing sector contributes about 20% of GDP and is dominated by the production of import substitutes for internal consumption. The larger enterprises produce beer, soft drinks, cigarettes, hoes, wheelbarrows, soap, cement, mattresses, plastic pipe, roofing materials, textiles, and bottled water. By mid-1997, up to 75% of the factories functioning before the war had returned to production, at an average of 75% of their capacity. Investments in the industrial sector continue to mostly be limited to the repair of existing industrial plants. Retail trade, devastated by the war, has revived quickly, with many new small businesses established by Rwandan returnees from Uganda, Burundi, and the Democratic Republic of the Congo.

Industry received little external assistance from the end of the war through 1995. Beginning in 1996-97, the government has become increasingly active in helping the industrial sector to restore production through technical and financial assistance, including loan guarantees, economic liberalization, and the privatization of state-owned enterprises. In early 1998, the government set up a one-stop investment promotion center and implemented a new investment code that created an enabling environment for foreign and local investors. An autonomous revenue authority also has begun operation, improving collections and accountability.

Possibilities for economic expansion, however, are limited by inadequate infrastructure and transport and the small available domestic market of Rwanda's predominantly subsistence economy. Existing foreign investment is concentrated in commercial establishments, mining, tea, coffee, and tourism. Minimum wage and social security regulations are in force, and the four prewar independent trade unions are back in operation. The largest union, CESTRAR, was created as an organ of the government but became fully independent with the political reforms introduced by the 1991 constitution. As security in Rwanda improves, the country's nascent tourism sector shows great potential to expand as a source of foreign exchange. Rwanda's tourism is centered around the attractions of Volcanoes National Park (PNV) with its six volcanoes and its protected population of mountain gorillas made famous by Dian Fossey. Additionally, tourism is drawn to central Africa's largest protected wetland Akagera National Park, with its populations of hippopotami, cape buffalo, zebras, elephants, elands, and other big game animals. Birdwatching-related tourism has a potential to develop as well, especially in Nyungwe National Park, among the largest uncut forest reserves in Africa. Nyungwe National Park is home to over 300 species of birds. And a vast variety of wild life as well.

Finally, several memorial sites associated with the Rwandan genocide have begun generate significant tourism. For example, the Gisozi Genocide Memorial Site in the Gasabo District of Kigali—the burial place of approximately 300,000 victims of the genocide—has a related genocide exhibition area and library and has plans to develop a teaching center on the history of the genocide. Another major genocide-related memorial center attracting tourists is the Murambi Genocide Memorial Site housed in the former Murambi Technical School where 45,000 were murdered and 850 skeletons and mummified remains of the victims are on display. Two other major memorial sites associated with the genocide are in Kicukiro District: Rebero Genocide Memorial Site where 14,400 victims are buried and the Nyanza-Kicukiro Genocide Memorial Site where 5,000 victims were killed after Belgian soldiers who serving in the United Nations peacekeeping forces abandoned them. In Kibungo Province, the site of the Nyarubuye Massacre is home to the Nyarubuye Genocide Memorial Site where an estimated 20,000 victims were killed after seeking refuge in the Roman Catholic church and homes of the nuns and priest there.

In the immediate postwar period—mid-1994 through 1995—emergency humanitarian assistance of more than $307.4 million was largely directed to relief efforts in Rwanda and in the refugee camps in neighboring countries where Rwandans fled during the war. In 1996, humanitarian relief aid began to shift to reconstruction and development assistance. The United States, Belgium, Germany, the Netherlands, France, the People's Republic of China, the World Bank, the UN Development Programme and the European Development Fund will continue to account for the substantial aid. Rehabilitation of government infrastructure, in particular the justice system, is an international priority, as is the continued repair and expansion of infrastructure, health facilities, and schools.