Rwanda: Africas new Singapor?
Business in Rwanda
A country with a bloody history seeks prosperity by becoming business-friendly
Feb 25th 2012 | KIGALI |From the print edition
THE conference room resembles an old “Star Trek” set, with swivel chairs, laptops on desks and headsets that switch between Kinyarwanda and other tongues. Paul Kagame, Rwanda's president, sits in the captain's chair. His technocratic ministers sit nearby. When the talk turns to business, Mr Kagame becomes animated. It is his passion—he says he reads business case studies in bed. He wants to turn Rwanda into the Singapore of central Africa. He is nothing if not ambitious.
Rwanda is best known for the genocide that claimed at least 500,000 lives in 1994. It has been peaceful since then, but lacks nearly all of Singapore's advantages. Singapore has the world's busiest port; Rwanda is landlocked. Singapore has one of the world's best-educated populations; Rwanda's middle class was butchered in 1994. Singapore is a gateway to China; Rwanda's neighbours are “less than ideal”, as a recent report from the Legatum Institute, a British think-tank, put it. Uganda is corrupt; Burundi a basket-case; Congo worse.
Yet Rwanda has one huge advantage: the rule of law. No African country has done more to curb corruption. Ministers have been jailed for it. Transparency International, a watchdog, reckons Rwanda is less graft-ridden than Greece or Italy (though companies owned by the ruling party play an outsized role in the economy). “I have never paid a bribe and I don't know anyone who has had to pay a bribe,” says Josh Ruxin, one of the owners of Heaven, a restaurant in Kigali, the capital.
The country is blessedly free of red tape, too. It ranks 45th in the World Bank's index of the ease of doing business, above any African nation bar South Africa and Mauritius. Registering a firm takes three days and is dirt cheap. Property rights are strengthening, as well—the government is giving peasants formal title to their land.
The startling improvement in Rwanda's business climate is largely thanks to Mr Kagame. Rwanda's president is a controversial figure. A tough-as-Kevlar bush fighter, he stopped the genocide and chased the militias who carried it out into neighbouring Congo. His forces killed huge numbers of people. His enemies are terrified of him. The elections he holds are a sham.
On the plus side, he has overseen dramatic improvements of Rwanda's institutions. He understands that his country may collapse again if it does not grow richer, and he is determined to make it easier for businesses to operate. The average income has more than doubled since 1994.
Investors are impressed. Visa, for example, is busy linking Rwandan shops and cash machines to its global network. It picked Rwanda out of dozens of countries as a test ground for bringing electronic payments to “frontier economies”. (It also woos gorilla-watching tourists.) Elizabeth Buse, Visa's president for Asia, central Europe and Africa, says Rwanda is “a very easy place for a global firm to operate”.
Companies still face immense hurdles, however. Skilled labour is scarce. Only 5.7% of the domestic workforce have a tertiary qualification. An agri-businessman says that he can trust only one of his employees with complicated duties. “Most domestically educated Rwandans have never learned how to think independently and critically,” says the Legatum Institute. “Many Rwandan businesses do not even grasp the idea of bulk discounts, and tend to charge premia for larger orders.” Rwandans admit they are not good at wheeling and dealing. The countryside is largely empty of the small businesses like battery recharging, second-hand clothes and cafés which light up villages even in Congo.
The government has done some brave and sensible things to ease the skills shortage. It recruits Western-educated members of the diaspora. It has opened up the labour market to immigrants from Burundi, Kenya, Tanzania and Uganda. About 7,000 Kenyans in Rwanda have set up transport, farming and construction firms.
Taxes are another headache. Most Rwandans are too poor to pay anything, so the top 200 taxpayers shoulder 75% of the burden. VAT is payable on invoice, not on receipt of payment, which creates terrible cashflow problems for small firms. Enforcement is strict: paying a day late can mean the bill is doubled. The finance ministry is mulling a lower flat tax.
Domestic infrastructure is shoddy. The electricity supply is meagre and expensive. Outside Kigali, naked flames often provide the only artificial light. The government aims to increase power capacity tenfold by 2017. Transport is tough, too. Rwanda wants to be a regional trade hub, linking all the areas where Kinyarwanda is spoken (see map). But reaching a port is an ordeal. A government study found that it takes a lorry four days and $864 in bribes to make it from Mombasa to Kigali. It must stop at 36 roadblocks and ten weighbridges, many of them manned by thieves in uniform.
Still, the Legatum Institute argues that Rwanda shows that the rule of law can take root in Africa. Here's hoping.