Launched in 2021, the MBRP is a strategic initiative designed to stimulate growth in the industrial and construction sectors. The program offers enticing benefits for investors, such as VAT exemptions on both locally produced construction materials and those imported but not available regionally.
For projects exceeding $10 million, this exemption expands to include import duties on unavailable local materials, contingent upon a detailed project evaluation.
The MBRP further supports the industrial transformation by exempting VAT on machinery and equipment manufactured within Rwanda.
It also extends tax incentives to both new and existing industrial construction projects, provided they meet certain investment thresholds. Notably, the program encourages the establishment of food and animal processing industries with a relatively low minimum investment requirement of $100,000.
During a recent parliamentary session, Prime Minister Dr. Edouard Ngirente underscored the pivotal role of the MBRP in facilitating Rwanda’s recovery from the economic repercussions of COVID-19.
He reported that the initiative has not only injected over $4.2 billion into the economy but also generated more than 21,400 jobs, with expectations of creating over 42,700 additional jobs. The program is a cornerstone in Rwanda’s strategy to mitigate the pandemic’s impact and to forge a robust industrial future for the nation.
Dr. Ngirente also highlighted the government’s proactive measures in response to the pandemic-induced decline in industrial production by accelerating the development of industrial zones.
This effort has led to the establishment of 219 new industries between 2019 and 2023, significantly enhancing the valuation of industrial production and exports.
This growth is a testament to the government’s resolve in driving industrial development, underpinned by the MBRP’s comprehensive tax incentives aimed at fostering expansion, innovation, and resilience within Rwanda’s economy.
This budget revision is based on the good execution of the budget during the first half of the fiscal year, which stood at 61% at end December 2023 and allocation of additional resources to key priorities, such as Agriculture, infrastructure and ICT.
“Despite persistent challenges stemming from the effects of COVID-19, global supply chain disruptions, an inflationary environment, and the impact of climate shocks, our economy continues to display strong signs of recovery.
With a 7.6% growth over the first three quarters of 2023, surpassing projections, this budget revision reflects our successes and the effectiveness of the economic recovery plan in sustaining businesses, attracting new investments, generating employment, and ensuring robust social protection for vulnerable citizens,” stated Minister Ndagijimana.
Key changes in the 2023-2024 revised budget
Resources are expected to increase by 1.7% from Rwf5,030 billion to 5,115.6 billion, driven mainly by increase in external grants and loans.
Meanwhile, government spending is expected to increase by 1.7%, rising from Rwf 5,030.0 billion to Rwf5,115.6 billion. The revision in spending reflects changes in recurrent spending, capital expenditure, and net lending outlays.
The announcement was made on January 23, 2024, during the presentation of the government’s accomplishments under the seven-year plan, NST1 (2017-2024), aimed at propelling sustainable development.
Dr. Ngirente emphasized that a majority of the activities outlined by President Paul Kagame during his 2017 campaign have been successfully accomplished, with the remaining few nearing completion.
He acknowledged the remarkable economic growth, averaging 6.9% over the seven years, except for the setback in 2020 caused by the global economic impact of the Covid-19 pandemic, resulting in a contraction of Rwanda’s economy by -3.4%.
Highlighting factors contributing to the increased budget, Dr. Ngirente stated, “In the last seven years, our income taxes have doubled, demonstrating its pivotal role in the national economy. Our country’s budget has doubled from 2017 to today.”
Addressing the government’s commitment to alleviate the impact of high international market prices, Dr. Ngirente revealed investments in programs supporting the costs of petroleum products, fertilizers, and public transport. Notably, the government facilitated the purchase of 200 large buses for the private sector, with 100 already in operation, alleviating the waiting time for passengers.
He outlined the continued expansion of the transportation infrastructure, with plans to acquire a total of 340 vehicles, including an additional 100 arriving in February. The efforts aim to enhance transportation services not only in urban areas but also extending to provinces across the country.
Examining the budgetary evolution, Dr. Ngirente shared, “The budget for 2017/18 was 2,094.9 billion Rwandan francs, with 83% sourced from domestic funds and loans. In contrast, the budget for 2023/2024 stands at Rwf5,030.1 billion, with 59% sourced from within the country, reflecting significant financial progress.”
Among the noteworthy achievements, Dr. Ngirente highlighted the construction of roads, terraced land covering 1,147,434 hectares, electrification of over 1.5 million houses, the establishment of six new hospitals, 36 classrooms, and various economic and social development facilities.
In the agricultural sector, the government fulfilled its commitment to seed self-sufficiency, ensuring no seed imports since 2021. Additionally, efforts in animal husbandry infrastructure contributed to a substantial increase in milk production, from over 700,000 liters in 2017 to more than a million liters annually.
The data released today reveals a 6% annual increase in “local products,” with a 3% monthly decrease. Prices of “imported products” rose by 7.8% annually and decreased by 1% monthly.
Fresh products saw an 11% annual increase and a 9.5% monthly decrease. Additionally, energy prices increased by 0.5% annually and decreased by 3.4% monthly.
The general Index excluding fresh products and energy increased by 5.7% annually and decreased by 0.1% monthly.
The signing ceremony at MINECOFIN was attended by several high-level authorities from various institutions, among them Minister of Finance and Economic Planning Dr. Uzziel Ndagijimana, CEO of BRD Ms. Kampeta Sayinzoga and the Parliamentary State Secretary of the German Federal Ministry of Economic Cooperation and Development (BMZ), Dr. Bärbel Kofler.
A grant of total EUR 15.6 million (approx. Rwf 20 billion) is made available by the German Financial Cooperation, implemented by KfW on behalf of the German Government. The facility will furnish the banking sector through BRD with tailor-made guarantee products, incentivizing them to provide higher financing volumes and longer tenures to their clients, and hence enhancing their access to finance and other financial services.
The establishment of the EGCF is a continuation of a long-lasting and successful relationship between BRD and KfW which inter alia also introduced the Export Growth Facility (EGF), a vehicle which provides adequate financial services to SMEs through the Rwandan banking sector since many years.
Speaking after the signing event, Minister of Finance and Economic Planning Dr. Uzziel Ndagijimana welcomed the EGCF and expressed his expectation that it will allow Rwandan businesses to access new markets and expand their operations, ultimately increasing the country’s overall export revenues. “ECGF will help to create new jobs and foster economic growth by providing a more stable business environment that will support the economic empowerment of the Rwandan people,” Minister Ndagijimana added.
Kampeta Sayinzoga, CEO of BRD, highlighted BRD is deeply committed to fostering sustainable economic development within the region and beyond. ECGF aligns with the Bank’s overarching goal of promoting inclusive growth through strategic interventions in key sectors such as manufacturing, agriculture, and technology- especially SMEs seeking to venture into export markets.
Through tailored financial solutions and advisory services, BRD aims to empower SMEs with the tools they need to compete internationally and contribute significantly to trade diversification and job creation.
This facility plays a pivotal role in mitigating risks associated with international trade. By providing credit guarantees to exporters and financial institutions, we are enabling businesses to expand their global reach and seize opportunities in foreign markets.
Dr. Bärbel Kofler, Parliamentary State Secretary of the German Federal Ministry for Economic Cooperation and Development (BMZ) commended the innovative approach of the EGCF as a testimony to the continuing strong ties between Germany and Rwanda and the long-lasting collaboration between KfW and BRD in the area of Financial Systems Development.
She particularly welcomed the improvement of access to finance for women-led enterprises as a contribution to the new strategy on feminist development policy, which is of particular importance to the German Government.
According to data released by the National Institute of Statistics of Rwanda (NISR), the services sector played a significant role, contributing 46% to the GDP, followed by the agriculture sector at 25%, the industry sector at 21%, and net direct taxes accounting for 7%.
Estimates recalculated at 2017 prices revealed that the GDP for this quarter was 7.5% higher compared to the same period in 2022.
Breaking down the sectoral contributions, the agricultural sector experienced a growth of 3%, contributing 0.7 percentage points to the overall GDP growth. While food crops production increased by 3%, there was a notable decline of 15% in the production of export crops.
The industrial sector showed robust growth, expanding by 14% and contributing 2.3 percentage points to the overall GDP growth. This growth was driven by a 14% increase in mining and quarrying, an 8% rise in manufacturing activities, and an impressive 24% surge in construction activities. Notably, manufacturing saw notable increases in food processing (16%), textiles, clothing, and leather goods (14%), wood and paper manufacturing (17%), and chemicals, rubber, and plastic products (10%).
The service sector emerged as a powerhouse, growing by 19% and contributing 4.4 percentage points to the overall GDP growth. Key contributors within services included an 8% increase in wholesale and retail trade, a 16% rise in transport services, a 5% growth in hotels and restaurants, and a substantial 20% increase in telecommunication services. While public administration services increased by 2%, education services surged by 16%. However, health services experienced a 2% decrease, following a 13% growth in the same quarter of 2022.
In terms of consumption and trade, total final consumption expenditure increased by 3% in the third quarter of 2023. Household final consumption expenditure saw a noteworthy 8% increase, contrasting with a 15% decrease in government final consumption expenditure. Exports of goods and services increased by 11%, while imports increased by 9%. Additionally, gross capital formation displayed an impressive surge of 26%.
This robust economic performance showcases Rwanda’s resilience and dynamism, setting the stage for continued growth and prosperity in the quarters to come.
The annual average inflation rate between November 2023 and November 2022 was 15.3 percent.
Figures released on Sunday indicate that in November 2023, ‘Food and Non-Alcoholic Beverages’ rose by 17.5 percent annually but decreased by 3.3 percent monthly.
Transport increased by 8.3 percent annually and 0.2 percent monthly, while ‘Restaurants and Hotels’ increased by 6.4 percent annually and 0.2 percent monthly.
The data also reveals a 9.1 percent annual increase in “local products,” with a 1.4 percent monthly decrease, and a 9.3 percent annual increase in the prices of “imported products,” remaining stable monthly.
“Fresh products” experienced an 18.4 percent annual increase but decreased by 5.1 percent monthly. The “energy” category saw a 3.6 percent annual increase and a 1 percent monthly increase.
The “General Index excluding fresh products and energy” rose by 6.9 percent annually and 0.2 percent monthly.
Over the past few years, the Rwandan currency experienced a gradual depreciation of around 5% annually compared to major currencies, particularly the US dollar. However, the year 2023 witnessed a dramatic spike in this rate, reaching 13.5%, highlighting a pressing issue that demands attention.
The BNR reports that from January to September 2023, Rwanda’s trade imbalance widened to 12.2%, a significant increase from the previous year.
Professor Kasai Ndahiriwe, Director of the Monetary Policy Department at the BNR, shed light on the implications of this depreciation during a recent talk show aired on a local broadcaster.
Prof. Ndahiriwe emphasized that the decline in the value of the Rwandan currency has tangible effects within the country, where the purchasing power has eroded.
Inflation surged by 13.9% over the past year, considered a large percentage compared to BNR’s ideal inflation figure of less than 8%. This surge in prices directly correlates with the currency’s depreciation, impacting citizens’ ability to afford goods and services.
Prof. Ndahiriwe attributed the currency’s depreciation to the persistent gap between exports and imports, stating, “Our imports are still higher than our exports, which means that the inflows and outflows are not equal.” He stressed the need for continued development, particularly in emerging industries under the ‘Made in Rwanda’ initiative which continue to make imports as the country paves the way for self-sufficiency and international market competitiveness.
Highlighting external factors, Prof. Ndahiriwe pointed to the United States’ decision to raise base lending rates, which prompted investors to develop interest in the country looking for higher returns. This influx of capital into the US resulted in the strengthening of the dollar, causing a ripple effect in international markets, including Rwanda. Prof. Ndahiriwe expressed concern over the disproportionate impact of the US policy change on developing nations.
Despite these challenges, BNR has opted to maintain its repo rate at 7.5%, with a plan to stabilize rising prices within a range of 2% to 8%. This strategic move is part of the central bank’s broader efforts to address the economic imbalances affecting the nation.
As per current BNR exchange rates, the value of 1 US dollar is Rwf1248. However, it is purchased at Rwf1,235 and sold at Rwf1,260.
SEZs have become powerful tools for promoting economic growth and development. Rwanda, a country experiencing rapid economic growth cannot afford to overlook the potential of SEZs.
A glance at Rwanda’s journey in promoting SEZs
Rwanda’s SEZ program began with the drafting of the SEZ law in 2011, followed by the development of the Kigali Special Economic Zone (KSEZ). The KSEZ served as a model for future SEZ projects in Rwanda. Since then, the country has established industrial parks in Bugesera, Rwamagana, Muhanga and Musanze among others.
The Kigali Special Economic Zone spans 385 hectares, with plans to expand to 400 hectares.
Housing approximately 150 companies; the Kigali Special Economic Zone attracted private sector investments worth an estimated $2.3 billion, resulting in over 13,000 permanent job opportunities and generating export revenues surpassing $1 billion since 2018.
Moreover, between 2018 and 2021, it contributed around Rwf120 billion in taxes. The recently unveiled Kigali Innovation City, valued at $300 million, is set to be established within the zone, further enhancing its reputation as a burgeoning tech hub.
As per figures released by the National Institute of Statistics of Rwanda in June 2023, the Gross Domestic Product (GDP) was estimated at Rwf3,901 billion, up from Rwf 3,021 billion recorded in the first quarter of 2022.
The industry sector’s contribution to the GDP rose to 22 percent, up from 14 percent in 2014.
Lessons from Shanghai
Despite making significant strides, Rwanda can further boost its economy by adopting best practices and drawing inspiration from successful models. One such captivating success story comes from Shanghai, China’s pioneering efforts in establishing Special Economic Zones (SEZs).
Shanghai’s triumph in developing Free Trade Zones (FTZs) can be traced back to its early efforts in the 1980s. Through strategic positioning and leveraging its advantageous trade location, Shanghai emerged as an irresistible magnet for investments.
In 1990, Shanghai took a bold step by creating the Pudong New Area, a comprehensive FTZ. This area became the premier destination in Shanghai for investors, talents, and innovators, offering a supportive business environment and unbeatable policy support.
The establishment of Pudong New Area was a turning point in Shanghai’s history. Over the years, it went through various expansions and transformations, eventually becoming a national development area in 1990, a pilot area for comprehensive reforms in 2005, and finally, the Shanghai FTZ in 2013.
In 2022, Pudong New Area’s GDP surpassed 1.6 trillion yuan, accounting for 35.9 percent of Shanghai’s total. It also achieved a 4 percent increase in the gross industrial output value above designated size from the previous year. With ambitious plans, Pudong aims to achieve about 7 percent GDP growth in 2023, outperforming the city’s average.
Looking ahead, Pudong has set ambitious goals for the next five years, with plans to expand its economic aggregate to 2 trillion yuan and increase per capita GDP and disposable income significantly.
Today, China has created an astounding 21 FTZs and the Hainan Free Trade Port, demonstrating the immense potential of these zones to drive economic progress.
From 2013 to 2022, China’s GDP grew from 56.9 trillion yuan ($9.4 trillion) to 121 trillion yuan (around $18.1 trillion).
SEZs have contributed 22% of China’s GDP, 45% of total national foreign direct investment, and 60% of exports. By 2021, SEZs had created over 30 million jobs in China, increased the income of participating farmers by 30%, and accelerated industrialization, agricultural modernization, and urbanization.
The success of Shanghai and other FTZs in China can be attributed to several factors, including clear development strategies, strategic locations, a reform-oriented approach, constant upgrading of strategic sectors, and strong government-enterprise partnerships.
It is no brainer that learning from Shanghai’s success story and leveraging its own strengths to pave the way for structural transformation can undoubtedly propel Rwanda’s economy forward.
Throughout September 2023, the price of ‘Food and non-alcoholic beverages’ exhibited a substantial annual increase of 29.6 percent and a monthly growth of 9 percent. ‘Alcoholic beverages, tobacco, and narcotics’ experienced a 12.2 percent annual uptick, with a modest 0.2 percent monthly increase.
Meanwhile, the ‘Transport’ category saw an annual increase of 5.9 percent and a monthly rise of 0.8 percent.
The data also highlights the prices of ‘local products,’ which showed a robust 15.6 percent annual increase and a monthly increase of 4.2 percent. On the other hand, the cost of ‘imported products’ increased by 8.8 percent annually and 1.8 percent on a monthly basis.
In line with the NISR report, prices for ‘fresh products’ rose significantly by 37.1 percent on an annual basis and 12.3 percent on a monthly basis. ‘Energy’ costs experienced a 3.1 percent annual increase and a monthly uptick of 1.7 percent.
The ‘general Index excluding fresh products and energy’ also displayed notable inflationary pressures, with an 8.3 percent annual increase and a 1 percent monthly increase.
