Rwanda: Growth, Structural Transformation, and Diversification Kasim Ggombe and Richard Newfarmer International Growth Centre UN WIDER Conference Helsinki, July 19-20, 2016
Overview Rwanda has grown rapidly in the last two decades, with enormous benefits for poverty reduction and quality of life Four features stand-out: the state-led nature of the recovery, the degree of structural transformation, the role of ODA, and recently the focus on niche markets Rwanda has inverted the historical pattern of structural transformation as labor moved out of agriculture not into manufacturing but into construction and services. Only now it is beginning to focus on manufacturing
Rwanda s post-genocide economic performance has been stellar unimaginable in 1995 Figure 1: Rwanda GDP Growth 1981-2015 20 40 Growth 1981-1993 = 1.5% Growth 1995-2015 = 8% 1996-2012 Ave: 8.2% 0-60 -40-20 1994: Genocide 1980 1985 1990 1995 2000 2005 2010 2015 Year Source: World Development Indicators, World Bank online Source: World Bank, World Development Indicators, IMF
Rwanda is catching up with other high performers in the region 100 150 200 250 Figure 2: Rwanda Rising Average Income 1995 2000 2005 2010 2015 Year Rwanda Kenya Ghana Uganda Tanzania Botswana Source: IGC staff based on WITS, WDI, and UNCTAD data
Number of Deaths Proportion Number of Deaths per 100,000 with impressive improvements in social conditions 80% 70% 60% 50% 40% 30% 20% 10% 0% More than 1 million out of poverty 58% 77% 60.40% Proportion below poverty line Linear projection 57% 44.90% 1990 1994 2000 2005/06 2010/11 2015 30.20% Life expectancy: from 49 years in 2000 to 55 years in 2011 Literacy rates (aged 15 to 24): from 48% in 2000 to 84% in 2011 1200 1000 800 600 400 200 0 250 200 150 100 50 0 611 500 Number of Deaths Linear projection 1071 750 476 1990 1992 2000 2005 2010 2015 151 196 Number of deaths Linear projection 152 Maternal Mortality Child Mortality 76 1990 2000 2005 2010 2015 268 50
with impressive improvements in social conditions As one illustration, take a look at what Rwanda is doing in prevention and treatment of AIDS, as recounted in this PBS report: or in developing local high(er) tech entrepreneurship : http://www.pbs.org/newshour/bb/rwanda-torn-genocide-became-global-anti-aidsleader/ http://www.pbs.org/newshour/bb/new-generation-rwandan-entrepreneurs-offer-techsolutions-farmers-dilemmas/
Investment has been financed by foreign savings, mainly ODA Investment as a percentage of GDP 30 25 20 15 Foreign savings 10 5 0 Domestic savings Rwanda LICs Data source: IMF, Financial Access Survey and World Bank, World Development Indicators. Note: In the left graph, HP equals 15 and 14. In the right graph, HP=5 and LICs=8.
Labor is moving from agriculture to services and industry but so far little into manufacturing 100 150 50 0 Sector contribution to employment (1995 = 100) Figure 5A: From Agriculture to Services: GDP Composition 1990 1995 2000 2005 2010 2015 Year 100 120 140 160 180 80 Figure 5B: From Agriculture to Services: Employment 1995 2000 2005 2010 2015 2020 Year Agriculture Manufacturing Industry Services Agriculture Services Industry Source: IGC staff based on WITS, WDI, and UNCTAD data Source: IGC staff based on WITS, WDI, and UNCTAD data
Structural transformation.labor movement and diversification away from agriculture Source: World Bank, 2016
Issues going forward the need to expand exports Some diversification has occurred but exports are still low Adding value to commodities Coffee, tea. minerals Labor-intensive manufacturing textiles ICT Call centers; software Horticulture Cut flowers Tourism MICE
The mobile revolution: mobile subscriptions are soring Country 2005 2010 2014 Rwanda 2 33 64 Kenya 13 61 74 Uganda 5 38 52 Tanzania 8 47 63 Burundi 2 18 30
Conclusions Rapid growth has occurred because of a unique combination of leadership, good policy, an activist government and steady movement of labor into high productivity jobs in industry and services. Development finance was crucial both in amounts and more importantly sound public investments. Growth in the medium term will depend on increasing domestic private savings and investment, mobilizing new foreign savings and technology (particularly FDI), and generating new sources of exports.
Thank You
Intersectoral shifts account for greatest portion of increases in labor productivity Growth in Labor Productivity Growth in productivity = 3.9% Growth in labor force = 4% Source: World Bank, 2016