Executives confident of Rwanda’s economic growth

Maina Kiai, the United Nations Special Rapporteur on the rights to freedom of peaceful assembly and of association, addresses a press conference in Kigali on January 27, 2014 after a week-long visit to Rwanda. Photo/Cyril Ndegeya 

By BERNA NAMATA The EastAfrican

In Summary

• Improved donor sentiment in 2013 saw a resumption of aid, which largely funds the country’s development agenda. However, the economy is still feeling the lagged effect of the aid shortfall

 

Business leaders’ confidence in Rwanda’s economy is returning after being shaken by donor aid suspension to the country in 2012, which slowed economic activity.

Improved donor sentiment in 2013 saw a resumption of aid, which largely funds the country’s development agenda. However, the economy is still feeling the lagged effect of the aid shortfall.

Fresh data released by the World Bank this week shows that Rwanda’s year-on-year GDP growth slowed to less than six per cent for the first time since 2010, on account of the lagged effect of the aid shortfall.   

READ: Rwanda economy struggled last year, says World Bank

Rwanda’s GDP slowed to 3.9 per cent in the third quarter of 2013 compared with 6.7 per cent in the same period in 2012, the lowest level of growth recorded in recent years according to figures released by the National Institute of Statistics Rwanda in early January. 

But business executives are confident that as the government — the largest employer — resumes spending, the economy will again grow rapidly.

Gaining momentum

With the major donors restoring aid to the country, Sanjeev Anand, managing director of I&M Bank Rwanda, said the economy is gaining momentum for growth in 2014 though the positive impact is likely to be felt in the second quarter of the year.

Low levels of aid inflows and heavy government domestic borrowing in the second quarter of 2012 squeezed the banking sector’s room for expanding credit to the private sector, according to the World Bank.

As a result, credit growth decelerated sharply in the first quarter of 2013, reducing domestic demand for goods and services.

Domestic demand contracted 1.4 per cent in the first quarter of 2013 (year-on-year), reducing GDP by 1.6 percentage points.

“Contraction of consumption has been a key driver behind weaker domestic demand. All domestic demand components of GDP, including investment and particularly consumption, exhibited restrained performance compared with the previous half year,” the World Bank said, indicating that growth slowed to 6.6 per cent in 2013 against their earlier projection of 7.5 per cent.