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Saturday, January 31, 2015

Despite rising GDP, savings, investments remain low in Rwanda


photo
President Kagame (in second row, second from right) in a group photo with African leaders and other invited guests at the AU Summit in Addis Ababa yesterday. (Village Urugwiro)
By JOHN GAHAMANYI, The EastAfrican
In Summary
  • With low national savings, a sustained flat rate of investment plus the uncertainty of aid flows, there is concern about the sustainability of the country’s economic recovery in the long run.
  • Keeping investments above savings, according to bankers, means that Rwanda has more investment opportunities than it can afford to undertake.
  • In order to encourage savings, the government has rolled out savings and credit co-operatives (Saccos) at the village level and introduced a stock exchange, among other initiatives.

The Rwanda government faces the daunting task of putting the economy back on a sound footing despite ......................
a high GDP growth rate, as national savings look set to drop while the ratio of investments remain flat.
Economic recovery appears to be on track, with a growth rate of 7.5 per cent in the July-September 2014 period.
This growth, according to central bank officials, reflects an improvement in the financing of the economy following a strong rise in credit to the private sector as well as improved disbursement of foreign aid.
However, with low national savings, a sustained flat rate of investment plus the uncertainty of aid flows, there is concern about the sustainability of the country’s economic recovery in the long run.
National savings are set to drop to 6.8 per cent of GDP as at the end of 2014, from 9.5 per cent of GDP, according to IMF forecasts, which is below the government’s target of 30 per cent for 2017-18.
Investments have remained stagnant, at 25.5 per cent of GDP, since 2009 and the trend is projected to continue to 2018.
Yet under the second five-year Economic and Poverty Reduction Strategy, Rwanda seeks to attain an average economic growth rate of 11.5 per cent between 2013 and 2018. But, based on the current trend of growth in savings, the government is unlikely to meet its targets.
Keeping investments above savings, according to bankers, means that Rwanda has more investment opportunities than it can afford to undertake.
“Usually, savings must equal investments,” said Sanjeev Anand, the managing director of I&M Bank.
Therefore, raising national savings is critical if the government is to diversify away from foreign aid and borrowing in order to finance infrastructure projects.
The government is also yet to finalise deals with the International Development Agency (IDA) and the African Development Bank (AfDB) for the funding of some projects in the energy, transportation and water sectors for the 2014-19 period. Such investments are critical for spurring growth and creating employment. The government aims to generate about 200,000 jobs every year.
In order to encourage savings, the government has rolled out savings and credit co-operatives (Saccos) at the village level and introduced a stock exchange, among other initiatives.
Although some of these initiatives may have brought improvements, they have not yet delivered the financial “revolution” that the government promised.
The current state of national savings puts Rwanda below par with other East African countries such as Kenya, Tanzania and Uganda where national savings are relatively higher. For instance, Kenya’s national savings are 11 per cent of GDP, Uganda’s 15.5 per cent and Tanzania’s 18.2 per cent.
While 68 per cent or three million Rwandans save money, according to the 2012 Finscope survey, most of these savings are used to cater for living expenses in times of financial difficulty.

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