How Rwanda’s rural Districts missed out on surge in FDI
Districts of the capital namely Gasabo, Kicukiro and Nyarugenge accounted for 81 per cent of FDI projects, 72 per cent of investments, and 82 per cent of projected jobs over the period 2016–2022.
Rwanda’s rural Districts and secondary cities missed out on the surge in Foreign Direct Investment (FDI) over the past six years, a new report reveals.
Despite the nation generally recording substantial inflows of FDI that resulted projects and subsequent creation of work opportunities across sectors over the years, much of it benefit residents of richer regions of the capital Kigali and surrounding Districts.
Rwanda Economic Update, a new World Bank report which was released Tuesday indicates that three Districts of Kigali namely Gasabo, Kicukiro and Nyarugenge accounted for 81 per cent of FDI projects, 72 per cent of investments, and 82 per cent of projected jobs over the period 2016–2022.
This dampens hopes of having FDI and linked projects contribute to development in rural parts of the country with higher levels of poverty.
For instance, according to the report, the districts that received the largest shares of FDI are also those with the lower poverty rates in the country where average headcount poverty rate stands at 39.3 percent.
Besides, FDI firms are concentrated in a few sectors, and women and youth are less likely to benefit.
The status quo fuels an urban-rural development divide, and raises doubts over value generated from policy and regulatory reforms as well incentives offered to foreign investors in the name of stimulating inclusive socio-economic development.
“Going forward, there's a need for a concerted effort to improve the impact of FDI on inclusiveness. For example, encouraging FDI in areas outside of Kigali where poverty rates are higher. These should include provisions of ancillary services that generate greater female employment such as childcare and more flexible work conditions, and others,” said Rolande Pryce, World Bank Rwanda country director.
She also says government could encourage foreign firms to enhance their corporate social responsibility initiatives to support better working conditions and better health and safety conditions in the workplace.
Rwanda recorded $399 million worth of FDI in 2021, representing a 45.7 percent increase over the previous year, according to the 2022 Foreign Private Capital survey by the country’s central bank, National Bank of Rwanda.
Official data indicate that between 2008 and 2022, Rwanda Development Board (RDB), the agency in charge iof investment promotion, recorded 1,279 investment projects in the country, which were projected to involve a total value of investment of about $13.5 billion and to create some 200,000 jobs.
Projected investment inflows grew from an average of $530 million in 2008-2015 to $1.3 billion in 2016-2022.
The growth has been attributed to policy and regulatory interventions -- including corporate tax income exemptions, duty-free imports of inputs, lifting restrictions on foreign ownership, and one of the most open visa regimes in the region, among others.
The country also entered into 14 bilateral investment treaties, six of which are now in force, as well as double taxation treaties with 15 countries.
However, World Bank indicates that there continues to be a discrepancy in terms of investments firms register with RDB vis-à-vis the realized inflows. Foreign investors are said to overestimate the number of jobs they expect to create when registering their FDI projects.
“The reasons for the discrepancy are unclear and call for further investigation, as they are likely to have policy implications,” World Bank indicated in its report.
Delphine Uwase, acting head of strategy and competitive at RDB says the institution has been devising ways to monitor investors to ensure that they are realizing what they committed when registering, and to assess whether the provided incentives are helpful or abused, in a bid to rethink them or “amend some of our policies and regulations.”
“We are having conversations on how to change agreements that we sign with investors and request for inclusive aspects like percentage of jobs for women and fixed minimum wage so we know that they are creating decent jobs,” she said at the report launch Tuesday.
According World Bank, foreign firms that invested in Rwanda are estimated to create 170 percent more jobs than domestic investors. Created jobs also tend to be high quality jobs as those employed in FDI firms are likely to get social security as part their employment packages compared with peers in domestic firms.