Rwanda Economic Update February 2016 | Issue no. 9 Rwanda at Work Table of Contents Foreword1 Part One: Recent Economic Developments and Prospects 7 1.1 Introduction 8 1.2 Real Sector 11 1.3 External Sector 15 1.4 Monetary Sector 23 1.5 Fiscal Sector 27 1.6 Macroeconomic Policy and Management 30 1.7 Economic Prospects 31 1.8 Labor Transition and Growth in Labor Productivity 34 Part Two: Rwanda at Work 35 2.1 Rwanda’s Employment Landscape: The 2011 Snapshot 36 2.2 What Workers Do and the Way They Do It Is Changing 39 2.2.1 A move from agriculture to non-farm occupations 39 2.2.2 A changing employment structure within agriculture 43 2.2.3 Despite a take-up of additional jobs, underemployment is on the rise 47 2.3 An Increase in Earnings from a Low Base 50 2.3.1 Earnings increased across the board, though most in agriculture and for unskilled workers  50 2.3.2 Diversification and take-up of additional jobs are important for the earnings increase 54 2.4 Improving Employment Outcomes: What are the Challenges? 55 Annex 1.1 Impact of Inflows of Burundian Refugees on Rwanda’s Economy 60 Annex 1.2 Impact of China’s Turbulence on Rwanda’s Economy 62 Annex 2.1: Definitions 64 Annex Tables 65 Annex Table 1: Selected Economic Indicators 65 Annex Table 2: Gross Domestic Product by Kind of Activity 66 Annex Table 3: Inflation indicators (year-on-year percent change) 68 Annex Table 4: Exchange Rate (monthly Average) 69 Annex Table 5: Key Interest Rates (percent) 70 Annex Table 6: Gross International Reserves 71 References72 ii Rwanda Economic Update: Edition No. 9 List of Figures   Figure 1.1 Rwanda’s growth exceeds global and regional growth rates (%) 8   Figure 1.2 SSA has a higher exports share in the economy  8   Figure 1.3 Size of the EAC has been expanding 9   Figure 1.4 Medium and long-term growth 11   Figure 1.5 Steady growth continued since 2014 11   Figure 1.6 Seasonally-adjusted quarterly growth rates show smaller growth volatility since 2014 12   Figure 1.7 Growth by production account  12   Figure 1.8 High growth in ICT and financial services  12   Figure 1.9 Decelerating mining sector growth  13 Figure 1.10 Tradable vs. non-tradable  13 Figure 1.11 Growth has been increasingly driven by private consumption 14 Figure 1.12 Gross fixed capital formation  14 Figure 1.13 Nominal GDP and turnover are highly correlated  15 Figure 1.14 Kigali is dominant in all sectors  15 Figure 1.15 Economic activities are different across regions  15 Figure 1.16 Though decreasing, the share of traditional commodities remains high  16 Figure 1.17 Decelerating exports growth 16 Figure 1.18 Exports growth has been decelerating  17 Figure 1.19 Stable import structure  18 Figure 1.20 Decelerating imports growth 18 Figure 1.21 Decline in imports has been driven by energy  18 Figure 1.22 Decline in energy imports was driven by prices  19 Figure 1.23 Increasing and persistent trade deficits  19 Figure 1.24 Trade deficits were marginally reduced in 2015 19 Figure 1.25 Neighbors account for more than half of the total exports  20 Figure 1.26 DRC is dominant in re-exports  20 Figure 1.27 China accounts for 20% of total imports 20 Figure 1.28 Terms of trade deteriorated in Q1 2013=100 20 Figure 1.29 International reserves sharply declined 22 Figure 1.30 Nevertheless, their level is still adequate 22 Figure 1.31 Lower GDP deflator reflects improved terms of trade  23 Figure 1.32 Food prices have pushed up the overall CPI  24 Figure 1.33 CPI inflation rates have increase in rural areas 24 Figure 1.34 Locally produced goods have driven CPI  24 Figure 1.35 Recent years, the depreciation of Rwandan franc against the US dollar accelerated (Rwf / US$) 25 Figure 1.36 But the currency has appreciated against the currencies of Rwanda’s main trading partners  25 Figure 1.37 REER has been appreciating 25 Figure 1.38 Credit to the private sector has kept accelerating  26 Figure 1.39 This is consistent with steady economic activities  26 Figure 1.40 Lending rates have been stable (%) 26 Figure 1.41 Short-term interest rates reflect the accommodative monetary policy 26 iii Rwanda Economic Update: Edition No. 9 Figure 1.42 Less expansionary fiscal stance  28 Figure 1.43 Increasing domestic revenues (% GDP) 28 Figure 1.44 Increasing capital expenditures (% GDP) 28 Figure 1.45 Budget balance and financing (% GDP) 28 Figure 1.46 Snapshot of Rwanda’s Macroeconomic Development 32 Figure 1.47 Inter-sectoral shift is the main source of labor productivity increase  34   Figure 2.1 The labor force is largely unskilled  36   Figure 2.2 Agriculture dominates employment  36   Figure 2.3 A snapshot of jobs in Rwanda (2011)  37   Figure 2.4 Earnings are low for most workers 38   Figure 2.5 Wage earnings are highest in the public sector  38   Figure 2.6 Agriculture is declining as a share of total employment  39   Figure 2.7 Labor reallocation has been particularly fast in Rwanda… 40   Figure 2.8 …and agriculture’s share of employment is now comparable to the average for low-income SSA 40   Figure 2.9 The non-farm sector accounted for the bulk of new jobs since 2006  41 Figure 2.10 Young men drive the move to non-farm occupations  42 Figure 2.11 Young men abandon agriculture, older men less so  43 Figure 2.12 A reallocation within agriculture for women 44 Figure 2.13 A moving out of agriculture for men  44 Figure 2.14 Female youth drive the move to agricultural wage employment  44 Figure 2.15 Young women move from unpaid to paid farming  45 Figure 2.16 Young women are more likely to have a main occupation in agriculture or as unpaid family workers (%) 46 Figure 2.17 Young women are underrepresented in non-farm wage employment (%) 46 Figure 2.18 Farmers are diversifying by taking up additional jobs  47 Figure 2.19 Age, location, and occupation are the main correlates of underemployment  49 Figure 2.20 Earnings from secondary jobs increased substantially  52 Figure 2.21 The earnings gap between men and women increased since 2006  52 Figure 2.22 Taking up additional jobs was a main correlate of earnings growth for low earners, while diversification was more important for higher earners  54 Figure 2.23 The formal private sector will remain small in terms of employment  56 Figure 2.24 The number of firms and employment in them is increasing 57 Figure 2.25 Employment in formal firms increased by half  57 iv Rwanda Economic Update: Edition No. 9 List of Tables Table 1.1 Economic performance comparison among EAC countries 9 Table 1.2 Performance of Rwanda’s major exports items 17 Table 1.3 Commodity prices outlook 17 Table 1.4 Rwanda’s commodity trade balance improved in 2015  19 Table 1.5 Gap between what Rwanda reports and trading partners report in 2014 (1) 21 Table 1.6 Gap between what Rwanda reports and trading partners report in 2014 (2) 21 Table 1.7 Stable Rwanda’s inflation (%) 23 Table 1.8 Preliminary outturn of FY201/15 budget 29 Table 1.9 Growth projections of neighboring countries 32 Table 1.10 Macroeconomic projection 33 Table 2.1 Main indicators of employment quality in 2001 38 Table 2.2 Earnings in the non-farm sector are substantially higher  38 Table 2.3 Unpaid family farming drops as a share of total employment, non-farm wage employment on the rise  41 Table 2.4 Men in particular are transitioning to non-farm employment  42 Table 2.5 Hours worked in main job decreased across the board, but especially for agricultural workers  48 Table 2.6 Weekly hours worked is substantially higher in the non-farm sector  48 Table 2.7 Underemployment increased since 2006 and is high across the board  49 Table 2.8 Jobs outcomes have improved between 2006 and 2011  51 Table 2.9 Earnings increased most for unskilled workers  52 List of Boxes Box 1.1 Recent Developments of Other EAC Countries  9 Box 1.2 Impact of Inflows of Burundian Refugees on Rwanda’s Economy  14 Box 1.3 Economic Activities by Province  14 Box 2.1 A Transition on Steroids. At the start of the millennium, agriculture’s employment share was far above the regional low-income average; it has quickly converged since then.  40 Box 2.2 Education, Discrimination, or Cultural Self-Selection? Whatever the reason, women’s position in the labor market is not enviable46 Box 2.3 Should You Get Rid of What You Need? Exporting skilled labor may not be such a good idea 53 Box 2.4 In the Meantime, How’s the Demand Side Doing? Employment in firms is increasing from a low base 56 v Rwanda Economic Update: Edition No. 9 Abbreviations and Acronyms BFP Budget Framework Paper BNR Banque Nationale du Rwanda (National Bank of Rwanda) BOP Balance of Payments CIP Crop Intensification Program COMESA Common Market for Eastern and Southern Africa CPI Consumer Price Index DSA Debt Sustainability Analysis DRC Democratic Republic of Congo EAC East African Community EDPRS 2 Second Economic Development and Poverty Reduction Strategy EICV Enquête Intégrale des Conditions de Vie des ménages (Integrated Household Living Conditions Survey) EPA Economic Partnership Agreement EU European Union FDI Foreign Direct Investment FSC Financial Stability Committee FTA Free Trade Area GDP Gross Domestic Product GDI Gross Domestic Income GNDI Gross National Disposable Income GNI Gross National Income IFC International Finance Corporation IMF International Monetary Fund IO table Input-Output table JOGGs Job Generation and Growth Decomposition tool KCC Kigali Convention Center MDAs Ministries, Districts and Agencies MIDIMAR Ministry of Disaster Management and Refugee Affairs MINAGRI Ministry of Agriculture and Animal Resources MINECOFIN Ministry of Finance and Economic Planning MPC Monetary Policy Committee MSMEs Micro, Small and Medium Enterprises NEP National Employment Programme NISR National Institute of Statistics of Rwanda ODA Official Development Assistance PKO Peacekeeping Operations PPP Purchasing Power Parity PPP Public Private Partnership PFM Public Financial Management REU Rwanda Economic Update RRA Rwanda Revenue Authority Rwf Rwandan franc SADC Southern African Development Community SSA Sub-Saharan Africa TFTA Tripartite Free Trade Area UNHCR United Nations High Commissioner for Refugees VAT Value-Added Tax WDI World Development Indicators WTO World Trade Organization vi Rwanda Economic Update: Edition No. 9 Foreword The Rwanda Economic Update (REU) reports on and synthesizes recent economic develop- ments and places them in a medium term, regional, and global context. It analyzes the implica- tions of these developments and policies for the outlook of Rwanda’s economy. These reports attempt to make an analytical contribution to the implementation of Rwanda’s national devel- opment strategy. Each edition includes a special feature on a selected topic. The report is intend- ed for a wide audience, including policy makers, business leaders, other market participants, and the community of analysts engaged in Rwanda’s economy. The ninth edition of the REU was jointly prepared by the Rwanda Macroeconomics and Fis- cal Management Global Practice team and the Poverty Global Practice team at the World Bank. Yoichiro Ishihara (Senior Economist) led the teams and the sections on recent economic devel- opments and prospects. Tom Bundervoet (Senior Poverty Economist) led the special focus sec- tion. Other team members who contributed to the ninth edition include Apurva Sanghi (Lead Economist and Program Leader) who supervised the team, and Toru Nishiuchi (Economist). Diarietou Gaye (Country Director), Carolyn Turk (Country Director), Kevin Carey (Lead Economist), and Albert Zeufack (Practice Manager) provided overall guidance. Sylvie Ingabire (Team Assistant) supported the team. Although this report does not represent the official views of the Rwandan authorities, the macroeconomic unit of the Ministry of Finance and Economic Planning (MINECOFIN) and the National Bank of Rwanda (BNR) were engaged in its formulation and provided valuable comments. The World Bank team appreciates their contributions. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank’s Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this report. For more information about the World Bank and its activities in Rwanda, please visit www.worldbank.org/rw. To be included in the email distribution of this semiannual series and related publications, please contact Sylvie Ingabire (singabire@worldbank.org). For questions and comments about this publication, please contact Yoichiro Ishihara (yishihara@worldbank.org) 1 Rwanda Economic Update: Edition No. 9 Overview Despite an adverse external environ- fast in Rwanda and has been a main driver of ment stemming from a slowdown of the poverty reduction and economic growth. The Chinese and European economies, Rwan- extent to which Rwanda can sustain this shift da has maintained steady growth in the will determine in part whether the country first three quarters of 2015. Gross Domes- can keep up its pace of growth and poverty tic Product (GDP) growth remained steady reduction. Second, as Rwanda moves gradu- at 6.9 percent during this period. Thus far, ally towards a middle-income status and the the decline in commodity prices has been fa- labor force continues growing rapidly, jobs, vorable for Rwanda – a net importer of ener- especially in the non-farm sector, will become gy products. Macroeconomic stability meas- increasingly important as a transmission ured by inflation and exchange rates has been mechanism between aggregate growth and maintained. household living standards. The special topic However, downside risks have been in- will dissect and revisit the main employment creasing, both externally and domestically. trends between 2001, 2006, and 2011 (more A deteriorating external environment has led recent data is not available yet); formulating the World Bank to revise down its global and firm recommendations on job creation going regional growth forecasts in early 20161. The forward is outside the scope of this report. global growth forecast was revised down by Part One: Recent Economic 0.4 percent to 2.4 percent for 2015, and by 0.4 Developments and Prospects percent to 2.9 percent for 2016. The growth forecast for Sub-Saharan Africa (SSA) was What is the current status of the 3.4 percent in 2015, down from 4.6 percent Rwandan economy? in 2014, mainly due to the region’s reliance on fuel, minerals and metals, and agriculture Rwanda has maintained steady growth in commodities. On the domestic front, risks the first three quarters of 2015. The growth are on the horizon, including delayed execu- rate at 6.9 percent was almost the same as the tion of the budget and inadequate financing average growth rate over the past five years. for development. Put together, both external The expenditure account, which measures ex- and domestic risk has led the World Bank to penditures on final goods and services, shows adjust its growth projections for 2015 (7.1 two changes in 2015: first is the accelerated percent), 2016 (6.8 percent), and 2017 (7.2 contribution of private consumption, and sec- percent). ond is the expanded negative contribution of public consumption. On the one hand, high The special topic of this edition focus- private consumption contribution may have es on jobs in particular the employment been affected by the inflows of Burundians. dynamics of the past decade. The focus on Tens of thousands of Burundians, equivalent jobs is motivated by two observations. First, to 0.6 percent of Rwanda’s total population, the inter-sectoral shift of labor from agricul- flowed into Rwanda (see annex 1.1). On the ture to non-agriculture has been particularly 1 World Bank (2016) “Global Economic Prospects: Spillovers amid Weak Growth” 2 Rwanda Economic Update: Edition No. 9 other hand, the contributions of public con- Despite the positive impact of the de- sumption (i.e., the government’s recurrent cline in commodity prices on goods trade, expenditures) were negative for three straight gross international reserves fluctuated quarters, with the largest decrease at least significantly in 2015. The level of interna- since 2007 seen in Q2 2015. These negative tional reserves fell from US$1,070 million in contributions are mainly due to reactions to December 2013 to US$739 million in August high public consumption in 2014. 2015 (close to the level seen early in 2013 Thus far, the decline in international during the aid decline) before recovering to commodity prices has had a positive im- US$922 million in December 2015. While pact on the economy. The trade balance of the level of gross international reserves re- commodities (the sum of re-exports, coffee, mains adequate at 4.8 months of goods im- tea, mineral exports, and energy imports) ports, it is important to maintain at least this improved by 25 percent in 2015. The decline level by improving trade balance and/or at- in mineral exports (-42 percent) was largely tracting capital inflows. compensated by the decline in energy im- The development of the monetary sector ports (-21 percent). Although volume of en- was positive in 2015. The average inflation ergy imports increased by 11 percent, prices rate was 2.5 percent in 2015. The Rwandan fell by 29 percent. The overall trade balance franc depreciated against the US dollar, but also improved slightly during the same pe- it appreciated in real effective exchange rate riod: the trade deficit fell by one percent, as (REER) – the exchange rate adjusted for dif- the decline in imports was larger than that in ferences in inflation rates with Rwanda’s trad- exports. ing partners. This appreciation has kept im- The EAC countries and the Democrat- port prices stable. The decline in oil prices has ic Republic of Congo (DRC) account for also contributed to stable inflation. Addition- more than half of Rwanda’s exports. In ally, adequate access to credit is essential for goods exports, DRC accounts for 32 percent, economic activity, and the credit growth rate followed by the EAC countries (20 percent). of 26.8 percent during Q4 2015 came close The high share of exports to DRC reflects its to the recent peak of 35.3 percent during high share in re-exports (mainly fuel prod- Q2 2012. On monetary policy, the quarter- ucts). European countries account for about ly Financial Stability Committee (FSC) and 15 percent. Thus, future development of Monetary Policy Committee (MPC) held in these countries will affect Rwanda’s exports. December 2015 observed that the financial On the other hand, China accounts for less sector remains sound, and the MPC decided than five percent of Rwanda’s exports. The or- to maintain the Key Repo Rate at 6.5 percent igins of Rwanda’s imports are different from in Q1 2016. Rwanda’s export destinations. While imports Fiscal policy stance, measured by the gap from the EAC countries are similar to the between domestic revenues and expendi- share of exports to these countries, China has tures, shows that fiscal policy has become the largest import share at around 20 percent. less expansionary in the last few quarters. Thus, fluctuations of the Chinese yuan affect The less expansionary fiscal policy stance re- imports from China (see annex 1.2). flects the decline in recurrent expenditures, which is consistent with the negative public 2 http://www.bnr.rw/fileadmin/PRESS_RELEASE_FOLLOWING_THE_QUARTERLY_FINANCIAL_STABILITY_COMMITTEE_AND_MONE- TARY_POLICY_COMMITTEE_MEETINGS.pdf 3 Rwanda Economic Update: Edition No. 9 consumption contribution to GDP. Prelimi- What are Rwanda’s Economic nary results of the FY2014/15 budget ( July Prospects? 2014-June 2015) show that the overall defi- The World Bank projects Rwanda’s econ- cit increased from 4.3 percent of GDP in omy to grow at around 7 percent: 7.1 per- FY2013/14 to 5.3 percent in FY2014/15 due cent growth in 2015, 6.8 percent in 2016, and to the decline in grants and the increase in net 7.2 percent in 2017 – close to the country’s lending. The tax to GDP ratio has improved potential growth3. There are broadly three to 15.6 percent from 14.9 percent in the pre- reasons to project growth rates at around 7 vious year. percent including: (i) macroeconomic sta- bility (mainly inflation and exchange rates), Macroeconomic Policy and (ii) resulting policy flexibility, and (iii) posi- Management tive regional economic outlook. Despite the The tax regulatory framework contin- positive economic outlook, downside risks ued to be strengthened. Since late 2014, the have been increasing, both externally and following tax policy measures were imple- domestically, including: (i) slowdown of the mented: (i) revision of the investment code Chinese and European economies and its im- through the law relating to investment pro- pact on Rwanda’s main trading partners, (ii) motion and facilitation aimed at removing slow budget execution, and (iii) inadequate loopholes and reducing unnecessary exemp- financing for development. tion, (ii) VAT base broadening through the amendment of the VAT law to reduce VAT Part Two: Rwanda at Work exemptions and zero rated items, (iii) review The 2011 Snapshot: Agriculture of the excise tax regime (building on WTO and informality define Rwanda’s recommendations, the tax regime for tobac- employment landscape co was reviewed to introduce a combination of ad-valorem and specific tax regimes), (iv) Despite firmly positive trends over the establishment of the infrastructure develop- past decade, employment in Rwanda in ment levy on imported goods (to collect rev- 2011 remained characterized by agricul- enue to finance EAC railway project), and (v) ture, informality, and low earnings. In increase in the road maintenance levy fund. 2011, about 70 percent of workers had their main job in agriculture, with the remaining The 2016 Doing Business survey rec- 30 percent engaged in a myriad of non-farm ognized Rwanda’s progress in improving activities4. Farm self-employment, or people the business regulatory environment. Six working on their own on their family’s farm, reforms – more than in any other SSA coun- accounted for almost 60 percent of employ- tries – are recognized in the survey. As a re- ment, followed by farm wage employment, sult, Rwanda has retained the second best po- which accounted for 12 percent. In the non- sition among Sub-Saharan African countries farm sector, self-employment in small enter- (62nd among 189 economies) after Mau- prises dominates, closely followed by wage ritius (32nd), and the first among the EAC employment in the informal sector. The pri- countries (Burundi (152nd), Kenya (108th), vate formal sector provides employment to Uganda (122th), and Tanzania (139th)). four percent of working Rwandans, while the public sector absorbs three percent of work- ers. Taken together, the modern wage sector accounts for seven percent of total employ- ment. 3 Please see Box 1.11 of the fifth edition of the Rwanda Economic Update 4 Main job is defined as the job where the worker spends most of his/her time 4 Rwanda Economic Update: Edition No. 9 For the majority of the population, earn- increasingly likely to have their main occu- ings are low. In 2011, median monthly earn- pation outside farming (while keeping sec- ings from all jobs amounted to Rwf 18,175 ondary occupations in agriculture). The shift (in 2011 prices), meaning that half of workers to non-farm employment as the primary oc- earn Rwf 18,175 per month or less (amount- cupation is the result of two complementary ing to US$31 using the official exchange rate dynamics: on the one hand, young people are and US$74 using the purchasing power pari- abandoning agriculture altogether and mov- ty (PPP) adjusted exchange rate)5. 90 percent ing to non-farm occupations, while on the of workers earned less than Rwf 65,000 per other, older workers increasingly shift their month (US$263 in PPP terms), and less than main occupation outside farming but main- six percent earned Rwf 100,000 per month or tain a strong foot on the farm (as a secondary more (approximately US$405 in PPP terms). occupation). One third of workers are engaged in so-called Within agriculture, farm wage labor is on low-earning jobs, meaning that their labor the rise, and this is driven by young wom- earnings place them below the national pov- en. The share of workers employed as unpaid erty line. labor on the family farm dropped from 38 per- The Trends: A move to non-farm cent in 2006 to 29 percent in 2011, while the share of wage farmers increased. The move employment and higher earnings to wage farming is also driven by the youth, Among the most salient of recent em- and in particular by young women. Although ployment trends has been the move to there is no panel data, the net job additions non-farm occupations. In 2011, 30 percent in agriculture between 2006 and 2011 are in- of employed Rwandans had their primary job dicative of young women (aged 16-30) mov- outside agriculture, up from 23 percent in ing from unpaid farming on the family farm 2006, and 11 percent in 2001. The move to- to paid farming on somebody else’s farm. The wards non-farm occupations as a main source employment transitions are significantly gen- of employment understates the true extent dered: while young men tended to move out of the shift: considering all jobs, regardless of agriculture towards non-farm occupations, of whether it is the primary or secondary oc- young women have shifted employment dy- cupation, the share of workers with an occu- namics within agriculture. pation outside agriculture increased from 30 Though still low, individual labor earn- percent in 2006 to 45 percent in 2011. Farm- ings increased substantially since 2006. ers are increasingly taking up non-agricultural Median earnings from all jobs increased by secondary jobs next to their primary occupa- 66 percent between 2006 and 2011, and the tion on the land. share of workers with earnings that placed The move to non-farm occupations has them below the poverty line (defined as been driven by the youth, in particular “low earners”) decreased from 54 percent young men. The share of young men with a to 33 percent. Agriculture led the earnings job in agriculture sharply dropped between increase: Earnings of independent farmers 2001 (89 percent), 2006 (69 percent), and almost doubled while those of wage farmers 2011 (55 percent), indicating that more and and unpaid farm workers increased by half. more young men are abandoning agriculture As a result, the low earnings rate in agricul- altogether. Middle-aged and older men do ture dropped from 59 percent in 2006 to 37 not abandon agriculture as readily, but are percent in 2011. Low earnings are increas- 5 Average official exchange rate in 2011: $ 1=Rwf 590.3. PPP exchange rate: $1=Rwf 246.8 (WDI, 2015) 5 Rwanda Economic Update: Edition No. 9 ingly a consequence of underemployment: of employment keeps on growing at over 16 per- all low-earners, almost 60 percent would not cent per year (the observed growth between be low earners if they could increase hours 2006 and 2011), its employment share will worked to reach full-time employment. remain low over the coming five to ten years. Diversification into non-farm occupa- Going forward, Rwanda appears to need tions has been most closely correlated with a two-pronged jobs strategy. First, given that the increase in earnings. In a decomposi- agriculture will remain the main employer for tion framework, 12 percent of the increase in the majority of workers over the coming five median earnings can be accounted for by the to ten years, increasing earnings from agricul- higher share of workers with an occupation ture remains the most direct way to improve outside farming6. There are a number of inter- economic conditions for the bulk of the pop- esting differences in the correlates of earnings ulation. This is especially important given the growth between lower earning and higher apparent stall in the move to non-farm em- earning workers. Taking up additional jobs ployment in recent years (the share of work- has been particularly important for earnings ers with a main job in the non-farm sector growth of low-earners, while diversification stood at 30 percent in 2013/14, only margin- into non-farm occupations – both as main and ally higher than the 28 percent in 2010/11). secondary occupations – explains the largest Increasing earnings from agriculture entails part of the earnings increase for higher earn- not only further increasing productivity, but ers. Poor workers have increased earnings by also having the required infrastructure in working more jobs, while better-off workers place to reduce post-harvest losses and fa- have boosted their earnings by progressively cilitate access to markets. Second, new labor moving to non-farm activities. market entrants are increasingly likely to find or create employment in the non-farm sector. Going Forward: The employment While a small share of those new workers will outlook for Rwanda manage to get a job in the public or formal Rwanda, as with many African coun- private sector, the bulk will be employed in tries, is faced with a substantial jobs chal- the informal sector7. A key policy question is lenge. Between 2015 and 2020, the work- how the business environment in the infor- ing age population is projected to grow by mal sector can be improved to allow informal 220,000 every year, outpacing the rate of job activity to blossom, at least in the short to me- growth between 2006 and 2014 (158,000 dium term when the formal sector will not yet jobs a year). The Second Economic Develop- be large enough to absorb the rapidly growing ment and Poverty Reduction Strategy (ED- labor force8. PRS 2) aims to create 200,000 off-farm jobs every year – double the rate of non-farm job creation between 2006 and 2014 (103,000 jobs per year). While the formal private sec- tor is growing quickly, its low base means that the majority of labor market entrants over the coming five years will need to seek employ- ment in the informal non-farm sector or in ag- riculture. Assuming that formal private sector 6 Given the short time frame between the surveys (five years), changes in workforce characteristics explain only a small fraction (22 percent) of the change in earnings 7 This is the case not only for Rwanda, but for the whole of Africa (Fox et al, 2013) 8 Without of course neglecting the ongoing investments (in energy, transport, skills, etc.) needed to attract large modern firms 6 Rwanda Economic Update: Edition No. 9 Part One: Recent Economic Developments and Prospects 1.1 Introduction SSA is a net exporter of fuel, minerals and metals, and agriculture commodities. Rwanda’s Economy in the World The share of these items in total exports in- creased from 67 percent in 2001-04 to 74 The World Bank revised down its glob- percent in 2010-14. Also, China as a destina- al growth forecast by 0.4 percent to 2.4 tion accounted for 22 percent of total exports percent for 2015 and by 0.4 percent to from SSA11. Although the exports share of 2.9 percent for 2016, although the 2017 goods and services in the economy has not (3.1 percent) forecast remains almost changed significantly since 2000, SSA has a unchanged9. The growth forecasts for 2015 higher share compared to other low and mid- were revised down in both high-income dle-income countries (figure 1.2). Thus, im- countries (from 1.9 percent to 1.6 percent) pacts of export deceleration would be more and developing countries (from 4.7 percent significant in SSA countries. to 4.3 percent). Rwanda’s growth rates dur- ing the past few years exceeded the growth Figure 1.1 Rwanda’s growth exceeds global and rates of developing countries, except for in regional growth rates (%) 2013 when Rwanda’s growth decelerated 8 to 4.7 percent (figure 1.1). Among the 181 7 6 economies where 2014 GDP growth rate 5 data is available, Rwanda’s growth rate of 7.0 4 percent is more than twice as high as the av- 3 erage of the 181 economies (3.2 percent), 2 and is ranked 20th globally. Going forward, 1 Rwanda’s growth rates are projected to ex- 0 ceed global growth rates in 2015-2017. World High Income Developing SSA Rwanda Rwanda’s Economy in Sub- Source: World Bank’s Global Economic Prospects Saharan Africa Figure 1.2 SSA has a higher exports share in the The World Bank also revised down its economy regional forecast. The SSA regional outlook (share of commodity exports in total, %) 38 of the latest Global Economic Prospects10 36 estimates that growth in Sub-Saharan Afri- 34 32 ca (SSA) slowed from 4.6 percent in 2014 30 to 3.4 percent in 2015 due to a combination 28 26 of external and domestic factors such as the 24 end of the commodity price super cycle, the 22 20 slowdown of growth in China, and domestic difficulties such as electricity supply bottle- Sub-Saharan Africa (all income levels) neck. Nevertheless, Rwanda is one of few Lower middle income SSA countries – along with Côte d’Ivoire Middle income and Ethiopia – where growth prospects are Source: World Bank positive. 9 http://www.worldbank.org/en/publication/global-economic-prospects 10 http://www.worldbank.org/en/publication/global-economic-prospects/Regional-Outlooks/GEP-Jan-2016-Sub-Saharan-Africa-analysis 11 Africa’s Pulse (October 2015) 8 Rwanda Economic Update: Edition No. 9 Rwanda’s Economy in East African (table 1.1). On real GDP growth, other than Community (EAC) Countries in 2013, Rwanda’s growth rates were the high- est, and inflation rates have been stable. How- The comparison between Rwanda and ever, Rwanda’s current account and fiscal bal- other EAC countries shows that Rwanda ances are almost the same as the average of all performed relatively well on growth and EAC countries. inflation compared to these countries Table 1.1 Economic performance comparison among EAC countries 2012 2013 2014 2012 2013 2014 1. Real GDP Growth Rate (%) 2. Inflation (CPI) (% Increase) 1/ Burundi 4.0 4.6 4.7 18.0 7.9 4.4 Kenya 4.6 5.7 5.3 9.4 5.7 6.9 Rwanda 8.8 4.7 7.0 6.3 4.2 1.8 Tanzania 5.1 7.3 7.0 11.3 5.6 6.8 Uganda 4.4 3.3 4.5 23.5 5.8 6.7 Average 5.4 5.1 5.7 13.7 5.8 5.3 3. Current Account Balance (% GDP) 4. Fiscal Balance (% GDP) Burundi -10.3 -9.3 -15.2 -3.7 -1.7 -3.4 Kenya -8.4 -8.7 -9.5 -5.0 -5.7 -6.1 Rwanda -11.4 -7.4 -11.8 -3.0 -4.0 -6.2 Tanzania -11.6 -1.4 -9.9 -4.3 -4.2 -3.7 Uganda -9.5 -7.6 -7.9 -2.5 -3.6 -3.7 Average -10.2 -6.9 -10.9 -3.7 -3.8 -4.6 1/ GDP deflator for Tanzania Source: World Bank’s Macro and Poverty Outlook Box 1.1 Recent Developments of Other EAC Countries EAC countries: The combined size of Figure 1.3 Size of the EAC has been expanding the EAC countries has significantly increased US dollar billion Share (%) 180 10% from US$31 billion in 2000 to US$147 billion in 160 8.6% 9% 2014 (11.6 percent a year) (figure 1.3). Kenya ac- 140 26 8% 120 7% counted for 41 percent, followed by Tanzania (33 100 6.9% 39 6% 5% percent), Uganda (18 percent), Rwanda (5 per- 80 8 4% 60 cent), and Burundi (2 percent). In recent years, 40 3% 61 2% 6 the growth performance of the EAC countries has 20 10 2 13 1% - 3 0% 1 outpaced other SSA countries. As a result, the share of the EAC countries in developing Sub-Sa- Burundi Kenya haran African countries has increased from 6.9 Rwanda Tanzania Uganda Share in developing SSA (right) percent in 2011 to 8.6 percent in 2014. Source: World Bank 9 Rwanda Economic Update: Edition No. 9 Burundi: After robustly growing at 4.7 per- 7.0 percent annually in the next few years. The cent in 2014, Burundi’s economy is expected to economic growth has been broad-based, and ag- grow merely at 2.3 percent in 2015 due to civil riculture, which contributes two thirds of employ- unrest. The president ran for a third term despite ment, reported consistently lower growth. Positive controversy over his eligibility. Protests broke out outlook greatly depends on offshore natural gas periodically since the president announced that he exploitation. Further plant construction, however, will seek a third term. This civil unrest has led to a may depend on the recent decline in international dramatic reduction in the fiscal base. In response, energy prices, the recent discovery of a massive the government announced a fiscal adjustment gas field in Egypt, as well as the uncertainty re- in May 2015 composed of a mix of expenditure lated to the implementation of the new gas-relat- cuts and domestic financing. This in turn resulted ed legislation adopted by the Parliament in July in augmented inflation pressures and doubling in 2015. Tanzania suffers from low tax revenues and the yield of government treasury bills. The official declining foreign aid against fast-growing recur- exchange rate has remained stable but the black rent expenditure. This in turn leads to significant market premium has increased from five percent cuts in development expenditures and transfers to in March to more than 20 percent in October. local governments, urging corrective measures to improve the tax system.13 Kenya: Kenya’s economy has been growing robustly in the past few years, and this is expect- Uganda: During the financial year ending ed to continue in the next few years. The econo- June 2015, the Ugandan economy grew by 5 per- my grew at 5.3 percent in 2014 and is expected cent, led by the services sector on the production to grow at 5.4 percent in 2015 and 5.7 percent in side and public investment on the expenditure 2016, led by private consumption and public in- side. Growth, however, remained below expecta- vestment. Public investment, mainly in infrastruc- tion and was the slowest amongst regional peers. ture, is expected to enhance competitiveness The lower-than-expected growth can be attributa- and crowd in private sector investment over the ble to delayed implementation of a government in- medium term by removing underlying structural vestment addressing the country’s deficient infra- constraints such as high cost of energy and trans- structure. The growth outlook in the financial year port. The positive outlook could be affected by a 2015/16 critically depends on implementation combination of threats including: (i) the El Niño of the government’s investment in infrastructure heavy rain phenomenon, which is expected to hit such as energy dams, roads, and oil refinery facil- agriculture production, (ii) increased insecurity ities. Over the past three years, public investment due to recent instability, which has been affecting continued not to be followed through due to fail- tourism, and (iii) prolonged low oil prices, which ures in reaching financing arrangements. In addi- could decelerate the pace of oil-related FDI.12 tion, the growth outlook may also be affected by uncertainty arising from the next presidential and Tanzania: Tanzania’s economy grew by 7.0 parliamentary election in February 2016.14 percent in 2014 and is expected to grow by over 12 http://www.worldbank.org/en/country/kenya/publication/kenya-economic-update-storm-clouds-gathering-special-focus-public-participation 13 http://www.worldbank.org/en/country/tanzania/publication/tanzania-economic-update-why-should-tanzanians-pay-taxes-the-unavoidable-need-to-fi- nance-economic-development 14 http://www.worldbank.org/en/country/uganda/publication/uganda-economic-update-searching-grail-can-uganda-land-support-prosperity-drive 10 Rwanda Economic Update: Edition No. 9 1.2 Real Sector inputs. The expenditure approach adds up the final value of household consumption, Key Points public consumption, investment, and exports and imports. The input-output (IO) table is • Growth rates have been stable since a useful tool to show a link between the pro- 2014. Rwanda’s growth in the first three duction and expenditure accounts, though quarters of 2015 (6.9 percent) was almost it is only constructed during the rebasing of the same as the average growth rate in the GDP to reflect a more current snapshot of the past five years (7.1 percent). economy (last one was in 2011)16. • Services remain the largest contributor In the past five years between 2010 and to growth, with high-productivity services 2014, the economy grew by 7.1 percent (financial and ICT) showing strong growth. on average. While the growth rate was more • Inflows of Burundian refugees seem than twice as high as the average growth rates to have contributed to strong private con- of all countries globally (2.9 percent, includ- sumption, which offset the negative contri- ing high income and developing countries)17, bution of public consumption. it was lower than the two preceding five-year periods (8.7 percent in 2004-09 and 7.9 per- cent in 1999-2004) (figure 1.4). Why focus on GDP growth?15 GDP measures the total added value of all goods Rwanda has maintained steady growth and services produced over a specific time during the first three quarters of 2015. period within an economy, by both residents After growth accelerated from 4.7 percent in and nonresidents. GDP growth rates show an 2013 to 7.0 percent in 2014, the growth rate increase in economic activities over the previ- during the first three quarters of 2015 reached ous period and thus measure the strengths and 6.9 percent, with the growth rates of Q1, Q2, weaknesses of an economy. In Rwanda, GDP and Q3 being 7.6 percent, 7.0 percent, and is measured by both the production approach 6.1 percent, respectively. Year-on-year growth and expenditure approach. The production rates remained consistent with the average approach sums the value-added at each stage growth rate over the past three years, and have of production, where value-added is defined remained stable since early 2014 (figure 1.5). as total sales minus the value of intermediate Figure 1.4 Medium and long-term growth Figure 1.5 Steady growth continued since 2014 14% 9% 13.2% 8% 8.0% 12% 7.6% 7.5% 11.2% 7% 7.2% 7.0% 10% 9.4% 6.4% 8.4% 9.2% 6% 6.1% 6.1% 8.8% 8% 8.5% 7.3% 5% 7.5% 7.9% 7.0% 4.8% 7.6% 6% 6.3% 4% 4.2% 4.7% 3% 4% 2.9% 7.9%, 2000- 2010-2014 2% 2% 2014 Average 2.2% Average , 7.1% 1% 0% 0% GDP Growth 2000-2014 Average 2010-2014 Average GDP Average between Q1 2013 and Q3 2015 Source: NISR Source: NISR 15 http://www.imf.org/external/pubs/ft/fandd/basics/gdp.htm 16 Rebasing of GDP is explained more in the following website: http://www.worldbank.org/en/topic/macroeconomics/brief/rebasing 17 Average global growth rate between 2010 and 2014 based on WDI as of December 2015 11 Rwanda Economic Update: Edition No. 9 Seasonally adjusted growth rates do not Figure 1.6 Seasonally-adjusted quarterly growth rates show any clear direction (figure 1.6). Sea- show smaller growth volatility since 2014 sonally adjusted growth figures (i.e., remov- 4% ing seasonal factors such as fluctuations in 3% agriculture production) are useful to meas- 2% 1.4% ure growth trends over the past few quarters. 1% This is because they are not affected by fig- 0% ures in the same quarters of previous years. -1% The seasonally adjusted quarterly growth -2% rates were 3.0 percent in Q1, 1.3 percent in Q2, and 0.9 percent in Q3 2015. Quarterly Growth (SA) Average between Q1 2013 and Q3 2015 Production Account Source: NISR, World Bank staff calculation The development of the production account shows that services contribut- Figure 1.7 Growth by production account ed to more than half of GDP in the first (% contribution to GDP) three quarters, followed by agriculture, 9% 7.5% 8.0% 7.6% 8% 7.2% 7.0% and industry (excluding manufacturing). 7% 6.1% 6.4% 6.1% Though becoming positive in 2015, the con- 6% 5% 4.8% 4.2% tribution of manufacturing remained small 4% 2.9% 3% (figure 1.7). In services, growth rates of in- 2% formation and communication, and finan- 1% 0% cial services have been high (figure 1.8). Al- -1% though the shares of these subsectors remain Agriculture Manufacturing small (both shares were 3.2 percent of GDP), Industry (w/o manufacturing) Services the high growth rates of these sub-sectors are GDP nonetheless positive signs due to their high Note: The discrepancies between the sum of agriculture, man- ufacturing, industry and services, and GDP is due to taxes less labor productivity. subsidies on products” Source: NISR In industry, the growth rate of con- struction has been accelerating in recent quarters. Given the high share of public investment (which is more than half of to- Figure 1.8 High growth in ICT and financial services (year-on-year growth, %) tal investment), significant growth in con- 40% struction indicates an increase in public 35% 30% investment. On the other hand, the growth 25% 20% rate of mining has been sharply decelerating 15% and became negative in the second quarter 10% 5% of 2015 (figure 1.9). This sharp deceleration 0% may have reflected the decline in global com- -5% -10% modity prices (see section 1.3) that resulted in negative growth rates in the mining sector (both in terms of volume and price). Information & communication Financial services Source: NISR, World Bank staff calculation 12 Rwanda Economic Update: Edition No. 9 Within agriculture, the growth rate of Expenditure Account export crops (18.5 percent on a year-on- The sources of growth in the expendi- year basis), far exceeded the growth rate ture account in 2015 have two character- of agriculture as a whole (5.0 percent) in istics (figure 1.11): first is the accelerated the first three quarters of 2015, while that contribution of private consumption, and of food crops slowed to 4.2 percent. The second is the negative contribution of public increase in production of export crops is con- consumption. Throughout 2015, the contri- sistent with the increase in export volumes of bution of private consumption far exceeded coffee and tea. In trade statistics (section 1.3), that of previous years. The high private con- export volumes of coffee and tea increased sumption contribution may have been a re- by 17.7 percent and 8.9 percent in 2015. Ac- sult of the inflows of Burundians (see box 1.2 cording to the latest seasonal agriculture sur- and annex 1.1). On the other hand, the con- vey covering Season B (from March to June tribution of public consumption (i.e., govern- 2015)18, the total production volume fell by ment’s recurrent expenditures) was negative 0.4 percentage points. for four straight quarters between Q4 2014 Non-tradable sectors19 contributed and Q3 2015. The extent of this negative con- more than the tradable sectors to the over- tribution in Q2 2015 (-5.1 percent) was the all growth in the recent few years (figure largest at least since 2007. 1.10). During the first three quarters of 2015 In gross fixed capital formation (i.e., in- however, while the contribution of the trad- vestment), the growth rates of construction able sectors gradually increased, the contri- decelerated in Q3 2015, which is consistent bution of the non-tradable sectors decreased. with the growth deceleration of the construc- Among the tradable sectors, food crops and tion subsector in the production account ICT services increased their contributions. from 15.4 percent in Q2 to 5.8 percent in Q3 The mining sector contributed negatively 2015 (figure 1.12) throughout the period, which is consistent with the decline in mineral exports in terms of volume (see section 1.3). Among the non-tradable sectors, wholesale and retail trade services and construction led to this de- celeration. Figure 1.9 Decelerating mining sector growth Figure 1.10 Tradable vs. non-tradable (year-on-year growth, %) (contribution to GDP growth, %) 50% 9% 8.0% 7.5% 7.6% 8% 7.2% 40% 7.0% 7% 6.1% 6.4% 6.1% 30% 6% 4.8% 5.3% 20% 5% 4.2% 4.2% 4.9% 5.3% 4.8% 3.5% 4.2% 3.7% 10% 4% 2.4% 2.9% 3% 0% 3.8% 2% 1.8% -10% 3.0% 2.6% 2.6% 2.7% 2.2% 2.2% 2.3% 2.5% 1% 2.4% 1.0% -20% 0% 0.4% Mining & quarrying Construction Tradable Non-tradable GDP Source: NISR, World Bank staff calculation Source: NISR 18 http://statistics.gov.rw/publications/seasonal-agricultural-survey-report-season-b-2015 19 The tradable sectors include food crops, export crops, livestock and its products, mining, manufacturing, transport services and ICT. These subsectors are selected based on the 2011 Input-Output table. The non-tradable sectors are the total minus the tradable sectors 13 Rwanda Economic Update: Edition No. 9 Figure 1.11 Growth has been increasingly driven by Figure 1.12 Gross fixed capital formation private consumption (year-on-year growth, percent) 20% 25% 7.0% 15% 7.5% 7.6% 20% 7.2% 4.2% 6.1% 8.0% 6.1% 4.8% 6.4% 15% 10% 2.9% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% Government consumtption Private consumption Investment Exports Gross fixed capital formation o/w construction Imports GDP o/w others Source: NISR, World Bank staff calculation Source: NISR, World Bank staff calculation Box 1.2 Impact of Inflows of Burundian Refugees on Rwanda’s Economy As of January 2016, the total number of Burundians who fled from the country and came to Rwan- da reached seventy-one thousand, equivalent to 0.6 percent of Rwanda’s population. Their purchase of goods and services within Rwanda stimulates domestic demand. As private consumption accounts for 75 percent of GDP, their purchases would increase GDP by 0.5 percent. Also, with the assumption that financial requirement (US$111 million estimated by UNHCR) comes from external sources (mainly grants), the inflows would have a positive impact on the current account in the balance of payments. On the other hand, impacts on prices depend on supply and demand of goods and services. If there is not enough supply capacity within Rwanda, prices are likely to increase. Box 1.3 Economic Activities by Province At the onset, it is important to note that growth rates of nominal GDP and turnover are highly For low-income countries including Rwanda, correlated (correlation rate of 71 percent is sta- availability of economic data disaggregated by tistically significant) (figure 1.13). In this regard, subnational level is challenging. At the same time, we could use turnover data to roughly estimate given ongoing decentralization and urbaniza- economic activity by province20. As the national tion, subnational level is becoming important. As account data is published on a quarterly basis the first step, the World Bank has used turnover with a three-month lag (e.g., Q3 (July-Sep) data (sales) data of registered taxpayers disaggregat- is published in mid-December in the same year), ed by province from the Rwanda Revenue Au- availability of monthly data would help us under- thority (RRA). It is important to note that turnover stand economic situations more regularly. data is based on where headquarters of establish- ments are located, typically in Kigali, rather than In terms of shares by province (including Kiga- where economic activities occur. Also, this data li), Kigali accounted for 92 percent of total turn- does not include small-scale farming. over in the first three quarters of 2015. Remain- 20 Turnover data is based on where headquarters of establishments are located rather than where economic activities occur. Also, the data does not include independent farming 14 Rwanda Economic Update: Edition No. 9 ing turnover is almost equally divided among the four Figure 1.13 Nominal GDP and turnover are highly other provinces (East, West, South and North) (figure correlated (year-on-year growth rate, %) 1.14). Kigali’s share has been almost unchanged since 35% 2011. Despite progress in decentralization, economic 30% activities are concentrated in Kigali. Kigali’s shares are 25% almost 100 percent in telecommunication and financial 20% services, as the headquarters of mobile phone compa- 15% nies and commercial banks are located in Kigali. 10% Types of economic activities are different across re- 5% gions (figure 1.15). In Rwanda as a whole, services 0% (excluding telecommunication and finance) account for 61 percent, followed by financial services (nine per- Turnover GDP (Nominal) cent), manufacturing (nine percent), and construction Source: NISR, World Bank staff (eight percent). Figure 1.15 Economic activities are different across Figure 1.14 Kigali is dominant in all sectors regions (% share in province in Q1-3 2015) (share in each region in Q1-3 2015, %) 100% 6% 0% 0% 0% 100% 1% 2% 3% 0% 6% 90% 90% 10% 9% 80% 80% 70% 70% 60% 60% 77% 82% 50% 99% 100% 59% 86% 88% 61% 96% 96% 95% 89% 92% 50% 40% 82% 40% 30% 30% 20% 20% 10% 9% 10% 15% 4% 0% 10% 9% 2% 3% 0% 5% 6% 8% 4% 0% Agriculture Industry Industry - Construction Industry - Manufacturing Services Services - Finance and Insurance Kigali East West South North Services - Telecoms Source: NISR, World Bank staff Source: NISR, World Bank staff 1.3 External Sector • Rwanda’s main trading partners are DRC and other EAC countries. Thus, de- Key Points velopments of these countries affect Rwan- da’s economy most. • The decline in exports of goods in 2015 has been largely driven by mineral exports. • Gross international reserves fluctuat- ed significantly in 2015. They sharply fell • Imports of goods also declined during from US$1,070 million in December 2013 the same period, which has been driven by to US$739 million in August 2015 before energy imports. recovering to US$922 million in December • The goods trade balance was improved, 2015. as the decline in imports exceeded that of exports. 15 Rwanda Economic Update: Edition No. 9 For small developing countries such Figure 1.16 Though decreasing, the share of traditional as Rwanda, international trade with the commodities remains high rest of the world is critical for their de- (share in total goods exports) 100% velopment. In Rwanda, the National Bank 90% 7% 6% 6% 28% of Rwanda (BNR) collects data on exports 80% 21% 32% and imports of goods on a monthly basis, in- 70% 32% 20% 60% 29% cluding disaggregation by good. The National 50% 23% Institute of Statistics of Rwanda (NISR) also 40% 22% 34% 21% 25% publishes trade statistics, including destina- 30% 20% 13% tions, on a quarterly basis. Given the potential 10% 33% 19% 9% 10% 11% increase in external risks due to the slowdown 0% of the Chinese and Eurozone economies, trade statistics are becoming more important Coffee Tea Minerals Others Reexports as a primary indicator to measure impact of Source: BNR the external environment on Rwanda’s econ- Figure 1.17 Decelerating exports growth omy. 80% 15% 60% Exports 40% 13% 20% 11% Rwanda’s exports have been dominat- 0% 9% ed by traditional goods (coffee, tea, and -20% minerals), though the share of traditional -40% 7% -60% goods has been decreasing (figure 1.16). -80% 5% The share of traditional goods exports fell -100% 3% from 87 percent in 2004 to 53 percent in 2014 and 46 percent in the first ten months of Annual growth rate (left) Share in GDP (right) 2015. This is mainly due to the combination Source: BNR of the decreased share of mineral exports and In 2015, the growth rate of exports was the increase in the share of re-exports (i.e., -6.8 percent. Developments since 2013 exports of fuel products to neighboring coun- clearly show a downward trend (figure 1.18). tries such as DRC). While tea (40.0 percent) showed positive The growth rates of exports have been growth rates, mineral exports fell by 42.1 decelerating in the past few years (figure percent and accounted for more than 200 1.17). After the significant decline (-29.8 per- percent of the total decline in exports (table cent) in 2009 due to the global financial crisis, 1.2). The decline in mineral exports is due exports grew by 32.8 percent in 2010. How- to the combination of price (-16.7 percent) ever, export growth rates have continued to and volume (-30.5 percent). However, the decelerate, and turned negative (-6.8 percent) increase in volume of re-exports (50.5 per- in 2015. Although the 2015 national account cent) more than offset the decreased prices data has not yet been published, the share of of re-exports. As DRC is the main export exports in the economy in 2015 is likely to fall destination of Rwanda’s re-exports, the in- from 7.6 percent of GDP in 2014. creased volume reflects the strong growth of DRC. Note that the significant growth of tea exports is due to the combination of increas- es in volume (8.9 percent) and price (28.6 percent). 16 Rwanda Economic Update: Edition No. 9 Given the high concentration of tra- Figure 1.18 Exports growth has been decelerating ditional goods, Rwanda’s export perfor- (year on year growth, %) mance in the near future would be af- 100% fected by price development. According 80% to the World Bank’s latest commodity price 60% outlook in January 201621, recovery of com- 40% modity prices will be slow in the next few 20% years (table 1.3). 0% -20% -40% Source: BNR Table 1.2 Performance of Rwanda’s major exports items 2014 ($ million) 2015 ($ million) % change in % change in % change in values volume price Coffee 60 62 4.0% 17.7% -11.6% Tea 52 72 40.0% 8.9% 28.6% Minerals 203 118 -42.1% -30.5% -16.7% Re-exports 165 178 7.6% 50.5% -28.5% Others 120 129 7.5% - - Total 600 559 -6.8% 20.5% -22.7% Source: World Bank staff calculation based on BNR data Table 1.3 Commodity prices outlook Unit 2014 actual 2015 actual 2016 f 2017 f 2018 f Crude oil, average $/bbl 96.2 50.8 37.0 48.0 51.4 Coffee, Arabica $/kg 4.42 3.53 3.40 3.41 3.42 Tea, Average $/kg 2.72 2.71 2.75 2.79 2.82 Tin $/MT 21,899 16,067 15,000 15,730 16,495 Source: World Bank 21 http://www.worldbank.org/en/research/commodity-markets 17 Rwanda Economic Update: Edition No. 9 Imports Figure 1.19 Stable import structure (share in total goods imports, %) Other than fluctuations of energy im- 100% 12% ports, Rwanda’s import structure has 90% 15% 19% 16% 80% been almost unchanged in the past dec- 70% 26% 28% 26% 27% ade; consumer goods, capital goods, and 60% intermediary goods are almost equally 50% 26% 27% 23% 27% 40% divided (figure 1.19). The fluctuation of the 30% share of energy imports may be a result of 20% 33% 33% 31% 31% price changes. 10% 0% Similar to the exports trend, the growth rates of imports have been decelerating Consumer goods Capital goods Intermediary goods Energy from the recent peak at 33.8 percent in Source: BNR 2011 to -2.8 percent in 2015. The negative import growth was for the first time since Figure 1.20 Decelerating imports growth 80% 50% 2002. As a result, the share of imports in the 60% 45% economy is likely to decelerate in 2015 (fig- 40% 40% ure 1.20). 20% 0% 35% Among the major categories, energy -20% 30% imports fell by 21.1 percent and inter- -40% 25% mediary goods fell by 5.2 percent. On the -60% 20% -80% other hand, imports of consumer goods (6.3 -100% 15% percent) and capital goods (3.4 percent) in- creased (figure 1.21). The decline in ener- Annual growth rate (left) Share in GDP (right) gy imports has been increasingly driven by Source: BNR prices. In 2015, imports volume increased by 11.1 percent. On the other hand, aver- Figure 1.21 Decline in imports has been driven by age prices declined by 28.9 percent. Thus, energy (year on year change, US$ million) on balance, energy imports fell by 21.1 per- 100% cent (figure 1.22). According to the inter- 80% 60% national trade statistics published by the 40% 14% 16% NISR, energy products account for about 20% -16% -4% -7% -9% -5% -3% -10% -6% -7% 9% 0% 50 percent of re-exports . Thus, imports of -20% energy (US$233 million of imports minus -40% -60% US$89 million of re-exports22) were US$144 -80% million in 2015. The decline in prices has brought about US$59 million in foreign ex- Consumber goods Capital goods Intermediary goods change savings to Rwanda (equivalent to 0.7 Energy and lubricants Total imports percent of GDP) Source: BNR 22 http://statistics.gov.rw/publications/formal-external-trade-goods-statistics-report-q3-2015 18 Rwanda Economic Update: Edition No. 9 Trade Balance Figure 1.22 Decline in energy imports was driven by prices Rwanda has had persistent trade defi- (year on year growth, %) cits in the last decade. As the growth rates 60% of imports have been higher than those of 40% exports, trade deficits have been widening. 20% Trade deficits increased from US$211 mil- 0% lion (equivalent to 10.1 percent of GDP) in -20% 2004 to US$1.8 billion in 2014 and 2015. -40% However, trade deficits as a share of GDP have been stable since 2011 (figure 1.23). -60% The high and widening trade deficits reflect the development of the tradable sectors. The Price Volume Value share of the tradable sectors in the economy Source: BNR fell from 47 percent in 2004 to 39 percent in 2014. In 2015, trade deficits were reduced by 1.3 percent. The decline in imports (US$67 Figure 1.23 Increasing and persistent trade deficits US$ millions unless otherwise stated) million) exceeded that of exports (US$42 3,000 0% million) (figure 1.24). 2,000 -5% 1,000 Rwanda has benefited from commodity 0 -10% price decline in 2015. The impact of com- -1,000 -15% modity price decline on international trade -2,000 -3,000 depends on the changes in volume and price. -20% -4,000 In 2015, Rwanda’s commodity trade balance -5,000 -25% improved over that of 2014 (table 1.4). The trade balance improved from US$112 mil- Exports (left) Imports (left) lion in 2014 to US$139 million in 2015. The Trade balance (left) Trade balance (% GDP)(right) decline in mineral exports (-US$86 million) Source: BNR was mostly compensated by that in energy imports (-US$78 million). In exports, tea, Figure 1.24 Trade deficits were marginally reduced in coffee, and re-exports increased. 2015 Table 1.4 Rwanda’s commodity trade balance improved 400 40% 20% in 2015 300 (US$ million) 0% 200 -20% 2014 2015 Gap % 100 -40% change 0 -60% Exports 480 430 -50 -10.4% -100 -80%  Coffee 60 62 2 4.0% -200 -100% -300 -120%  Tea 52 72 21 40.0%  Minerals 203 118 -86 -42.1%  Re-exports 165 178 13 7.6% Trade balance (left) Exports (left) Imports 368 291 -78 -21.1% Imports (left) Exports / imports (right)  Energy 368 291 -78 -21.1% Source: BNR Trade 112 139 28 24.8% Balance Source: BNR, World Bank staff calculation 19 Rwanda Economic Update: Edition No. 9 International Trade by Destination The origins of Rwanda’s imports are dif- ferent from Rwanda’s export destinations In goods exports (including re-exports), (figure 1.27). While imports from EAC coun- DRC accounted for about 30 percent of ex- tries have a similar share to exports, China has ports, followed by EAC countries (about the largest share (as a country) at around 20 20 percent). Thus, the share of neighboring percent. This suggests that fluctuations in the countries account for about half of the total Chinese yuan affect imports from China. exports (figure 1.25). The high share of DRC is largely due to re-exports, which account for Terms of Trade23 nearly 70 percent of the total re-exports (fig- In Q3 2015, while prices of exports fell, ure 1.26). Other than the EAC countries and those of imports sharply increased. Thus, DRC, European countries account for about terms of trade significantly deteriorated 15 percent. Exports to China account for less (figure 1.28). On export prices, according to than five percent of the total (see annex 1.2). trade statistics, the decline in mineral prices The information on trade destinations shows (42 percent) was much faster than the in- that neighboring countries’ and European crease in coffee (seven percent) and tea (nine countries’ economies are an especially impor- percent) export prices. Due to deterioration tant determinant of Rwanda’s trade perfor- of the terms of trade, the growth rate of GDI mance (although the destinations indicated (5.2 percent) was lower than that of GDP here are not always the ultimate destinations). (6.1 percent). Sources for the increase in import prices in Q3 2015 have not yet been Figure 1.25 Neighbors account for more than half of the identified (import prices of energy products total exports fell by 25 percent). (including re-exports, share in total exports) 100% 90% 21% Figure 1.26 DRC is dominant in re-exports 32% 29% (share in total re-exports) 80% 5% 100% 70% 2% 2% 8% 9% 12% 27% 90% 60% 16% 16% 80% 50% 40% 70% 27% 28% 32% 30% 60% 64% 66% 20% 50% 73% 10% 21% 22% 20% 40% 0% 30% 20% 10% 25% 23% 11% 0% EAC DRC Europe China Others Source: NISR EAC DRC Europe Others Figure 1.27 China accounts for 20% of total imports Source: NISR (share in total) Figure 1.28 Terms of trade deteriorated in Q1 2013=100 100% 110 90% 80% 40% 42% 105 46% 70% 60% 100 50% 20% 16% 20% 40% 95 30% 11% 12% 11% 90 20% 25% 27% 25% 10% 85 0% 80 EAC Europe China USA Others Export Price Import Price ToT Source: NISR, World Bank staff calculation Source: NISR, World Bank staff calculation 23 Terms of trade is relative to changes of export and import prices. When export prices increase faster than import prices or export prices decrease less than import prices, a country is better off and GDI (Gross Domestic Income) becomes higher than GDP 20 Rwanda Economic Update: Edition No. 9 Quality of Trade Data However, Uganda reported that imports from Rwanda were US$10 million and Tanzania re- For any country, having accurate and ported US$3 million. In the case of exports to updated trade statistics is a challenge, Uganda, Rwanda reported exporting US$25 and Rwanda is not an exception. The UN million of coffee and tea, which is also incon- Comtrade Database is a useful database sistent with Uganda’s report. for checking inconsistencies24. For exam- ple, Rwanda reported that exports to China Similar descrepancies are observed in in 2014 were US$8.0 million. On the oth- the data on commodities. For example, on er hand, China reported that imports from exports of coffee and tea, Rwanda reported Rwanda in 2014 were US$91.8 million, more exporting US$118 million in total in 2014, of than ten times what Rwanda reported. Ac- which US$52 million was exported to Ken- cording to China’s report, almost all imports ya, followed by Uganda (US$26 million). from Rwanda were Tantalum and Tungsten On the other hand, trading partners reported (Rwanda’s main mineral exports items). In importing US$87 million from Rwanda, with terms of exports of ore (HS code 26), among the United States and Pakistan reporting im- total exports in 2014 (US$202 million), 60 ports of US$24 million and US$19 million percent was exported to Tanzania and 12 per- respectively. It is taken into consideration that cent went to Australia. Rwanda’s report shows the most immediate export destination; in other words, the coun- The same trend is observed among EAC try’s report does not show export goods’ final countries (plus DRC). For example, Rwanda destinations. In order to measure impacts of reported exporting US$105 million to Ugan- external shocks, data on final destinations da and US$222 million to Tanzania in 2014. would be useful in addition to national data. Table 1.5 Gap between what Rwanda reports and trading partners report in 2014 (1) Exports Imports Rwanda (a) Partners (b) Gap (a-b) Rwanda (a) Partners (b) Gap (a-b) $ mln % $ mln % $ mln % $ mln % $ mln % $ mln % GDP GDP GDP GDP GDP GDP Burundi 26.6 0.3% 8.5 0.1% 18.1 0.2% 6.7 0.0% 7.7 0.1% -1.0 0.0% DRC 245.5 3.1% N/A N/A N/A N/A 10.7 0.0% N/A N/A N/A N/A Kenya 89.0 1.1% N/A N/A N/A N/A 180.6 0.0% N/A N/A N/A N/A Uganda 105.3 1.3% 10.9 0.1% 94.4 1.2% 266.9 0.0% 276.5 3.5% -9.6 -0.1% Tanzania 222.2 2.8% 3.2 0.0% 219.0 2.8% 79.8 0.0% 35.8 0.5% 43.9 0.6% Note: Share in GDP calculated as Rwanda’s GDP in US$ in 2014 Source: World Bank staff based on UN COMTRADE database Table 1.6 Gap between what Rwanda reports and trading partners report in 2014 (2) Rwanda’s exports of coffee and tea based on Rwanda’s exports of coffee and tea based on im- Rwanda’s report ports data of partner countries Country US$ % GDP Country US$ %GDP Kenya 52,760,022 0.7% USA 23,821,645 0.3% Uganda 25,959,510 0.3% Pakistan 18,906,390 0.2% Switzerland 12,962,959 0.2% UK 4,971,623 0.1% Tanzania 10,502,176 0.1% Russia 2,388,380 0.0% Others 16,481,176 0.2% Others 37,232,594 0.5% Total 118,665,843 1.5% 87,320,632 1.1% Note: Share in GDP calculated as Rwanda’s GDP in US$ in 2014 Source: World Bank 24 http://comtrade.un.org/data/ 21 Rwanda Economic Update: Edition No. 9 International Reserves Figure 1.29 International reserves sharply declined (US$ millions) Gross international reserves in months 1,100 of imports are commonly used as part of 1,050 1,050 1,070 indicators of macroeconomic stability. Ac- 1,000 922 cording to the International Monetary Fund 950 900 (IMF), “In the event of disruptions in a coun- 850 try’s balance of payment flows, drawing down 800 reserves can help avoid potentially disruptive 750 739 adjustments in the exchange rate or domestic 700 688 650 consumption and investment” (IMF, 2009, 600 p.3). According again to the IMF, “A cost ben- efit approach to the optimal level of reserves Source: BNR, World Bank staff in LICs suggests that projected reserves [of Rwanda] would be broadly consistent with the optimal level estimated at 4-5 months Figure 1.30 Nevertheless, their level is still adequate (month of imports) of imports, assuming an opportunity cost of 8 holding reserves in the range of 3-4 percent” 7 7.3 6.9 6.7 (IMF, 2014, p.22). 6 5.9 5.9 5.8 5.7 5.3 4.8 4.8 4.8 Gross international reserves fell sharply 5 4.3 4.3 in mid-2015, but recovered later. The lev- 4 3 el of gross international reserves fell sharply 2 from the peak at US$1,070 million in Decem- 1 ber 2013 to US$739 million in August 2015, 0 the level close to early 2013 during the aid decline. Afterwards, it recovered to US$922 Months of goods imports (cif) Months of goods and services imports million in December 2015 (figure 1.29). As Source: BNR, World Bank staff the balance of payments is published on an annual basis, the exact sources of the fluc- tuation of reserves are difficult to identify. Given the slight improvement in goods trade balance, the sources would be trade in ser- vices and/or capital and financial accounts. Nevertheless, the level of gross international reserves is equivalent to 4.8 months of goods imports – almost the same as the adequate level (figure 1.30)25. Thus, going forward, it is important to maintain at least this level and to avoid fluctuation by improving the trade bal- ance and/or attracting capital inflows. Due to unavailability of the balance of payments in 2015, months of goods and services imports cannot be calculated 25 22 Rwanda Economic Update: Edition No. 9 1.4 Monetary Sector GDP deflator is more comprehensive than CPI in measuring domestic inflation. Key Points This is because CPI includes imports, while GDP deflator measures domestically pro- • Inflation rate has remained low, though duced goods and services. GDP deflator and it increased slightly in late 2015. CPI show a similar trend in the past five years • Banks’ credit growth to the private sec- (figure 1.31). However, in practice, GDP has tor has supported steady economic activi- some challenges when used for policy pur- ty. poses. First, its availability lags behind CPI. • Stable monetary sector environment Second, its frequency is on a quarterly basis. has provided policy flexibility to the BNR. Third, obtaining the right GDP deflator is technically challenging, as some deflators are Inflation calculated based on the ratio between nom- inal and constant prices. For these reasons, Stable inflation rate is one of the core CPI is more commonly used to measure in- indicators of macroeconomic stability. flation rather than GDP deflation. Price stability is the most important mone- tary policy objective for many central banks. Figure 1.31 Lower GDP deflator reflects improved In Rwanda, the BNR Law requires the BNR terms of trade (year-on-year growth, %) to conduct monetary policy in a way to de- 12% liver price stability in a low inflation environ- 10% ment26. In order to measure price stability 8% and inflation, consumer price index (CPI) is 6% commonly monitored. 4% Compared with other EAC countries, 2% Rwanda’s inflation rates, measured by 0% CPI, were lower than other countries’ 2010 Q2 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2005 Q1 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 (table 1.7). Inflation rates are one indicator -2% of macroeconomic stability. In this regard, CPI GDP deflator Rwanda is the most stable country in the Source: NISR EAC Although still stable, year-on-year CPI Table 1.7 Stable Rwanda’s inflation (%) inflation has been accelerating from be- 2012 2013 2014 2015 low one percent in early 2015 to 4.5 per- Burundi 18.2 7.9 4.4 5.6 cent in December 2015. Food prices, which Kenya 9.4 5.7 6.9 6.6 account for 28 percent of the CPI basket, in- Rwanda 6.3 4.2 1.8 2.5 creased from 1.2 percent in January to 9.7 Tanzania 16 7.9 6.1 5.6 percent in December 2015. Among other Uganda 14 4.8 4.6 5.1 major items, transportation prices (includ- Source: Compiled by World Bank staff based on data from respec- ing gasoline) increased from -3.9 in January tive central banks, WDI to 2.4 percent in December (figure 1.32). Housing and utility prices, which account for 23 percent of the CPI basket, increased from 3.7 percent in January to 5.7 percent in 26 http://www.bnr.rw/index.php?id=180 23 Rwanda Economic Update: Edition No. 9 September before it decelerated to 2.9 per- Figure 1.32 Food prices have pushed up the overall CPI cent in December. The increase in food pric- (year-on-year growth rate, %) es during the past few months was caused by 12% 9.7% 10% vegetable price increases, while the increase 8% in housing prices may have resulted from the 6% 4.2% 4.5% inflows of Burundian refugees to Rwanda. 4% 1.8% 2.5% 2% CPI in rural areas is more important 0% for the poor, although CPI in urban are- -2% -4% as such as Kigali is referred to as Rwanda’s -6% CPI. More than 90 percent of the poor live in rural areas. The comparison between urban CPI Food Transport Annual Average and rural CPIs shows that CPI growth rates Source: NISR in rural areas exceeded urban areas (figure 1.33). The increase in food prices in rural areas (14.0 percent in December 2015) was Figure 1.33 CPI inflation rates have increase in rural areas (year-on-year growth rate, %) much higher than that in urban areas (9.7 14% percent). 12% 8.0% 10% In light of the depreciation of the ex- 8% 6.8% change rate against the US dollar, it has 6% 4.5% 4% become increasingly important to mon- 2% itor the development of imported goods 0% prices (see the section on monetary pol- -2% -4% icy). The comparison between local goods -6% and imported goods prices shows that the main source of the accelerated CPI inflation All Rwanda Urban Rural rate was locally produced goods over the past Source: NISR few months (figure 1.34). This is consistent with the appreciation of the Rwandan franc measured by REER. In this regard, there are Figure 1.34 Locally produced goods have driven CPI (year-on-year growth rates, %) few signs that fluctuations of exchange rates 7% have led to inflation. Additionally, stable 6% 5.7% transport prices (including gasoline) con- 5% 4.5% tributed to the stable imported goods prices 4% 3% (transport prices account for 43 percent of 2% imported goods prices). Transport prices fell 1% 1.3% by 1.4 percent in 2015, whose trend is con- 0% sistent with the decline in prices of energy -1% imports (see section 1.3). CPI Local goods Imported goods Source: NISR 24 Rwanda Economic Update: Edition No. 9 Exchange Rate Figure 1.35 Recent years, the depreciation of Rwandan franc against the US dollar accelerated (Rwf / US$) The Rwandan franc has depreciated 760 against the US dollar throughout 2015. 740 Between December 2014 and December 720 700 2015, the Rwandan franc depreciated against 680 Depreciated by 6.1% in 2013 the US dollar by 7.6 percentage points – the 660 Depreciated by Depreciated by 3.3% in 2014 fastest depreciation in recent years (figure 640 7.6% in 2015 620 1.35). During the same period, currencies in 600 Tanzanian, Kenya, Uganda, and the Euro de- 580 preciated against the US dollar faster than the 560 Rwandan franc. Thus, the Rwandan franc has actually appreciated against the currencies of Source: BNR Rwanda’s main trading partners such as the Euro, the Tanzanian shilling, and the Kenyan shilling. In fact, during this period, the Rwan- dan franc appreciated against the Euro by 3.2 Figure 1.36 But the currency has appreciated against percent, by 14.3 percent against the Tanzani- the currencies of Rwanda’s main trading partners Jan 2013=100 an shilling (data as of early December), and 120 by 4.6 percent against the Kenyan shilling 115 Appreciation <-----> Depreciation 110 (figure 1.36). 105 The Rwandan franc measured by 100 95 REER27 started appreciating in mid-2014 90 (figure 1.37). The appreciation of REER re- 85 flects that of the nominal exchange rate and 80 Rwanda’s lower inflation rate (table 1.7) against the currencies of Rwanda’s main trad- US$ Euro Tanzania Kenya ing partners. The level of the REER is close to Source: BNR its long-term average in the 2000s and 2010s, and thus does not raise an immediate con- cern. Nevertheless, as an exchange rate af- fects a country’s competitiveness in the long Figure 1.37 REER has been appreciating term, its development should be carefully Jan 2013=100 monitored. 150 140 Depreciation <-----> Appreciation Credit to the Economy 130 Adequate access to credit is essential for 120 the acceleration of economic activity and 110 a core function of the financial sector. The 100 90 contribution of the financial sector is meas- ured by the increase in credit outstanding to the private sector, and the depth of financial Burundi Kenya Rwanda Uganda deepening – increased provision of financial Source: World Bank staff based on buegel database 27 While most people are familiar with nominal exchange rates – the number of units of domestic currency that can purchase a unit of foreign currency – nom- inal exchange rates do not accurately show purchasing power of the domestic currency. Why? Purchasing power depends on the relative importance of foreign currencies and domestics and foreign inflation rates. The REER takes the relative importance of foreign currencies by their shares of international trade and their inflation rates. Box 1.4 of the Seventh Edition of Rwanda Economic Update explains nominal and real effective exchange rate in details 25 Rwanda Economic Update: Edition No. 9 services to a society – is measured by the Figure 1.38 Credit to the private sector has kept credit outstanding as a share of GDP. Rwan- accelerating (year-on-year growth, %) da has made significant progress on both in- 35% dicators. 30% The growth rate of the credit outstand- 25% ing to the private sector has accelerated 20% from 10.0 percent in Q1 2014 to 26.8 per- 15% cent in Q4 2015 (closer to the recent high 10% at 35.3 percent in Q3 2012). In real terms – 5% adjusted by the inflation rate using GDP de- 0% flator – the credit growth rate in Q3 2015 at 24.8 percent was close to the recent high of Nominal Real 30.4 percent in Q2 2012 (figure 1.38). The Source: World Bank staff based on buegel database acceleration of the growth rate of credit to the private sector is consistent with steady economic activity (figure 1.39). Also, the depth of financial deepening increased stead- Figure 1.39 This is consistent with steady economic ily from 15.4 percent in Q1 2010 to 18.7 per- activities (year-on-year growth, %) cent in Q3 2015.Interest rate 30% 9% 8% There are few developments in interest 25% 7% rates. The lending rates have been stable at 20% 6% just above 17 percent since 2013, and the de- 15% 5% 4% posit rates have also been stable at about eight 10% 3% percent. As a result, the spread between the 5% 2% 1% two interest rates has remained almost the 0% 0% same at around nine percent (figure 1.40). Likewise, the yield curve shows little move- Real Credit Growth (left) GDP Growth (right) ment. While short-term interest rates (of up to six months) reflected the accommodative Source: World Bank staff based on buegel database monetary policy, longer maturity (one year) has been almost unchanged (figure 1.41). Figure 1.41 Short-term interest rates reflect the Figure 1.40 Lending rates have been stable (%) accommodative monetary policy 20 17.0 24 14 12.5 12.7 12.5 12.3 11.8 12 15 19 10 10 8.1 14 8 7.1 5 5.7 8.9 6 5.2 9 4.3 6.3 3.8 0 4 5.0 5.1 4.3 3.9 4 2 -5 0 -10 -1 Spread (lending - deposit rate)(right) Deposit rate (left) Lending rate (left) Q4 2012 Q4 2014 Q4 2015 Source: BNR Source: BNR 26 Rwanda Economic Update: Edition No. 9 Monetary Policy on the economy could be mitigated through improving efficiency and effectiveness gains The quarterly financial stability com- of expenditures, short-term impact would be mittee (FSC) and monetary policy com- broadly measured by the gap between do- mittee (MPC) held in December 2015 mestic revenues and expenditures as a share observed that the financial sector remains of GDP28. In recent years, fiscal policy has sound, and the MPC decided to maintain been less expansionary from its peak in Q3 the Key Repo Rate at 6.5 percent in Q1 2014 at -13.9 percent, to -11.5 percent in Q3 2016. The Key Repo Rate (policy interest 2015 (figure 1.42). The consolidation was rate) has been unchanged since June 2014 mainly due to recurrent expenditures, and when it was lowered from 7.0 percent to 6.5 less due to capital expenditures. The trend percent, although short-term interest rates is consistent with the negative contribution kept declining (figure 1.41). The statement of public consumption to GDP (see section of the MPC observes moderate headline in- 1.2). flation and stability in the foreign exchange markets. Preliminary outturn of the fiscal year 2014/15 shows a mixed picture in both reve- nues and expenditures (table 1.8). 1.5 Fiscal Sector (i) Revenues and grants (Figure 1.43): Key Points On a positive side, domestic revenues kept increasing. They increased from 16.8 per- • Fiscal policy has become less expan- cent of GDP in FY2013/14 to 18.0 percent sionary in the past few quarters. of GDP in FY2014/15, exceeding the target • Domestic revenues have kept increas- set within the revised budget (17.6 percent). ing. The tax to GDP ratio increased to 15.6 Tax revenues increased by 0.8 percentage percent in FY2014/15. points to 15.6 percent, though slightly short of the target. Delays in the deployment of • The budget balance has deteriorated to electronic billing machines (EBMs) nega- -5.3 percent of GDP in FY2014/15, almost tively affected performance. Non-tax reve- the same as FY2012/13. nues at 2.4 percent of GDP also exceeded the target in the revised budget (1.8 percent of The development of the fiscal sector is GDP) as well as last year’s performance (2.0 particularly important in Rwanda. The size percent of GDP), largely due to revenues re- of the budget in the economy increased from lated to Peace Keeping Operation (PKO). 22 percent in 2004 to 31 percent in 2014. On the other hand, grants fell from 9.2 per- Key indicators to measure the development cent of GDP in FY2013/14 to 7.5 percent of the sector are domestic revenue mobiliza- of GDP in FY2014/15. Though the absolute tion (e.g., tax to GDP ratio), overall deficit, value of grants is higher than FY2012/13, and progress on expenditures. the share of GDP at 7.5 percent is lower than FY2012/13 (7.8 percent). On balance, as Fiscal policy has become less expansion- the decline in grants exceeded the increase in ary in recent few quarters. Fiscal consolida- domestic revenues, total revenues and grants tion is a medium-term fiscal policy direction (25.4 percent) was lower than the previous in Rwanda. While a potential negative impact year by 0.6 percentage points. 28 “The domestic fiscal balance includes only those components of the conventional deficit that arise from transactions with the domestic economy and omits those transactions directly affecting the balance of payments. The measure is used to identify the direct expansionary impact of government on the domestic economy. This has proved a particularly useful indicator for some oil producing economies, where government revenues from exports do not reduce domestic absorption” (IMF, 1995, p.10) 27 Rwanda Economic Update: Edition No. 9 (ii) Expenditures (figure 1.44): The ex- (iii) Fiscal Balance and Financing (fig- penditures to GDP ratio exceeded 30 percent ure 1.45): The combination of lower grants for the first time at least in recent years (Fig- and revenues and higher expenditures com- ure 1.39). The recent increase is mainly due pared to previous fiscal years has led to the to capital expenditures and net lending, while increase in budget deficits from 4.3 percent in recurrent expenditures as a share of GDP FY2013/14 to 5.3 percnet in FY2014/15. On have remained constant. In FY2014/15, the financing, in FY2013/14 and FY2014/15, expenditures to GDP ratio reached 30.4 per- budget deficits have been incresingly financed cent, higher than the revised budget (29.9 by domestic financing, which is consisent percent) and the previous fiscal year (30.0 with the government aspiration to develop a percent). This increase compared to the re- domestic capital market. vised budget reflects the increase in Peace- In formulating the FY2016/17 budget, keeping Operation (PKO) related recurrent the Government of Rwanda has been in- expenditures (under exceptional social ex- creasingly focused on effective and effi- penditures). On the other hand, net lending cient use of public resources. The govern- (1.7 percent of GDP) was lower than the pro- ment has started the process of FY2016/17 jection in the revised budget (2.1 percent) budget preparation by issuing the first plan- due to a delay in the construction of Kigali ning and budgeting call circular (1st BCC) for Convention Center (KCC). the fiscal year29 . Building on improvements (e.g., the integration of Imihigo – perfor- mance contract with the budget process), the Figure 1.42 Less expansionary fiscal stance (domestic revenues – expenditures, four quarter moving average, % GDP) Figure 1.43 Increasing domestic revenues (% GDP) 0% 20% -2% 18% 2.4% Expansionary <---------> Contractionary 16% 2.0% -4% 1.8% 14% 1.8% 0.6% 0.8% -6% 12% 0.8% 0.5% 0.8% -8% 10% -10% 8% 15.6% 13.9% 14.8% 12.5% 13.2% 13.5% 6% 11.4% 11.9% 11.9% -12% 4% -14% 2% -16% 0% Recurrent expenditures Capital expenditures Tax revenue Non-tax revenue Source: MINECOFIN, World Bank staff calculations Source: MINECOFIN, World Bank staff calculations Figure 1.44 Increasing capital expenditures (% GDP) Figure 1.45 Budget balance and financing (% GDP) 35% 8% 30% 6% 4% 25% 13.9% 13.8% 2% 12.5% 11.7% 20% 8.2% 10.6% 10.0% 12.1% 6.9% 0% 15% -0.2% -0.1% -2% -1.4% -1.2% 10% -2.1% -4% 14.0% 15.3% 13.9% 14.5% 15.0% 14.9% 13.5% 15.2% 14.9% -3.4% 5% -4.0% -6% -5.0% -5.4% -5.0% 0% -8% -5% Current expenditure Capital expenditure Net lending Foreign financing Domestic financing Budget balance Source: MINECOFIN, World Bank staff calculations Source: MINECOFIN, World Bank staff calculations 29 http://www.minecofin.gov.rw/fileadmin/templates/documents/Central_Governement/2016-2017%20Budget%20Call%20Circular/CG%202016- 17%20First%20Planning%20and%20Budget%20Call%20Circular.pdf 28 Rwanda Economic Update: Edition No. 9 Table 1.8 Preliminary outturn of FY201/15 budget FY2013/14 FY2014/15 Actual Revised Preliminary Actual Billion Percent of Billion Percent of Billion Percent of Rwf GDP Rwf GDP Rwf GDP Revenue and grants 1,336.4 26.0 1,414.5 24.9 1,418.7 25.4 Total revenue 862.1 16.8 997.4 17.6 1,002.8 18.0 Tax revenue 761.1 14.8 894.6 15.7 871.6 15.6   Direct taxes 311.1 6.1 364.0 6.4 375.7 6.7    Taxes on goods and services 394.1 7.7 461.5 8.1 432.4 7.7    Taxes on international trade 55.9 1.1 69.1 1.2 63.5 1.1 Nontax revenue 101.0 2.0 102.9 1.8 131.2 2.4 Total grants 474.3 9.2 417.1 7.3 415.9 7.5 Budgetary grants 171.0 3.3 176.1 3.1 174.9 3.1 Capital grants 303.3 5.9 241.0 4.2 241.0 4.3 Total expenditure and net lending 1,542.2 30.0 1,700.2 29.9 1,697.1 30.4 Current expenditure 779.9 15.2 794.4 14.0 834.1 14.9 Wages and salaries 187.9 3.7 207.0 3.6 203.9 3.7 Purchases of goods and services 142.5 2.8 151.2 2.7 159.5 2.9 Interest payments 43.6 0.8 42.9 0.8 45.6 0.8 Transfers 286.8 5.6 301.0 5.3 304.1 5.4 Exceptional social expenditure 119.1 2.3 92.3 1.6 121.1 2.2 Capital expenditure 712.1 13.9 787.0 13.8 769.8 13.8 Domestic 320.2 6.2 440.4 7.7 388.5 7.0 Foreign 391.9 7.6 346.6 6.1 381.3 6.8 Net lending 50.2 1.0 118.8 2.1 93.2 1.7 Overall deficit (cash basis) Including grants -222.0 -4.3 -285.7 -5.0 -296.8 -5.3 Excluding grants -696.2 -13.6 -702.8 -12.4 -712.7 -12.8 Financing 222.0 4.3 295.6 5.2 296.6 5.3 Foreign financing (net) 104.8 2.0 197.4 3.5 188.3 3.4 Domestic financing 117.2 2.3 98.2 1.7 108.3 1.9 Source: MINECOFIN 1st BCC further emphasizes the importance six fundamental principles of Public Finan- of planning for budget formulation. Also, it cial Management (PFM) (Article 4) and re- calls for enhanced coordination within and quires that a gender budget statement is in- across MDAs (ministries, districts, and agen- cluded as part of the budget framework paper cies). Finally, it focuses on harmonization and (BFP) (Article 32). In addition, to enhance prioritization needs across government, as the implementation of gender-responsive well as proactive private sector engagement. budgeting, the law requires the submission Rwanda has been promoting gender-re- of activity reports based on the plans (Arti- sponsive budgeting in the past several cle 68). In its first year of compliance with the years. The 2013 Organic Law on State Fi- requirement in FY2014/15, all ministries and nances and Property puts gender balance in districts have submitted their respective gen- public state finance management as one of der budget statement annual implementation reports. 29 Rwanda Economic Update: Edition No. 9 1.6 Macroeconomic for approval. Moreover, the draft law on the Policy and Management Income Tax law was sent to cabinet for ap- proval with the aim to reduce existing loop- Tax Policies holes such as transfer pricing, exemptions, and sales tax on immovable property. The tax regulatory framework contin- ued to be strengthened. Since late 2014, Trade Policies the following tax policy measures have been The ministers of the three blocs (Com- implemented: (i) Revision of the investment mon Market for Eastern and Southern Af- code through the Law relating to investment rica (COMESA), EAC, and Southern Af- promotion and facilitation (N° 06/2015 of rican Development Community (SADC)) 28/03/2015, May 2015) aimed at removing of the Tripartite Free Trade Area (TFTA) loopholes and reducing unnecessary exemp- agreed to launch a tripartite Free Trade tion, (ii) VAT base broadening through (Feb Area (FTA) in December 2014, and as of 2015) the amendment of the VAT law to re- October 2015 discussions were under- duce VAT exemptions and zero rated items, way. This agreement calls for an improved (iii) review of the excise tax regime, July and harmonized trade regime that aims to 2015 (building on WTO recommendation, reduce the cost of doing business and extend the tax regime for tobacco was reviewed to market opportunities to 26 African countries introduce a combination of ad-valorem and with a population totaling 625 million peo- specific tax regimes), (iv) establishment of ple. The Economic Partnership Agreement the infrastructure development levy on im- (EPA) negotiations with the EU were final- ported goods, July 2015 (aims to collect rev- ized in October 2014 and signed in October enue to finance EAC railway project), and 2015, giving preferential access to the EU (v) increase in road maintenance levy fund market for goods from the EAC countries, ( July 2015), etc. including Rwanda. In addition to the above-mentioned accomplishments, the government has Business Regulatory Environment reviewed Review Law N° 59/2011 relat- The 2016 Doing Business survey has ing to local government taxes and Pres- recognized Rwanda’s progress in improv- idential order N° 25/01 of 09/07/2012 ing the business regulatory environment. relating to fees collected by local entities. Six reforms – more than in any other SSA The aim of the review is to improve land and countries – are recognized in the survey. property taxation; an increase in the tax rate As a result, Rwanda has retained the sec- is proposed especially for urban land, with ond best position of Sub-Saharan African the objective of making land and property countries after Mauritius (32nd among 189 taxation more progressive and better aligned economies). Also, Rwanda’s score (62nd) is to the urbanization policy for improved land better than other EAC countries’ such as Bu- management purposes. The draft law also rundi (152nd), Kenya (108th), and Tanza- reviews necessary articles to give powers to nia (139th). Selected reforms recognized in the Rwanda Revenue Authority to collect 2016 Doing Business survey include: local government revenue on behalf of the districts. The revisions were sent to cabinet 30 Rwanda Economic Update: Edition No. 9 (i) Starting a Business: The govern- (ii) Dealing with Construction Per- ment has been working to improve the ef- mits: Rwanda recorded another reform in ficiency of business registration as part of this area by making it easier to deal with con- broader business regulation reforms aimed struction permits by adopting a new building at promoting private sector development – code and new urban planning regulations. a top priority on its reform agenda. Rwanda The law on the legal framework con- recorded a positive reform in making it easi- cerning establishment, implementation, er to start a business by eliminating the need and management of public-private part- for new companies to open a bank account in nerships (PPP law) was approved by Par- order to register for VAT. As a result, starting liament in November 2015. The content of a business requires only seven steps, and it is the law reflects the policy direction to shift possible to open a business in Rwanda within the role of public investment as a catalyst for half a day. private investment. Together with the new investment law, Rwanda has been advancing the legal framework for private sector devel- opment. 1.7 Economic Prospects change rates), (ii) resulting policy flexibility, and (iii) positive regional economic outlook. In summary, Rwanda’s macroeconom- ic situation is almost unchanged from the (i) Macroeconomic Stability: The de- one in the previous edition (figure 1.46); velopments of inflation and exchange rates the economy has maintained steady growth in indicate that there will be little inflationary 2015. However, downside risks have been in- pressure and exchange rate depreciation (es- creasing in both domestic and external fronts. pecially real effective exchange rate) in the near future. The ongoing decline in oil prices Economic growth projection for 2015 is likely to have a positive impact on the econ- and 2016 are slightly adjusted from the omy through improved balance of payments, previous edition. Growth is projected to lower inflation rates, and lower expenditures reach 7.1 percent in 2015, 6.8 percent in on fuel subsidies. 2016, and 7.2 percent in 2017 – close to the country’s potential growth. The development (ii) Policy Flexibility: Macroeconomic of recent indicators and the adverse external stability would contribute to increased fis- environments lead to the adjustment. Nev- cal and monetary policy flexibility. Rwanda’s ertheless, there are broadly three reasons/as- favorable economic outlook builds on con- sumptions to project growth rates at around 7 tinued macroeconomic stability and imple- percent for 2015-2017 including: (i) macro- mentation of priority polices (e.g., strategic economic stability (mainly inflation and ex- investment) through the state budget. 31 Rwanda Economic Update: Edition No. 9 (iii) Regional Economic Outlook: The Despite the positive economic outlook, World Bank projects that all EAC countries a number of emerging factors pose risks to will steadily grow in 2016 (table 1.9). This this projection. These factors are the combi- positive regional economic outlook is ad- nation of external domestic factors including: vantageous to Rwanda given its economic (i) the slowdown of Chinese and European relationship to the region, especially with for- economies, (ii) budget execution, and (iii) mal and informal exports (see section 1.3). financing development. Though lower than 2014 at 9.0 percent, the World Bank also projects that DRC’s growth rates will be 8.0 percent in 2015 and 8.6 per- cent in 2016. Table 1.9 Growth projections of neighboring countries 2013 2014 2015 f 2016 f 2017 f Rwanda 4.7 7.0 7.1 6.8 7.2 Burundi 4.6 4.7 -2.3 3.5 4.8 Kenya 5.7 5.3 5.4 5.7 6.1 Tanzania 7.3 7.0 7.2 7.2 7.1 Uganda 3.3 4.5 5.0 5.0 5.8 DRC 8.5 9.0 8.0 8.6 9.0 Source: Other than Rwanda, Global Economic Prospects ( January 2016) Figure 1.46 Snapshot of Rwanda’s Macroeconomic Development Strengths Weaknesses Steady Growth: Average growth rate at 6.9% in Worsening external balance and concern on the first three quarters of 2015 financing: Gross international reserves fluctuated in 2015 Macroeconomic Stability: Inflation rate was 2.5% in 2015. Real effective exchange rates have Monetary sector: High and sticky lending rates been appreciating Low private investment: Private investment is Sound macroeconomic policy and manage- less than half of the total investment ment: Continue policy reforms in the areas of tax, trade and business regulatory environment Opportunities Threats Decline in oil prices: Rwanda is a net oil Decline in prices of Rwanda’s traditional importer export commodities: High correlation with oil prices Regional growth: Neighbouring countries also have positive growth outlook High reliance on foreign aid: 30-40% of the total revenue and grants Policy flexibility: Macreconomic stability gives (monetary policy) Flexibility Global economy: Increase in US interest rate, and a slowdown of the Chinese and European economies Source: World Bank 32 Rwanda Economic Update: Edition No. 9 (i) Slowdown of Chinese and Europe’s tion and domestic resource mobilization. In economies: An immediate and direct im- promoting fiscal consolidation, in the medi- pact of slowdown of the Chinese economy um-term, potential negative impact on the would be limited due to only a small share economy will have to be mitigated through of Rwanda’s exports going to China (Annex expenditure prioritization. Recent improve- 1.2). However, if it affects the global economy ment in public investment management (including Rwanda’s main trading partners), (including the establishment of the public Rwanda’s growth would be negatively affect- investment committee) demonstrates gov- ed. For example, in 2009, Rwanda’s GDP ernment effort in this direction. In the short growth decelerated to 6.3 percent from 11.2 term, smooth budget execution is critical. For percent in the previous year mainly due to the example, the realization of capital expendi- decline in exports by 23 percent in real terms. tures (including net lending) in FY2014/15 (ii) Budget execution: The size of the was lower than the revised budget due to the budget in the economy increased from 22 delay in the construction of KCC. percent in 2004 to 31 percent in 2014. In (iii) Financing development: As Rwan- other words, the importance of the budget in da’s investment relies a lot on foreign saving the economy has kept increasing. At the same (aid and other forms)30, stable inflows of for- time, 35 percent of the budget was financed eign saving (including aid flows) is critical by aid (in grants and loans). Thus, the gov- to keep the current high investment rate at ernment aims to reduce its reliance on aid around 25 percent of GDP. through the combination of fiscal consolida- Table 1.10 Macroeconomic projection 2011 2012 2013 2014 2015 f 2016 f 2017 f Real Gross Domestic Product 7.9 8.8 4.7 7.0 7.1 6.8 7.2   Private Consumption 9.0 6.9 2.9 5.3 10.0 5.5 5.9   Public Consumption 3.8 14.7 1.0 14.5 -11.8 14.7 5.7   Gross Fixed Capital Investment 9.3 21.8 7.2 9.4 7.8 8.2 7.9   Exports, Goods and Services 40.5 17.7 13.7 4.2 8.1 12.5 12.9   Imports, Goods and Services 24.5 21.3 5.6 7.2 8.7 8.0 8.4 GDP, at market prices 7.9 8.8 4.7 7.0 7.1 6.8 7.2  Agriculture 4.7 6.4 3.3 5.3 5.0 4.7 5.1  Industry 17.6 8.5 9.3 5.8 6.6 7.9 8.3  Services 8.0 11.6 5.3 8.9 7.6 7.8 8.2 CPI Inflation, period average 5.7 6.3 4.2 1.8 4.5 3.0 3.0 Current account balance, % of GDP -7.3 -10.2 -7.4 -11.8 -12.3 -11.9 -11.4 Fiscal Balance, % of GDP -0.3 -3.0 -4.0 -6.2 -4.2 -4.6 -5.1 Poverty rate ($1.9 a day, 2011 PPP) 1/ 58.5 56.4 55.7 54.3 - - - Gini coefficient consumption 49.6 - - 44.8 - - - 1/ all poverty rates are estimates. Last survey-based poverty rate (2010) was 60.4. Projections using annualized elasticities (2008-2012) with pass-through 0.87 based on GDP constant. Source: World Bank 30 Please see the eighth Rwanda Economic Update 33 Rwanda Economic Update: Edition No. 9 1.8 Labor Transition Understanding employment dynamics and Growth in Labor is more important in order to harness the demographic dividend32. According to the Productivity UN population projection, Rwanda’s working The inter-sectoral shift from agriculture age population (15-64 years old) is projected to non-agriculture was the main reason for to increase from 6.7 million in 2014 to 16 mil- the increase in labor productivity between lion in 2050 with an annual growth rate at 2.4 2006 and 2011. During the period, annu- percent. As working age population is pro- al average GDP growth reached 8.0 percent. jected to increase faster than the overall pop- The increase in output per worker (i.e., labor ulation, the share of working age population productivity) (4.0 percent) and the increase in total will increase from 56 percent in 2014 in employment (3.9 percent) equally con- to 64 percent in 2050. This projected increase tributed to GDP growth. A Shapley decom- in new entrants to the labor market provides position exercise using the Job Generation Rwanda with opportunities to harness the de- and Growth Decomposition tool ( JoGGs)31 mographic dividend. At the same time, if new hows that inter-sectoral shift contributed to entrants are unemployed or underemployed, 90 percent of the increase in labor produc- this increase would have a negative impact on tivity (figure 1.47). During the period, the development. Thus, understanding employ- share of employment in agriculture fell from ment dynamics is the very important first 79 percent to 73 percent, while the share of step to seizing opportunities. non-manufacturing industry and services in- creased from two percent to four percent, and Figure 1.47 Inter-sectoral shift is the main source of from 17 percent to 21 percent. labor productivity increase (% contribution to increase in labor productivity) Understanding employment dynamics is more important in order to harness the Inter-sectoral shift demographic dividend. According to the 90% UN population projection, Rwanda’s working age population (15-64 years old) is projected Capital labor ratio 51% to increase from 6.7 million in 2014 to 16 mil- lion in 2050 with an annual growth rate at 2.4 -41% percent. As working age population is pro- Total factor productivity jected to increase faster than the overall pop- ulation, the share of working age population -50% 0% 50% 100% in total will increase from 56 percent in 2014 Source: World Bank staff calculations to 64 percent in 2050. This projected increase in new entrants to the labor market provides Rwanda with opportunities to harness the de- mographic dividend. At the same time, if new entrants are unemployed or underemployed, this increase would have a negative impact on development. Thus, understanding employ- ment dynamics is the very important first step to seizing opportunities. 31 http://siteresources.worldbank.org/INTEMPSHAGRO/Resources/JoGGs_Decomposition_Tool_UsersGuide.pdf 32 The fifth REU (2013) focuses on demographic dividend in Rwanda 34 Rwanda Economic Update: Edition No. 9 Part Two: Rwanda at Work 2.1 Rwanda’s Employment ployment in the non-farm sector is informal: Landscape: The 2011 60 percent of wage work and 90 percent of independent employment in the non-farm Snapshot sector is informal. A Young and Low-Skilled Labor Force Figure 2.1 The labor force is largely unskilled proportion of labor force participants by education level, 2011) The labor force in Rwanda is young and 50% 46.8% 45% low-skilled. Half of the labor force is between 40% 16 and 32 years of age, and only 20 percent 35% is 50 years or older. Despite recent improve- 30% ments, in particular among the youth, educa- 25% 21.6% 19.0% tion of the labor force remains low: Almost 20% 15% 70 percent of the labor force did not complete 10% primary education and only five percent com- 5% 2.9% 4.8% 2.9% 2.0% pleted secondary school or more (figure 2.1). 0% 1 2 3 4 5 6 7 One in five labor force participants never en- tered school to begin with. Full labor force Source: EICV 2011 Employment Dominated by Agriculture and Informality Figure 2.2 Agriculture dominates employment proportion of workers by % employment type, 2011) Agriculture provides employment to Non-farm self Non-farm employer employment 2.9% Unpaid household enterprise worker 7.3% 1.5% the bulk of working Rwandans. Independ- ent family farming (people cultivating their own or their family’s land without a wage) Independent represents the main employment for 2.9 mil- Non-farm wage farming 29.9% lion working-age Rwandans, accounting for employment 17.5% almost 60 percent of overall employment (figure 2.1 and figure 2.2). Wage farming Wage farming (people cultivating other people’s land for a 11.9% Unpaid family farm worker wage) provides employment to another 0.6 29.0% million people (12 percent of total employ- ment). Taken together, 70 percent of work- Source: EICV 2011. ers have their main occupation in agriculture (the sum of the shares of independent farm- The modern wage sector-providing ing, unpaid family farming, and wage farming what many would consider “good jobs” in figure 2.2). is small. About 0.15 million workers had The non-farm sector is characterized by their main employment in the public sector wage employment and informality. Ap- (in 2011), while the formal private sector ac- proximately 0.9 million Rwandans have their counts for another 0.2 million workers (fig- main job in non-farm wage employment, ac- ure 2.2). Taken together, the modern wage counting for 19 percent of total employment, sector provides employment to approximate- while 0.6 million (12 percent) are engaged ly six percent of the working-age population. in independent non-farm business activities The formal private sector remains margin- (categorized as “non-farm self-employment,” al in terms of employment, accounting for “employer,” and “unpaid household enter- three percent of the working-age population. prise workers” in figure 2.2). The bulk of em- 36 Rwanda Economic Update: Edition No. 9 The bulk of jobs in Rwanda do not in- accounted for about 30 percent of workers volve any labor exchange. Most workers are (figure 2.3). The remaining 70 percent of self-employed in agriculture or in small, main- workers were self-employed in subsistence ly one-person enterprises in the non-farm agriculture or in non-farm businesses. As a re- sector. In 2011, wage employment (where sult, we avoid as much as possible use of the people exchange labor in return for a wage) term “labor market.” Figure 2.3 A snapshot of jobs in Rwanda (2011) (number of workers per employment category) Working-age population: 5.9 million Inactive: Unemployed: Employed: 1.0 million 0.1 million 4.9 million In School: Agriculture: Non-Agriculture: 0.7 million 3.5 million 1.4 million Own farming: Wage farming: Wage employment: Self-employment: 2.9 million 0.6 million 0.9 million 0.6 million Other Informal: Modern: Informal: Formal: 0.02 million 0.5 million 0.35 million 0.5 million 0.06 million Public Private 0.15 million 0.2 million Source: EICV 2011 Low Earnings and Widespread change rate and US$74 using the purchas- Underemployment ing power parity-adjusted exchange rate)33 . Half of workers earn between Rwf 113,000 For the majority of the population earn- and Rwf 400,000 a year (between 9,400 and ings are low (though they have increased 33,300 a month34), and 90 percent of work- considerably since 2006). In 2011, medi- ers earn less than Rwf 780,000 a year (Rwf an monthly earnings from all jobs amounted 65,000 per month – figure 2.4). Less than to Rwf 18,175, meaning that half of workers six percent of employed Rwandans earn Rwf earned Rwf 18,175 per month or less (this 100,000 per month or more (approximately amounting to US$31 using the official ex- US$405 in PPP terms). 33 Earnings are calculated at the level of the individual worker. Earnings of own-account workers, both in agriculture and in the non-farm sector, are calculated based on reported turnover and costs in the surveys. See Annex 1 for an explanation on how earnings were calculated 34 This is the so-called interquartile range 37 Rwanda Economic Update: Edition No. 9 More than 30 percent of workers are en- Workers in agriculture earn significant- gaged in so-called “low-earnings jobs”, or ly less than non-farm workers. Median jobs with earnings below the official pov- monthly earnings (from all jobs) of an agri- erty line35 . Low earnings are mainly a con- cultural worker amounted to Rwf 16,000 in sequence of underemployment: 58 percent 2011 (PPP US$65), substantially lower than of workers with low earnings earn below the for workers with a main job outside farming poverty line because of the short hours they (Rwf 30,000 – PPP US$122). Within sectors work (table 2.1). About 36 percent of work- there are important differences too: In farm- ers in Rwanda are underemployed, meaning ing, wage famers are the worst-off with over that they work less than 35 hours a week and 40 percent of them earning below the pover- would like to work more. ty line (table 2.2). Independent farmers are, Table 2.2 Earnings in the non-farm sector are substantially higher (indicators of job quality by type of main employment, 2011) Table 2.1 Main indicators of employment quality in Type of employment Median Low 2001 annual earnings Median earnings (all jobs) 218,110.4 earnings rate (%) Median hourly earnings 185.9 Agriculture 191,952.9 36.6 Low earnings rate 33.2   Independent farming 214,888.3 31.3 Poverty rates among low earners 55.0   Unpaid family farm worker 183,154.5 39.7 Share of low earners who have low 57.7   Wage farming 166,272.0 41.7 earnings due to short hours Non-agriculture 360,000.0 23.9 Share of low earners who work long 8.8   Non-farm wage 366,757.2 23 hours   employment Share of non-low earners who escape 3.1   Non-farm self-employment 278,841.6 28.2 low earnings due to long hours   Non-farm employer 592,800.0 16.2 Median earnings (all jobs) 218,110.4   Unpaid household 301,776.0 28.6 Note: Earnings are expressed on an annual basis in 2011 Rwf and   enterprise worker include earnings from all jobs. Note: Earnings are expressed on an annual basis in 2011 Rwf and in- Source: EICV, 2011. clude earnings from all jobs Source: EICV, 2011 Figure 2.5 Wage earnings are highest in the public sector Figure 2.4 Earnings are low for most workers (distribution of earnings for employees in the public, private for- (cumulative distribution of annual earnings, 2011) mal, and private informal sector, 2011) Note: Figure is censored at the 99th percentile and does not show Source: EICV3, 2011; World Bank staff calculations top incomes. Negative earnings have been dropped. Source: EICV, 2011 35 This means that the annual earnings the worker earns from all of his/her jobs are lower than the annual poverty line. The poverty line amounts to Rwf 118,000 per adult equivalent per year (in 2011 prices). Note that income or earnings are usually underreported in household surveys, which means the “true” low earnings rate is likely to be somewhat lower 38 Rwanda Economic Update: Edition No. 9 relatively speaking, best off. In the non-farm 2.2 What Workers Do sector, median earnings are highest for em- and the Way They Do It ployers and lowest among the self-employed (those working alone in a one-person busi- Is Changing ness). 2.2.1 A move from agriculture to In non-farm wage employment, the non-farm occupations formal sector (public and private) pro- One of the most salient evolutions over vides the highest earnings. Median earn- the past decade is the progressive move ings in the public sector amounted to ap- towards non-farm occupations (box 2.1). proximately Rwf 50,000 per month in 2011 In 2011, 30 percent of employed Rwandans (PPP US$203), compared to Rwf 41,600 had their main job outside agriculture36, up (PPP US$169) in the formal private sector from 23 percent in 2006 and 11 percent in and Rwf 22,100 (PPP US$90) in the infor- 2001 (figure 2.6)37. The move to non-farm mal private sector (figure 2.5). Working in occupations happened both for wage and the non-farm sector seems uniformly better self-employment: the share of workers with than farming: even the least attractive non- a main job in non-farm wage employment farm activity (wage employment in the infor- increased from 13 percent in 2006 to 18 per- mal private sector) is associated with higher cent in 2011 (coming from a mere eight per- earnings than any of the agricultural types of cent in 2001), while the share of non-farm employment (table 2.2). self-employment increased from 10 percent The stylized facts paint a bleak picture to 12 percent (but increased significantly of the employment situation in Rwanda, from the five percent in 2001). The decline characterized by agriculture, informality, in agricultural employment is mainly due to and low earnings. Nevertheless, the em- a big drop in unpaid family farm workers: 29 ployment situation has markedly improved percent of workers had their main job in un- since 2006 and there have been a number of paid family farming in 2011, down from 38 firmly positive evolutions, most notably a di- percent in 2006 (table 2.3). versification into non-farm occupations and a strong increase in earnings. The following Figure 2.6 Agriculture is declining as a share of total employment sections focus on these dynamics and high- (category of main employment as a share of total employment, 2001-2006-2011) light the role played by young workers as an 100% 2.4 3.2 3.4 engine of change. 95% 3 5.3 10.3 11.7 90% 85% 80% 9.4 14.1 75% 70% 89.3 65% 77.1 60% 70.8 55% 50% Agriculture Private wage: non-farm Private non-wage: non-farm Public wage Source: EICV1, 2, and 3 36 This only refers to worker’s main occupation (the occupation where s/he spends the most time in). Most workers however work several jobs (section 2.3) 37 Main employment is defined as the job in which the person worked most hours in the 12 months preceding the survey. Defining the main job as the job that procures the biggest share of income does not result in any qualitative changes 39 Rwanda Economic Update: Edition No. 9 Box 2.1 A Transition on Steroids. At the 2000, the employment share of agriculture was start of the millennium, agriculture’s substantially higher in Rwanda (89 percent) than employment share was far above the regional low-income average; it has in other low-income African countries (77 percent quickly converged since then. on average for countries with data)38. By 2010, The share of workers employed in agricul- Rwanda still had a higher share of employment ture has decreased sharply since the turn of in agriculture (72 percent vs 69 percent as the the century (figure 2.7). This transition has not low-income average), but the gap had substan- been limited to Rwanda. Indeed, Africa’s decade tially narrowed (figure 2.7). By 2010, the employ- of strong growth has been accompanied by a re- ment structure in Rwanda looked similar to that of allocation of labor from agriculture to on average other low-income countries in Africa, though the more productive non-farm sectors. The transition share of services in total employment was a little has however been particularly fast in Rwanda: In lower (figure 2.8). Figure 2.7 Labor reallocation has been particularly fast Figure 2.8 …and agriculture’s share of employment is in Rwanda… now comparable to the average for low-income SSA (agriculture’s share of employment, %) (employment share by sector, %) 100% 100% 88.7% 90% 80.4% 90% 22.5 24.1 76.8% 80% 72.9% 71.6% 80% 69.4% 5.9 70% 70% 6.5 60% 60% 50% 50% 40% 40% 71.6 69.4 30% 30% 20% 20% 10% 10% 0% 0% Rwanda Low-income SSA Agriculture Industry Services Rwanda Low-income SSA Source: World Bank, 2013 Source: World Bank, 201339 The non-farm sector accounted for the sector absorbing many new workers: The bulk of new employment since 2006. There informal private sector added 300,000 wage were approximately 0.6 million new work- workers (a three-fold increase since 2006), ers working in 2011 (compared to 2006), 73 while the formal private sector added 100,000 percent of whom took up employment in the (a doubling since 2006). Considering both non-farm sector (figure 2.9). Non-farm wage the public and the formal private sector, mod- employment accounted for half of new work- ern wage employment grew by 67 percent be- ers (51 percent), with especially the private tween 2006 and 2011. 38 The employment shares for Rwanda presented in Box 1 are slightly different than the ones presented due to the standardized nature of the I2D2 database 39 World Bank (2013). “International Income Distribution Database (I2D2)”. Washington, D.C.: World Bank 40 Rwanda Economic Update: Edition No. 9 Published results from the latest sur- two percentage points between 2011 and vey in 2014 suggest that the move to 2014, compared to more than six percentage non-farm employment as a main job has points between 2006 and 2011 (table 2.3). slightly leveled off after 2011. In 2014, However, job creation in the non-farm sec- there were about 0.55 million more workers tor remained healthy: the number of wage than in 2011, half of which took up main em- jobs outside farming, be it main or second- ployment in agriculture (and half in the non- ary jobs, increased by about 0.34 million be- farm sector). As a result, agriculture’s share tween 2011 and 201440. of main employment decreased by less than Figure 2.9 The non-farm sector accounted for the bulk of new jobs since 2006 (sector of work and occupation of new workers added between 2006 and 2011) Increase in # of people working: 629,486 Agriculture: Non-Agriculture: 170,396 (27%) 459,090 (73%) Independent Wage Farming: Wage Employment: Self Employment: Farming: 188,970 319,138 139,952 -18,574 Public Sector: Private Formal: private Informal: 33,856 109,035 302,036 Note: The category “independent farming” pools independent farmers and unpaid family farm workers. For wage employment, the sub- categories do not sum to the total new workers in wage employment, as the number of wage workers in “other” wage jobs (not shown in the diagram decreased substantially since 2006 Source: EICV, 2006; 2011 Table 2.3 Unpaid family farming drops as a share of total employment, non-farm wage employment on the rise (main employment as a share of total employment) Type of employment 2006 2011 Percent change Agriculture 77.1 70.8 -8.2% Independent farming 30.3 29.0 -1.3% Unpaid family farm worker 37.6 29.9 -22.9% Wage farming 9.2 11.9 29.3% Non-agriculture 22.9 29.2 27.5% Non-farm wage employment 12.6 17.5 38.9% Non-farm self-employment 7.2 7.3 1.4% Non-farm employer 0.6 2.9 383.3% Unpaid household enterprise worker 2.5 1.5 -40.0% Source: EICV, 2006; 2011 40 All figures from NISR (2015). Note that we cannot conduct a more detailed analysis of the post 2011 trends since the EICV4 microdata are not yet publi- cally available 41 Rwanda Economic Update: Edition No. 9 The shift to non-farm employment was hort for example (the first line in figure 2.10), particularly important for men. The share of who were 16 years of age in 2001, 95 per- male workers with a main occupation outside cent had a main job in farming in 2001. This farming increased from 33 percent in 2006 dropped to about 70 percent in 2006 (when to 42 percent in 2011, while the share for the cohort was 21 years old) and 50 per- women remained low at 19 percent, up from cent by 2011 (when they were 26 years old). 15 percent in 2006 (table 2.4). Male work- While main employment in agriculture de- ers transitioned mainly to wage employment creased for all cohorts (except for the oldest in the non-farm sector, whose share in total cohort), the decrease was far more salient for employment increased by eight percentage the young42. While women also increasingly points. Though women also increasingly had had their main employment outside farming, their main occupation in non-farming, the the magnitude of the shift was a lot smaller. main change for women happened within the agricultural sector, with unpaid work on the Figure 2.10 Young men drive the move to non-farm family farm losing importance to independ- occupations (share of cohort with main job in farming, 2001, 2006 and 2011) ent farming and wage farming (table 2.4).41 Young men spearheaded the shift to non-farm employment. Figure 2.10 shows, for each cohort, the proportion of workers with their main job in agriculture in 2001, 2005, and 2011. Each line in figure 2.10 fol- lows the same cohort through time: the start- ing point of each line (left-hand-side point of each line) shows the proportion of the cohort with a main job in agriculture in 2001, while the middle and ending points of the same line Source: EICV, 2001; 2006; 2011. World Bank staff calculations show the proportion of this same cohort who still had their main job in agriculture by 2006 and 2011, respectively. For the youngest co- Table 2.4 Men in particular are transitioning to non-farm employment (main employment as a share of total employment for men and women, 2006 and 2011) Type of employment Women Men 2006 2011 2006 2011 Agriculture 85.4 81 67 58.1 Independent farming 23.4 24.5 38.9 34.4 Unpaid family farm worker 54.5 45.7 16.8 10.6 Wage farming 7.5 10.8 11.3 13.1 Non-agriculture 14.6 18.9 33 41.8 Non-farm wage employment 6.1 8.5 20.6 28.4 Non-farm self-employment 5.3 6.8 9.4 8 Non-farm employer 0.3 2 1 4 Unpaid household enterprise worker 2.9 1.6 2 1.4 Source: EICV, 2006; 2011 41 This will be explored in more detail in a later section 42 Note from figure 14 that the shift to non-agricultural occupations was more salient between 2001 and 2006 than between 2006 and 2011 42 Rwanda Economic Update: Edition No. 9 Looking at all jobs rather than just the in year t, the larger that proportion is in year main job, the principal finding is that t+1. Hence, the move to non-farm activities is young cohorts of Rwandans are moving likely to continue43. away from agriculture. The share of work- ers with a job in agriculture, regardless of Figure 2.11 Young men abandon agriculture, older men whether it is as a primary or secondary oc- less so (share of cohort with a job in farming, 2001-2006-2011) cupation, dropped off sharply since 2001 for the younger cohorts (figure 2.11). The mid- dle-aged cohorts however do not quit agri- culture but rather modify their engagement with the farm: while middle-aged workers (in their 40s and 50s) are substantially less likely than before to have their main job in farming (figure 2.10), the share that does not work in agriculture at all only diminished modestly (figure 2.11). The shift to non-farm employ- ment as primary occupation is thus the result of two complementary dynamics: first, young people are moving out of agriculture alto- Source: EICV, 2001; 2006; 2011. World Bank staff calculations gether and moving to non-farm occupations, while secondly, older workers increasingly 2.2.2 A changing employment shift their main occupation outside farming structure within agriculture but maintain a strong presence on the farm (as secondary occupation). Another salient evolution in Rwanda’s Education and location are the main jobs scene is the move towards wage em- cohort characteristics correlated with the ployment in agriculture. While unpaid fam- shift out of agriculture. Higher educated co- ily farming (household members working on horts are more likely to be in non-farm jobs. the household farm without remuneration) Estimates of a pseudo-panel regression show dropped as a share of employment, from 38 that a higher educational level (relative to co- percent in 2006 to 29 percent in 2011, the horts with no schooling at all) is correlated share of wage farming increased (table 2.3). with a larger ratio of non-farm to farm jobs. In absolute terms, independent family farm- The impact of education increases monoton- ing shed workers since 2006 (there were ically with the level of education and reaches about 18,000 fewer workers in farm self-em- a peak at secondary or higher education. Ur- ployment in 2001 than in 2006 – figure 2.9), banization matters too: the larger the fraction while wage farming recorded a strong in- of individuals living in urban areas in each crease (there were 190,000 more wage farm- cohort, the higher the share of non-farm jobs ers in 2011 than in 2006). relative to farm jobs in that cohort. The lag The agricultural dynamics differed be- of the proportion of non-farm to farm jobs tween women and men. For women, the in each cohort has a positive effect indicat- declining share of unpaid family labor was ing some degree of persistence: the larger the to some extent compensated by the increas- share of non-farm to farm jobs in each cohort ing share in independent farming and wage 43 For full details of the pseudo panel regression, consult the Rwanda Employment and Jobs Study (http://documents.worldbank.org/curated/ en/2015/11/25244484/rwanda-employment-jobs-study) 43 Rwanda Economic Update: Edition No. 9 farming (figure 2.12). For men, the declining share in unpaid family farming was accom- Figure 2.12 A reallocation within agriculture for women (share of women in different types of agricultural employment, panied by a decline in independent farming %) 60% and a modest increase in wage farming (fig- 54.5% ure 2.13). While the picture for men points 50% 45.7% towards a progressive diversification out 40% of agriculture towards non-farm activities, 30% 23.4% 24.5% women tended to shift occupations within 20% agriculture. 7.5% 10.8% 10% The move to wage employment in agri- 0% culture is mainly driven by female youth. Independent Unpaid family Wage farming farming farm worker For the younger cohorts, the share of women 2006 2011 with a main job in farm wage employment increased substantially between 2001 and Source: EICV, 2001; 2006; 2011 2011 (steeply sloped lines in Figure 2.14). To Figure 2.13 A moving out of agriculture for men illustrate, only about two percent of women (share of men in different types of agricultural employment(%) in the cohort born in 1982/3 (second line in 60% figure 2.14) had their main job in farm wage 50% employment in 2001. By 2011, this had in- 38.9% 40% creased to 12 percent 44 For older cohorts, 34.4% the lines are flatter, indicating a slower move 30% towards farm wage employment for old- 20% 16.8% er women. While men also were more and 10.6% 11.3%13.1% 10% more likely to engage in farm wage employ- ment, the trend was less outspoken than for 0% Independent Unpaid family Wage farming women, and appears to have lost momentum farming farm worker during the second half of the decade). 2006 2011 Whether the move to farm wage em- Source: EICV, 2001; 2006; 2011 ployment has been positive or negative Figure 2.14 Female youth drive the move to agricultural depends largely on where the young wom- wage employment (share of cohort with main job in wage farming, 2001-2006-2011 en were coming from (i.e., what they were - females) doing before). Looking at job dynamics between 2006 and 2011, there was a net de- crease in young women working in unpaid farm labor and a net increase in young wom- en working as independent farmers and ag- ricultural employees (figure 2.15). Although there is no panel data, this is consistent with female youth moving from unpaid family la- bor to paid farm labor (and to a somewhat lesser extent, independent farming). Given that unpaid family farmers are heavily under- Source: EICV, 2001; 2006; 2011. World Bank staff calculations 44 For each line in Figure 2.14, the starting point of the line shows the proportion of women in the cohort with a main job in wage farming in 2001. The middle point of the line shows the proportion of women in that same cohort with a main job in wage farming in 2006, while the ending point of the line shows the situation in 2011 44 Rwanda Economic Update: Edition No. 9 employed on the family farm (see next section) farm wage labor due to bigger harvests. Under and do not actually earn an income, the move to the Crop Intensification Program (CIP), farm- wage farming may have been important in push- ers consolidate the use of their lands (to bring ing up aggregate household incomes. production to scale) and grow one single crop based on prevailing agro-ecological conditions. Figure 2.15 Young women move from unpaid to paid According to the Ministry of Agriculture and farming Animal Resources (MINAGRI), production of (net agricultural job additions for young women, 2006-2011) 140,000 priority crops increased substantially following 116,482 120,000 108,078 the rollout of the CIP45: production of maize 100,000 increased five-fold, that of wheat and cassava 80,000 60,000 three-fold, and production of beans and Irish 40,000 potatoes doubled. Increased production and 20,000 specialization may have increased demand for 0 -20,000 farm wage labor, which may have been a more -40,000 attractive option for young women previously -60,000 -52,664 working as unpaid labor on the family farm46. -80,000 Independent Unpaid family Wage farming The figures so far hint at a disadvantaged farming farming employment position of women (box 2.2). Net agricultural job additions (women) Looking at table 2.4, women are four times more Source: EICV, 2006; 2011 likely to have their main job in unpaid farming than men, and almost four times less likely to The increase in farm wage employment is engage in non-farm wage employment as their consistent with a move towards a more com- main occupation. Women are also less likely to mercial or market-oriented mode of agri- be self-employed in the non-farm sector or to cultural production as well as increased spe- be employers. As a result, median earnings of cialization. At the household level, the share of women are almost 20 percent lower than those harvests that are sold on markets has increased of men. The bulk of the earnings gap between steadily over the past decade, from 13 percent men and women (77 percent) is unexplained by in 2001 to 21 percent in 2011. Also, although differences in characteristics47. Rather, women hard data on this is not available, the rollout of have substantially lower returns on education the policy of agricultural land use consolida- and experience (age) than men do; that is, for tion and regional specialization since 2007/8 similar age and education, women earn signifi- is believed to have increased the demand for cantly less than men. 45 Mbonigaba Muhinda and Dusengemungu 46 On the other hand, the move towards farm wage labor may also be explained by the ever-decreasing landholdings, putting stress on traditional livelihoods 47 This is based on an Oaxaca-Blinder decomposition of income differentials between men and women (Annex 3) 45 Rwanda Economic Update: Edition No. 9 Box 2.2 Education, Discrimination, or vate sector. This can however not be tested with Cultural Self-Selection? Whatever the the available data. reason, women’s position in the labor market is not enviable Women in Rwanda are overrepresented in the lower-quality job categories. Eighty-one Figure 2.16 Young women are more likely to have a percent of women have their main job in agri- main occupation in agriculture or as unpaid family culture, a comparatively low-productivity and workers (%) (share of youth 16-25 with main job in agriculture or as unpaid low-earnings sector, compared to 58 percent of family worker, 2011 ) men. Within agriculture, women are more than 100 90 four times more likely than men to be involved 80 73.6 in unpaid family labor as their main occupation. 70 55.1 56.5 60 Overall, considering bWoth the farm and the non- 50 farm sectors, 30 percent of workers in Rwanda 40 29.2 have a main job as an unpaid family worker. 84 30 20 percent of them are women. 10 0 There is an obvious reason why women are Agriculture Unpaid labor (farm and underrepresented in better jobs: education. non-farm) Main job Women are significantly less educated than men, which explains in part the underrepresentation in Young men Young women better job categories. However, focusing on the Source: EICV, 2011 two youngest cohorts (16-25 years-old), young women still are worse off despite education lev- els similar to those of young men. Young women Figure 2.17 Young women are underrepresented in are 20 percentage points more likely than young non-farm wage employment (%) (share of young women and men in non-farm wage employment, men to have their main job in agriculture and are by sector) almost twice as likely to be engaged in unpaid 100% family labor as their main occupation (figure 2.16). 90% 28.2 80% 36.2 Controlling for the effect of education, young men 45 70% are more than twice as likely to engage in non- 60% farm wage employment compared to women. The 50% underrepresentation of women in non-farm wage 40% 71.8 employment is especially salient in the formal pri- 30% 63.8 55 vate sector, where young women account for only 20% 28 percent of jobs (figure 2.17). 10% 0% For the young cohorts, the worse labor mar- Formal private Informal Public sector sector private sector ket position of women is not due to education. Rather, it is possible that young women, for cultur- Young men Young women al reasons, self-select in agriculture or non-farm Source: EICV, 2011 self-employment or face particular barriers in pur- suing wage employment opportunities in the pri- 46 Rwanda Economic Update: Edition No. 9 2.2.3 Despite a take-up of additional were also most likely to take up additional jobs, underemployment is on the activities: For agricultural workers, the me- rise dian number of hours worked per week (in the main occupation only) decreased by 33 In 2011, 64 percent of workers in Rwan- percent, and these workers were most like- da had multiple jobs, up from 40 percent ly to take up additional jobs (the share with in 2006. The increase in the share of workers multiple jobs increased by 26 percentage with multiple jobs has particularly been sali- points. Workers in non-farm occupations ex- ent for workers with a main job in agriculture. perienced a smaller decline in hours worked In 2006, workers with a main job in agricul- in the main job (19 percent), and were also ture were a lot less likely to have several jobs less likely to take up additional activities. than non-agricultural workers. By 2011, 63 Based on the available data, it is not possible percent of agricultural workers had multiple to determine whether the uptake of addition- jobs, similar to non-agricultural workers (ta- al jobs among agricultural workers is due to ble 2.5). Both men and women took up addi- push (shortage of land) or pull (increased tional jobs between 2006 and 2011. availability of more lucrative non-farm em- Agricultural workers’ uptake of addi- ployment opportunities) factors. However, tional jobs amounted in large part to a di- given that non-farm occupations are typically versification into non-farm income-earn- higher-earning and more attractive than agri- ing activities. In 2006, only 9 percent of culture, the uptake of additional jobs outside workers with a main occupation in agricul- agriculture likely reflects an increasing availa- ture had a secondary occupation outside agri- bility of non-farm opportunities48. culture. By 2011, this had more than doubled to 22 percent. The move to non-farm occupa- Figure 2.18 Farmers are diversifying by taking up tions as a main job as documented in section additional jobs (share of farmers with secondary job outside agriculture and 2.2.1 understates the true extent of the diver- share of workers with a non-agricultural job, 2006-2011) 50% sification into non-farm activities: between 45.0% 45% 2006 and 2011, the share of workers with a 40% job outside agriculture (regardless of whether 35% 30.3% 30% this is a main or a secondary job) increased 25% 21.6% from 30 percent to 45 percent (figure 2.18). 20% 15% The uptake of additional jobs appears 10% 9.0% linked to the decline of working hours in 5% the main job. In 2006, the median worker 0% Fraction of farmers with a Fraction of workers with a worked 25 hours a week in their main job. By secondary job outside job outside agriculture agriculture 2011, this had declined to 18 hours a week 2006 2011 (table 2.5). Workers in occupations where hours worked in the main job decreased most Source: EICV, 2006; 2011 48 The recently concluded Rwanda Poverty Assessment identified the diversification into non-farm activities as a main driver of poverty reduction over the past decade, which adds credibility to the pull hypothesis 47 Rwanda Economic Update: Edition No. 9 Table 2.5 Hours worked in main job decreased across the board, but especially for agricultural workers (% of workers with several jobs and median hours per week worked in main job, by main employment) Main employment % of workers with Median hours per week Percent several jobs in main job change 2006 2011 2006 2011 Agriculture 37 63.4 24.0 16.0 -33.4%   Independent farming 35.7 61.3 20.0 16.0 -19.9%   Unpaid family farm worker 27.2 54.6 25.0 17.2 -31.1%   Wage farming 81 90.1 24.0 15.3 -36.2% Non-agriculture 51 64 32.0 26.0 -18.8%   Non-farm wage employment 40 56.5 38.0 30.0 -21.1%   Non-farm self-employment 66.7 78.3 25.0 22.0 -12.0%   Non-farm employer 54.9 74.6 39.0 31.0 -20.4%   Unpaid household enterprise worker 47.4 67.3 26.0 20.0 -23.1% Total 40.3 63.6 25.0 18.0 -28.0% Source: EICV, 2006; 2011 Focusing on all jobs rather than on the in the non-farm sector work the most hours, main job only, overall hours worked de- while independent farmers and unpaid fam- creased between 2006 and 2011. The me- ily farmers only work 23 hours a week in all dian number of hours worked in all jobs jobs together. The uptake of additional jobs amounted to almost 26 hours a week in has helped compensate for the loss of hours 2011, down from 29 hours in 2006 (table in the main job, but not fully: hours worked in 2.6)49. Workers with a main job in the non- the main job dropped by 28 percent between farm sector work an average of 16 hours per 2006 and 2011, while total hours worked week more than agricultural workers. Non- dropped by 12 percent. farm employers and people with a wage job Table 2.6 Weekly hours worked is substantially higher in the non-farm sector (median hours per week worked in all jobs, by main employment) Main Employment Median hours per week in all jobs Percent change 2006 2011 Agriculture 26.2 23 -12.2%   Independent farming 21.7 23 6.0%   Unpaid family farm worker 30 23 -23.3%   Wage farming 32.5 26.7 -17.8% Non-agriculture 39.6 38.7 -2.3%   Non-farm wage employment 40 40 0.0%   Non-farm self-employment 36 29 -19.4%   Non-farm employer 48 44.6 -7.1%   Unpaid household enterprise worker 36 37.4 3.9% Total 29 25.6 -11.7% Source: EICV, 2006; 2011 49 Differences in questionnaire design between the EICV2 and EICV3 may overstate the extent of the decline in working hours. In 2006, the respondents were asked for each month separately (over a 12-month period) whether or not they worked that month. In 2011, respondents were simply asked how many months (over a 12-month period, split by season) they had worked. Focusing only on the 7 days preceding the survey (a question that was comparable in EICV2 and EICV3), median hours worked amounted to 26 for EICV2 and 25 for EICV3. So while there has been a decrease in hours worked since 2006, the annual figures may overstate the magnitude of the decline 48 Rwanda Economic Update: Edition No. 9 Underemployment is a key feature Table 2.7 Underemployment increased since 2006 and of the labor market in Rwanda, and has is high across the board worsened since 2006. Next to the decrease (time-related underemployment rate, 2006 and 2011) Main employment Underemploy- in hours worked, and despite the uptake of ment rate additional jobs, time-related underemploy- 2006 2011 ment increased50: the fraction of employed Agriculture 38.3 41.8 persons who work less than 35 hours and   Independent farming 33.9 38.8 wish to work more slightly increased from 34   Unpaid family farm worker 41.9 44.4 percent in 2006 to 36 percent in 2011 (table   Wage farming 38.5 42.4 2.7). The underemployment rate increased Non-agriculture 18 21.3 for all job categories. 42 percent of agricul-   Non-farm wage employment 15.9 18.7 tural workers are underemployed – double   Non-farm self-employment 22.8 27.3 the share of non-farm workers.   Non-farm employer 12.2 20.1 Age, location, and occupation are the   Unpaid household enterprise 21.6 27.7 main correlates of underemployment.   worker Total 33.6 35.7 Relative to prime-age workers (workers be- Source: EICV, 2006; 2011 tween 35 and 40 years old), youth workers are more likely to be underemployed (figure 2.19): Workers between 21 and 25-years of Figure 2.19 Age, location, and occupation are the main age are nine percentage points more likely to correlates of underemployment (percentage point correlation with the probability of being un- be underemployed, and this effect increas- deremployed, 2011) es to 12 percentage points when excluding -40 -30 -20 -10 0 10 20 youths who are still in school. Workers with a Female 16-20 years main job outside agriculture are significantly 21-25 years less likely (20 percentage points) to be under- 26-30 years 31-35 years employed. For agricultural workers, taking 41-45 years up secondary jobs outside agriculture reduc- 46-50 years es the likelihood of being underemployed 51-55 years 56-60 years by five percentage points. Workers in rural 61+ years areas are at higher risk of underemployment Incomplete primary Complete primary than workers in urban areas, in particular in Post primary the Northern and Western Provinces: all else Incomplete secondary Complete secondary equal, workers in the Northern (Western) Higher education Province are nine (seven) percentage points urban more likely to be underemployed than work- Main job outside agriculture Secondary job outside agriculture ers in Kigali. Women are somewhat less likely Southern Province to be underemployed than men, and, relative Western Province Northern Province to uneducated workers, workers who either Eastern province completed post-primary education or sec- Note: Confidence intervals not shown because of large sample ondary school are significantly more likely to size (confidence intervals too small) be underemployed. Source: EICV, 2011 50 The labor statistics metadata handbook of Rwanda defines the time-related underemployment rate as the fraction of employed persons who work less than 35 hours a week but want to work more 49 Rwanda Economic Update: Edition No. 9 Though the root cause of the high de- 2.3 An Increase in gree of underemployment has not been Earnings from a Low studied for Rwanda, existing research em- phasizes constraints at the demand side. Base In principle, pervasive underemployment 2.3.1 Earnings increased across the can be the result of constraints at the supply board, though most in agriculture side (workers’ characteristics, most notably and for unskilled workers limited education and skills) or at the de- mand side (low demand for labor). Though Individual labor earnings increased education of the workforce is indeed wanting substantially since 2006. Median earnings in many low-income countries, differences in from all jobs increased by 66 percent be- education typically explain only a relatively tween 2006 and 2011, and the share of work- small share of the variation in labor market ers with earnings below the poverty line (the outcomes51. Rather, demand for labor is low low-earnings rate) decreased from 54 per- due to a small formal private sector, and good cent to 33 percent (table 2.8). The increase full-time jobs are rationed. Although merely in earnings happened despite the reduction descriptive, this pattern is consistent with in hours worked (as shown in table 2.6, the Rwanda’s data. First, workers who complet- median number of hours worked decreased ed secondary education are more likely to be from 29 in 2006 to 26 in 2011). As a result, underemployed relative to uneducated work- hourly earnings increased sharply since 2006. ers (figure 2.19), suggesting that underem- Low earnings are increasingly a conse- ployment is not due to a lack of education. quence of underemployment. While the Second, differences in workforce characteris- low earnings rate has dropped, the share of tics between formal and informal wage work- low earners who have low earnings due to ers in the non-farm sector explain only a mar- short hours (underemployment) increased ginal share of the difference in hours worked, between 2006 and 2011 (table 2.8). In fact, hinting that underemployment is not caused of all low earners in 2011, 58 percent would by supply side constraints52. not be low earners if they were not underem- The high underemployment rate means ployed (did not work less than 35 hours per that a substantial part of available labor week). Low earnings are increasingly a con- is currently left idle. Thirty-six percent of sequence of underemployment rather than workers that were underemployed in 2011 insufficient remuneration per unit of time: worked a median of 20 hours per week. Ac- the share of workers who earn below the pov- cording to the EICV3 survey, they would erty line despite working long hours dropped like to work an extra 21 hours per week. This from 12 percent in 2006 to nine percent in means that underemployed workers wish to 2011, and the share who only manage to es- double the hours they currently work. Con- cape low earnings by working long hours de- sidering all workers, including those who are creased from seven percent to three percent. not underemployed, the average worker in Rwanda would like to work nine extra hours per week, which would add 30 percent to current aggregate hours worked. The high underemployment rate precludes Rwanda from realizing its full output potential. 51 See Golub and Hayat (2014) 52 Based on an Oaxaca-Blinder decomposition 50 Rwanda Economic Update: Edition No. 9 Table 2.8 Jobs outcomes have improved between 2006 and 2011 (earnings and job quality indicators, 2006 and 2011) 2006 2011 Difference Median earnings 57,755.3 95,601.1 37,845.9 Median hourly earnings 41.9 76.2 34.3 Low earnings rate 54.2 33.2 -21.0 Poverty rates among low earners 68.9 55.0 -13.9 Share of low earners who have low earnings due to short hours 41.8 57.7 15.9 Share of low earners who work long hours 12.2 8.8 -3.4 Share of non-low earners who escape low earnings due to long hours 6.7 3.1 -4.9 Note: Earnings are expressed on an annual basis in 2001 Rwf and include earnings from all jobs. Source: EICV, 2006; 2011 Earnings increased across the board pressure on working hours and drove up un- but most in agriculture. Median earnings deremployment. Given the scarcity of land, increased by 95 percent for independent agriculture is increasingly unable to provide farmers and by 50 percent for unpaid fami- full-time employment to agricultural work- ly farm workers and wage farmers. The low ers. earnings rate in agriculture dropped from 59 Earnings from the main job increased by percent in 2006 to 37 percent in 2011. This less than total earnings from all jobs. Medi- is in line with the agriculture-driven pover- an earnings from the main job increased by 50 ty reduction as documented by the Rwanda percent between 2006 and 2011, compared Poverty Assessment53. Earnings in the non- to 66 percent for total earnings (figure 2.20). farm sector increased too: by 39 percent for This suggests that the take-up of additional wage employees and by 27 percent for the jobs observed between 2006 and 2011 has self-employed. Total earnings decreased for been important in boosting earnings and re- non-farm employees due to the decrease in ducing the low earnings rate. While working hours worked (earnings per hour actually several jobs is important to top up incomes, increased). Overall, median hourly earnings especially for low earners, its effectiveness as doubled in agriculture and increased by half a strategy is nevertheless limited: Of all work- in the non-farm sector. However, earnings in ers who are low earners based on their main the non-farm sector remain almost double occupation alone, 25 percent are no longer those in farming54. low earners when earnings from secondary The increase in earnings may seem at jobs are taken into account. 75 percent of odds with the high and increasing levels of them, however, remain low earners. underemployment, particularly in agricul- The gap in earnings between men and ture. This apparent contradiction is explained women increased between 2006 and 2011. by the strong increase in agricultural produc- Though earnings increased for women as well tivity since 2007/8 (see section 2.2.2) cou- as for men, the increase was stronger for men, pled with an increasing labor surplus in agri- pushing up the earnings gap (figure 2.21). culture. The spike in agriculture productivity, The increasing earnings gap is consistent with helped by favorable weather in 2010/11, has women’s relatively slower transition to bet- increased household-level production and ter-paying non-farm occupations document- earnings, but the fact that employment in ed in section 2.2.1. agriculture still grew in absolute terms put 53 http://documents.worldbank.org/curated/en/2015/11/25244543/rwanda-poverty-assessment-poverty-global-practice-africa-region 54 Given that earnings are noisy and usually underreported, we also replicated the analysis using household consumption per adult equivalent rather than indi- vidual earnings. We do find a strong increase in household consumption for workers working in agriculture, though only very small increases or even decreases in household consumption for non-farm workers 51 Rwanda Economic Update: Edition No. 9 Unskilled and low-skilled workers expe- Figure 2.20 Earnings from secondary jobs increased rienced the strongest increase in earnings. substantially (median annual earnings from main job and from all jobs, 2006 Median earnings of uneducated workers in- and 2011) 120,000 creased by 80 percent while those of workers 95,601 100,000 who completed primary education increased 80,610 80,000 by half (table 2.9). In contrast, earnings of 53,372 57,755 60,000 workers with complete secondary education 40,000 decreased, albeit modestly. This is consist- 20,000 ent with the earlier finding that earnings in- 0 creased most in agriculture, where low-skilled persons are likely to work. Education how- Median annual earnings main job ever continues to pay off: people who com- Median annual earnings all jobs pleted secondary education earned twice as Source: EICV, 2006; 2011; Earnings in 2001 Rwf; World Bank much (in 2011) than people who only com- staff calculations pleted primary education, and people with Figure 2.21 The earnings gap between men and higher education (completed or not) earned women increased since 2006 (median annual earnings of men and women, 2006 and 2011) ten times as much as people who never en- 120,000 tered school55. 107,436 100,000 88,419 Defining workers with at least post-pri- mary education as “skilled” workers, the 80,000 59,983 56,265 skills premium decreased between 2006 60,000 and 2011. The skills premium – the ratio of 40,000 skilled to unskilled earnings, which can be 20,000 considered as the relative price of skills – fell from 2.9 to 2.0. This means that the median 0 skilled worker earned twice as much as the median unskilled worker in 2011, whereas Men Women in 2006, the median skilled worker would Source: EICV, 2006; 2011; Earnings in 2001 Rwf; World Bank earn three times as much. The decrease in staff calculations the skills premium is however not due to de- creasing returns on higher levels of education, Table 2.9 Earnings increased most for unskilled workers but rather to the sharp increase in earnings (median earnings by education, 2006 and 2011) among unskilled workers: median earnings 2006 2011 % change for unskilled workers increased by 67 percent No education 47,383 84,853 79.1% Incomplete primary 53,959 88,703 64.4% between 2006 and 2011, and skilled earnings increased by 18 percent. The latter point is im- Completed primary 70,873 108,888 53.6% portant: though the supply of skills increased Post-primary 121,069 170,136 40.5% Incomplete secondary 97,034 98,114 1.1% (the share of skilled workers increased by 20 Completed secondary 221,486 215,712 -2.6% percent), the price of skills increased too, sug- Higher 817,714 863,235 5.6% gesting a high demand for skills in the econo- Note: Earnings are expressed on an annual basis in 2001 Rwf. my (box 2.3). Source: EICV, 2006; 2011 55 This is consistent with the findings of Montenegro and Patrinos (2014), who find that returns to education in Rwanda are the highest among the 139 coun- tries in their study (Montenegro, C. and Patrinos, H. (2014). “Comparable Estimates of Returns to Schooling around the World.” Policy Research Working Paper 7020. Washington DC: The World Bank). Based on Mincer regressions, World Bank (2013) also finds high returns to education in Rwanda, especially at the senior secondary and tertiary level. Controlling for age, location and education, there are high returns to being male, and controlling for education, sex and age, urban workers earn significantly more than rural workers (World Bank. (2013). Post-Basic Education and Training in Rwanda. Skills Development for Dynamic Economic Growth. Washington DC: The World Bank) 52 Rwanda Economic Update: Edition No. 9 Box 2.3 Should You Get Rid of What returns to education have steadily increased You Need? Exporting skilled labor since 2001. These quantitative findings are may not be such a good idea reflected in the EDPRS 2, which identifies the lack of skilled labor as a growing prob- In many low-income countries, over- lem for formal sector firms. Although a more all unemployment tends to be low while elaborate analysis would clearly be needed, unemployment among urban and educat- exporting skilled labor does not seem to be ed youth, especially women, tends to be readily warranted. high. Rwanda is no exception. In the week preceding the 2012 Population and Hous- What then explains the high unem- ing Census, 3.4 percent of Rwandans were ployment rate among the urban educated unemployed. This increased to 11 percent youth? Although rigorous analysis for Rwan- for young (16-30) workers in Kigali, to 20 da is lacking, evidence from other low-in- percent for young skilled (at least completed come countries point towards the effects of post-primary education) workers in Kigali, “queuing”56: in many low-income countries, and 27 percent for young skilled women in public sector wages are substantially higher Kigali. Unemployment in Rwanda is clearly than private sector wages. As a result, young an issue of the educated urban youth. educated and urban youth, mainly from priv- ileged households, wait or “queue” for a pub- The high unemployment rate among lic sector job to open up instead of accepting young educated urbanites has fueled pro- a job in the private sector where salaries are posals to develop labor migration strat- lower. This phenomenon largely explains egies. These proposals appear to be based why unemployment in low-income coun- on the belief that if unemployment among tries is concentrated among the youth from the skilled is high, there must be a surplus better-off households: they can afford not to of skills in the economy. If that were true, work and wait for a good public sector job standard economic theory would predict to come their way. Although far from a rig- returns to education to have decreased in re- orous analysis, the symptoms in Rwanda are cent years (if supply of skills is too high, the consistent with queuing: earnings are higher price of skills must decrease). This is howev- in the public than in the private sector, un- er not the case: while the supply of skills has employment is concentrated among young increased between 2006 and 2011, so has and educated urban workers, and they tend their price, suggesting that demand for edu- to come from privileged households. To il- cation or skills has outpaced supply. A simi- lustrate this, only seven percent of the urban lar point is made by Montenegro and Patri- unemployed live in poor households, while nos (2014), who find not only that Rwanda 18 percent of the urban employed come has the highest returns to education among from poor households. the 138 countries in their study, but also that 56 See for instance, Rama (2003) for Sri Lanka, Serneels (2007) for Ethiopia, and Ranzani and Tuccio (2015) for Ghana 53 Rwanda Economic Update: Edition No. 9 2.3.2 Diversification and take-up of There are a number of interesting dif- additional jobs are important for ferences in the correlates of earnings the earnings increase growth between lower- and higher-earn- ing workers. Taking up additional jobs has Although an in-depth analysis of what been particularly important for earnings determines earnings in Rwanda is outside growth of low-earners: taking on additional the scope of this special focus, this subsec- jobs explains 17 percent of growth in earn- tion briefly touches upon the correlates ings at the 10th percentile and 11 percent at of the growth in earnings. Here, we use a the 25th percentile, but was only of marginal number of decomposition approaches to get importance at the median and even negative- a better idea of the mechanism behind the ob- ly correlated with earnings growth of high- served increase in earnings. At the outset, it is er-earners (figure 2.22). Though low-earners important to keep in mind that the following also diversified into non-farm activities, this decompositions are descriptive and do not has not been associated with growth in their necessarily represent causal effects. earnings. In contrast, diversification accounts Given the short time frame between for the bulk of earnings growth at the high- the surveys (five years), it is not surpris- er end of the distribution: the higher share of ing that changes in the characteristics of workers with a non-farm occupation explains the workforce and the jobs they are doing 27 percent of earnings growth at the 90th per- explain only a small part of the increase centile and 22 percent at the 75th percentile. in earnings. Using an Oaxaca-Blinder de- The increase in education between 2006 and composition, we find that the changes in 2011 contributed significantly to earnings the characteristics of the workforce and the growth for the higher earners (15 percent at jobs they are doing explain only a minor part the 90th percentile and eight percent at the (about 22 percent) of the increase in median 75th percentile), but was only marginal at the earnings57. The workforce characteristic that lower half of the earnings distribution (figure has been most strongly correlated with the 2.22)59. increase in median earnings is the increasing share of workers with a job outside agricul- Figure 2.22 Taking up additional jobs was a main ture: the share of workers with a job outside correlate of earnings growth for low earners, while agriculture (regardless of whether or not this diversification was more important for higher earners (contribution to growth in earnings at different points of the is the main job) increased from 30 percent in earnings distribution) 2006 to 45 percent in 2011, explaining about 30% Contribution to increase in earnings (%) 27.4% 25% 22.4% 12 percent of the growth in median earnings 20% 16.7% (figure 2.22). The modest increase in educa- 15% 10% 11.0% 7.2% 12.3% 7.7% 14.7% tion of the workforce and the higher share of 5% 3.4% 3.8% workers working several jobs only had a small 0% -5% 2.3% 2.7% 3.8% -2.2% positive impact on earnings58. -10% Lowest earners -6.6% Low earners Median earners Higher earners Highest earners (10th perc.) (25th perc.) (50th perc) (75th perc.) (90th perc.) Increase in number of jobs Increase in education Higher fraction of workers with a non-farm occupation Source: EICV, 2006; 2011; World Bank staff calculations 57 This means that most of the increase in earnings remains “unexplained,” or due to changes in returns (coefficients) 58 Refer to the Rwanda Employment and Jobs Study for the full details of the decomposition (http://documents.worldbank.org/curated/ en/2015/11/25244484/rwanda-employment-jobs-study) 59 Repeating the analysis with the move to non-farm occupations split into two variables depending on the status of the non-farm occupation (primary job or secondary job) broadly gives the same results: the move to non-farm occupations as a main job is the main correlate of earnings growth at the higher end of the distribution, while the take up of non-farm secondary occupations was more important at the lower end of the distribution (where the uptake of additional jobs in general remains the main driver of earnings growth) 54 Rwanda Economic Update: Edition No. 9 Although diversification into non-farm percent can be explained by the uptake of occupations has contributed to the ob- non-agricultural jobs (regardless of the status served growth in earnings, most of the of that job-primary or secondary). The in- decrease in the low earnings rate can be teraction effect is negative: workers took up accounted for by increased earnings with- jobs in the sector where earnings increased in the sector. Considering the broad agricul- least (the non-farm sector). The decrease in tural versus non-agricultural dichotomy, 89 the low-earnings rate is predominantly due to percent of the decrease in the low earnings increased earnings within agriculture, related rate between 2006 and 2011 can be account- to the increase in agricultural production and ed for by increased earnings within sectors, productivity since 2007/8. in particular in agriculture. An additional 17 2.4 Improving sector absorbed most of the new workers Employment Outcomes: between 2006 and 2011 (70 percent: 48 per- cent in wage employment and 22 percent in What are the self-employment) and will continue to ab- Challenges? sorb workers who seek a better living out- Creating a sufficient number of produc- side agriculture, but who cannot get a job in tive jobs for a rapidly growing labor force the formal sector, either due to lack of skills will likely be the defining challenge for or lack of demand (due to the small size of Rwanda over the coming decade. Census the formal sector). In addition, the informal projections show that the working-age pop- non-farm sector is particularly important for ulation will grow by about 240,000 per year the youth: average age in the informal non- between 2016 and 2025, substantially larg- farm sector (31 years) is significantly lower er than the increase during the past decade- than in farming (38 years) and the rest of the and-a-half. Acknowledging the demographic non-farm sector (34 years). Employment in trends, the Government’s National Employ- the formal sector, while growing quickly, will ment Programme (NEP) targets the creation remain low for the foreseeable future. Assum- of 200,000 non-farm jobs per year. This am- ing that employment in the formal private bitious target has been undershot, with an sector continues growing rapidly (at 16.5 per- annual non-farm job growth of 122,000 per cent per year – the growth observed between year between 2006 and 2014. While this rate 2006 and 2011), it would still only account of job growth is still strong, not all of these for 11 percent of the working-age population jobs are proper full-time jobs. Indeed, to by 2020 (figure 2.23)60. This means that at qualify as a job, it suffices that workers have least until 2020, the bulk of the increase in worked in this job only a couple of days in the the labor force will need to be accommodated 12 months preceding the survey. by either the informal non-farm sector or ag- riculture. This does not mean, however, that For non-farm job creation going for- the formal sector is unimportant, as most of ward, both the formal and informal sector what we would consider to be “good” jobs are will be important. The informal non-farm created by the formal private sector. 60 Other data sources confirm both the low level and strong growth of formal employment. According to the Establishment Censuses, employment in formal private firms grew by 50 percent between 2011 and 2014, though remained low at 109,000 jobs in 2014 (substantially lower than what the EICV3 data show) 55 Rwanda Economic Update: Edition No. 9 much about the constraints and opportuni- Figure 2.23 The formal private sector will remain small in terms of employment ties in this sector, existing research shows that (projected share of the formal private sector in working-age non-farm firms tend to settle in places with population and share of the increase in working-age population absorbed by the formal private sector) agglomeration effects (urban areas), with de- 70% cent domestic connectivity and electricity ac- 60% 47% cess61. In this regard, the Government’s strat- 50% egy to develop six secondary cities is likely to 40% 30% 24% boost the creation of small firms and jobs in 20% those cities. A key question is how the urban- 11% 10% 5% ization of the secondary cities can be planned 0% and managed so as to maximize its impact on 2013 2014 2015 2016 2017 2018 2019 2020 Share of formal private sector in working-age employment growth, both within the cities population Share of the increase in working-age population and in the bordering rural communities. Cur- absorbed by formal private sector rently, the six secondary cities are fairly sim- Source: EICV3, 2011; World Bank staff calculations ilar in terms of economic activities, special- Given that the bulk of young labor mar- izing in small services and trade firms (this ket entrants are likely to enter the infor- is based on the 2014 Establishment Census mal non-farm sector, a key question for (box 2.4)), but local economic development policy is how the environment for micro, studies are currently underway to examine small and medium enterprises (MSMEs) whether the cities have revealed comparative in this sector can be improved. Though advantages that could boost employment and the data available for this study does not say firm creation. Box 2.4 In the Meantime, How’s the Looking at the 2011 and 2014 Establishment Demand Side Doing? Employment in Censuses, three important trends emerge. firms is increasing from a low base First, the number of private firms and employ- ment in these firms is increasing: between 2011 Most of the analysis presented in this spe- and 2014, the number of firms increased by 24 cial focus concentrates on the supply side of percent and the number of workers in these firms the labor market: the workers. The reason for by 34 percent. Second, though the informal sec- this is simple and has already been mentioned tor remains dominant, more formal firms are being before: most of the jobs in Rwanda do not involve established. There were about 1,000 more formal any labor exchange and respond to subsistence firms in 2014 than in 2011, and employment in incentives rather than to actual demand for labor. these firms increased by half. Third, large firms – Even in the Establishment Census – a compre- the kind of firms Rwanda needs in order to absorb hensive listing of all formal and informal non-farm its rapidly growing labor force – are increasing- enterprises in Rwanda – about two-thirds of pri- ly being established. The number of large firms, vate enterprises are informal one-person affairs, defined as firms with more than 100 employees, responding to the need to generate household doubled from a low base, and employment in income rather than labor demand in the proper those firms increased by more than half. Though sense. Keeping this caveat in mind, what can large firms accounted for a mere 0.1 percent of we say about the demand side trends in recent private firms in 2014, they provided close to 20 years? percent of employment in enterprises, highlighting the importance of large firms for job creation. 61 Iimi, A., Humphrey, R., and Melibaeva, S. (2015). “Firms’ locational choice and infrastructure development in Rwanda.” Policy Research Working Paper 7279. Washington DC: The World Bank 56 Rwanda Economic Update: Edition No. 9 Though the trends observed in the Estab- workers, or roughly five percent of the total work- lishment Censuses are positive, the numbers ing-age population. While the number of non-farm need to be interpreted in the proper context. firms and employment is clearly increasing, they In 2014, private firms in Rwanda (both formal and represent only a small share of total employment. informal) provided employment to about 350,000 Figure 2.24 The number of firms and employment in Figure 2.25 Employment in formal firms increased by them is increasing half (number of private firms and employment in private firms, 2011 (number of private formal firms and employment in private and 2014) firms, 2011 and 2014 ) 400,000 120,000 109,015 351,289 350,000 100,000 300,000 261,932 80,000 72,981 250,000 60,000 200,000 148,298 150,000 119,197 40,000 100,000 20,000 6,231 7,249 50,000 0 0 Number of formal Employment in Number of firms Total employment firms formal firms 2011 2014 2011 2014 Source: Establishment Census, 2011; 2014 Source: Establishment Census, 2011; 2014 Rwanda’s small domestic market means than half of Rwanda’s workforce will be that Rwanda should look outside its bor- employed in agriculture62. This means that ders for growth opportunities. Most of the the most direct way to increase earnings for secondary cities are located on or close to the bulk of the workers, and often the most land borders with other countries, potentially vulnerable ones, is to further increase produc- facilitating cross-border trade. The towns of tivity and earnings in agriculture. The impor- Rubavu and Rusizi in particular are ideally lo- tance of this cannot be overstated: though the cated as gateways into the much bigger cities shift to non-farm activities has boosted over- of Goma and Bukavu in neighboring DRC. A all earnings, the lion’s share of the growth in key question for policy is how cross-border earnings was due to improvements within ag- trade, especially between the Western Prov- riculture (see previous section). Agricultural ince and DRC but also with other countries, productivity spiked between 2007 and 2011, can be facilitated and stimulated to boost em- with yields of cereals and roots and tubers ployment growth. roughly doubling, but has plateaued since63. Though the share of workers with a main Further increasing agricultural productivity job in agriculture is decreasing, projec- and reducing post-harvest losses will be cru- tions suggest that at least until 2020 more cial to increasing earnings for the bulk of the population. 62 See World Bank, 2015 63 This is based on data from FAOSTAT 57 Rwanda Economic Update: Edition No. 9 Increasing productivity in agriculture In sum, Rwanda appears to need a two- is even more important in light of the ap- pronged employment strategy in the me- parent stall in the farm-to-non-farm-tran- dium term. On the one hand, the unskilled sition since 2011. Between 2006 and 2011, nature of the bulk of the labor force requires the shift of labor from agriculture to non- further increases in agricultural productiv- farm sectors (the inter-sectoral shift) was an ity and job creation in industries related to important driver of the reduction in poverty, agriculture (agribusiness, agro-industry) to the increase in earnings, and the growth in further improve employment outcomes for labor productivity. Since 2011 however, this the most vulnerable group of workers. On structural reallocation in the labor market the other hand, the rapid expansion in educa- has almost stalled, with the share of workers tion means that new labor force entrants will with a main job in agriculture decreasing only be increasingly educated, which will require modestly from 71 percent in 2011 to 69.4 the creation of more skilled and semi-skilled percent in 201464. As a result, the inter-sec- jobs, preferably through the entrance of larger toral shift explained “only” 47 percent of the formal firms. Expansion of economic activi- increase in output per worker over this period ty in the secondary cities will be important (compared to 90 percent between 2006 and in this regard, as will be the ongoing efforts 2011). Though the link between agricultural to expand access to electricity and improve productivity and structural labor shifts have the domestic and external connectivity of the not been studied in Rwanda, existing research economy. tends to show that sharp increases in agricul- tural productivity spur the reallocation of workers from farm to more productive non- farm sectors65. 64 NISR, 2015 65 See, for instance, World Bank (2012) and Bustos et al (2016) 58 Rwanda Economic Update: Edition No. 9 Annexes 59 Rwanda Economic Update: Edition No. 9 Annex 1.1 Impact of Inflows of Burundian Refugees on Rwanda’s Economy Background: The socio-political tension Annex Figure 1.1.1 Food and housing prices started to in Burundi that started in March 2015 led increase in Q2 2015 to inflows of Burundians into neighboring 12% 10% countries, including Rwanda. As of January 8% 2016, the total number of Burundians who 6% fled from the country and came to Rwanda 4% reached seventy-one thousand66. Among the 2% Burundians in Rwanda, forty-eight thou- 0% sand (67 percent) live in camps or recep- -2% tion centers, and the remaining twenty-three Food and non-alcoholic beverages thousand (33 percent) live in urban areas. Alcoholic beverages and tobacco United Nations High Commissioner for Ref- Housing, water, electricity, gas and other fuels ugees (UNHCR) estimated that financial re- Source: NISR quirements are US$111 million. As of Octo- ber 2015, US$39 million or 35 percent of the (2) Inflation: The increase in private con- estimate was received. sumption would affect prices. Prices of essen- tial items such as food, beverages and housing Transmission Mechanism and Potential started to increase in the second quarter of Impacts: The inflows of Burundians could 2015. The increase in food prices accelerated affect Rwanda’s economy through several from 0.6 percent (YOY) in Q1 2015 to 4.4 channels, including private consumption, in- percent between April and November 2015. flation, balance of payments, and fiscal sector, According to the national account, food crops though a lack of statistics does not allow us to production in Q2 and Q3 2015 increased by make concrete estimates. 4.2 percent (YOY). The positive growth of (1) Private consumption: Rwanda’s food crop production implies that higher in- population is estimated at 11.3 million in flation rates are due to the inflows of Burun- 201567. The size of the Burundians’ inflows dians. in January 2016 (seventy-one thousand) is (3) Balance of payments: With the as- 0.6 percent of Rwanda’s population. Their sumption that US$111 million (100 percent purchases of goods and services would stim- of the financial requirement estimated by ulate domestic demand (partly through local UNHCR) will come from external sourc- procurements by UNHCR and other institu- es (mainly through public current transfer), tions). As the share of private consumption total inflows in the balance of payments will of the economy is about 75 percent, it would be increased by about three to four percent. increase GDP by as much as 0.5 percent. However, net impacts of the inflows on the (Note that Burundians in the camps would economy will depend on the share of the in- not spend by the same degree as Rwandans). flows used for local procurements of goods 66 http://data.unhcr.org/burundi/country.php?id=182#_ga=1.200846381.2063669315.1452065089 67 http://www.statistics.gov.rw/ 60 Rwanda Economic Update: Edition No. 9 and services. If 50 percent of the inflow is off- Anecdotal evidence: Anecdotal evidence set by outflow (e.g., imports of goods and ser- shows a positive impact on the economy and vices), the inflows would have a positive im- increase in prices. For example, a New Times pact of US$56 million, or about five percent article called “A tale of Burundian refugee’s of the current account deficit in 2014. life in Kigali” in July 2015 notes that an in- International trade statistics by destination crease in customers has been observed by bar show that exports to Burundi fell by 21 per- owners and landlords. Also, a Rwanda Eye cent (YOY), while imports from Burundi in- article in May called “Dollars flood Rwandan creased by 35 percent in Q2 2015 (followed economy as Burundi refugees arrive” says by an 88 percent increase in Q1 2015). While that prices of essential food products have in- the decline in exports is understandable, an creased by 100 percent in border districts of explanation for the increase in imports re- Bugesera, Rusizi, and Huye. quires further assessment. Nevertheless, the trade deficit with Burundi is US$0.4 million, which is much smaller than possible financial inflows. (4) Fiscal sector: In the 2015/16 budget, Rwf 1.1 billion (about US$1.5 million, or 0.06 percent of the total budget) has been allocated to manage the refugee situation un- der the Ministry of Disaster Management and Refugee Affairs (MIDIMAR). Out of the to- tal budget, Rwf 1.0 billion is projected to be externally financed. Given the small size of the budget allocated to manage foreign refu- gees and the share projected to be externally financed, impacts on Rwanda’s overall budget would be small. 61 Rwanda Economic Update: Edition No. 9 Annex 1.2 Impact of China’s Turbulence on Rwanda’s Economy Summary Introduction: This note at- Annex Figure 1.2.1 Oil prices decline sharper than other tempts to analyze impacts of China’s turbu- commodity prices (Jan 2013=100) lence on Rwanda’s economy. China devalued 160 140 its currency in mid-August 2015, which trig- 120 gered sharp declines of stock prices across the 100 world. Impacts of these events on Rwanda’s 80 economy depend on their length and mag- 60 nitude, as well as their impacts on the glob- 40 20 al economy. Short-term/direct impact on 0 Rwanda’s economy is likely to be small due to China’s small share in Rwanda’s exports. However, if China’s turbulence continues and Oil Coffee Tea Tin starts to affect the global economy, Rwanda Source: World Bank will not be isolated from the global impact. In sulting slowdown of the global economy led order to measure impact on Rwanda’s econo- to the decline in Rwanda’s exports by 22.8 my, this note focuses on international trade, percent in real terms. investment, inflation, and exchange rates. A possible slowdown on China’s economy International Trade68: In 2014, Rwan- would have significant impacts on commod- da’s goods exports reached US$453 million, ity prices. For example, China accounted for of which exports to China were US$14 mil- 12 percent of global crude oil consumption lion or three percent of the total exports. In and 21 percent of global coffee imports in contrast, China accounted for 20 percent 201469. Impacts of commodity price decline (US$348 million) of total imports (US$1.7 on Rwanda depend on relative price chang- billion). Thus, a possible decline in exports es between export commodities (coffee, to China is likely to have little impact. On tea, minerals, and energy products (re-ex- the other hand, if import prices from China ports)70), and the import of energy prod- decline (e.g., through the deprecation of Chi- ucts. In 2014, Rwanda’s commodity exports nese currency or decline in goods prices to reached $480 million (of which re-exports drive exports), Rwanda would be better off. were $165 million), and energy product im- However, impacts of China’s turbulence on ports reached US$379 million. Thus, if prices Rwanda through international trade also de- of all commodities decrease at the same pace, pend on economies of Rwanda’s main export Rwanda would have a net negative impact. destinations such as Switzerland (15 percent However, recent developments of commod- of Rwanda’s total exports), Kenya (12 per- ity prices show that the decline in oil prices cent), and DRC (11 percent). In 2009, Rwan- was sharper than other commodities. In other da’s growth rate significantly decelerated to words, if the same pattern is observed, Rwan- 6.3 percent from 11.2 percent in the previous da will benefit from declines in commodity year. The 2008 global financial crisis and re- prices (annex figure 1.2.1). 68 http://www.statistics.gov.rw/publications/formal-external-trade-goods-statistics-report-q1-2015 69 http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1304428586133/GEP2015c_commodity_Jul2015.pdf 70 There is no data on the composition of re-exports. In this note, all re-exports are assumed to be energy products 62 Rwanda Economic Update: Edition No. 9 Investment71: In 2013, total FDI inflows change markets.72 As China holds significant to Rwanda were US$258 million (3.4 per- amounts of US government bonds, selling cent of GDP) and total stock was US$838 these bonds will lead to an increase in long- million. China accounted for 2.3 percent of term interest rates. The increase would nega- the total FDI inflows and 1.1 percent of FDI tively affect Rwanda through the increase in stock. While China’s contributions may be financing costs when the country attempts to significantly underestimated (e.g., activities access to the international capital market. of Chinese construction companies in Ki- gali and China’s import share), China’s low share overall suggests that China’s turbulence Annex Figure 1.2.2 Imported goods prices were lower than the overall CPI in the first several months in 2015 would not have significant direct impact on (year-on-year growth rate, percent) Rwanda through FDI. 7% 6% Inflation (annex figure 1.2.2): Rwanda’s 5% 5.7% 4.5% inflation has been stable. Though slightly in- 4% creased in recent months, consumer price in- 3% dex (CPI) increased by 2.3 percent (YOY) in 2% 1.3% 1% the first eleven months of 2015. The decline 0% in transportation prices (including gasoline) -1% has significantly contributed to stable infla- tion rates. Additionally, imported goods ac- CPI Local goods Imported goods count for 26 percent of the CPI basket. Thus, Source: NISR a possible decline in global commodity prices will be a positive factor for Rwanda’s inflation. Exchange Rates (annex figure 1.2.3): The Annex Figure 1.2.3 Rwandan franc deprecated Rwandan franc has depreciated against the against the US dollar, but appreciate against other key currencies (Jan 2, 2015=100) US dollar by 7.6 percent in 2015. However, 110 the US is not a major trade partner to Rwan- Appreciation <-----> Depreciation 105 da (five percent of exports and two percent 100 of imports). Thus, the depreciation against the US dollar is likely to have limited impact. 95 Furthermore, the Rwandan franc appreciat- 90 ed by 2.4 percent against the Euro and by 4.8 85 percent against the Kenyan shilling. Thus, if 80 measured by real effective exchange rate, the Rwandan franc has in effect appreciated. China USD EURO KES Continued fluctuations of China’s curren- Note: Higher value means depreciation. cy would indirectly affect Rwanda’s econo- Source: BNR my in the medium term. China’s foreign re- serves declined by US$94 billion in August 2015 due to intervention into the foreign ex- 71 http://www.statistics.gov.rw/survey-period/foreign-private-capital-census-2013 72 http://www.wsj.com/articles/china-august-forex-reserves-down-by-93-9-billion-as-pboc-intervenes-1441614856 63 Rwanda Economic Update: Edition No. 9 Annex 2.1: Definitions Employment Labor force The number of working age individuals, both employed and unemployed. Employed An individual who performed market activities for at least one hour in the week prior to the survey, or who has a permanent job. For the calculation of earnings howev- er, given significant seasonality effects, the reference period is extended to the 12 months preceding the survey to also capture earnings of individuals who worked in the preceding 12 months but not in the preceding 7 days. Unemployed A working-age individual who is not employed but is actively looking for work. Inactive A person who is neither employed nor actively looking for work. Working-age population In the Rwandan context, defined as all people 16 years of age and above. Wage worker A worker who has declared being paid a wage or salary for their work. Employer A person who is said to be in charge of a household non-farm enterprise that hires paid labor from outside the household. Self-employed A person working in a household non-farm enterprise or a household farm in which no other household member or paid non-household member is also working. Household enterprise A person who is working in a household non-farm enterprise or a household farm in worker which other household member are also working but is who not an employer. Independent farmers A person working on their farm and who describes themselves as the boss of the family farm. Usually the household head. Unpaid family farmer A household member working on the family farm without pay and without being the independent farmer. Usually these are family members (spouse and children) of the independent farmer who also work on the farm. Formal employment Wage employment where the individual declares themselves to be working in one of the following sectors: public, parapublic, private formal, or NGO. Main job The job the individual spends most of their working time doing. Main job is defined in terms of time (the job that occupies most of the time of the worker) and not in terms of earnings (the job that procures the most earnings). Earnings Earnings All cash payments, payments in kind, and benefits received in exchange for labor services in wage and salaried employment, self-employment, and other forms of labor exchange. Depending on the context, earnings include only primary job earnings or the sum of earnings in all reported jobs. In this study earnings are often presented using total annual earnings from all jobs based on the sector of the primary job. Wage earnings Total cash and in-kind earnings as declared in the survey. Earnings of the self-em- Earnings are calculated in the following manner: First, net revenues are construct- ployed, employers, house- ed at the enterprise level. (Note: the family farm, and all of its varied crop/livestock hold enterprise workers, activities, is considered one enterprise, even if there may be multiple non-agricul- and unpaid family farmers tural enterprises per household.) Next, these net revenues are distributed across all household members engaged in that enterprise. Since individuals report the hours they worked on each enterprise, each individual received a share of net revenues from the enterprise equal to his/her share of total hours worked in that enterprise. Revenues are allocated to contributing individuals regardless of their self-reported employment classification. That is, persons who report being unpaid family farmers are also allocated revenues proportional to their hours worked on the farm. Low earner An employed individual whose annual earnings are below the national poverty line of Rwf 64,000 in 2001 prices. 64 Rwanda Economic Update: Edition No. 9 Annex Tables Annex Table 1: Selected Economic Indicators 2010 2011 2012 2013 2014 2015 GDP Growth Rate (percent) 7.3 7.9 8.8 4.7 7.0 - Agriculture 4.9 4.7 6.4 3.3 5.3 - Industry 8.5 17.6 8.5 9.3 5.8 - Services 9.2 8.0 11.6 5.3 8.9 - Fiscal Framework (percent of GDP)¹ Revenues and Grants 25.4 24.8 25.3 23.2 26.0 25.4 Total revenue 12.4 13.8 14.3 15.5 16.8 18.0 Tax revenue 11.9 13.2 13.4 13.7 14.8 15.6 Non-tax revenue 0.5 0.6 0.8 1.8 2.0 2.4 Grants 13.0 10.8 11.0 7.7 9.2 7.5 Budgetary grants 9.0 6.1 6.4 4.0 3.3 3.1 Capital grants 4.0 4.7 4.6 3.7 5.9 4.3 Total expenditure and net lending 25.5 27.9 26.5 28.5 30.0 30.4 Current expenditure 14.5 15.5 14.8 13.4 15.2 14.9 Capital expenditure 10.0 12.5 11.6 12.9 13.9 13.8 Domestic 5.0 6.2 5.6 5.1 6.2 7.0 Foreign 5.0 6.2 6.1 7.8 7.6 6.8 Net lending 0.9 0.5 0.0 2.2 1.0 1.7 Budget deficit (cash basis) Excluding grants -13.4 -14.5 -12.5 -13.2 -13.6 -12.8 Including grants -0.5 -3.8 -1.5 -5.4 -4.3 -5.3 External Sector Goods exports (year-on-year growth, percent) 32.8 52.4 24.5 18.7 4.7 -7.0 Goods imports (year-on-year growth, percent) 15.2 33.8 11.7 6.4 6.2 -2.8 Gross Reserves (Millions US$) 813 1,050 850 1,070 951 922 Consumer Price Index (percentage change) End of period 0.2 8.3 3.9 3.6 2.1 4.5 Period average 2.3 5.7 6.3 4.2 1.8 2.5 Exchange rate (Rwf/US$) End period 594.5 603.4 631.0 667.7 692.6 747.7 Period average 594.5 600.3 631.4 670.1 694.4 719.1 Source: NISR, BNR and MINECOFIN ¹ On a fiscal year basis ( July-June). For example, the column ending in 2011 refers to FY2010/11. 65 Rwanda Economic Update: Edition No. 9 Annex Table 2: Gross Domestic Product by Kind of Activity 2011 2012 2013 2014 2015 1st 2nd 1st 2nd 1st 2nd 1st 2rd 1st half half half half half half half half half (Rwf billion, current prices) Gross Domestic Product (GDP) 1,795 2,051 2,078 2,359 2,323 2,541 2,596 2,789 2,792 Agriculture, Forestry & Fishing 556 688 659 823 761 862 850 934 892 Food crops 379 467 460 565 545 616 617 657 637 Export crops 25 53 25 76 28 51 34 71 40 Livestock & livestock products 59 63 67 71 74 78 81 87 90 Forestry 88 97 100 105 105 107 108 110 112 Fishing 6 7 8 8 8 10 10 10 10 Industry 256 299 288 350 346 379 375 399 410 Mining & quarrying 35 39 32 37 44 46 47 49 43 Total Manufacturing 89 115 105 129 117 136 128 132 139 Of which: Food 19 31 22 33 25 34 29 31 32 Beverages & tobacco 45 55 52 63 60 67 65 63 69 Electricity 5 6 6 8 8 9 9 10 10 Water & waste management 6 7 8 8 8 8 8 8 8 Construction 121 131 136 168 168 181 183 200 209 Services 851 938 1,009 1,070 1,099 1,178 1,221 1,310 1,335 Trade &Transport 269 323 329 378 356 402 401 434 431 Maintenance & repair of motor vehicles 9 10 10 10 12 12 12 12 12 Wholesale & retail trade 212 254 257 296 275 313 312 340 338 Transport 49 58 61 72 69 77 78 83 80 Other Services 582 616 679 692 743 775 820 875 904 Hotels & restaurants 48 51 52 54 54 56 57 59 59 Information & communication 43 50 56 61 56 60 61 72 73 Financial services 56 51 69 68 81 83 82 89 91 Real estate activities 144 142 151 131 140 140 154 169 178 Professional, scientific & technical ac- 47 49 56 55 58 61 61 62 67 tivities Administrative & support service activ- 49 53 57 59 61 64 66 68 71 ities Public administration & defense; com- 48 68 68 79 78 88 86 94 92 pulsory social security Education 60 62 73 77 100 102 113 110 120 Human health & social work activities 17 21 24 25 27 28 33 32 35 Cultural, domestic & other services 68 69 74 82 88 94 106 119 119 Taxes less subsidies on products 131 127 122 115 117 122 148 145 155 66 Rwanda Economic Update: Edition No. 9 2011 2012 2013 2014 2015 1st 2nd 1st 2nd 1st 2nd 1st 2nd 1st half half half half half half half half half (Rwf billion – constant 2011 prices) Gross Domestic Product (GDP) 1,816 2,030 1,997 2,187 2,117 2,264 2,260 2,426 2,425 Agriculture, Forestry & Fishing 575 669 617 708 658 710 692 749 725 Food crops 390 454 430 476 458 480 484 512 504 Export crops 25 53 23 63 27 54 27 52 32 Livestock & livestock products 60 62 64 65 68 70 73 77 79 Forestry 91 93 94 97 98 99 100 101 103 Fishing 8 6 6 6 7 8 8 8 8 Industry 260 294 276 325 314 342 335 360 364 Mining & Quarrying 34 40 32 36 39 43 44 47 40 Total Manufacturing 93 112 100 116 105 121 112 117 121 Of which: Food 20 30 21 29 24 31 26 27 28 Beverages & tobacco 46 52 48 55 49 57 51 51 54 Electricity 5 6 6 6 7 8 8 8 8 Water & waste management 6 7 8 8 8 8 8 8 8 Construction 123 129 130 157 156 164 165 180 187 Services 856 934 973 1,023 1,022 1,081 1,108 1,183 1,189 Trade & Transport 274 318 322 358 341 379 377 409 398 Maintenance & repair of motor vehi- 10 10 10 10 10 10 10 12 12 cles Wholesale & retail trade 214 253 253 279 266 297 296 322 313 Transport 51 56 59 68 65 72 71 76 73 Other Services 583 615 651 665 681 702 731 773 791 Hotels & restaurants 48 51 52 54 53 55 55 57 57 Information & communication 41 51 59 65 59 64 65 78 78 Financial services 54 53 60 61 68 66 70 70 76 Real estate activities 144 141 147 137 143 144 151 159 164 Professional, scientific & technical 48 49 53 51 53 54 55 55 59 activities Administrative & support service 50 52 54 55 56 57 59 60 63 activities Public administration & defense; com- 48 67 64 75 73 80 78 84 81 pulsory social security Education 62 62 66 66 68 68 74 74 78 Human health & social work activities 18 22 24 23 24 25 26 30 29 Cultural, domestic & other services 68 69 72 79 83 87 97 107 107 Taxes less subsidies on products 125 133 131 132 124 131 125 136 147 Source: NISR 67 Rwanda Economic Update: Edition No. 9 Annex Table 3: Inflation indicators (year-on-year percent change) Overall Core Import prices Energy prices Food prices 2013 January 5.7 4.7 3.0 5.6 8.3 February 4.8 5.1 4.0 8.5 4.7 March 3.2 4.8 3.4 4.6 1.9 April 4.4 5.2 4.0 6.4 4.1 May 3.0 3.6 3.5 2.5 2.6 June 3.7 3.4 1.9 0.9 4.4 July 3.5 3.6 1.5 -0.9 4.0 August 4.0 3.6 2.7 2.0 4.9 September 5.1 3.3 2.5 2.8 7.8 October 5.1 3.2 1.2 0.3 8.2 November 4.6 3.4 2.3 0.2 6.4 December 3.6 3.8 1.6 0.0 3.9 2014 January 2.4 2.7 2.6 1.6 2.4 February 3.4 2.8 2.5 1.6 5.0 March 3.4 2.6 1.7 0.7 5.2 April 2.7 2.3 1.2 -0.5 3.8 May 1.9 2.3 0.9 -4.2 3.0 June 1.4 2.0 -0.4 0.2 1.9 July 1.9 2.3 0.8 2.2 2.4 August 0.9 2.5 1.1 0.8 -0.2 September 0.2 3.0 2.1 1.2 -3.1 October 0.5 3.5 3.2 0.8 -3.3 November 0.7 2.9 1.3 0.7 -2.7 December 2.1 2.9 1.6 2.0 0.7 2015 January 1.5 1.8 0.0 0.3 1.2 February 0.7 1.6 -0.3 -0.4 -0.3 March 0.8 1.7 -0.1 -0.9 0.8 April 0.9 1.6 -0.3 -3.1 2.5 May 2.2 2.0 0.6 0.5 3.8 June 2.8 3.0 3.3 0.9 2.9 July 2.3 3.0 3.4 0.3 0.7 August 3.0 2.7 3.0 1.9 3.2 September 3.7 2.3 1.8 4.4 5.6 October 2.9 1.3 0.1 3.8 5.6 November 4.8 2.3 1.0 3.4 10.5 December 4.5 2.3 1.3 1.6 9.7 Source: BNR and NISR. 68 Rwanda Economic Update: Edition No. 9 Annex Table 4: Exchange Rate (monthly Average) Month US dollar Euro UK pound Uganda Kenya Tanzania Burundi shilling shilling shilling franc 2013 January 631.29 838.05 1,008.81 0.24 7.38 0.40 0.42 February 633.25 846.82 981.39 0.24 7.36 0.39 0.41 March 634.98 824.27 957.00 0.24 7.52 0.39 0.41 April 637.38 829.03 974.68 0.25 7.69 0.40 0.41 May 640.13 831.41 979.34 0.25 7.73 0.40 0.41 June 641.66 846.19 993.12 0.25 7.61 0.40 0.42 July 645.22 843.25 980.34 0.25 7.55 0.41 0.42 August 649.01 864.16 1,005.03 0.25 7.53 0.41 0.43 September 653.26 871.37 1,033.65 0.26 7.60 0.41 0.43 October 661.29 901.19 1,064.45 0.26 7.88 0.42 0.43 November 664.30 897.29 1,068.75 0.27 7.84 0.42 0.43 December 667.74 914.43 1,093.43 0.27 7.85 0.43 0.44 2014 January 672.66 916.57 1,107.13 0.27 7.91 0.43 0.44 February 674.65 920.46 1,115.73 0.28 7.95 0.42 0.44 March 676.39 935.04 1,124.54 0.27 7.95 0.42 0.44 April 678.20 936.67 1,135.18 0.27 7.90 0.42 0.44 May 680.67 935.68 1,146.96 0.27 7.79 0.41 0.44 June 681.69 927.85 1,151.55 0.27 7.79 0.41 0.44 July 683.47 926.05 1,168.56 0.26 7.76 0.41 0.44 August 684.23 911.52 1,143.32 0.26 7.76 0.41 0.44 September 685.48 884.88 1,118.46 0.26 7.71 0.41 0.44 October 688.68 873.83 1,107.96 0.26 7.72 0.41 0.44 November 690.33 861.13 1,090.39 0.25 7.68 0.40 0.45 December 692.56 854.74 1,083.04 0.25 7.66 0.40 0.45 2015 January 696.56 811.3 1,056.41 0.24 7.63 0.39 0.45 February 702.34 797.9 1,076.69 0.24 7.68 0.39 0.45 March 706.25 766.0 1,058.88 0.24 7.70 0.38 0.45 April 708.48 764.31 1,060.41 - 7.65 0.38 - May 712.10 789.67 1,095.06 - 7.42 0.36 - June 716.70 789.12 - - 7.41 0.36 - July 721.87 789.11 - - 7.41 0.35 - August 724.97 789.30 - - 7.40 0.35 - September 728.21 789.21 - - 7.40 0.35 - October 733.53 789.29 - - 7.39 0.35 - November 739.02 793.95 - - 7.23 0.34 - December 739.30 792.70 - - 7.23 - - Source: BNR. 69 Rwanda Economic Update: Edition No. 9 Annex Table 5: Key Interest Rates (percent) Treasury bill rate Average de- lending rate Policy Rate posit rate Interbank Average Weighted 182 days 364 days average 28 days 91 days rate rate 2013 January 7.5 11.3 17.1 11.1 12.1 12.6 12.8 - 12.4 February 7.5 10.3 17.0 10.4 11.6 12.3 12.7 - 12.2 March 7.5 10.4 17.2 10.0 11.0 12.1 12.6 12.8 12.1 April 7.5 10.7 17.3 10.9 11.2 12.3 12.8 13.0 12.0 May 7.5 10.6 17.6 11.1 11.0 12.0 12.4 12.7 12.0 June 7.0 10.6 17.7 9.6 10.0 10.7 11.3 11.7 10.8 July 7.0 8.5 17.2 9.6 8.9 9.6 10.0 10.7 9.7 August 7.0 10.5 17.5 7.6 7.8 8.3 8.9 9.3 8.6 September 7.0 9.0 17.8 7.0 6.8 6.9 7.3 7.8 7.1 October 7.0 9.5 17.4 6.7 6.2 6.5 6.7 7.6 6.8 November 7.0 8.0 17.2 6.1 5.5 5.9 6.2 7.0 6.1 December 7.0 8.5 16.9 5.6 5.0 5.3 5.9 6.4 5.6 2014 January 7.0 8.9 17.5 5.6 5.4 6.0 6.7 8.2 6.4 February 7.0 8.0 17.1 5.8 5.1 5.8 6.5 8.1 6.1 March 7.0 8.3 16.8 5.8 4.9 5.5 6.6 8.0 6.0 April 7.0 8.0 17.4 5.6 4.8 5.3 6.3 7.8 6.0 May 7.0 9.3 17.2 5.7 4.5 5.3 6.3 7.4 5.9 June 6.5 8.6 17.5 5.7 4.3 5.0 5.7 6.6 5.6 July 6.5 8.4 17.2 5.5 4.0 4.5 5.2 6.5 5.5 August 6.5 8.8 17.4 5.5 4.1 4.4 5.0 6.3 5.2 September 6.5 7.3 17.1 5.6 4.2 4.5 5.2 6.5 5.5 October 6.5 7.3 17.5 5.7 4.2 4.6 5.2 6.4 5.3 November 6.5 8.2 16.7 5.7 3.9 4.4 5.0 6.3 5.1 December 6.5 7.8 17.7 4.7 3.7 4.1 5.0 6.2 4.9 2015 January 6.5 8.5 17.5 4.2 3.7 4.1 4.9 5.9 4.6 February 6.5 8.5 17.5 4.1 3.5 3.9 4.9 5.5 4.6 March 6.5 8.1 17.4 3.8 3.2 3.6 4.6 5.3 4.3 April 6.5 8.0 17.9 3.5 3.0 3.4 4.5 5.1 4.1 May 6.5 8.7 17.4 2.8 2.9 3.3 4.2 5.1 4.0 June 6.5 8.9 17.3 4.0 2.8 3.4 4.2 5.5 4.4 July 6.5 8.2 17.4 3.4 2.8 3.4 4.4 5.8 4.6 August 6.5 8.2 17.4 3.4 3.1 3.4 4.4 6.0 4.6 September 6.5 8.3 17.2 3.7 3.4 3.7 4.5 6.4 4.6 October 6.5 8.3 17.2 3.4 3.4 4.2 4.8 6.5 4.9 November 6.5 7.9 17.2 3.4 3.6 4.2 5.5 6.7 5.4 December 6.5 - 17.1 - - - - - - Source: BNR. 70 Rwanda Economic Update: Edition No. 9 Annex Table 6: Gross International Reserves Month Rwf billions US$ million 2013 January 465 736 February 436 688 March 444 698 April 452 707 May 624 973 June 653 1,016 July 659 1,018 August 657 1,012 September 681 1,035 October 691 1,045 November 683 1,024 December 717 1,070 2014 January 680 1,008 February 648 960 March 632 933 April 630 927 May 656 966 June 646 948 July 629 920 August 618 903 September 604 880 October 562 816 November 568 821 December 660 951 2015 January 638 911 February 624 887 March 637 900 April 635 893 May 607 850 June 614 854 July 581 803 August 536 739 September 571 781 October 548 745 November 571 770 December 689 922 71 Rwanda Economic Update: Edition No. 9 References EICV. 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