Rwanda Economic Update February 2016 | Issue no. 9 Rwanda at Work What is the Rwanda Why is the REU Economic Update? important for you? The Rwanda Economic Update (REU) reports on and synthesiz- The REU is one of few comprehensive and regular analyses on Rwanda’s es recent economic developments and places them in a medium economy. Building on the World Bank’s experience and lessons from term, regional, and global context twice a year. The REU analyzes around the world, the REU analyzes Rwanda-specific analysis based on the implications of these developments and policies for the out- up-to-date information. Through dissemination events and dialogues, look of Rwanda’s economy. These reports attempt to make an an- the REU intends to stimulate a discussion on Rwanda’s economy and alytical contribution to the implementation of Rwanda’s national key development issues. development strategy. Each edition includes a special feature on a selected topic. The report is intended for a wide audience, includ- Why does the World Bank focus on jobs ing policy makers, business leaders, other market participants, and the community of analysts engaged in Rwanda’s economy. as the special topic of the ninth edition of the REU? The focus on jobs is motivated by two observations. First, the inter-sec- toral shift of labor from agriculture to non-agricultural has been particu- larly fast in Rwanda, and has been a main driver of poverty reduction and economic growth. The extent to which Rwanda can sustain this shift will determine in part whether the country can keep up its pace of growth and poverty reduction. Second, as Rwanda moves gradually towards a middle-income status and the labor force keeps on growing rapidly, jobs, especially in the non-farm sector, will become increasingly important as a transmission mechanism between aggregate growth and household living standards. What are key Growth Projection (%) findings of the 8 7 Rwanda Economic 6 Update? 5 4 (I) What is the current status of the Rwandan economy? Our 3 assessment of the status of the Rwandan economy is almost unchanged 2 from our previous assessment made in July 2015. Despite an adverse external environment stemming from a slowdown of the Chinese and 1 European economies, Rwanda has maintained steady growth in the 0 first three quarters of 2015. GDP growth remained steady at 6.9 per- cent during this period. Thus far, the decline in commodity prices has been favorable for Rwanda – a net importer of energy products. Macro- World High Income Developing SSA Rwanda economic stability measured by inflation and exchange rates has been Source: World Bank’s Global Economic Prospects maintained. (II) What are Rwanda’s economic prospects? Downside risks Steady growth continued in the last few years have been increasing, both externally and domestically. A deteriorating 9% external environment has led the World Bank to revise down its glob- 8% 8.0% al and regional growth forecasts in early 2016. On the domestic front, 7.2% 7.5% 7.6% risks are on the horizon, including delayed execution of the budget and 7% 7.0% 6.4% inadequate financing for development. Put together, both external and 6% 6.1% 6.1% domestic risk has led the World Bank to adjust its growth projections 5% 4.8% for 2015 (7.1 percent), 2016 (6.8 percent), and 2017 (7.2 percent). 4% 4.2% (III) What has been happening in Rwanda’s labor market? Three 3% 2.9% main trends have characterized Rwanda’s employment landscape over 2% the previous decade: (i) a substantial move towards non-farm occu- 1% pations, mainly driven by the youth, (ii) an uptake of additional jobs, with more than 60 percent of Rwandan workers working several jobs, 0% and (iii) an increase in labor earnings, mainly linked to the shift towards non-farm occupations and the uptake of additional jobs. Employment outcomes increased across the board, but mainly in agriculture, linked GDP Average between Q1 2013 and Q3 2015 to the increase in agricultural productivity since 2008. Source: NISR A Snapshot of Rwanda’s Macroeconomic Development (IV) What are the main challenges Strengths Weaknesses for employment going forward? As with Steady growth: Average growth rate at Worsening external balance and concern many countries, Rwanda is faced with the 6.9% in the first three quarters of 2015 on financing: Gross international reserves fluctuated in 2015 twin challenges of (i) creating more jobs Macroeconomic stability: Inflation rate was 2.5% in 2015. Real effective exchange Monetary sector: High and sticky lending for a rapidly-growing working-age popula- rates have been appreciating rates tion and (ii) improving job outcomes for Sound macroeconomic policy and man- Low private investment: Private invest- the majority of workers who are still in ag- agement: Continued policy reforms in the ment is less than half of the total investment areas of tax, trade, and business regulatory riculture. Despite non-farm employment environment growing rapidly, it has not kept pace with a growing labor force, resulting in increasing Opportunities Threats underemployment. Though earnings and Decline in oil prices: Rwanda is a net oil Decline in prices of Rwanda’s traditional importer export commodities: High correlation with productivity in agriculture have increased, oil prices Regional growth: Neighboring countries both are still low and further substantial also have positive growth outlook High reliance on foreign aid: 30-40% of productivity increases are needed to im- the total revenue and grants Policy flexibility: Macreconomic stability prove the labor outcomes for the bulk of gives (monetary policy) flexibility Global economy: Increase in US interest rates, and a slowdown of the Chinese and the population. European economies Employment Dynamics in Rwanda 2006-2011 A Snapshot of Employment in Rwanda A move away from the farm Agriculture remains the mainstay of employment TIES 2% Unpaid household entreprise worker. TIVI Driven by the youth: 3% Non-farm employer. 7% Non-farm self employment. C A 19% Non-farm wage employment. the share of youth NON-FARM AG 70% of workers in with a main job in Rwanda have their RICULTURE the non-farm sector main occupation in increased from 34% agriculture in 2006 to 47% in 29% Independent farming. 2011 29% Unpaid family farm worker. 12% Wage farming. 77% 71% in agriculture in agriculture More workers with multiple jobs, through increasing undermployment Low earnings for the majority of the population 21% of non-farm workers are underemployed 40% of workers 64% of workers Despite the uptake had several jobs had several jobs 42% of agriculture workers of additional jobs, are underemployed underemployment Yet, average working hours are decreasing increased from 34% to 36% Underemployment 35.7% is a situation where underemployment a person works less than 35 hours a week but wishes to 29 working hours 26 working hours 2.4% work more per week per week unemployment Earnings are increasing substantially Unemployment is low, underemployment is rampant 33% of workers Earnings increased earn below the across the board, 100,000 Rwf 6% of the population earns 100,000 Rwf per month or more. poverty line mainly through agriculture 50% of the population earns 54% of workers earned 33% of workers earned 18,175 Rwf 18, 175 Rwf per month or less. below the poverty line below the poverty line how can you access more information? In order to meet the specific needs of different types of development practi- tioners in Rwanda, the World Bank team can make customized presentations. In previous editions, the World Bank or- ganized separate presentations for the government and development partners. For more information, visit the World Bank Rwanda country page: (http://www.worldbank.org/en/country/rwanda) And find regular updates on the World Bank’s activities in Rwanda on Facebook: (https://www.facebook.com/search/top/?q=world%20 bank%20rwanda)