91606 IDA at Work Supporting Rwanda’s Vision 2020: Improving the Investment Climate for Private Sector Development R wanda has steadily reformed its commercial laws and insti- tutions since 2001 with support from the World Bank Group. Rwanda was named the top reformer in Doing Business 2010, having jumped 76 places from 143 to 67 in the annual ranking of 183 countries, the biggest improvement ever by any country. As a result of the government’s commitment to reform, it is now easier, faster, and less expensive to do business in Rwanda. Challenge After the 1994 genocide, the Government of Rwanda faced the daunting challenge of tackling the structural barriers to poverty reduction. The government was fully aware that strong growth, led by private sector investment, was key to helping the Rwandese population improve living conditions and build a solid foundation for reconciliation. The government has been committed to pursuing the reform agenda and removing barriers to entry or growth of pri- vate businesses. It has recognized the challenge in overcoming a perception of Rwanda as a high-risk, landlocked and small country, unattractive to existing and potential investors. The government has accordingly embarked on an ambitious agenda of reforms to establish a conducive environment for private sector development. Approach Two World Bank projects supported the government in its effort to improve the investment climate: (i) the Competitiveness and Enter- prise Development Project, started by the International Develop- ment Association (IDA) in 2001, and, (ii) the Rwanda Investment Climate Reform Program, initiated through the World Bank Group’s Investment Climate Advisory Services in 2007. The Competitiveness and Enterprise Devel- registration agency. A Doing Business unit opment Project was designed to establish a has been set up within the Rwanda Devel- proper environment for growth of the private opment Board (RDB) and is effectively sector and emergence of a more competitive leading the preparation and implementa- investment climate—both measures that ulti- tion of the investment climate reform mately work to reduce poverty in Rwanda. agenda through enhanced public-private It focused on preparing commercial laws, dialogue. The one-stop center in the RDB is supporting the government’s privatization also more effective. program through technical assistance for spe- ▪▪Privatization and restructuring of major cific transactions, and improving the financial banks have been successfully completed. sector mainly through capacity building and bank restructuring. This project was later As a result, it is now easier, faster and complemented by the Rwanda Investment less expensive to do business in Rwanda: Climate Reform Program, which mainly focused on providing support to facilitate ▪▪Time to start a business was cut from 14 business entry, business operations, taxation, days to three days and the number of trade logistics, and public private dialogue. procedures was cut to two from eight. The The two projects fostered active partnerships cost of starting a business has dropped and exploited synergies across program com- from 109 percent to 10 percent of income ponents. They provided targeted technical per capita between 2008 and 2009; assistance to improve the investment climate ▪▪Time to register a property was reduced to and developed institutions to help build 60 days from 371 days and the cost to reg- sustainable capacity and sustain the reform ister property dropped from 9.6 percent momentum. of property value to 0.5 percent between 2007 and 2009; Results ▪▪Time to import was reduced from 42 to 35 days, and time to export was reduced from Rwanda has steadily reformed its commercial 42 to 38 days between 2008 and 2009. laws and institutions since 2001 with sup- ▪▪Fiscal administrative procedures for busi- port from the World Bank. Rwanda made the nesses are being streamlined and the Value biggest-ever improvement in the Doing Busi- Added Tax law amended, resulting in the ness reform category by jumping 76 places in reduction in the number of tax payments one year, ranking 67 out of 183 countries in from 34 to 26 and reduction in time to pre- the 2010 report. The financial sector is also pare, file tax returns and pay taxes from healthier, and together this progress reflects: 160 hours to 148 hours between 2009 and 2010. ▪▪Reforms have been adopted in 7 of the 10 ▪▪ All banks now comply with the required doing business topics; minimum capital adequacy ratio of 15 ▪▪Major laws were prepared and adopted, percent and the non-performing loans ratio including a company law, a secured trans- has been decreasing falling to 12 percent actions law, an insolvency law, a labor law, in 2009 from more than 30 percent in 2000. a law establishing the commercial courts, and another establishing the commercial Rwanda’s image as an investment Moving Forward destination has considerably improved and investments are increasing: The Competitiveness and Enterprise Devel- opment Project is closing in June 2011. The ▪▪In 2009, the total amount of registered project is continuing to build the capacity of investment increased 31 percent to US$1.11 the Rwanda Development Board in order to billion from US$800 million in 2008. sustain reforms after project closing. A new ▪▪In 2009, nine of the 51 non-operational program to support financial and private sec- investment projects were revived with a tor development is being prepared. The pro- total investment of US$ 127 million, creat- gram is expected to focus on supporting the ing more than 500 jobs. government’s effort in trade development, investment promotion and public-private IDA Contribution partnerships in infrastructure. The second phased of the Rwanda Investment Climate IDA contributed US$40 million through the Reform Program is expected to commence Competitiveness and Enterprise Development in November 2010. It will seek to address Project, including about US$3 million allocated two main challenges: (1) Broadening the to investment climate reforms. Backed by both investment climate reform agenda in Rwanda IDA and the International Finance Corporation beyond the main indicators of the Doing (IFC). The Rwanda Investment Climate Reform Business survey, and support the government Program provided US$3.2 million, allocated in doing so through the establishment of an entirely to investment climate reforms. effective national Public Private Dialogue platform; (2) Capitalizing on recent invest- Partners ment climate improvements by accelerating investment and growth in specific sectors of Complementary partnerships were developed the economy. within the World Bank Group to maximize effectiveness. Indeed, the Doing Business Beneficiaries unit within the Rwanda Development Board was funded by IDA, and advised by IDA and Private investors are now better served and IFC. The business laws prepared with the the amount of registered investments is support of IDA were also reviewed by IFC. increasing. The “one stop centre” has been Partnerships were also developed with other efficient way of reducing administrative partners providing support to investment cli- bureaucracy. It comprises delegated officers mate reforms including Investment Climate from different government authorities includ- Facility for Africa (ICF), the US Agency for ing Revenue authority/customs, Immigration International Development, the UK’s Depart- department, ministry of labour, notary office, ment For International Development (DFID), Environmental Agency and the Kigali city and Germany’s GTZ. The Rwanda Investment council. Climate Reform Program was financed by leveraging funds from IFC, Private Enterprise Last updated September 2010. Partnership for Africa, DFID, and the Dutch http://www.worldbank.org/ida and Italian governments.