90141 August 2014 | Edition No. 6 Unearthing the Subsoil Mining and Its Contribution to National Development Rwanda Economic Update Unearthing the Subsoil Mining and Its Contribution to National Development TABLE OF CONTENTS Abbreviations and acronyms ...................................................................................................................... v Foreword ...................................................................................................................................................... vi Overview ....................................................................................................................................................... vii 1. Recent Economic Developments and Prospects ................................................................................... 1 1.1. Recent Economic Developments ....................................................................................................... 2 1.1.1. Continuing Weakening Growth in the Real Sector ...................................................................... 2 1.1.2. The External Sector: Narrower Current Account Deficits, Robust Mineral Exports ................... 7 1.1.3. Inflation, Monetary Policy, Exchange Rate Policy, and Financial Sector Development: Remaining Concerns About Credit Growth ................................................................................ 10 1.1.4. Fiscal Developments: Growing Concerns About Capital Expenditures ...................................... 13 1.1.5. Economic Outlook and Risks ...................................................................................................... 17 1.2. The Drivers of and Constraints to Aggregate Growth ...................................................................... 19 2. Special Focus: Unearthing the Subsoil: Mining and its Contribution to National Development .... 23 2.1. Why Mining Matters for Rwanda’s National Development ............................................................. 24 2.2. Scale and Scope of Rwanda’s Mining Sector ................................................................................... 27 2.3. Macroeconomics of the Mining Sector ............................................................................................. 28 2.3.1. Production and Exports ................................................................................................................ 28 2.3.2. Mining Revenue and Its Redistribution ....................................................................................... 30 2.3.3. Investments in the Sector and Constraints to Future Financing .................................................. 32 2.4. Employment in the Sector and the Miners’ Profile in the Rural Areas .............................................. 33 2.5. Governance ........................................................................................................................................ 38 2.5.1. Institutional and Regulatory Framework ..................................................................................... 38 2.5.2. Transparency and Accountability ................................................................................................ 41 2.6. Conclusions: Maximizing the Potential Development Benefits From Mining .................................. 42 References ..................................................................................................................................................... 44 Annex Notes .................................................................................................................................................. 47 Data Appendix .............................................................................................................................................. 61 Rwanda Economic Update | Edition No. 6 i List of Figures Figure 0.1: 2013 Growth Rate Was Lowest Since 2002 .............................................................................. vii Figure 0.2: Domestic Demand Negatively Contributed in 2013 ................................................................. vii Figure 0.3: Sectoral Economic Structure ..................................................................................................... viii Figure 0.4: Contributions to Growth in 2006–13 ......................................................................................... viii Figure 0.5: Economic Structure By Expenditures ....................................................................................... ix Figure 0.6: Credit to the Private Sector Has Remained Low, Although Liquidity Constraints Have Been Eased x Figure 0.7: Mining’s Contribution to Gdp Still Remains Low at 2 percent ................................................ xii Figure 0.8: Export Earnings From Mining Have Risen Sharply Within a Decade ...................................... xii Figure 0.9: Mining is the Biggest Foreign Exchange Earner ....................................................................... xii Figure 0.10: Mining’s Contribution to Total Revenue ................................................................................... xiii Figure 1.1: 2013 Growth Rate Was Lowest Since 2002 .............................................................................. 2 Figure 1.2: Domestic Demand Negatively Contributed in 2013 ................................................................. 2 Figure 1.3: Consumption and Investment Remained Weak in 2013 ............................................................ 3 Figure 1.4: Private Investment and Durable Capital Goods Investment Led Weak Investment Growth .... 3 Figure 1.5: Delayed Disbursement of Capital Expenditures and Low Net Lending ................................... 3 Figure 1.6: Improvements in Net Exports .................................................................................................... 3 Figure 1.7: Low Imports Reflect Low Domestic Demand ........................................................................... 4 Figure 1.8: Services Sector Slowed Down ................................................................................................... 4 Figure 1.9: Growth in Services Sectors Slowed .......................................................................................... 4 Figure 1 10: Mining Growth was High in 2013, But its Growth Pattern is Volatile ...................................... 5 Figure 1.11: Mineral Exports of Main Products ............................................................................................ 8 Figure 1.12: Tourism Receipts ....................................................................................................................... 8 Figure 1.13: Sectoral Share in Foreign Direct Investment ............................................................................ 9 Figure 1.14: Export Growth Momentum Has Been Lost in the First Six Months of 2014 ............................ 9 Figure 1.15: Imports Have Gained Momentum in the First Six Months of 2014 .......................................... 9 Figure 1.16: Inflation Brought Down by Moderate Import Prices ................................................................ 10 Figure 1.17: Rwanda Franc against U.S. Dollar and Real Effective Exchange Rate Depreciated in 2013 .. 11 Figure 1.18: Lending Rate Did Not Respond to Policy Rate Cut .................................................................. 11 Figure 1.19: Credit to the Private Sector has Remained Low, Although Liquidity Constraints Have Been Eased ... 12 Figure 1.20: Credit Decelerated Across All Sectors of the Economy ............................................................ 12 Figure 2.1: World Bank’s Extractive Industries Value Chain ...................................................................... 26 Figure 2.2: Number of Mining Permits Held at Year End ........................................................................... 27 Figure 2.3: Total Mineral Exports ................................................................................................................ 29 Figure 2.4: Production of Rwanda’s Major Export Minerals ....................................................................... 29 Figure 2.5: Exports for Rwanda’s Major Minerals ...................................................................................... 29 Figure 2.6: Minerals Revenues .................................................................................................................... 30 Figure 2.7: Mining Employment and its Concentration in the Northwest ................................................... 35 Figure 2.8: Miners Are Somewhat Better Educated Than Farm Wage Workers But Significantly Worse Than The Overall Labor Force .................................................................................................. 36 Figure 2.9: Average and Median Annual Wage Incomes ............................................................................. 37 Figure 2.10: Institutional Mapping ................................................................................................................ 40 ii Rwanda Economic Update | Edition No. 6 List of Tables Table 1.1: The First Quarter of 2014 Shows Signs of Economic Recovery ................................................. 6 Table 1.2: Balance of Payments ................................................................................................................... 7 Table 1.3: Mineral Exports ............................................................................................................................ 8 Table 1.4: Fiscal Outturn in The First 3 Quarters of FY2013/14 .................................................................. 14 Table 1.5: FY2013/14 and FY2014/15 budgets ........................................................................................... 16 Table 1.6: Rwanda’s GDP Growth is Expected to Slow Further in 2014 Before Accelerating in 2015 ....... 18 Table 2.1: Annual Average Production of Rwanda’s Minerals (Tons) ......................................................... 28 Table 2.2: Taxes Collected By RRA From Mining Since 2010 .................................................................... 31 Table 2.3: Royalties as applied to ASM in the East African and Great Lakes Region ................................ 31 Table 2.4: License fees as applied to ASM in the East African and Great Lakes Region ........................... 31 Table 2.5: ASM surface rents as applied to ASM in the East African and Great Lakes Region ................ 32 Table 2.6: Miners work More Hours and Earn Higher Wages than Farmers ............................................... 37 List of Boxes Box 2.1: What is in a name? “conflict minerals” in the Great Lakes Region ........................................... 26 Box 2.2: Royalties and taxes ...................................................................................................................... 30 Box 2.3: Artisanal and small-scale mining data challenges in Sub-Saharan Africa ................................ 42 List of Annex Notes Annex Note 1: Monetary policy in Rwanda .................................................................................................. 48 Annex Note 2: Rwanda—dynamics in the yield curve of short-term Government securities ...................... 50 Annex Note 3: Low Capital Expenditure Disbursement Rates in FY2013/14 .............................................. 51 Annex Note 4: Rebasing national accounts ................................................................................................... 53 Annex Note 5: Coincident economic indicator for Rwanda—A tool for “Nowcasting” GDP ...................... 54 Annex Note 6: Development and characteristics of Rwanda’s tourism sector .............................................. 58 Annex Note 7: Impact of commodity price change on Rwanda’s trade balance ........................................... 60 Rwanda Economic Update | Edition No. 6 iii ABBREVIATIONS AND ACRONYMS ASM Artisanal and Small-scale Mining BGR Bundesanstalt fur Geowissenschaften und Rohstoffe BNR Banque Nationale du Rwanda (National Bank of Rwanda) CEI Coincident Economic Indicator CPI Consumer Price Index EDPRS 2 Second Economic Development and Poverty Reduction Strategy EICV Integrated Household Living Conditions Survey EITI Extractive Industries Transparency Initiative DRC Democratic Republic of Congo FDI Foreign Direct Investment FECOMIRWA Federation des Cooperatives Minieres Rwanda FY Fiscal Year GDP Gross Domestic Product GMD Geology and Mining Department GNI Gross National Income ICGLR International Conference on the Great Lakes Region IMF International Monetary Fund iTSCi Tin Supply Chain Initiative ITRI International Tin Research Institute KCC Kigali Convention Center MINECOFIN Ministry of Finance and Economic Planning MINICOM Ministry of Trade and Industry MINIRENA Ministry of Natural Resources MPC Monetary Policy Committee MTEF Medium-Term Expenditure Framework NISR National Institute of Statistics of Rwanda OECD Organisation for Economic Co-operation and Development PFM Public Financial Management RDB Rwanda Development Board RRA Rwanda Revenue Authority REER Real Effective Exchange Rate REU Rwanda Economic Update Rwf Rwandan franc SOMIRWA Société Minière de Rwanda UN United Nations Rwanda Economic Update | Edition No. 6 v Foreword T he Rwanda Economic Update reports on and synthesizes recent economic developments and places them in a medium-term and global context. It analyzes the implications 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 development strategy. Each edition of the report includes a special feature on a selected topic. The report is intended for a wide audience, including policy makers, business leaders and other market participants, and the community of analysts engaged in Rwanda’s economy. The sixth edition of the Rwanda Economic Update was prepared by the Rwanda Macroeconomics and Fiscal Management Global Practice team at the World Bank. Toru Nishiuchi (Economist) led the team and the recent economic developments section. Rachel Perks (Mining Specialist) led the special focus section. Other team members who contributed to the sixth edition are Yoichiro Ishihara (Senior Economist), Jane Bogoev (Economist), Valence Kimenyi (Economist), and Peace Aimee Niyibizi (Consultant). Apurva Sanghi (Program Leader) supervised the team. Diarietou Gaye (Country Director), Carolyn Turk (Country Manager), and Pablo Fajnzylber (Practice Manager) provided overall guidance. The team was supported by Sylvie Ingabire (Team Assistant), Martin Buchara (Team Assistant) and Sherrie Brown (Editor). Although this report does not represent the official views of the authorities, the macroeconomic unit of the Ministry of Finance and Economic Planning (MINECOFIN) and the National Bank of Rwanda (BNR) were engaged in the formulation of this report and provided valuable comments. The 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 list of this semiannual series and related publications, please contact singabire@worldbank.org. For questions and comments about this publication, please contact Toru Nishiuchi (tnishiuchi@worldbank.org). vi Rwanda Economic Update | Edition No. 6 OVERVIEW R wanda’s economic growth in 2013, at 4.7 percent, was its lowest since 2003 (Figure 0.1) and much lower than the estimated growth The aid shortfall and the subsequent economic slowdown have revealed structural bottlenecks Rwanda has been facing. Because of high rate of 6.6 percent made in the previous Rwanda reliance on foreign aid and dominance of the Economic Update in December 2013. The World government in the economy, narrower fiscal space Bank’s estimate was based on an assumption that not only directly hit government expenditures but the resumption of aid in the first half of 2013 also hit the private sector, especially the services (H1:2013) would stimulate public spending and and construction sectors, through spillover and domestic demand, leading to economic recovery crowding-out effects. A poor harvest in 2013 in the second half of 2013 (H2:2013). However, further subdued growth performance, unveiling domestic demand failed to recover in H2:2013, the vulnerability of Rwanda’s agriculture sector to thus negatively contributing to GDP for the first adverse weather conditions. Although the mining time in the past several years (Figure 0.2).1 The sector registered superb growth and exports in lagged impact of the 2012 aid shortfall on domestic 2013, its performance is intrinsically vulnerable demand turned out to be longer and deeper than to fluctuations in international commodity prices, expected such that external demand led overall which is evident in the results from H1:2014. growth for the first time in the past several years. This is particularly evidenced in significant Rwanda’s high growth before the aid shock progress in the mining sector. Its sectoral GDP failed to stimulate a significant transformation and export earnings grew by 20.6 percent and 65.9 of the economy, which is characterized by a large percent, respectively. public sector, the dominance of the nontradables Figure 0.1: 2013 growth rate was lowest since 2002 Figure 0.2: Domestic demand negatively contributed in 2013 (Annual GDP growth rate) (Contributions to growth) 14 13.2 15 11.2 12 11.2 10 8.8 7.6 7.3 7.8 10 9.4 9.2 6.2 Percent 8.8 4.7 8.4 8.5 7.8 5 Percent 8 7.4 7.3 7.6 6 0 6.2 4.7 4 -5 2 2.2 -10 0 2007 2008 2009 2010 2011 2012 2013 13 00 1 02 03 04 5 06 07 08 09 10 11 2 External demand Domestic demand GDP growth 1 0 0 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Sources: National Institute of Statistics Rwanda (NISR); and World Sources: NISR; and World Bank staff calculations Bank staff calculations. Note: 2006 and 2011 base GDP were combined by the World Bank 1 At the time of this writing, expenditure accounts data after the rebasing has not published. In this figure, we applied the share of domestic and external demand before rebasing to the growth rates after rebasing. Rwanda Economic Update | Edition No. 6 vii Executive Summary sectors, and limited private investment. Between overall growth followed by agriculture (21 percent) 2006 and 2013, the economy was led by services (45 and industry (18 percent) (panel (b) of Figure 0.4). percent), followed by agriculture (33 percent).2 The In the expenditure account, although the share of share of industry (15 percent) somewhat increased investment increased from 16 percent in 2006 to thanks to construction, but manufacturing remains 25 percent in 2013, the increase was mainly due low at 5 percent (Figure 0.3). Growth was driven to investment in construction, whereas investment by the nontradables sector while the contribution in capital goods increased only marginally (Figure from the tradables sector (agricultural products, 0.5), and public investment financed by foreign manufacturing, and mining) has been limited aid accounted for more than 50 percent of total (panel (a) of Figure 0.4). This is reflected in the investment. Although the share of exports increased high services sector contribution (54 percent) to to 17 percent in 2013, there has been little progress toward export diversification. Traditional products Figure 0.3: Sectoral economic structure (coffee, tea, and minerals) accounted for almost 60 100 6 7 percent of exports in 2013. 80 42 45 Foreign aid and effective use of it have played a critical role in growth and macroeconomic Percent 60 7 5 stability.3 Net official development assistance as a 7 40 10 share of GNI remained high at 20 percent in 2011, 38 33 or 86 percent of gross fixed capital formation, 20 though it declined from more than 150 percent 0 in the early 2000s.4 Aid flows into Rwanda have 2006 2013 Adjustments Services Manufacturing Industry (without manufacturing) been redistributed through public expenditures. In Agriculture the past decade, foreign aid (accounting for 30– Sources: NISR; and World Bank staff calculations. Figure 0.4: Contributions to growth in 2006–13 Panel (a). By Tradables vs. Nontradables Sectors Panel (b). By Sector Adjustments, 7% Tradable, 27% Agriculture, 21% Private services, 44% Industry, 18% Nontradable, Public services, 73% 10% Sources: NISR; and World Bank staff calculations 2 A More than 60 percent of poor households had an income-earning activity outside of agriculture in 2011. This seems to be reflected in the increase in the share of services. 3 Rwanda’s performance on aid effectiveness is the best among 77 participating countries (Ishihara 2012). 4 The ratios fell to 12 percent of GNI and 51 percent of gross fixed capital formation in 2012 because of the aid shock. Neighboring countries rely much less on net official assistance against their GNI: Kenya (7.2 percent), Tanzania (10.4 percent), Uganda (10.4 percent), and Sub-Sahara African average (3.4 percent). viii Rwanda Economic Update | Edition No. 6 Executive Summary Figure 0.5: Economic structure by expenditures (1) Recent Macroeconomic Developments 140 and Outlook 120 11 4 17 7 Why did the economy not begin to recover in 100 12 18 H2:2013? T 80 he economy has been suffering from the 60 lagged impact of the aid shortfall, which Percent 98 90 40 continued to affect domestic demand in 20 H2:2013. The economic slowdown in H1:2013, 0 -25 - -31 caused by the aid shortfall, resulted in a lagged -20 withering of banks’ appetite for lending to the -40 2006 2013 private sector in H2:2013. The slow credit growth, Imports Exports Investment (capital goods) Investment (construction) Consumption coupled with structural bottlenecks such as the Sources: National Bank of Rwanda (BNR); and World Bank staff calculations. nascent private sector and weak infrastructure, and with poor performance in the agricultural 40 percent of the budget) has supplemented low sector, further decelerated economic growth in domestic tax collections and created fiscal space. H2:2013. Although the funding constraints in the Although the direct impact of public recurrent budget have been eased with the resumption of expenditures has been relatively small (public aid in H1:2013, execution of capital expenditures services contributed 10 percent to the increase in has not yet accelerated as planned. The credit GDP between 2006 and 2013, as illustrated in Figure slowdown and the lower execution of the budget 0.4, panel (b)), public expenditures, both recurrent led to a continued slowdown in domestic demand. and capital, indirectly stimulated private services In the national accounts, growth of the services such as trade and real estate. Foreign exchange sector, previously the main growth driver, sharply inflows through aid have also financed the current decelerated to 5.3 percent in 2013 from 11.6 account deficit (excluding official transfers) and made the overall balance of payments positive in percent in 2012. For the first time since 2003 the the past decade. contribution of domestic demand to economic growth turned negative and that of external Under the current macroeconomic environment, demand (net exports) outpaced domestic demand the sixth edition of the Rwanda Economic Update (Figure 0.2). The moderate narrowing of the trade (REU-6) seeks to answer three questions: Why deficit is attributable to the continuing growth did the economy not begin to recover in H2:2013? of exports and decelerating growth of imports. What are the expected growth rates in 2014 and Despite declining exports earnings in coffee and 2015? What policies could prevent growth from tea due to low international prices, total exports further deceleration and, in the medium term, increased by 19 percent because of the robust actually accelerate it by overcoming the structural performance of mineral exports in 2013. Mining bottlenecks? Furthermore, given the increasing exports increased by 65 percent. The solid growth importance of the mining sector as a future driver of in mining production and exports was attained by economic growth and poverty reduction, the REU- the opening of new mines and rising international 6 proposes answers to the following questions: mineral prices. What is the profile of Rwanda’s mining sector? How can Rwanda benefit from its development? Rwanda Economic Update | Edition No. 6 ix Executive Summary In H1:2014, continued stagnation of credit downgraded from 7.2 percent in the December growth to the private sector has not resulted 2013 edition of the Rwanda Economic Update, from limited liquidity but from a combination reflecting delayed implementations of capital of lower credit demand and continued prudent expenditures and a continued slowdown of credit behavior of commercial banks. In H2:2013, growth to the private sector. The growth recovery despite strong credit demand from the private from 4.7 percent in 2013, however, is contingent sector, credit to the private sector was not extended on timely implementation of government capital because prudent commercial banks invested in expenditures. Treasury bills instead. In contrast, in the first quarter of 2014, even though the growth rate of What policies could prevent growth from further deposits at commercial banks accelerated, the deceleration and act to accelerate it? I growth rate of credit to the private sector remained n the short term, proactive macroeconomic stagnant (Figure 0.6). This situation suggests the management seems feasible, given that effects of a combination of low credit demand from policy buffers have been restored with the aid the private sector and continued prudent behavior resumption. With regard to monetary policy, of commercial banks in light of the economic although reserve money—the National Bank slowdown and an increase in nonperforming loans.5 of Rwanda’s (BNR) monetary policy anchor— Figure 0.6: Credit to the private sector has remained increased in H2:2013, the increase was mostly low, although liquidity constraints have been eased (Year-on-year growth rate) absorbed by increases in commercial banks’ reserves. In other words, credit to the private sector 40 has not yet recovered. The lending rate remained 35 high and unresponsive to a revision in the policy 30 Credit to the private sector interest rate in June 2013. Credit growth to the 25 private sector decelerated considerably, leading Percent 20 to a further slowdown in economic activity. The 15 unchanged lending rate and the deceleration Deposit 10 in credit growth can be attributed to limited 5 transmission of monetary policy and a deterioration 0 in banks’ lending appetite. In this regard, BNR pursued a further reduction in the policy interest 11 2 2 12 12 3 3 3 13 4 -1 1 -1 1 1 -1 - n- p- - n- p- - ec ar ec ar ec ar Se Se Ju Ju rate from 7 percent to 6.5 percent in June 2014 to M M M D D D Sources: National Bank of Rwanda (BNR); and World Bank staff calculations. sustain economic recovery. From the standpoint of short-term fiscal policy, given the improved fiscal space since the resumption of aid and ongoing What growth rates are expected in 2014 capacity constraints for budget execution at and 2015? certain ministries, the authorities might consider G rowth rates are unlikely to recover to the pre–aid shortfall levels, with growth projected at 5.7 percent in 2014 and 6.6 percent accelerating implementation of delayed investment projects where capacity constraints do not exist, and prioritizing recruitment of public servants in in 2015. The projected growth rate for 2014 is these ministries. 5 BNR’s monetary policy statement reports that in 2013, 5,940 loan applications were rejected representing 7.5 percent of total applications against 4,865 rejections recorded in 2012, equivalent to a 6.7 percent rejection rate. x Rwanda Economic Update | Edition No. 6 Executive Summary In the medium term, Rwanda needs to transform does the country have operations at the higher end its economy from being aid dependent, public of small (investment of about US$100 million to sector led, and domestic demand driven to being US$200 million, though less for gold). Rather, self-reliant, private sector led, and net export led. Rwanda has issued 548 mining permits to 213 The economic impact of the aid shortfall reveals registered mining entities, most on surface areas structural bottlenecks Rwanda has been facing. averaging less than five hectares. Of the 213 Growth during the last decade was driven by high registered mining entities, only 5 are operations levels of public investment supported by significant with either total foreign involvement or joint aid inflows. Although these aid inflows resumed in ventures with the government. The remainder H1:2013, their share in the economy is likely to constitutes small domestic entrepreneurs or mining gradually decrease. Therefore, Rwanda’s growth cooperatives. will increasingly hinge on its ability to mobilize more domestic resources and to spur private sector– The sector employs a high proportion of manual led growth. Rwanda’s key constraints, such as those labor to extract its base metals. All sites rely related to energy and transport, need to be explored on manual labor, with minimal investment in and addressed to unleash the potential growth of mechanized techniques. Although a few mine sites the country’s private sector, diversify its export have introduced processing techniques that use base, and attract foreign direct investment (FDI). gravity systems or make use of explosives and In this regard, expenditures must give priority to bulldozers to ease access to core geological veins, public investment aimed at promoting private these improvements are neither sufficiently spread sector development. Because persistent excess across the country nor technologically advanced liquidity is identified as a structural bottleneck for enough to be considered semi-industrial. In effect, effective monetary policy, the authorities need to little adaptation of mining techniques has occurred develop policy instruments with longer maturities since the 1920s to improve basic recovery at the to improve the transmission mechanism (see Annex mine site and mineral processing levels. Because Note 1 for further discussion). of the international focus on these minerals in particular, the Rwandan mining sector’s exports (2) Mining Sector are under further regulatory scrutiny.6 What is the profile of Rwanda’s mining sector? The government intends to increase the mining M ining in Rwanda concentrates on base metals such as cassiterite, coltan, and wolfram, and is primarily small scale in size sector’s contribution to GDP against the 2012 baseline from 1.6 percent to 5.3 percent in 2018 (Figure 0.7). The government also intends to and method. By global standards, Rwanda has increase foreign investments from US$150 million no operations considered either medium sized in 2012 to US$500 million by 2018. Despite (cumulative investment of about US$250 million mineral exports having shown impressive growth to US$750 million, though less for gold) or large of 66 percent in 2013, its overall contribution to (investment of more than US$750 million). Nor GDP has remained small and volatile for the past 6 Unlike the Kimberly Process, which is a single initiative and system governing diamonds, the efforts to address “conflict minerals” in the Great Lakes region of central Africa loosely tie together a number of parallel and at times complementary initiatives, including due diligence guidelines developed by the Organisation for Economic Cooperation and Development (OECD), the tagging system developed by the International Tin Research Institute (ITRI), and the “International Protocol on the Illegal Exploitation of Natural Resources” at the International Conference on the Great Lakes Region (ICGLR), which sets regional standards and harmonizes national legislation. Rwanda Economic Update | Edition No. 6 xi Executive Summary Figure 0.7: Mining’s contribution to GDP still remains exchange earner (Figure 0.9). Although export low at 2 percent earnings from mining have been progressively 4 rising, this rise is largely due to favorable mineral prices rather than substantive increases in domestic production. To see more sustainable, far-reaching Percent of GDP 3 development impacts from mining, significant 2 efforts, as are being pursued by the government at present, will need to remain on both (1) increasing 1 and improving methods for domestic production at existing mining sites and (2) increasing exploration activities that might lead to new 0 mineral discoveries. At present, US$110.5 million 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 in mining investment commitments is concentrated Sources: NISR; and World Bank staff calculations in exploration projects, though it is not clear decade. When measured against the government’s whether these commitments will materialize. targets for the mining sector, its performance in 2013 was still not satisfactory. Despite the small-scale nature of the mining sector, Rwanda has high hopes for the sector’s In 2013, the value of mining exports reached contribution to national development. It US$225 million, slightly more than half way recognizes mining’s potential to contribute to to reaching its 2017 target of US$400 million jobs, exports, and FDI. The government’s poverty set by the second Economic Development and reduction target, from 45 percent to 30 percent by Poverty Reduction Strategy (EDPRS 2) (Figure 2017, will require expansion of “off-farm” jobs7 0.8). Mining exports account for 32 percent of total through income diversification.8 Mining provides goods exports, making mining the largest foreign such an opportunity, though the sector is still in Figure 0.8: Export earnings from mining have risen Figure 0.9: Mining is the biggest foreign exchange earner sharply within a decade 250 100 Percent of total exports 200 80 Millions of US$ 60 150 40 100 20 50 0 0 Tea Coffee Mineral Sources: NISR; and World Bank staff calculations. Sources: NISR; and World Bank staff calculations. 7 The second Economic Development and Poverty Reduction Strategy (EDPRS 2). 8 Diversification is relevant, given that, particularly in rural areas, more than 78 percent of the rural population still relies on farming (EICV 3). xii Rwanda Economic Update | Edition No. 6 Executive Summary need of further support to ensure fair salaries and How can Rwanda benefit from mining sound working conditions. Job creation is also development? T showing promise with 33,638 miners9 registered as he government’s ongoing efforts to of early 2014, slightly more than half of the 2017 transform its predominantly small-scale target of 60,000. The latest job figures in mining mining sector into semi-industrial and industrial place the sector above the services and tourism activities will benefit from the government’s sectors, according to data from the third round of renewed strategic focus on broader development the Integrated Household Living Conditions Survey outcomes as opposed to a concentration on (EICV 3). The government’s intention to increase increasing export earnings alone. The reliance on the sector’s professional educated skills base from export earnings to demonstrate mine development fewer than 50 to 600 persons through a variety of has prevented an examination of how effective external university opportunities and development mine development could occur with more strategic of an undergraduate geology and mine engineering but fewer mine sites. Focusing on the type of sector program at the Kigali Institute for Technology will the country wishes to build instead of on export also contribute to poverty reduction. volumes could provide government and industry efforts with a more efficient orientation. As it stands Beyond export earnings and employment, the now, the burden of regulating a proliferated and sector’s producing operations brought in 1 geographically dispersed mining sector is evident. percent of total revenues in 2013 though the sector has performed better on export earnings The Ministry of Natural Resources’ due to favorable international mineral prices (MINIRENA’s) target for 2017–18 to have (Figure 0.10). Revenue remained constant in 2013, on stream three medium-scale mines and despite the introduction of a royalty tax on select 100 small-scale mines is worth recalling mines. Since 2010, total revenues from mining and revisiting. A series of objectives for the have been roughly US$22.2 million. sector, based on this ratio, could be as follows: Figure 0.10: Mining’s contribution to total revenue a. Secure the Enabling Legal and Regulatory 1.2 Environment for Investment 1.0 Investment in Rwanda’s mining sector depends 0.8 on clear and stable laws and their consistent application. Of key interest for mining investors Percent 0.6 is the transparent manner in which mine licenses 0.4 are awarded and the tenure and fiscal stability offered through their agreements. With the changes 0.2 to Rwanda’s mining law, the regularization of all 0 outstanding mining permits should be addressed. 2010 2011 2012 2013 % of GDP Two areas are of concern: (1) renegotiating % of budget the larger producing licenses given their more Sources: Rwanda Revenue Authority (RRA); and World Bank staff calculations. immediate impact on fiscal revenue potential and foreign investment and (2) reviewing the status 9 Figure provided by Rwanda Ministry of Natural Resources (MINIRENA). This figure excludes another 14,100 persons working in quarries. In email correspondence dated May 19, 2014, the International Tin Research Institute put the figure at 32,115 for the three principal minerals: cassiterite, coltan, and wolfram. Rwanda Economic Update | Edition No. 6 xiii Executive Summary of existing small-scale mining licenses with at how small-scale operators and cooperatives do, attention to harmonizing exploitation licenses and or do not, benefit from legislation and practices potentially reducing the number of permits to a geared toward development of small and medium- more manageable volume according to the stated sized enterprises. Rethink, if necessary, an adjusted target. A due process for all future contracts, based tax model for the smaller operators, including on streamlined institutional responsibilities and cooperatives. Third, enhance the Rwanda Revenue clear guidelines from a model mine agreement, may Authority’s (RRA’s) capacity to administer further enhance investor confidence in Rwanda’s taxation policies and collect revenues in the sector. mining sector for some of the larger assets, though The increase in revenue benefits from further fiscal may not be necessary for the majority of small-scale receipts will require clear rules, guidelines, and permits. The cadastre will play an essential role in procedures for retrocession, if at all, of mining harmonizing all existing permits, thereby reducing revenues to the provinces, districts, and sectors, existing conflicts surrounding overlapping rights. and accountability for their use by subnational It will also make available to interested private authorities. These efforts would be enhanced companies, through one centralized geographic by implementation of the Extractive Industries information system map, data on prospective areas. Transparency Initiative (EITI) to disclose revenue flows to the public. b. Build the Geological Knowledge Base for Future Investment d. Improve Recovery and Domestic Processing Detailed and publicly available geological An additional strategy to increase production is to knowledge plays a leading role in attracting improve recovery techniques at sites. Rwanda has future exploration investment for eventual mine significant tailings dumps at its oldest concessions development. The government’s commitment that could be cleaned up, treated, and processed to invest US$2 million per year, on average, in for further economic gain. The government could potential target areas from the national budget is consider making available, through a specific local well noted, and should continue to be supported, loan program with leading banks, a revolving perhaps even through development partners. It is credit facility to provide an incentive to small- likely that without any significant new discoveries, scale miners to invest in small recovery and the size of the mining sector in Rwanda will remain processing equipment. The outcome would serve limited. multiple agendas: environmental stewardship, small-business development, and export growth. c. Increase Fiscal Receipts and Ensure Revenue Furthermore, it would not require allocation of Management new permits. Three key measures to be undertaken by the government would assist in increasing mining e. Strengthen Human Development (Skills and revenues. First, effectively apply the new royalty Labor Conditions) rate through design and implementation of By way of its workforce alone, Rwanda’s accompanying regulations. Second, support a third- mining sector can make tangible and significant party audit of the entire production and export chain development impacts in the rural economy. A policy to ensure conformity with new legislation on rents focus on the “good job” would see miners earn more and rates but also on mineral classifications and pay for their labor, work in safe conditions, and be export declarations. In that audit, look in particular integrated into the social safety net of the formal xiv Rwanda Economic Update | Edition No. 6 Executive Summary labor market. Building on existing work with inspection practices. Frequency and efficiency Germany’s Bundesanstalt fur Geowissenschaften of mine site inspections would benefit from the und Rohstoffe (Federal Institute for Geosciences establishment of a fully functioning small- and Natural Resources; BGR), the necessary small- scale mining unit in the Geology and Mining scale mining regulations relating to occupational Department (GMD), given the high number of health and safety should be completed. It would mining licenses in the country. The targets set be useful to perform an audit of existing labor by the government to foster a new generation practices used by subcontractors operating at the of skilled mine professionals should continue larger concessions, by small operators, and by to be supported. cooperatives, and identify areas for improved Rwanda Economic Update | Edition No. 6 xv PART ONE Recent Economic Developments and Prospects Part 1: Recent Economic Developments 1.1 Recent Economic Developments 1.1.1. Continuing Weakening Growth factors: First, lower government spending than in the Real Sector budgeted, especially for capital expenditure, led I n 2013, Rwanda’s economic growth to a pronounced economic slowdown through decelerated to 4.7 percent, the lowest growth deceleration in the services sector. Second, a rate since 2003 (Figure 1.1). The fifth Rwanda sharp deceleration in credit growth to the private Economic Update (REU-5) projected that the sector resulted from reductions in both demand services sector would lead growth recovery from and supply caused by the economic slowdown H2:2013 because the aid resumption would enable and subsequently accumulated nonperforming the government to accelerate its spending. REU-5 loans. Third, the poor agricultural harvest added revised the 2013 growth rate projection from 7.0 further downward pressure on growth. These percent made in June 2013 to 6.6 percent, mainly recent developments illustrate the vulnerabilities reflecting the lean agricultural harvest in H2:2013 created by the high reliance on foreign aid, the and the further slowing of credit growth to the dominance of the government in the economy, and private sector. Despite the downward revision of the rain-fed nature of most agricultural production. growth projection, the 2013 growth rate turned out This suggests that the focus in the medium term to be 1.9 percentage points lower than projected. should be on domestic resource mobilization, private sector development and further agricultural The lagged effects of the aid shortfall on the development. country’s economic slowdown were more pronounced than projected. Following the a. Expenditure Account significant aid shortfall in H2:2012, the lagged Domestic demand negatively contributed to effects of the shortfall started to be felt in H1:2013. overall growth for the first time in the past several Although the authorities’ quick and adequate years. In 2013, external demand contributed 4.8 fiscal and monetary responses had contained the percentage points to the overall growth rate of 4.6 first-round impacts in H2:2012, the lagged effects percent, whereas domestic demand contributed were more pronounced because of the following −0.2 percentage point (Figure 1.2).10 Figure 1.2: Domestic demand negatively Figure 1.1: 2013 growth rate was lowest since 2002 contributed in 2013 (Annual GDP growth rate, percent) (Contributions to growth) 14 13.2 15 11.2 12 11.2 10 8.8 7.6 7.3 7.8 10 9.4 9.2 6.2 8.8 8.4 4.7 8.5 7.8 5 Percent Percent 8 7.4 7.3 7.6 6 0 6.2 4.7 4 -5 2 2.2 -10 0 2007 2008 2009 2010 2011 2012 2013 13 0 01 02 03 04 05 06 07 08 09 10 11 12 0 Domestic demand External demand GDP growth 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Source: NISR; World Bank staff calculation. Sources: NISR; and World Bank staff calculations. Note: 2006 and 2011 base GDP were combined by the World Bank. 10 At the time of this writing, expenditure accounts data after the rebasing has not published. In this figure, we applied the share of domestic and external demand before rebasing to the growth rates after rebasing. 2 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments Of the components of domestic demand, drop in private investment and durable capital consumption contracted by 0.6 percent, the goods investment (reflected in capital goods first contraction since 2003. Private consumption imports) (Figure 1.4). Private investment fell by continued to contract by 1.2 percent in 2013, 3.5 percentage points of GDP, reflecting slow following a contraction of 1.1 percent in 2012 credit growth to the private sector. The decline (Figure 1.3). Government consumption growth in durable capital goods investment was caused decelerated significantly from 14.5 percent in by delayed disbursement of capital expenditures 2012 to 2.8 percent in 2013, reflecting delays in and significantly lower net lending to government recruitment of new staff and purchases of goods investment projects (Figure 1.5). Weak domestic and services by various ministries in the first demand is also reflected in the weak growth of half of FY2013/14.11 Significant deceleration of goods imports, at 7.6 percent in 2013, down from investment growth—to 1.1 percent in 2013 from 16.0 percent in 2012. 16.2 percent in 2012—was mainly caused by a Figure 1.3: Consumption and investment remained Figure 1.4: Private investment and durable capital goods weak in 2013 investment led weak investment growth (Annual growth rate) (Annual growth rate) 20 40 35.0 16.3 14.9 14.5 29.4 10.3 30 10 6.9 22.7 24.5 7.3 9.3 3.8 5.0 20 15.7 17.2 2.8 13.2 1.1 11.6 0 10 9.0 -1.1 -1.2 3.9 Percent -4.1 1.1 1.1 Percent 0 -10 -3.6 -10 -20 -16.6 -13.8 -20 -21.5 -30 Consumption -30 By sector -29.6 By goods -40 -40 -38.7 Public Private Construction Durable capital Government Private Investment Net exports goods 2010 2011 2012 2013 2010 2011 2012 2013 Sources: NISR; and World Bank staff calculations. Sources: World Bank World Development Indicators; NISR; and World Bank staff calculations. Figure 1.5: Delayed disbursement of capital expenditures and low net lending (Execution rate) Figure 1.6: Improvements in net exports 120 50 700 110 100 94 40 90 93 89 500 Year-on-year growth rate, percent 87 Constant value, Rwf in billions 85 30 Export growth (%, left scale) Percent 80 300 20 Import growth (%, left scale) 60 10 100 0 40 31 -100 -10 20 -20 9 -300 0 -30 Domestically Foreign Net lending -500 financed financed -40 -50 Net exports (Rwf billions, right scale) -700 Capital expenditures Jul-Dec 2013 Jan-Mar 2014 July 2013-Mar 2014 2010 2011 2012 2013 Sources: MINECOFIN;and World Bank staff calculations. Sources: NISR;and World Bank staff calculations. 11 Rwanda’s fiscal year starts July 1 and ends June 30. Rwanda Economic Update | Edition No. 6 3 Part 1: Recent Economic Developments Improvements of net exports were driven by Figure 1.8: Services sector slowed down high export growth and low import growth Percentage point contribution to real GDP growth 12 (Figure 1.6). In 2013, exports grew by 41 percent. 0.8 10 Since 2011, high export growth rates have been 0.1 supported by high international commodity 8 0.3 0.1 0.4 prices for Rwanda’s traditional export products, 6 6.2 0.7 5.4 especially coltan. In contrast, import growth 3.7 2.8 4.2 decelerated to single digits in 2012 and 2013. 4 5.2 2.3 2.5 2.0 0.2 1.2 The combination of high export growth and low 2 1.1 1.3 1.2 2.1 import growth contributed to the improvement in 1.0 2.3 2.6 1.7 1.6 1.0 0 net exports. However, it is important to note that -0.2 2007 2008 2009 2010 2011 2012 2013 for Rwanda, where reliance on imports is relatively -2 high, domestic demand and imports are highly Agriculture Industry Services Adjustment Real GDP growth (percent) correlated (Figure 1.7). Thus, low import growth Sources: NISR; and World Bank staff calculations. suggests low domestic demand. Growth moderated in both public and private Figure 1.7: Low imports reflect low domestic demand sector services in 2013 (Figure 1.9). In the services sector, public services (sum of public 40 administration, health, and education) account for 30 18 percent, while private services account for the Import growth remaining 82 percent. In 2012, growth in both public Year-on-year growth, percent 20 and private sector services accelerated thanks to increased public consumption. However, in 2013, 10 growth in both private and public sector services Growth of domestic demand sharply decelerated, led by the sharp reduction in 0 public consumption and continued contraction in -10 private consumption. In private services, wholesale and retail trade (25 percent of the sector) and real -20 estate activities (12 percent) are the major services 00 01 02 03 04 05 06 07 08 09 10 11 12 13 20 20 20 20 20 20 20 20 20 20 20 20 20 20 subsectors. Growth in the wholesale and retail Sources: NISR;and World Bank staff calculations. trade subsector declined from 14.2 percent in 2012 b. Production Account Figure 1.9: Growth in services sectors slowed In the production account, the services sector is 18 the main cause of the growth slowdown (Figure 16 Public sector services 1.8). The services sector, which accounts for 45 percent of GDP, grew by 5.3 percent in 2013, 14 down from 11.6 percent in 2012. The services 12 sector has been the single biggest contributor to 10 Percent economic growth since 2003, compensating for 8 smaller contributions by agriculture and industry. 6 Private sector services The contribution of the services sector to growth 4 was at 2.5 percentage points in 2013, down from 2 5.4 percentage points in 2012. The deceleration 0 of growth in the services sector mainly resulted 2007 2008 2009 2010 2011 2012 2013 from deceleration in public consumption and the Sources: NISR; and World Bank staff calculations. stagnation of credit to the private sector. 4 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments to 5.6 percent in 2013, reflecting a slowdown in Growth in construction, the main driver of the volume of Rwanda’s international trade. Real growth of the industry sector in the past several estate activities grew a mere 0.7 percent, reflecting years, slowed in 2013. The construction subsector, the slowdown of credit growth to the construction which represents 50 percent of the industry sector, and commerce, business, and hotel subsectors. grew by10.8 percent in 2013, down from 14.5 percent in 2012, although it remains the second Growth in the industry sector accelerated as fastest growing subsector. In recent years, the the result of increased contributions from the government has reformed the procedures for mining subsector. Overall, the industry sector obtaining construction permits. The launch of the grew by 9.4 percent in 2013, up from 8.3 percent in online permitting system has reduced the cost 2012. The strong growth in industry came from the and time to get a permit (from 625,000 Rwandan mining and quarrying subsector, which expanded francs [Rwf] to Rwf 60,000, equivalent to US$90, by 19.6 percent in 2013, after contracting by 7.1 for commercial permits and from Rwf 60,000 to percent in 2012. Despite its small size (12.4 percent Rwf 20,000 [equivalent to US$30] for residential of the total industry sector), the mining subsector permits, and from more than 100 days to 30 days accounted for 24.6 percent of the sector’s growth maximum). Also, Kigali City has established a and 6.4 percent of overall GDP growth. The high one-stop center for construction permits. Almost mining subsector growth was attained by new all public services related to construction permits investments. Seven new mines producing tin and can be completed in the one-stop center. Moderate coltan began operations in 2013, financed in part growth in construction in 2013 is attributable to by foreign direct investment (FDI).12 A caveat is the 17 percent contraction of credit to construction that the growth pattern of the mining subsector activities. The slowdown of construction activities is highly volatile (Figure 1.10). Therefore, the is reflected in the sharp drop in the growth of subsector’s potential contributions to overall imported cement—11 percent in 2013 down from growth in the future require more analysis. (See the 32 percent in 2012. special topic on the mining subsector.) The manufacturing subsector expanded by 4.6 Figure 1.10: Mining growth was high in 2013, but its percent in 2013 after growing by 5.8 percent in growth pattern is volatile 2012, as the contraction in furniture production 60 offset growth in food production. The boom and Mining subsector 50 bust in manufacturing growth during the past few 40 years has been driven by the government’s program for building new houses for low-income households. 30 Overall industry The program boosted furniture production in 2010 20 secctor and 2011, but completion of the program led Percent 10 to its sharp deceleration. The dominance of the 0 construction subsector in the industry sector and -10 the fluctuation caused by the government’s home- -20 building program indicate that manufacturing other -30 than furniture production remains small. Lack 2007 2008 2009 2010 2011 2012 2013 of adequate infrastructure, especially electricity Sources: NISR; and World Bank staff calculations. supply and transport routes, and a low skill base compound Rwanda’s landlockedness, limiting investment in the manufacturing subsector. 12 According to the Rwanda Development Board, Rwanda registered US$29 million in investments in the mining sector, compared with US$24 and US$70 in 2011 and 2012, respectively. Rwanda Economic Update | Edition No. 6 5 Part 1: Recent Economic Developments The agriculture sector expanded by 3.3 percent The economy showed signs of recovery in the in 2013, dropping from 6.4 percent in 2012. first quarter of 2014.13 The economy grew at Export crop production (coffee and tea) contracted 7.4 percent (year-on-year), compared with 4.7 by 4.7 percent, after growing by 9.0 percent in percent in the same quarter in 2013 (Table 1.1). 2012. Coffee and tea production contracted by The economic recovery was driven by expansion 9.4 percent and 1.3 percent, respectively, as a in the services sector. The services sector grew by result of adverse weather conditions. Food crops, 8.3 percent, contributing 4.0 percentage points to accounting for 68 percent of total agriculture overall growth. Among the services subsectors, production, grew by 3.6 percent in 2013, dropping the wholesale and retail trade subsector grew by from 7.1 percent in 2012 because of adverse 12.3 percent, contributing 1.5 percentage points weather conditions. Low growth in food crops is to overall growth. The agriculture sector grew by attributable to production of legumes, and roots and 5.5 percent, contributing 1.7 percentage points tubers, which grew by 3.2 percent and 3.4 percent, to overall growth. The recovery in agriculture respectively. Rwanda’s agriculture is characterized production reflects good weather conditions in the by cultivation on rain-fed land and undeveloped first agriculture season (season A). The industry irrigation. Some 79 percent of Rwanda’s land is sector grew by 8.8 percent, contributing 1.3 classified as agricultural; 11 percent of total land percentage points to overall growth. The mining is permanent cropland, of which only 0.6 percent subsector grew by 22.2 percent, contributing 0.4 is irrigated. Reliance on rain-fed production and percentage point to overall growth. vulnerability to weather conditions remain a structural bottleneck, indicating the urgent need for structural reforms to increase and stabilize agricultural production in the medium term. Table 1.1: The first quarter of 2014 Shows signs of economic recovery (Growth rates, year-on-year basis, percent) 2013 Q1:2014 Item Q1 Q2 Q3 Q4 Growth Contribution GDP 4.7 7.4 2.9 4.1 7.4 7.4 Agriculture 6.2 7.1 1.4 −0.8 5.5 1.7 Food crops 6.5 6.5 0.8 0.8 5.7 1.2 Export crops 10.0 23.1 −3.6 −22.9 9.1 0.1 Industry 12.8 14.8 8.4 2.4 8.8 1.3 Mining and quarrying 5.9 40.0 23.5 15.8 22.2 0.4 Manufacturing 4.0 6.0 5.2 3.4 7.7 0.4 Construction 22.4 17.5 9.7 0.0 7.3 0.6 Services 3.9 6.3 3.9 7.0 8.3 4.0 Public expenditure–led services 6.0 7.2 4.9 6.0 6.7 0.6 Other services 3.3 6.0 3.7 7.0 7.8 3.4 Sources: NISR 13 The National Institute of Statistics of Rwanda (NISR) recently rebased the national accounts. See Annex Note 4 for a detailed analysis. Because the revision process is still under way at the time of this writing, the NISR published only production data. 6 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments 1.1.2. The external sector: Narrower current account deficits, robust mineral exports R wanda’s balance of payments improved in 2013. Although the overall balance turned negative in 2012 for the first time since 2003, it turned positive in 2013. The current account deficit as a share of GDP improved to 7.2 percent in 2013, almost the same level as in 2011. As a result, international reserves increased to US$1,136 million in 2013, equivalent to 4.8 months of imports. Monthly trade data show that export growth rates turned negative while import growth rates recovered in H1:2014. a. Balance of Payments Developments in 2013 GDP) to a surplus of US$229 million (3.1 percent of C urrent transfers (including grant aid) GDP). This, in turn, led to a 34 percent increase in are the main factor contributing to the international reserves in 2013 to US$1,136 million improved current account balance (Table 1.2). (equivalent to 4.8 months of imports). Although In the current account, an increase in services the issuance of the Eurobond contributed to the account deficits was more than offset by an accumulation of international reserves, the proceeds improved trade balance thanks to a significant have not yet been used for the intended purposes.14 slowdown in import demand and strong export growth. Therefore, the current account balance The trade deficit narrowed moderately in 2013, without current transfers (that is, trade, services, as export growth driven by minerals exceeded and income balance) improved from −20.0 percent import growth (Figure 1.11). Exports expanded in 2012 to −18.6 percent of GDP. In addition, the by 19 percent to US$703 million, boosted by current account balance (with current transfers) robust performance in mineral exports. Mineral improved from −9.9 percent in 2012 to −7.2 percent exports grew by 66 percent to US$225 million, of GDP in 2013 because of the contributions accounting for 32 percent of total goods exports. to current transfers, including grant aid. The higher mineral exports were fueled by new mines in operation and favorable international The narrowing current account deficit together prices. Given that international commodity prices with improvements in the capital and financial fluctuate, it is important to understand how price accounts pushed the overall balance into surplus, and volume factors have contributed to changes in from a deficit of US$212 million (−3.0 percent of mineral exports. Disaggregation of the three main Table 1.2: Balance of payments 2011 2012 2013 2011 2012 2013 US$ million Percent of GDP Trade balance −1,102 −1,268 − 1,148 −17.2 −17.8 −15.4 Exports, f.o.b. 464 591 703 7.2 8.3 9.4 Imports, f.o.b. −1,566 −1,859 − 1,852 −24.4 −26.1 −24.8 Services and income (net) − 239 − 159 − 237 −3.7 −2.2 −3.2 Trade, services, and income balance −1,340 −1,427 − 1,385 −20.9 −20.0 −18.6 Current transfers (net) 881 722 848 13.7 10.1 11.4 Current account balance − 460 − 705 − 538 −7.2 −9.9 −7.2 Capital and financial account balance 683 512 773 10.7 7.2 10.4 Overall balance 235 − 212 229 3.7 −3.0 3.1 Sources: BNR; and World Bank staff calculations. 14 The IMF estimated the unused Eurobond proceeds to be US$107 million in June 2014 (First Review under the Policy Support Instrument). Rwanda Economic Update | Edition No. 6 7 Part 1: Recent Economic Developments Figure 1.11: Exports of main mineral products goods.15 As a result, the trade deficit narrowed 250 by 9.5 percent to US$1,148 million in 2013. 200 Tourism remained the single biggest export earner in the balance of payments (see Annex Million U.S. dollars 150 Note 6). Whereas the net services and income account deteriorated from –US$159 million in 100 2012 to –US$237 million in 2013, gross tourism 50 receipts increased to US$294 million in 2013 (3.9 percent of GDP). The value is higher than 0 mineral exports (US$225 million). Nevertheless, 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 tourism receipts as a share of GDP have been Wolfram Coltan Cassiterite stagnant in the past three years (Figure 1.12). Sources: BNR; and World Bank staff calculations. commodities by price and volume shows that the Figure 1.12: Tourism receipts increase in mineral exports in 2013 was mainly 350 4.5 due to coltan, whose export value increased by 4.0 300 136 percent (volume increased by 115 percent, 3.5 and price increased by 10 percent) (Table 1.3). 250 3.0 200 2.5 Driven by the economic slowdown, import Percent US$ million 150 2.0 values contracted by 0.4 percent in 2013, down 1.5 100 from the solid growth of 18.7 percent in 2012. 1.0 The contraction was mostly attributable to the 50 0.5 slowdown in imports of capital and intermediate 0 0.0 2006 2007 2008 2009 2010 2011 2012 2013 Value (left scale) Share of GDP (right scale) Table 1.3: Mineral exports (Year-on-year percent change) Sources: BNR; and World Bank staff calculations. 2014 2011 2012 2013 (Jan-Apr) Value FDI to Rwanda has been concentrated in the Overall 123.4 −10.1 65.9 −18.6 services sector and nontradables, limiting its Cassiterite 129.4 −45.4 15.5 23.4 benefits for foreign exchange earnings (Figure Coltan 108.8 47.5 136.5 −40.8 1.13). FDI remains small relative to GDP (2 percent Wolfram 125.7 63.9 14.4 −4.1 of GDP) and declined from US$166 million in 2012 Price (US$/kg) to US$163 million in 2013. According to the BNR’s Cassiterite 27.8 −18.1 9.4 −6.5 annual FDI survey, while the share of services in Coltan 75.6 14.7 9.8 −30.5 total FDI is dominant at80 percent, the share of Wolfram 89.2 −5.8 −9.7 −9.9 manufacturing and mining, in addition to tourism, Volume (ton) has been rising in recent years. This increase in Cassiterite 79.4 −33.3 5.6 32.0 the share of foreign exchange earners in FDI can Coltan 18.9 28.6 115.4 −14.9 have an impact in reducing Rwanda’s current Wolfram 19.3 74.0 26.7 6.4 account deficit and promoting import substitution. Sources: BNR; and World Bank staff calculations. 15 Imports of capital goods expanded by only 1.2 percent in 2013, down from 26.6 percent in 2012. Growth of imports of intermediate goods declined to 1.6 percent in 2013, down from 18.2 percent in 2012. Consistent with lower construction activity, cement imports grew by 11 percent in volume as compared with 32 percent in 2012. 8 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments Figure 1.13: Sectoral share in foreign direct investment 2013, its performance is intrinsically vulnerable (2008–12 average) to fluctuations in international commodity prices, Construction, 0.7% Accommodation activities 4.2% Other which is evident in H1:2014. This sharp fall 2.5% of exports growth reveals the vulnerability of Agriculture Rwanda’s narrow export base to international 5.7% commodity prices, which is one of the structural Manufacturing, ICT bottlenecks to be overcome in the medium term. 46.0% 7.9% In contrast, imports have been recovering in Mining H1:2014. The growth rate in the first six months 9.6% reached 13.0 percent (year-on-year). The recovery is Financial sector Trade observed across major categories such as consumer 9.8% 9.6 goods (8.3 percent), capital goods (14.0 percent), Sources: BNR; and World Bank staff calculations. and intermediate goods (26.6 percent) (Figure 1.15). Note: ICT = information and communication technology. Figure 1.15: Imports have gained momentum in b. International trade in the first six months the first six months of 2014 of 2014 60 Export growth decelerated significantly 50 Year-on-year growth, percent in H1:2014. Having benefited from higher 40 international commodity prices, especially for 30 minerals, export values increased by 24.9 percent 24 in 2012 and 18.7 percent in 2013. However, in 20 21 the H1:2014, export growth rates (year-on-year) 10 13 fell close to zero at 1.2 percent (Figure 1.14).The 2 0 growth rate of mineral exports reversed from 66 percent in 2013 to −19 percent in H1: 2014 (Table -10 2011 2012 2013 2014 (Jan-Jun) 1.3). Of the three main minerals, the sharp decline Consumer goods Energy and lubricants Capital goods Total Intermediate goods in coltan exports by 41 percent contributed most Sources: BNR; and World Bank staff calculations. to the growth rate reversal. Although the mining sector registered superb growth and exports in Although import value expanded by 13.0 percent, Figure 1.14: Export growth momentum has been lost in import volume increased only marginally, by 0.9 the first six months of 2014 percent (year-on-year). Contraction is observed in 140 intermediate goods (−1.3 percent) although growth 120 of consumer goods (0.8 percent) and capital goods (17.1 percent) was positive. Given that imports Year-on-year growth, percent 100 80 of capital and intermediate goods are considered 60 52 coincident and leading economic indicators, the 40 25 conflicting developments in capital and intermediate 19 20 goods imports are a mixed sign for the economy 0 1 (see detailed discussion in Annex Note 5). The -20 negative growth in intermediate goods imports was -40 2011 2012 2013 2014 (Jan-Jun) caused by delays in new construction activities, Coffee Tea Minerals Others Total for instance, the Kigali Convention Center. Sources: BNR; and World Bank staff calculations. Rwanda Economic Update | Edition No. 6 9 Part 1: Recent Economic Developments 1.1.3. Inflation, monetary policy, exchange rate policy, and financial sector development: Remaining concerns about credit growth I nflation rates remained low as of June 2014. The low inflation rates are attributable to lower import prices, especially for energy and food products. Even though the Rwanda franc depreciated in H2:2013, Rwanda’s import prices remained low thanks to lower global commodity prices. Although reserve money, the BNR’s monetary policy anchor, increased in H2:2013, the increase was mostly absorbed by commercial banks’ reserves and therefore had limited impact on the economy. Because of an underdeveloped monetary policy transmission mechanism, the revision in the policy rate in June 2013 failed to lower lending rates. The pronounced economic slowdown withered both credit demand from the private sector and banks’ lending appetite, resulting in a sharp drop of credit growth to the private sector in H2:2013 and the first quarter of 2014. The BNR cut its policy rate further in June 2014 to stimulate private sector credit growth. a. Inflation (4.0 percent in 2013, the same level as in 2012) I nflation rates continued to fall through reflecting weak domestic demand (left panel of H1:2014 as a result of lower imported food Figure 1.16). Prices of locally produced food picked and fuel prices (Figure 1.16).16 Annual average up between July and October 2013 as a result of the headline inflation declined to 4.2 percent in 2013 poor season B harvest (right panel of Figure 1.16). from 6.3 percent in 2012, with a spike between This pressure eased between October 2013 and July and October due to the poor harvest in season January 2014 because sufficient rains in season A B.17 Import prices remained low in 2013, mainly improved the harvest. reflecting moderate global food and energy prices that outweighed the sharp depreciation of the b. Exchange Rates Rwanda franc in H2:2013 (right panel of Figure Depreciation of the Rwandan franc accelerated 1.16).18 Imported energy and food prices increased in H2:2013 (left panel of Figure 1.17). After by 0.8 percent and 4 percent, respectively, in moderate depreciation of 1.6 percent against the 2013. Core inflation, which excludes fresh food U.S. dollar in H1:2013, depreciation accelerated in and energy, remained moderate throughout 2013 H2:2013, to 4.1 percent, before stabilizing in the Figure 1.16: Inflation brought down by moderate import prices 10 12 10 8 8 6 Percent 6 Percent 4 4 2 2 0 0 -2 1 1 12 2 2 2 13 3 3 3 14 4 -1 -1 -1 -1 -1 -1 -1 -1 -1 1 1 12 2 2 2 13 3 3 3 14 4 n- n- n- -1 -1 -1 -1 -1 -1 -1 -1 -1 ly ct pr ly ct pr ly ct pr n- n- n- Ja Ja Ja O O O Ju Ju Ju ly ct pr ly ct pr ly ct pr A A A Ja Ja Ja O O O Ju Ju Ju A A A Headline inflation Core inflation Local goods inflation Imported goods inflation Sources: BNR; and World Bank staff calculations. 17 Rwanda’s agriculture season A runs from September to February. Agriculture season B runs from February to June. 18 According to World Bank global commodity price data, between July and December 2013, energy prices increased by only 3 percent, while food prices declined by 10.4 percent. 10 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments Figure 1.17: Rwanda franc against U.S. dollar and real effective exchange rate depreciated in 2013 720 115 Real and nominal effective exchange rates 700 Depreciation Depreciation of Rwanda franc to U.S. dollar of 4.5% in 2012 5.8% in 2013 110 680 Depreciation 660 of 1.9% 105 in H1: 2014 640 Period average of 4.1% 620 in H2:2013 100 Depreciation of 1.6% 600 Daily rate in H1:2013 95 580 560 90 540 2 3 4 1 2 3 12 13 12 13 14 -1 -1 -1 -1 -1 -1 p- p- n- n- n- ar ar ar ec ec ec Se Se Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Ju Ju Ju M M M D D D Real effective exchange rate Nominal effective exchange rate Source: World Bank staff calculations based on data from the BNR. first four months of 2014 (depreciation of only 1.5 decline, fluctuating around 17.5 percent between percent between January and April 2014). Exchange June 2013 and June 2014. The unresponsiveness pressures felt in H2:2013 could be attributable to of the lending rate has been attributed to the higher-than-expected demand for foreign exchange. heavy reliance on cash in the economy, the Despite the increased intervention by the BNR of small and concentrated banking sector, and an 68 percent, to US$201.7 million in H2:2013, the underdeveloped financial market. Following the unresponsive lending rate, BNR pursued a further pace of depreciation did not slow. The Rwandan reduction in the policy interest rate from 7 percent franc also depreciated against regional currencies to 6.5 percent in June 2014 to sustain economic in H2:2013, and against all major trading partner recovery. Although reserve money, the BNR’s currencies including regional currencies. Rwanda’s monetary policy anchor, increased in H2:2013 by real effective exchange rate (REER), calculated Rwf 10.7 billion, the increase was mostly absorbed as a trade-weighted average of bilateral exchange by commercial banks’ reserves of Rwf 8.1 billion rates, continued to depreciate, which is attributable (see Annex Note 1 on monetary policy in Rwanda to Rwanda’s lower inflation as well as the nominal and Annex Note 2 on dynamics in the yield curve of depreciation against the U.S. dollar (right panel of short-term government securities). Figure 1.17). Figure 1.18: Lending rate did not respond to policy rate cut 20 c. Monetary Policy and Interest Rates 18 Lending rates remained high and unchanged 16 Interest rate, percent 14 even after the revision of the policy rate in June 12 2013, revealing the ineffective transmission of 10 the policy rate to the financial market (Figure 8 1.18). Increased demand for Treasury bills by 6 4 commercial banks, reflecting their prudent lending 2 to the private sector, led to a decline in the Treasury 0 bill rate in H2:2013.19 Although deposit rates 1 1 Fe 1 M 2 A 2 N 2 Fe 2 M 3 A 3 N 3 Fe 3 M 4 4 -1 -1 -1 1 -1 -1 -1 1 -1 -1 -1 1 -1 b- b- b- declined from 10.6 percent in June 2013 to 8.5 ay ug ov ay ug ov ay ug ov ay M A N Policy rate Deposit rate Lending rate Treasury bill rate percent in December 2013, lending rates did not Sources: BNR; and World Bank staff calculations. 19 The share of commercial banks’ holdings in Treasury bill stock (outstanding) was 92.9 percent of the total in December 2013 compared with 70.5 percent in June 2013. Rwanda Economic Update | Edition No. 6 11 Part 1: Recent Economic Developments d. Banking Sector The slowdown in credit growth was observed The economic slowdown led to reductions across key sectors of the economy (Figure 1.20). In in both private sector credit demand and the services sector, credit growth to the commerce, banks’ appetite for lending. The result was a business, and hotels subsector, the main driver of sharp deceleration in credit growth to the private growth in services, declined from 51 percent in sector in 2013 (Figure 1.19), constraining private 2012 to 6 percent in 2013. The significant decline investment and consumption. Credit growth to the in credit underpins the deceleration in growth private sector declined markedly from 34 percent in services in 2013. Credit growth to subsectors in 2012 to 11 percent in 2013, followed by a slight in industry dropped as well in 2013—credit to increase to 11.7 percent in the first quarter of 2014. the construction sector suffered a cutback of 17 Between 2012 and 2013, newly authorized loans percent and credit to the manufacturing subsector declined by 5.3 percent (from Rwf 499 billion to grew at only 19 percent in 2013, falling from 85 Rwf 473 billion). The subdued growth in credit to percent in 2012. Although the mining sector grew the private sector in H2:2013 can be attributed to robustly in 2013, the sector received a negligible prudent commercial banks’ lending behavior. This amount of credit, registering no growth in 2013. is reflected in the fall of the Treasury bill rate, the Credit to the agriculture sector continued to decline, accumulation of nonperforming loans, and the dropping by 17 percent in 2013. Preliminary new increased rejection rate of borrowing applications.20 loan numbers in the first six months of 2014 show The lagged impact of the 2012 aid shortfall on the that credit growth remains moderate. Although economy has been compounded through a vicious total credit grew by 47.8 percent (year-on-year), the circle. The first-round economic slowdown in H1: growth is attributable to two big loans: one to the 2013 led to a credit slowdown, which, in turn, Rwanda Cement Factory of about Rwf 30 billion coupled with structural bottlenecks, resulted in a and the other to the Energy, Water and Sanitation further economic slowdown in H2:2013. Authority of Rwf 14.7 billion. Once these two big loans are excluded, total credit grew at 27.5 percent, compared with 66.0 percent and −12.4 percent in the first six months of 2012 and 2013, respectively. Figure 1.19: Credit to the private sector has remained low, although liquidity constraints have been eased Figure 1.20: Credit decelerated across all sectors (Year-on-year growth rate) of the economy 40 Agriculture 35 Construction 30 Growth rate of credit Community services to the private sector 25 Transport & warehousing Percent 20 Commerce, business & hotels 15 Manufacturing 10 Deposit growth rate Financial services 5 Water & energy 0 -100 -50 0 50 100 150 Annual growth, percent 11 2 2 12 12 3 3 13 13 4 -1 -1 -1 -1 -1 - p- - p- - ec ar n ec ar n ec ar Se Se Ju Ju 2012 2013 M M M D D D Sources: BNR; and World Bank staff calculations. Sources: BNR; and World Bank staff calculations. 20 The ratio of nonperforming loans rose marginally from 6 percent in December 2012 to 7 percent in December 2013. Similarly, in 2013, 5,940 loan applications were rejected representing 7.5 percent of total applications against 4,865 rejections recorded in 2012, equivalent to a rejection rate of 6.7 percent. 12 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments 1.1.4. Fiscal developments: Growing concerns about capital expenditures T he fiscal outturn in the first three quarters of FY2013/1421 shows that actual expenditures were 10 percentage points below projections. Although total revenue and grants were almost as projected, tax revenues were 6.6 percent lower than the projection although improved from the previous fiscal year. Given that reducing the reliance on donor funding is the key objective for the government, the Medium-Term Expenditure Framework (MTEF) assumes fiscal consolidation through increased revenue mobilization and expenditure prioritization to reduce the fiscal gap. The FY2014/15 budget is consistent with the MTEF, being based on conservative assumptions about donor funding. a. Revenue and Grants in the past few years, actual tax revenue was low A id inflows returned to pre–aid shortfall as a result of the pronounced economic slowdown levels in the first three quarters of and delays in implementation of further tax FY2013/14. Total grants were projected to be Rwf administration measures (for example, the rollout 333 billion (equivalent to35 percent of projected of electronic billing machines22). In contrast, actual revenue), but were 4 percent higher at Rwf 346 nontax revenue exceeded projections by 59 percent billion (Table 1.4). The higher-than-projected because of higher receipts from peacekeeping grants resulted from high capital grants. Capital operations. grants were projected to be Rwf 184 billion (equivalent to 19 percent of the budget). Eventually, In the FY2014/15 budget, the government more than 110 percent of the projected amount was projects that it will mobilize more tax revenues realized thanks to the frontloading of grants from (Table 1.5). While the ratio of domestic revenue to the Global Fund to Fight AIDS, Tuberculosis, and GDP remains unchanged between the FY2013/14 Malaria. In contrast, actual disbursement of the revised budget (17.1 percent) and the FY2014/15 budgetary grants was lower than projected because budget (17.2 percent), tax revenue is projected of disbursement delays by the European Union and to increase by 0.5 percentage point of GDP from Germany. 15.3 percent in the FY2013/14 revised budget to 15.8 percent in the FY2014/15 budget. The Although improved from the previous fiscal unchanged domestic revenue is attributable to a year, domestic revenue collection fell below decline in nontax revenue, which bounces back projections by 1.6 percent, which is attributable from higher-than-projected reimbursements from to lower-than-projected tax revenue. Preliminary the United Nations for peacekeeping operations numbers from the Rwanda Revenue Authority in FY2013/14.Tax revenue is consistent with (RRA) indicate that tax revenue for FY2013/14 medium-term targets for progressively increasing was Rwf 759 billion against the target of Rwf 783 domestic revenue collection and reducing aid billion in the revised budget. Although a series of tax dependence.23 To increase tax revenue, the RRA administration measures have been implemented has been implementing numerous tax reforms.24 21 MINECOFIN has published budget execution reports in the first three quarters of FY2013/14 (http://www.minecofin.gov.rw/ index.php?id=2). 22 http://www.rra.gov.rw/rra_article1035.html. 23 Under the MTEF, the government aims to increase tax revenue, on average, 0.8 percentage point of GDP a year by broadening the tax base and reducing exemptions; domestic revenue is projected to increase from 15.3 percent of GDP in FY2013/14 (Rwf 874 billion) to 15.8 percent in FY2014/15 (Rwf 986 billion) and 17.2 percent in FY2015/16 (Rwf 1,205 billion). Total grants are projected to increase to Rwf 545 billion in FY2014/15 from Rwf 463 billion, but to decline to Rwf 482 billion in FY 2015/16. 24 These reforms include an increase of excise duty on airtime from 8 percent to 10 percent, continued roll-out of electronic billing machines, taxpayers’ education, and investment in information technology facilities to ease the services to the taxpayers. Rwanda Economic Update | Edition No. 6 13 Part 1: Recent Economic Developments Table 1.4: Fiscal outturn in the first three quarters of FY2013/14 (Billions of Rwandan francs, except as noted) Jul–Dec 2013 Jan–Mar 2014 Jul 13–Mar 2014 Projection Actual Projection Actual Projection Actual Gap (%) Revenue and grants 677 702 287 266 964 968 0.4 Total revenue 403 408 228 213 631 621 −1.6 Tax revenue 373 357 211 187 583 545 −6.6 Nontax revenue 30 51 18 26 48 76 59.1 Total grants 274 293 59 53 333 346 4.0 Budgetary grants 143 136 6 0 149 136 −8.5 Capital grants 131 157 53 53 184 210 14.3 Total expenditure and net lending 795 684 404 397 1,200 1,082 −9.8 Current expenditure 364 362 181 194 545 555 1.8 Wages and salaries 102 93 51 47 154 140 −9.1 Purchases of goods and services 72 63 35 39 107 102 −4.1 Interest payments 18 21 3 5 22 26 16.8 Transfers 139 151 59 70 198 221 11.8 Exceptional social expenditure 33 34 33 33 65 67 2.2 Capital expenditure 354 316 201 180 555 496 −10.7 Domestic 121 114 93 78 214 193 −10.1 Foreign 233 202 109 101 341 303 −11.1 Net lending 77 7 22 24 99 31 −69.0 Change in arrears (− : net reduction) −7 −8 −10 34 −17 26 −249.3 Overall deficit (cash basis) Including grants −125 9 −128 −97 −253 −88 −65.2 Excluding grants −400 −284 −186 −150 −586 −435 −25.8 Financing 125 −9 128 97 253 88 −65.2 Foreign financing (net) 55 25 43 43 98 68 −30.5 Domestic financing 71 −34 84 54 155 20 −87.1 Sources: MINECOFIN; and World Bank staff calculations. Despite the medium-term objective of reducing b. Expenditures and Net Lending aid dependency, total grants are projected to The resumed aid inflows and improved increase from 9.1 percent of GDP (Rwf 463 domestic revenue, however, have not led to billion) in the FY2013/14 budget to 9.5 percent accelerated execution of capital expenditure (Rwf 545 billion) in the FY2014/15 budget. and net lending. In the first three quarters of Budgetary grants are expected to increase by FY2013/14, capital expenditures and net lending 1.8 percent from 3.9 percent of GDP (Rwf 201 registered execution rates of 89 percent and 31 billion) to 5.7 percent of GDP (Rwf 328 billion) percent, respectively. The budget execution report in FY2014/15. The significant increase reflects by the Ministry of Finance and Economic Planning a pledge by the Global Fund to Fight AIDS, (MINECOFIN) attributes the low execution rate Tuberculosis, and Malaria to the health sector. to delayed finalization of disbursement documents On the other hand, capital grants are expected to and delayed implementation, for instance, in the decline from 5.1 percent of GDP (Rwf 262 billion) Energy, Water and Sanitation Authority’s hydro in the FY2013/14 budget to 3.8 percent of GDP project (Nyabarongo power project). Net lending (Rwf 216 billion) in the FY2014/15 budget. to the Kigali Convention Center (KCC), one 14 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments of the largest government investment projects, will go to infrastructure projects, especially energy was significantly lower than initial projections and roads. Net lending is expected to increase from because of delays in construction; the government Rwf 88 billion in FY2013/14 to Rwf 105 billion was estimated to spend Rwf 68 billion, but as of in FY2014/15 as the ongoing KCC project moves December 2013 had actually spent only Rwf 16 toward completion. Under the MTEF, Rwanda billion. MINECOFIN expects further delays in plans to reduce the share of expenditure to GDP implementation of the KCC in the second half to 26.6 percent in FY2016/17, while prioritizing of FY2013/14. These delays can be attributed expenditure toward strategic investments to to capacity constraints on executing capital achieve the EDPRS 2 objectives and social expenditures by ministries with large budgets protection projects. (see Annex Note 3 on low capital expenditure disbursement rates in FY2013/14). Although the c. Overall Balance and Financing government ensured full execution of spending for The overall fiscal deficit in the first three interest payments and social expenditures, neither quarters of FY2013/14 was much lower than spending for wages and salaries nor purchases expected (Table 1.4). Despite budgetary grants of goods and services were fully executed. This that were 10 percent lower than projected, the lower expenditure was mainly caused by delays in overall fiscal deficit was only Rwf 88 billion (−2.3 new recruitment of staff, and delays in processing percent of GDP in the first three quarters) rather payment documents for goods and services and than the projected Rwf 253 billion (−6.5 percent teachers’ salaries by various ministries, agencies, of GDP). The low deficit was caused primarily by and districts. the delayed disbursement of capital expenditures and significantly low net lending to government In the FY2014/15 budget, total expenditures as investment projects. The fiscal deficit was mostly a share of GDP are projected to fall, reflecting financed by external borrowing. the medium-term fiscal consolidation. Total expenditures and net lending are projected to decline from 31.3 percent of GDP (Rwf 1,599 In the FY2014/15 budget, a combination of billion) in the FY2013/14 to 30.5 percent (Rwf slightly higher domestic revenue and lower 1,753 billion). The decline is observed in both expenditure will contribute to shrinking the recurrent expenditures and capital expenditures overall deficit from 5.3 percent of GDP to 4.0 by 1.0 percentage point and 1.1 percentage percent. External borrowing is projected to finance points of GDP, respectively. Although recurrent Rwf 137 billion (2.4 percent of GDP) and domestic expenditures are projected to decline, purchases borrowing is expected to cover the remainder (Rwf of goods and services related to social protection 96 billion, 1.7 percent of GDP). The majority of increases by 0.4 percentage point of GDP because domestic borrowing relies on drawing against of expenditure prioritization. Similarly, capital the unused Eurobond, resulting in an increase in expenditures shift toward strategic investments to new borrowing to Rwf 16 billion, which will be boost economic growth, aligning with EDPRS 2 financed by the use of the overdraft at BNR or sales priorities. A large fraction of capital expenditure of Treasury bills in the financial markets. Rwanda Economic Update | Edition No. 6 15 Part 1: Recent Economic Developments Table 1.5: FY2013/14 and FY2014/15 budgets FY2013/14 FY2014/15 MINECOFIN Initial budget Revised budget Initial budget projection Billion % of Billion % of Billion % of Billion % of Rwf GDP Rwf GDP Rwf GDP Rwf GDP Revenue and grants 1,314.1 24.4 1,336.7 26.1 1,336.8 26.1 1,530.8 26.6 Total revenue 843.5 15.6 873.7 17.1 873.8 17.1 986.0 17.2 Tax revenue 775.4 14.4 782.4 15.3 782.5 15.3 906.8 15.8 Nontax revenue 68.0 1.3 91.3 1.8 91.3 1.8 79.3 1.4 Total grants 470.6 8.7 463.0 9.1 463.0 9.1 544.8 9.5 Budgetary grants 170.6 3.2 201.2 3.9 201.2 3.9 328.4 5.7 Capital grants 300.0 5.6 261.8 5.1 261.8 5.1 216.4 3.8 Total expenditure and net lending 1,653.4 30.7 1,677.7 32.8 1,598.8 31.3 1,753.3 30.5 Current expenditure 850.7 15.8 798.1 15.6 760.9 14.9 855.2 14.9 Wages and salaries 181.7 3.4 195.2 3.8 195.2 3.8 207.0 3.6 Purchases of goods and services 319.2 5.9 130.1 2.5 130.1 2.5 164.7 2.9 Interest payments 40.4 0.7 37.5 0.7 37.5 0.7 41.4 0.7 Transfers 268.4 5.0 273.7 5.4 273.7 5.4 317.5 5.5 Exceptional social expenditure 72.4 1.3 124.4 2.4 124.4 2.4 83.4 1.5 Capital expenditure 802.7 14.9 750.1 14.7 750.1 14.7 783.4 13.6 Domestic 314.8 5.8 365.2 7.1 365.2 7.1 444.2 7.7 Foreign 487.9 9.1 384.9 7.5 384.9 7.5 339.2 5.9 Net lending 114.8 2.1 120.3 2.4 87.8 1.7 104.7 1.8 Change in arrears (− : net reduction) -9.2 -0.2 -9.2 -0.2 -9.2 -0.2 -10.0 -0.2 Overall deficit (cash basis) Including grants -348.5 -6.5 -350.2 -6.9 -271.2 -5.3 -232.5 -4.0 Excluding grants -819.1 -15.2 -813.2 -15.9 -734.2 -14.4 -777.3 -13.5 Financing 348.5 6.5 350.2 6.9 271.2 5.3 232.5 4.0 Foreign financing (net) 197.0 3.7 164.9 3.2 109.9 2.2 136.9 2.4 Domestic financing 151.5 2.8 185.3 3.6 161.3 3.2 95.6 1.7 Sources: MINECOFIN; and World Bank staff calculations. 16 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments 1.1.5. Economic Outlook and Risks T he World Bank now projects annual economic growth of 5.7 percent in 2014 and 6.6 percent in 2015, up from the realized growth rate of 4.7 percent in 2013 but down from the previously projected growth rate of 7.2 percent for 2014. Signs of recovery in 2014 growth are evident in the strong performance in the first quarter. However, the weaker recovery than previously projected is attributable to continued slow credit growth to the private sector, delayed implementation of government capital expenditures, negative growth of mineral exports and adverse weather conditions in season B. The outlook is contingent on accelerated implementation of the delayed government capital expenditures in H2:2014, and the harvest for season B. T he December 2013 edition of the Rwanda Economic Update projected growth of 7.2 percent in 2014. Those projections were based led to slow credit growth in H2:2013 and H1:2014. Despite the resumption of aid, the implementation of capital expenditure has been delayed in the first on an assumption that the lagged effects of the aid four months of 2014 because of limited capacity shortfalls would be concluded by the end of 2013 for implementation. thanks to the resumption of aid. Although slower than expected because of continued deceleration In view of these developments, Rwanda’s of credit to the private sector and delayed economy is projected to grow at 5.7 percent in implementation of capital expenditures, over the 2014 and 6.6 percent in 2015. The revised growth last several months the economy has shown signs rate in 2014 is 1.5 percentage points lower than of recovery reflected in the strong performance in the previously projected growth rate. The lower the first quarter of the year. growth rate projections reflect a variety of factors, including expected unfavorable agricultural However, mixed signals, sent by conflicting signs harvests due to adverse weather condition in regarding imports in capital and intermediate season B, and the recent contraction in imports goods, suggest that economic activity in the volume of intermediate materials, which was led second quarter of 2014 could remain weak. by the delayed implementations of government The World Bank’s growth projection using the investment projects. The services sector is expected Coincident Economic Indicator (see Annex Note to regain some dynamism because the government 5) supports this forecast. The Coincident Economic is expected to accelerate its spending in H2:2014. Indicator projects growth of about 6.5 percent (year-on-year) in the second quarter of 2014, The projection, however, is contingent on attributable to lower growth in cement consumption government capital expenditures and the and in wholesale and retail trade, and stagnant international commodity prices of minerals. As credit growth to the private sector. Lower cement discussed in the previous sections, the government production growth and stagnant credit growth to executed only 90 percent of the budgeted amount the private sector reflect lower investment, while of capital expenditures because of its capacity lower wholesale and retail trade is caused by lower limitations. Given the size of the government and its household consumption. Whereas government spillover impacts on the services sector, continued borrowing crowded out credit to the private sector low execution of capital expenditures is a downward in 2012, the economic slowdown in H1:2013 risk to economic growth. Furthermore, in the first caused weak demand for credit by the private sector six months of 2014, a decline in international and increased nonperforming loans. This, in turn, commodity prices, especially for coltan, has led Rwanda Economic Update | Edition No. 6 17 Part 1: Recent Economic Developments to a significant deceleration in mineral exports, a weaker growth, reflecting adverse weather contraction of overall exports, and deterioration condition in season B. Both the government and of net exports. A further decline in international the World Bank project lower growth in the mining commodity prices would put downward pressure sector. The sector’s superb performance in 2013 on growth prospects. was fueled by favorable international commodity prices. Mining production in 2014 is expected to In contrast, in April 2014, the government grow moderately because of a drop in commodity projects GDP growth rates to be 6.0 percent prices in 2014. in 2014 and 6.7 percent in 2015. The projection relies on an assumption that aggressive reforms The inflation outlook is negative because of will be implemented to address the vulnerability of insufficient rainfall in season B. Although food agriculture production, to accelerate both private prices have been low, they are expected to spike and public investment projects, and to promote in H2:2014 as a result of food shortages similar to growth in the services sector. All sectors are those observed in October 2013. Faster depreciation expected to grow strongly in 2014. Even though of the exchange rate and an increase in domestic adverse weather conditions were observed in fuel prices are upside risks to the inflation outlook. H1:2014, strong performance in agriculture is The weakening of the Rwanda franc is expected projected, with growth of 5 percent, compared with to increase import prices, which account for 20.5 3 percent in 2013. The services sector is expected percent of the household consumption basket. It is to grow at 7 percent, based on an assumption important to monitor inflation trends especially as that government consumption and credit growth the recovery in domestic demand strengthens. to the private sector will increase. Growth in the industry sector is projected to decelerate, reflecting The government’s fiscal policy buffers are being slower construction activity. The main difference rebuilt thanks to the aid resumption, enabling in projections by the government and the World proactive macroeconomic management. The Bank is attributable to the agriculture sector. improved macroeconomic environment is reflected The government projects stronger growth in the in the recent upgrade in Fitch’s Issuer Default agriculture sector, while the World Bank forecasts Ratings. From the standpoint of short-term fiscal Table 1.6: Rwanda’s GDP growth is expected to slow further in 2014 before accelerating in 2015 (Annual percent change) World Bank MINECOFIN Actual Item Projection Projection 2011 2012 2013 2014 2015 2014 2015 GDP 7.9 8.8 4.7 5.7 6.6 6.0 6.7 Agriculture 4.7 6.4 3.3 3.4 4.1 5.0 5.0 Food crops 5.0 7.1 3.6 3.5 3.5 4.0 5.0 Export crops 2.6 9.0 -4.7 0.1 12.0 12.0 13.0 Industry 17.6 8.5 9.3 5.1 8.9 6.0 9.0 Mining and quarrying 51.0 -8.1 20.6 3.7 5.0 4.0 5.0 Manufacturing 7.9 5.9 4.6 6.2 6.4 4.0 5.0 Construction 23.6 14.7 10.8 8.6 11.3 6.0 12.0 Services 8.0 11.6 5.3 7.6 8.0 7.0 7.0 Public expenditure-led services 14.4 14.5 6.3 8.5 7.8 7.5 4.7 Other services 4.9 10.9 5.3 7.4 8.1 7.0 7.6 Sources: NISR; and World Bank staff calculations. 18 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments policy, given the improved fiscal space and rate and banks’ excessive reserves at BNR, the ongoing capacity constraints for budget execution monetary authority needs to consider alleviating at certain ministries, the authorities might consider the limited transmission of monetary policy and to accelerating implementation of delayed investment directly affect credit growth to the private sector by projects where capacity constraints do not exist, promoting competition in the banking sector and and resuming recruitment of public servants. At developing the money market to expand the scope the same time, given the highly sticky lending of open market operations. 1.2. The drivers of and constraints to aggregate growth I n addition to recent economic developments, the previous section discussed the aid shortfall and the subsequent economic slowdown that revealed Rwanda’s structural bottlenecks and vulnerabilities. High reliance on aid leaves the economy highly vulnerable to fluctuation in aid inflows. The private sector is small and largely reliant on government demand. Rain-fed agriculture makes harvests vulnerable to adverse weather conditions. The narrow exports base is vulnerable to fluctuations in international commodity prices, which intrinsically results in volatile exports growth. The country’s relatively weak infrastructure base and the low skill base of the workforce restrict private investment. This section discusses the medium-term policy priorities to overcome these structural bottlenecks. R wanda’s economy grew at more than 7 percent per year between 2001 and 2013, mostly driven by domestic demand supported private sector. The poor harvest in 2013 further subdued growth performance, unveiling the vulnerability of Rwanda’s rain-fed agriculture to by aid-financed public expenditures. Despite adverse weather conditions. Although the mining high growth, the economic structure did not sector registered impressive growth and exports in change significantly. The public sector plays a 2013, its performance is intrinsically vulnerable critical role (accounting for more than half of total to fluctuations in international commodity prices, investment, for example), the nontradables sectors which is evident in the sharp drop in export growth are dominant, and private investment is limited, in H1:2014. fluctuating around 10 percent of GDP. Given a possible decline in the share of aid in The aid shortfall and the resulting economic the economy in coming years, the role of public slowdown revealed structural bottlenecks. expenditures is expected to shift from driving Because ofthe high reliance on aid and the growth to catalyzing it. Maintaining high growth dominance of the public sector in the economy, the will require a shift from an aid-dependent, public- narrower fiscal space created by the aid shortfall sector-led development process to growth driven by had not only the direct effect of slowing down the private sector. Such a structural transformation government expenditures but also a significant will depend on addressing constraints to private indirect effect on private sector economic investment and on continuing to make effective activity. The services and construction sectors and efficient use of public resources through were especially affected, through reduced public enhanced public financial management (PFM). sector demand and crowding-out of credit to the In particular, it would be important to mobilize Rwanda Economic Update | Edition No. 6 19 Part 1: Recent Economic Developments additional domestic resources to create fiscal space • Productivity gains in the nonagricultural sector. and to further prioritize expenditures including Despite its superb performance as demonstrated through improved public investment management. in the World Bank’s Doing Business indicators, Furthermore, for growth to be accompanied by even the private nonfarm sector shows evidence of faster poverty reduction, further progress in policy various bottlenecks to productivity growth and reforms will be key in a number of areas. These investment. Business surveys point to numerous include the accountable governance pillar of the layers of bureaucracy in the public sector and weak coordination between public institutions, Government’s medium term plan, encompassing which particularly affects foreign investors’ not only enhanced PFM but also more effective decisions to invest in Rwanda. Two areas of the decentralization, so as to ensure greater equality business environment that particularly stand out in public services delivery. Moreover, continued are land acquisition and tax payments. Investors growth in agricultural productivity and an extensive report long delays caused by the public sector in and effective social protection system will sustain acquiring land. In addition, the transparency of or even accelerate the rate of poverty reduction by the tax system seems to be weak, with numerous supporting the incomes of the poorest and most taxes and payments required by both the central vulnerable. and district governments. • Weak infrastructure, particularly electricity. Some of the key constraints to private sector Firms in Rwanda pay the highest electricity costs development driven and inclusive growth that in the region at US$0.24 per kilowatt-hour (kWh) have been identified in Rwanda include the compared with US$0.15 per kWh in Kenya following. and US$0.17 per kWh in Uganda; businesses • Small financial sector. Access to and the cost of experience, on average, 10 power outages per borrowing is an important constraint to a climate month. The availability and cost of electricity is conducive to business (Private Sector Federation ranked as the third most serious problem facing Rwanda 2013). Rwanda’s financial sector is Rwanda (Private Sector Federation Rwanda small; for example, the number of borrowers 2013). And because Rwanda is a landlocked from commercial banks is much lower than in country, the limited transport infrastructure makes other East African Community countries. In transport of goods very expensive; it is more 2011, 8.8 out of 1,000 adults borrowed from a expensive to bring goods from Dar es Salaam to Kigali than from Europe to Dar es Salaam. The commercial bank in Rwanda while 83.1, 35.4, lack of adequate electricity supply and insufficient and 18.3 out of 1,000 adults borrowed in Kenya, transport routes are major barriers to investment Tanzania, and Uganda, respectively. The cost of in manufacturing capacity, and prevent the export borrowing money has recently remained high base from expanding, thereby constraining and unchanged to the change in monetary policy growth and job creation. The need for significant stance, revealing the ineffective transmission enterprise development is particularly important of the policy rate to the financial market. The given the rapidly increasing labor force: an unresponsiveness of the lending rate has been estimated 200,000 people will join the labor force attributed to the heavy reliance on cash in the each year during the EDPRS 2 period, which is economy, the small and concentrated banking almost double the past rate of job creation. A sector, and an underdeveloped financial market vibrant private sector will be needed to absorb (see Annex Note 1 for detailed discussion). this burgeoning labor force. 20 Rwanda Economic Update | Edition No. 6 Part 1: Recent Economic Developments • Low human capital and qualified workers. • Productivity gains in the agricultural sector. The skills of the current labor force need to be Smallholder farms and reliance on rain-fed improved to allow workers to increase their production characterize agriculture in Rwanda, productivity and facilitate the move from which accounts for one-third of GDP and 70 subsistence agriculture toward a higher-value, percent of employment. Small farms face market-oriented mode of production or into challenges accessing input and output markets higher-productivity, nonfarm occupations. The owing to weak rural infrastructure and low use of services sector has been expanding faster than irrigation and fertilizer as well as limited market education enrollment, and skills have become a information. Some 79 percent of Rwanda’s land is binding constraint to growth also in that sector. classified as agricultural; 11 percent of total land Business surveys show that firms are finding it is permanent cropland, of which only 0.6 percent increasingly difficult to hire workers with the is irrigated. Reliance on rain-fed production right skills and often hire foreign skilled labor. and vulnerability to weather conditions make it At the same time, the share of the working-age urgent that structural reforms be undertaken to population is increasing; but taking advantage increase and stabilize agricultural production of this “demographic dividend” will require in the medium term. Various policy actions, efforts to expand the skills of the labor force, including legislative reform, investment in particularly among new labor market entrants rural infrastructure (feeder roads, markets, and youth. Enhancing human capital requires and post-harvest storage facilities), education improving the quantity (enrollment) and quality of specialized agricultural skills and land of education, but also improving health services administration reform, could raise productivity given that labor productivity is directly tied to in the sector and agricultural incomes and, hence, health outcomes. result in sustained rapid poverty reduction. Furthermore, while improvements in agriculture The median level of education of the labor force and rural infrastructure will go a long way toward amounts to the fourth grade of primary school, increasing the incomes of the poor, they are and more than 16 percent of the labor force has unlikely to reach the most destitute households. never been to school. The situation is, however, The poorest households are often landless or improving for the younger generations: net have landholdings that are grossly insufficient enrollment in primary school stands at 92 percent to provide for even their most basic food needs, while gross enrollment in secondary school more which means that improvements in agriculture than doubled in only five years (41 percent in will largely bypass them. These households 2011 up from 20 percent in 2006). Despite these either need direct support to their incomes or the positive changes, the Rwandan labor force is opportunity to participate in wage employment in projected to remain relatively low skilled for public infrastructure projects. The government’s the foreseeable future. The types of efforts flagship social protection program (Vision 2020 that would be needed in this area include the Umurenge Program) currently covers half of provision of basic skills training for farm workers the country’s 416 sectors (sub-districts), and in functional and financial literacy, specialized a targeted and evidence-based scale-up could agricultural skills, and targeted vocational result in more poverty reduction and continued training to build basic skills for employment pro-poor growth. in labor-intensive subsectors (construction, transport, light manufacturing). Rwanda Economic Update | Edition No. 6 21 Part 1: Recent Economic Developments While removing the obstacles to private sector resource mobilization should be accompanied development is imperative, there is also scope by improvements in other aspects of PFM, such for stimulating the economy by improving the as a tighter link between planning and budget effective and efficient use of public resources. and improved public investment management. Fast-growing, non-resource-rich countries typically Furthermore, given the disparity of access have sustained investment rates of 25 percent of to public services across districts, public GDP or higher, and the bulk of it comes from expenditures should be allocated so that they the private sector. In contrast, more than half of increase access equity. Indeed, despite strong Rwanda’s investment (at 24 percent of GDP) is improvements, large inequality in services delivery across districts remains. Access to basic from the public sector and is financed by aid. Aid health facilities (health centers), for example, accounts for 30–40 percent of the budget while the varies from 32 percent of the population in tax-to-GDP ratio remains at 14 percent of GDP certain districts to almost 100 percent in other (much lower than Sub-Saharan Africa’s average districts. Decentralization reform, if done well, of 18 percent). Because aid as a share of GDP is can provide a stronger match between services likely to decline in the medium term, it is essential delivered at local levels and services actually to accelerate domestic resource mobilization. needed, and hence benefit local populations. It • Improving PFM. Mobilizing domestic resources should be supported by improvements in PFM, through tax policy and administration reforms both at the national and subnational levels, will secure fiscal space for public expenditures to optimize allocation of scarce resources to in general and public investment in particular. identified priority areas. Building on the progress to date, domestic 22 Rwanda Economic Update | Edition No. 6 PART TWO Special Focus: Unearthing the Subsoil: Mining and Its Contribution to National Development Part 2: Special Focus 2.1. Why Mining Matters for Rwanda’s National Development R wanda has high hopes for its mining sector’s contribution to national development. Expressed in its Economic Development and In 2013, for instance, the value of mining exports reached US$225 million, positioning it more than half way to reaching its 2017 target of US$400 Poverty Reduction Strategy (EDPRS 2) and Mining million (EDPRS 2; MINIRENA 2013). However, Sub-Sector Strategy 2013/2014–2017/2018, the the increase in the value of exports, which is reliant government recognizes mining’s potential to on higher mineral prices, has masked the structural contribute to jobs, exports, and foreign direct inefficiencies of the country’s production model, investment (FDI). The government’s poverty dependent principally on small production sites, reduction target, from 45 percent to 30 percent high manual labor, and rudimentary technology. by 2017, will require expansion of “off-farm” The small-scale mining sector, which at present jobs through income diversification.25 Mining delivers considerable employment and income provides such an opportunity, with 33,638 miners26 distribution in the rural areas, needs to be registered as of early 2014, representing slightly capitalized alongside further development of a more than half of the Ministry of Natural Resources’ few larger projects capable of creating additional (MINIRENA’s) 2017 target of 60,000. In fact, the skilled jobs. The government concurs, stating that latest job figures in mining place the sector above its mining sector is performing suboptimally: “Our the services and tourism sectors, according to data industry is producing at 20 percent of full potential; from the third round of the Integrated Household with increased operations and proper management, Living Conditions Survey (EICV 3). The the sector has the ability to increase production government further intends to increase the sector’s five times” (Esiara 2013, 16). Improved mineral professional educated skills base from fewer than recovery and increased geological works have 50 skilled, tertiary educated persons in mining to become among the government’s priority policy 600 persons. A range of university and polytechnic topics to help realize greater mineral production programs are in development, including at the potential. Kigali Institute for Technology, which will make Beyond export earnings and employment, the further contributions toward poverty reduction. government intends to increase against the 2012 Already, 40 persons within the ministry are baseline the contribution made by mining to currently benefiting from various tertiary training GDP (from 1.6 percent to 5.3 percent), FDI (from programs, mainly abroad. US$150 million to US$500 million), and tax revenues to US$30 million by FY2017/18. Despite The production capacity of Rwanda’s mining mineral exports having shown impressive growth of sector has progressively increased, yet its 66 percent in 2013, its overall contribution to GDP contribution to national accounts is small, and remains insignificant and volatile. According to the remains vulnerable to fluctuating mineral prices. National Bank of Rwanda (BNR), FDI inflows in Impressive mineral export earnings in the past few 2012 of US$73 million were mainly concentrated years, mainly driven by increased international in the mining sector. Promising commitments made prices for the country’s key minerals, have by new investors in the sector may draw in further strengthened the case for this sector’s development. FDI should these projects materialize. 25 Diversification is relevant, given that, particularly in rural areas, more than 78 percent of the rural population still relies on farming (EICV 3). 26 Figure provided by Rwanda Ministry of Natural Resources (MINIRENA). This figure excludes another 14,100 persons working in quarries. In email correspondence dated May 19, 2014, the ITRI Ltd. put the figure at 32,115 for the three principal minerals— cassiterite, columbite-tantalite, and wolfram. 24 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus Yet mining can contribute to national participation in this subsector, driven in part by development through other impacts felt at the continued high level of youth unemployment both the national and subnational levels. and de-agrarianization occurring in the rural areas, Rwanda could benefit from further subnational providing further grounds for mining’s continued impacts should it institutionalize policies development as an “off-farm” job, as cited above.27 regarding company commitments to local content The advantage in Rwanda is ASM’s relatively high development, skills training, and infrastructure level of organization, including a professional development. These concepts are reflected in the federative apex for mining cooperatives. Yet newly revised Mining and Quarries Law of 2008, the sector suffers much the same as in other to be enshrined in a Model Mine Agreement countries from the lack of significant technological with larger companies, which provides a legal development, in part hindered by lack of financing basis for translating subnational development and access to modern mining techniques for opportunities into concrete policy and practice. ASM. As a result, undercapitalization of small- Spin-offs in many mineral-rich countries are scale mining assets is commonplace in Rwanda witnessed in infrastructure and subsidiary business (Veiga and Shefa 2009).The country could learn development and fiscal contributions made to further from other countries that have surmounted local or regional government development plans undercapitalization through local banking loan (McMahon and Moreira 2014). Social development programs, technology exchanges and government investments, commonly referred to as corporate subsidies, some of which have been supported by social responsibility, may contribute further to the World Bank.28 development in domains such as education, water, health, and sanitation services (McMahon and Unlike the mining sectors in most of Sub- Moreira 2014). For these reasons, mining matters Saharan Africa, Rwanda is affected by for national development: it acts as an engine geopolitical issues in the Great Lakes region, for growth, and if properly harnessed, serves as with implications for its domestic mining policy a catalyst for subnational employment and as a and practice. The Dodd-Frank Wall Street Reform partner in meeting socioeconomic and human and Consumer Protection Act requirements on development goals. so-called conflict minerals sourced from the Democratic Republic of Congo (DRC) and its Rwanda has a relatively well organized yet adjoining countries has ushered in a series of under-capitalized artisanal and small-scale mineral export regulatory requirements with mining (ASM) sector with potential for better additional costs to Rwanda’s mining industry (see economic and social performance. ASM is a Box 2.1).29 Though still too early to tell whether form of rural livelihood diversification according the requirements will dissuade potential investors to mounting evidence from several Sub-Saharan from pursuing new mining projects in Rwanda, it African countries (Kamete 2008; Hilson 2010; is certain that the additional Geology and Mining Maconachie and Binns 2007; Banchirigah 2008; Department (GMD) personnel required to supervise and Perks 2011. Rwanda too has witnessed rising the country’s mineral traceability systems, the 27 De-agrarianization refers to the movement out of smallholder farming into other rural sectors such as trade, mining, and small business development, driven by the declining terms of trade for smallholder farmers. 28 Examples include the Democratic Republic of Congo, Ghana, Madagascar, Sierra Leone, Tanzania, and Zimbabwe. 29 Unlike the Kimberly Process, which is a single initiative and system governing diamonds, the efforts to address conflict minerals in the Great Lakes region of central Africa loosely tie together a number of parallel and at times complementary initiatives, including due diligence guidelines developed by the Organisation for Economic Co-operation and Development (OECD), the tagging system developed by the International Tin Research Institute (ITRI), and the “International Protocol on the Illegal Exploitation of Natural Resources”of the International Conference on the Great Lakes Region (ICGLR), which sets regional standards and harmonizes national legislation. Rwanda Economic Update | Edition No. 6 25 Part 2: Special Focus Box 2.1 What is in a name? “Conflict minerals” in the Great Lakes Region Popular media use a variety of mineral names when discussing the common minerals mined in the Great Lakes region. Below is an overview: Cassiteriteis a tin oxide mineral (SnO2). Tin is commonly used in solders, tin plating, electrical conductors, and other applications in the electronics industry. Coltan. Two ore groups, columbite and tantalite, share similar features and are often grouped together into one mineral series and referred to as coltan (Ta). Tantalum is used in fabricating capacitors for electric products. Wolframiteis an iron manganese tungstate mineral from which tungsten (W) is derived. Tungsten and its alloys are important electrical conductors. Wolframite is often associated with cassiterite. Tin Supply Chain Initiative (iTSCi), and the levy stability in agreements with companies, are required by the International Tin Research Institute needed. A first-come, first-serve basis is the most (ITRI) to implement the system impose further common approach to ensuring transparency in costs to mining operations in Rwanda. However, access to mineral endowments, supported through the alternative—noncompliance and therefore a a cadastre system, and has proven to be effective veritable ban on the country’s exports—would have in maintaining responsible and robust investment, far more disastrous consequences for development provided that the government is vigilant in ensuring through employment and fiscal losses. From this that the ground is worked and not simply held for perspective, Rwanda’s continued leadership in speculative purposes (Girones, Pugachevsky, and meeting these new international requirements has Walser 2009). The third requirement is the capacity a resoundingly positive impact on the country’s of government institutions to effectively collect and development, and deserves recognition. manage mineral revenues. Fourth is enhancement of downstream linkages or local business Last, maximizing potential socioeconomic development through policies and practices of local benefits from mining in Rwanda depends sourcing and beneficiation, and support of sound on continued efforts to ensure institutional environmental and social management practices stability and overall good sector management. A in the sector. Governance thus matters to ensuring “growth with governance” approach to enhancing mining’s contribution to national development the contribution of mineral development to (Weber-Fahr 2002; McMahon and Moreira 2014). national development is reflected in institutional Figure 2.1: World bank’s extractive industries value chain frameworks, with the World Bank’s Extractive Industries Value Chain (Alba 2009) (Figure 2.1) or the Extractive Industries’ Transparency Non-renewable Sustainable Initiative (EITI) Standard (EITI 2013) serving as resources EITI development leading examples. First is the need for a legal and regulatory framework that outlines the principles and processes for accessing, developing, and trading minerals, and that also outlines the various Revenue Implementation of Award of Regulation Collection roles and responsibilities of agencies meant to contracts and and monitoring of taxes and distribution and sustainabile development policies licenses of operations royalities govern the sector. The national framework starts management and projects with a mining policy, supported by a national 1 2 3 4 5 mining code or law, and accompanying regulations. Second, transparent and equal access to mineral Source: Alba 2009. endowments, and a clear and consistent process Note: EITI = Extractive Industries Transparency Initiative. for managing mineral licensing and maintaining 26 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus 2.2. Scale and Scope of Rwanda’s Mining Sector M ining operations in Rwanda are small as measured by investment. By global standards, Rwanda has no operations that would For the relative size of the country, this level of permitting is high and appears to be rising (Figure 2.2). By comparison, Tanzania and the be considered either medium sized (cumulative DRC have active small-scale mining populations investment of about US$250 million to US$750 of 600,000 and 2 million, but with less than half million, though less for gold) or large (investment the number of equivalent small-scale mining of more than US$750 million). Nor does the licenses than registered in Rwanda. The apparent country have operations at the higher end of small proliferation of permits, particularly between 2013 (investment of about US$100 million to US$200 and 2014, presents a challenge to effective site million, though less for gold).Actual investment regulation because of the wide geographic spread figures are not available at present; however, since of these relatively small operations and the large 2011 the Rwanda Development Board (RDB) has number of government agents required to monitor signed 22 new projects, mainly in exploration, for a site activities. Furthermore, with implementation total of $110.5 million in investment commitments. of the iTSCi traceability program, each new If successful, such exploration activities could additional mine requires new GMD staff to be lead to one, if not more, small-scale mines with a hired for program monitoring. minimum capital investment of US$100 million. Figure 2.2: Number of mining permits held as of April 2014 Rwanda’s mining operations are small but 600 numerous and geographically dispersed. As of 500 April 2014, Rwanda had accorded 548 mining permits to 213 registered mining entities, most 400 Number of permits on surface areas averaging less than five hectares 300 with average monthly production of under one ton of ore. Of the 213 registered mining entities, 200 38 are cooperatives recognized by the national 100 mining cooperative federation (FECOMIRWA); 5 are foreign-operated companies, 2 of which are in 0 joint venture with the government; and all operate 2007 2008 2009 2010 2011 2012 2013 2014 on special mining permits accorded during the Source: Geology and Mining Department, MINIRENA (2014). denationalization of the sector in the early-tomid- 2000s. The remaining 170 entities are domestic Mining in Rwanda comprises three stages: small entrepreneurs, or cooperatives without production, domestic commercialization, and membership in FECOMIRWA. In addition, there export. In the first stage, miners work on permitted are 28 registered mineral traders and exporters. sites granted by the minister in charge of mining. Since 2012 the government has signed 22 new Sites are organized according to working teams mining investment projects, as referred to by the that perform extraction, washing, and minimal RDB, most focused on exploration, and at various processing at the site. Typically once a week, stages of implementation. minerals are washed, sorted, dried, and bagged for Rwanda Economic Update | Edition No. 6 27 Part 2: Special Focus transport to Kigali. In the second stage, mineral can take up to three months. These wait times traders purchase production from the various create cash flow problems for Kigali-based mineral mine sites. In Kigali, this domestic production exporters and wider instability in the local mineral is aggregated either from mine sites or through economy through price variations. middlemen to a few mineral traders who carry out processing and exporting. Although traders typically Rwanda employs today, as it has in the past, have long-standing relationships with specific mine a high proportion of manual labor to extract sites, ultimately the price offered and the time lag its principal minerals. All sites rely on manual between purchase and payment determine to whom labor, with minimal investment in mechanized a mine operator sells. In the third stage, following techniques. Although a few mine sites have the structure of the global manufacturing industry, introduced processing techniques that use gravity Rwanda’s principle minerals are exported to Asia systems or make use of explosives and bulldozers (principally Malaysia) for smelting and onward to ease access to core geological veins, these to Asia, Europe, and North America for addition improvements are neither sufficiently spread across into final manufactured products. The road journey the country nor technologically advanced enough from Kigali to the key ports (Mombasa and Dar es to be considered semi-industrial. In effect, little Salaam) can take up to three weeks, followed by adaptation of mining techniques has occurred since port clearance time in Kenya or Tanzania. For the the 1920s to improve basic recovery at the mine product to reach Asian smelters and for payment site and mineral processing levels (Perks 2013). to be received by a mineral trader back in Kigali 2.3. Macroeconomics of the mining sector M ineral production volumes have increased marginally, but strong exports earnings have resulted principally from favorable international mineral prices. Investment by foreign companies is minimal, and tax contributions from the sector are insignificant. 2.3.1. Production and Exports in tantalum (coltan), hitherto not privileged as an R wanda’s domestic production fluctuates export mineral in Rwanda. Rwanda also liberalized because of its small-scale characteristics third-party mineral trading licenses to nonmining and historical externalities, making it difficult entities during this period, thereby opening up to draw conclusions about the sector’s potential its domestic trade market to neighboring country to generate benefits. From 1985 through 1989 sources (see Table 2.1 for the evolution of mining the country’s mining activities were more or less production in the country). suspended when the key mining entity, Société Table 2.1: Annual average production of Rwanda’s Minière de Rwanda (SOMIRWA), filed for minerals (tons) bankruptcy after the collapse of the international Period Cassiterite Wolfram Coltan tin market. During 1989–94 many rural smallholder 1958–85 1,935 518 44 1985–89 - - - farmers were driven to small-scale mining by 1989–94 751 161 121 structural adjustment along with the collapse 1995–98 469 238 116 of the international coffee market. The period Source: Adapted from Bidega (2006). immediately thereafter saw new domestic interest Note: — = not available. 28 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus Since privatization of Rwanda’s major mining Figure 2.4: Production of Rwanda’s major export minerals assets, productive capacity has marginally 2,500 improved according to export statistics since 1999 (Figure 2.3). Major assets under the 2,000 stewardship of the mining parastatal Regied’ Volume, in tons Exploitation et de Developpement des Mines were 1,500 leased out, of which only two were maintained 1,000 as joint ventures with the government. In the last few years rising domestic production has largely 500 been attributable to small new investments, 0 introduction of some mineral recovery techniques on some mining sites, but more importantly the Cassiterite Coltan Wolfram proliferation of mining permits. The increase in Source: BNR. permits seems to be the most plausible reason for the rise in production given the relative absence of Figure 2.5: Exports of Rwanda’s major minerals investment in mechanization. 2,000 Figure 2.3: Total mineral exports 1,800 12,000 1,600 1,400 Volume, in tons 10,000 1,200 1,000 Volume, in tons 8,000 800 600 6,000 400 200 4,000 0 2,000 Cassiterite Coltan Wolfram 0 Source: BNR. 1999 2001 2003 2005 2007 2009 2011 2013 Recent shares of total export earnings from Source: MINIRENA. minerals are consistent with historical data but remain vulnerable to fluctuations in Cassiterite remains the major mineral international mineral prices. Between 1967 produced for export by volume, though coltan’s and 1973, mineral export values as a percentage higher market value makes it more financially of total exports were significant, ranging from 23 lucrative to mine (Figure 2.4).30 Based on export percent to 30 percent, and peaking at 42 percent figures disaggregated since 2010, the government’s in 1969 (Perk 2013). From 2010 to 2013, mining 2017/18 targets of 8,000, 2,000, and 1,000 annual ranged between 27 percent and 42 percent of total tons of exports for cassiterite, wolframite, and export value, and has contributed roughly US$592 coltan, respectively, may be achievable (Figure million to export earnings since 2010. The Mining 2.5) (MINIRENA 2013). Sub-Sector Strategic Plan under EDPRS 2 aims 30 Data provided by the ITRI, which works in partnership with the government of Rwanda to implement the mineral traceability program in Rwanda. Mixed cassiterite product (Sn/Ta, Sn/W, and Sn/W/Ta) and mixed tantalite (Ta/W) have been included under Sn and Ta respectively. See https://www.itri.co.uk/index.php?option=com_mtree&task=viewlink&link_id=55074&Itemid=11. Rwanda Economic Update | Edition No. 6 29 Part 2: Special Focus to raise these earnings even further to US$400 present and future tax administration, often with million annually by 2017. The government recently different policies for large and small mining announced that because of falling wolfram prices, operations. It is not uncommon for a country to its export earnings target for 2014 will most likely revisit its fiscal regime following boom and bust not be met (Doya and Butera 2014). cycles of the mineral markets, or with changes in the scale of activities or the minerals mined. 2.3.2. Mining Revenue and Its Redistribution The government has not focused particular Rwanda applies few mining-specific taxes to attention to the application of an appropriate the sector, as made evident by its minimal fiscal regime for the mineral sector and has, by contribution to national revenues. Records since consequence, derived only marginal revenue 2010 indicate that revenue from mining came from benefit from mineral exploitation (Figure 2.6). four principle taxes: corporate income, payroll, Taxation is one of the most critical elements of a excise, and value added (VAT). In 2010 and 2011, successful mineral regime. Creating an appropriate taxes from the larger mining operations amounted mineral fiscal regime often requires a series of to less than 0.3 percent of total tax revenues. In macro objectives, not always mutually compatible: 2012, a sharp increase in corporate income tax a country wants to attract new investors to explore collected, apparently due to one operation turning its mineral endowments yet needs to ensure it is profitable, raised mining’s contribution to 1 capturing the optimal revenue base from existing percent of total tax revenues. In 2013, a royalty operations (World Bank 2013b). Furthermore, in was introduced of 4 percent on base metals and countries such as Rwanda, where most production 6 percent on precious metals and stones, and was activity occurs in operations that mine less than piloted with a select operator in 2013 (see Box 2.2 one ton of ore per month, the fiscal regime must be for a discussion of royalties and other mine-related carefully designed. A country will want to provide taxes). The royalty brought in an additional Rwf incentives for the further development of small- 1.3 billion in revenues for 2013. After the pilot scale mining, and will especially want to ensure phase, the royalty was to come into effect across all that fiscal rates do not drive activities outside operations in 2014 regardless of scale. According government regulation. As a result, a country will to a draft report commissioned by MINIRENA, develop a series of fiscal instruments to guide Box 2.2 Royalties and Taxes Figure 2.6: Minerals revenues A royalty is the most common tax, applied to compensate the country for the loss of its nonrenewable resources. 8 Royalties are complemented by annual surface rents on mineral rights, calculated using differing 7 rates per hectare for exploration and exploitation 6 activities. Other mining fees may be applied for acquiring and renewing exploration, exploitation, 5 and trading permits. These fees generally compensate Billions of Rwf for administrative costs associated with regulating 4 the sector, and are therefore collected directly by the ministry or authority in charge of the mining sector. 3 Mining-specific taxes are then reinforced by business 2 taxes such as taxes on corporate income, payroll, dividends and other indirect income, customs duties on 1 importation, turnover on interior services of products, rental income, and expatriate employee salaries. In 0 mining regimes with active, recognized small-scale 2010 2011 2012 2013 mining operators, a patente is applied by the local government in lieu of a tax on profits. Source: RRA. 30 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus Table 2.2: Taxes collected by RRA from mining since 2010 (Millions of Rwf) Mining Value-Added Pay As You Withholding Total Taxes Total RRA Year CIT-PIT Excise Other Royalty Contribution Tax Earn Tax Tax from Mining Collections (percent) 2010 89.7 712.5 171.8 6.1 90.7 47.4 - 1,118.3 0.3 412,489.7 2011 55.7 761.6 238.3 11.7 158.6 180.9 - 1,406.8 0.3 501,803.3 2012 2,662.6 1,164.7 1,580.0 30.9 103.3 214.6 - 5,756.2 1.0 602,557.4 2013 2,420.6 1,392.3 611.1 17.8 1,233.5 160.5 1,263.1 7,099.1 1.0 706,776.6 Source: Rwanda Revenue Authority. Note: — = Not applicable. a well-applied royalty across the sector should this often results in a lowering of the price per kilo provide US$6 million in annual revenue, based on offered to miners on their production, as witnessed the current scale of production.31 This amount is, in the DRC and Tanzania. however, still far below the projected revenue base of Rwf 20 billion (US$30 million) targeted for Apart from royalties, small-scale operators pay 2020. Table 2.2 shows the progression of revenue other mining fees, but inconsistently. The majority collection since 2010. of small-scale permits are research permits, though operators are, in practice, producing. It is unclear A fiscal regime heavily dependent on only a the extent to which surface land rents are properly few more-substantial operations and hundreds applied given the permit status. For instance, some of small mining operations presents a series of small operations pay surface rents to districts while challenges that MINECOFIN acknowledges. others pay them to the sector administration. This Experiences in other mining regimes in the East diverges from the general principle of surface African and Great Lakes region are mixed when it rents applied per hectare used in some countries, comes to setting fiscal rates that accommodate the such as the DRC and Tanzania, where the price varied scales of mining activity in a given country. per hectare differs according to the mineral mined In some cases, such as Burundi, a lower royalty (Table 2.4). In addition, a patente (see Box 2.2 rate is applied to small-scale permit holders; in all for an explanation)is applied to cooperatives and other countries, the royalty is not differentiated small-scale operators by local governments in between large and small operations (Table 2.3). Rwanda, but again some pay to the district and In the latter cases, it is assumed that the exporters some to the sector. The extent to which these data will pay the royalty on behalf of the cooperatives are captured at present by the Rwanda Revenue and small-scale operators. Inevitably, however, Authority (RRA) is not clear, nor is it clear Table 2.3: Royalties as applied to ASM in the East Table 2.4: ASM surface rents as applied to ASM in the African and Great Lakes Region East African and Great Lakes Region (Percent) (US$ per year) Mineral Burundi The DRCa Tanzania Uganda Tanzania The DRC Cassiterite 3 2 3 3 Burundi (per Uganda (per km²) hectare) Wolfram 3 2 3 3 Cassiterite 3,182 257 7 120 Coltan 3 2 3 3 Wolfram 3,182 257 7 120 Gold 2 2.5 4 3 Coltan 6,364 257 7 120 Source: World Bank staff data assembled from current Mining Codes and Regulations. Gold 12,758 257 12 120 Note: ASM = artisanal and small-scale mining. a. DRC is currently revising its mining code and the royalty rates may Source: World Bank staff data assembled from current Mining Codes change. and Regulations. Note: ASM = artisanal and small-scale mining. 31 Draft report (Wilson 2013) submitted to MINIRENA and shared with delegation. Rwanda Economic Update | Edition No. 6 31 Part 2: Special Focus how local administrations use these fees in their in the regulation of the small-scale mining sector. administrative budgeting. Finally, mineral traders This has proven to be a critical ingredient to success and exporters pay a license fee, applicable for in other small-scale mining sectors in countries three years, and renewable (Table 2.5). Although such as Ghana and Tanzania (World Bank 2013a). administered by the Ministry of Trade and Industry (MINICOM), this fee (US$441 for the three-year 2.3.3. Investments in the Sector and Constraints period)is paid directly to the RRA. to Future Financing Table 2.5: License fees as applied to ASM in the East African and Great Lakes Region Burundi The DRC Tanzania Uganda S hould two or three of the new exploration projects for which agreements have been signed lead to actual mines, the government’s Artisanal US$318/ n.a.b n.a. n.a. 2017 target of US$500 million in mining license hectarea Small- investment may be reached, albeit in 2019 or 2020 scale n.a. US$500 US$12 US$160 (MINIRENA 2013). Investment in mining comes license License US$318/ US$250/ from either new mine development or current mine US$60c US$240 renewal ha year expansion. In looking at the investment portfolio Source: World Bank staff data assembled from current Mining Codes and Regulations. for the country’s sector, it is difficult to see how Note: ASM = artisanal and small-scale mining; n.a. = not applicable. a. Valid for two years. this target will be met. Twenty-two new projects b. To be determined by Inter-Ministerial Decree. c. Valid for seven years. have been signed with the government, totaling US$110.5 million in investment commitments. Though perhaps too early to discuss, it is worth The government has no actual investment figures highlighting that Rwanda’s national mining available at this time though the RDB intends to legislation contains no model for revenue carry out a survey later in 2014. Of these 22 new redistribution, nor does it discuss the role of projects, more than two-thirds are for exploration decentralized tax collection. Both issues matter activities with a preliminary permit period of four greatly to effective mine revenue management. years. As of 2014 the majority of these exploration In Rwanda, several revenue distribution models projects had yet to begin. One impact beyond FDI and mechanisms could be used. A centralized would be the distributive investment impact made tax collection system could redistribute revenue by larger mining projects to social infrastructure in through the national budget to sector ministries the outlying mining areas. based on priorities and needs. Alternatively, a percentage of total revenue could be redistributed Both mine expansion and new project to provincial, district, and sector administrations. A development depend on availability of finance, decentralized tax collection system could determine which is difficult to acquire at present. percentages to be collected and retained at source between national and subnational governments. Constraints to financing are driven by two factors Each model has advantages and disadvantages, cited by mine operators in Rwanda: continued though given Rwanda’s well-performing absence of up-to-date exploitation permits for the decentralized political system, a model that simply country’s largest mining operations (those that streamlines roles and responsibilities for provincial formed the core of the denationalization process) and district administration in mineral tax collection and an inexperienced local banking sector. It is and distribution could reinforce the need for these assumed that with the new mining law, as discussed levels of government to play a more consistent role further below, the government will complete 32 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus the revision of the pending mining contracts. In the meantime, mineral traders are providing Industry has cited this as a key reason for why stop-gap financing to local small-scale investments in the mining sector have not been entrepreneurs and mining cooperatives to make as robust as predicted. However, the overall lack marginal improvements to production and of financing made available by the local banking recovery techniques. FECOMIRWA has secured a sector deserves examination, particularly if the line of credit from one of its foreign mineral buyers government, as stated, seeks to support further so it can invest in machinery and other equipment national entrepreneurship in the mining sector for at its members’ sites. One mineral trader in Kigali its smaller operators. Financing, however, requires has provided more than US$6 million in small that some prerequisites be met by prospective mine loans to its mining partners to do the same. In one applicants, including geological data leading to case, an investment of less than US$100,000 was estimates of total reserves. In the absence of such used to triple site production by making use of old data, other countries have piloted loan programs, tailings. If properly set up and put in place, a more guaranteed by the government and development robust and streamlined loan program, managed partners, including the World Bank, with small by a Rwandan bank with a guarantee from the credit banks to support small-scale mining government, could make a considerable and enterprises. The success of microfinance and immediate impact on small operations—boosting credit to the smallholder farming sector in Rwanda their recovery and production through improved provides precedent for a similar program in mining. technologies. The World Bank in partnership with In fact, MINIRENA defines it as a policy area in its the government of Tanzania and the Tanzanian 2010 Revised Mining Policy, though it has yet to Investment Bank (TIB Ltd) has put in place a be addressed. successful small-scale mining loan model that could inspire a similar model in Rwanda.32 2.4. Employment in the Sector and the Miners’ Profile in the Rural Areas E vidence suggests that Rwandan miners are not simply farmers who mine in the off-season. Their continued contribution to development will depend on targeted enforcement of Rwanda’s labor standards in the mining sector. More long-term investment in education will, however, provide more gainful employment opportunities for Rwandans. T he labor market in Rwanda is characterized by widespread underemployment. According to the EICV 3, the average employed average, 17 hours per week while wage farmers work an average of 19 hours. Underemployment is less of a problem in the mining sector; miners person in Rwanda works 22 hours per week, which work on average 30 hours per week; 42 percent of roughly corresponds to half-time employment. miners work more than 35 hours per week and thus Underemployment is especially acute in the approach full-time employment. agricultural sector; independent farmers work, on 32 In Tanzania, the World Bank is supporting the Ministry of Energy and Minerals to implement the Sustainable Management of Mineral Resources Project, a US$50 million loan to the government of Tanzania. As part of its support to the small-scale mining sector’s development, a percentage of the total project loan has been given to TIB Ltd to manage a revolving loan scheme for small-scale operators. Rwanda Economic Update | Edition No. 6 33 Part 2: Special Focus RDB indicates that there are significant gaps in 2012 population census and statistics provided professional, technical, and trade skills in the by MINIRENA. Seasonality may also explain the sector. At present, to fill the skills gap, waivers are EICV 3 aggregate figure of 72,000 miners (both being granted to foreign mining operators to bring full-time and secondary). Other factors beyond additional qualified expatriates under the existing seasonality should, however, be considered. For visa waiver policy. Even then, however, the number instance, given the continued increase in mine of waivers is most likely not that significant given permit allocations, it is plausible that employment the scale of the mineral economy. Furthermore, continues to rise in the sector. Furthermore, income given the weight of the labor sector’s reliance on diversification means that more rural households unskilled rural miners, the gaps identified by RDB pursue multiple income sources. Several factors are not that pressing. However, if the mining sector are discussed to help understand potential causes is to grow by way of more semi-industrial operations and consequences of increased mine employment in the next several years, skills development must in the rural areas.33 become a crucial policy focus; it will, to the greatest degree possible, ensure Rwanda’s access to higher- Longitudinal data suggest the number of miners earning opportunities. has consistently increased since the late 1970s, expanding strongly since the early 2000s. At There are discrepancies in the mine employment the height of SOMIRWA’s operations, 8,000 figures provided by different institutions, though miners were directly employed and an additional this is common with small-scale mining economies 3,000 workers were organized into subcontractor throughout Sub-Saharan Africa. Whereas the arrangements. By 1990, employment had dropped national 2012 population census shows that 18,000 by a third, to 5,298 miners, with an additional people are directly employed in the mining sector, 1,500 working under subcontractor arrangements. MINIRENA’s latest figure suggests that there Since the resumption of activities in the early are 33,638 miners (with an additional 14,000 in 2000s, mining employment has risen by 22 percent quarrying), and ITRI confirms 32,115 miners per year, making it the fastest growing sector as involved at least in the 3Ts (Cassiterite, Coltan and measured by employment (NISR 2012).34 The Wolframite). Fluctuations in actual employment EICV 3 indicates that slightly less than 1 percent figures are often attributable to the informality of of Rwanda’s labor force was engaged in mining the activity and the assumption that miners move as a primary occupation in 2011. If primary and from farming to mining depending on the season secondary occupations are summed, 1.5 percent (World Bank 2005; Hilson and Maponga 2004). of Rwanda’s labor force (approximately 72,000 Historical fluctuations in Rwanda’s mining sector people) was engaged in mining and quarrying employment have been noted previously, with, at the time of the EICV3 survey.35 At the district for instance, threefold increases during specific level, employment in mining ranged from a low of periods of the year in the late 1990s (Uwizeyimana zero to a high of 6.8 percent in Rulindo District in 1986). Seasonality is one variable that may explain the Northern Province. the more recent discrepancies between Rwanda’s 33 Work by the World Bank (2005) and Hilson and Maponga (2004) provide insight into navigating data collection hurdles in small-scale mining economies. 34 For instance, wage labor in farming grew by 14 percent per year during the same period (2001–11). 35 Note that the 2012 Population and Housing census estimates the number of people with mining and quarrying as primary occupation to be much lower, at 18,171. 34 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus These steep rises in employment would seem Tanzania, small-scale miners receive operational to suggest that Rwanda is displaying de- grants and loans from the government to agrarianization trends commensurate with improve technology and recovery practices other small-scale mining environments in on site. MINIRENA’s 2010 Revised Mining Sub-Saharan Africa. De-agrarianization has Policy already identifies such formalization proved useful in critically reassessing traditional mechanisms, enabling potential further work on assumptions about small-scale miner behavior small-scale mining formalization to occur. and profiling.36 In particular, research in the DRC, Ghana, and Tanzania has challenged the assumption Women make up 16 percent of the total mine that small-scale miners are driven by short-term employment figure.37 The gender ratio is lower gains and opportunism and, if given another than average estimates for Sub-Saharan Africa choice, would abandon mining altogether (Jønsson (Hinton, Veiga, and Beinhoff 2003). In fact, in Sub- and Bryceson 2009; Perks 2012; Hilson 2010). Saharan Africa, women may make up anywhere Although youth may enter the sector because of from 40 percent to 100 percent of the workforce low education, little access to jobs, or constraints in (World Bank 2012; Amutabi and Lutta-Mukhebi the household, evidence is emerging to suggest that 2001; Jennings 1999; Lahiri-Dutt 2008; Onuh 2002). people will remain in the sector for the long term. These case studies indicate the emergence, since Mining employment is concentrated in the the 1990s, of “career” small-scale miners. Career northwest of the country (Figure 2.7). Almost miners are men and women who self-identify as 10,000 persons in Rulindo District are employed full-time miners and treat mining as their primary in mining, and in each of the neighboring districts source of income. of Gakenke and Gicumbi, mining provides Therefore, Rwandan miners cannot Figure 2.7: Mining employment and its concentration in the Northwest (Employment in mining and number of mines by district) simply be considered farmers who mine in the off-season. For instance, in a project baseline study from 2011, miners were asked to identify their profession. Out of 227 respondents, only 20 self-identified with a profession other than mining. Of those 20, only one considered himself, first and foremost, a farmer. Such preliminary evidence on the nature of miners in Rwanda raises some important considerations for policy. For instance, this evidence provides a rationale for developing strategic investment in improved mining practices as a means to develop further efficiencies in production. In Sources: EICV3; and MINIRENA. 36 For an introduction to the de-agrarianization literature, see Hilson (2010). 37 The government intends to see mining employ at least 60,000 persons by 2017, of which 30 percentare expected to be women. Rwanda Economic Update | Edition No. 6 35 Part 2: Special Focus direct employment to more than 5,000 people. overall labor force (Figure 2.8). The median level of Employment in mining is marginal in the south and education for both miners and farm wage workers east. The number of mine licenses per district (in equates to the third grade of primary school. 2011) is only weakly correlated with district-level employment in mining. For instance, Rulindo, Miners seem to come from disadvantaged which has the highest mining employment figures, households. Compared with other households, had only one mine license in 2011: Rutongo Mines. households that earn income through mining have This company has the largest number of miners significantly smaller landholdings and are more on any mine license in the country. In contrast, likely to also earn income through farm wage Kamonyi District, where 2,000 people work in employment, an activity that is typically reserved mining, had 10 mine licenses. for the poor. Mining households are larger than average and more likely to have an illiterate Miners are mainly young men, and largely household head. The disadvantaged position turns unskilled. Some 50 percent of miners are 27 years up in the poverty statistics: 48 percent of mining old or younger. The concentration of young men households live below the poverty line, compared is consistent with evidence found in the literature with 40 percent of households overall.38 profiling small-scale mining male labor forces (World Bank 2005). Miners are also largely Mining Income unskilled. Almost 25 percent of miners never Though driven by poverty into mining, once in went to school or did not complete the first year the mines, miners earn good incomes relative to of primary school. Slightly more than 16 percent other wage workers (Figure 2.9). According to the of miners completed primary school and almost EICV 3, the annual income for miners was almost 6 percent went beyond primary. Miners are, on Rwf 200,000 compared with Rwf 69,000 for farm average, somewhat better skilled than farm wage wage workers and Rwf 270,000 for all categories workers—a particularly disadvantaged group on of wage workers. Dropping the relatively well- the labor market—but much lower skilled than the paid civil servants, miners actually have higher incomes than other wage earners. Miners have Figure 2.8: Miners are somewhat better educated than farm wage workers but significantly worse than the a higher median income than wage workers overall labor force (Education level by occupation, 2011) in general. Income of miners is comparable to that of construction workers (Rwf 209,000). To 100 2.9 5.9 90 14.3 18.1 complement the EICV 3 data, a separate survey 80 16.6 conducted in 2011 on mining income with 227 70 18.3 small-scale miners and mine manager respondents 60 50.8 provides an average daily income of Rwf 7,391. Percent 50 40.9 Taken as one sample group, miners and mine 40 52.7 managers, on average, may be netting roughly Rwf 30 20 3,000 per day, after daily average household and 32 10 24.8 22.7 individual expenses are deducted A case study of 0 cane sugar workers in Kabuye, Western Province, Miners Farm wage workers Overall labor force shows the average daily wage of farmers to be No education Incomplete primary Complete primary Higher than primary Source: EICV3, 2011. equivalent to Rwf 400 (Ansoms 2007). 38 The figures in this paragraph need to be interpreted with caution, given that fewer than 3 percent of households actually earn income through mining. 36 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus Figure 2.9: Average and median annual wage incomes The relatively high incomes for miners are 300,000 explained in part by longer work hours but more generally by a wage premium tied to the manner 250,000 in which earnings are calculated. Miners work an Annual income, in Rwf 200,000 average of 30 hours per week, which is significantly longer than the 25-hour overall average for wage 150,000 earners (Table 2.6). Longer hours can be attributed 100,000 to the payment incentive driving the sector whereby miners are paid according to quantity 50,000 of minerals produced. Controlling for differences 0 Miners Farm wage workers Overall labor force in education and demographic characteristics, Average annual income Median annual income miners earn Rwf 95 (US$0.28) per hour more than Source: World Bank staff calculations based on EICV3. workers of similar skills levels in other sectors.39 This premium is substantial, amounting to 34 However, a significant difference in earnings percent of the overall average wage. This premium is observed between small-scale miners and is mainly influenced by the price resulting from mine managers, though not between small-scale international demand for the commodities. The miners and cooperative presidents. If the 2011 steady performance in international prices for mine survey is disaggregated according to category Rwanda’s main commodities has provided an of employment, the average daily wage of small- attractive environment for premium wages to scale miners was Rwf 5,400 with average daily combine with a youthful working population. expenses of Rwf 2,950. Small-scale miners may These factors help to explain why wage labor in be earning an average of Rwf 2,450 in daily net mining has significantly higher returns than wage profits. Mine managers may earn upward of Rwf labor in agriculture, where the hourly wage is 40 17,000 per day with Rwf 9,400 in expenses. Hence, percent lower (Rwf 136). This suggests that mining net earnings may be closer to Rwf 7,600, which offers a more attractive alternative for unskilled is triple what miners earn. Small-scale miners laborers than wage work in the agricultural sector. earn roughly the same as presidents of mining cooperatives. For instance, whereas presidents of Table 2.6: Miners work more hours and earn higher cooperatives may earn, on average, Rwf 8,400 per wages than farmers (Hours worked per week and hourly wage for different day, their expenses come to Rwf 5,300, meaning wage categories) their net earnings are only Rwf 3,100, slightly Mining Farm wage labor above the average of a small-scale miner. This Number of hours 30.1 18.8 per week rather small variation in income suggests greater Hourly wage parity in cooperatives, based on the membership 230.6 136.0 (Rwf) philosophy, though further research is warranted to Source: World Bank staff calculations based on data from EICV 3. understand this observation in greater detail. 39 This assertion is based on a regression of hourly wage on education, age, and sex of unskilled labor and sector of employment. Rwanda Economic Update | Edition No. 6 37 Part 2: Special Focus 2.5. Governance R wanda has initiated important institutional and regulatory reforms that, if brought to a successful conclusion, could contribute to increased foreign investment, revenues, and job creation.40 The sector will, however, need to navigate a transition from predominantly small-scale to semi-industrial mining activities while simultaneously responding to international regulatory requirements on its export market. 2.5.1. Institutional and Regulatory Framework MINIRENA has also established important mine R wanda has made significant strides management targets. These targets demonstrate to improve its regulatory policies and the government’s commitment to a well-regulated practices so that they approach international sector that responds to social and environmental best practice.41 Actions include the appointment standards laid out in partnership with the Rwanda of a State Minister for Mines,the development of Environmental Management Agency and other a national mining policy and supporting strategic international standards and regulations particular plans, a national mining law, and a national to the Great Lakes region.43 MINIRENA aims cadastre system (which has yet to become fully to ensure that by 2017 all mines operating in the operational).42 Rwanda’s comprehensive mining country have efficient water and waste management policy sets forth a clear rationale for the sector’s systems, and that 80 percent of the country’s mines development, accompanied by concrete actions and adhere to safety regulations and the country’s “no measurable results. It makes a concise link to broader child labor” policy. national development frameworks, outlines actions required to improve governance and performance, Rwanda has a national mining law, supported and provides a direct link to the mining subsector by related ministerial orders. The Law on Mines strategies. Key areas of intervention in the policy and Quarries Exploitation of 2008 is supported reflect the pillars described by the World Bank’s by a variety of ministerial orders: requirements Extractive Industries’ Value Chain (Alba 2009) for granting a license for purchasing and selling as essential to a well-performing and transparent mineral substances in Rwanda; modalities of mining sector, such as increasing geological data environmental conservation in mining and related to national mineral potential, building quarrying; procedures for requesting licenses; institutional capacity, and adhering to social and conditions and classification of mineral substances; environmental standards for mine development. It procedures for license limits on mining and is less explicit on revenue management. quarry extraction; and the determination of taxes applicable to mines and quarries. Two additional ministerial regulations are Fighting Smuggling in Mineral Trading and the Regional Certification Mechanism for Minerals.44 40 Although the World Bank’s mineral sector review process provides a more comprehensive assessment of Rwanda’s mining sector, the following paragraphs highlight some critical elements for discussion. 41 Alba (2009) and the World Bank’s Template for Evaluation of Mineral Policy and Mineral Law provide a basis for discussing the status of Rwanda’s institutional and regulatory framework. 42 A mining cadastre is the principal public institution that manages mining titles in a country (Girones, Pugachevsky, and Walser 2009). 43 Those include the Organisation for Economic Co-operation and Development’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas(OECD 2013),Provision 1502 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and the International Conference on the Great Lakes Region’s“Protocol Against the Illegal Exploitation of Natural Resources”(ICGLR 2006). 44 Corresponding law numbers areNo. 003/2010/MINIFORM of September 10, 2010; No. 004/2010/MINIFORM of September 14, 2010; No. 005/2010/MINIFORM of September 14, 2010; No. 006/2010/MINIFORM of September 14, 2010; No. 001/2011/ MINIFORM of March 10, 2011; and No. 002/2012/MINIRENA of March 28, 2012. 38 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus The Law on Mines and Quarries Exploitation benefit from registration in a national cadastre of 2008 was reviewed to further improve system.46 International best practice would opportunities for responsible and sustainable encourage a holistic approach to the mineral rights investment. Revisions were intended to bring licensing system (including quarries and small- Rwanda’s national mining law closer to international scale activity) (Girones, Pugachevsky, and Walser best practice. In addition to exploration and small 2009).Its benefits are, in fact, mutually serving: on and large mining licenses, the revised law has the one hand, registration in the national system created a fourth category of mine licenses, the serves to provide small-scale miners with security artisanal license. The revised law has also extended of tenure, and on the other hand, registration aids the potential length of lease on both exploration the government in tracking small-scale mining and mining licenses to up to 25 years, depending activities in an efficient manner. When ASM or on the size of the proposed project, which should quarrying licenses fall outside the general mining encourage longer investment opportunities in the regime, “it is impossible for the state administration sector. Investment is further enhanced by the first- to adequately manage the activities for issues come, first-served philosophy found in the revised related to environment, safety, health, and control mining law, which allows a company that has of production” (Girones, Pugachevsky, and Walser invested in sufficient exploration work with proof 2009, 42).A further area not yet properly defined of resource to have first rights on converting the is GMD’s small-scale mining unit proposed in the exploration permit into an exploitation license. 2010 Mining Policy, though, according to GMD, At the same time, to avoid speculative practices, given the centrality of small-scale operations in the the government has adopted stringent criteria sector this structure may no longer be necessary. for mine license applications and conditions for exploration licenses. These criteria, covering mine Several important measures under discussion depth, length of lease, and other conditions, are will further enhance clarity and transparency of comparable to most mining codes or national laws the sector’s functioning. Two important reforms globally. The law also makes reference to several are under way and set to conclude by June 30, 2014. important conditions for maximizing subnational First is the revision to the mineral trading license. development impacts, such as local content and MINICOM alongside MINIRENA is revising the skills development. A model mine agreement is terms and conditions for mineral trading licenses in under development and should, if completed, Rwanda to limit middle-level buying and selling. provide a consistent template for negotiating future As of June 30, 2014, any mineral trader in Rwanda mine contracts with the private sector.45 will need to demonstrate its capacity to export. This is an important policy reform measure to curb Given the characteristics of Rwanda’s mining domestic mineral theft and to increase, in theory, sector, managing the issuance of its small-scale the prices offered to miners at the lowest level of mining licenses is critical. Although Rwanda the mineral value chain. These revisions offer an does not have specific artisanal zones, it has a important opportunity to impress greater clarity large number of small-scale permits that would on the domestic trade chain, increase efforts to 45 The Model Mining Development Agreement Project, a project of the Mining Law Committee of the International Bar Association, provides one template under use in other countries. See http://www.mmdaproject.org/?page_id=340. Provisions such as tax rates, social obligations, and mine development timelines are typically defined beforehand in the country’s national mining legislation (code or otherwise), so there should be no discrepancies between the content of the mine agreement and prevailing national laws. 46 In the DRC, for instance, government-regulated artisanal zones do appear on the mining cadastre though are not subject to permitting by the cadastre itself. Rwanda Economic Update | Edition No. 6 39 Part 2: Special Focus process and add minimum value domestically, and prospective foreign investors. The organizational limit middlemen buyers in the domestic system. structure is, however, unique in Rwanda with the It falls in line with broader international practices RDB playing an allocation role in the permit process on mineral traceability and transparency. Second alongside the GMD, but further legislative clarity, is the review of permits, particularly those issued particularly on the role and limits of responsibility to cooperatives not registered with FECOMIRWA. of the RDB, is required.47 The role of a mining This is particularly useful because the ASM cadastre is not discussed in the national mining formalization agenda in Rwanda’s national mining law. There is also a pressing need for a dedicated policy has received the least attention to date mines inspection service—attached to the GMD— in practice, and the proliferation of small-scale for monitoring ASM activities. The sector lacks in mining permits has been significant, increasing most instances basic occupational safety standards, from 4 permits in 2007 to 534 in H1:2014, with related often to lack of financing for operators but the most significant jump in permits occurring also knowledge and technology (van Teeffelen between 2013 and 2014. 2012). Bundesanstalt fur Geowissenschaften und Rohstoffe (BGR) has provided training on improved The organizational structure of agencies mine development practices in cooperation with supporting the mining sector deserves further GMD, including environmental audit practices. consideration and strengthening. The current Other partners have also provided inputs to the institutional mapping is provided in Figure 2.10. development of improved environmental and social As mentioned, a mining cadastre service would standards applicable to the sector. Given that a typically hold and manage the cadastre alongside state-of-the-art “green” model mine is a priority for a Geological Survey, both retaining some level the Rwandan government, MINIRENA can further of independence from the central administration. enhance its practices by drawing on international The Geological Survey would manage geological best practices, such as International Council on mapping, geophysics, and earth sciences, and Mining and Metal’s Sustainable Development make available new preliminary geological data to Framework.48 Figure 2.10: Institutional mapping Rwanda Development Board MINIRENA MINECOFIN MINICOM • Promote investment • Design policy and strategies, laws • Budget allocation • Trade licenses • Company registration and regulations elaboration and • Fiscal policies in mining • Certificates of origin • Build capacity toward promotion supervision • Mobilize external financial resources of export • Issue licenses • Set the Environment Impact • Promote mining sector at national Rwanda Cooperative Agency Assessment (EIA) terms of reference and international levels • Register cooperatives Rwanda Revenue Authority • Support capacity building, auditing, and offer EIA certificates • International cooperation • Set fair taxation procedures • Public-Private Partnership (PPP) • Capacity building soliciting support for cooperative investment development Rwanda Natural Resource Authority Rwanda Environment Management Geology and Mining Department (Lands, Forestry and Conservation Authority • Enhance geological and mining knowledge of the country and Water Departments • Set environmental standards • Improve exploitation and investment conditions • Land titles to mining projects • Environment inspection of mining • Monitor whether the mining activities are complying • Expropriation and leasing projects with the law • Water use licenses and standard setting • Rehabilitation of exhauseted mines • Increase value added of Rwanda’s mines and quarries • Advise on reforestation and quarries • Land use master plan Sources: World Bank Staff. 47 See, for instance, the draft report prepared by Wilson (2013) for the government of Rwanda. The report’s focus was to assess and propose current practices—both regulatory and industry—in managing environment and social impacts in the mining sector in which the role of RDB was questioned on legislative grounds. 48 http://www.icmm.com/our-work/sustainable-development-framework. 40 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus 2.5.2. Transparency and accountability R wanda has been leading efforts to ensure the transparency of its mineral supply chains. Transparency can be further enhanced through complementary frameworks such as the EITI. I n the Great Lakes region of central Africa, access to informal mineral supply chains has long been argued to be a key driver of ongoing from Rwanda to the buyer’s destination. Supporting domestic legislation in Rwanda, conforming to the ICGLR Protocol, further reinforces trade regional instability and protracted conflict in the chain transparency. Soon it is also expected that eastern DRC. International norms and legislation the RRA will issue new instructions to all mining require robust mineral traceability and certification companies and mineral traders to use the formal systems to be put in place by governments in the banking system for all payments to suppliers with region as a first response. Rwanda was the first to the aim of further clarifying the chain of actors in do so, in 2012, pursuant to Provision 1502 of the Rwanda’s mining sector. Dodd-Frank Wall Street Reform and Consumer Protection Act; the OECD voluntary directive, Due Real-time data on Rwanda’s mining sector can Diligence Guidance for Responsible Supply Chains only further enhance the government’s own of Minerals from Conflict-Affected and High-Risk efforts to implement evidence-based policy Areas; and the ICGLR Protocol against the Illegal interventions in the sector and respond to Exploitation of Natural Resources. The most international concerns for “conflict-free” mines notable program in support of these international in the Great Lakes region.49 Sufficient data are now norms is the mineral traceability scheme, iTSCi. At available on Rwanda’s mining sector, providing present, the iTSCi system covers all existing mines an opportunity to disaggregate data according to in exploitation in Rwanda. specific variables (for instance, geographic region, mines, miners, price, trade volumes, and domestic The implementation of iTSCi has provided production). In fact, the iTSCi data management a basis for establishing greater clarity on the system provides a sound basis for improved scale and scope of Rwanda’s 3Ts sector. Mining national mineral data management, should the operators and exporters are required to maintain government approach data collection and analysis record systems in conformity with established in the mining sector as it does in other ministries, international guidelines under the management such as agriculture and gender. Efforts to further of iTSCi. These records include mine origin modernize data collection in the system could offer of mineral; volumes at exit from the mine; the additional opportunities to pilot a national database domestic transport route; individual, new volumes capable of serving both policy development and after processing and sorting in Kigali; and the route public outreach functions , as suggested in Box 2.3 49 Basic ASM data concerns include the following: (1) production statistics—both disaggregated by mine site and mineral, and aggregated at the national level generally as export statistics; (2) formal revenue streams derived from licensing permits, leases paid to traditional chiefs or landholders (often paid in addition to licensing permits if they exist), ad valorem taxes at export, import taxes for transiting minerals from a neighboring country, production taxes at mine sites, potential in-country processing taxes, or fees associated with trading (third-party buyers); and (3) composition and scale—people and sites. Rwanda Economic Update | Edition No. 6 41 Part 2: Special Focus Box 2.3 Artisanal and small-scale mining data challenges in Sub-Saharan Africa National governments may have two reasons for their renewed interest in their artisanal and small-scale mining (ASM) sectors: (1) domestic pressure to increase revenue mobilization and hence tackle typical informality in the sector; and (2) domestic policy interest in enhancing data and evidence on the sector’s contribution to GDP. The new Extractive Industries Transparency Initiative (EITI) Standard, endorsed in April 2013, is a credible platform for piloting new approaches to ASM data management. Whereas the original EITI standard dealt with mineral revenue reconciliation between what companies declared as taxes paid and what government recorded as taxes earned, the new standard requires countries to provide better data on the size, structure, and potential contribution to be made by ASM in the mineral economy. In recent years, some EITI countries—such as Ghana, Nigeria, and Tanzania—have supported the concept of revenue tracking in their ASM subsectors. In Burundi, the World Bank is supporting the Ministry of Energy and Mines in its piloting of a national database capable of reconciling production and export figures alongside revenues gained. This pilot, in cooperation with the Tin Supply Chain Initiative (iTSCi), could lead to a model replicable in other countries in the region implementing iTSCi—such as Rwanda and the DRC. 2.6. Conclusions: Maximizing the Potential Development Benefits from Mining T he government’s ongoing efforts to transform its predominantly small-scale mining sector to include semi-industrial and investors is the transparent manner in which mine licenses are awarded, and the tenure and fiscal stability offered through their agreements. industrial activities will benefit from the With the changes to Rwanda’s mining law, the government’s renewed strategic focus on regularization of all outstanding mining permits broader development outcomes as opposed to should be addressed. Two areas are of concern: (1) renegotiating the larger producing licenses given concentrating on increasing export earnings their more immediate impact on fiscal revenue alone. The reliance on export earnings to potential and foreign investment; and (2) reviewing demonstrate mine development has prevented an the status of existing small-scale mining licenses examination of how effective mine development with attention to harmonizing exploitation licenses could occur with more strategic but fewer mine and potentially reducing the number of permits to sites. Focusing on the type of sector the country a more manageable volume according to the stated wishes to build instead of on export values target. A due process for all future contracts, based could provide government and industry efforts on streamlined institutional responsibilities and with a more efficient orientation. As it stands clear guidelines from a mine model agreement, may now, the burden of regulating a proliferated and further enhance investor confidence in Rwanda’s geographically dispersed mining sector is evident. mining sector for some of the larger assets, though may not be necessary for the majority of small-scale MINIRENA’s 2017/18 target to have on stream permits. The cadastre will play an essential role in three medium-scale mines and 100 small-scale harmonizing all existing permits, thereby reducing existing conflicts surrounding overlapping rights. mines is worth recalling and revisiting. A series It will also make available to interested private of objectives for the sector, based on this ratio, companies, through one centralized geographical could be as follows: information system map, data on prospective areas. a. Secure the Enabling Environment for Current b. Build the Geological Knowledge Base for Investment Future Investment Current and future investment in Rwanda’s mining Detailed and publicly available geological sector depends on clear and stable laws and their knowledge plays a leading role in attracting consistent application. Of key interest for mining future exploration investment for eventual mine 42 Rwanda Economic Update | Edition No. 6 Part 2: Special Focus development. The government’s commitment d. Improve Recovery and Domestic Processing to invest an average of US$2 million per year in An additional strategy to increase production is to potential target areas from the national budget is improve recovery techniques at sites. Rwanda has well noted, and should continue to be supported, significant tailings dumps at its oldest concessions perhaps even through development partners. It is that could be cleaned up, treated, and processed likely that without sufficient new discoveries, the for further economic gain. The government could size of the mining sector in Rwanda will remain consider making available, through a specific local fairly limited. loan program with leading banks, a revolving c. Increase Fiscal Receipts and Ensure Revenue credit facility to provide an incentive to small- Management scale miners to invest in small recovery and processing equipment. The outcome would serve Three key measures to be undertaken by the multiple agendas: environmental stewardship, government would assist in increasing mining small-business development, and export growth. It revenues: First, effectively apply the new royalty would not require allocation of new permits. rate through the implementation of accompanying regulations. It is understood that the MINECOFIN will complete this in the mediumterm and is seeking e. Strengthen Human Development (Skills and technical support from interested partners for this Labor Conditions) task. Second, support a third-party audit of the entire By way of its workforce alone, Rwanda’s production and export chain to ensure conformance mining sector can make tangible and significant with new legislation on rents and rates but also on development impacts in the rural economy. A policy mineral classifications and export declarations. In focus on the “good job” would see miners earn more that audit, examine how small-scale operators and pay for their labor, work in safe conditions, and be cooperatives do, or do not, benefit from legislation integrated into the social safety net of the formal and practices geared toward development of labor market. Building on existing work with small and medium-sized enterprises. Rethink, if Germany’s BGR, the necessary small-scale mining necessary, an adjusted tax model for the smaller regulations relating to occupational health and operators, including cooperatives. Third, enhance safety should be completed. It would be useful to RRA’s capacity to administer taxation policies and perform an audit of existing labor practices used by collect revenues in the sector. The commitment subcontractors operating at the larger concessions, made by the Netherlands to enhancing RRA’s audit by small operators, and by cooperatives, and capacity is recognized as timely and essential. The identify areas for improved inspection practices. increase in revenue benefits from further fiscal Frequency and efficiency of mine site inspections receipts will require clear rules, guidelines, and would benefit from the establishment of a fully procedures for retrocession, if at all, of mining functioning small-scale mining unit in the GMD, revenues to the provinces, districts, and sectors, given the high number of mining licenses in the and accountability for their use by subnational country. The targets set by the government to foster authorities. These efforts would be enhanced by a new generation of skilled mine professionals implementation of the EITI50 to disclose revenue should continue to be supported. flows to the public. 50 http://eiti.org/. The Extractive Industries Transparency Initiative (EITI) and its Standard is an international initiative to ensure transparency around countries’ oil, gas, and mineral resources. It is developed and overseen by a coalition of governments, companies, civil society, investors, and international organizations. When implemented, the EITI ensures more transparency in how the country’s natural resources are governed, and full disclosure of government revenue from its extractive sectors. Rwanda Economic Update | Edition No. 6 43 REFERENCES ▪ Alba, E. M. 2009. “Extractive Industries Value Chain: A Comprehensive Integrated Approach to Developing Extractive Industries.” Extractive Industries for Development Series No. 3. Washington, DC: World Bank. ▪ Amutabi, M., and M. 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Butera. 2014. “Rwanda Mining Revenue to Decline on Lower Tantalum Export Prices.” Bloomberg News, May 23. http://www.bloomberg.com/news/2014-05-23/rwanda-mining-revenue-to-decline-on- lower-tantalum-export-prices.html. ▪ EITI (Extractive Industries Transparency Initiative). 2013. The EITI Standard. Oslo, Norway: EITI. http://eiti. org/files/English_EITI%20STANDARD_11July_0.pdf. ▪ Esiara, K. 2013. “Rwanda Puts Three Mines on the Block.” The East African, March 23–29. ▪ Girones, E.O., A. Pugachevsky, and G.Walser. 2009. “Mineral Rights Cadastre. Extractive Industries for Development Series No. 30.” Washington, DC: World Bank. ▪ Hilson, G. 2010. “‘Once a Miner, Always a Miner’: Poverty and Livelihood Diversification in Akwatia, Ghana.” Journal of Rural Studies 26 (3):296–307. ▪ Hilson, G, and O. Mapunga. 2004. “How Has a Shortage of Census and Geological Information Impeded the Regularization of Artisanal and Small-Scale Mining?” Natural Resources Forum 28(1): 22–33. ▪ Hinton, J., M. 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Rotterdam: Balkema. ▪ ICGLR (International Conference on the Great Lakes Region). 2006. “Protocol Against the Illegal Exploitation of Natural Resources.” ICGLR, Bujumburi, Burundi. http://www.lse.ac.uk/collections/law/projects/ greatlakes/2.%20Democracy%20and%20Good%20Governance/2c.%20Protocols/protocol.ienr.30.11.%2006%20 -%20en,%20final%20revised.pdf. ▪ International Council on Mining and Metals (ICMM). 2003. “Sustainable Development Framework.” London. ▪ Ishihara, Yoichiro. 2012. “Identifying Aid Effectiveness Challenges in Fragile and Conflict-Affected States.” World Bank Policy Research Working Paper No. 6037, World Bank, Washington, DC. ▪ iTSCi (ITRI Tin Supply Chain Initiative) Secretariat. 2013. “Data on the Minerals Trade within the iTSCi Programme, Q2 2011 to Q2 2013: Rwanda.” International Tin Research Institute, Hertfordshire, U.K. ▪ Jennings, N. 1999. “Social and Labour Issues in Small Scale Mines.” Report for discussion at the Tripartite Meeting on Social and Labour Issues in Small-scale Mines, International Labour Organization, Geneva. ▪ Jønsson, J. B., and D. F. Bryceson. 2009. “Rushing for Gold: Mobility and Small-Scale Mining in East Africa.” Development and Change 40(2):249–79. ▪ Kamete, A. 2008.“When Livelihoods Take a Battering: Mapping the ‘New Gold Rush’ in Zimbabwe’s Angwa- Pote Basin.” Transformation: Critical Perspectives on Southern Africa 65(1):36–67. ▪ Lahiri-Dutt, K. 2008.“Digging to Survive: Women’s Livelihoods in South Asia’s Small Mines and Quarries.” South Asian Survey 15 (2):217–44. ▪ Maconachie, R., and T. Binns. 2007. “‘Farming Miners’ or ‘Mining Farmers’? Diamond Mining and Rural Development in Post-Conflict Sierra Leone.” Journal of Rural Studies 23(3):367–80. 44 Rwanda Economic Update | Edition No. 6 References ▪ McMahon, G., and S. Moreira. 2014. “The Contribution of the Mining Sector to Socioeconomic and Human Development.” Extractive Industries for Development Series No. 30. Washington, DC: World Bank. ▪ MINIRENA (Ministry of Natural Resources). 2013. “Subsector Strategy 2013.” MINIRENA, Kigali. ▪ NISR (National Institute of Statistics of Rwanda).2012a. “EICV3 Thematic Report – Economic Activity.” Kigali. ———. 2012b. “EICV3 Thematic Report: Income.” Kigali. ▪ OECD (Organisation for Economic Co-operation and Development). 2013. Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas, 2nd ed. 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Mining in Developing Countries” Mining and Development Extractive Industries Series. Washington , DC: World Bank and International Finance Corporation. ▪ Wilson, I. 2013. “Environmental, Social and Economic Dimensions to Consider in the Development of the Mining Industry in Rwanda.” Draft Report, Brisbane. ▪ World Bank. 2005. “Toolkit for Implementing of Artisanal and Small-Scale Mining Baseline Surveys in Africa.” Washington, DC. ▪ World Bank. 2013a. “Best Practices in the Small-Scale Gold Sector.” Unpublished, Washington, DC. ▪ World Bank. 2013b. “How to Improve Mining Tax Administration and Collection Frameworks: A Sourcebook.“ Washington, DC: World Bank. ▪ World Bank. 2013c. “Rwanda Economic Update 4: Maintaining Momentum, with a Special Focus on Rwanda’s Pathway out of Poverty.” Washington, DC: World Bank. ▪ World Bank. 2014. “Rwanda Economic Update 5: Seizing Opportunities for Growth, with a Special Focus on Harnessing the Demographic Dividend.” Washington, DC: World Bank. Rwanda Economic Update | Edition No. 6 45 Annex Notes Annex Notes Annex Note 1: Monetary policy in Rwanda T he main missions of the National Bank of Rwanda (BNR) are to (1) ensure and maintain price stability; (2) enhance and maintain a stable and competitive financial system without any exclusion; and (3) support the government’s general economic policies, without prejudice to the two missions referred to in (1) and (2) above.51 BNR follows a monetary policy framework that targets reserve money. To achieve its missions, especially price stability, BNR targets the level of broad money (M3). However, because BNR cannot directly control the level of M3, it focuses on reserve money (mostly banks’ reserves) as the operational target. In implementing its monetary policy, BNR uses indirect instruments such as open market operations (Treasury bills and short-term repurchase agreements) to control the level of reserve money. The key assumption of this framework is that the money multiplier (the relationship between M3 and reserve money) is stable in the short term. The framework follows the formula below: i) Broad money = β × Reserve money(β stands for money multiplier52) ii) Reserve money = Currency in circulation+ Reserves of banks iii) Reserves of banks = Required reserves+ Excess reserves. For Rwanda’s monetary policy to achieve price stability, the following three key assumptions must hold: (1) the money multiplier must be stable in the short term to ensure that control of reserve money is effective for control of broad money; (2) the BNR has the ability to control reserve money; and (3) broad money and inflation must be positively correlated. However, these assumptions do not seem to be ensured. Annex Figure 1: Money multiplier is unstable (1) The money multiplier is unstable in the short in the short term term (BNR 2012).53 The money multiplier in 5.0 Rwanda has not been stable (Annex Figure 1) in the short term, but shows a gradual upward trend. Thus, M3 can differ from its target level 4.9 when monetary policy decisions are made. Money multiplier 4.8 (2) BNR has limited control of reserve money. Currency in circulation accounts for more than 4.7 70 percent of reserve money, and currency is out of BNR’s control. Thus, BNR has control of less 4.6 than 30 percent of reserve money (bank reserves at BNR).Although the payment system has developed in the recent past, Rwanda remains 4.5 Jan-13 Mar-13 May-13 Jul-13 Oct-13 Dec-13 Feb-14 a cash-based economy, a factor that limits monetary policy effectiveness. Sources: BNR; and World Bank staff calculations. (3) Weak relationship between inflation rates and M3. Inflation rates and M3, as measured by year- on-year growth rates, are weakly correlated (Annex Figure 2). A few possible factors behind the weak correlation are (i) imported goods in the consumer price index (CPI) basket (imported goods account for about 20 percent of the CPI basket; these goods are affected by international commodity prices and exchange rates) and (ii) food prices (food prices are affected by agricultural production). 51 http://www.bnr.rw/index.php?id=180. 52 “Money multiplier”is the rate at which the money supply changes in response to a change in reserve money. 53 Economic Review No. 5 (May 2012) published by BNR includes an article on “Assessing the Stability of the Money Multiplier.” 48 Rwanda Economic Update | Edition No. 6 Annex Notes BNR also uses its policy rate to signal its monetary Annex Figure 2: Inflation rates and M3 policy and to influence interest rates. The BNR 35 Monetary Policy Committee (MPC) determines M3 its monetary policy stance on a quarterly basis. To 30 achieve the monetary policy missions, the MPC Year-on-year growth, percent 25 determines the level of the policy rate. The MPC 20 expects to influence credit to the economy by the banking sector through changes in interest rates. 15 10 Inflation rates However, the change in the policy rate has not 5 effectively influenced market interest rates. 0 Market rates do not respond to changes in the policy interest rate (Annex Figure 3). Factors hindering -5 the transmission between policy interest rates and 09 10 11 12 13 14 9 0 1 2 3 l-0 l-1 l-1 l-1 l-1 n- n- n- n- n- n- market rates include the following: Ju Ju Ju Ju Ju Ja Ja Ja Ja Ja Ja Sources: BNR; and World Bank staff calculations. (1) High bank concentration and limited Note: M3 = broad money. competition. The Rwandan banking system is still concentrated, with four banks holding more than 54 percent of the total assets of the banking sector. The largest bank holds 32 percent of the total assets of commercial banks. The high concentration and resulting limited competition imply that interest rates are not influenced by policy interest rates, but instead by decisions and circumstances of the large banks. (2) Shallow and illiquid money market and interbank market. Excess reserves have accumulated in the banking system, and the excess reserves absorb the impacts of monetary policy. The undeveloped government securities market also limits the scope of open market operations to BNR short-term instruments. (3) Large informal economy. The existence of the informal economy54 reduces the role monetary policy can play in influencing financing costs, a factor that could go hand in hand with a higher share of currency in circulation. The size of the informal economy and share of currency in circulation could become less of a binding constraint if interest rates fully reflect liquidity conditions and monetary policy and if the public becomes aware of the cost of holding idle money balances. Annex Figure 3: Changes in policy rate and reserve money have had limited impact on market interest rates and lending 20 40 18 35 16 30 14 25 12 Percent Percent 20 10 8 15 6 10 4 5 2 0 0 10 0 0 1 1 2 2 13 13 3 -5 l-1 -1 -1 -1 -1 -1 -1 n- n- n- ec ay ct ar ug ov Ju O -11 O -12 O -13 Ja Ja Ju Fe -11 Fe -12 Fe -13 Ju 11 Ju 13 4 A -12 A -13 A -14 O D -11 D -12 D -13 M A 12 A -13 A -11 D M A N -1 - - ug n- ug ug ec ec ec pr pr pr b b b ct ct ct n n Ja Reserve money (growth rate) Credit to private sector (growth rate) Policy rate Deposit rate Lending rate Tresury bill rate Policy rate Sources: BNR; and World Bank staff calculations. 54 According to the NISR, the share of the informal sector in the economy is nearly 50 percent. Rwanda Economic Update | Edition No. 6 49 Annex Notes Annex Note 2: Rwanda—dynamics in the yield curve of short-term Government securities S hifts in yield curves of short-term government securities (G-securities)55 are often interpreted as changes in the monetary and fiscal policy stances, as well as expectations of future economic activity, real interest rates, and inflation. Annex Figure 4: Trends in yield curve of short-term Developments in the yield curves of Rwanda’s Government securities G-securities during the past three years can be 14 divided into two phases: the yield curve shifted Dec-12 upward between December 2010 and December Jun-13 11 2012 then shifted downward through mid-2014. From a nearly flat shape in December 2011, the Jun-12 Percent Dec-11 yield curve moved up in 2012, with large increases 8 Apr-14 across all maturities except for operations of less than seven-day maturities. By end-2012, the yield 5 Dec-12 curve reached the highest levels in all Treasury bill maturities, levels never seen before (black dotted 2 line in Annex Figure 4). Since then, the yield curve ≤ 7-D 1-M 3-M 6-M 1-Y Duration has pivoted downward to the lowest levels in the last three years (red line of Annex Figure 4). Sources: BNR; and World Bank staff calculations. The upward shifts of the yield curve were observed during the period of high inflation and strong growth in credit to the public and private sectors. The inflation rates increased from 0.2 percent in December 2010 to 8.0 percent by end-December 2011. A large increase in credit to the private sector (22.5 percent on average from 13.0 percent in the previous year) was also seen in 2011. In addition, the demand for financing of the public sector rose sharply, shown by the 34 percent increase in outstanding Treasury bills. In 2012, the yield curve continued to shift upward, with large increases compared with 2011 levels. Several factors led to this upward shift. First, the central bank raised its policy rate, the Key Repo Rate,56 three times, for a cumulative 150 basis points between October 2011 and May 2012 to curb inflation. Second, the private and public sectors sustained their demand for financing with more than 30 percent increases in their stocks of credit and Treasury bills during H1:2012. Third, the public sector intensified its demand to offset the aid reduction that occurred in H2:2012 (see REU-4), while credit to the private sector started to slow. In 2013, the yield curve shifted downward across all maturities, reflecting low inflationary expectations and a lower growth forecast. In addition, the momentum of financing to the private sector continued to decline as commercial banks became prudent in extending further credit given that their balance sheets were impaired by rising nonperforming loans. The reduction in new credit to the private sector had left banks with one investment option: Treasury bills. In fact, subscriptions to Treasury bills were nearly double the public offer, pushing competitive investors to reduce their interest rates. However, interest rates remained positive in real terms because the inflation rate remained moderate. 55 Here, G-securities refer to the Treasury bills issued by the central bank on behalf of the government for budget financing purposes and the central bank’s mop-up operations for the purpose of monetary policy. They include repo operations (http:// bnr.rw/index.php?id=205) and the Treasury bills market (http://bnr.rw/index.php?id=328). 56 The Key Repo Rate serves as a ceiling rate for repo operations, which goes a long way toward explaining why interest rates on less than 7-day securities remained almost the same in 2012, while interest rates for other maturities increased by more than 450 basis points. 50 Rwanda Economic Update | Edition No. 6 Annex Notes Annex Note 3: Low Capital Expenditure Disbursement Rates in FY2013/14 Capital expenditures account for about half of Annex Figure 5: Declining Disbursement Rates total expenditures in the central government 130 budget. Given the share of public investment in Actual disbursement rate to budgeted, percent total investment (55 percent), quality management 120 of capital expenditures, such as timely disbursement, 110 is critical for development in general and growth in particular, especially when growth is low. 100 90 Despite the current critical need to accelerate 80 capital expenditures, the disbursements of capital expenditures were low in FY2012/13 and the first 70 three quarters of FY2013/14. Disbursement rates have been declining from greater than 100 percent in Total capital expenditure Domestically financed Foreign financed FY2006/08 to about 90 percent in FY2012/13 and the Source: World Bank staff calculations based on MINECOFIN data. first three quarters of FY2013/14 (Annex Figure 5). Budget execution reports prepared by MINECOFIN57 explain that “delays in finalizing disbursement documentations for projects funded with capital grants and concessional loans particularly in the energy and road sectors accounted for this underspending in the July–December 2013 period,” and for the implementation delays in the Energy, Water and Sanitation Authority (both for domestic and foreign capital) and the Rwanda Transport Development Agency for domestically funded capital projects. The disbursement information by ministries and agencies for domestically funded projects58 enables the progress of domestically funded capital expenditures to be tracked against the annual budget.59 Annex Figure 6 shows that several line ministries have made slow progress. Ministries in the bottom right quadrant have higher-than-average projected capital expenditures and yet lower-than-average disbursement rates (against the annual budget). For example, the Ministry of Infrastructure (MININFRA) was projected to spend Rwf 157 billion (US$230 million), but actual spending reached only 46 percent of budget. One possible cause for the low and declining disbursement rates is capacity constraints to execute capital expenditures. Without enhanced institutional, organizational, and individual capacities, ministries and agencies find it difficult to execute capital expenditures beyond certain levels. The negative relationship between disbursement rates and the size of the budget suggests that these capacity constraints are major hurdles (Annex Figure 7). In the future, more detailed analyses are required of low capital expenditures by projects and by ministries and agencies. Then, to address the low capital expenditure disbursement rate caused by capacity constraints in certain ministries and agencies, the government should (1) address the constraints in the medium term and (2) consider allocating more budgetary resources to ministries and projects for which capacity constraints do not exist. 57 http://www.minecofin.gov.rw/uploads/media/BudgetExecutionReport3rdQuarter2013-2014.pdf; http://www.minecofin.gov.rw/ fileadmin/user_upload/Budget_Execution_Report_July-December_2013.pdf. 58 Because of data constraints, externally funded capital expenditure data are not available at a disaggregated level. 59 Note this is a comparison of actual spending in the first three quarters to the annual budget. Rwanda Economic Update | Edition No. 6 51 Annex Notes Annex Figure 6: Certain Ministries Contributed to the Low Disbursement Rates (Budget and disbursement rates in the first three quarters of FY2013/14) Source: World Bank staff calculations based on data from MINECOFIN. Annex Figure 7: Low Disbursement Rate Is Associated with Budget Size 110 Disbusement rates (actual / budget) 105 100 95 Q3: FY13/14 90 H1: FY13/14 85 0 50 100 150 200 250 Quarterly budget (Rwf billion) Source: World Bank staff based on MINECOFIN data. Note: To enable comparison across different periods, budget data are adjusted to a quarterly basis. 52 Rwanda Economic Update | Edition No. 6 Annex Notes Annex Note 4: Rebasing national accounts R wanda is one of several African countries rebasing their national accounts. Rebasing replaces the old base year used for compiling constant price estimates with a more recent base year. Changing the base year means (1) changing the price and quantity base for the individual price and quantity relatives and (2) updating the weights used to aggregate the individual quantity relatives into sub-indices and to aggregate these sub-indices into more aggregated indices.60 Thus, rebasing tends to result in changes to both nominal and constant values in the national accounts. The results of this rebasing exercise have attracted much attention in recent years. Rebasing in Nigeria showed that its economy was larger than that of South Africa, making it the largest economy in Africa. Ghana has moved from a low-income to a lower-middle-income country because some informal sector activities are now taken into consideration in the calculation of GDP. In Ethiopia, in contrast, double-digit economic growth, meeting the country’s growth target, was revised downward to single- digit growth, which failed to meet the growth target. Thus, rebasing the national accounts can have a considerable impact on a country’s macroeconomic strategy, especially when the rebasing paints an unexpected picture. The rebasing exercise in Rwanda61 has resulted in relatively minor changes in the national accounts (Annex Table 1). The size of the economy as measured by nominal GDP was revised upward by 0.8 percent in 2011 and 0.4 percent in 2012. However, real growth rates turned out to be lower than previously estimated by about 1 percentage point. For example, the 2012 growth rate was revised down to 7.3 percent from 8.0 percent. Annex Table 1: Comparison between 2006 base and 2011 base GDP 2009 2010 2011 2012 2013 Nominal 2011 base (a) (billion Rwf) 2,960 3,280 3,846 4,382 4,819 2006 base (b) (billion Rwf) 2,985 3,280 3,814 4,363 — Gap (a/b, %) −0.8 0.0 0.8 0.4 — Real growth 2011 base (%) 6.2 6.3 7.5 7.3 4.6 2006 base (%) 6.2 7.2 8.2 8.0 — Gap (%) 0.0 −1.0 −0.8 −0.7 — Sources: NISR; and World Bank staff calculations. Note: — = not available. 60 http://unstats.un.org/unsd/DA-SEA-Asia/Documents%20-%20Lao%20WS/Lao%20WS-Country%20practices%20on%20 rebasing%20and%20linking%20NA.pdf. 61 For example, results of the third household survey (EICV 3) and the national agriculture survey were used for Rwanda’s rebasing exercise. Rwanda Economic Update | Edition No. 6 53 Annex Notes The growth rates of all three sectors in the production account were revised downward, although partly offset by the growth in the adjustment (which includes value-added taxes and other taxes on products) (Annex Table 2). For example, growth in services was revised to 10.8 percent, 1.5 percentage points lower than previously estimated. In the expenditure account, the results of rebasing show that the slowdown in domestic demand started earlier than previously thought in 2012 (Annex Table 3). Most notably, the growth rate of private consumption became negative at −1.1 percent, and the improvement in net exports (that is, the reduction in deficits) was more pronounced than previously reported. Annex Table 2: 2012 growth rate comparison of the production account between 2006 base and 2011 base a. 2011 Base b. 2006 Base Gap (a − b) Sector (percent) (percent) (percentage points) Agriculture 2.7 3.0 −0.3 Industry 6.2 7.2 −1.0 Services 10.8 12.2 −1.5 Adjustment 7.8 5.1 2.7 Overall growth 7.3 8.0 −0.7 Annex Table 3: 2012 growth rate comparison of the expenditure account between 2006 base and 2011 base a. 2011 Base b. 2006 Base Gap (a − b) (percent) (percent) (percentage points) Gross domestic product 7.3 8.0 −0.7 Total final consumption expenditure 1.0 6.4 −5.4 Government 14.5 15.2 −0.8 Private (includes changes in stock) −1.1 4.6 −5.7 Gross capital formation 16.3 16.1 0.1 Construction 15.7 15.8 −0.1 Durable capital goods 17.2 17.2 −0.1 Resource balance −16.6 9.4 −26.1 Exports of goods and services 35.0 34.3 0.7 Imports of goods and services 7.2 20.0 −12.8 54 Rwanda Economic Update | Edition No. 6 Annex Notes Annex Note 5: Coincident economic indicator for Rwanda—A tool for “Nowcasting” GDP C onsistent with worldwide practices of estimating GDP data, Rwandan GDP numbers are usually published with a delay of about 90 days. The construction of a coincident economic indicator (CEI) for Rwanda is based on high-frequency data for estimating the change of GDP in the current period. The CEI should help to avoid the typical delay by giving an approximate indication of the current state of the economy for prompt policy reaction. Having real-time information on economic activity provides two benefits to policy makers. First, GDP estimates based on the CEI will allow monetary and fiscal institutions to make more-informed policy decisions. Second, policymakers can use it as an input in preparing medium-term macroeconomic projections. The CEI is based on monthly data that are published in a timely manner and that span seven years. In selecting the initial pool of coincident variables, it should be taken into account that the variables share a common trend of movement with GDP as determined by the business cycle in the country. The methodology for constructing the CEI is based on Opoku-Afari and Dixit (2012), who describe a multistep procedure.62 The first selection step for the initial set of variables considers those variables that have a correlation sign with GDP according to prior expectations; those that are strongly correlated with GDP are selected for further consideration in the model. The model is then evaluated according to several criteria such as correlation between the levels and quarterly growth rates of GDP and the CEI, goodness of fit coefficient (R2), and closeness of their quarterly growth rates. By conducting iterations of the model that include and exclude some of the variables and by testing various combinations of variables from a broader pool,63 the final model is selected (the variables included and their respective weights are described in Annex Table 4). The highest weight in the composite index goes to credit to the private sector, consistent with the estimated weight in Opoku-Afari and Dixit. This underscores the importance of credit as a source of external financing to the private sector in Rwanda. The results from the final model suggest that the correlation and the R2 coefficient between the levels of GDP and the CEI are estimated to be quite high, 0.98 and 0.96, respectively. The correlation between the annual and quarterly rates of growth is calculated to be 0.63 and 0.60, respectively. The R2 coefficient calculated for the annual and quarterly growth rates between GDP and the CEI are estimated to be 0.40 and 0.36, respectively. 62 Due to its technical nature, the procedure is not explained in detail here. It is available from the authors upon request. 63 The broader pool of variables includes net exports (calculated as a difference of exports and imports of goods); exports of coffee; VAT revenues; M0, M1, M2, and M3 monetary aggregates instead of credit to the private sector; turnover of manufacturing goods; turnover of intermediate goods; and turnover of agricultural products. Rwanda Economic Update | Edition No. 6 55 Annex Notes Annex Table 4: Coincident indicators used in the final model Computed weights Variable Value Source of the variables Use of cement (sum of cement production and Volume (tons) NISR 0.08 imports of cement) Imports of capital goods Rwf NISR 0.04 Exports of tea Volume (tons) NISR 0.04 Electricity production Kwh NISR 0.17 Wholesale and retail trade turnover Rwf NISR 0.09 Credit to private sector Billions of Rwf BNR 0.53 Rainfall Level NISR 0.02 Mining exports (sum of exports of cassiterite, Volume (tons) NISR 0.03 coltan, and wolfram) The CEI level closely tracks the movements of the level of GDP throughout the whole period with some exceptions (Annex Figure 8). The quarterly contributions of each factor to the variation in movements in the level of the CEI can be assessed from Annex Figure 9. The variations in the CEI are mostly caused by variations in credit to the private sector, which is expected because of the high weight of this variable in the composite index, as well as by electricity production, import of capital goods, and trade turnover. Striking similarities can be seen in the movement of quarterly growth rates of the GDP and CEI series (Annex Figure 10). The turning points in economic activity (growth versus slowdown and vice versa) are captured quite accurately, suggesting that the CEI may be a useful tool for analyzing economic activity in Rwanda for the current quarter. Annex Figure 8: Level of real seasonally adjusted Annex Figure 9: Quarterly contribution of the GDP and the CEI variables included in the CEI 1200 175 100 90 1100 155 80 Billions of constant 2006 Rwf 70 1000 135 60 Percent CEI index 50 900 115 40 800 95 30 20 700 75 10 0 600 55 Cement Capital imports Tea exports Electricity Quarterly GDP (left scale) Quarterly CEI (right scale) Retail trade Rainfall Exports mining Credit Sources: NISR; and World Bank staff calculations. Sources: BNR; NISR; and World Bank staff calculations. Note: CEI = coincident economic indicator. 56 Rwanda Economic Update | Edition No. 6 Annex Notes To further improve the fit of the CEI, an additional exercise is conducted by including a fiscal sector variable such as execution of total budget expenditures. This can be an important factor for GDP growth in Rwanda because the government sector and its capital expenditures are quite large. The major limitation of including the fiscal sector Annex Figure 10: Quarterly growth rates of GDP, CEI, in the model is that the data are available only and CEI Augmented with fiscal data with quarterly frequency and their conversion into 8 monthly frequency induces some noise. Therefore, Quarterly growth, percent 6 this exercise may not provide as accurate a picture 4 of the current state of public spending as would be provided by using monthly budget numbers 2 from MINECOFIN. An additional limitation in the 0 fiscal policy data is that methodological changes -2 throughout the sample period may introduce inconsistencies and biases. In this augmented -4 version of the CEI, the correlation and the R2 Quarterly growth of CEI Quarterly growth of augmented CEI coefficient decrease from 0.60 and 0.36 to 0.56 and Quarterly growth GDP 0.31, respectively, and there is a greater difference Sources: BNR; NISR; and World Bank staff calculations. between the quarterly growth rates of GDP and the Note: CEI = coincident economic indicator. augmented CEI (Annex Figure 10). The forecasts using the CEI presented above indicate that economic activity slows in the second quarter of 2014. The quarterly growth rate of real seasonally adjusted GDP in the second quarter of 2014 should be between 1.2 percent and 2.8 percent (quarter-on-quarter) and 5.2 percent and 6.8 percent (year-on-year). The growth slowdown is mostly a result of the reduction of the growth of cement consumption and wholesale and retail trade and the lower level of rainfall. The rest of the variables included in the index have greater positive contributions compared with the previous quarter. Any interpretation of the estimates of economic activity should take into account that the CEI comprises a narrow set of indicators and in some cases it may over- or underestimate growth. Rwanda Economic Update | Edition No. 6 57 Annex Notes Annex Note 6: Development and characteristics of Rwanda’s tourism sector T ourism is the largest source of export Annex Figure 11: Tourism revenues and share in exports earnings in Rwanda, but its growth momentum has been stalled. Revenues from 80 700 Share in service exports (left scale) 70 tourism increased from US$9 million in 2000 to 600 US$294 million in 2013. During this period, the 60 Share in exports of 500 share of tourism in total exports (including goods, 50 goods, services and income Million dollars 400 Tourism receipts services, and income) increased from 3 percent Percent 40 (right scale) 300 to 25 percent. Even though tourism has remained 30 the largest source of export earnings, its share has 20 200 continued to fall from its peak of 35 percent in 2006 10 100 (Annex Figure 11). A targeted approach is required 0 0 to revive the growth momentum of tourism, and the first step is to understand the characteristics of the Sources: BNR; and World Bank staff calculations. tourism sector. Tourism revenues are dominated by leisure. Rwanda received more than 1 million visitors in 2013 providing tourism revenues of US$294 million. Some 37 percent of visitors came to Rwanda for business purposes, followed by visiting friends and families (29 percent), and transit and other purposes (24 percent).Fewer than 10 percent of visitors came for holiday or leisure purposes. However, about half of tourism revenues were generated by tourists who came for holiday or leisure purposes (Annex Figure 12); average revenues per visitor are very different across the different purposes for visiting (Annex Figure 13).64 Annex Figure 12: Number of visitors and revenues by purpose of visit, 2013 Annex Figure 13: Average tourism revenues by purpose (Percent of total) in 2013 (US$) 1,600 8 24 33 1,200 37 10 800 29 400 49 9 0 Number of Visitors Revenues Leisure Visiting friends Business Transit / Average Transit/other Business Visiting friends & families Leisure & families other Sources: RDB;and World Bank staff calculations. Sources: RDB;and World Bank staff calculations. 64 Key information, such as number of days in Rwanda, is not readily available. 58 Rwanda Economic Update | Edition No. 6 Annex Notes African tourists increased. The characteristics of Annex Figure 14: Number of holiday and leisure tourists by origin in 2013 tourism show that increases in holiday and leisure visits, and to a lesser extent business travel, would 120,000 directly contribute to tourism revenues. More than 100,000 three-quarters of the increase in holiday and leisure 80,000 tourists between 2010 and 2013 was due to the increase in tourists from other African countries; 60,000 those from other regions such as Europe and the 40,000 United States had much smaller contributions 20,000 (Annex Figure 14). Although detailed data are not available, an analysis of the reasons for the increase 0 2010 2011 2012 2013 in holiday and leisure tourists from other African Others United States Europe Africa countries would be helpful in developing a targeted Sources: RBD; and World Bank staff calculations. approach. Performance in Q1:2014 continued to improve. In Q1:2014, the number of tourists increased by 4.4 percent as compared with the same period in 2013, and tourism revenues increased by 5.0 percent. The performance is quite similar to the overall performance in 2013 (number of tourists increased by 5.7 percent, and revenue increased by 4.2 percent).The annual AfDB meeting in May 2014 may have had a positive impact on tourism. In 2013, tourists for business purposes on average spent US$231 per visit. If this data is applied and assuming there were 5,000 participants, the estimated impact would be US$1.2 million which is equivalent to 0.4 percent of the total tourism revenues in 2013. Rwanda Economic Update | Edition No. 6 59 Annex Notes Annex Note 7: Impact of commodity price change on Rwanda’s trade balance I n Rwanda, the main export items are traditional products such as coffee, tea, and minerals (cassiterite, coltan, and wolframite), which accounted for 45 percent of total exports in 2012. A decline in international commodity prices for these products is likely to have a negative impact on exports. However, as proved during the global financial crisis in 2009, the overall impact on the economy is likely to be very limited for two reasons. First, the share of exports in GDP is relatively low at 13.2 percent in 2012, which is lower than neighboring countries. Second, the impact on exports is likely to be offset by a decline in imports of fuels. Exports in the Economy Between 2010 and 2012, exports grew by 38 percent per year, but decelerated in 2013 with a growth rate of 18.7 percent. The share of exports in the economy was 16.6 percent in the first three quarters of 2013, which is lower than neighboring countries such as Kenya (26.9 percent), Tanzania (30.5 percent), and Uganda (20.5 percent).65 Therefore, the relative impact of a decline in international commodity prices on the economy through exports is likely to be smaller than in the neighboring countries. Traditional Products in Exports The traditional products have played a major role in exports. The share of the traditional products in total goods exports increased from 45 percent in 2012 to 62 percent in 2013. The share of minerals in total exports increased most, from 28 percent in 2012 to 40 percent in 2013. The traditional products accounted for 80 percent of export growth in 2013 (of which, coffee −5 percent, tea −8.3 percent, and minerals 190 percent. If prices of the traditional products decline by 10 percent,66 total exports will decline by US$49 million or 14 percent of total exports (Annex Table 5). Impact on Imports However, the impact on exports is likely to be offset by a decline in imports. Rwanda has been experiencing persistent trade deficits due to large imports. In 2012, the trade deficit in goods reached US$1,376 million. Among import items, imports of energy and lubricants reached US$289 million or 16.4 percent of total imports. The value of energy and lubricants imports was larger than the sum of the traditional exports (US$263 million)67 during the same period. In other words, if prices decline to the same degree across different types of commodities, the impact on exports will be offset by that on imports. Annex Table 5: Impact of a 10 percent decline in export prices of the traditional products 2014 (A 10% 2013 decline of ex- Gap 2012 (a) port prices) (b) – (a) (b) Unit price of traditional exports (US$ per kg) 5.03 5.6 5.04 −0.56 Volume of traditional goods exports (tons) 57,037 60,893 60,893 0 −49 Export values (in US$ million) 287 356 307 (14% of total exports) 65 The data on neighboring countries are as of 2012. 66 Assuming no immediate impact on export volumes. 67 Of which coffee was US$61 million, tea US$66 million, and minerals US$136 million. 60 Rwanda Economic Update | Edition No. 6 Data Appendix Data Appendix Appendix 1: Rwanda—selected economic indicators 2010 2011 2012 2013 GDP Growth Rate (percent) 7.3 7.8 8.8 4.7 Agriculture 5.0 4.7 6.5 3.3 Industry 8.4 17.8 8.3 9.4 Services 9.2 8 11.6 5.3 Fiscal Framework (percent of GDP)¹ Total Revenues 25.4 24.8 25.3 23.2 Domestic revenue 12.4 13.8 14.3 15.5 Tax revenue 11.9 13.2 13.4 13.7 Non-tax revenue 0.5 0.6 0.8 1.8 Grants 13.0 10.8 11.0 7.7 Budgetary grants 9.0 6.1 6.4 4.0 Capital grants 4.0 4.7 4.6 3.7 Total expenditure and net lending 25.5 27.9 26.5 28.5 Current expenditure 14.5 15.5 14.8 13.4 Capital expenditure 10.0 12.5 11.6 12.9 Domestic 5.0 6.2 5.6 5.1 Foreign 5.0 6.2 6.1 7.8 Net lending 0.9 0.5 0.0 2.2 Budget deficit (cash basis) Excluding grants −13.4 −14.5 −12.5 −13.2 Including grants −0.5 −3.8 −1.5 −5.4 External Sector Exports (year-on-year growth) 26.5 56.2 27.3 19.0 Imports (year-on-year growth) 8.7 44.5 18.7 −0.4 Gross Reserves (MillionsUS$) 813.3 1050.0 850.3 1070.0 Gross Reserves (months of imports of GS) 4.5 5.1 4.1 4.8 Consumer Price Index (percentage change) End of period 0.2 8.3 3.9 3.6 Period average 2.3 5.7 6.3 4.2 Exchange rate (Rwf/US$) End period 594.5 603.4 631.0 667.7 Period average 583.3 602.0 614.3 646.6 Sources: NISR; BNR;and MINECOFIN ¹ On a fiscal year basis (July–June). For example, the 2011 column refers to FY2010/2011. 62 Rwanda Economic Update | Edition No. 6 Data Appendix Appendix 2: Rwanda—gross domestic product by activity 2009 2010 2011 2012 2013 (Rwf billion, current prices) Gross Domestic Product 3,017 3,323 3,846 4,480 4,915 Agriculture 1,022 1,082 1,244 1,483 1,624 Food crops 687 719 845 1,025 1,162 Export crops 61 75 78 100 79 Livestock 104 109 122 137 152 Forestry 159 169 185 204 212 Fisheries 10 12 14 16 18 Industry 372 428 554 638 724 Mining & quarrying 24 33 74 70 89 Manufacturing 159 181 204 234 253 Electricity 8 10 11 15 17 Water & waste management 10 12 14 15 15 Construction 171 193 251 304 350 Services 1,435 1,604 1,790 2,123 2,327 Trade and transport 458 520 592 707 758 Maintenance and repair of motor vehicles 15 16 19 21 23 Wholesale & retail trade 361 408 466 553 589 Transport services 82 95 107 133 147 Other services 977 1,084 1,198 1,415 1,569 Taxes less subsidies on products 188 209 258 237 239 (Rwf billion, constant 2011 prices) Gross Domestic Product 3,323 3,566 3,846 4,184 4,382 Agriculture 1,132 1,188 1,244 1,324 1,368 Food crops 767 805 845 905 938 Export crops 67 76 78 85 81 Livestock 113 118 122 129 138 Forestry 175 180 185 191 197 Fisheries 13 13 14 14 14 Industry 434 471 554 601 657 Mining & quarrying 55 49 74 68 82 Manufacturing 172 189 204 216 226 Electricity 9 10 11 13 14 Water & waste management 10 12 14 15 15 Construction 187 203 251 288 319 Services 1,518 1,657 1,790 1,997 2,103 Trade and transport 508 554 592 680 719 Maintenance and repair of motor vehicles 16 17 19 20 21 Wholesale & retail trade 396 432 466 532 562 Transport services 94 102 107 127 136 Other services 1,008 1,102 1,198 1,317 1,384 Taxes less subsidies on products 242 254 258 262 254 Sources: NISR. Rwanda Economic Update | Edition No. 6 63 Data Appendix Appendix 3: Rwanda—Inflation Indicators (year-on-year percent change) Month Overalla Core Import prices Energy prices Food prices January 1.1 0.7 1.7 2.4 2.2 February 2.6 1.6 2.9 3.7 7.4 March 4.1 2.8 5.1 4.9 10.7 April 5.0 3.6 5.7 4.5 12.1 May 4.5 4.3 6.9 4.8 5.5 June 5.8 5.8 8.6 5.0 6.5 2011 July 7.1 7.0 9.2 6.0 8.2 August 7.5 8.2 10.4 7.3 4.6 September 6.6 9.0 10.7 7.3 −4.3 October 7.8 8.9 10.1 7.3 2.7 November 7.4 8.1 9.0 6.7 4.6 December 8.3 8.3 8.6 9.3 8.3 January 7.8 7.1 7.9 8.4 11.4 February 7.9 6.0 6.0 5.8 18.6 March 8.2 5.3 4.9 8.3 22.3 April 6.9 4.8 3.8 6.9 17.2 May 8.3 5.4 3.1 10.8 21.4 June 5.9 3.7 2.6 6.6 16.9 2012 July 5.6 3.0 2.6 8.8 16.9 August 5.8 2.5 1.2 5.4 22.9 September 5.6 2.1 1.2 2.8 25.7 October 5.4 2.5 2.7 5.5 19.4 November 4.5 2.8 2.9 5.9 12.3 December 3.9 2.5 3.2 5.7 10.0 January 5.7 4.7 3.0 5.6 10.7 February 4.8 5.1 4.0 8.5 1.8 March 3.2 4.8 3.4 4.6 -3.8 April 4.4 5.2 4.0 6.4 0.0 May 3.0 3.6 3.5 2.5 0.3 June 3.7 3.4 1.9 0.9 6.3 2013 July 3.5 3.6 1.5 −0.9 5.1 August 4.0 3.6 2.7 2.0 7.0 September 5.1 3.3 2.5 2.8 13.6 October 5.1 3.2 1.2 0.3 15.3 November 4.6 3.4 2.3 0.2 11.7 December 3.6 3.8 1.6 0.0 4.9 January 2.4 2.7 2.6 1.6 1.6 February 3.4 2.8 2.5 1.6 7.6 2014 March 3.4 2.6 1.7 0.7 8.3 April 2.7 2.3 1.2 −0.5 6.2 May 1.9 2.3 0.9 −4.2 3.0 Sources: BNR; and NISR. a. Consumer price inflation in urban areas. 64 Rwanda Economic Update | Edition No. 6 Data Appendix Appendix 4: Rwanda—exchange rate (Monthly Average) Uganda Kenya Tanzania Burundi Month US dollar Euro UK pound shilling shilling shilling franc January 604.37 779.26 936.44 0.25 7.11 0.39 0.47 February 605.15 799.47 955.36 0.26 7.40 0.39 0.47 March 606.75 801.24 959.52 0.25 7.44 0.39 0.47 April 601.27 867.09 982.15 0.25 7.17 0.40 0.49 May 599.28 860.98 979.81 0.25 7.03 0.40 0.49 June 600.00 863.18 974.24 0.25 6.77 0.38 0.49 2011 July 600.51 856.74 967.83 0.24 6.66 0.38 0.49 August 599.75 860.21 981.83 0.22 6.57 0.38 0.50 September 599.84 828.69 951.92 0.22 6.40 0.37 0.49 October 601.29 822.51 945.55 0.22 5.99 0.36 0.50 November 601.77 817.69 953.91 0.24 6.48 0.35 0.49 December 603.45 796.17 942.33 0.25 6.97 0.38 0.48 January 604.37 779.26 936.44 0.25 7.11 0.39 0.47 February 605.15 799.47 955.36 0.26 7.40 0.39 0.47 March 606.75 801.24 959.52 0.25 7.44 0.39 0.47 April 607.01 799.45 971.24 0.25 7.40 0.39 0.46 May 608.58 780.82 970.12 0.25 7.33 0.39 0.45 June 609.94 764.00 947.89 0.25 7.30 0.39 0.44 2012 July 612.95 752.14 955.23 0.25 7.40 0.39 0.44 August 613.60 759.79 963.57 0.25 7.43 0.40 0.43 September 618.22 794.17 995.03 0.25 7.43 0.40 0.43 October 625.24 810.86 1,006.08 0.25 7.47 0.40 0.43 November 628.77 806.64 1,003.95 0.24 7.46 0.40 0.43 December 630.99 827.21 1,018.50 0.24 7.46 0.40 0.42 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 0.40 0.41 March 634.98 824.27 957.00 0.24 7.52 0.40 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 2013 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 January 673.60 917.68 1,110.40 0.27 7.95 0.42 0.44 February 674.65 920.46 1,115.73 0.28 7.95 0.42 0.44 2014 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 680.70 935.44 1,146.60 0.27 7.79 0.41 0.44 Source: BNR. Rwanda Economic Update | Edition No. 6 65 Data Appendix Appendix 5: Rwanda—key interest rates (percent) Treasury Bill Rate Average Average Policy Interbank Weighted Month Deposit Lending 182 364 Rate Rate 28 days 91 days Average Rate Rate days days Rate January 6.0 7.5 15.6 6.7 6.1 6.4 7.2 7.7 7.2 February 6.0 7.5 16.9 6.7 6.2 6.4 7.2 7.3 7.0 March 6.0 7.5 16.6 6.7 6.4 6.9 7.4 7.6 7.2 April 6.0 8.7 16.6 6.9 6.4 6.8 7.2 7.4 7.1 May 6.0 7.9 16.9 6.9 6.2 6.7 7.2 7.3 7.0 June 6.0 8.0 17.0 7.0 6.1 6.5 6.9 7.2 6.8 2011 July 6.0 6.8 16.6 6.9 6.1 6.4 7.2 7.1 6.8 August 6.0 7.7 17.0 6.9 6.1 6.2 7.2 7.1 6.7 September 6.0 7.7 17.0 6.9 6.3 6.5 6.9 7.0 6.7 October 6.5 7.4 17.0 7.4 6.8 7.0 7.2 7.5 7.2 November 7.0 8.0 16.5 7.5 6.8 7.2 7.7 8.6 7.8 December 7.0 8.0 16.7 8.1 7.0 7.3 7.6 8.2 7.6 January 7.0 7.4 17.0 7.3 7.1 7.3 7.7 8.4 7.6 February 7.0 8.3 16.3 6.9 7.1 7.6 7.4 8.0 7.6 March 7.0 8.2 16.3 7.7 7.4 7.6 7.9 7.8 7.7 April 7.0 8.1 16.9 8.0 7.5 7.6 7.9 8.5 7.9 May 7.5 9.9 16.7 8.6 7.9 8.1 8.3 8.9 8.3 June 7.5 7.9 16.8 9.0 8.8 9.6 9.4 9.1 9.3 2012 July 7.5 8.9 16.5 9.1 9.4 10.2 - - 9.8 August 7.5 8.6 17.1 9.5 10.6 10.2 10.5 11.7 11.1 September 7.5 8.5 17.1 10.8 11.5 12.1 12.0 12.7 12.3 October 7.5 9.2 16.6 10.9 11.9 12.4 12.5 - 12.1 November 7.5 11.2 16.7 11.9 11.8 12.5 12.7 - 12.4 December 7.5 10.7 16.5 11.1 11.8 12.6 12.8 - 12.4 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 2013 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 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 8.2 6.1 2014 March 7.0 8.3 16.8 5.8 4.9 5.5 6.6 8.0 6.0 April 7.0 8.1 17.4 5.6 4.8 5.3 6.3 7.8 6.0 May 7.0 - - 5.7 4.5 5.3 6.3 7.4 5.9 Source: BNR. 66 Rwanda Economic Update | Edition No. 6 Data Appendix Appendix 6: Rwanda—gross international reserves Month Rwf billion US$ million January 456 761 February 447 747 March 425 709 April 494 821 May 464 775 June 451 749 2011 July 452 754 August 480 799 September 496 826 October 550 913 November 522 866 December 634 1,050 January 597 987 February 582 960 March 546 899 April 514 845 May 464 762 June 526 859 2012 July 473 771 August 451 733 September 449 721 October 471 750 November 477 757 December 535 850 January 465 736 February 436 688 March 444 698 April 452 707 May 624 973 June 653 1,016 2013 July 659 1,018 August 657 1,012 September 681 1,035 October 691 1,045 November 683 1,024 December 717 1,070 January 680 1,008 2014 February 648 960 March 632 933 Source: BNR. Rwanda Economic Update | Edition No. 6 67 Data Appendix Appendix 7: Rwanda—tourism sector data Tourist Arrivals Park Visits Month Visiting Business & Transit/ Leisure Friends & Total Volcanoes Akagera Nyungwe Total Conference Other Relatives January 8,126 28,711 27,977 15,794 80,608 2,738 2,186 646 5,570 February 8,775 19,956 33,441 18,481 80,653 2,516 1,856 739 5,111 March 7,848 21,236 33,684 18,413 81,181 1,945 1,315 457 3,717 April 5,890 22,691 33,828 16,554 78,963 1,443 1,269 448 3,160 May 5,167 23,405 40,168 17,569 86,309 1,627 1,492 357 3,476 June 7,364 23,697 29,491 19,104 79,656 2,690 2,384 544 5,618 2011 July 9,663 25,186 36,097 22,034 92,980 3,149 3,457 1,001 7,607 August 10,693 33,299 34,014 22,242 100,248 3,219 2,984 1,014 7,217 September 10,102 25,112 32,532 19,878 87,623 2,843 1,786 603 5,232 October 8,961 25,105 35,042 22,869 91,978 2,906 1,443 725 5,074 November 5,810 27,292 45,012 30,102 108,215 1,583 2,605 441 4,629 December 9,403 33,096 39,663 25,214 107,376 1,824 2,423 646 4,893 Total 97,802 308,786 420,948 248,254 1,075,790 28,483 25,200 7,621 61,304 January 8,934 29,762 39,935 23,532 102,163 1,901 2,061 672 4,634 February 8,975 21,977 40,240 20,721 91,913 2,002 2,032 686 4,720 March 7,402 23,797 43,085 24,375 98,659 1,927 2,124 641 4,692 April 6,747 30,593 35,003 17,367 89,710 862 1,234 338 2,434 May 7,923 25,648 36,875 17,148 87,594 1,151 2,017 391 3,559 June 9,342 26,397 32,436 16,515 84,690 2,379 2,740 581 5,700 2012 July 9,584 30,170 43,370 12,500 95,624 3,208 3,673 820 7,701 August 12,033 32,274 31,295 18,269 93,871 3,346 3,345 700 7,391 September 7,862 25,998 29,906 16,248 80,014 3,004 2,845 604 6,453 October 8,166 26,936 30,645 35,224 100,971 2,047 2,910 439 5,396 November 7,794 29,772 32,671 39,997 110,234 1,510 1,844 394 3,748 December 11,975 28,294 29,513 32,211 101,993 1,862 2,836 636 5,334 Total 106,737 331,618 424,974 274,107 1,137,436 25,199 29,661 6,902 61,762 January 6,650 34,396 36,304 22,221 99,571 2,167 2,108 655 4,930 February 9,306 31,803 37,178 25,949 104,236 2,080 1,960 601 4,641 2013 March 8,251 32,476 33,324 27,894 101,945 1,892 2,204 584 4,680 Total 24,207 98,675 106,806 76,064 305,752 6,139 6,272 1,840 14,251 Source: RDB. 68 Rwanda Economic Update | Edition No. 6 The World Bank Blvd. de la Revolution SORAS Building PO Box 609 Kigali, Rwanda Tel: +250 252 591 300 Fax: +250 252 576385 Website: www.worldbank.org/rwanda Produced by Poverty Reduction and Economic Management Unit Africa Region Photo credits: © World Bank Design by: Robert Waiharo