RWANDA: Regional friction could dampen growth forecasts

RWANDA: REGIONAL FRICTION COULD DAMPEN GROWTH FORECASTS

Multilateral lending institutions are optimistic about Rwanda’s potential over the next two years. Forecasts since December 2019 by the African Development Bank (AfDB), the International Monetary Fund (IMF), and the World Bank (WB) predict that Rwanda’s economy will grow by more than 8 per cent in 2020. That would make it the fastest-growing economy in Africa, and one of the fastest-growing globally. This contrasts with most other emerging and frontier economies, many of whose growth predictions have been downgraded, but remains on par with the Sub-Saharan African average. This comes as both the IMF and the WB predict the lowest level of growth globally in a decade. The ongoing outbreaks of Covid-19, which began in China in December 2019, are likely to deflate the forecasts further.

In line with the AfDB’s assessment for Africa, growth in Rwanda is supported by significant capital expenditure, including the construction of the USD418 million Bugusera International Airport, which will become the country’s main aviation hub once it is completed according to plans by the end of the year. This suggests that growth will likely slow once major infrastructure projects have been completed.

The predictions join widespread optimism towards Rwanda, a country which few will deny has come a long way since an internecine genocide and civil conflict in 1994. This remarkable recovery is in part thanks to the absence of exogenous shocks such as armed conflict or extreme weather-related events over the past three decades. Although Rwanda was indeed dragged into the two Congo wars at the turn of this century, in-country instability and armed conflict have remained limited because of the Kagame regime’s intense surveillance and rigorous policing of dissent.

However, sound economic policies have also driven the growth and ensured macroeconomic stability over the past decade. The high inflows of foreign direct investment (FDI) bear testament of this rigour, including the establishment of a longer-term development framework – Vision 2020 – at the start of this century. This has allowed Rwanda’s economy to diversify, expanding its tourism and manufacturing sectors. This has improved resilience, but underlying development issues continue to weigh on economic activity.

Geopolitical headwinds

While the forecasts tell a positive story, growing friction within Rwanda’s immediate neighbourhood is likely to dampen the optimism in the one to two-year outlook. The heads of state of Burundi, Rwanda, and Uganda all have big egos and long-standing grievances against each other.

Tensions between President Paul Kagame and his Ugandan counterpart (and long-time foe), Yoweri Museveni, have increased over the past two years. The two leaders’ personal animosity has historically played out by proxy contacts in north-eastern DR Congo through the co-opting of ethnically linked non-state armed groups exiled in North Kivu and South Kivu provinces. But the friction is having an increasingly direct impact on commercial operations. Last year, the repeated and impromptu border closures and the imposition of import bans disrupted regional supply chains. Allegations of NSAGs entering Rwanda’s territory from Uganda, was chief among the reasons given for the closures.

Militant attacks in Rwanda are also threatening the viability of eco-tourism operations in the north of the country. Furthermore, both leaders have mutually accused each other of sponsoring NSAGs in their counterpart’s home country. By the same token, Kagame’s relations with Burundi’s outgoing president, Pierre Nkurunziza (who will not seek a fourth term in May 2020), have also deteriorated over the past two years. Again, the tension stems from the presence of Hutu and Tutsi NSAGs in eastern DRC, with the governments mutually accusing each other of stoking unrest in their respective territories.

As tensions are unlikely to abate in the one-year outlook, further supply chain disruptions are likely. Companies reliant on regional supply chains, particularly near Rwanda’s borders with Burundi, DRC, and Uganda, should monitor militant activity and announcements by either government to assess the impact on operations. 

THIS ARTICLE FIRST APPEARED IN THE February 2020 EDITION OF THE SUB-REGIONAL INTELLIGENCE MONITOR FOR EAST & SOUTHERN AFRICA

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TANZANIA: Despite deal with miner, ongoing arbitration proceedings are bad for medium-term investor confidence

UGANDA: Pipe(line) dreams trump growth prospects