Despite a lukewarm global economic outlook caused by the Euro Zone debt crisis, Rwanda’s economy will grow within the 7.7% range this year, powered by strong growth in sectors such as banking, agriculture and exports.
Central bank governor Clever Gatete, has said that reforms in agriculture have helped the country to produce more food. This, he said, has enabled the economy to keep inflation at single digit as food prices remain relatively stable compared to neighbors in the region.
The major boost to Rwanda’s agricultural production has been an increase in land under irrigation from 18,000 hectares to about 23,000. The ministry of agriculture targets to increase this to 100,000 hectares by 2017 so as to reduce reliance on rain-fed agriculture.
“Last year, our initial target was 7%, but by the end of the year, it was 8.6%. So this year we also hope it is going to be much better. And, even what we see in the first quarter then we are almost more optimistic,” Gatete said.
Currently at 8.3%, Rwanda has experienced the lowest inflation compared with bigger economies in the East African Community such as Kenya, Uganda and Tanzania where central banks were forced to increase lending rates to stop runaway inflation and prop up weak currencies. Uganda, the country to be hit hardest by inflation in the region at 30.5% in October last year, hiked the central bank base rate to 23% to reign in on stubborn inflation.
Gatete, who spoke at the Bank of Kigali’s investor day in Kigali on Friday, said that inflationary pressure in Rwanda’s neighbors was easing with the exception of Burundi which has seen a rise from 4.1% in October 2011 to 24.5% in March. Uganda is now at 21.2% while Kenya is at 15.6%. Rwanda is targeting to keep inflation rate at 7.5% in the meantime, but progressively aims at a lower rate of about 5%.
According to Gatete, this year’s prospects have been made even brighter by the upward-looking export sector that has already registered over 60% rise in the first quarter. This has largely been due to growing informal trade with neighboring countries, especially the Democratic republic of Congo and Uganda.
In a bid to maximize benefits from regional trade, the government is looking at various ways of facilitating easier movement of goods. One such measure is the introduction of mobile finance transactions so that traders can transact business using their mobile phones to settle financial obligations. Gatete said that Rwanda is supporting regional export as a backup in case of problems in traditional export markets in Europe and Asia. Food dominates Rwanda’s informal export trade with neighbors.
Figures show that total banking sector asset grew by a whooping 245% to 1,083.3 billion as of December 2011. And during the same period, lending to the private sector went up by 28.4%.
Last year, the country’s export volumes grew by 29.5%, up from 11.5% in 2010. This was one of the major contributing factors to Rwanda’s economic resilience in the face of last year’s global economic downturn. “We expect this year also to be good for us,” Gatete said.
More support for a better economic outlook is expected from the banking and finance sector that has not only brought in good amounts of foreign direct investments (FDI) but has also witnessed rapid growth in assets and loan book.
Figures show that total banking sector asset grew by a whooping 245% to 1,083.3 billion as of December 2011. And during the same period, lending to the private sector went up by 28.4% – meaning that banks made more funds available to private projects aiming at creating jobs and eradicating poverty in the country.
The banking sector also saw a 42.4% rise in profit and decline in non-performing loans from 10.8% to about 8% – an indication of a healthy sector. “Our banking sector is not only stable but resilient. The IMF was [in the country] twice last year and they confirmed this,” Gatete said.
The banks are poised to offer support to economic growth this year as big players such bank of Kigali plan massive expansions to take services to the estimated 80% of the population that has no access to financial services.
The move by the banks is in line with the new government financial inclusion program aiming at bringing all Rwanda into the finance sector.
The target is to achieve 80% financial inclusion by 2017, Gatete Said.
Under the program, the ministry of finance is working with the central bank, commercial banks and insurance companies to deepen financial literacy among Rwandans.
A new study will be conducted this year to establish how much financial information is known by the people, the number of people with bank accounts and those without, but wish to have them. Only about 3 million Rwandans have bank accounts.