Economic miracle ‘wide of the mark’

A view of Kigali International Airport.PHOTO | FILE

London. Many observers, including President Paul Kagame’s critics of his horrendous human rights record, seem to have swallowed his story line that he has built a formidable economic powerhouse. But the facts and figures expose the myth.

In an article written in the Guardian in April 2014, former British Prime Minister Tony Blair called Rwanda ‘A beacon of hope’. Kagame likes to blow his own horn that he has built what he calls an African “economic lion.” Writing in the Wall Street Journal in May last year, he boasted that in the pursuit of his economic agenda, he “looked to East Asia’s so-called ‘tiger’ economies for inspiration” and that as a result “Rwanda is now firmly on the path to economic maturity.”

Kagame in other words claims that he has built the “Singapore of Africa.” To get a glimpse into the Rwandan economic realities, look no further than the latest World Bank’s Economic Update dated August 2014 which confirms what we already know – namely that Rwanda’s development “success” is mirage.

The overall finding in the report is that even before the aid shock, when donors suspended or cut off aid to Rwanda in 2012 (due its proxy wars in DRC), the country had “failed to stimulate significant transformation of the economy, which is characterised by a large public sector, the dominance of the non-tradable sectors, and limited private investment.”

Put differently, Rwanda’s high growth rate that has averaged 8 per cent annually between 2003 up to 2012 before shrinking to 4.7 per cent in 2013 due to aid shock was led by non-tradable services, and public sector investment, which was essentially financed by aid grants.

Few statistics from the Economic Update provide further insights into Kagame’s so-called economic lion: 73 per cent of Rwandan economy is made of “nontradables,” meaning that services or goods used for domestic consumption are not comparable to imports or exports.

Foreign aid as a share of Gross National Income (GNI) is high at 20 per cent by comparison neighbouring countries rely much less on aid against their GNI: Kenya (7.2 per cent), Tanzania (10.4 per cent), Uganda (10.4 per cent), and sub-Sahara African average (3.4 per cent).

Foreign aid accounts for 86 per cent of gross fixed capital formation (that is, net additions of capital stock such buildings, roads, and other infrastructural assets). Structural bottlenecks such as the underdeveloped private sector, weak infrastructure continue to undermine economic growth.

The Rwandan private sector and economic infrastructure in particular expose the myth of Kagame’s economic lion. Rwanda’s private sector comprises the following: Large taxpayers defined as having an annual turnover of $1.4 million number 354 or 0.3 per cent of all taxpayers, medium taxpayers, who have annual turnover of $74,000-1.4 million, who number 1,938 or 0.7 per cent of all taxpayers, small taxpayers with annual turnover of $14,000-74,000, who number 110,916 or 98 per cent of all taxpayers.

Last year, 354 large taxpayers or 0.3 per cent taxpayers paid 64 per cent of all taxes in Rwanda. The miniscule size of the Rwandan private sector explains why only 309,648 people held jobs in the formal sector in 2012 – out of 5.5 million economically active population. Over 5.2 million Rwandans aged between 16 and 65 are, therefore, still trapped in subsistence agriculture in rural Rwanda and in the informal sector for those, who have managed to migrate to still limited urban centres.

A sub-story of the Rwandan private sector is the rise of crony capitalism, which revolves around the ruling party’s conglomerate known as Crystal Ventures Ltd (CVL) that dominates key sectors such as agro-processing, real estate, construction and telecommunications.

Using insider information and access to social security funds, CVL has become Rwanda’s largest holding company that feeds off state contracts and procurement. The Group is now the second largest employer, after the government, with assets of $500 million, a large sum in Rwandan terms.

It is the economic infrastructure, in particular the energy sector, however, that gives the lie to Kagame’s development miracle. No less than 85 per cent of energy consumption in Rwanda is from biomass, 11 per cent from petroleum products and only 4 per cent from electricity.

The annual average per capita consumption of electricity in Africa averages 457kWh, but this drops to 124kWh if South Africa is excluded. Per capita energy consumption in Rwanda is only 41kWh – with installed electricity amounting to 115MW, the bulk of which is consumed in Kigali. The widely promoted Rwandan economic success is largely due to foreign aid as illustrated above. Even after cuts and suspension shock, aid grants still loom large in Rwanda.

For example, while Rwanda’s domestic financing for the 2014/15 national budget is projected to be $1.4 billion, aid grants and concessionary loans will provide $952 million or 38 per cent of the budget. By regional comparison, Rwanda is an aid junkie with aid per capita of $77, compared to Burundi at $53, Kenya at $61, Tanzania at $59 and Uganda at $46.

The Rwandan president should lie low instead of shouting on rooftops that he has spearheaded the making of an African economic lion – he will be lucky if Rwanda becomes an economic mouse. As for the alleged economic and human rights trade-off, we may be witnessing a case where it is loss-loss on both fronts.

The author is the chairman and founder of London-based Global Campaign for Rwandan’s Human Rights: Website:www.rwandansrights.orgThis article was first published by Pambazuka News.

Source: The CITIZEN-TANZANIA