Dream Big

Rwanda is pulling out all the stops to establish itself as a lynchpin for regional trade. But will its efforts to entice international lenders be enough? Shannon Manders reports.


Having set its sights on becoming Nairobi’s rival for East African business, the Republic of Rwanda is drumming up support from the local and international markets.

Its attempts to attract attention have not gone unnoticed; a Rwandan financier tells GTR that “there are a number of banks and insurance firms lining up to open outlets”.

“There are a couple of international banks as well scouting for deals, so the market here is quite active,” he adds.

In January this year, the Africa Trade Insurance Agency (ATI) opened a representative office in Kigali; a move triggered by increased demand from the local and global business community.

The Rwandan government is doing all it can to keep lenders and investors interested to reduce its trade deficit and to become a globally competitive export economy.

So far, the country’s success has been substantial. The government launched its National Export Strategy in March last year; in September it became the only African country to sign a bilateral investment treaty with the US Senate; and exports of goods and services rose 32% from US$564.6mn in 2010 to US$743.5mn in 2011. The country’s economy grew 8.8% in the same period.

Rwanda has also made significant improvements to its business environment, with its entry this year as the most competitive East African country as rated by the World Economic Forum, and its 2012 World Bank Doing Business ranking of 50, up five places from the year before. These initiatives, which are helping the country reach economic stability, are also working in its favour as it strives to get investment and financial institutions to enter the country and keep them there.

The country’s better governance and less risky environment are reflected in its sovereign credit rating. In December last year, rating agency Standard & Poor’s conducted its first sovereign assessment of Rwanda, and assigned a ‘B’ rating with a positive outlook, citing Rwanda’s “decisive market reforms and good macroeconomic management”.

Export evolution

It is hoped that the country’s improving business environment will encourage the development of export-related industries and increase the number of export firms.

Rwanda’s export growth over the past few years has been underpinned by its expansion in tea, coffee and mining. The country’s five-year National Export Strategy (NES) prioritises these sectors, as well as that of tourism, horticulture and several greenfield sectors as important to Rwanda’s long-term exporting success.

A key activity has been the launch of the Rwanda exporters development programme (REDP), which seeks to provide Rwandan exporters with support, training and technical assistance.

Export growth is targeted at 15% per year and aims to shift current exports away from raw materials and commodity products to more sophisticated products such as biotechnology.

Growth is also expected to come from traditional export sectors including tea and coffee, which are being encouraged to increase production and explore new market opportunities. The NES highlights the US and China as attractive markets to which the country may look to export.

According to the NES, Rwanda seeks to achieve US$159mn in estimated revenues from tea by 2015.To this end, the National Agricultural Exports Development Board (NAEB) launched a strategy in December that will, among other things, seek to establish five new tea factories to boost production.

Despite this support, Rwanda faces a number of challenges as it looks to grow tea exports; volatile commodity prices are a cause for concern, and the country is still overshadowed by Kenya, which has done well to penetrate the international tea market.

Almost 98% of Rwanda’s tea is exported to Kenya in raw form, meaning that Rwanda loses out on additional revenue that would have been earned from finished products.

According to the NAEB, the new tea factories will be supported to obtain the certification needed to sell the product on the international market.

The country is also turning its attention to its crippled infrastructure, including electricity and roads, which have previously hampered its processing capacity.

Cross-border hopes

Rwanda is looking to leverage its position between East and Central Africa to boost its economy. It even went so far as to change its official language from French to English in 2008 to accommodate commerce from neighbouring countries.

The country is angling to become a trade conduit for its neighbours’ wealth of minerals, and continues to facilitate 24-hour border operations to promote the flow of cargo in its bid to increase regional trade.

The Rwanda Development Board (RDB) launched a programme in November last year to help Rwandan companies export to Uganda. The pilot initiative, which will benefit 10 Rwandan companies, is being funded by donor programme TradeMark East Africa.

But it’s not just regional trade that is being championed. In 2010, Rwanda’s development bank Banque Rwandaise de Développement (BRD) launched a trade finance facility to support businesses engaged in international trade. The service is aimed at benefiting exporters and importers through letter of credit documentation and financing solutions. The bank’s trade finance transactions hit Rf2bn (US$3.3mn) in September 2010.

But now, with limited access to financial resources, the country is looking beyond its development bank to support its growing businesses.

“We need the right financial partners,” says Hubert Ruzibiza, head of services development department at the Rwanda Development Board.

Ruzibiza notes that at present, trade is predominantly financed by local commercial banks, and is supported by the BRD and the Eastern and Southern Trade Development Bank (PTA Bank). “But our desire is to have specialised banks coming in to Rwanda; anks with the right trade finance products for the market.”

“We have been approached by HSBC, some export credit agencies such as Italy’s Sace, and many other big names in the financial industry. They are exploring ways of financing trade activities and providing guarantees to mitigate the credit risk,” Ruzibiza says.

HSBC was unable to confirm the opportunities – if any – that the bank sees in Rwanda at present.

Deals a plenty

Recent trade deals include a US$60mn 10-year term loan to fund state-owned carrier RwandAir’s Boeing purchases in August last year. The PTA Bank-financed facility was supported by a ministry of finance guarantee, which in turn was backed by an insurance policy from ATI, covering the risk of non-payment by the ministry.

The 10-year term is particularly lengthy for a country like Rwanda, where investors have typically been cautious. “The transaction also marks the first time for an insurer to go long-term in the country,” says Humphrey Mwangi, a senior underwriter at ATI.

RwandAir announced in January this year that it plans to buy two new aircraft to replace older models, but did not mention how the transaction is to be financed. The country has also been attracting investment in electricity generation, including alternative energy sources such as methane, hydro and geothermal.

In August last year, international power company ContourGlobal signed a US$91.25mn loan facility from a group of development banks to complete phase one of its methane gas KivuWatt project in Kibuye, expected to cost approximately US$142mn in total.

The project has been hailed as the most innovative in the history of electricity generation. It will see a gas extraction platform being built to extract potentially deadly methane gas from Lake Kivu, which will then be transported by a 13-km submerged gas pipeline to an onshore power plant.

The Emerging Africa Infrastructure Fund (EAIF) and the Netherlands Development Finance Company (FMO) acted as arrangers, while the African Development Bank and the Belgian Investment Company for Developing Countries (BIO) were lenders on the deal.

The Rwanda Development Board and the Rwandan ministry of infrastructure have both been promoting the exploration of Rwanda’s investment potential in the energy sector.

In February this year they co-hosted an investor forum, aimed at attracting the leading energy players, including investors and financing institutions.

A slow start

Despite the demand for financiers, some market players are doubtful that commercial lenders will be keen to get drawn in just yet.

“In other African countries we are seeing commercial banks getting involved, but they cannot provide the debt tenors needed and often require coverage for political risks,” says Bernhard van Meeteren, energy sector specialist, structured finance energy at FMO. He adds that it would be “innovative” if commercial banks were to lend directly to projects with longer tenors.

“Investors are cautious; they don’t have short memories,” agrees ATI’s Mwangi, though he believes that this perception is changing with the involvement of institutions such as the ATI.

In spite of all of the country’s initiatives, Rwanda is set to face many challenges as it looks to boost its growth prospects. The IMF has warned that the country will suffer as a result of the strained global economy and volatile oil and food prices.

“Growth is expected to slow in 2012, although risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation,” stated a report issued by the IMF in January this year.

Although the Rwandan authorities have tightened monetary policy to contain inflation, it rose 8.3% at the end of last year. The major contributor was imported inflation from Rwanda’s East African neighbours, including Kenya and Uganda, where national currencies have been hard hit by the depreciating US dollar. The IMF has urged Rwanda to “remain vigilant” and tighten monetary policy even further if needed so as not to dampen its prospects. GTR