Over the past 20 years Rwanda has undergone a profound transformation. Sofia Lotto Persio looks at how the ICT sector is contributing to the country’s restart.
Nothing quite epitomises Rwanda’s vision for 2020 as its RF500 banknote. The new design, issued in 2013, features four children working on their laptops. The message could not be clearer: the road to becoming a knowledge-based economy is based on digital innovation. After all, for a small landlocked country of 12 million lacking significant natural resources, there are not many other options.
The information and communication technology (ICT) sector has led the development of what some like to call the Silicon Valley of Africa – a title disputed among various East African countries such as Kenya. Since the early 2000s, the Rwandan government has connected the country to global wireless networks by installing at least 4,500km of fibre-optic cable.
The country inaugurated its first 4G LTE network in November 2014 and internet penetration is now 25%, and growing steadily.
For a country that only 20 years ago was recovering from one of the worst ever episodes of ethnic violence, a genocide that lasted 100 days and resulted in more than 800,000 deaths, these are major improvements – so much so that many of those who had fled in 1994 are returning. “With Rwanda’s incredible rebuilding and growth, especially over the past 10 years, many of the people who left are coming back because of the opportunity to start and grow businesses and contribute to Rwanda’s economic development,” says Grace Mugabekazi, senior client strategist at the African Entrepreneur Collective, a collection of business accelerators that offer services to up to 100 local entrepreneurs a year to grow their businesses and create jobs for others in their communities.
Ease of doing business
Louis-Antoine Muhire is part of that generation of Rwandans who fled the country during the genocide and have returned to start a business. Drawing from his experiences as part of the Rwandan diaspora, he founded his company, Mergims, in January last year. Mergims is an app allowing Rwandans abroad to pay the utility bills of their Rwanda-based relatives. So far, it has been downloaded close to 800 times from the Android application, and has 100 active monthly users. “I chose Rwanda not only because I am Rwandan but most importantly because it is safe and easier to open a business than in any other country in East Africa,” Muhire explains.
Rwanda enjoys a fairly high ranking in the World Bank’s Doing Business index. At a global ranking of 62, it is second-best in the Sub-Saharan region after Mauritius. Rwanda also implemented the highest number of reforms in the region – six in the past year. It should be noted that not all of them have been beneficial for business. In fact, Rwanda’s ranking in the index fell due to new legislation that increased the time and the cost of documentary and border compliance for importing by making pre-shipment inspection mandatory for all imported products. “The programme is carried out by an authorised third-party agency, Société Générale de Surveillance (SGS), and consists of physical inspection with a combination of laboratory testing, documentary review and factory audits. SGS is the only organisation mandated to conduct this assessment, resulting in a lack of competition and efficiency. The pre-shipment inspection for all imports is now mandatory, which increased the border and documentary compliance time by 272 hours and the cost by US$245,” explains a World Bank spokesperson. Rwanda was the last country in the East African Community (EAC) to implement this measure.
Yet, the country still ranks second in the world on the getting credit indicator and 12th in the world on the registering property indicator. Ten years ago, an entrepreneur in Rwanda took 370 days to transfer property. Now, it takes 32 days, which is less than in Germany. A low level of corruption, steady economic growth, political stability, focus on gender equality, and of course, investment in ICT, make the country an attractive place for both men and women to set up a company.
For entrepreneurs, Rwanda represents a doorway to the larger East African markets. “With Rwanda’s connection to the East African Community and with close ties to the neighbouring economies of Burundi and eastern DRC, there are many opportunities for Rwandan entrepreneurs to expand their networks outside of Rwanda,” explains Mugabekazi. According to her, over 50% of the companies the African Entrepreneur Collective supports are able to grow internationally.
Growing ICT expertise
The services sector in particular has benefited hugely from the development of the ICT industry. “It has enabled businesses in the services sector to build a global brand presence, to have more efficient operations through better management systems, and to interact with their clients and the world differently,” says Mugabekazi. As such, Rwanda is starting to produce successful international start-ups such as Comzafrica, a communications platform offering various mobile services including microcredit, which is live in 16 countries and growing still.
Mobile and financial services are only some of the areas of start-up development. According to Muhire, most tech entrepreneurs look to solve problems that the country faces. “Most start-ups are targeting local challenges such as how to find the best doctor or school, or how to check which fertiliser is suitable for a certain type of soil,” he says.
In fact, Rwanda’s main economic sector remains subsistence agriculture, and whereas the country’s 2020 vision plans on skipping the industrialisation step and going straight from an agriculture to a services-led economy, the nation still lacks much-needed infrastructure and access to affordable technology. More essentially, data from the World Bank indicates a large disparity in terms of access to electricity within the country, with only 18% of the population having access to power: 61% of the urban population enjoys access to it against 7% of those living in rural areas – who represent more than 70% of Rwanda’s population – a stark contrast no matter how you look at it.
According to professor Syed Zain Khan of Carnegie Mellon University, when talking about developing a knowledge-based society, the intention is not to replace agriculture with ICT, but to allow farmers to use ICT tools for their business goals. “It’s about being able to transform that industry structure using ICT tools to increase productivity. It’s not about shutting the farm down and becoming a software developer,” he says.
The quality of education is therefore a crucial aspect of Rwanda’s strategy for growth. Muhire tells GTR that one of the biggest challenges he faces in running his business is finding qualified and loyal staff. “The Rwandan youth is ambitious, and aspires to compete with the rest of the world, yet its education system can’t be compared to the western one. So there is a skills gap that needs to be closed as soon as possible, so Rwanda can see more innovative start-ups,” he says. Muzabekazi also agrees that increasing ICT skills and human capital growth is one of the key challenges for the sector’s development.
In 2012, Carnegie Mellon University became the first American research institution to offer masters programmes taught by full-time, locally-based faculty members. The degrees have a strong ICT focus and have so far produced around 40 graduates who have seamlessly entered the job market. Professor Zain Khan tells GTR that most of these students intern and work in the software development, telecommunications and financial services industries. In the banking industry, graduates join the teams working on cybersecurity and network management, infrastructure and core banking software. The university’s focus is to build capacity and attract foreign companies
to invest and establish themselves in the country.
“We are looking for brilliant minds because we can provide the companies with graduates that provide value and innovation,” says Zain Khan.
The funding challenge
Another gap concerning entrepreneurs, and one that highlights the distance from Silicon Valley, is the scarcity of venture capital funding. “Accessing affordable and flexible funding for ICT business was, a few years ago, almost impossible. However, the situation is slowly picking up; we have a couple of ICT companies that have received investment to support their growth, and are now able to access financial products with the local banks,” says Mugabekazi. The Rwanda Development Board helps Rwandan entrepreneurs liaise with international investors, but according to Mugabekazi, there is still a lack of sufficient platforms to connect young entrepreneurs to investors, as well as a lack of exposure that prevents access to funds.
“For outsider investors, Rwanda is not well known yet compared to Kenya,” says Muhire. “In general, there is some local seed capital available for start-ups. However it is very expensive since those angels would like to have a huge share of the company, which can limit the scalability of the start-up.” The Rwandan government offers support to entrepreneurs and partnered with the private sector to set up kLab, a tech incubator based in Kigali where start-ups can access free internet. In October last year the ministry of ICT and youth announced the creation of a RF73.2bn (US$97mn) seed fund for start-ups and it is also working on creating a regulatory environment to attract more funding from investors in the region. Muhire is confident this will help to change the funding landscape.
In the meantime, Muhire and his team have been selected to compete in an international start-up competition organised by Seedstars World, an organisation that aims at promoting, connecting and investing emerging market start-ups through competitions in over 50 countries. The prize is big: half a million US dollars. How far can that sum of money take his company? Perhaps not all the way to Silicon Valley, but far enough. “We need to modernise our equipment and hire more staff in order to offer a more sophisticated payment platform with more features. We are already receiving partnership offers from Kenya, Somalia, Nigeria and the Philippines,” he says, proving that Rwanda’s entrepreneurs are only just getting started.
