February 2023 | Edition No. 20 Making the Most of Nature Based Tourism in Rwanda Rwanda Economic Update Making the most of Nature Based Tourism in Rwanda February 2023 © 2023. World Bank Group This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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TABLE OF CONTENTS Acronyms......................................................................................................................................................................................................................... i Acknowledgments ....................................................................................................................................................................................................... ii Abstract ............................................................................................................................................................................................................................ iii Executive Summary...................................................................................................................................................................................................... iv PART I: RECENT ECONOMIC DEVELOPMENTS ............................................................................................................................................... 1 1.1. Global and regional recent economic developments............................................................................................................ 2 1.2. Rwanda’s economy appeared resilient amid multifaceted challenges ........................................................................... 2 1.3. Rwanda’s economic outlook and risks ........................................................................................................................................ 12 PART II: SOCIAL AND ECONOMIC IMPACT OF HIGH INFLATION IN RWANDA............................................................................ 15 PART III: SPECIAL TOPIC: MAKING THE MOST OF NATURE-BASED TOURISM IN RWANDA ................................................ 21 3.1. Context, benefits and challenges of nature-based tourism................................................................................................. 22 3.2. Financing needs and options in parks and protected areas................................................................................................ 28 3.3. Policy framework and recommendations................................................................................................................................... 32 References ....................................................................................................................................................................................................................... 37 Annexes............................................................................................................................................................................................................................ 41 LIST OF FIGURES Figure 1.1: Rwanda GDP growth: actual vs historical average .................................................................................................................. 3 Figure 1.2: GDP – expenditure.............................................................................................................................................................................. 3 Figure 1.3: GDP – production................................................................................................................................................................................ 4 Figure 1.4: Unemployment rate, 2019 -22........................................................................................................................................................ 6 Figure 1.5: Rwanda’s tourism exports, 2010–2022 ........................................................................................................................................ 8 Figure 1.6: Inflation developments .................................................................................................................................................................... 9 Figure 1.7: Inflation across African countries................................................................................................................................................... 9 Figure 1.8: Rising local food prices led to inflation pressures.................................................................................................................... 10 Figure 1.9: Contributors to inflation.................................................................................................................................................................... 10 Figure 2.1: Consumption shares of food products........................................................................................................................................ 16 Figure 2.2: Estimated inflation rates by quintiles of household consumption in Rwanda ............................................................. 16 Figure 2.3: Districts with higher poverty incidence faced higher food price inflation..................................................................... 16 Figure 2.4: Districts with higher stunting rates faced higher food price inflation ............................................................................. 17 Figure 3.1: Snapshot on NBT in Rwanda ........................................................................................................................................................... 22 Figure 3.2: Job multiplier effect on activities closely related to tourism............................................................................................... 25 Figure 3.3: The impact of the COVID-19 pandemic extended into nature-based tourism............................................................. 25 Figure 3.4: Tourism demand shock from temperature ................................................................................................................................ 26 Figure 3.5: Closing conservation and nature tourism infrastructure investment gap- Impact on revenue and debt ......... 30 Figure 3.6: Closing conservation and nature tourism infrastructure gap- Impact on GDP............................................................ 31 Figure 3.7: Distribution impact of investments on conservation and nature-based tourism ....................................................... 32 Figure 3.8: Rwanda’s development management areas ............................................................................................................................. 35 LIST OF TABLES Table 1.1: Rwanda’s gross domestic product................................................................................................................................................. 5 Table 1.2: Employment by selected sectors................................................................................................................................................... 6 Table 1.3: Balance of payments, 2019-2022................................................................................................................................................... 7 Table 1.4: Accommodation for visitors in hotels and similar establishments.................................................................................... 8 Table 1.5: Rwanda’s public finance, FY2017/18-FY2021/22 ..................................................................................................................... 11 Table 3.1: Percentage of gorilla trekking permits sold............................................................................................................................... 23 Table 3.2: National Park allocation and value of Tourism Revenue Share (TRS) revenue share .................................................. 27 Table 3.3: Summary of estimated financial needs for NBSAP II .............................................................................................................. 29 LIST OF BOXES Box 1.1: Rwanda’s tourism sector .................................................................................................................................................................. 8 Box 3.1: Example of Collaborative Management Partnership ............................................................................................................ 31 Box 3.2: Case study examples of local benefits from NBT..................................................................................................................... 33 Box 3.3: Overview of potential instruments that could support the NBT sector.......................................................................... 36 ACRONYMS ANP Akagera National Park NBR National Bank of Rwanda BIOFIN Biodiversity Finance Initiative NBSAP National Biodiversity Strategy and Action Plan CAR Capital Adequacy Ratio NISR National Institute of Statistics of Rwanda CBD Convention on Biological Diversity NPL Non-Performing Loans CBR Central Bank Rate NSFR Net Stable Funding Ratio CBO Community Based Organization NST National Strategy of Transformation CGE Computable General Equilibrium NBT Nature-Based Tourism CMPs Collaborative Management Partnerships NNP Nyungwe National Park COP Conference of the Parties PA Protected Area CPI Consumer Price Index PES Payment For Ecosystem Services DMAs Destination Management Areas PPP Public-Private Partnership DRC Democratic Republic of the Congo PRSC Project Revenue Sharing Committee EMDEs Emerging Markets and Developing Economies PSNP Productive Safety Net Program ERF Economic Recovery Fund RDB Rwanda Development Board FDI Foreign Direct Investment SDG Sustainable Development Goal FRB Forest Resilience Bonds SGF Special Guarantee Fund FY Fiscal Year SSA Sub-Saharan Africa GDP Gross Domestic Product TRS Tourism Revenue Share GGCRS Green Growth and Climate Resilient Strategy TRSP Tourism Revenue Sharing Program GoR Government of Rwanda UNFCCC United Nations Framework Convention on HHI Herfindahl–Hirschman Index Climate Change HWC Human-Wildlife Conflict UNWTO UN World Tourism Organization IFC International Finance Corporation VNP Volcanoes National Park LCR Liquidity Coverage Ratio WBG World Bank Group LFS Labor Force Survey WTTC World Trade and Tourism Council MPC Monetary Policy Committee Rwanda Economic Update • Edition No. 20 i ACKNOWLEDGMENTS The Rwanda Economic Update (REU) analyzes recent economic developments and prospects, as well as Rwanda’s policy priorities. The REU is intended for a wide audience of policymakers, business leaders, other market participants, analysts of Rwanda’s economy, and civil society. It draws on data reported by the Government of Rwanda and additional information collected by the World Bank Group in its regular economic monitoring and policy dialogue. Published twice a year, each issue has a special feature spotlighting a particular topic. The 20th edition of REU focuses the role of nature-based tourism in the Rwandan economy. The current edition, led by Calvin Zebaze Djiofack (Senior Economist), Peace Aimee Niyibizi (Economist) and Diji Chandrasekharan Behr (Lead Environmental Economist), is a collective endeavor and involved staff from several parts of the World Bank. The team includes Yacob Wondimkun Endaylalu (Senior Environmental Engineer), John Kalisa (Consultant), Elisson M. Wright (Senior Environmental Finance Specialist), Peter Katanisa (Consultant), Erwin R. Tiongson (Senior Consultant), Lulit Mitik Beyene (Senior Economist), Hassan Dudu (Senior Economist); Irving Rodolfo Mc Liberty Zurita (Consultant), and Anna Spenceley (Consultant). The team is grateful to Philip Schuler (Lead Economist) for invaluable inputs on the structure and messaging of the report. The team benefited from invaluable support and inputs from Vivek Suri (Practice Manager, EAEM1) who supervised the preparation of different aspects of the report. Rolande Pryce (Country Manager, Rwanda) and Keith E. Hansen (Country Director for Kenya, Rwanda, Uganda, and Somalia) provided overall guidance. The team is grateful to Nathalie Picarelli, Pablo Cesar Benitez, and Shaun Mann for their comments and advice on earlier drafts. The team benefitted from support from Alice Umuhoza (Team Assistant) on logistics, Rogers Kayihura (External Affairs Officer) on communications and dissemination, and Robert Waiharo on the design and layout of the report. The REU team is grateful to the Ministry of Finance and Economic Planning (MINECOFIN), the National Statistics Institute of Rwanda (NISR), the National Bank of Rwanda (NBR), Rwanda Development Board (RDB) and the Ministry of Environment for providing the data which made this work possible, and for their insights and comments. Views expressed in the REU are those of the authors and do not necessarily reflect the views of the World Bank Group, its Executive Directors, the countries they represent, or the Government of Rwanda. ii Rwanda Economic Update • Edition No. 20 ABSTRACT The Rwandan economy continued to achieve strong growth in 2022 in the face of weakening external demand and restrictive monetary policies required to control inflation. Rising food prices particularly affected the poor, who devote a large share of their spending to food and appear to have faced higher food inflation than richer households did. Growth is expected to decline somewhat in 2023 and then to recover closer to historical rates over the medium term. Tourism is a major source of Rwanda’s foreign exchange earnings and tends to generate a higher proportion of formal sector jobs than other sectors and could make a substantial contribution to growth. Within tourism, strengthening the provision of nature-based tourism, which accounts for 80 percent of leisure and conference visitors in Rwanda would also help protect biodiversity and advance Rwanda’s efforts to adapt to climate change. Nature-based tourism faces significant challenges, including potential limits on expansion of revenues from one of the primary international attractions - gorilla trekking, degradation of the natural assets that underpin the sector, risks presented by infectious diseases, habitat change and overexploitation, and the impact of climate change on tourism demand. Key measures to promote nature-based tourism will need to include expanding the network of protected areas and improving management of the natural assets within and outside protected areas and diversifying the nature-based tourism’s offering while complementing efforts to diversify tourism activities. Efforts are required to enhance revenue sharing mechanisms to increase incentives for local communities to conserve natural assets and unlock new opportunities and community-led enterprises that generate revenue from tourism and sustainable management of natural resources, including forests. This is essential to address poverty, to mitigate poaching threats, other illegal activities, and reduce unsustainable exploitation of resources. It is also imperative to secure private sector participation in financing and operation of facilities by introducing innovative financing methods to secure the necessary investment, strengthening capacity and management of tourism facilities and services, and removing subsidies that contribute to environmental degradation. Rwanda Economic Update • Edition No. 20 iii EXECUTIVE SUMMARY Rwanda’s economy grew strongly despite food prices. To control inflation, the National Bank global headwinds of Rwanda increased the central bank rate in three Rwanda’s strong growth continued in 2022. GDP steps during the year, for a total increase of 200 basis increased by 8.4 percent in the first three quarters points, as well as the reserve requirement ratio. of 2022 (year-on-year), down 2.5 percentage points from the strong recovery in 2021 but only a half a GDP growth is expected to slow in 2023, but to percentage point slower than the average of the two pick up in the medium term. While tourism is likely years before the pandemic. Spurred by the revival to continue to recover, external demand is likely of tourism, the services sector drove growth, while to weaken as a result of major central bank efforts industry and agricultural sectors saw their growth to reduce inflation. Real GDP is projected to rise eased, largely owing to a decline in construction by 6.2 percent in 2023, well below the average of and as poor weather and the rising price of 7.4 percent in the five years before the pandemic. fertilizers respectively. On the demand side, growth The government is committed to undertaking was mainly driven by the private consumption. fiscal consolidation in the next year, including Employment indicators improved in the third reforms to increase revenues from income and quarter, to levels similar to those at the beginning value added taxes. Higher revenues, coupled with of the pandemic. However, the improvement was expected improvements in spending efficiency, much more significant for men than for women, should enable an increase in public investment whose unemployment rate remained much higher, spending in 2024–25 to support an acceleration and labor force participation rate much lower, than of growth to 7.5 percent. This outlook is subject to that of men. significant downside risks, including a prolongation of a challenging global environment, with higher Affected by the global commodity price increase, inflation, ever tighter policy rate, financial stress, the current account deficit remained high. Rwanda’s deeper weakness in major economies, which imports rose to 39.3 percent of GDP in the first three could limit external demand, lower availability of quarters of 2022. The prices of Rwanda’s commodity concessional resources, and the potential for severe exports also increased, and export earnings reached climate and weather-related shocks. 22.4 percent. On net, the trade deficit was 16.9 percent of GDP in the first three quarters of 2022, 0.6 Rising food prices may have exacerbated percentage points higher than in the same period of poverty and food insecurity 2021. Despite increases in grants and remittances, The poor in particular are suffering from by food the current account deficit remained high at 11.1 price inflation. Lower- income households tend percent of GDP in the first three quarters. to devote a larger share of their spending to food, and also appear to have faced higher rates of food Inflation rose sharply prompting the National inflation, compared to higher- income households. Bank of Rwanda to raise its policy rate to a level Measures adopted by the government to mitigate lastly seen in 2016. Urban inflation, the price index the impact of inflation on poor and vulnerable normally used to judge monetary developments, households over the past year include an increase rose to 21.7 percent (y-o-y) in November 2022. The in subsidies (primarily on fuels, fertilizers, seeds war on Ukraine increased commodity prices, while and public transit), increased spending on social the poor harvest in Rwanda gave a further boost to protection, increases in teachers’ salaries and iv Rwanda Economic Update • Edition No. 20 Executive Summary in government contributions to school feeding an assessment to determine feasible reductions in programs, and efforts to find alternative sources or tax expenditures. Future tax strategy also should substitutes for food products whose prices were be guided by efforts to minimize the impact on the increasing rapidly. poor of revenue increases, for example by adopting health/sin and carbon taxes and making income Further steps are required to protect the poor and taxes more progressive. Revenue reforms should be vulnerable from the impact of rising food prices. accompanied by improvements in the design and Short-term measures could focus on increasing efficiency of the public investment program. resources devoted to social protection programs. Key areas could include increasing the coverage of the Nature-based tourism holds tremendous potential Nutrition Sensitive Direct Support and Public Works for increasing growth in Rwanda programs, securing financing for the emergency Nature-based tourism (NBT) has grown rapidly, but cash transfers, providing emergency support to future growth faces important challenges. NBT, or agricultural production, increasing the coverage tourism to experience natural resources in a wild or and improving targeting of school feeding, and undeveloped form, is estimated to have constituted strengthening policies to address food insecurity 80 percent of the visitors entering Rwanda for leisure and prevent child stunting, particularly expanding or conferences. NBT plays an important role in job the role of early childhood development centers. creation: for every US$1 million (about Rwf1,050 Over the medium to long term, a key guide for million) that NBT activities inject into the economy, policy improvements will be to help build resilience. an additional 1,328 new jobs are created. Tourism Improving the adaptability of social safety nets and tends to provide higher-quality jobs than many other social insurance to crises would limit the damage sectors, as the accommodations and food sector has to human capital and physical assets of the poor in a larger share of formal jobs and of women workers response to sudden declines in income. than in the rest of the economy, and through NBT can create employment and income opportunities in Adequate fiscal space to respond to future crises rural areas. should be maintained. This could be done for example, through rescinding tax reductions adopted The current characteristic of NBT in Rwanda in response to the COVID-19 pandemic, developing constrains its expansion. A significant portion of a medium-term revenue strategy and undertaking NBT foreign exchange revenue comes from tours to view gorillas in their natural habitat. These tours face competition from other destinations for gorilla viewing and restrictions on number of permits because of the need to preserve the habitat and population of gorillas, limiting Rwanda’s ability to raise prices or increase the number of tourists involved. Thus, as part of Rwanda’s efforts to diversify tourism, it will be important to expand the country’s NBT offerings. NBT also faces other significant risks. Environmental degradation, particularly the ongoing decline in natural vegetation and the deterioration of forests, threatens the natural habitat important for wildlife populations. A decline in the economic condition of surrounding communities exacerbates Rwanda Economic Update • Edition No. 20 v Executive Summary pressures on protected areas (PA). In addition, external responding to the needs of communities surrounding factors, such as infectious disease emergencies, PAs, with provision for local management of these can result in the dramatic decline in demand for resources. The Government plans to undertake tourism, including NBT, as illustrated by the COVID-19 various improvements in revenue sharing policies, pandemic. Similarly, warming temperatures, resulting including revenue allocation, project preparation from climate change, if unmitigated, are likely to and selection, implementation and monitoring and reduce the demand for tourism to tropical areas and evaluation. Innovative approaches to ensuring that further degrade natural habitats. NBT benefits local communities include engaging with the private sector to create opportunities for Vigorous efforts are required to diversify and the poor, joint ventures, employment of local staff, expand NBT. The Rwanda Development Board’s and business linkages with local entrepreneurs. program for the recovery of tourism following the COVID-19 pandemic focuses on increasing and Involving private sector investment is critical to managing demand, diversifying tourism attractions, promoting NBT in Rwanda. It is forecast that a total and strengthening capacity and management. This is financing of US$97.5-107.7 million is required for central for strengthening NBT considering constraints sustainable management of the natural resources, to expanding gorilla trekking. New NBT activities ecosystems, and biodiversity that underpin NBT from need to be developed alongside efforts to expand 2019-2030. It will be important to rely on diversified tourism, including water-based, urban and adventure sources of financing for both the public and private tourism. It will be important to modify policies that sector, including debt and non-debt instruments, harm biodiversity, for example by removing subsidies and to establish the policy framework required to that damage the environment, and to promote encourage investment in NBT. A Computable General private sector provision of environmental benefits Equilibrium (CGE) model-based analysis finds that and participation in nature-based tourism activities increasing investment in natural capital to support (e.g., through concessions and co-management NBT would improve fiscal sustainability and growth, practices). Expansion of the network of PAs should whether the resources are primarily provided by be complemented with opportunities to sustainably public or private sources. However, encouraging more manage surrounding natural resources, including private investment in NBT through public-private forests, and the establishment of biodiversity partnerships would raise GDP by more than if only corridors between PAs. public resources were relied on. The private sector can be involved in NBT activities most efficiently For NBT to succeed benefits must be shared with through outsourcing investment and provision local communities and current efforts should of management services in state owned PAs, or be intensified. Poverty in communities bordering licensing commercial activities adjacent to these PAs encourages poaching, other illegal activities, areas. Sustainability-linked financing instruments, and the exploitation of forests out of the need to non-debt solutions tied to carbon markets and survive. The government has a robust program to private sector-led equity investments have been share 10 percent of tourism revenues with poor and used to access private finance for NBT. Bonds have disadvantaged groups close to PAs, while five percent been issued based on conservation activities or of tourism revenues is devoted to a fund to prevent green investments, funds established to support human/wildlife conflict. Revenue-sharing schemes biodiversity and climate change adaptation and to with communities and local landowners could be prepare for catastrophes, and payments have been expanded, and funds from the Tourism Revenue made to reward reductions in emissions through Sharing Program (TRSP) should be devoted to avoided deforestation and forest degradation. vi Rwanda Economic Update • Edition No. 20 Recent Economic Developments PART ONE RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK Rwanda Economic Update • Edition No. 20 1 Recent Economic Developments 1.1. Global and regional recent economic Sub-Saharan Africa’s recovery was interrupted in developments 2022. Weakening external demand and tightening The global economy is slowing. Central banks have global financial conditions dampened regional tightened monetary policy in reaction to rising inflation activity. Soaring food and energy prices, stemming driven by the war on Ukraine’s impact on commodity partly from the war on Ukraine, triggered sharp prices and by supply chain disruptions. Developing cost-of-living increases across the region, leading countries are facing tighter financing conditions to millions more people falling into food insecurity that have constrained growth, with prospects for and poverty. Global demand for many nonenergy a continued decline in growth rates in 2023. Rising commodities softened, adversely affecting the commodity prices have exacerbated food insecurity in region’s exporters of industrial metals. Fiscal space sub-Saharan Africa (SSA), while slowing growth and needed to protect the poor has been depleted in narrowing fiscal space hamper governments’ ability to many countries, while rising borrowing costs and support the poor. Growth in SSA is expected to recover muted growth prospects have sharply worsened slightly over the next two years, although this outlook debt dynamics. Regional economic growth slowed faces significant downside risks. to 3.4 percent in 2022 and is projected to edge up in 2023 only to 3.6 percent, before picking up to 3.9 A series of shocks undermined global economic percent in 2024. Risks are tilted to the downside. conditions throughout 2022, derailing the recovery. A more pronounced weakness in major economies, The Russian invasion of Ukraine and subsequent further increases in global interest rates, higher and sanctions disrupted world markets, most notably persistent inflation, fragility, and increased frequency through sharply raising global commodity prices. and intensity of adverse weather events could further Very high inflation has triggered unexpectedly slow growth across the region, exacerbating poverty rapid and synchronous monetary policy tightening and leading to debt distress in some countries. around the world to contain it, including across major advanced economies. This has translated into 1.2. Rwanda’s economy appeared resilient tighter external financing conditions and financial amid multifaceted challenges stress for some emerging markets and developing Despite a challenging environment, Rwanda’s economies (EMDEs). Global growth has slowed to the economic has shown some resilience in 2022 thanks extent that the global economy is perilously close to the revival of tourism. GDP growth is estimated to falling into recession—defined as a contraction to have reached at about 8 percent in 2022, mainly in annual global per capita income—only three driven by the services sector powered by the recovery in years after emerging from the pandemic-induced tourism-related sectors. However, rising inflation, due recession of 2020. The World Bank’s January 2023 to continued disruption in global supply chains and Global Economic Prospects estimates that the global poor performance in agriculture, posed some risks to growth at 2.9 percent in 2022 from 5.9 percent in the economy, especially to vulnerable households. This 2021.1 For 2023, the world economy is expected to prompted the National bank of Rwanda to tighten its expand even more slowly, at 1.7 percent, reflecting monetary policy. Despite higher inflows of grants and continued synchronous policy monetary tightening remittances, the current account deficit remained wide, to contain elevated inflation, worsening financial affected by global commodity markets shocks. conditions, and continued disruptions from the war on Ukraine. WB (2023). Global Economic Prospects: A Second Year of Sharply 1 Slowing Growth. Available here 2 Rwanda Economic Update • Edition No. 20 Recent Economic Developments Real sector developments fourth quarter of 2022 as pointed out by some early Rwanda’s economy showed resilience in 2022 indicators show. Provisional data of NBR’s quarterly despite the challenging environment. After composite economic index indicate an 8.8 percent a strong recovery in 2021, Rwanda’s economy increase year-on-year in the fourth quarter. The encountered multi-faceted challenges. Externally, industrial production index reports an 8.0 percent the economy experienced setbacks stemming from increase year-on-year in the same period. the slowdown in global growth, and rising global inflation exacerbated by spillovers from the war Real GDP growth was powered by resilient private on Ukraine. The war on Ukraine has triggered a consumption amid inflation pressures. By growing slowing global recovery from the pandemic-induced at 8.8 percent year-on-year in the first three quarters, recession of 2020, elevated inflation—driven by private consumption generated more than 70 percent a combination of surging commodity prices and of the overall GDP growth for the period (Figure 1.2). persistent supply disruptions. Rwanda’s economy Strong growth in private consumption was mainly was hit through higher oil prices, which are not only supported by the recovery in tourism activities and increasing the import bill of energy products, but linked activities such as transport, which generate also raising transport costs of all other imported a higher proportion of non-agricultural jobs. While items, including food items. Domestically, agriculture appearing resilient, private consumption continued underperformed due to unfavourable weather to be hampered by high inflation, which reached conditions coupled with less use of inputs like 21.7 percent and 42.9 percent in urban and rural fertilizers as a consequence of higher prices linked areas, respectively, in the year to November 2022. By to global supply chain disruptions. Despite these growing by 14.2 percent, government consumption challenges, Rwanda’s economy has shown some generated about 29 percent of GDP growth in the first resilience and it is estimated that Rwanda’s economy three quarters of 2022. Investment, i.e., gross capital expanded by about 8 percent in 2022 (Figure 1.1). formation, declined 7.4 percent in the first three This is higher than what was expected in the 19th quarters, reflecting reduced public investment and edition of Rwanda economic update (REU19) for weaker private investment activity amid rising prices two main reasons. First, the economy has reported and heightened global uncertainties. Although net strong growth in the second and third quarter of exports continued to be negative, their contribution 2022, which were released after the publication of to growth became positive as export growth largely the 19th edition of the REU. Second, the economic outpaced that of imports. activity has maintained a strong momentum in the Figure 1.1: Rwanda GDP growth: actual vs historical average Figure 1.2: GDP – expenditure (Percentage points) 25 20 20.6 10.9 15 9.5 10.1 7.4 9.0 10.3 7.9 8.6 8.1 10 9.9 5 3.6 6.0 3.6 0 -5 -3.6 -0.7 4.0 -10 -12.4 -15 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 -3.4 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022 est Government consumption Private consumption Investment GDP growth 2015-19 aver. Growth (7.4) Net exports GDP Source: WBG staff computation based on National Institute of Statistics of Rwanda Source: WBG staff computation based on NISR GDP quarterly publications (NISR) databases Rwanda Economic Update • Edition No. 20 3 Recent Economic Developments Supported by strong resumption in tourism and Industrial growth declined in the first three related activities, the services sector was the main quarters of 2022, as construction activities ebbed. driver of real GDP growth in the first three quarters After strong growth in 2021, construction activities of 2022 (Figure 1.3). The output in the services gradually eased in the first three quarters of 2022. sector has expanded by double digits for six straight This primarily reflected high base effects from last quarters since the second quarter of 2021—making year’s government construction projects to support a 13.1 percent rise in the first three quarters of 2022. the economic recovery, as well as a reduction in Growth in services output accounts for about 70 public investment undertaken as part of a fiscal percent of GDP growth. This strong performance consolidation to preserve fiscal space for social was mainly driven by three sub-sectors—hotel and sectors amid inflationary pressures. Construction restaurants, trade and transport—that generated declined by 4.1 percent in the first three quarters more than 55 percent of the overall services growth of 2022, down from 15.1 percent growth in 2021. and more than 40 percent of the real GDP growth. On the other hand, mining activities continued to As Rwanda has relaxed its COVID-19 restrictions, benefit from high mineral prices on international available data show that the number of tourist arrivals markets and expanded by 9.0 percent in the first more than doubled in the first eight months of 2022 three quarters of 2022. In the first three quarters of compared to the same period of 2021—a reversal 2022, the price index for metals and minerals, such of its 2-year declining trend—but remained at less as iron, was about 150 percent higher than its 2020 60 percent of pre-pandemic levels. This trend has level. The manufacturing sector expanded by 10.0 boosted output in hotel and restaurants services— percent in the first three quarters of 2022, largely increasing by 114.3 percent year-on-year in the first driven by food and beverages production. With this three quarters of 2022—to surpass its pre-pandemic mixed performance, industrial output increased by output level by about 33 percent. The resumption 4.8 percent in the first three quarters of 2022, down of growth in the tourist sector was also beneficial to from 13.4 percent in 2021. other services, mainly transport and trade. Output in trade services (wholesale & retail trade), the second The agriculture sector experienced poor most important driver of services and overall GDP performance in 2022, undermined by high costs growth rates, expanded by 19.4 percent, year-on- of inputs due to trade disruptions as well as year, in the first three quarters of 2022. The output unfavorable weather conditions. After reaching in transport services expanded by 24.2 percent in 6.4 percent in 2021, growth in agricultural output the first three quarters of 2022. All other services slowed to 1.4 percent in the first three quarters contributed positively to the growth of services and of 2022. Higher fertilizer prices and unfavorable of overall GDP. weather conditions affected agricultural production. Figure 1.3: GDP – production Food crop production, representing 63.6 percent (Percentage points) of the agriculture sector, declined by 1.0 percent in 25 20.6 real GDP terms and by 2.1 percent in metric tons (i.e., 20 15 volumes produced). Prices of vegetables represent 10 10.1 10.3 7.9 7.4 9.9 about 58.8 percent of the urban food inflation and 5 3.6 3.6 76.2 percent of the rural food inflation. Output of 0 Rwanda’s export crops declined in the first three -0.7 -5 -3.6 quarters of 2022. On the other hand, livestock and -10 related products expanded by 9.0 percent, partially -12.4 -15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 offsetting bad performance in the production of 2020 2021 2022 food and export crops. Agriculture Industry Services Net taxes GDP growth Source: WBG staff computation based on NISR GDP Quarterly publications 4 Rwanda Economic Update • Edition No. 20 Recent Economic Developments Table 1.1: Rwanda’s gross domestic product (Real growth in percent, year-on-year) 2022 3Qs- 3Qs- 2019 2020 2021 Q1 Q2 Q3 2021 2022 Gross domestic product 9.5 -3.4 10.9 7.9 7.4 9.9 11.1 8.4 Production side Agriculture 5.0 0.8 6.4 0.7 2.0 1.5 6.8 1.4 Food crops 4.0 0.4 6.7 -1.3 -1.3 -0.5 6.9 -1.0 Export crops 4.8 -9.1 -0.7 -14.3 16.7 -2.2 1.0 -1.0 Livestock and related products 11.2 7.9 8.5 9.2 10.6 7.4 8.7 9.0 Industrial growth 16.6 -4.3 13.4 9.9 6.2 -1.3 16.5 4.8 Mining and quarrying 0.0 -31.2 26.5 16.1 7.3 5.1 35.4 9.0 Manufacturing 11.2 2.1 10.5 11.1 9.5 9.3 12.3 10.0 Electricity 6.5 2.0 12.0 20.0 14.3 13.8 12.3 15.9 Water and waste management 0.0 3.0 5.9 0.0 0.0 0.0 8.0 0.0 Construction 32.9 -5.6 15.1 6.5 0.0 -17.7 19.9 -4.1 Services growth 8.3 -5.5 11.9 10.8 11.9 16.5 11.0 13.1 Maintenance and repair of motor vehicles 7.0 -2.2 33.3 14.3 6.7 6.7 46.7 9.1 Wholesale and retail trade 15.7 -3.3 11.7 6.9 16.7 19.4 10.6 14.6 Transport 12.5 -23.7 14.6 19.4 27.6 25.5 12.9 24.2 Hotels and restaurants 10.0 -40.6 20.4 80.8 190.0 93.5 4.1 114.3 Information and communication 9.2 29.3 19.0 16.4 7.1 32.8 20.8 18.8 Financial services 8.6 -2.6 18.0 12.1 11.3 6.6 13.8 9.9 Real estate activities 3.9 0.3 4.1 5.2 1.9 0.0 4.6 2.3 Taxes less subsidies on products 15.1 -1.7 13.5 10.3 2.4 22.8 13.3 11.5 Expenditure side Government 17.6 1.9 13.6 24.7 0.9 18.2 15.5 14.2 Households and NGOs 5.5 -5.0 8.8 -2.2 11.8 16.7 6.8 8.8 Gross capital formation 20.7 3.5 11.4 0.8 10.4 -31.3 19.1 -7.4 Exports of goods and services 19.9 -9.2 2.8 41.4 26.3 36.1 -5.8 34.1 Imports of goods and services 18.0 -3.4 3.6 5.3 27.2 10.8 -0.5 14.6 Source: WBG staff computation based on GDP National Accounts (Third Quarter 2022) Labor market developments participation rates increased by about 2.3 percentage The labor market improved significantly in 2022, points. On the positive none, the employment rate but disparities exists among major indicators, increased year-on-year also by about 5 percentage especially for the youth and females (Figure 1.4). points in the third quarter of 2022, nearly closer The unemployment rate remained at 18.1 percent in to the pre-pandemic levels. It remains to be seen the third quarter of 2022, much higher than the 2019 whether this recovery can be sustained, considering level of 15.2 percent. It is significantly higher among the substantial volatility of employment over the females (21.4 percent) than males (15.4 percent). The past three years.2 youth unemployment rate, which was already higher before the COVID-19 pandemic, remined elevated at In response to the covid outbreak in 2020, the National Institute of 2 22.6 percent. Youth unemployment appeared to be Statistics of Rwanda (NISR) introduced phone surveys in mid-2020 that have been used through the current quarter (See for example NISR also higher among females. Meanwhile, labor force (2022), Labor Force Survey Tends August 2022, p. 1) Rwanda Economic Update • Edition No. 20 5 Recent Economic Developments Figure 1.4: Unemployment rate, 2019 -22 manufacturing (16.9 percent), construction (9.9 (percent) percent) and education (9.0 percent). Job creation 40 in education reflects the recruitments of teachers 30 after the construction of more 22,000 classrooms in FY2021/22. 20 External sector developments 10 Despite the recovery in tourism and strong re- exports, the current account deficit remained wide 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 as surging commodity prices pushed imports to 2019 2020 2021 2022 an all-time high. The substantial increase in global National Rural National 2019 Female Youth (16-30 yrs) prices for oil and other commodities expanded Source: Rwanda Labor Force Surveys, various issues import payments by 35.5 percent, year-on-year, The recent improvement of the labor market in the first three quarters of 2022, with oil imports was broad-based, with tourism linked sectors swelling by 65.9 percent. International visitors’ performing exceptionally well. Both urban and arrivals to Rwanda continued to increase in 2022, rural employment levels increased, along with rising to 650,879 persons in the first eight months male and female employment rates, over the third of 2022, about 133 percent higher than in the same quarter. Similarly, unemployment rates fell across period in 2021. Tourism revenues reached US$289.1 the board. By sector, the employment recovery was million (equivalent to 3.0 percent of GDP). Although driven by agriculture and manufacturing growth continuing to be the single-largest source of export on a quarterly basis and year-on-year (Table 1.2). In revenues, this is still about 16 percent lower than the first three quarters of 2022, about 58 percent the pre-pandemic record in the first three quarters of jobs were generated out of agriculture. Tourism of 2019. Driven by higher commodity prices and linked services, such as food and accommodation, re-exports to the DRC as pandemic restrictions are transport, arts, entertainment and recreation as well lifted, goods export also increased. Reexports of as for handicrafts and other souvenirs, generated gasoline, vehicles, food and other products, which more than 43 percent of non-agricultural jobs. Other account for about 45 percent of good exports, jobs were in mining and quarrying (6.4 percent), expanded by 47.0 percent in the first three quarters of 2022 following the reopening of borders with DRC Table 1.2: Employment by selected sectors (percent changes) and other neighboring countries as COVID mobility 2022 Q3 vs restrictions eased. Overall, total exports of goods and 2021 Q3 services increased by 47.2 percent, exceeding the Employed population 16.7 total annual exports of 2021. Remittances remained Agriculture, forestry and fishing 19.1 resilient, increasing by 23.5 percent y-o-y to reach Mining and quarrying 66.5 US$335.5 million in the three quarters of 2022. Manufacturing 35.5 However, these developments were not sufficient Construction 7.8 to offset the impacts of the large commodity price Transportation and storage 35.6 shock, leading the current account deficit to remain Accommodation and food service activities 107.1 Education 15.2 wide at US$1.2 billion, equivalent to 11.1 percent Arts, entertainment and recreation 389.8 of GDP in the first three quarters of 2022. By end of Source: Rwanda Labor Force Surveys, various issues. 2022, the deficit is estimated to have reached almost the same as in 2022. 6 Rwanda Economic Update • Edition No. 20 Recent Economic Developments Table 1.3: Balance of payments, 2019-2022 (Percent of GDP, unless otherwise indicated) 2019 2020 2021 3Qs-2021 3Qs-2022 Current account balance -11.9 -12.1 -11.2 -11.6 -11.1 Trade balance (goods and services) -14.3 -16.2 -16.1 -16.3 -16.9 Exports 21.8 18.9 19.1 18.1 22.4 o/w gold 2.7 6.3 3.3 3.0 4.4 o/w coffee and tea 1.5 1.4 1.6 1.4 1.2 o/w tourism 4.4 1.2 1.4 1.2 3.0 o/w transport 2.1 1.1 1.3 1.3 1.5 Imports 36.1 35.1 35.2 34.4 39.3 o/w gold 2.3 6.2 3.3 3.1 4.5 o/w energy products 5.3 5.3 2.4 3.3 4.6 Primary income -3.2 -2.0 -2.0 -2.1 -2.2 Secondary income 5.6 6.1 6.8 6.8 8.0 o/w external grants to government 2.8 3.0 3.5 3.5 4.6 o/w remittances inflows 2.4 2.7 3.4 3.3 3.5 Capital account balance 2.5 3.1 3.4 3.3 3.0 Financial account balance 8.8 10.8 9.2 9.9 5.6 Direct investment 2.4 1.3 1.8 1.9 2.4 Loans and other flows 6.5 9.4 7.4 8.0 3.2 o/w government borrowing 5.8 9.3 8.8 9.7 4.7 Net errors and omissions 1.6 1.4 0.0 -0.7 -0.2 Change in reserves (+: increases) 1.1 3.2 1.4 0.9 -2.6 Source: WBG staff computation based on GDP National Accounts (Third Quarter 2022) Foreign direct investment and government Inflation, monetary and financial sector developments borrowing financed partially the current account Inflation reached historic highs in 2022, driven deficit, leading to a drawdown on foreign reserves. by rising food prices (Figure 1.6). Urban inflation, Foreign direct investment (FDI) inflows continued the headline measure, rose sharply from the recent to recover, reflecting the improvement in economic trough of -0.9 percent, year-on-year, in September activities. Despite this, the financial account balances 2021 to reach a thirteen-year high of 21.7 percent, narrowed in 2022. This was mainly noticeable year-on-year, in November, before declining by 1 through government borrowing, which were about percentage points to 21.6 in December 2022.4 This 5 percent lower than a year ago, largely reflecting the level of inflation was the highest in the EAC region, base effect emanating from the Eurobond issuance but comparable to some other SSA countries (Figure and SDR allocation in 2021.3 Therefore, the overall 1.7). Core inflation (computed excluding food and balance of payments turned negative, equaling 2.6 energy from the urban inflation) also increased percent of GDP in the first three quarters of 2022, from 0.0 percent (year-on-year) in June 2021 to 14.7 which was financed by drawing on foreign reserves. percent in November 2022. Both rural and nationwide inflation show similar trends, reaching 42.9 percent and 33.8 percent respectively in November 2022. In 2021, Rwanda issued its second Eurobond in August 2021 on 3 US$620 million at a coupon rate of 5.5 percent. The financing raised was used to repay approximately 85 percent of the existing US$400 million Eurobond issued at a coupon rate of 6.25 percent and refinance an expensive RwandAir debt of about US$112 million. The resultant net inflows were equivalent to 2.5 percent of GDP and were recorded under portfolio investment. There was also a SDR allocation by Rwanda uses the urban inflation as the headline inflation, i.e. the main 4 International Monetary Fund (IMF) equivalent to 2.0 percent of GDP. index for macro-economic policy. Rwanda Economic Update • Edition No. 20 7 Recent Economic Developments Box 1.1: Rwanda’s tourism sector Tourism is a central sector in Rwanda’s economy, and was the largest export until the onset of the global pandemic. Rwanda’s tourism sector experienced strong growth in the 10 years before the pandemic. In 2009–2019, the number of foreign arrivals increased by 9.4 percent annually and reached 1.6 million, compared to about 663,000 in 2009. Between 2012 and 2019, Rwanda had been attracting more than a million tourists a year. Tourism earnings increased at 11 percent a year over 2009–2019, generating more than 20 percent of total export earnings from goods and services. In 2019, tourism exports reached US$458 million (equivalent to 4.4 percent of GDP). In 2022, the sector continued to recover, with tourism arrivals rising to 650,879 persons in the first eight months. Tourism accounted for more than 13.3 percent of total exports in the first three quarters of 2022, when tourism exports reached US$289 million (equivalent to 3.0 percent of GDP). Despite strong recovery in 2022, the performance has not yet recovered to pre-crisis levels: the value of exports in the first three quarters of the year is 82 percent of the same period of 2019 and tourist arrivals in this period are only 60 percent of what they were before the pandemic. Tourism generates substantial economic activity in and spillovers to other sectors. For example, Rwanda’s Figure 1.5: Rwanda’s tourism exports, 2010–2022 construction sector growth has benefited from the $500 35 construction of hotels. The number of hotels and similar 28.7 30 establishments increased by 82.8 percent between 2013 $400 26.4 25.2 23.9 22.6 22.9 23.3 23.2 25 and 2019, reaching 722 (14,089 rooms) in 2019. Hotels and 19.9 other types of accommodation also generate economic $300 21.0 20 Percent 16.5 activity through backward and forward linkages $200 15 to agriculture, fishing, and manufacturing. Tourist 9.4 8.6 10 services and tourists themselves, through personal $100 5 spending in and outside the tourist accommodation, $0 0 increase the demand for transport, banking, insurance, 11 21 2 12 13 15 17 10 14 16 18 19 20 02 20 20 20 20 20 20 20 20 20 20 20 20 telecommunications, medical, security and retail s-2 3Q services, arts, entertainment and recreation as well as Revenues in 000,000 Share in total GS exports for handicrafts and other souvenirs. Tourism leads to the Source: World Bank staff calculation based on BNR Balance of payments. creation of businesses related to water, mountain and Note: GS: Goods and services adventure sports and other recreation activities, as well as every facet of travel and transport. Table 1.4: Accommodation for visitors in hotels and similar establishments 2013 2014 2015 2016 2017 2018 2019 Number of establishments 395 412 444 454 502 706 722 Number of rooms 7,316 7,678 8,270 8,389 8,969 12,979 14,089 Number of bed-places 14,658 15,430 16,597 17,081 20,054 25,126 26,507 Source: UNWTO tourism statistics database 8 Rwanda Economic Update • Edition No. 20 Recent Economic Developments Figure 1.6: Inflation developments Figure 1.7: Inflation across African countries (percent, y-o-y) (percent, y-o-y) 50 60 40 50 40 30 30 20 20 10 10 0 0 Burundi Kenya Uganda Tanzania Rwanda Ethiopia Botswana Zambia Senegal Nigeria Gambiaa Ghana Sierra Leone Sao Tome and Principe -10 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Urban Rural National Core Dec-21 Dec-22 Source: WB staff calculation based on NISR data Source: https://tradingeconomics.com/ Rising inflation appears to be driven by supply Energy and core (which excludes food and shocks. The war on Ukraine and unfavorable weather energy prices) inflation have also trended conditions have put upward pressures on food and upwards, reflecting partial passthrough of fuel prices since early 2022. Food, comprising more higher international oil prices, Rwandan franc than one-quarter of the urban CPI basket, recorded depreciation, and second-round effects of supply significant increases in prices, contributing about fifty shocks. Higher gasoline and diesel prices (respectively percent to the increase in headline inflation since April 40.8 percent and 52.3 percent y-o-y in October 2022) 2022 (Figure 1.8). Inflation of food and non-alcoholic pushed up transport prices (13.6 percent) which beverages rose to record-highs in October 2022: together contributed about 1.7 percentage points 39.7 percent y-o-y in urban areas and 64.8 percent to the CPI inflation in October 2022. In urban areas, y-o-y in rural areas. This reflects the poor food other products categories experiencing double-digit production during the two agricultural seasons, price increases at least for five consecutive months mainly due to global supply chain disruptions up to October 2022 include restaurants and hotels that reduced the availability of agriculture inputs, (17.5 percent on average), and furnishing, household coupled with unfavorable weather conditions. equipment and routine household maintenance Food crop production, representing 63.6 percent (15.6 percent on average). Reflecting rising input of the agriculture sector, declined by 2.3 percent in costs, the manufacturing producer price index rose agricultural season A and B of 2022 from a growth by an average of 18.5 percent in the first nine months of 8.3 percent in 2021. In volumes, the main drivers of 2022. The persistent high-double-digit food of this decline were maize (-5.0 percent), Irish inflation could increase food insecurity. potatoes (-3.2 percent), beans, (-8.0 percent) and vegetables (-4.2 percent), which account for about The National Bank of Rwanda (NBR) tightened a third of the total food production. Some of these monetary policy in 2022 to limit inflation pressures. products, such as potatoes and beans, are also NBR’s Monetary Policy Committee (MPC) raised the considered as vegetables according to the 2018 central bank rate (CBR) by 50 basis points in February Classification of Individual Consumption according 2022 to 5.0 percent, for the first increase in over 22 to Purpose (COICOP)5. months, after inflation accelerated and returned into the middle of the target band of 5±3 percent. As inflation reached double digits in the second Published by the United Nations Statistics Division, the Classification 5 of Individual Consumption according to Purpose (COICOP) is the quarter of 2022, the MPC tightened monetary policy international reference classification of household expenditure. further, raising rates by 100 basis points to 6 percent COICOP_2018. Rwanda Economic Update • Edition No. 20 9 Recent Economic Developments Figure 1.8: Rising local food prices led to inflation pressures Figure 1.9: Contributors to inflation (percent change, y-o-y, and contribution to percent change) (percent change, y-o-y, and contribution to percent change) 25, 25 21.7 21.7 21.7 21.6 20.1 20.1 20 17.6 20 17.6 15.9 15.9 15.6 15.6 15 13.7 12.6 15 13.7 12.6 9.9 10 9.9 7.5 10 5.8 7.5 4.3 5.8 5 3.7 2.8 4.3 2.4 5 3.7 2.8 1.6 2.0 1.9 0.6 1.0 1.6 2.0 2.4 1.9 0 0.6 1.0 -0.1 0 -0.2 -0.4 -0.6 -0.9 -0.1 -0.2 -0.4 -0.6 -5 -0.9 Dec-20 Ma-21 Jun-21 Sep-21 Dec-21 Ma-22 Jun-22 Sep-22 Dec-22 -5 Local food prices Local nonfood prices Imported food prices Dec-20 Ma-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Imported nonfood prices Urban in ation Fresh products Energy Core Urban in ation Source: World Bank staff calculation based on NISR data Source: World Bank staff calculation based on NISR data on August 9, 2022. Nevertheless, inflation continued in September 2022 from 5.1 percent in September to surge and reached 20.1 percent in October 2022, 2021. While the financial sector continues to hold pushing the MPC to raise again the CBR by 50 basis adequate capital and liquidity buffers, there are points to 6.5 percent in November 2020 (a level last downside risks associated with exposure to hard-hit seen in December 2016). The last two increases were sectors such as hotels, trade and real estate; loans still taken mainly to limit the second-round effect from under moratorium that continue to hold up liquidity higher imported prices due to the global shocks. in the medium term; and the potential increase in Changes in the policy rate have led to increases in non-performing loans as well as delayed realization short-term money market rates. For example, the of collateral held that could further reduce cash interbank rate increased from 5.2 percent in Dec. inflows and increase liquidity and credit risks. 2021 to 7.1 percent in Dec. 2022. Additional, the NBR has resumed, in June 2022, its mop-up operations, Fiscal sector and debt sustainability which were lastly done before the COVID times and The government has begun its consolidation replaced by injection operations to provide enough efforts. The deficit stood at 6.3 percent of GDP, liquidity to the economy during that time. The MPC marking a three-year declining trend since the deficit has also decided to increase the reserve requirement peaked at 7.9 percent of GDP in FY2019/2020. The ratio to the pre-COVID level of 5 percent effective reduction in the fiscal deficit was driven by reduction January 1st, 2023. The ratio had been at 4 percent of capital expenditure. Capital expenditure was since April 2020 after a temporary decision to reduce lower by 0.6 percent of GDP, while current expenses it in the wake of the COVID-19 pandemic. were consistent with the recent trends. Overall, total government spending amounted to 32.2 percent in Rwanda’s financial sector continues to be resilient. FY20/21, which is 0.4 percentage points lower than As of September 2022, the capital adequacy ratio in the previous fiscal year. Total revenue increased stood at 22.3 percent compared to the minimum to 25.9 percent of GDP in FY21/22 from 25.1 percent prudential requirement of 15 percent. This is mainly in FY20/21, owing to higher grants (1.4 percent of explained by capital injections, retained earnings, GDP), largely offset by lower non-tax revenue (0.4 and the moderation of the growth of risk weighted percent of GDP). Higher grants reflect earlier-than- assets due to increased investments in liquid anticipated disbursements from the UK under the assets. Banks’ asset quality also improved as non- Migration and Economic Development Partnership performing loans (NPLs) ratio dropped to 4.1 percent (MEDP). Tax policy changes and administrative 10 Rwanda Economic Update • Edition No. 20 Recent Economic Developments Table 1.5: Rwanda’s public finance, FY2017/18-FY2021/22 (percent of GDP) FY2017/18 FY2018/19 FY2019/20 FY2020/21 FY2021/22 Revenue 22.7 23.7 23.4 25.1 25.9 Taxes 15.0 15.8 15.7 15.8 15.7 Taxes on income, profits, & capital gains 6.0 6.8 6.8 6.8 7.1 Taxes on goods & services 7.8 7.8 7.6 7.6 7.3 Taxes on international trade & transactions 1.2 1.3 1.2 1.2 1.1 Other taxes 0.0 0.0 0.0 0.2 0.1 Other revenues 3.2 3.3 3.0 3.8 3.4 Grants 4.5 4.5 4.7 5.5 6.9 Expenditure 27.0 29.6 31.3 32.6 32.2 Expenses 17.9 19.1 20.3 20.4 20.6 Compensation of employees 3.1 2.8 2.8 2.9 2.7 Use of goods and services 5.5 5.5 6.1 6.1 5.7 Interest 1.1 1.2 1.5 1.8 1.8 Domestic 0.5 0.5 0.6 0.7 0.6 Foreign 0.6 0.6 0.8 1.1 1.3 Subsidies 1.2 2.0 2.7 2.5 3.2 Grants 5.2 5.4 5.3 5.3 5.5 Social benefits 0.3 0.3 0.3 0.4 0.5 Other expense 1.3 2.0 1.5 1.3 1.2 Net Investment in nonfinancial assets 9.1 10.5 11.0 12.2 11.6 Foreign financed 4.8 5.1 5.8 6.7 4.9 Domestically financed 4.3 5.4 5.2 5.5 6.7 Net lending borrowing Including grants -4.3 -5.9 -7.9 -7.5 -6.3 Excluding grants -8.8 -10.5 -12.6 -13.0 -13.2 Primary balance -3.2 -4.8 -6.4 -5.8 -4.5 Net financing 4.3 5.9 7.9 7.5 6.3 Domestic -0.1 0.8 -2.3 1.1 -1.0 Foreign 4.4 5.1 10.2 6.4 7.3 Source: WBG staff computation based on GDP National Accounts (Third Quarter 2022) Rwanda Economic Update • Edition No. 20 11 Recent Economic Developments measures maintained tax revenues roughly in 1.3. Rwanda’s economic outlook and risks relation to GDP. There were, however, some revenue Despite the continued recovery in tourism, the war on losses due to reduced fuel levies and other subsidies. Ukraine and weakening external demand are expected Therefore, the fiscal deficit narrowed to 6.3 percent to reduce real GDP growth to 6.2 percent in 2023. in FY21/22 from 7.5 percent of GDP in FY20/21. The Growth is projected to recover to 7.5 percent in 2024– primary deficit also declined to 4.5 percent of GDP in 25, supported by growth-enhancing public investment FY21/22 from 5.8 percent of GDP in FY20/21. made possible by fiscal consolidation, improvements in the efficiency of spending and reforms to boost Despite steadily rising since 2013, Rwanda’s debt revenues from income and value added taxes over the remains sustainable. From 20.9 percent in 2012, next year. Downside risks to this outlook are significant, the public debt has reached 73.3 percent in 2021. including a prolongation of the war on Ukraine, lower Preliminary estimates indicate that total public and availability of concessional resources, lower external publicly guaranteed has declined to 71.3 percent in demand, and the potential for severe climate and 2022, of which external public sector is estimated at weather-related shocks. 53.0 percent of GDP. More than 75 percent of Rwanda’s public debt is owned to multilateral creditors, such Rwanda’s economic growth is expected to as the World Bank and African Development Bank, moderate in 2023 before regaining momentum in on concessional terms. Bondholders and other the following years. Like all developing counties, commercial loans represent 11.5 percent of the total Rwanda will continue to face headwinds from the public debt. This structure helps Rwanda’s public war on Ukraine, weakening external demand, and debt to remain sustainable. Indeed, the November high commodity prices in 2023. Economic activity is 2022 Debt Sustainability Analysis (DSA) conducted expected to regain momentum in 2024, if the situation jointly by the World Bank and the International normalizes, driven by the pickup in construction of Monetary Fund assessed the risk of debt distress as the new airport and the subsequent boost to the moderate in the context of the highly uncertain and services sector in line with global growth outlook difficult external environment. The DSA also indicate and the expected decline in domestic inflation. that the primary fiscal deficit continues to be the key With fiscal consolidation measures implemented, driver of public debt accumulation, which warrants a private consumption and investment are expected credible fiscal consolidation. to be the main growth drivers in the medium term. Real GDP growth is projected at about 6.2 percent in 2023 and 7.5 percent on average in 2024–2025. The REU20 projections of 2023 are lower are than in the REU-19 because the 2022 growth rate was higher than previously expected. Inflation is projected to converge back to the NBR’s tolerance band (2–8 percent) in 2023, provided monetary policy is further tightened to fend off second-round effects. A continued recovery in tourism activities in 2023, which is expected to boost several services and private consumption, supports the near-term outlook. Tourism is expected to benefit from several events (meetings, conference, and sports) expected 12 Rwanda Economic Update • Edition No. 20 Recent Economic Developments to take place in Rwanda. At this time, there are already Medium-Term Revenue Strategy through tax policy 30 events scheduled for 2023, including the 73rd reforms (personal/corporate income tax and value- Fédération Internationale de Football Association added taxes) is expected to raise revenue to 15.9 (FIFA) congress, Airports Council International (ACI) percent of GDP in FY2023/24 from 15.7 percent of meeting, the Tour du Rwanda (an international GDP in FY2021/22. cycling tour); the 2023 Basketball Africa League (BAL) season, the gorilla naming ceremony (Kwita Debt levels are expected to decline in 2023 before Izina), etc.6 rising in 2024–26. Debt sustainability is subject to risks in the availability of concessional financing, The weakening global demand is expected to further U.S. monetary policy tightening and U.S. weaken Rwanda’s net exports. Despite intense dollar appreciation, and terms-of-trade shocks. tourism activities and downward revisions of Implementation of the ambitious fiscal consolidation international oil prices, the trade deficit is projected strategy, increase of buffers to deal with climate risks, to remain large, reflecting lower export prices for tin, and further strengthening of debt management metal, and tea prices. Therefore, the current account capacity to mitigate heightened uncertainty and deficit is projected to remain in double digit in 2023. risks surrounding the current environment remain critical in achieving the debt anchor and reducing Fiscal consolidation and spending efficiencies, debt-related risks. introduced in FY2022/23, should preserve space for growth-enhancing investment and Risks to the outlook are tilted to the downside measures to mitigate the impact of the pandemic The main risk originates from the war on Ukraine, and spillovers from the war on Ukraine. The which continues to increase the fragility of the government is expected to tighten its fiscal stance global economy. While Rwanda has limited direct with the FY2022/23 budget to stabilize debt levels trade and financial links with Russia and Ukraine, a while safeguarding fiscal space for development further weakening in global demand would affect spending in line with the NST-1 objectives. Phasing the country. A prolonged war on Ukraine would out COVID-related spending and SDR-earmarked increase pressures on energy, fertilizer, and food spending, which amounts to 2.3 and 1.3 percent of GDP, respectively, will support fiscal consolidation. However, there will be additional spending aimed at mitigating the impact of the pandemic and spillovers from the war on Ukraine. They include, in particular, increased grants to local governments to support an increase in teacher salaries and expenses in the school feeding program (1 percent of GDP), increases in fertilizer subsidies (0.3 percent of GDP) and subsidies to private transport operators (0.3 percent of GDP), and the expansion of social protection programs (e.g., home-based early childhood development, public works, skills development, and asset transfer). On the revenue side, the implementation of the Rwanda Convention Bureau, 2023 Events Calendar, https://rcb.rw/- 6 2023-Events-111-.html, accessed January 10, 2023. Rwanda Economic Update • Edition No. 20 13 Recent Economic Developments prices, thus endangering food security, weaken Rwanda continues to be among the most external tourism demand, and perhaps lead to supply vulnerable countries to weather and climate chain disruptions. Lower availability of concessional shocks, which are a key risk to the continuation resources and lower external demand fueled by of economic recovery. The increasing frequency monetary tightening in advanced economies pose of weather and climate shocks (e.g., drought and further downside risks. floods) could lower agricultural output and thereby impact many farms and households in Rwanda. Decreased production could also lead to higher food prices to the detriment of poor households. 14 Rwanda Economic Update • Edition No. 20 PART TWO SOCIAL AND ECONOMIC IMPACT OF HIGH INFLATION IN RWANDA Rwanda Economic Update • Edition No. 20 15 Social and economic impact of high inflation in Rwanda Social and economic impact of high inflation Figure 2.2: Estimated inflation rates by quintiles of household in Rwanda consumption in Rwanda (November 2022, yoy changes) Rising food prices have affected lower income 60 households in particular, who devote a larger share 50 of their expenditures to food and appear to face 40 higher rates of food price increases, compared to Percent higher-income households. Thus, the recent food price 30 increases pose an important threat to food security and 20 human capital of the poor. The government adopted a 10 number of measures to mitigate the impact of inflation 0 during 2022, including an increase in fuel subsidies, Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Rural increased spending on social protection programs, and Urban Food Nonfood increased subsidies for fertilizers and seeds. Source: WBG estimates based of NISR and consumption spending shares across quintiles of food and nonfood products Further measures to protect the poor and most is much larger for the poorest (Figure 2.1). Food vulnerable over the short term could include reinforcing consumption in Rwanda accounts for 27.4 percent social protection policies that were introduced in of the consumer basket for urban households, response to the COVID-19 pandemic, particularly 48 percent for rural households and 39.0 percent increasing the coverage of the Nutrition Sensitive Direct nation-wide. As a result, estimates indicate that Support and Public Works programs, as well as securing inflation has been highly regressive, the average financing for the emergency cash transfers; providing consumption price for rural and poorest households emergency support to agricultural production; scaling increasing the most (Figure 2.2). High inflation is also up and improving targeting of school feeding; and likely to accentuate geographical inequality, as the strengthening policies to address food insecurity and poorest districts seem to be the most affected. Poor prevent child stunting, particularly expanding the role people are getting hit harder by food prices probably of early childhood development centers. because of their lower capacity compared to richer districts to cope with weather shocks and increased High food prices are likely to increase inequality fertilizers price (Figure 2.3). Estimates show that, 11 and poverty in Rwanda. While food consumption districts with a poverty rate that is higher than the accounts for a significant share of the budget for national poverty rate of 8.2 percent, out of a total most households in a low income economy like of 19 districts surveyed, experienced higher rates of Rwanda, the consumption share of food products food inflation compared to the national average. Figure 2.1: Consumption shares of food products Figure 2.3: Districts with higher poverty incidence faced (percentage) higher food price inflation 30 80 Rutsiro Ngororero 70 Huye Burera 20 YoY Price changes, Nov. 2022 60 Rubavu Musanze Nyaruguru Rwamagana Bugesera Ngoma Karongi Nyabihu 10 50 Gakenke Rulindo Nyamasheke Gicumbi 40 Rusizi Gatsibo 0 1 2 3 4 5 6 7 8 9 10 Nyagatare Consumption deciles 30 10 20 30 40 50 60 70 80 Vegetables Bread and cereals Liquid fuels Solid fuels Passenger transport Moderated poverty rate, EICV 2016/17 Source: WBG staff estimates based on NISR’s EICV 5 Source: WBG staff estimates based on NISR’s EICV 5 and Rwanda Rural Markets Prices. Note: Rural markets prices are corrected in 19 districts from 125 markets (between 2 and 10 markets per district). Prices of 18 products were used to compute inflation 16 Rwanda Economic Update • Edition No. 20 Social and economic impact of high inflation in Rwanda High inflation and high exposure to food price • Fuel subsidies. The pass-through of international spikes pose risks to food security and human fuel prices to domestic prices was moderated capital. High and increasing food prices can generate through temporary reductions in the fuel levy an immediate threat to the security of a household’s between May 2021 and August 2022. These food supply, thereby undermining population health subsidies are estimated at 0.2 and 0.3 percent of and impairing child nutrition, particularly among GDP in FY21/22 and FY22/23, respectively. the poor (Channing, et al., 2016; Headey and Ruel, • Social protection programs. Established in early 2022; Ibikunle, et al., 2022, Vellakkal, et al., 2015). 2000s, Rwanda’s social protection programs Using data from the rural markets prices, it is found include Vision 2020 Umurenge Program (including that districts with highest prevalence of stunting are cash transfers, public works, and economic also the one with highest food price increase (Figure empowerment), Girinka (“one cow per poor 2.4).7 Therefore, if not addressed properly, high food family”), and Ubudehe (community projects). The prices could undermine the hard-fought gains in government temporarily increased spending on recent years that saw a reduction in stunting from 38 social program activities by 0.4 percent of GDP, percent in 2014/15 to 33 in 2019/20. especially the expansion of social protection Figure 2.4: Districts with higher stunting rates faced higher programs (e.g., home-based early childhood food price inflation development, public works, skills development, 70 Huye Burera and asset transfer). 65 • Subsidies for agricultural inputs. Orders for YoY Price changes, Nov. 2022 60 Bugesera Karongi Ngoma Rubavu Musanze agricultural inputs, including fertilizers and quality 55 Rwamagana Nyabihu seeds, are placed in the Smart Nkunganire System– 50 Nyaruguru Rulindo Gakenke –a technology-based agricultural input subsidy 45 Nyamasheke Gatsibo Gicumbi system––and matched by private sector traders. 40 Rusizi The government provides subsidies if international 35 Nyagatare prices are too high so that orders are cleared. 30 3 13 23 33 43 53 63 International prices almost doubled from a year Stunting rate, 2019/20 before and the subsidies were set to absorb about Source: WBG staff based on NISR DHS2019/20 and Rwanda rural markets prices. Note: Rural markets prices are corrected in 19 districts from 125 markets (between 60 percent of this increase. The FY22/23 budget 2 and 10 markets per district). Prices of 18 products were used to compute inflation envisages 0.9 percent of GDP for this scheme. Government’s reponses8 • Public transport subsidies. Public transport fares Rwanda quickly adopted a series of responses to are adjusted considering private operators’ profits contain the negative effect of rising energy and and the affordability to end-users. At the onset food prices while continuing to support recovery of COVID-19, public transport subsidies were from the pandemic. To mitigate the impact of introduced to offset the losses from reductions in rising commodity prices, the authorities used fuel, passenger capacity to allow social distancing. Fares fertilizer, and public transport subsidies and social also benefitted from reductions in excise taxes. protection interventions. This happened while the The FY22/23 budget maintains the level of the government continued to deal with the COVID-19 subsidies amounting to 0.3 percent of GDP. pandemic. • Education measures to improve the coverage and quality of education and to ease the cost of living for teachers. In August 2022, the government 7 Rural markets prices are available at https://datanalytics.worldbank. took a decision to increase the salaries of all org/connect/#/apps/756/access primary school teachers by 88 percent and that of 8 This section was drawn from the MINECOFIN presentation to the heads of development agencies based in Kigali on December2022. secondary school teachers (A0 &A1) by 40 percent Rwanda Economic Update • Edition No. 20 17 Social and economic impact of high inflation in Rwanda to address a longstanding issue of low teacher pay Given the severity of the crisis, further expansion of given the cost of living. There were also increases in coverage would be required if sufficient impact is to subsidies for school feeding, and the contribution be achieved. Aspects that could be improved include: of the government now amounts to 40 percent of • Increasing the number of districts covered, as NSDS the school feeding budget of every student. This is only being implemented in 20 districts out of 30. policy added 1.0 percent of GDP to spending in • Increasing the number of sectors covered, as FY22/23. ePWs is being implemented in around 300 sectors out of 416. Implications for future policy options9 • Securing financing for the emergency Cash The previous sections have analyzed the Transfer introduced during COVID-19 (while the impact of high inflation on recent economic program is now considered part and parcel of the developments; and the government’s response VUP—according to the latest program document to the crisis. This section provides tentative policy recently approved by the cabinet—the financing recommendations for fiscal, social protection, for it is not yet assured). and sectoral policies. These policies are placed within the framework of: (a) short term measures Emergency support to agriculture production for protecting the poor and vulnerable; and (b) The Government may consider instituting long term reforms to strengthen policies and emergency support for agriculture production, as institutions, and investments to build resilience. food inflation in Rwanda has been heavily supply side driven with production declining in the face Short term measures to protect the poor and of bad weather conditions and limited access to most vulnerable fertilizers. The intervention could aim to intensify The main goal is to strengthen social protection low-cost climate smart agriculture solutions for programs and to support agriculture production. localized smallholder farmers to improve household nutrition, especially where stunting is high. Social protection measures The government may consider reinforcing social Scale up and improved targeting of school feeding protection measures introduced in the framework The Government may consider scaling up and of responding to COVID-19 that have been improving targeting of school feeding program maintained to mitigate the impact of inflation to address food insecurity and the potential on the poor. Some of the measures introduced in negative impact on stunting and student response to COVID that have been maintained by learning outcomes. As underlined above, the the government include expanding the eligibility government has recently increased subsidies for criteria for some SP components, such as the school feeding of every student. To improve the Nutrition Sensitive Direct Support, increasing the efficiency of public spending, the government transfer amount for NSDS and expanding Public should consider targeting school feeding support Works. Although these measures could contribute to to the poorest schools/sectors, and simultaneously addressing the inflation crisis, they are not enough, put in place measures to monitor and ensure particularly due to coverage and consistency issues. children aren’t denied attendance for lack of parental contribution for school feeding. Some of the recommendations were drawn from the presentation 9 of the group of development partners Economists to the heads of development agencies based in Kigali on December 2022. The recommendations related to social protection are based on both the 16th edition of the REU (on the impact of the COVID-19 on Human capital in Rwanda) and the Public Expenditure Review recently completed by the World Bank in collaboration with the government. 18 Rwanda Economic Update • Edition No. 20 Social and economic impact of high inflation in Rwanda Strengthen existing policy to address food security important for Rwanda to set up an emergency and prevent child stunting fund so that it has the fiscal resources to respond Early childhood development (ECD) centers should when a crisis hits. expand to consider the nutritional status of under • Ensure that social safety nets are easily scalable. five children. As illustrated by the food crisis, the largest Medium to long term measures to strengthen shocks affecting rural and poorest households policies, institutions, and investments to build (notwithstanding the pandemic) are climate resilience related. Understanding the nature, frequency and geographical location of floods, droughts, and Adaptive social protection system other climate events can help the government Key priorities for social protection programs build scalable safety nets. The objectives of include: scalable safety nets are to (i) be prepared before • Continue to invest in improving the design of social occurrence of the shock; (ii) respond immediately, safety nets and social insurance to make them more so that detrimental effects are minimized; and (iii) adaptive. Countries that enter a crisis with good scale-up social safety net payments to households social protection programs and systems are better affected by the shock, on a temporary basis. In prepared to mount a quick and effective response addition to the social registry, which contains to the crisis. For instance, Abay et al (2020) find information to enable quick response to shocks, that, in Ethiopia, recipients of the Productive Safety the government will also need to choose the right Net Program (PSNP) were protected from virtually financing mechanism to support the scaling up all the increase in food insecurity due to COVID-19 10 . Moreover, being prepared ex ante reduces the cost of emergency response. Finally, it would be PSNP households were also less likely to reduce expenditures on 10 health and education compared to non-PSNP households. Rwanda Economic Update • Edition No. 20 19 Social and economic impact of high inflation in Rwanda Maintain fiscal space to act during the crisis management is key to improve the use of limited Rwanda should maintain the focus on achieving public resources. fiscal consolidation over the medium-term. The country should aim at achieving fiscal consolidation Strengthening revenue mobilization reforms is to create fiscal space needed for greater response critical for fiscal sustainability. The focus should be capacity from the government to mitigate future on mobilizing revenue that minimizes the effects on global chocks and as well as climate change related the poor such as health/sin and carbon taxes, and shocks. The key reform priority should be on prudent on making personal and corporate income taxes design of the public investment program, in terms more progressive. The government should continue of both total size and optimal sector allocation of with the development of the medium-term revenue projects, while improving control of expenditures strategy (including a VAT gap analysis), and an to increase efficiency. Improving public investment assessment of tax expenditures. 20 Rwanda Economic Update • Edition No. 20 Social and economic impact of high inflation in Rwanda PART THREE MAKING THE MOST OF NATURE-BASED TOURISM IN RWANDA Rwanda Economic Update • Edition No. 20 21 Making the most of Nature-Based Tourism in Rwanda 3.1. Context, benefits and challenges of Biosphere Reserve), other National Parks including nature-based tourism Akagera and Nyungwe, forests reserves, charismatic Nature-based tourism (NBT), or tourism to experience wildlife including the ‘Big Five’, and sites of scenic and natural resources in a wild or undeveloped form, has scientific importance. Together these offer tourists grown rapidly in Rwanda. It is a source of foreign the opportunity to visit diverse landscapes that exchange earnings and part of the tourism sector. provide habitats for diverse species, including 709 NBT tourism contributes directly and indirectly to bird species.11 job creation, many of which are quality jobs: the accommodations and food sector has a larger share of Nature-based tourism has grown rapidly and formal jobs and of women workers than in the rest of the generates substantial foreign exchange earnings economy. Gorilla trekking has been a significant source Available statistics from RDB (see Figure 3.1) indicate of foreign earnings from NBT in Rwanda. Diversification the number of visitors to Rwanda’s three national of Rwanda’s NBT offering, as part of a broader parks (VNP, Akagera National Park (ANP), and diversification of the tourism offering in Rwanda, is Nyungwe National Park (NNP)) rose from 43,083 in necessary given the barriers to expanding the yield from 2008 to 107,976 in 2022. Over the same period the gorilla trekking. In addition to contributing to growth, revenues of these national parks increased from this would help protect biodiversity and could advance approximately US$8.20 million to US$27.3 million. In Rwanda’s efforts to adapt to climate change. NBT, terms of types of activities, game watching and safari however, is subject to significant risks, including the tours in ANP is the dominant activity. In 2019 these impact of external factors such as global pandemics, accounted for 46 percent of all the nature-based as seen during the COVID-19 pandemic, and climate activities undertaken in these three national parks. change. Other threats include environmental and land This is followed by gorilla trekking and visits to the degradation, for example the clearance of natural golden monkey in VNP, which comprised 16 percent vegetation and deterioration of the forests surrounding and 8 percent respectively of all nature-based activities PAs, impacting bird and wildlife populations, and the by the national parks’ visitors. Of these activities, in survival needs of poor communities. To mitigate these 2019 gorilla tourism generated US$107.3 million, or risks and ensure continued growth of NBT, concerted about 21.5 percent of total tourism revenues (with efforts are needed to manage Rwanda’s biodiversity the majority going to accommodation, food and and restore its degraded landscapes that underpin beverage and transportation).12 The gorilla permits Rwanda’s NBT, diversify the offer, ensure NBT benefits Figure 3.1: Snapshot on NBT in Rwanda local communities including through changes to the a. International visitation to Rwanda (2008-2022) Tourism Revenue Sharing Program, and mobilization 2,000,000 of financing. 1,500,000 Context of nature-based tourism 1,000,000 Rwanda possesses important natural assets that 500,000 support NBT. NBT is defined as “forms of tourism that use natural resources in a wild or undeveloped - form. NBT is travel for the purpose of enjoying 22 08 09 10 11 12 13 14 15 16 17 18 19 20 21 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 undeveloped natural areas or wildlife.” (Leung, et Transit/other Visiting Friends & relatives Business (with MICE) Leisure al., 2018) Rwanda’s key nature-based assets for Source: WBG staff using data from RDB and NISR (2021b) NBT include excellent tourism destinations such 11 The species include antelope, zebra, buffalo, giraffe, hippopotami, as the Volcanoes National Park (VNP): home to the leopard, golden monkeys, chimpanzees, golden cat and lions. mountain gorilla and part of the UNESCO Volcans 12 This translates to an average daily spending of US$1,375 with the average length of the stay of 4.8 nights (RDB, 2020b). 22 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda Figure 3.1: Snapshot on NBT in Rwanda (cont.) (International visitors by tourism category and tourism in Volcanos National Park, Akagera National Park, and Nyungwe National Park) b. Number of National Park visitors, by park (2005-2022) c. Number of park visitors to Rwanda's National Parks by origin (2008-2022) 150,000 120,000 100,000 100,000 80,000 60,000 50,000 40,000 20,000 0 0 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Volcanoes National Park Akagera National Park Nyungwe National Park Rwandan residents Foreign residents Foreign visitors Source: WBG staff using data from RDB and NISR (2021b) alone accounted for about 22 percent of the gorilla In 2017, RDB implemented a new high-end tourism revenue (US$24 million) in 2019, and nearly tourism strategy that doubled the permit cost 86 percent of total tourism permit income from PAs to US$1,500, with the potential of generating in the country. more than US$52 million from permits alone. RDB also increased the revenue-sharing rate with Despite important progress in recent years, communities from five percent to 10 percent Rwandan’s NBT still has margin for improvement. (RDB, 2017). The increase in permit cost was made In terms of current levels hotel occupancies, data rapidly, and consultation and coordination with obtained from experts13 revealed that that the the international or domestic tourism sector was occupancy levels were consistently highest in Bisate limited. The change in permit cost coincided with Lodge, while the number of bed nights sold are a jump in both the number and proportion of highest in Ruzizi Lodge (approximately double the available gorilla permits sold in Uganda in 2018, number of bed nights available in Bisate Lodge). In which rose by 23 percent (14,305 additional permits Akagera National Park, while the occupancy levels sold, from 2017 to 2018), and this was sustained into are lower, the actual numbers of beds sold are higher 2019 prior to the COVID-19 pandemic.14 Available than for Bisate Lodge. Information from African data indicates a drop in numbers and percentage Parks reveals that the level of domestic visitation, of gorilla permits sold after the price increase in combined with people staying, has pointed to the 2017 (see Table 3.1). Anecdotal evidence suggests need for improved visitor management strategies that tourists have been shifting their gorilla viewing (e.g., seasonal pricing, zoning, diversification of plans to Uganda and reducing their overall length routes spatially, etc.) which could be used to spread of stay in Rwanda. both demand and avoid crowding. Table 3.1: Percentage of gorilla trekking permits sold (2010-2020) Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Permits available 23,360 23,360 23,424 29,200 29,200 29,200 29,280 29,200 35,040 35,040 35,136 Percentage sold 81 92 98 65 69 66 76 78 43 50 19 Source: RDB Data were obtained regarding Bisate Lodge (Wilderness, Volcanoes 13 NP); Kwitonda Lodge and Kitaza House (Singita, Volcanoes NP) and Ministry of Tourism, Wildlife and Antiquities, Uganda - https://www. 14 from Ruzisi and Karenge (African Parks, Akagera NP). tourism.go.ug/statistics Rwanda Economic Update • Edition No. 20 23 Making the most of Nature-Based Tourism in Rwanda Continuing to expand the yield from gorilla The accommodation and food sectors are also trekking will be challenging. Using mechanisms to more likely to employ women compared to the enhance gorilla tourism yield, such as increasing the rest of the economy. However, tourism jobs have size or number of gorilla trekking parties, is limited been mainly urban (74 percent for transport and 60 both by the number of habituated gorilla groups percent for accommodation). Most tourism jobs are and the number of visitors that can practically be created in Kigali and districts with relatively lower accommodated during a visit (due to the habitat unemployment and lower poverty compared to and viewing options in parts of the park). To remain national average (see Annex Note 1). competitive, it would be challenging to further increase the price of the gorilla permits in Rwanda, NBT and conservation activities in national parks without similar coordinated increases in Uganda and contribute to the livelihoods of people living the Democratic Republic of the Congo (DRC). around the park. In VNP these activities contribute in different ways to the livelihoods of approximately To remain competitive, it would be challenging to 70 percent of people around the park (Benitez et al., further increase the price of the gorilla permits in 2021). The jobs range from park staff, porters, hotels, Rwanda, without similar coordinated increases in artisans, food merchants, landlords, shops, and Uganda and the Democratic Republic of the Congo bars. Many of these jobs engage local community (DRC). Using other mechanisms to enhance gorilla members in formal sectors, for example the Porters tourism yield, such as increasing the size or number Cooperative operating in Kinigi (VNP) is composed of gorilla trekking parties, is limited both by the of former poachers (Benitez et al., 2021). In ANP, number of habituated gorilla groups and the number 50 percent of the park revenue in 2019 (US$1.25 of visitors that can practically be accommodated million) paid salaries to 273 staff. 90 percent of the during a visit (due to the habitat and viewing options people employed in the park are Rwandan (Africa in parts of the park). Geographic, 2022). To improve tourism’s economic benefit and its pro-poor potential, and considering Benefits of nature-based tourism the geographic location of NBT, a strategy should The overall tourism sector has been a major source be formulated to increase job opportunities via of quality jobs in the formal sector in Rwanda, NBT in poorer areas. That requires thinking about although its potential to reduce poverty could districts and provinces that have deep pockets be further improved. The latest WTTC data (“total of unemployment and how their jobless workers contributions of travel and tourism to employment”) can gain the skills and subsequently the access to suggest that tourism employment fell from 385 tourism related job opportunities, ensuring that they thousand in 2019 to 262 thousand in 2020, and are both sufficiently mobile and qualified. recovered to 302 thousand in 2021, still below its pre-pandemic level (Annex Figure 1, left panel). Tourism has a high job multiplier effect in Rwanda’s Based on annual Labor Force Survey (LFS) data, economy. This is because tourism has multiple direct total employment in the tourism sector fell from and indirect connections to employment-generating about 10.4 percent of employment in 2019 to 8.2 activities in other economic sectors (e.g., agriculture, percent in 2021.15 More than 24 percent of jobs hospitality, transportation, etc.). A preliminary World in accommodations and food services are formal, Bank analysis of this multiplier effect indicates that for compared to 13.5 percent for national average. every US$1 million (about Rwf1,050 million) that NBT Employment in transport and storage and accommodation and food 15 service activities, which together account for about 78 percent of proxy tourism employment in 2021, has been more or less stable in recent years. 24 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda activities inject into the economy, an additional 1,328 According to the Director of the Rwanda Chamber of new jobs are directly and indirectly created.16 These Tourism (RCT), the tourism sector lost US$38.2 million are spread across the transport, accommodation, (Rwf 34.9 billion) in March 2020 (Byishimo 2020). The and hospitality sectors and generated across the impact was felt throughout the sector, with tour country, with the multipliers being found mostly in operators losing US$22.5 million, hospitality industry Kigali, followed by the eastern part of the country, US$14.8 million, conference and events US$1.1 and less prominently the western part (Figure 3.2).17 million, and travel agencies US$0.16 million. Figure 3.2: Job multiplier effect on activities closely related to tourism Reduced revenue from NBT due to COVID-19 severely impaired livelihoods. The majority of hospitality workers were laid off, including 90 percent of tour operator staff, 99 percent of travel agency SAM model Unit: Number of jobs created per staff, and 67 percent of professional conference million dollars in the hotel and organizers (PSF Chamber of Tourism 2020). A survey restaurant industry dedicated to nature-based tourism in Rwanda by district. Resource document to support the conducted by Rwanda Chamber Tourism of the Rwanda Economic Update section on nature-based tourism. Source: Own elaboration with data from SAM 2019. Private Sector Federation showed that by the end of March 2020 more than 3,800 workers had lost their jobs in Rwanda’s tourism industry, which directly and indirectly affected more than 10,000 Rwandans and Source: McLiberty 2022, with data from the 2018 SAM of Rwanda and the Labor their dependents (PSF Chamber of Tourism 2020 as Force Survey 2018 cited in –Benitez et al., 2021). The reduced revenue also Challenges to nature-based tourism in Rwanda caused the near complete collapse of the revenue NBT, like the overall tourism sector, is highly sharing model used in Rwanda through which local vulnerable to concerns over external factors such communities benefit from the proceeds generated as pandemics, as shown during the COVID-19 by the national parks.18 This revenue reduction had pandemic. The number of visitors to the National debilitating impacts on the livelihoods of people Parks fell by two-thirds in 2020, to visitor levels last living adjacent to conservation areas and people seen in the early part of this millennium (Figure 3.3). employed in the sector and conservation activities, Figure 3.3: The impact of the COVID-19 pandemic and on enterprises within the NBT value chain. extended into nature-based tourism (Revenue in US$ million) Byishimo (2020) indicates that support is required Parks revenue Revenue generation from Parks’ to rescue private enterprises in the tourism sector per arrivals parks’ arivals arrivals that are struggling with debt mounting to US$96 259 28.6 110 410 14% million as a result of the COVID-19 pandemic. 223 -67% -72% Government of Rwanda was proactive in responding to the crisis caused by the pandemic. 8.0 35 932 GoR implemented stringent prevention measures and was identified as one of the top tourist destinations to receive the “global safety and hygiene” 2019 2020 Parks revenue by arrivals 2019 2020 Revenue 2019 Visits 2020 stamp by the World Trade and Tourism Council (WTTC). The government also made available about Source: IFC and RDB, 2021 50 percent of the Rwf100 billion in the Economic 16 It is estimated that more than 70 percent of tourism visits in Rwanda is NBT. 17 The spatial analysis was based on information provided by the SAM The tourism revenue sharing scheme constitutes the main source 18 and the 2018 Rwanda Labor Force Survey that classifies the workforce of income for communities around the parks, who were getting in the 21 industries of the International Standard Classification (ISIC). approximately US$54.7 (RwF50,000/month) per household (RDB 2020). Rwanda Economic Update • Edition No. 20 25 Making the most of Nature-Based Tourism in Rwanda Recovery Fund (ERF) to the tourism and hospitality Challenges affecting the conservation of flora sector. By December 2020, approximately Rwf42 and fauna also threaten the success of NBT both billion had been disbursed under the ERF hotel directly and indirectly. The clearance of the natural refinancing window (RDB, 2021c). The Government vegetation, which covered half of the country 50 also collaborated with the private sector to promote years ago, to approximately 30.4 percent of forests domestic tourism, as a partial substitute to foreigners today (of which only 18.1 percent are natural unable or unwilling to travel to Rwanda. mountain forests) has led to plummeting bird populations outside reserves and ten bird species Climate change poses a severe threat to NBT. The extinctions. To mitigate this, the network of PAs needs ND-GAIN Index ranks Rwanda as 124 out of 182 to be strengthened and creation of natural reserves countries with respect to the country’s vulnerability should complement existing PAs. This would foster to climate change and other global challenges as the development of bird-related tourism, especially well as their readiness to improve resilience.19 Climate if accompanied with a multilevel collaboration of change is expected to cause severe flood damage stakeholders at national and regional level, in which to physical capital, reduce labor productivity, and the public plays a strong role in the long-term impact tourism demand (World Bank, 2022a). A large conservation of birds (Rurangwa and Whittaker, 2020). number of studies have shown relationships between temperature and tourism, including in the selection Landscape degradation indirectly impacts the of the tourist destination. The World Bank estimates sustainability of Rwanda’s NBT, because of that an increase of 2°C between 2040 and 2059 could the impact it has on the poor and vulnerable lead to a reduction in international tourism demand communities. The reduction in natural vegetation of approximately 20 percent (Figure 3.4). The impact contributes to increased runoff and river flows, on Rwanda is likely to be greater, as available estimate impacting water yield, and increasing landslides does not account for the changes in gorilla habitat and soil erosion, and decreasing infiltration and and distribution that could occur with increases in groundwater recharge. The economic impact of temperature. It also does not account for the impact the loss of just topsoil is estimated to be between of degraded lands on flooding and encroachment of US$34/ton and US$57/ton.21 The loss of topsoil thus less degraded areas such as PAs. contributes to a societal loss of between US$476 and Figure 3.4: Tourism demand shock from temperature20 US$798 million per year.22 The deterioration in the environment impacts the land-based subsistence 0.0 livelihoods of communities around national parks. Percentage change in labor productivity -0.5 Communities who live adjacent to PAs often rely on -1.0 these regions for forest products, firewood, thatching, -1.5 and grazing, and they may have customary rights -2.0 related to the natural resources. Research in Rwanda -2.5 indicates that the underlying causes for threats to -3.0 PAs such as poaching and other illegal activities, -3.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 especially in VNP, are associated with poverty, lack Temperature change (°C) of awareness, and culture and commercial purposes RCP 8.5 RCP 4.5 (Uwayo et al., 2020). Source: World Bank (2022a), based on Industrial Economics (2022) https://gain.nd.edu/our-work/country-index/ 19 Using market values as a proxy for its productive capability. 21 World Bank (2022a) op cit. 20 NISR (2019a) as cited in Benitez et al. (2021). op cit 22 26 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda A key factor influencing the success of NBT is has distributed more than US$5 million through the ensuring that local communities share in the TRSP. RDB distributes 10 percent of the total gross benefits. A way of reducing the cost of conservation tourism revenue collected each year between four is to reduce threats to conservation, thereby lowering National Park regions (Table 3.2). The ratios do not management costs. Research, around VNP, found reflect the revenue earned by each park, although VNP that direct tourism benefits have more potential (with its high-value mountain gorilla experiences) is to influence change in forest-dependent behavior the highest revenue earner (Conservation Capital when the benefits help lift food security constraints. and ALU, 2021). Furthermore, the potential to reduce forest dependence is possible if both direct and indirect Target areas for the TRS funds are the ‘Zone of tourism benefits help address health, education, and Influence’ of each park. These are defined as the food security risks of poor households in proximity to area within which community members have an the parks (Munanura, et al., 2020). It also is possible impact on the NP or are impacted by the NP and to reduce local communities’ reliance on forests sectors touching the park boundaries. The TRSP also through the use of incentives and the promotion prioritizes poorer and disadvantaged groups within of energy-efficient stoves (Benitez et al., 2021). The the target areas, and communities that have the most incentives could support soil-conscious conservation impact on the NP (i.e., are more likely to conduct agriculture, through a payment schemes that reward illegal activity) or on whom a park has the most households and communities involved in preserving (negative) impact. Through the Zone of Influence, ecosystem services (often referred to as payments the TRSP covers 14 Districts and 51 Sectors around for ecosystem services (PES)), and promotion of the four NPs, with a total population of 1.4 million. alternative income generating activities (for example, Between 2005 and 2019, three districts benefited the from sustainable forest sector activities). Measures most from the allocation of revenue from the TRS: to reduce land degradation would benefit from Kayonza (ANP), Musanze (VNP) and Nyabihu (VNP) improved forest land tenure and agglomeration of received almost 50 percent of total TRS allocated forested resources. These changes will pave the way funding from 2005-2019. for the involvement of private sector entities, create jobs, and help establish a sustainable and productive In addition to the 10 percent provided to forest sector, helping diversify income sources in communities through the TRSP, five percent of rural areas. tourism revenue goes into a Special Guarantee Fund (SGF) for mitigation of human-wildlife conflict The Government of Rwanda launched the Tourism (HWC). Initially, the SGF was created to deal with Revenue Sharing Program (TRSP) in 2005 to other issues such as road accident compensation; the effectively engage the communities living around incorporation of funding to support HWC started in the PAs in conservation. Over the past 15 years, GoR 2012. The Government of Rwanda took this initiative Table 3.2: National Park allocation and value of Tourism Revenue Share (TRS) revenue share Policy percent Actual historic percent Actual value of National Park TRS revenue of TRS revenue project investments allocation allocation (2005-2019) (2005-2019) Volcanoes National Park (VNP) 35 41 Rwf2.4 billion Akagera NP (ANP) 25 28 Rwf1.6 billion Nyungwe NP (NNP 25 26 Rwf1.5 billion Gishwati-Mukura NP 15 5 Rwf0.3 billion Source: National Park allocation and value of TRS revenue share Rwanda Economic Update • Edition No. 20 27 Making the most of Nature-Based Tourism in Rwanda in response to wildlife impact on crops and killing 3.2. Financing needs and options in parks of wildlife in retaliation for predation on livestock. and protected areas Between 2012-2020, the SGF compensated 10,000 As discussed in the prior section, Rwanda’s tourism farmers, with a rising number of cases due to depends significantly on natural systems, and for increasing awareness. Between 2017-2020, SGF NBT to flourish, biodiversity and its natural habitats compensated on average 3,500 farmers per annum. must be protected and managed sustainably. VNP has the highest level of compensation requests While tourism sector is the largest, global, market- of all NPs, mainly from buffalo and gorilla, and while based contributor to financing PA systems that Akagera is fenced, communities are still impacted serve as an anchor for biodiversity conservation and by HWC.23 economic development, as highlighted during the COVID-19 period, countries need to diversify sources Consultations with stakeholders in 2021 indicated of investments in the natural assets found in the that a there was overall satisfaction with the TSRP parks and PAs beyond revenues from NBT. There is (80 percent were satisfied), and more than half of an increased awareness and urgency to create new all beneficiary respondents indicated that it had NBT partnerships and investment opportunities to improved their overall quality of life (52 percent). help countries unlock smart investment and grow However, the TRSP has room for improving its reach NBT sustainably. In addition, there is greater interest to all population groups, specifically, community from public and private sectors (including capital based organization (CBO) members and other markets participants) to channel traditional loans, vulnerable groups, such as impoverished, women, grants, and innovative financing for parks and PAs so disabled, youth who do not benefit as much as CBO that it can conserve the natural assets which NBT is members and were less satisfied with the impact of reliant upon. Scaling up of government investments, the TRSP. The review of TRSP identified options for grants, and new financing instruments can diversify strengthening the program via the revenue sharing Rwanda’s revenue stream to support conservation of policies, revenue allocation, project preparation and its parks and PAs. This can be especially important to selection, implementation process and monitoring minimize disruptions from future economic shocks. and evaluation (Conservation Capital and ALU, 2021). Despite its importance of financing for parks and PAs, data on investment needs for and values from NBT is not systematically captured in Rwanda or at a regional or global scale. In absence of established literature on NBT values and investment needs, the estimation of financing for managing the natural assets that underpin NBT is based on assessments of biodiversity-related cost estimates and financing data. For this purpose, Rwanda’s revised National Biodiversity Strategy and Action Plan (NBSAP II), Biodiversity Finance Initiative (BIOFIN), and its National Strategy for Transformation (NST) are considered. They enable a rough estimation of the magnitude of investments needed to secure the natural assets which are the basis for NBT growth GoR [Government of Rwanda], 2012, 2017; Fitzgerald, 2020) cited in 23 in the country. This provides insights relevant to ALU and Conservation Capital 2021; GoR (2012) ‘LAW N° 52/2011 OF 14/12/2011 - The Special Guarantee Fund for Accidents and Damages financing needs and opportunities in the sector and Caused by Automobiles (SGF)’, pp. 35–40. Fitzgerald, K. (2020) Interview with the Special Guarantee Fund Coordinator. a proxy lower-bound for investing in NBT. 28 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda The Rwanda Biodiversity Financial Needs US$3.91 billion for the NST1 period (2017-2024) for Assessment, the financing costs for implementing the implementation of the agriculture, environment, the NBSAP II are estimated at US$97.5-107.7 million and natural resource pillars in the NST1 which are over 2019-2029/30 (Masiga and Uwababyeyi, 2018). key for a sustainable, resilient, and inclusive NBT BIOFIN identified the finance needs for implementing sector (Benitez, et al. (2021). Over the 2017-2018 to the NBSAP II over two timelines (Table 3.3)24: 2020-2021 NST1 implementation period these pillars 1. 2018/19 to 2023/24 for the First National Strategy received US$737 million in total, with a decrease for Transformation (NST1), the aggregate finance for both the agriculture and environment pillars needs were estimated at between Rwf37.5 and between 2019-2020 and 2020-2021 periods. 41.01 billion (equivalent to US$44.3 and 48.4 million) Just as with hard infrastructure (e.g., roads, 2. 2018/19 to 2029/30 for the Sustainable bridges), natural assets require capital investments Development Goal (SDG) planning period, the and operational expenses to maintain their aggregate finance needs were estimated at performance. To finance this cost, a mix of policy, Rwf82.6 to 91.2 billion (equivalent to US$97.5 and debt and non-debt instruments can help Rwanda 107.7 million) secure additional funds to protect and grow its Goal 4, as noted in Table 3.3, has the highest natural assets. This diversified financing can help finance needs in the range of Rwf12.0 to 12.8 manage the assets that unpin NBT as well as and billion (equivalent to US$14.2 to 15.1 million) improve the quality of Rwanda’s NBT offering. and 26.9 to 28.7 billion (equivalent to US$31.8 to This includes its natural assets (wildlife, PAs, 33.9 million), for the NST1 and the SDG timeline, natural parks and forest reserves), physical assets followed in descending order by Goals 3, 5, 2 and 1, (infrastructure that supports the NBT such as respectively. The BIOFIN estimates are a subset accommodations, transportation network, energy, of the overall investment need of approximately etc.), and human assets. Table 3.3: Summary of estimated financial needs for NBSAP II Total Average NST1 total (2018/19 - (2018/19 - (2018/19 - Goals 2029/30) 2029/30) 2023/24) million RWF million RWF million RWF 1. Mainstream biodiversity conservation in the decision High 10,270 856 4,824 making process across all government, private and civil society’s development programmes Low 9,116 760 4,283 2. Reduce multiple anthropogenic pressures on biodiversity High 14,208 1,184 6,471 and promote sustainable use of all renewable resources Low 13,068 1,089 5,963 3. Improve the status of national biodiversity by expanding High 19,069 1,589 8,562 and safeguarding priority protected ecosystems and maintaining biological communities in equilibrium state Low 17,638 1,470 7,926 4. Ensure NBSAP implementation through biodiversty High 28,651 2,388 12,791 knowledge management, participatory planning and capacity building Low 26,933 2,244 12,013 5. Enhance NBSAP implementation through biodiversit High 18,978 1,582 8,357 knowledge management, participatory planning and capacity building Low 15,889 1,324 7,282 Total High 91,175 7,598 41,004 Source: Masiga and Uwababyeyi (2018) 24 Masiga, M. and Uwababyeyi, J. (2018) op. cit. Average exchange rate US$1 = Rwf847.1 (BNR 2018, Oct.). Rwanda Economic Update • Edition No. 20 29 Making the most of Nature-Based Tourism in Rwanda The mix of policy, debt, and non-debt instruments of the Rwanda’s freshwater. In addition, increasing are needed to mobilize additional public investment in natural capital supports nature-based investments and incentivize private sector tourism, which can improve fiscal sustainability participation. Rwanda’s Green Fund (FONERWA), and growth, regardless of the source of financing. Ireme Investment Facility25, could secure funds for Nevertheless, relying in part on private sector nature-positive action, and test new instruments, finance for nature-based tourism, for example including performance-based instruments and through a public-private partnership, can generate capital markets products tailored to domestic and a greater increase in GDP than relying solely on foreign markets. Attracting private sector finance public resources. into biodiversity conservation and NBT will require the right regulatory environment and appropriate Targeted investment to secure Rwanda’s natural incentives and market structures. Government capital and expand its NBT sector offerings would budgets, grants, and revenues generated from yield positive outcomes on fiscal sustainability operations are also important sources of financing and growth, regardless of financing options (Figure for natural assets. In addition, governments in the 3.5). For example, the CGE results show that if the region and beyond are exploring different financial entire amount of the increase in nature based-tourism instruments to support government budgets. This infrastructure investment were financed by borrowing, can include collaborative management partnerships public debt would decrease in 2025 from 74 percent of (CMPs)26, carbon credits, PES, and various fixed GDP in the baseline to 70 percent, and in 2030 from 62 income instruments (including use-of-proceeds percent in the baseline to 58 percent (Figure 3.5).27 bonds and structured bonds). Increasing the role of private sector in financing Investments in these natural assets provide tourism-based infrastructure would be highly biodiversity and ecosystem services benefits and beneficial for Rwanda. Increased private sector support livelihoods. For example, Nyungwe National financing of infrastructure investment could make Park feeds two of the world’s largest rivers, the a significant contribution to growth and welfare. Congo and the Nile, providing a significant portion If the government plan for NBT infrastructure were Figure 3.5: Closing conservation and nature tourism infrastructure investment gap- Impact on revenue and debt Tax revenue-to-GDP Debt-to-GDP 19 90 80 18 70 60 50 17 40 30 16 20 10 15 0 2022 2025 2030 2022 2025 2030 Baseline De cit nancing Tax increase Private sector Baseline De cit nancing Tax increase Private sector This is outcome is different from the assessment of the NDC financing 27 where deficit financing would lead to an unsustainable fiscal situation 25 Ireme Invest is a new green investment facility that will increase the (See World Bank, 2022). The difference of outcome is due to the fact private sector’s contribution to Rwanda’s response to climate change. that nature based-tourism financing is less important (1.2 percent of Launched in November 2022, its initial capitalization is more than US$ GDP versus 11 percent for NDC). Furthermore, and most importantly, 100 million. investments in nature-based tourism target specifically natural capital 26 As in the example of Rwanda’s co-management agreement with with high return in terms of tourism receipts that lead to increased African Parks for Nyungwe National and Akagera National Park. productivity, foreign exchange, and tax revenue. 30 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda to be supported through a PPP (25 percent public can include CMPs (as with African Parks in ANP and resources and 75 percent by the private sector), NNP, and Wilderness in Gishwati-Mukura National then GDP would be 3 percent higher than baseline Park), capital tourism investment (i.e. accommodation in 2030. This is a bigger gain than in any public [as already demonstrated with international portfolio financing option either by borrowing or by taxes. companies such as Wilderness, Mantis, and Singita], This result indicates that the reduction of domestic in airstrips, visitor centers, etc.), the contracted savings related to additional debt and repatriation of operation and management of existing tourism profit of public-private partnership (PPP) are offset facilities, and selling licenses to operate tours or by a relatively high productivity generated by PPPs. guided services. However, the distributional impact would also be similar to that of public financing options, favorable As part of its strategic long term debt sustainability to urban areas and the richest (Figure 3.6). and financing strategy, the GoR can potentially Figure 3.6: Closing conservation and nature tourism explore opportunities to develop performance- infrastructure gap- Impact on GDP based, sustainability-linked financing instruments, (GDP (% change relative to baseline)) along with tapping into non-debt solutions tied 3.5 to structured bonds, the carbon markets, and 3 private sector led equity investments. These 2.5 include various kinds of output-based bonds, 2 for example based on conservation of wildlife or forests, or green investments; funds to support 1.5 biodiversity and climate change adaptation, and 1 results-based payments, for example from reduced 0.5 emissions through avoided deforestation and 0 forest degradation (Box 3.1). As part of the United 2022 2025 2030 Nations Framework Convention on Climate Change Source: WBG staff estimates (UNFCCC) and Convention on Biological Diversity Internationally the best practice for mobilizing (CBD) Conference of the Parties’ (COP) in 2022, financing for NBT and engaging the private sector additional frameworks and financing mechanisms is through attracting capital investment and are being considered (including by a multi-agency crowding in partners to support service provision working group in Rwanda) to explore potential in PAs, and providing planning and licensing policy, debt, and non-debt instruments that could permission for like-minded sustainability-focused mobilize funding for strategic investments, including commercial operations adjacent to them.28 Options in the NBT sector. Box 3.1: Example of Collaborative Management Partnership In 2010, the RDB partnered with African Parks (AP) to transform Akagera from a depleted and undervalued resource into a top wildlife destination in Africa. In 2019. ANP had an operational budget of US$3.25 million, generated revenues of US$2.6 million from tourism and other related initiatives, contributed US$119,029 to local communities as part of the Revenue Sharing Scheme and provided community benefits totaling US$728,435 through opportunities to invest in fisheries, forestry, and other wildlife economy related activities. World Bank Group (2016). An introduction to tourism concessions: 14 28 Characteristics of successful programs (2016); Convention on Biological Diversity (2017). Guidelines for tourism partnerships and concessions for protected areas ; United Nations Development Program (2014). Tourism concessions in protected natural areas: Guidelines for managers; World Bank (2021). Collaborative management partnership toolkit. Rwanda Economic Update • Edition No. 20 31 Making the most of Nature-Based Tourism in Rwanda 3.3. Policy framework and recommendations coupled with longer stays in neighboring countries Delivering on RDB’s vision for tourism will benefit from (e.g. Uganda, Kenya). Drawing on experiences from focused interventions on a few key areas related to NBT. other countries, there, however, is the opportunity These include protecting the natural assets that underpin to bolster this strategy to ensure that benefits of NBT, augmenting the benefits communities derive from tourism activities have a broader reach and create NBT and incentives for managing important natural jobs in rural areas while protecting Rwanda’s resources, diversifying the NBT offer as part of Rwanda’s biodiversity and natural resources and bolstering efforts to diversify its tourism sector, strengthening data resilience to climate change. on NBT, and mobilizing private financing. To meet the levels of ambitions for NBT and The vision of the Rwanda Tourism Policy (2009) ensuring the resilience of NBT in the medium- and the post COVID tourism recovery plan includes term, measures to develop a network of well establishing Rwanda as a leading wildlife and managed PAs and managing the land around PAs ecotourism destination. Complementing the is imperative. The PA network should be oriented vision and in response to the impact of the COVID towards attracting international tourists to maximize pandemic on the tourism sector in Rwanda, the RDB foreign exchange earnings. This will entail ensuring (with support from IFC) prepared a recovery plan for the expansion of the PA network is orientated towards Rwandan tourism. The plan proposes to: (i) manage attracting foreign exchange revenue, professional, and enhance tourism demand, (ii) diversify tourism and, where, appropriate allows sustainable forest assets and experiences and (iii) strengthen enabling sector activities to act as a buffer zone to the PA capability and tourism management. The aim is to network and to assist with creating biodiversity increase arrivals and length of stay by increasing corridors. Such an approach would also benefit choices of destination and attractions, support a communities around the PAs and general ecosystem more sustainable, inclusive, resilient, and competitive service delivery and biodiversity conservation in tourism industry and create an environment in addition to climate change resilience. Strategic which tourism can thrive and drive long-term planning to generate more benefits from NBT should growth. The strategy notes the that the core market include geospatial data and analyses and ecological is the high-end overseas leisure segment and there and social studies to support development of a is limited opportunity for increasing gorilla trekking viable and sustainable PA network. permits, which lead to short leisure trips to Rwanda Figure 3.7: Distribution impact of investments on conservation and nature-based tourism Welfare impact of investments in nature based tourism, by Decile of households 6.0 5.0 5.0 4.7 4.5 4.0 3.0 2.0 1.0 0.6 0.4 0.3 0.0 De cit nancing Tax increase Private sector Decile 1_Rural Decile 2_Rural Decile 3_Rural Decile 4_Rural Decile 5_Rural Decile 1_Urban Decile 2_Urban Decile 3_Urban Decile 4_Urban Decile 5_Urban Source: WBG staff estimates 32 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda Collaborative management partnerships (CMPs) adequately respond to key challenges such as land could be used by the PA network to fast-track degradation, climate change (drought), extreme investment and revenue generation from tourism. events (flooding and landslides), PA management, CMP would help, among other issues, to improve PA and forest management in accordance with the Green operational and management efficiency, the review Growth and Climate Resilient Strategy (GGCRS). and adjustment of the entry fees, the application of concession fees and licenses for traversing rights Rwanda has made important progress in ensuring (see Box 3.1). Rwanda already has experience that local communities and enterprises reap some collaborating with partners to mobilize resources to benefits from NBT, but improvements should be enhance its natural assets (including through CMPs). considered (Conservation Capital and ALU, 2021). Also, concerted effort to operationalize the recently Further roll-out and expansion of revenue-sharing passed Law No. 001/2023 of 13/01/2023 Governing schemes to communities and local landowners for National Parks and Nature Reserves would be a move co-management and maintenance of parks would in the right direction. help ensure that maximum benefits flow to local communities (World Bank, 2022). In addition, a Investments in integrated landscape restoration life cycle approach should be used for all public and land use planning that recognizes the investments, for example to ensure that any school feedback effects between land use and ecosystem buildings constructed are then staffed and equipped services will need to be increased. This will require a for use. TRSP money should not be used to substitute multisectoral policy that supports the management for public obligations and should be geared to of the natural capital both in- and outside PAs in respond to the needs of the directly affected by a pro-active manner by considering the value of the establishment of national parks and PAs, and the ecosystem services it provides (Benitez et al., communities impacted by human-wildlife conflict, 2021). The multisector approach could develop with provisions for them to manage the funds and and strengthen the use of PES, develop strategic resources they are allocated (see Annex Note 2 on institutional and investment frameworks to Recommendations for Improvement of the TRSP). Box 3.2: Case study examples of local benefits from NBT Bisate Lodge is privately owned by a company called Imizi Ecotourism Ltd. Imizi is co-owned by Wilderness Holdings (WH) (90 percent) and Thousand Hills Africa (10 percent), a local Rwandan inbound tour operator and ground handler. Wilderness operates, manages, and markets the lodge. The uninhabited agricultural land (42 hectares) on which the lodge is built is now privately owned, having been purchased from around 103 community members, who formed a cooperative called Tuzamurane through which to engage the private sector both for the purposes of land sale (also overseen by district and national authorities) and future engagement such as employment and procurement. The benefits to the community include payments to community members for land acquisition (a total of US$675,534 over FY2016-18), purchases of local materials and services during building of the lodge (US$25,000), the hiring of casual labor (approximately US$3,000 for the six months that the lodge was operational in 2017), and payments for nursery and reforestation project labor costs (US$10,221). Approximately 200 local people were temporarily employed in road and lodge construction, and 24 community members have been trained as staff and are permanently employed. The salary cost to company amounts to approximately US$21,185 per month for local Rwandan staff. Source: Snyman and Spenceley (2019) Rwanda Economic Update • Edition No. 20 33 Making the most of Nature-Based Tourism in Rwanda Government should also promote additional ways roughly three times as much community benefit for tourism revenue or tourism opportunities to per bed-night as other forms of accommodation. benefit local communities. Examples of ongoing This is not without its challenges, which have been initiatives that achieve this include the Porters extensively described in existing studies (World Cooperative operating in Kinigi (VNP) which is Bank Group and World Wildlife Fund. 2014). composed of former poachers. Other examples • Employment of local staff: This is one of the largest include the approach used by Bisate Lodge (see flows of income to poor people around Rwanda’s Box 3.2). Promotion of agroforestry could also Parks, but it is also the flow per bed-night that shows support farmer resilience on small plots through highest variability among enterprises. Improving more diversified incomes, while helping prevent opportunities for local people, and people from land degradation, among other benefits (Benitez poor backgrounds, to gain employment in et al, 2021). tourism would quickly increase incomes of the poor. Improving vocational hospitality training in Other options to improve the share of tourism Rwanda is a priority. benefits accrued by local people living adjacent to • Business linkages with local entrepreneurs and the parks in Rwanda include: performers: The smaller luxury and budget • Private sector interventions: Compared to other ventures cannot hope to match the larger ventures destinations, there appears to be relatively fertile or partnerships for local revenue flow. Hotels, ground for engaging with the private sector on however, can multiply their own local economic actions that provide net benefits to the poor. impact by developing enterprise linkages. Helping Many hoteliers or lodge owners are already local farmers to gain market access could greatly implementing initiatives in this direction. Some of boost incentives for conservation around the the initiatives are philanthropic ‘add-ons’ to core Rwanda’s Parks, while having minimal impact business, rather than an attempt to restructure on other farmers because the hotel vegetable core functions of staffing and procurement. market accounts for less than 1 percent of the Several studies have found that a number of hotel overall market trade. Some of the challenges managers and tour operators took guests to visit with implementing this approach are related to schools, orphanages and community groups. 30 consistent quality of the supply and effectively to 40 percent of these guests leave donations connecting producers and buyers. that range from US$10 to US$300, and sometimes include long-term sponsorship of specific children Equally important to GoR’s efforts to protect natural or classes (Ashley, 2007). Other studies have found capital will be putting in place a combination that the average amount for cash donations was of policy reforms to reduce negative impacts of US$61 per tourist, and the average total value other sectors’ economic activities on biodiversity. for cash and in-kind donations was US$118 per This would include for example removing explicit tourist (Grosspietsch, 2007). On average domestic and implicit subsidies in agricultural, inland tourists spent US$19.37 per trip on donations to fisheries, mining, and other sectors that result in the community, and international tourists spent land degradation and loss of ecosystem services. In US$32.14. addition, policy measures that create an enabling • Joint venture arrangements: Such an arrangement, environment and reduce the risks facing public and where the community owns the land, and ideally private investors can also promote nature-positive the lodge, is the single most powerful way to investments. Involving the private sector can improve substantially increase financial flows to the poor. the effectiveness of public goods. For example, the For example, the Sabyinyo Lodge can generate private sector currently has little role in strengthening 34 Rwanda Economic Update • Edition No. 20 Making the most of Nature-Based Tourism in Rwanda watershed and catchments protection. The potential being from the East African Community and 23-30 for requiring PES (for services such as reduced soil percent from Africa as a whole. Beyond bed-nights, erosion, lowering of flood risks, etc.) by local industrial headcounts, and tourism revenues, new metrics users of watersheds, or programs that involve them should be applied in measuring the industry’s value in the rehabilitation of natural water ecosystems, (economic, social, and environmental) in Rwanda. should be evaluated (World Bank 2022a). Each of the DMAs should be planned within The current Destination Management Areas a green, resilient, and inclusive development (DMAs), as defined and demarcated by RDB, framework for Rwanda, with an emphasis on local will play a significant role in the future of NBT value-added activities. The development of these development and how it is diversified in Rwanda segments will require planning, spatial allocation, as (Figure 3.8). Based on Rwanda’s Vision 2050, new well as strategic linkages to other socio-economic tourism segments will shape the future of the development plans. These will have to reflect the tourism industry, mainly sport, medical, education, innovative products and tourism services, and new water-based, urban, and adventure tourism. The infrastructure that will support tourism growth (e.g., potential for diversifying NBT tourism in Rwanda will cultural heritage centers and museums, amusement depend on how the destinations continue to evolve. parks, sports facilities, and community halls). All Learning from Botswana, Kenya, Mozambique the satellite and secondary cities in Rwanda will be and South Africa, value chain analyses should be compelled to allocate some of those segments in conducted to estimate values from NBT tours being their programs and will also be required to create added on to business trips. The assessments should, green space for recreation and leisure activities. rather than estimate the optimal visitor level, also Human settlement and urbanization will happen in identify the most sensitive element of capacity for and around key tourism attractions, and land use a specific NBT destination and use this information planning and allocation will need to reflect that to set the suitable level of tourism, transitioning to aspect and also consider the implication this could an approach defined by the desired conditions of have on ecosystem services, and so on. For such the destination. Consideration should also be given analyses robust data on the tourism sector, natural to opportunities to regional coordination around capital and ecosystem services will be key to support NBT to determine how to coordinate around issues evidence-based decision-making. of pricing, packages, and further benefit from approximately 20-28 percent of arrivals in Rwanda Private sector participation in PA management and upgrading parks could also help expand and Figure 3.8: Rwanda’s development management areas diversify NBT. For example, wildlife experiences in VNP that would benefit from enhanced management and quality (e.g., Golden Monkey, Fossey Grave, and Bisoke treks) could be outsourced to the private sector, community-based enterprises and/ or a joint-venture partnership. Furthermore, other natural attractions such as water-based activities on Lake Kivu, the Congo-Nile Trail, and river-based adventure sports on Rwanda’s rivers could be explored, engaging local people to provide visitors services. In ANP, the fishing agreement with the Source: UN World Tourism Organization (2009) Framework for tourism development: sustainable tourism development masterplan for Rwanda, January 2009 COPABARWI fishing cooperative (a cooperative ANP Rwanda Economic Update • Edition No. 20 35 Making the most of Nature-Based Tourism in Rwanda has worked with since 2015) yielded over 130 tons sector led equity investments. These include of fish harvested from the park’s lakes, earning over various kinds of output-based bonds, for example US$102,000 for their 20 members in 2021. The fishery based on conservation of wildlife or forests, or green activities also contributed 5 percent to the overall investments; funds to support biodiversity and climate park income, helping diversify revenue streams. Such change adaptation, and results-based payments, for NBT options would provide commercial benefits example from reduced emissions through avoided while contributing to conservation. CMPs could also deforestation and forest degradation (Box 3.3). As be used to generate private investments in areas part of the United Nations Framework Convention (such as wetlands) to serve as hubs for ecotourism on Climate Change (UNFCCC) and Convention on and recreation. Biological Diversity (CBD) Conference of the Parties’ (COP) in 2022, additional frameworks and financing As part of its strategic long term debt sustainability mechanisms are being considered (including by a and financing strategy, the GoR can potentially multi-agency working group in Rwanda) to explore explore opportunities to develop performance- potential policy, debt, and non-debt instruments that based, sustainability-linked financing instruments, could mobilize funding for strategic investments, along with tapping into non-debt solutions tied to including in the NBT sector. structured bonds, the carbon markets, and private Box 3.3: Overview of potential instruments that could support the NBT sector Below are brief examples of potential financing instruments and how they were applied in other countries. Financial instruments are tailored to specific funding needs and dependent on various factors, including fiscal/macro conditions and donor/investor preferences. Some of these instruments will be explored as part of an ongoing Assessment and Options Analysis of Climate and Nature Financing Instruments and Opportunities in Rwanda being done with support from the World Bank: • A Wildlife Conservation Bond (WCB): In 2022, the World Bank issued a first-of-its-kind, outcome-based US$150 million bond, mobilizing private sector financing to support wildlife conservation in South Africa. • Biodiversity and Climate Fund: In 2022, Papua New Guinea launched its national Biodiversity and Climate Fund (https://pngbcf.org/). Supported by UNDP, the fund was designed using the Practice Standards for Conservation Trust Funds. The Global Environment Fund has provided US$4.2m towards its establishment and management of the country’s PA network. Further investment has been generated including US$5m from the Rainforest Trust to establish new PAs, as well as an annual investment of US$8.5m annually from the Government of Papua New Guinea. In 2023, the Fund is investigating the potential of debt for nature swaps and biodiversity offsets with the extractive industry. • Results based payments: In 2021, Mozambique became the first country to receive results-based payments for reduced emissions from avoided deforestation and forest degradation. FCPF paid US$6.4 million for reducing 1.28 million tons carbon dioxide equivalent under the Zambézia Integrated Landscape Management Program. FCPF is expected to pay up to US$50 million for 10 million tons of carbon emissions reductions that the program should generate through 2024. • Forest Bond: IFC‘s Forest Bond raised US$152 million from institutional investors for a REDD+ reforestation project in Kenya. Investors had the option to receive their coupon payments in either carbon credits generated by this project, or in cash. • Forest resilience bonds (FRB): FRBs build upon private capital and pay-for-success contracts to provide a fixed income security with stable cash flows. The FRB is a public-private partnership that enables private capital to finance much-needed forest restoration. What differentiates the FRB from other approaches to forest restoration is not only the use of investor capital to finance treatments but also the innovative cost sharing among beneficiaries. • Results-based subsidy payments: The subsidy provider (e.g., government, trust fund, or development bank) pays businesses or households to close the so-called viability or affordability gap. Payments are made only after measurable, pre-agreed results have been achieved and verified by an independent agent. 36 Rwanda Economic Update • Edition No. 20 REFERENCES Africa Geographic. 2022. Akagera National Park, sourced on August 2, 2022 from https://africageographic.com/stories/akagera- national-park/ Ashley, C. 2007. Pro-poor analysis of the Rwandan tourism value chain: An emerging picture and some strategic approaches for enhancing poverty impacts. 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There are quarterly and annual data on employment by key sectors (more on this below) and there are annual data on visitor arrivals and accommodations, but there is no publicly accessible series on tourism employment. More generally, tourism employment indicators are difficult to estimate.29 They require information on workers directly and indirectly involved in tourism activities, in both tourism and non-tourism industries and including full-time, part-time, and seasonal workers. One option is to use LFS data on employment by sector to approximate tourism employment. Following a survey of practice by the UN World Tourism Organization (UNWTO), the relevant sectors are transport and storage; accommodation and food service activities; arts, entertainment and recreation; and administration and support service activities. The UNWTO (2014) finds that about 78 percent of tourism enterprises are in the first two sectors— transport and storage (58 percent) and accommodation and food service activities (20 percent). Using annual LFS data, we find that the sum of employment in these four sectors closely approximates the WTTC data, though with divergent trends (Annex Figure 1, left panel). These sectors accounted for about 10.4 percent of employment in 2019, falling to 8.2 percent in 2021. LFS data also suggest that employment in transport and storage and accommodation and food service activities together account for about 78 percent of proxy tourism employment in 2021, and have been more less stable in recent years. LFS data approximating tourism employment can both underestimate and overestimate the “true” tourism employment level. On one hand, tourism employment could include other sectors that serve holiday visitors, such as those in wholesale and retail. On the other hand, many of those in the included sectors could be serving domestic consumers and providing non-tourism related goods and services, such as trade-related transport. Nonetheless, in the absence of more accurate data, it would be useful to explore LFS data more fully—the aggregate trends of the relevant sectors, their composition and distribution. For the remainder of this brief note, we explore data mainly on two sectors (1) transport and storage and (2) accommodation and food service activities, as they constitute the great majority of tourism-related sector employment. We look at both annual data and quarterly data. Below are some notable patterns and striking contrasts in tourism-related sectors, with important distributional dimensions. In brief, transport employment is larger and more stable while accommodation employment is smaller and more volatile. Accommodation employment is still below its pre-pandemic level. However, accommodation is more likely to employ rural workers, more likely to employ women and more likely to provide formal employment, compared to the transport sector. Promoting nature-based tourism could produce sizeable welfare gains, particularly if it helps expand the accommodation and food services sector. World Tourism Organization and International Labour Organization (2014), Measuring Employment in the Tourism Industries – Guide with Best 29 Practices, UNWTO, Madrid. 40 Rwanda Economic Update • Edition No. 20 Annex We explain these more fully as follows. First, transport and storage employment is less volatile than accommodation and food service activities employment. Of the two, transport and storage employment tracks well the WTTC aggregate (annual) employment data, while accommodation and food service activities employment follows a more divergent trend (Annex Figure 1, left panel). These are of course just three data points and should be interpreted with caution. Quarterly indicators (Annex Figure 1, right panel) over the past four years suggest that transport and storage employment levels follow closely aggregate (total) employment for all sectors while accommodation and food services activities employment has been more unstable.30 Accommodation and food services employment fell sharply during the beginning of the pandemic, recovered just as sharply, and then fell steadily thereafter. While it has been rising in recent quarters, it is not yet back to its pre-pandemic levels. Annex Figure 1. Employment by selected sectors Index of employment Index of employment 2019 = 100 Q1 2019 =100 120 200 100 150 80 60 100 40 50 20 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 2021 2019 2020 2021 2022 WTTC Transportation and storage All employed workers Transportation and storage Accomodation and food service activities Accomodation and food service activities Source: WTTC and Rwanda Labor Force Survey, various issues Second, transport and storage employment is mostly urban and overwhelmingly male, while accommodation and food service employment is more equally distributed, though disaggregated trends have been divergent in recent quarters. Urban workers represent about 75 percent of transport employment and male workers constitute 90 percent of the sector. In contrast, accommodation and food service employment is slightly more urban (about 60 percent) and more or less evenly divided between male and female employment. Not surprisingly, rural employment and male employment track closely the aggregate employment in transportation and storage, essentially indistinguishable in the latter case (Annex Figure 2, left panel). Meanwhile, urban-rural and male-female employment levels track aggregate employment closely in the accommodation and food service sector through late 2020 but have since followed more divergent paths, particularly in the case of urban and rural employment levels (Annex Figure 2, right panel). As a result, rural employment in accommodation and food services is far below its pre-pandemic levels, while urban employment has exceeded these levels. The coefficient of variation of transport employment over this period—a measure of its spread, and therefore its volatility—is 0.15 while that of 30 accommodation and food service employment is more than double at 0.34. Rwanda Economic Update • Edition No. 20 41 Annex Annex Figure 2: Employment by sector: urban and rural, male and female Index of employment Index of employment Q1 2019 = 100 Q1 2019 = 100 160 180 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 2019 2020 2021 2022 2019 2020 2021 2022 Transportation and storage Urban Rural Accommodation and food service activities Urban Rural Index of employment Index of employment Q1 2019 = 100 Q1 2019 = 100 250 180 160 200 140 120 150 100 100 80 60 50 40 20 0 0 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 (Q4 Q1 Q2 Q3 2019 2020 2021 2022 2019 2020 2021 2022 Transportation and storage Male Female Accommodation and food service activities Male Female Source: Rwanda Labor Force Survey, various issues Third, although employment in Rwanda is overwhelmingly informal, employment in accommodation and food service activities is much more likely to be formal. For Rwanda as a whole, employment is mostly informal—that is, about 86 percent of workers are “engaged in unregistered private business that did not keep written records of accounts,” following the official definition. However, accommodation and food service activities employment is substantially more likely to be formal than transport employment. About 24 percent of workers in accommodation and food services are formally employed compared to only 7 percent in the transport sector (Annex Figure 3). Within these sectors, female workers are more likely to be formally employed (35.3 percent) in the transport sector. They are also more likely to have university education (28 percent), compared to the men (2 percent) (Annex Figure 4). Meanwhile male workers are more likely to be formally employed (28 percent) in the accommodation sector, thought for both men and women, the sector provides more formal employment opportunities than other sectors on average. Annex Figure 3: Formal-informal employment: by sector and by male-female 100 100 6.15 7.1 17.8 13.6 90 90 24.0 28.5 80 35.3 80 70 70 60 60 50 50 93.9 92.9 40 82.2 86.4 71.5 40 76.0 64.7 30 30 20 20 10 10 0 0 Male Female Male Female All Transport and Accommodation and Transport and Accommodation and storage service activities storage service activities Informal Formal Informal Formal Source: Rwanda Labor Force Survey, various issues 42 Rwanda Economic Update • Edition No. 20 Annex Annex Figure 4: Educational attainment: by sector and by male-female Male Female 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Employed Transportation Accommodation and Employed Transportation Accommodation and population and storage food services activities population and storage food services activities None Primary Lower secondary Upper secondary University None Primary Lower secondary Upper secondary University Source: Rwanda Labor Force Survey, various issues The geographic distribution of tourism-related activities in Rwanda Data on the geographic concentration of tourism-related activities in Rwanda could be a useful input to policy discussion. This information could help understand the current distribution of tourism activities and particularly nature-based tourism, giving insights into how this type of tourism activity might be distributed and which cities and communities currently benefit from its economic returns. They can also indicate who might benefit immediately from the expansion of such activities. However, there is limited information on the geographic distribution of tourism-related activities. The annual statistical yearbook provides data on international visitor arrivals and departures, the regions and countries of origin of visitors, the purpose of their visit (business, holiday or something else). There also data on the number of visitors by national park (Volcanoes, Akagera, Nyungwe), though not distinguishing between foreign and domestic visitors. The aggregate data are on an annual basis and data are available through 2020. Within Rwanda, other than the number of visitors by national park, there are no other data (to the best of our knowledge) on the geographic distribution of concentration of tourism activities. One possible proxy is the number of accommodation rooms by district and province. The annual statistical yearbook provides the information and data are available through 2020. Because this represents one dimension of the current state of tourism infrastructure—and will likely not vary widely from one year to the next—it is a useful approximation of both the distribution of current tourism activities and the distribution of the benefits from tourism expansion. Another proxy would be to see the current distribution of employed workers in relevant sectors. The annual labor survey report provides data on employed workers by sector and district. Following our previous analysis, we could look at the geographic distribution of those in the transport and storage and accommodation and food services. Rwanda Economic Update • Edition No. 20 43 Annex Annex Figure 5 illustrates the geographic distribution of accommodation rooms and employment in tourism related sectors. The charts in the top panel represent the number of accommodation rooms in absolute terms (left) and in percent of total (right). The charts in the lower panel represent the number of workers in transport and storage (left) and accommodation and food services (right). These are the latest available data, 2020 in the case of accommodation rooms and 2021 for employment data. Annex Figure 5: Geographic distribution of tourism-related facilities and employment Source: Rwanda Statistical Yearbook 2021 and Labor Force Survey: Annual Report 2021 44 Rwanda Economic Update • Edition No. 20 Annex There is a strong geographic concentration of accommodation rooms. Over 50 percent of existing accommodation can be found among the districts of the City of Kigali, led by Gasabo (28 percent), and the West Province is a very distant second at 17 percent, led by Rubavu (7 percent). Employed workers in tourism-related sectors are also concentrated among the districts in the City of Kigali though they are more proportionately distributed across provinces and districts. Nearly 30 percent of workers in transport and storage are in the districts of the City of Kigali and more or less evenly distributed among the other provinces. Employed workers in accommodation and food services are more concentrated in the districts of the City of Kigali (35 percent) and the East Province (23 percent). It is not clear whether unemployed workers could immediately benefit from an expansion of tourism activities, as currently structured. This is of course not the only measure of potential benefit from expanding nature-based tourism. But such an expansion creates new jobs that directly or indirectly serve the tourism sector. And the immediate beneficiary would be workers currently seeking employment opportunities, assuming they have the required qualifications. Many unemployed workers are away from the centers of current tourism activity. Annex Figure 6 suggests that although about a fifth of unemployed workers are in districts of the City of Kigali (19 percent), slightly more are in the districts of the East and South Provinces (25 and 22 percent of unemployed workers, respectively), led by Rwamagana in the East and Gisagara in the South, away from the current centers of tourism activity and where the unemployment rates are about 10 percentage points above the national average. Annex Figure 6: Geographic distribution of unemployment Source: Rwanda Labor Force Survey: Annual Report 2021 Rwanda Economic Update • Edition No. 20 45 Annex Tourism is geographically concentrated while unemployment and poverty are not. Annex Figure 7 (left panel) brings together the maps of unemployment and accommodation rooms—the heat map represents the concentration of accommodation rooms while the gray points represent unemployed workers in percent of total. As previously suggested, tourism activity and tourism infrastructure are currently geographically concentrated while unemployment is not. One index of concentration is the Herfindahl–Hirschman Index (HHI). Although this index is typically used to measure market concentration, it can be used to calculate the geographic concentration of tourism and unemployment, larger values of which signify greater concentration.31 The HHI of unemployment is 391 while the HHI of accommodation rooms is 1,361. Annex Figure 7: Poverty, unemployment and tourism Similarly, there are pockets of poverty away from tourism center. As Annex Figure 6 (right panel) illustrates, there are high rates of poverty in the West and South Provinces away from the City of Kigali. Of course, this could be endogenous, illustrating the very benefits of tourism – i.e., that tourism could have provided opportunities for people to move out of poverty. However, further expansions to tourism activity will need to think about a viable strategy to reach those currently outside its centers of activity. In sum, promoting tourism could be economically beneficial and pro-poor, but such a strategy needs to think about how new employment opportunities could be accessible to those who need it most. It requires thinking about districts and provinces that have deep pockets of unemployment and how their jobless workers can gain to access these opportunities, ensuring that they are both sufficiently mobile and qualified. In this case, we sum the square of the tourism or unemployment share of each district. This index has been used to measure the geographic 31 concentration of trade by country. 46 Rwanda Economic Update • Edition No. 20 Annex ANNEX NOTE 2: RECOMMENDATIONS FOR IMPROVEMENT OF THE TRSP Recommendations for improvement of the TRSP Phase Recommendation Revenue sharing policies Clarify criteria to reduce ambiguity and misinterpretation and make the criteria public Increase funding support to community livelihood projects by restructuring revenue allocation to: • 70% livelihoods projects, including MSME support, micro-credit; community business buy-in Revenue allocation fund; capacity building and implementation support • 25% infrastructure support, with matched funding from government • 5% emergency fund, in an interest-bearing account • Develop clear schedule, guidelines and criteria • Revise, clarify and make stakeholders aware of the selection criteria • Revise and simplify the proposal submission procedure into a two-step process (1. Submission of a 2-page expression of interest; 2. A full proposal for those selected) Project preparation • Expand eligible applications to include CBOs, non-CBOs if project benefits more than 10 households, and NGOs working with communities • Support and build capacity for communities to submit proposals • Provide feedback on rejected proposals 1. Revise the selection process, with greater participation of community members, and provide for communities to collectively decide what proposals to submit to ensure ownership Project selection 2. Revise composition of the Project Revenue Sharing Committee (PRSC) at each NP process 3. Make public the members of the PRSC, and include external experts in the committee 4. Introduce a project awards ceremony to raise visibility and strengthen accountability 1. Provide direct funding, where recipients have bank accounts and demonstrate ability to manage funds and report on outputs Implementation 2. Build capacity, with NGOs and private sector providing capacity support and linkages with other process programs 3. Practice adaptive management, particularly if a project is no longer feasible, so funds can be re-allocated 1. At least one M&E senior officer in RDP to monitor and report on the TRSP Monitoring and 2. Develop a system for monitoring including tools (e.g. smart phone platforms) evaluation 3. Compile bi-annual reports on project progress, distributed to RDB, Districts, Cells and Sectors for presentation at community meetings Source: Adapted from Conservation Capital and ALU (2021) Rwandan tourism revenue sharing program review: Rwanda Development Board, Final draft, 8 April 2021, Report to the International Gorilla Conservation Program and Rwanda Development Board Rwanda Economic Update • Edition No. 20 47 Photo credits: Rwanda Development Board