Rwanda Economic Update Boosting exports through technology, innovation and trade in services September 2022 TABLE OF CONTENTS Acronyms......................................................................................................................................................................................................................... i Acknowledgments........................................................................................................................................................................................................ ii Executive Summary...................................................................................................................................................................................................... iii PART I: RECENT ECONOMIC DEVELOPMENTS ............................................................................................................................................... 1 1.1. Global and regional economic context – from one crisis to another one ...................................................................... 2 1.2. Rwanda’s economy has broadly recovered in 2021, but labour market is still lagging.............................................. 3 1.3. An improved external position amid rebounding oil prices and remittances............................................................... 6 1.4. A slight monetary policy tightening amid mounting inflation pressures....................................................................... 7 1.5. The government started unwinding of its fiscal response to COVID-19.......................................................................... 8 1.6. Growth is expected to moderate in the medium-term.......................................................................................................... 11 PART II: BOOSTING EXPORTS THROUGH TECHNOLOGY, INNOVATION AND TRADE IN SERVICES................................. 15 2.1. Role of technology and innovation on exporting: a firm-level analysis........................................................................... 16 2.2. Fostering trade in services ............................................................................................................................................................... 23 2.3. Conclusions and recommendations............................................................................................................................................. 30 LIST OF FIGURES Figure 1.1: Developments in global commodity prices............................................................................................................................... 2 Figure 1.2: Rwanda – COVID-19 cases and deaths......................................................................................................................................... 3 Figure 1.3: World divergence in COVID-19 vaccination............................................................................................................................... 3 Figure 1.4: Rwanda GDP: actual vs historical................................................................................................................................................... 4 Figure 1.5: Rwanda GDP growth and sectoral contributions..................................................................................................................... 4 Figure 1.6: Contribution to GDP growth by expenditure............................................................................................................................ 5 Figure 1.7: Quarterly labor market indicators: Rwanda 2019–2021........................................................................................................ 5 Figure 1.8: Employed population by economic activity.............................................................................................................................. 5 Figure 1.9: Rwanda’s inflation trends.................................................................................................................................................................. 7 Figure 1.10: Domestic prices are driving up Rwanda’s inflation ................................................................................................................. 8 Figure 1.11: Trends in fertilizers prices.................................................................................................................................................................. 10 Figure 1.12: Rwanda’s public and publicly guaranteed debt....................................................................................................................... 11 Figure 1.13: Rwanda’s economy is expected to grow at a lower in 2022 than in the previous year.............................................. 12 Figure 2.1: Rwanda exporter share .................................................................................................................................................................... 16 Figure 2.2: Exporter share across the East African Community ............................................................................................................... 17 Figure 2.3: Ranking manufacturing exporter share in Sub-Saharan Africa ......................................................................................... 17 Figure 2.4: Ranking other services exporter share in Sub-Saharan Africa ............................................................................................ 17 Figure 2.5: Exporter share by sector across the East African Community ............................................................................................ 17 Figure 2.6: Exporter share versus ASEAN ......................................................................................................................................................... 18 Figure 2.7: Exporter share by sector versus ASEAN ...................................................................................................................................... 18 Figure 2.8: Exporter share in global context.................................................................................................................................................... 19 Figure 2.9: Main reason why firm did not export in 2019........................................................................................................................... 19 Figure 2.10: Probability of exporting by firm activity in 2019 ..................................................................................................................... 19 Figure 2.11: Financial depth (ranges from 0 to 5)............................................................................................................................................. 19 Figure 2.12: Product innovation.............................................................................................................................................................................. 20 Figure 2.13: Formal training...................................................................................................................................................................................... 20 Figure 2.14: Process innovation.............................................................................................................................................................................. 22 Figure 2.15: Demographic composition within services and reference groups......................................................................................24 Figure 2.16: Ad valorem equivalent of services trade policy ...................................................................................................................... 26 Figure 2.17: Composition and level of Rwanda STRI, selected sectors.................................................................................................... 28 Figure 2.18: DTRI and its components, available ECCAS countries........................................................................................................... 28 Figure 2.19: DTRI and its components, available EAC countries................................................................................................................ 28 LIST OF TABLES Table 1.1: Balance of payments, 2017–2021 .............................................................................................................................................. 6 Table 1.2: Rwanda’s public finances, 2019/20 to 2021/22 ....................................................................................................................... 9 LIST OF BOXES Box 1.1: Fertilizer subsidies.............................................................................................................................................................................. 10 Box 2.1: Definition of financial depth........................................................................................................................................................... 21 Box 2.2: Product versus process innovation.............................................................................................................................................. 23 Box 2.3: Building on Rwanda competitiveness to deepen regional integration in ECCAS....................................................... 29 ACRONYMS AfCFTA African Continental Free Trade Area ASEAN Association of Southeast Asian Nations BNR Banque Nationale du Rwanda (National Bank of Rwanda) CAD Current Account Deficit CBR Central Bank Rate CHOGM Commonwealth Heads of Government Meeting CPI Consumer Price Inflation DRC Democratic Republic of Congo DTRI Digital Trade Restrictiveness Index EAC East African Community EMDEs Emerging Market and Developing Economies EU European Union FDI Foreign Direct Investment FY Fiscal Year GCI Global Competitiveness Index GDP Gross Domestic Product GDPR General Data Protection Regulation GEP Global Economic Prospects GoR Government of Rwanda ICPAR Institute of Certified Public Accountants of Rwanda IMF International Monetary Fund IPCOR Incremental Public Capital Output Ratio ISIC International Standard Industrial Classification ISO International Organization for Standardization IT Information, Communication and Technology KCC Kigali Convention Centre LODA Local Administrative Entities Development Agency MBRP Manufacture and Build to Recover Program MICE Meetings, Incentives, Conferences, Exhibitions MINECOFIN Ministry of Finance and Economic Planning MINICOM Ministry of Trade and Industry MRA Mutual Recognition Agreement NST National Strategy for Transformation OECD Organization for Economic Co-operation and Development Rwf Rwanda Franc SDR Special Drawing Rights SSA Sub-Saharan Africa US$ United States Dollar WBES World Bank Enterprise Surveys WBG World Bank Group WTO World Trade Organization Rwanda Economic Update • Edition No. 19 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 19th edition of REU focuses on the role of technology and innovation to exporting and openness to trade in services. in services. The current edition, led by Calvin Zebaze Djiofack (Senior Economist) and Peace Aimee Niyibizi (Economist), is a collective endeavor and involved staff from several parts of the World Bank. The team includes Esdras Byiringiro (Agriculture Economist), Charles Kunaka (Lead Trade Facilitation), Erwin R. Tiongson (Senior Consultant), Dominique Njinkeu (Lead Trade Facilitation Expert), Bernard Hoekman (Lead Logistic Expert), William Shaw (Senior Consultant), Victor Steenbergen (Economist), Anna Twum (Economist, Internal Growth Center), Samiha Chowdhury (Consultant), Marco Sanfilippo (Consultant), Rohit Ticku (Consultant), Maria Filipa Seara E Pereira (Consultant), Anita Nyajur (Consultant), and Abdoul Akim Wandaogo (Consultant). The team is very 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. Allen Dennis (Program Leader) provided invaluable support to the team. 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 Raju Singh, Rick Emery Tsouck Ibounde, Claire Honore Hollweg, Jean-Christophe Maur, and Aleksandar Stojanov 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 and the Ministry of Trade and Industry (MINICOM) 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. The report is based on information current as of July 31, 2022 ii Rwanda Economic Update • Edition No. 19 EXECUTIVE SUMMARY Rwanda’s robust economic recovery is in 2022 and 6.9 percent on average in 2023–2024. facing new headwinds The baseline projections assume that the country Rwanda’s economy staged a strong recovery in will receive normal rains that will support agricultural 2021. Real gross domestic product (GDP) rebounded performance and also accounts for the downside by 10.9 percent in 2021 from its 3.4 percent effects of the ongoing war in Ukraine through contraction in 2020. Gradually easing mobility increased global commodity prices. They also restrictions have supported a broad-based rebound assume industrial activities to continue benefiting since the second quarter, stimulating domestic from government support of the manufacturing demand amid a gradual reopening of economic and construction sectors and a recovery in tourism activities and falling inflation. Although output has activities boosted by the Commonwealth Heads of recovered to its pre-pandemic levels by the end Government Meeting (CHOGM) meeting as well as of 2019, it remains below its long-term potential. other leisure and meeting events planned in 2022. However, unemployment continued to be higher However, softening global growth momentum relative to the pre-crisis levels as firms were not yet will negatively affect Rwanda’s current account confident about the recovery sustainability and did deficit in the near term given higher oil prices and not hire permanent employees. resultant elevated import costs. Risks to this outlook are tilted on the downside, due to the potential Inflationary pressures are mounting, leading the for a resurgence of the pandemic, Rwanda’s high National Bank of Rwanda to tighten monetary vulnerability to weather and climate shocks, and the policy. After remaining muted in 2021 (averaging 0.8 potential for the increasing fiscal deficit to limit the percent), inflation has accelerated in the first months government’s fiscal consolidation. of 2022, driven mainly by domestic food and utility prices, especially prices of cooking gas. Inflation has Fiscal consolidation and spending efficiencies reached 13.7 percent in June 2022, a level not seen will be introduced with the FY22/23 budget to in the last five years. Underlying price pressures preserve space for growth-enhancing investment. remained strong as core inflation accelerated to The government plans to carry out a significant 11.2 percent in June 2022. The passthrough of the rationalization of both recurrent non-wage spending global oil and fertilizer prices to domestic inflation and capital budgets. This will be driven by the has partially muted through fiscal subsidies. To curb phasing-out COVID-related spending, tight recurrent these inflationary pressures, the National Bank of spending control, discontinuing underperforming Rwanda increased its central bank rate (CBR) by 50 public investment and avoiding inefficient spending percentage points in February 2022, after keeping (through digitalizing some delivery of public goods it at historic low of 4.5 percent—for 22 consecutive and delivery and strengthening the oversight of months—first to mitigate the impact of COVID-19 state-owned enterprises). On the revenue side, on the economy and then to support the economic the implementation of the Medium-Term Revenue recovery. Strategy through tax policy reforms (personal/ corporate income tax and value-added taxes) is Looking ahead, economic growth is expected to expected to raise revenue to 15.9 percent of GDP in moderate in 2022–24, weighed down by the war in FY2023/24 from 15.4 percent of GDP in FY2021/22. Ukraine. Real GDP growth is projected at 6.0 percent Rwanda Economic Update • Edition No. 19 iii Executive Summary Impact of technology and innovation on firms’ firms had obtained ISO certification, placing Rwanda export performances in only the 9th percentile. Thus, support for firms in Rwandan firms’ participation in international learning about and applying for ISO certification trade has increased dramatically. The share of firms could facilitate exports. Manufacturers engaged in involved in exporting rose from 11 percent in 2006 ecommerce are 27 percent more likely, and firms to 21 percent in 2019, or higher than in any other in other services are 16 percent more likely, to be country in Sub-Saharan Africa (other than Togo--28 exporters. However, in 2019, two-thirds of countries percent) and higher than that of most Association had a share of firms engaged in e-commerce that of Southeast Asian Nations (ASEAN) countries. The exceeded Rwanda’s 43 percent. Investment in share of firms involved in services exports increased internet infrastructure to provide firms low-cost sharply, while the share of exporters among connectivity could improve access to external manufacturing firms fell, to levels well below many markets.1 Finally, access to an additional credit Sub-Saharan Africa (SSA) and ASEAN countries. product (i.e., overdraft facility, line of credit or loan, Rwanda’s share of firms exporting also exceeded the bank financing for working capital, bank financing average level in high-income countries (17 percent). for investment, and any non-bank financing) The 2019 World Bank Enterprises Survey indicates is associated with a 10 and 11 percent higher several constraints on firms’ ability to export. Firms probability of exporting for firms in manufacturing that did not participate in exports cited a lack of and other services, respectively. Although limited, foreign demand (38 percent) lack of information Rwandan firms’ access to finance is greater than (12 percent), insufficient production capacity (8 that of firms in many other developing countries. percent); and high trade (5.5 percent) or production Providing sufficient access to finance for firms in (4 percent) costs. times of supply shortages and rising prices, as seen in the post-COVID period, should continue to be a Econometric analysis shows that obtaining priority for the government. International Organization for Standardization (ISO) certification, adoption of e-commerce and Innovation is significantly related to exports, access to credit are significantly co-related to a although the relationship varies by sector and Rwandan firm’s participation in exports. Firms with type of innovation. Firms in services outside of retail ISO certification are 36 percent more likely to be that engage in product innovation are 27.5 percent exporters, but in 2019 only 3 percent of Rwandan more likely to export than other firms in these sectors. Manufacturing firms that engage in process innovation are 40 percent more likely to export than other manufacturing firms. Thus, providing a new product can be important for services sector Government has made substantial investments in ICT infrastructure, 1 but continued efforts are needed to upgrade the quality (and uptake) of ICT infrastructure. ICT infrastructure needs to be high-speed, reliable, available, and accessible, and continued investments are required to improve bandwidth and infrastructure reliability. The Networked Readiness Index is a comprehensive composite index that assesses a country’s “preparedness to reap the benefits of emerging technologies and to capitalize on the opportunities presented by the digital revolution and beyond” (World Economic Forum, INSEAD, and Cornell University 2016). Rwanda performs least well in readiness (115) and is ranked 106 in infrastructure. In terms of digital infrastructure, Rwanda is lagging because of the lack of investment and inadequate metropolitan and last-mile access networks. The high cost of broadband lines, combined with low computer ownership, put the service beyond the reach of most private users. iv Rwanda Economic Update • Edition No. 19 Executive Summary firms to succeed in exporting, while manufacturers by non-exporters, resources spent on increasing that export tend to be improving process efficiency awareness and dissemination of information or industrial engineering (via ISO certification) to regarding application and filing procedures may match the productivity of international competitors. help Rwandan entrepreneurs realize and maximize Regression results suggest that process efficiency their exporting potential. Likewise, the positive or quality control via ISO certification is a more relationship between e-commerce and exporting in important correlate of exporting compared to the combination with “the lack of information regarding introduction of new products and services. Thus, foreign agents, distributors and prospective buyers” the poor performance of Rwandan firms in process cited by non-exporters, suggests investment innovation (7.2 percent of firms engage in process in Internet infrastructure, combined with a innovation, placing Rwanda in the 13th percentile of dedicated platform for information provision on countries, compared to 48 percent of firms in East foreign markets,, can provide local firms low-cost African Community -EAC- countries) could be a connectivity to markets and customers aboard. significant constraint on exports. Rwanda should continue its to foster innovation Rwanda should explore the possibility of creating through tertiary education(WBG-GoR, 2020). a dedicated agency under MINICOM with a clear Publications and patents in Rwanda have been mandate to help addressing the market failures rising, although from a very low base. Likewise, associated with information asymmetry for non- Rwanda has invested in a range of graduate exporters. Like a standard Export Promotion Agency and postgraduate centers for technical training, (EPA),  the new agency would assist firms with including Carnegie Mellon University and the international trade fairs, provide information on various centers of excellence. Creating incentives foreign markets, and facilitate training and advisory for researchers to develop and adapt innovations services. that benefit industries in Rwanda can help Rwanda to reap the maximum returns to local innovation. A The relationship between training and export practical way to do this follows the model common in participation varies by sector. Service firms high-income countries, where private firms finance outside of retail that provide formal training for university research to solve production challenges. permanent, full-time employees are 20 percent Given the nascent private sector, the government more likely to export than other such firms. will have to continue to play a supporting role. However, for manufacturing firms the correlation between exporting and offering formal training is Challenges to trade in services not statistically significant. In 2019, 36 percent of The government has placed considerable firms had formal training programs for permanent, emphasis on expanding services trade. full-time employees, about the same as in other The emphasis on services reflects limits on EAC countries (36 percent) and well above the manufacturing exports due to lack of access to the sea, high transport costs, and small market size. average level in ASEAN countries (18 percent). The Rwanda has considerable potential to increase government has provided substantial financial incomes and exports by specializing in regional support for training: in 2019, 15 percent of firms logistics, adding value to agricultural products and received training subsidies. investment in consumer and business travel. Services also can support human capital accumulation Given the evidence on the strong relationship and innovation, as Rwanda’s services sectors tend between ISO certification and exporting and to employ more highly skilled workers than the “the lack of demand for product abroad” cited manufacturing sector does. Rwanda Economic Update • Edition No. 19 v Recent Economic Developments Rwanda has a low level of restrictions on Trade Organization (WTO) members in e-commerce, services that should encourage development domestic regulation of services, investment of a service based economy but there are still facilitation and measures to enhance the ability of important restrictions on data. Sectoral data is micro and small and medium enterprises to utilize not comprehensive, but Rwanda’s trade regime for trading opportunities. Rwanda’s lack of engagement commercial banking, distribution and road freight in these discussions, all of which are relevant for is similar to that of average levels in many OECD the country, misses the opportunity to influence economies. And the ad valorem equivalent of their outcomes and to learn about best practice services trade restrictiveness in Rwanda is lower than in regulatory policy and areas where coordination in a sample of African countries with the requisite can facilitate cross-border services trade. There are data. However, Rwanda imposes restrictions on the other opportunities to pursue further bilateral and cross-border transfer of data and on data processing multilateral agreements to open services trade, that could impair firms’ ability to participate in including through the African Continental Free Trade services. Regulations require that data must be Area (AfCFTA) and reaching mutual recognition stored and processed locally, and be accessible to agreements concerning the rules governing data the relevant government authorities. The digital privacy and protection. trade restrictiveness index shows that Rwanda is more restrictive in regulating data than the average Rwanda should address its skills shortage of other African nations. by recognizing qualifications of regional professionals and abolishing work-permit regimes Rwanda is facing a skills deficit that, if not for all eligible regional professionals. The EAC remedied, will constrain potential growth for mutual recognition agreements (MRAs) should high-skill services exports. A skills assessment be extended to include professional sectors such estimated that Rwanda needs 5,000 accountants as legal, finance, and consulting professionals. To in the public sector and another 2,325 accountants facilitate short-term assignments, the EAC should in the financial sector to meet demand, yet it also consider abolishing work-permit regimes for all has only 6 percent of that number (ICPAR 2017). eligible professionals. Rwanda is lagging behind the rest of the EAC in the number of professionals and is far behind African However, the attraction of regional services leaders in services exports such as Mauritius and providers should be accompanied by aggressive South Africa. measures to help expand the number of Rwandan professionals. This can be done through Rwanda’s efforts to achieve international a combination of student loan programs, private cooperation on services trade policies have been sponsorships, in-company mentoring, development mixed. The number of services sub-sectors where of a quality tertiary education system focused Rwanda has commitments to ensure openness in on high-return activities and strengthening the the EAC agreement (103 out of the 136 identified in provision of technical and vocational training by the Common Market Protocol) exceeds that of any collecting and disseminating information on the other member of the Community. However, Rwanda quality of skills providers and the returns to different has not participated in discussions initiated by World skills (WBG-GoR, 2020). vi Rwanda Economic Update • Edition No. 19 Recent Economic Developments PART ONE RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK Rwanda Economic Update • Edition No. 19 1 Recent Economic Developments 1.1. Global and regional economic context – The economic recovery in Sub-Saharan Africa (SSA) from one crisis to another one2 has also slowed down as the region faces economic The war in Ukraine has set back the global strains from the was in Ukraine. Deceleration of recovery from the COVID-19 pandemic. After global growth and war-induced disruptions to contracting by 3.4 percent in 2020 due to the COVID global food supply are creating headwinds for the induced economic crisis, the global GDP growth region. Although some large exporters of metals rebounded to 5.7 percent in 2021, the strongest and energy are benefiting from elevated commodity post-recession growth rate in 80 years. The global prices, surging prices of staple foods and farming growth has, however, slowed in first half of 2022, inputs are stoking inflation across the region and owing to COVID-19 resurgences at the turn of sharply reducing food affordability.3 This adds to the year, protracted supply disruptions, reduced existing debt vulnerabilities following marked macroeconomic support and substantial negative deteriorations in fiscal balances and increased spillovers from the war in Ukraine. The war in Ukraine indebtedness caused by COVID-19 relief spending has not only triggered a major humanitarian crisis efforts alongside falling tax revenues. The World but also aggravated pre-existing strains in global Bank expects the pace of economic growth in supply chains, logistics networks, commodity the region to moderate in 2022, expanding by 3.6 markets, foreign direct investment (FDI), and tourism percent, down from 4 percent in 2021. sectors, weighing on growth across developed as well as emerging market and developing economies Despite a low exposure to overall trade with Russia (EMDEs). These effects have contributed to tighter and Ukraine, spillovers will weigh on Rwanda. financial conditions, magnified financial vulnerability, Higher oil prices are expected to boost the import and heightened policy uncertainty, increasing bill of Rwanda, raise international transport costs difficult policy tradeoffs between supporting growth as well as the cost of all imported items, including and managing price pressures (Figure 1.1). The World food items. This is likely to worsen Rwanda’s current Bank forecasts that global growth is expected to slow account deficit (CAD), which is subjected to further to 2.8 percent in 2022 and hover around 3 percent in deterioration from weaker global demand of Rwanda’ 2023–24. s exports and tourism activities. A spike in global Figure 1.1: Developments in global commodity prices food prices would put pressure on food prices in (Price index, 2010=100) Rwanda, which account for about 39 percent of the 190 300 consumer spending in Rwanda (27 percent and 48 260 170 percent respectively in urban and rural areas). Higher 220 150 fertilizer prices are also likely to affect domestic 180 130 production of food and their prices. So far the impact 140 110 of increases in global prices of oil and fertilizers have 100 90 been partially muted as the government has been 60 70 subsidizing their prices on domestic market. Further 20 50 increases in these prices on the global market is likely to affect the limited fiscal space for other priorities. Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Energy Fertilizers Food (RA) Metals & minerals (RA) This is also expected to make an already delicate Source: World Bank “Pink Sheet” Datahttps://www.worldbank.org/en/research/ fiscal consolation more challenging: preserving commodity-markets development spending under the National Strategy for Transformation (NST1), mobilizing more domestic revenues, and containing debt pressures. This section draws on World Bank, Global Economic Prospects (GEP) 2 (June 2022), and World Bank, Africa’s Pulse (April 2022). WFP (World Food Programme), 2022). 3 2 Rwanda Economic Update • Edition No. 19 Recent Economic Developments 1.2. Rwanda’s economy has broadly recovered March 2022. The obligation of wearing masks was in 2021, but labour market is still lagging also lifted in May 2022. Rwanda has adopted “living with COVID-19” normality. After grappling with the third—and Rwanda’s economy staged a strong recovery in more severe—wave in June–August 2021, Rwanda 2021. After contracting by 3.4 percent in 2020, successfully contained the spread of infections gross domestic product (GDP) is estimated to have while continuing its vaccination campaign. Thanks grown by about 11 percent in 2021. Gradually easing to increased immunity conferred by vaccination, mobility restrictions have supported a broad-based COVID-19-related mortalities were less severe with rebound since the second quarter, stimulating the Omicron-variant wave, despite new spikes in domestic demand amid a gradual reopening of infection (Figure 1.2). The authorities report that 70.6 economic activities and falling inflation. On the percent of the total population of about 13 million production side, growth was supported primarily has been vaccinated with at least two doses as of by the buoyed service and industrial sectors, end-July 2022, while 40.7 percent of total population while favorable weather conditions boosted the had received three doses.4 These vaccination rates agriculture sector (Figure 1.5). The level of GDP in place Rwanda among the top ten countries in Africa 2021 has already exceeded the pre-pandemic levels, (Figure 1.3). but remains 4 percent below the 2009–2019 trend (Figure 1.4). Rwanda is now fully open for business. With high vaccination rates and low infection rates, the The services sector powered the recovery in 2021 authorities have re-opened land borders and lifted after being hit hard by the COVID-19 pandemic. curfew in early March 2022 while continuing to An easing of mobility restrictions and reopening enforce preventive health measures. The required of economic activities helped the recovery in the quarantine period for those who have been fully services sector. The output in the services sector vaccinated has been lifted toward end January expanded by 11.9 percent in 2022 and that growth 2022.5 Currently, testing to attend physical in services output accounts for more than 50 percent gatherings and social events is not mandatory. of GDP growth (Figure 1.5). This strong performance Businesses are now operating at full capacity since was mainly driven by four sub-sectors—trade, Figure 1.3: World divergence in COVID-19 vaccination Figure 1.2: Rwanda – COVID-19 cases and deaths (share of vaccinated people against COVID, June 30, 2022) 2,000 25 Seychelles 82 4 85.9 Delta Omicron variant variant UMIC 78 4 82.6 1,600 20 High income 75 5 80.0 Mauritius 74 3 76.8 Botswana 63 8 70.8 New infections 1,200 15 Rwanda 64 4 68.4 Deaths World 61 6 66.5 800 10 Cape Verde 55 9 63.2 LMIC 55 7 62.1 South Africa 32 5 36.7 400 5 Uganda 23 11 34.0 Ethiopia 22 3 24.9 0 0 Africa 19 5 23.9 Kenya 17 6 23.0 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Tanzania 7 6 12.3 7-day average new cases 7-day average deaths (right axis) Share of people with a complete initial protocal Share of people only partly vaccinated Source: WBG staff calculations based on daily Rwanda Biomedical Center Source: WBG staff calculations based on data by Our World in Data (RBC) updates Note: Alternative definitions of a full vaccination, e.g., having been infected with SARS-CoV-2 and having 1 dose of a 2-dose protocol, are ignored to maximize 4 RBC. COVID19 updates. https://www.rbc.gov.rw/fileadmin/user_ comparability between countries. UMIC: upper middle-income country, LMIC: lower middle-income country. upload/annoucement/Update-on-COVID-19-31-05-2022-eng.jpg. 5 Office of the Prime Minister’s Communiqué following the Cabinet Meeting of January 26, 2022. Rwanda Economic Update • Edition No. 19 3 Recent Economic Developments Figure 1.4: Rwanda GDP: actual vs historical Figure 1.5: Rwanda GDP growth and sectoral contributions (RWF million) (percentage points, year-on-year) 11,000 30 20.6 10,000 20 12.3 10.9 10.1 10.3 9,000 10 8.5 7.9 6.2 3.6 3.6 8,000 0 0.13 -0.7 -3.6 7,000 -10 -12.4 6,000 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2017 2018 2019 2020 2021 2022 2019 2020 2021 2022 Annualized GDP 2010-19 growth trend 2019 level Agriculture Industry Services Taxes (Net) GDP growth Source: World Bank staff calculations based on NISR Source: World Bank staff calculations based on NISR transport, education and financial services—that The agriculture sector also recovered from bad generated more than 55 percent of the overall performance. After growing by less than 1 percent services growth. The resumption of conferences and in 2020, agricultural output increased by 6.4 percent sporting events in Rwanda has fueled the growth in 2021, primarily due to a strong performance in in hospitality-related services, however, the overall food production (6.7 percent), livestock (8.5 percent) output in 2021 remained about 28 percent below its as well as fisheries (26.9 percent). Output of Rwanda’s pre-pandemic (i.e., 2019) level. The number of tourist export crops remained almost constant relative to arrivals increased by 2.8 percent in 2021 compared their 2020 levels. Despite high prices on international to 2020 but remained only 30 percent of their pre- market, the production remains below the pre-crisis pandemic levels. Output in transport services also levels. On the other hand, tea production increased remained below their pre-pandemic level, at about by 4 percent only in volume terms. 13 percent, as buses did not operate at their full capacity for almost the entire year of 2021. On the demand side, the solid GDP growth in 2021 was due to robust private consumption, stimulated Construction and mining powered overall by eased restrictions on mobility and low inflation industrial growth. The mining sector expanded pressures. Overall, private consumption contributed by 26.5 percent in 2021 (although output remains about 6.3 percentage points to growth in 2021, below pre-pandemic levels), largely driven by high from -3.6 percentage point contribution in 2020, mineral prices on international markets combined and almost as the typical 6.2 percentage points with the resumption of mining and quarrying it contributed during 2018–2019 (Figure 1.6). activities following eased COVID-containment Government consumption generated about 2.2 measures. Construction production increased by percentage points to growth in 2021, much better 15.1 percent in 2021 after declining by 5.6 percent than the 0.3 percentage point contribution in 2020, in 2020. Rebound in construction went along with as fiscal support for firms and households affected the rise in imports of construction materials other by the pandemic continued to roll out. Investment than cement and metallic ones. Manufacturing (led also recovered strongly, driven by increased road by food and beverages production) experienced also construction in City of Kigali and other secondary double-digit growth of 10.5 percent in 2021. The cities as well as the resumption foreign direct production of textiles and papers made significant investment (FDI). contributions to not only the manufacturing growth but also to exports in 2021. 4 Rwanda Economic Update • Edition No. 19 Recent Economic Developments Figure 1.6: Contribution to GDP growth by expenditure Figure 1.7: Quarterly labor market indicators: Rwanda 2019–2021 (percentage points, year-on-year) (percent) 30 70 Lockdown in in Kigali City Kigali City & lockdown Lockdown 8 districts National 20.6 61.0 20 60 55.0 12.3 6.2 10.9 8.5 10.1 50 46.5 46.5 10 10.3 7.9 3.6 3.6 40 0 30 -0.7 -3.6 20 23.8 -10 -12.4 16.5 10 15.4 -20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 0 2019 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2019 2020 2021 2022 Government consumption Private consumption Investment Net exports GDP growth Unemployment rate Labour force participation rate (RHS) Employment Source: WBG staff calculations based on NISR data Source: WBG staff calculations based on different NISR’s Labour Force Survey reports The recovery was sustained in Q1-2022, but at Rwanda’s labour market reported a shift away from a slower pace and with a shift in growth drivers employment in contact-intensive services towards towards government consumption and external agriculture (Figure 1.8). Prior to the pandemic, demand. The latest data highlight a 7.9 percent the labour market was experiencing a shift away GDP expansion in Q1-2022 (year-on-year). Growth from agriculture-related jobs, in line with the was underpinned by a strong boost in external government aspirations under the National Strategy demand thanks to strong commodity prices on the for Transformation (NST) in terms of structural international markets. Growth in Exports of goods changes. This trend has, however, reversed during and services has reached at 41.4 percent in Q1- the pandemic and these proportions fell to 35.1 2022 compared to a 5.3 percent growth in imports percent and 17.2 percent, respectively, in 2021.6 This of goods and services. Due to rising inflation in has to some extend dampened the overall average Q1-2022, household consumption declined by 1.6 monthly earnings from employment, which declined percent. Overall, the domestic demand contributed by 6.6 percent. 2.6 percentage points to GDP growth in Q1-2022. Figure 1.8: Employed population by economic activity (percent) The labour market has not fully recovered despite strong economic activity in 2021. Rwanda’s labour 33.2 36.3 34.8 36.1 32.9 41.1 44.5 43.1 45.5 39.5 37.7 41.4 37.3 market showed a mixed picture in 2021 as restrictions on activity imposed during the successive COVID-19- 14.5 14.6 19.5 16.9 20.6 17.0 16.5 19.5 related lockdowns have hampered its prospects. The 19.0 17.5 21.4 17.2 26.1 unemployment rate has reached its highest level, of 52.3 46.8 52.5 23.8 percent, in November 2021 (Figure 1.7), before 39.8 38.0 35.4 37.3 43.9 42.8 43.1 44.6 46.9 32.5 declining to 16.5 percent in Q1 of 2022, but this level remains above its highest pre-pandemic level Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2019 2020 2021 2022 (i.e., 16.0 percent in the third half of 2019). On the Market-oriented agriculture Industry Services other hand the employment-to-population rate rose Source: WBG staff calculations based on different NISR’s Labour Force Survey reports to 46.5 percent in Q4-2021, a same level as its pre- pandemic one. This increase in employment was also reflected in labor force participation rate, which 61 percent, a level not seen before the pandemic. This indicates that some worker re-entered the labor The increase in the industrial proportion in 2020 was mainly associated 6 with activities related to schools construction that were speed up force as the recovery continued. during the period schools were closed. Rwanda Economic Update • Edition No. 19 5 Recent Economic Developments 1.3. An improved external position amid by uptick in international oil prices from mid-2021. rebounding oil prices and remittances Oil imports increased by 77 percent in the second half Rwanda’s current account deficit slightly improved of 2021 after declining for two halves. Oil and non-oil as the trade deficit narrowed and remittance imports increased by 13.9 percent and 5.4 percent inflows continued to grow (Table 1.1). Buoyed by in 2021 respectively, leading to an overall import strong external demand, exports growth outpaced growth of 4.3 percent (compared to 13.1 percent imports, narrowing the trade deficit to 15.0 percent in 2020). Tourism activities resumed gradually in in 2021, 1.2 percentage points lower than in 2020. 2021, but remained far below their precrisis levels, Driven by higher commodity prices, export earnings generating only 1.4 percent of GDP in receipts. from traditional goods—coffee, tea, cassiterite, Remittance inflows registered a strong growth of wolfram, and coltan—increased by 42.8 percent 38.5 percent in 2021, together with public current in 2021. A gradual border reopening, especially transfers, partially financing the trade deficit. The to the Democratic Republic of Congo (DRC), has current account deficit (CAD) stood at 10.9 percent also contributed to the strong growth in exports. of GDP in 2021, 1.1 percent lower than in 2020. Merchandise imports on the other hand, were driven Table 1.1: Balance of payments, 2017–2021 (percent of GDP) 2017 2018 2019 2020 2021 A. Current account balance -9.5 -10.1 -11.9 -12.1 -10.9 Goods -10.5 -12.0 -14.2 -16.2 -15.0 Exports 11.2 11.7 12.0 13.8 13.8 o/w gold 11.2 11.7 12.0 13.8 3.3 o/w coffee and tea 1.6 1.7 1.5 1.4 1.6 Import 21.8 23.7 26.1 30.1 28.8 o/w gold 21.8 23.7 26.1 30.1 3.3 o/w energy products 2.7 5.8 5.0 3.4 3.6 Services -2.1 -1.5 -0.2 0.0 -0.8 o/w transport exports 1.5 1.9 2.1 1.1 1.3 o/w tourism exports 4.1 4.1 4.4 1.2 1.4 Primary income -3.1 -3.6 -3.2 -2.0 -2.0 Secondary income 6.3 6.9 5.6 6.1 6.8 o/w general government, net 3.9 3.7 2.6 2.8 3.1 o/w remittances inflows 1.6 2.1 2.0 2.3 3.1 B. Capital account balance 2.1 2.5 2.5 3.1 3.4 C. Financial account balance (inflows) 7.4 8.4 8.9 11.0 8.7 Direct investment 2.8 3.6 2.5 1.5 1.9 Portfolio investment -0.8 -0.2 -0.3 0.3 1.8 Loans and flows 5.4 5.0 6.8 9.2 4.9 o/w SDR allocation 0.0 0.0 0.0 0.0 2.0 D. Net errors and omissions 1.7 0.2 1.5 1.3 0.2 Overall balance (=A+B+C−D) 1.7 1.0 1.1 3.2 1.4 Use of reserves (−: accumulation) -1.7 -1.0 -1.1 -3.2 -1.4 Memo Increase in government net liabilities 4.1 4.8 6.1 9.4 6.2 Source: WBG Staff calculations based on BNR and NISR data Note: Increases in portfolio investment were due to Eurobond issuance. 6 Rwanda Economic Update • Edition No. 19 Recent Economic Developments Financial account balance narrowed in 2021 Figure 1.9: Rwanda’s inflation trends partially due to a base effect emanating from 12 higher borrowing recorded in 2020 to mitigate 10 the pandemic effects on the Rwanda’s economy. 8 Upper bound In 2021, the financial account, excluding reserves, 6 saw net inflows of US$959 million (equivalent to 8.7 4 percent of GDP down from 11.0 percent in 2020), 2 mainly driven by the International Monetary Fund Lower bound 0 (IMF) SDR7 allocation and a Eurobond issuance. In August 2021, Rwanda issued its second Eurobond in -2 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 August 2021 on US$620 million at a coupon rate of Overall in ation Core in ation NBR policy rate 5.5 percent. The financing raised was used to repay Source: WBG staff calculation based on NISR data approximately 85 percent of the existing US$400 and the school year 2021-22 start. The subsequent million Eurobond issued at a coupon rate of 6.25 acceleration—to 13.7 percent in June 2022—was percent and refinancing an expensive RwandAir broadly based among the biggest components of debt of about US$112 million. Meanwhile, at the consumer basket. Accounting for 27 percent of US$211.9 million (or 1.9 percent of GDP) in 2021, FDI the consumer, inflation of food and non-alcoholic inflows recovered, but remained significantly below beverages reached 25.1 percent in June 2020, up pre-pandemic levels, partly reflecting protracted from -2.1 percent in December 2021. Inflation of uncertainty in international markets regarding the utilities—housing, water, electricity, gas & other fuels global economic outlook (Table 1.1). The overall (20.7 percent of the consumer basket)—increased balance of payments surplus declined from 3.4 to 8.8 percent in April 2022 from 1.9 percent in percent of GDP in 2020 to 1.4 percent of GDP in 2021. December 2021, reflecting mainly price increases of cooking gas (32 percent) since December 2021. Core Moving into 2022, Rwanda’s external trade inflation, which excludes prices of volatiles items continue to will be subject to rising global such as fresh foods and energy products, stood at commodity prices. According to preliminary BNR 11.2 percent in June 2022. trade statistics, export receipts grew by 49.4 percent year-on-year and import payments increasing 27.9 Government subsidies on fuel and fertilizer muted percent year-on-year. Overall, the trade deficit the passthrough of rising world prices. Between deteriorated by 11.9 percent in dollar terms in the February and March 2022, global energy price index 12-months to June 2022. surged by 24.1 percent—the highest monthly jump 1.4. A slight monetary policy tightening amid since 2000, driven by crude oil (20.2 percent), coal mounting inflation pressures (49.9 percent) and natural gas (37.2 percent). The increase in oil prices was initially just a rebound Consumer price inflation (CPI), which remained from the large drop at the onset of the pandemic muted in 2021, accelerated in the first half of 2022 (when the world locked down (and some oil prices (Figure 1.9). Inflation rose by 1.8 percent in October even went negative). Fertilizer price index increased 2021—a reversal of its 14-month declining trend— 18.1 percent between February and March 2022, and has subsequently accelerated through early adding to 171.6 percent increases in 2021. The war 2022. Rising prices of services, especially hospitality in Ukraine has aggravated the situation, by leading and education, initially drove increases in the CPI, to significant disruptions to the production and as the hospitality started gaining some momentum trade of commodities for which Russia and Ukraine are key exporters. So far, the impact of these price Special drawing rights. 7 increases on domestic prices has been partially Rwanda Economic Update • Edition No. 19 7 Recent Economic Developments muted as the government has introduced subsidies The banking sector is reportedly in sound on fuel products in May 2021 and increased financial condition, but asset quality warrants subsidies on fertilizers in January 2022. This has closer monitoring. The banking sector accounts helped to lessen inflation pressures from higher oil for 67.2 percent of Rwanda’s overall financial sector and fertilizer prices but adding some fiscal costs to assets and has remained profitable throughout the the budget. According to the July–December 2021 pandemic. It and displayed strong solvency, with budget execution report, the forgone revenue from a capital adequacy ratio (CAR) of 22.1 percent in the subsidy on fuel levy amounted to Rwf7.8 billion June 2022—above the minimum requirement of during the July-December 2021 period.8 12.5 percent. The liquidity of the banking sector also remains sufficient to absorb funding shocks, The National Bank of Rwanda (BNR) increased the with a liquidity coverage ratio of above 100 percent. central bank rate (CBR) in the early 2022 after having Gross non-performing loans (NPLs) subsided to 4.7 maintained it at its historic low for 22 months. BNR percent of total loans in December 2021, and then to reduced the CBR to 4.5 percent in April 2020, to 4.3 percent in June 2022, the lowest level ever seen. respond to the crisis and has kept it constant in 2021 However, this hides some pandemic scars: sectors to support the banking sector’s role in financing the that were hard hit by the pandemic have seen their economic recovery. Credit growth was consistently NPLs remain high, such as trade (13.5 percent of total higher than economic growth rates (19.9 percent on loans) and public works and building (10 percent). average in 2021), ensuring ample liquidity during the These two sectors accounted for 74.8 percent of recovery. At its quarterly meeting held on February total NPLs and 47.9 percent of total outstanding 15, 2022, the Monetary Policy Committee raised credits in December 2021. Consequently, the bank the CBR by 50 basis points to 5 percent in order to NPL provision coverage ratio has risen to 119.8 contain rising inflation while continuing to support percent—the highest in recent history, warding off the economic recovery.9 BNR raised the CBR to 6 any immediate stability concerns. In June 2022, the percent in its August 2022 meeting. BNR predicts bank NPL provision coverage ratio stood at 114.4 inflation increases in 2022, threatening to breach the percent. upper bound of the central bank’s target range of 5±3 percent in the medium term. 1.5. The government started unwinding of its Figure 1.10: Domestic prices are driving up Rwanda’s inflation fiscal response to COVID-19 12 Rwanda’s fiscal deficit eased in the first half of 10 FY2021/22. Official data for the first half (H1) of 8 FY2021/22 (July to December) indicate an overall 6 deficit of 7.9 percent of GDP, lower than the 9.3 4 percent recorded in the same period of FY2020/21. 2 However, the overall fiscal deficit remains above 0 their pre-pandemic levels. The decrease in the -2 fiscal deficit was mainly driven by lower level of the -4 government expenditure due to reduction of some Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 related expenditure with the exception of the ones Local goods index Imported goods index Headline CPI to health expenditure. In overall, COVID-related Source: WBG stall calculation based on data from NISR expenditure declined to 4.5 percent of GDP in July- December 2021 up from 6.5 percent of GDP in the 8 MINECOFIN, Budget Execution Report (February 2022). https:// www.minecofin.gov.rw/index.php?eID=dumpFile&t=f&f=37995&to- same period of 2020. ken=f7822f6311c33865b0fee50ae3430c2261d3801f 9 BNR, Press Release. https://www.bnr.rw/fileadmin/user_upload/ PRESS_REALESE__-_MPC__17.02.2022_.PDF 8 Rwanda Economic Update • Edition No. 19 Recent Economic Developments Tax revenue collection fell short of the expectation percent if H1 of FY2020/21). Shortfall were mainly on account of tax incentives and subsidies on recorded in taxes on goods and services as well petroleum products, together with confinement as on international trade (Table 1.2). Regarding measures. In overall, tax revenue in H1 2021/22 taxes on goods and services were affected through performed below the previous year’s outrun (15.0 lower taxable base as a result of the decline in percent of GDP in H1 of FY2021/22 against 15.2 household consumption due to COVID-related Table 1.2: Rwanda’s public finances, 2019/20 to 2021/22 (percent of GDP) FY2021/22 First half of First half of FY2019/20 FY2020/21 Original Revised FY2020/21 FY2021/22 budget budget REVENUE 23.3 25.0 24.2 24.3 24.5 23.7 Taxes 15.7 15.8 15.8 15.3 15.2 15.0 Taxes on income, profits, and capital gains 6.8 6.8 6.7 6.8 6.2 6.6 Taxes on goods and services 7.6 7.5 7.6 7.1 7.6 7.2 Taxes on international trade transactions 1.2 1.2 1.3 1.1 1.3 1.1 Other taxes 0.0 0.2 0.2 0.2 0.1 0.1 Other revenues 3.1 3.7 2.8 3.7 4.2 3.5 Grants 4.6 5.5 5.5 5.4 5.1 5.3 EXPENDITURE 31.2 32.5 30.3 32.3 33.7 31.6 Expenses 20.2 20.3 19.5 20.4 20.8 20.1 Compensation of employees 2.8 2.9 3.2 2.7 3.0 2.7 Use of goods and services 6.1 6.1 4.8 5.5 5.7 5.0 Interest 1.5 1.8 2.3 2.1 1.7 1.8 Domestic 0.6 0.7 0.9 0.7 0.7 0.5 Foreign 0.8 1.1 1.5 1.4 1.0 1.3 Subsidies 2.7 2.5 2.3 3.2 3.0 3.6 Grants 5.3 5.3 5.5 5.5 5.8 5.3 Social benefits 0.3 0.4 0.4 0.5 0.2 0.5 Other expense 1.5 1.3 1.0 1.0 1.3 1.3 Net acquisition of nonfinancial assets 11.0 12.2 10.8 11.9 13.0 11.5 Foreign financed 5.8 6.6 5.2 5.6 7.7 5.2 Domestically financed 5.2 5.5 5.6 6.2 5.3 6.3 BALANCE Including grants -7.9 -7.5 -6.1 -8.0 -9.3 -7.9 Excluding grants -12.4 -13.0 -11.6 -13.4 -14.4 -13.1 Primary balance -6.4 -5.8 -3.8 -5.8 -7.6 -6.1 Financing (net) 7.9 7.5 6.1 8.0 9.3 7.9 Foreign financing 11.5 6.4 5.0 8.7 9.0 9.2 Domestic financing -3.6 1.1 1.1 -0.7 0.3 -1.3 Memorandum item: Covid related spending .. .. .. .. 6.5 4.5 o/w Health .. .. .. .. 0.6 2.7 o/w Social protection/Agriculture .. .. .. .. 1.3 0.8 o/w Education .. .. .. .. 1.0 1.0 Source: WBG staff calculation based on MINECOFIN budget execution reports & IMF country reports Rwanda Economic Update • Edition No. 19 9 Recent Economic Developments lockdown measures of July 2021. The introduction are exempted from value-added tax (VAT) payments. of the “manufacture and build to recover program” Low household consumption has also triggered low (MBRP) was also associated with tax exemptions import growth than expected, also affecting the tax that also contributed to the lower taxable base. base of taxes on international trade. Manufacturing companies benefiting from the MBRP Box 1.1: Fertilizer subsidies Rwanda introduced fertilizer subsidies in 2007 as a key initiative to reach the Crop Intensification Programme (CIP)’s goal of increasing food crop productivity and ensuring food security. Fertilizer subsidies started with six CIP crops—maize, wheat, rice, Irish potatoes, beans and cassava, and progressively expanded to also include soybeans, banana, fruits and vegetable crops.i In FY2020/21, fertilizer subsidies accounted for Rwf16.7 billion, equivalent to about 0.2 percent of GDP. Urea, Diammonium Phosphate (DAP), and Nitrogen-Phosphorus-Potassium 17-17-17 (NPK) have been the main subsidized fertilizers; initially at the rates of 50 percent for urea and DAP, and 20 percent for NPK. Despite the fertilizer price increases, the subsidy levels remained the same for about six years, before they were reduced to about 35 percent for DAP, 30 percent for urea and 15 percent for NPK and these proportions were kept until in 2021. Between 2017 and 2021, while fertilizer prices in Rwanda had increased by about 26 percent for urea, and about 16 percent for DAP and NPK, they almost doubled in just one year, between 2021 and 2022. To avoid a drop in the fertilizer application, the government shared the cost of the sudden and significant increase in fertilizer prices with farmers, with the government absorbing 50 to 60 percent of the price increases. The subsidy rates increased in January 2022 to 40 percent for urea, 42 percent for DAP and 35 percent for NPK. These changes had an important effect on the share of the subsidy regime relative to the overall MINAGRI’s budget, as it increased by about 4 percent, from 7.8 percent in 2020 to about 11.7 percent in 2022. Import disruptions caused by the war in Ukraine increase further fertilizer prices, which may also affect the production of key food crops. At current prices, national output across all seasons could decrease by up to 3 percent for maize, 2 percent for rice, and 12 percent for Irish potato under assumptions that farmers are highly sensitive to all three fertilizer prices.ii From 2008, the government progressively privatized Figure 1.11: Trends in fertilizers prices the importation and distribution of fertilizers and 1,600 by 2017, private companies selected through a 1,400 public tendering process had been given license 1,200 to import fertilizer while a public company, Agro- 1,000 Processing Trust Corporation Ltd (APTC) was given 800 the responsibility of distributing the fertilizer to 600 agro-dealer shops across the country.iii In 2018, to 400 further improve the agriculture inputs subsidy and 200 supply management system, Rwanda Agricultural 0 Board (RAB), through a public-private partnership 2017 2018 2019 2020 2021 2022A 2022B 2017 2018 2019 2020 2021 2022A 2022B 2017 2018 2019 2020 2021 2022A 2022B agreement with BK TEcHouse launched the Smart DAP NPK UREA Nkunganire System (SNS) to digitize the end-to-end Farmer price Subsidy value chain of the Agro-Subsidy program. Source: International Food Policy Research Institute (IFPRI) Note: i Institute of Research and Dialogue for Peace (IRDP), Crop Intensification Program (CIP), Citizen’s Satisfaction Survey – 2018, available at http://www.irdp.rw/wp- content/uploads/2019/02/Final-printed-CIP-report.pdf ii International Food Policy Research Institute (IFPRI), Expected impacts of increases in international prices of fertilizer in Rwanda, March 2022, available at https:// ebrary.ifpri.org/digital/collection/p15738coll2/id/135073 iii Alliance for a Green Revolution in Africa (AGRA), Assessment of Fertilizer Distribution Systems and Opportunities for Developing Fertilizer Blends – Rwanda. 2018, available at https://agra.org/wp-content/uploads/2020/08/Rwanda-Report_Assessment-of-Fertilizer-Distribution-Systems-and-Opportunities-for-Developing- Fertilizer-Blends.pdf 10 Rwanda Economic Update • Edition No. 19 Recent Economic Developments Forgone revenue on petroleum products are the allocation (0.6 percent of GDP), will be kept as generating some fiscal costs, though important reserves to be used in retiring the remaining 2013 in containing the growth in transport fares. In Eurobond amount at maturity in 2023.10 May 2021, the government reduced the fuel excise tax rate by Rwf115/liter to reduce the cost of public Rwanda’s public and publicly guaranteed (PPG) transport. This reduction enabled transport fares debt further increased in 2021, but at a lesser to remain constant despite capacity limitations extend as in the recent past (Figure 1.12). As of for buses. However, these forgone revenues have December 2021, official data indicate that total affected both collections for excise duties and public and publicly guaranteed (PPG) debt stood at strategic petroleum reserve levy. In July-December US$7.9 million, equivalent to 73.3 percent of GDP and 2021, they amounted to Rwf1.3 billion and Rwf7.8 marking an 0.9 percentage points compared 2020 billion respectively on fuel and strategic petroleum levels. About 74 percent was external debt, and the reserve levies respectively and both equivalent to rest was domestic debt. While the concessional loans 0.2 percent of GDP. represent most of the debt stock, the share of non- concessional loans rose from just under 3 percent of Public spending declined in H1 of FY2020/21 as GDP in 2011 to more than 16 percent of GDP in 2021. the government started winding down some Figure 1.12: Rwanda’s public and publicly guaranteed debt COVID-related expenditures. In H1 of FY2021/20, (percent of GDP) 80 the government’s spending focused on accelerating 72.4 73.3 the vaccination campaign while reducing some 56.8 other COVID-related spending (Table 1.2). The 60 52.3 48.7 government spent Rwf126.9 billion (or 2.2 percent 44.7 of GDP) the vaccination program in July-December 40 2021.Overall public spending declined from 33.7 percent of GDP in H1 of FY2020/21 to 31.6 percent 20 of GDP in H1 of FY2021/22, with both recurrent (i.e., expense) and capital expenditures (i.e., net 0 2016 2017 2018 2019 2020 2021 acquisition of nonfinancial assets) falling. Not only Domestic debt % of GDP External debt PPG has the government started winding down some Source: WBG staff calculation based on MINECOFIN data COVID-related expenditures, but also some goods and services and capital expenditures were lower- 1.6. Growth is expected to moderate in the than-expected due to delays in putting in place medium-term the legal arrangement for the budget to use the Rwanda’s economic growth is expected to moderate 2021 SDR allocation. Amounting to US201.8 million, in the near and medium-term outlook, weighed the government is using about its 70 percent in down by the war in Ukraine. Real GDP growth is FY2021/22 to (i) temporarily increase recurrent projected at 6.0 percent in 2022 and 6.9 percent on spending on social protection and in retrofitting average in 2023–2024, lower than the 10.9 percent public offices to prevent the spread of the virus as growth rate recorded in 2021, a stronger recovery civil servants return to in-person work and (ii) raise from the COVID-19-induced recession. The near- capital spending to execute delayed high-quality term growth in expected to be lower than expected investment projects in targeted social sectors and to in the previous REU. repair infrastructure damages by a recent volcanic eruption near the border with the Democratic BNR, Press Release. https://www.bnr.rw/fileadmin/user_upload/ 10 Republic of the Congo. The remainder, 30 percent of PRESS_REALESE__-_MPC__17.02.2022_.PDF Rwanda Economic Update • Edition No. 19 11 Recent Economic Developments The near-term outlook includes a continued being conducted by the World Bank and the Public growth in industrial activities as well as a strong Investment Management Assessment conducted recovery in tourism activities. Activities in the by the IMF, which will help the government to industry will continued to benefit from government explore the potential for additional cost-savings support of the manufacturing and construction and efficiency gains through (a) the digitalization sectors. A recovery in tourism activities is expected in the delivery of public goods and services, (b) to get a booster from the Commonwealth Heads of strengthening the oversight and governance of Government Meeting (CHOGM) meeting as well as state-owned enterprises (SOEs) with a view to other leisure and meeting events planned in 2022. gradually reduce subsidies and budget support, and This will support growth in transport and hospitality (c) improvements in the selection and prioritization services. On the demand site, the near-term outlook of public investments to achieve greater value-for- envisions domestic demand, but not the same level money and leverage private sector involvement. as in 2022 as the growth forecast reflects fiscal On the revenue side, the implementation of the consolidation (see section on fiscal policy). Medium-Term Revenue Strategy through tax policy reforms (personal/corporate income tax and value- Figure 1.13: Rwanda’s economy is expected to grow at a lower in 2022 than in the previous year added taxes) is expected to raise revenue to 15.9 12 10.9 percent of GDP in FY2023/24 from 15.4 percent of 10 8.6 9.5 GDP in FY2021/22. 8 7.0 6.7 6 6.0 Risks to the outlook are tilted to the downside 4.0 4 Counterweighting the continued recovery from 2 the pandemic is the impact of the war in Ukraine, 0 which has clouded the outlook for the global -2 economic recovery. Although limited direct trade -4 -3.4 and financial links with Russia and Ukraine, the was -6 2017 2018 2019 2020 2021e 2022f 2023f 2024f in Ukraine is expected to affect Rwanda’s economy Source: WBG staff calculation based on MINECOFFIN and NISR data indirectly. Higher energy prices will increase import costs, while the projected slowdown in global Fiscal consolidation and spending efficiencies growth will soften the demand for Rwanda’s exports. will be introduced with the FY2022/23 budget to preserve space for growth-enhancing investment. Despite government subsidies, a sharp rise in The government plans to begin normalizing its global energy prices significantly increases annual fiscal stance with the FY2022/23 budget to stabilize imports, adds to inflation. In addition, increased debt levels while safeguarding fiscal space for world prices for fertilizers (1.5 percent of total development spending in line with the NST-1 imports in 2021) are likely to have adverse effects on objectives. The fiscal deficit is budgeted to narrow agricultural productivity, food security and inflation. to 7.0 percent of GDP by FY2023/24 through a Inflation may further increase due to both demand- balanced mix of expenditure restraint and revenue pull and cost-push factors, disproportionately enhancement. The government plans to carry out affecting the poor. a significant rationalization of both recurrent non- wage spending and capital budgets. This will be Rwanda continues to be among the most vulnerable through the phasing-off COVID-related spending, countries to weather and climate shocks, which tight recurrent spending control and discontinuing are a key risk to the continuation of economic underperforming public investment. These measures recovery. The increasing frequency of weather and will be informed by the Public Expenditure Review climate shocks (e.g., drought and floods) could lower 12 Rwanda Economic Update • Edition No. 19 Recent Economic Developments agricultural output and thereby impact many farms the prospect of more expensive financing costs and households in Rwanda. Decreased production on the back of tighter global financial conditions. could also lead to higher food prices to the detriment The government has indicated, in the FY2022-23, a of the poor households. The forthcoming World temporary elimination of fuel levy and an increase in Bank’s Country Climate and Development Report fertilizers subsidies to support domestic agriculture (CCDR) includes more on the long-term risks from production and cushion against rising food prices to climate change and the need for the state and the address any food security concerns. It will make public private sector to invest in resilience. transport affordable by maintaining the current subsidy to private transport operators and increase A softening global environment constrain some social protection programs. a gradual increase Rwanda’s fiscal space, which could undermine in fuel prices at the current juncture could increase fiscal consolidation efforts. Fiscal consolidation higher operating costs for businesses, at a time faces rising challenges and risks, including from when the economy is in its early stage of recovery. A the increased spending pressures from measures to further increase of subsidy payments to the energy contain the economic impact of the war in Ukraine and fertilizer sectors would widen the fiscal deficit (such as the current fuel and fertilizer subsidy), and which could undermine fiscal consolidation efforts. Rwanda Economic Update • Edition No. 19 13 PART TWO BOOSTING EXPORTS THROUGH INNOVATION AND TRADE IN SERVICES Rwanda Economic Update • Edition No. 19 15 Boosting Exports Through Innovation and Trade In Services 2.1. Role of technology and innovation on innovation but less likely to engage in product exporting: a firm-level analysis innovation. Thus, improving process efficiency Analysis of firm data yields several insights into or industrial engineering appears to be a more Rwandan export performance. Rwandan firms important determinant of manufactures exports have increased their participation in international than inventing a new product. However, firms in trade (particularly in services) over the last decade, Rwanda perform quite poorly in the area of process to levels exceeding that of regional and continental innovation compared to those in other countries. peers, as well as member nations of the Association of 2.1.1. Firms’ participation in exports11 Southeast Asian Nations (ASEAN). The main reasons given for not exporting in the 2019 World Bank Rwandan firms’ participation to international Enterprise Survey related to lack of foreign demand trade increased substantially over the last decade, (38 percent), lack of information (12 percent), driven by the services sector. The share of firms insufficient production capacity (8 percent), and involved in exporting rose from 11 percent in 2006 high trade (5.5 percent) or production (4 percent) to 21 percent in 2019 (Figure 2.1).12 The dip in costs. Only 3 percent of Rwandan firms in 2019 had 2011 reflects the sharp fall in exporting following obtained ISO certification, placing Rwanda in only the Global Financial Crisis. The rise in exporting the 9th percentile, while econometric analysis shows over the period 2006 to 2019 was driven primarily that firms that have obtained ISO certification are 36 by an increased share of exporting firms in the percent more likely to be exporters. The adoption of services sector. In 2019, the sectors with the largest ecommerce is significantly related to participation share of firms exporting were food processing and in international trade in Rwanda, but its use is still hotels and restaurants. By contrast, the share of limited among Rwandan firms. Access to credit is exporters among manufacturing firms as whole significantly related to participation to international fell from 25 percent in 2006 to 17 percent in 2019. trade in Rwanda, and Rwandan firms tend to have Note that industrial percentages are not nationally greater access to finance than firms in many other representative because only sector stratification was developing countries have. In services (excluding used in the sample design. Industrial percentages retail), firms undertaking product innovations and and totals according to ISIC13 Rev.3.1 for 2006, 2011, training are more likely to export, while process 2019 can be seen in Annex Table 1. innovation appears to be less important for exporting. Manufacturing firms that export are Rwandan firms’ participation in trade exceeded more likely than other firms to engage in process that of other regional and continental peers. Twenty-one percent of Rwandan firms exported, Figure 2.1: Rwanda exporter share (percent of all firms) according to Rwanda World Bank Enterprise Surveys 25 (WBES) 2019, compared to 15 percent in Kenya 20 11 World Bank Enterprise Surveys following the Global methodology are stratified only by business sector, location, and firm size. When 15 computed with sampling weights, sample averages are representative of the aforementioned associated populations at both country and stratification levels. However, since the Global sampling methodology 10 does not stratify by exporter status, the intended level of precision is not guaranteed for indicator values by these groups. As a consequence, 5 the estimated shares may not be representative of export activity in Rwanda and other countries analyzed in this section. However, sample weights for subpopulations of firm size, sector, and sub-national 0 administrative division are always employed when computing export All Firms Manufacturing Retail Other Services shares for all countries. 2006 2011 2019 12 Exporting firms includes all those where exports equaled at least one Source: Rwanda WBES 2006, 2011, and 2019. Median sample weights for percent of total sales. subpopulation used 13 International Standard Industrial Classification. 16 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services Figure 2.2: Exporter share across the East African Community Figure 2.3: Ranking manufacturing exporter share (percent of all firms) in Sub-Saharan Africa (percent of all firms) 25 60 50 20 40 15 30 10 20 10 5 0 Togo 2016 Mauritania 2014 Kenya 2018 Lesotho 2016 Eswatini 2016 Mali 2016 Zimbabwe 2016 Madagascar 2013 Cameroon 2016 Nigeria 2014 Rwanda 2019 South Africa 2020 Senegal 2014 Malawi 2014 Mozambique 2018 Burundi 2014 Côte d'Ivoire 2016 Benin 2016 Ghana 2013 Zambia 2019 Gambia 2018 Namibia 2014 Tanzania 2013 Liberia 2017 Guinea 2016 DRC 2013 Chad 2018 Sudan 2014 Uganda 2013 Ethiopia 2015 Niger 2017 South Sudan 2014 Sierra Leone 2017 0 Rwanda 2006 Rwanda 2011 Rwanda 2019 Burundi 2006 Burundi 2014 Kenya 2007 Kenya 2013 Kenya 2018 S Sudan 2014 Tanzania 2006 Tanzania 2013 Uganda 2006 Uganda 2013 Source: Selection of most recent WBES based on availability. Median sample weights Source: Selection of WBES based on availability. Median sample weights for for subpopulation used subpopulation used. (2018), 8 percent in Burundi (2014), 7 percent in (28 percent in WBES 2016). The share of exporting Tanzania (2013), 5 percent in Uganda (2013), and firms in manufacturing, however, ranks below that of 3 percent in South Sudan (2014) (Figure 2.2). The Togo 2016 (56 percent), Mauritania 2014 (44), Kenya share of exporting firms in other services was much 2018 (33), Lesotho 2016 (32), Eswatini 2016 (28), Mali higher than that of other East African Community 2016 (23), Zimbabwe 2016 (22) and Madagascar (EAC) members, while Rwanda’s exporter share in 2013 (20) (Figure 2.3). Rwanda ranks high, although retail (13 percent) far outpaced the activity seen in not the highest in Sub-Saharan Africa, in terms of South Sudan (1) Tanzania (2), and Uganda (1) and the share of exporters among retail firms, but ranks was on par with Burundi (9) and Kenya (14) (Figure the highest in other services by at least 5 percentage 2.5). By contrast, Rwanda’s share of exporting firms points (Figure 2.4). in manufactures in 2019 was little more than half that of Kenya, although above the shares in other Rwandan firms’ participation to international trade EAC members. Rwanda’s share of firms that export also compares favorably to that of exporters in exceeded that of most other countries in Sub-Saharan member nations of the Association of Southeast Africa, but not in manufacturing. Rwanda’s overall Asian Nations (ASEAN). Rwanda’s exporter share exporter share of firms (21 percent) trails only Togo of 21 percent exceeded that of Cambodia 2016 (10 Figure 2.4: Ranking other services exporter share Figure 2.5: Exporter share by sector across the East African in Sub-Saharan Africa community (percent of all firms) (percent of all firms) 30 35 25 30 20 25 15 20 10 15 5 10 0 Rwanda 2019 Togo 2016 Benin 2016 Madagascar 2013 Mozambique 2018 Nigeria 2014 Lesotho 2016 Senegal 2014 Zambia 2019 Eswatini 2016 Malawi 2014 Kenya 2018 Mauritania 2014 Ethiopia 2015 Uganda 2013 Gambia 2018 Niger 2017 DRC 2013 Namibia 2014 Côte d'Ivoire 2016 Zimbabwe 2016 Ghana 2013 Tanzania 2013 Sudan 2014 Mali 2016 Cameroon 2016 Burundi 2014 Chad 2018 Sierra Leone 2017 South Sudan 2014 South Africa 2020 Guinea 2016 Liberia 2017 5 0 Rwanda Burundi Kenya S. Sudan Tanzania Uganda 2019 2014 2018 2014 2013 2013 Manufacturing Retail Other Services Source: Selection of most recent WBES based on availability. Median sample weights Source: Selection of WBES based on availability. Median sample weights for for subpopulation used subpopulation used Rwanda Economic Update • Edition No. 19 17 Boosting Exports Through Innovation and Trade In Services percent), Indonesia 2015 (7), Lao PDR 2018 (11), 21 percent export share places Rwanda in the 77th Malaysia 2015 (11), Myanmar 2016 (5), Philippines percentile of countries with a rank of 29 out of 121. 2015 (8), Thailand 2016 (5), and Vietnam 2015 (13) Aggregates of WBES countries classified by World (Figure 2.6). The gap between Rwanda and ASEAN Bank income groups are lower: high income (17 countries is particularly wide in other services and percent), upper middle (10 percent), lower middle retail, although Rwanda remains far behind the (9 percent) and low income (8 percent). Annex Table share of exporters in manufactures in Malaysia (49 4 presents descriptive statistics of exporter share for percent), and to a lesser extent, Vietnam (22) and the all WBES countries by World Bank income groups. Philippines (20) (Figure 2.7).14 2.1.2. Main reasons why firms did not export The share of exporters among Rwandan firms is Several reasons were given in Rwanda WBES 2019 high compared to many other countries covered for not exporting. Among the 265 non-exporting in the WBES database over the period 2012 to firms, the most frequent response was “lack of 2021 (Figure 2.8 and Annex Table 3). In 2019, the demand for products aboard” (38 percent) as seen Figure 2.6: Exporter share versus ASEAN in Figure 2.9. Other common replies included (percent of all firms) “Lack of information regarding foreign agents, 25 distributors and prospective buyers” (12 percent); 20 “insufficient capacity of production” (8 percent); and high trade (5.5 percent) or production (4 percent) 15 costs. The remainder of the non-exporting sample 10 (33 percent) cited other reasons. In all three sectors 5 (manufacturing, retail and other services), a lack of demand was the most commonly cited reason for 0 failure to export, followed by a lack of information on Rwanda 2006 Rwanda 2011 Rwanda 2019 Cambodia 2013 Cambodia 2016 Indonesia 2009 Indonesia 2015 Lao PDR 2009 Lao PDR 2012 Lao PDR 2016 Lao PDR 2018 Malaysia 2015 Myanmar 2014 Myanmar 2016 Philippines 2009 Philippines 2015 Thailand 2016 Vietnam 2009 Vietnam 2015 foreign agents, distributors and prospective buyers. Source: Selection of WBES based on availability. Median sample weights for 2.1.3. Drivers of firm participation to export: subpopulation used an econometric analysis of the role of Figure 2.7: Exporter share by sector versus ASEAN technological capabilities and innovation (percent of all firms) 50 ISO certification, ecommerce, and financial depth are all key determinants of exporting in both 40 manufacturing and other services (Figure 2.10 and Annex Table 3).15 30 20 Certification for international standard Securing a certification for an international 10 standard, such as ISO certification, is a major 0 factor in firms’ participation to international trade. Rwanda Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Thailand Vietnam 2019 2016 2015 2018 2015 2016 2015 2016 2015 Estimated coefficients indicate that firms that have Manufacturing Retail Other Services Source: Selection of WBES based on availability. Median sample weights for subpopulation used Estimation methodology and variable definitions are detailed in the 15 Annex, and descriptive statistics for variables used in the regression are presented in Annex Table 2. Industrial engineering or quality Malaysia WBES 2015 likely oversampled exporters with 30 percent 14 standardization is proxied by ISO certification, i.e., having obtained an share of firms located in the Central Region, where MSC Malaysia internationally recognized quality certification, such as ISO 9000, ISO (formerly known as the Multimedia Super Corridor) is located. MSC 45001, or HACCP, among others. Lastly, ecommerce is defined as using Malaysia is a Special Economic Zone and high-technology business the internet for business purposes for manufacturers, and for service district in central-southern Selangor, Malaysia. providers, as having a website or social media page. 18 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services Figure 2.8: Exporter share in global context Figure 2.9: Main reason why firm did not export in 2019 (percent of all firms) (percent of non-exporters) 60 Lack of demand for products abroad 50 40 Lack of information regarding foreign agents, distributors and prospective buyers 30 20 Insu cient capacity of production 10 High trade costs 0 EAC ASEAN Rwanda R Rwanda M Rwanda OS Serbia 2019 Russia 2019 Low Income Guinea 2016 High Income Rwanda 2019 Slovenia 2019 Upper Middle Lower Middle Romania 2019 Luxembourg 2020 High production costs 0 5 10 15 20 25 30 35 40 Notes: Group averages for EAC and Low Income do not include Rwanda 2019. For Source: WBES 2019. Median sample weights used. Rwanda 2019, M=Manufacturing, R=Retail, and OS=Other Services. World Bank income group classifications are based on the year of survey. Source: WBES 2012-2021, one round per country with most survey recent selected (121 total). Median sample weights for subpopulation used. Annex Table 4 presents descriptive statistics of exporter share for all WBES countries by World Bank Income Groups. obtained ISO certification are 36 percent more likely have obtained ISO certification in Rwanda. Other to be exporters. By sectors, manufacturers and EAC countries perform 10 percentage points service providers (with the exception of retailers) higher, on average, at 13 percent, while low-income are 38 and 61 percent, respectively, more likely to countries and ASEAN average 11 and 8.5 percent, engage in exporting activity.16 respectively. Given the econometric evidence on the strong relationship between ISO certification and However, firms in Rwanda lag behind those in exporting discussed in the previous section and “the most other countries in obtaining ISO certification lack of demand for product abroad” cited by non- (Figure 2.11). In 2019, only 3 percent of firms had exporters, resources spent on increasing awareness obtained ISO certification, which places Rwanda in and dissemination of information regarding the 9th percentile with a rank of 108 out of 119. By application and filing procedures may help Rwandan sector, manufacturers lead with 7 percent, followed entrepreneurs realize and maximize their exporting by 3 percent of firms in other services. No retailers potential. Figure 2.10: Probability of exporting by firm activity in 2019 Figure 2.11: Financial depth (ranges from 0 to 5) (percent) (percent) 2.5 ISO Certi cation 2 Ecommerce Additional credit Product 1.5 1 Product innovation 0.5 Process innovation 0 Peru 2017 Colombia 2017 Belgium 2020 High Income Rwanda OS Rwanda R Rwanda 2019 Upper Middle Rwanda M ASEAN Lower Middle EAC Low Income Egypt 2020 Sudan 2014 Yemen 2013 Formal training -30 -20 -10 0 10 20 30 40 50 60 All rms Manufacturing Services (excluding retail) Source: WBES 2019. Median sample weights used. Source: Selection of WBES based on availability. Median sample weights for subpopulation used Retailers are excluded from the discussion because the selected 16 independent variables of interest are all insignificant. Rwanda Economic Update • Edition No. 19 19 Boosting Exports Through Innovation and Trade In Services Ecommerce exporting, investment in internet infrastructure While the adoption of ecommerce is a significant can provide isolated and rural enterprises low-cost determinant of participation to international trade connectivity to markets and customers aboard. in Rwanda, its use is still limited among Rwandan firms. Manufacturers engaged in ecommerce are 27 Financial depth percent more likely to be exporters, while such firms As expected, access to credit positively impacts in other services are 16 percent more likely to be firms’ participation to international trade in exporters. However, firms in Rwanda use ecommerce Rwanda. Not surprisingly, access to one additional at a much lower rate than the majority of countries credit product (i.e., overdraft facility, line of credit (Figure 2.12).17 In 2019, 43 percent of firms engaged or loan, bank financing for working capital, bank in ecommerce, which places Rwanda in the 33rd financing for investment, and any non-bank percentile of countries with a rank of 82 out of 121. By financing) is associated with a 10 and 11 percent sector, manufacturers and other services providers higher probability of exporting for manufacturing lead with 45 percent, followed by 36 percent of and other services, respectively. Although limited, firms in retail. ASEAN and other EAC countries Rwandan firms’ access to finance is greater than that perform worse, on average, at 38 and 34 percent, of firms in many other developing countries (Figure respectively, although this lagging performance is 2.13). Average financial depth of 1.1 for all firms (Box probably due to the survey years used being earlier, 2.1) places Rwanda in the 49th percentile of countries when Internet costs were higher. Given the positive with a rank of 62 out of 121, compared to 1.3 for high relationship between ecommerce and exporting income countries, 1.0 for upper middle income, 0.8 discussed in the previous section and “the lack of for ASEAN, EAC and lower middle income, and 0.6 information regarding foreign agents, distributors for low income. Financial depth in manufacturing, and prospective buyers” cited as a reason for not retail, and other services averages 0.9, 1.1, and 1.1, Figure 2.12: Product innovation respectively. Moreover, these scores do not reflect (percent) the additional government subsidies available to firms. While high trade and production costs are cited 80 70 60 as reasons for not exporting, the availability of credit 50 helps mitigate these obstacles. The percentage of 40 firms citing these two reasons are much lower than 30 those pointing to the lack of demand, and to a lesser 20 Figure 2.13: Formal training 10 (percent) 0 80 Denmark 2020 Finland 2020 Ecuador 2017 EAC Low Income Upper middle High income Lower middle Rwanda OS Rwanda 2019 ASEAN Rwanda R Rwanda M South Africa 2020 Malaysia 2015 Egypt 2020 70 60 50 40 Notes: Group averages for EAC and Low Income do not include Rwanda 2019. For Rwanda 2019, M=Manufacturing, R=Retail, and OS=Other Services. World Bank 30 income group classifications are based on the year of survey. 20 Source: WBES 2012-2021, one round per country with most recent survey selected (120 total). Median sample weights for subpopulation used. Annex Table 5 presents 10 descriptive statistics of product innovation for all WBES countries by World Bank Income Groups. 0 Lower middle China 2012 Ecuador 2017 Papua New Guinea 2015 Rwanda M Upper Middle Rwanda OS Rwanda 2019 EAC Rwanda R ASEAN Indonesia 2015 Myanmar 2016 High income Low income Timor-Leste 2015 The question in the Rwanda 2019 WBES indicating whether a firm was 17 involved in ecommerce for manufacturers differed somewhat from that used in WBES surveys 2018 and later (except for Chad 2018), which asked whether a firm had a website. To compare with other countries, Notes: Group averages for EAC and Low Income do not include Rwanda 2019. For the calculations in Figure 15 (and Annex Table 3) use the same question Rwanda 2019, M=Manufacturing, R=Retail, and OS=Other Services. World Bank for Rwandan manufacturing firms. Note that the shares are higher income group classifications are based on the year of survey. using this question (45.4 percent) versus the Rwanda-specific new Source: WBES 2012-2021, one round per country with most recent survey selected question based on internet use (39.3 percent), which may introduce an (118 total). Median sample weights for subpopulation used. Annex Table 5 presents descriptive statistics of formal training for all WBES countries by World Bank Income upward bias in the Rwandan results. Groups. 20 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services Box 2.1: Definition of financial depth For purposes of cross-country comparisons, the definition of financial depth for Rwanda 2019 is slightly different from the measure used for the regression analysis. Financial depth is an interval variable that ranges from 0 to 5, where one point is given for each credit product that the firm has previously used, including: (i) overdraft facility, (ii) line of credit or loan, (iii) bank financing for working capital, (iv) bank financing for investment, and (v) any non-bank financing. Unlike the WBES Global instrument, the questionnaire for Rwanda 2019 included additional questions on government subsidies: • Over the last three years, has this establishment received any tax breaks or incentives in the form of reduced social security contributions, or VAT exemptions? (3.1 percent of firms responded yes) • Over the last three years, has this establishment received any access to land at a government-subsidized rate? (1.4 percent) • Over the last three years, has this establishment received access to subsidized input or energy prices? (1.1 percent) • Over the last three years, has this establishment received direct subsidies, including wage subsidies, investment subsidies, and others? (0.8 percent) • Over the last two years, did this establishment receive any support from the government for upskilling its employees. (e.g., subsidies)? (15.4 percent) Firms answering any one of these questions in the affirmative were defined as having received non-bank financing. In aggregate, 19.7 percent (71 of 360 firms) received at least one of the above government subsidies. However, only 11 of those 71 firms received no other sources of non-bank financing, and only a small percentage of firms lost one point off of their financial depth scores. Therefore, for the cross-country comparison seen in Figure 2.11 (and Annex Table 4), the exclusion of government subsidies in computing financial depth scores reduces the mean slightly from 1.2 to 1.1 for all firms, and by sectors, from 1.1, 1.2, and 1.3 to 0.9, 1.1, and 1.1 for manufacturing, retail, and other services, respectively. extent, the lack of information. Thus, facilitating a one-of-kind experience for foreign customers. ISO sufficient access to finance for firms in times of certification and formal training of employees for supply shortages and rising prices, as seen in the these services can ensure quality standardization for post-COVID period, should continue to be a priority services rendered, such as meeting internationally for the government. known 5-star rating systems in order to increase demand or establish links with foreign agents, Innovation and training distributors, and prospective international buyers (a Firms that export services tend to undertake common reason cited for not exporting, see above). product innovations and training. As seen in Figure By contrast, the correlation between exporting and 2.10 (and Annex Table 3), firms in services outside of engaging in process innovation for other services is retail that engage in product innovation (see Box 2.2 not statistically significant. for a definition) are 27.5 percent more likely to export than firms in this sector that do not engage in product Firms in Rwanda lag behind in product innovation innovation. And services firms outside of retail that compared to those in most other countries (Figure provide formal training programs for permanent, 2.14 and Annex Table 5). In 2019, only 15 percent of full-time employees are 20 percent more likely to firms had introduced a new or significantly improved export. For services (outside of retail), producing a product or service during the last three years, which differentiated product or offering a unique service places Rwanda in the 14th percentile of countries with via production innovation is vital for exporting. For a rank of 103 out of 120. By sector, other services lead example, wholesalers can enter niche commodity with 19.5 percent, followed by 9.5 percent of retailers markets, while hotels and restaurants can provide and 8 percent of manufacturers. Product innovation Rwanda Economic Update • Edition No. 19 21 Boosting Exports Through Innovation and Trade In Services Figure 2.14: Process innovation support from the government for upskilling its (percent) 80 employees. These descriptive results, in combination 70 with the results from the econometric analysis, 60 indicate that government subsidies for training have 50 40 been effective. Specifically, regression results show 30 that firms in services outside of retail that provide 20 formal training programs for permanent, full-time 10 employees, are 20 percent more likely to export. 0 Uganda 2013 Papua New Guinea 2015 Mauritania 2014 EAC Low Income Upper middle Lower middle ASEAN High Income Rwanda OS Rwanda 2019 Rwanda M Rwanda R Lebanon 2019 Egypt 2020 Manufacturing firms that export tend to undertake process innovations. Process innovation is positively correlated with exporting for manufacturers (40 Notes: Group averages for EAC and Low Income do not include Rwanda 2019. For Rwanda 2019, M=Manufacturing, R=Retail, and OS=Other Services. World Bank percent more likely to export). Manufacturers that income group classifications are based on the year of survey. Source: WBES 2012-2021, one round per country with most recent survey selected export tend not to be selling new products to foreign (120 total). Median sample weights for subpopulation used. Annex Table 5 presents descriptive statistics of process innovation for all WBES countries by World Bank customers, but rather improving process efficiency Income Groups. or industrial engineering (via ISO certification) to in other EAC countries is much higher, with 56 match the productivity of international competitors. percent of firms engaged in product innovation, on Doing so can increase a firm’s competitiveness and average: Burundi 2014 (45 percent), Kenya 2018 (52 the demand for its products abroad. percent), South Sudan 2014 (48 percent), Tanzania 2013 (51 percent), Uganda 2013 (67 percent). In Firms in Rwanda perform quite poorly in the area contrast, ASEAN countries had fewer product of process innovation compared to those in other innovators (12 percent). However, regression results countries. Note that this poor performance is in suggest that process efficiency or quality control spite of the less stringent definition used in Rwanda via ISO certification is a more important correlate for process innovation (see Box 2.2). The share of of exporting compared to the introduction of new process innovation at 7.2 percent for all firms places products and services. Rwanda in the 13th percentile of countries with a rank of 105 out of 120. By sector, the share of firms Firms in Rwanda rank well in terms of offering engaged in process innovation among other service formal training for their workforce (Figure 2.14 providers is 10.5 percent, followed by manufactures and Annex Table 5). In 2019, 36 percent of firms (5 percent) and retailers (just 1 percent). Process had formal training programs for permanent, innovation is much more common among the full-time employees with 48, 21, and 39 percent member countries of EAC (48 percent) and ASEAN in manufacturing, retail, and other services, (25 percent). Unlike product innovation, process respectively. These numbers place Rwanda in the innovation was found to be positively correlated 63rd percentile of countries with a rank of 46 out with exporting for manufacturers (40 percent of 118. The incidence of formal training is slight more likely to export). In the wake of COVID-19 lower in other EAC countries (34 percent), while policies that placed restrictions on the movement only 18 percent of firms in ASEAN countries offer of inputs and factors, leading to distorted markets formal training. Thus, the Government of Rwanda and skyrocketing prices, firms must constantly be has provided substantial financial support to help nimble and adapt to fluid business environments. As firms enhance the skills of their workers. Of the such, process innovators will have a better chance government subsidies listed and discussed above, to exhibit strong resiliency in the face of pandemic- subsidies for training are the most popular with 15 induced disruption. percent of firms in Rwanda 2019 receiving financial 22 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services Box 2.2: Product versus process innovation For the regression analysis, firms are defined to engage in product innovation if an affirmative response is given to the following question: “During the last three years, has this establishment introduced new or improved products or services?” Firms are defined to engage in process innovation if an affirmative response is given to following question: “During the last three years, has this establishment introduced any new or improved process? These include: methods of manufacturing products or offering services; logistics, delivery, or distribution methods for inputs, products, or services; or supporting activities for processes.” and the firm also responded with answer b or c to the following question: “Over fiscal, what best describes what happened at this establishment when a problem in the production process arose?” a. We fixed it but did not take further action b. We fixed it and took action to make sure it did not happen again c. We fixed it and took action to make sure that it did not happen again, and had a continuous improvement process to anticipate problems like these in advance d. No action was taken For purposes of cross-country comparisons, the definition of process innovation for Rwanda 2019 differs from the one used for regression analysis. While the first question, “During the last three years, has this establishment introduced any new or improved process?” was available in all survey years, the second “Over fiscal, what best describes what happened at this establishment when a problem in the production process arose?” was only introduced in 2018. Consequently, only the first question is used to define process innovation seen in Annex Figure 1 (and Annex Table 5). The percent of firms in Rwanda 2019 engaging in process innovation increases when compared to the definition used for the regression analysis. Specifically, the share of all firms increases from 5.4 to 7.2 percent; by sector, manufacturing rises from 2.5 to 4.6 percent, retail remains at 1.0 percent, and other services expands from 8.1 to 10.5 percent. 2.2. Fostering trade in services on opening the services sector; the country has Rwanda has placed great emphasis on services committed to open the most sub-sectors of any EAC development to raise employment, income country. There are considerable opportunities to and export earnings. In many respects Rwanda’s pursue further bilateral and multilateral agreements services trade regime is quite open, for example to open services trade. Discussions are underway in commercial banking, distribution and road under the AfCFTA to liberalize trade in services, and freight, while a measure of overall services trade WTO members have initiated discussions concerning restrictiveness appears to be lower than for a sample services trade. However, Rwanda has not participated of African countries with adequate data. However, in the latter. There is scope for mutual recognition Rwanda imposes restrictions on the cross-border agreements of regulatory regimes governing data transfer of data and on data processing that could privacy and protection in the context of AfCFTA, impair firms’ ability to participate in services trade. and bilateral agreements could be sought with the Rwanda has sought international agreements European Union (EU). Rwanda Economic Update • Edition No. 19 23 Boosting Exports Through Innovation and Trade In Services 2.2.1. Role of services in Rwandan development significant opportunities to leverage the location strategy and endowments of the country by specializing Rwanda aspires to become a knowledge-based, in (regional) logistics, adding value to agricultural services-led economy through diversification of its products, and investing in consumer and business export base into distribution and logistics services, travel (e.g., conventions). Among services sectors, ICT, tourism, business travel and financial services. logistics and tourism were highlighted and continue These service activities offer significant employment to be prioritized in the country’s development opportunities for both relatively unskilled and more strategy and industrial policy (MINICOM, 2011).18 skilled workers. Rwanda’s economic development strategy is distinctive among comparators in the In addition to the generation of employment emphasis that has been put on services, which in income and export earnings, services also can play the aggregate account for half of GDP, 30 percent an important role as drivers for improving human of total employment (up from around 10 percent in capital (health and education services). Rwanda’s the early 2000s), and a rapidly rising share of total services sectors tend to employ more highly skilled foreign exchange earnings. This shift into services workers than the manufacturing sector does, was supported by government policy (Behuria and indicating considerable potential for contributing to Goodfellow, 2019), as set out in Vision 2020 and development through innovation and human capital the National Strategy of Transformation (NST1). accumulation. Over 50 percent of those employed in The emphasis on services recognizes the limits on services in Rwanda had at least a secondary education manufacturing exports from lack of access to the in 2020 (Figure 2.15, top left panel), or almost 20 sea in a neighborhood with high transport costs and percentage points higher than the share of similarly limited market size. A services-based strategy offers educated in the overall economy (Figure 2.15, top Figure 2.15: Demographic composition within services and reference groups (percent) 60 59.0 80 54.8 73.7 46.1 Rwanda - Services 44.3 45.2 56.9 60.0 60 Rwanda - Overall 41.0 40 43.1 30.3 40 35.8 20.5 26.3 20 16.4 23.3 21.3 20 8.6 10.2 4.8 0.9 1.9 0 0 Female Male Youth Senior University Secondary Primary No Primary Urban Rural Migrant Female Male Youth Senior University Secondary Primary No Primary Urban Rural Migrant 60.7 61.1 60 80 71.0 Rwanda - Services 59.5 59.7 60 Rwanda - Manufacturing 40 39.3 38.9 35.6 40.5 27.6 27.9 40 29.1 31.7 28.2 20 16.3 23.6 14.1 20 8.9 6.3 6.7 4.0 5.3 0 0 Female Male Youth Senior University Secondary Primary No Primary Urban Rural Migrant Female Male Youth Senior University Secondary Primary No Primary Urban Rural Migrant Source: The demographic data are from the National Labor Force Survey 2020. Data on African countries are drawn from Baccini et al. (2021). Ggombe and Newfarmer (2018) note that these services employ 18 unskilled and semi-skilled workers, require less physical capital per unit of output, and exhibit high returns from the application of new technology. 24 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services right) and about 17 percentage points higher than the from a country like Rwanda. At present within the share of similarly educated in manufacturing (Figure EAC, some key services markets are tight oligopolies, 2.15, bottom right). The composition of educated with a dominant supplier. Absence of competition workers in services also compares favorably with is one reason why some industries experience high the services sector in the group of reference African costs. Telecommunications in Rwanda, for example, economies (Figure 2.15, bottom left). Moreover, in despite the advent of quality internet service and Rwanda services are more likely to be concentrated the spread of mobile telephony, still suffer from in urban areas than manufacturing is, and services higher-than- average prices to consumers and costly are especially attractive for migrant workers.19 Thus, restrictions (WBG-GoR, 2020). the descriptive evidence suggests that transition towards a services-led economy is accompanied by a 2.2.2. Restrictions on services trade higher human capital accumulation in Rwanda. While indicators of the restrictiveness of Rwandan services trade policy are only available for a few Realizing and sustaining high rates of growth of sectors, Rwanda is quite open towards trade services exports requires openness to trade and in services in sectors that are priorities for the investment. This implies low barriers to imports of government, including commercial banking, intermediate products (goods and services) and distribution and road freight.20 Indeed, Rwanda’s imports of capital and knowledge through inward services trade regime in these sectors is similar in foreign direct investment (FDI), as access to a wide restrictiveness to average levels prevailing in many variety of inputs, both services and goods, matters OECD economies. Rwanda’s level of restrictiveness for competitiveness. The associated policy agenda is at the average OECD level in banking and more includes sustaining a business environment and open in distribution services and road freight. And sector-specific regulatory regimes that support Rwanda’s services trade policies in these sectors investment. This agenda includes ensuring that are less restrictive than barriers in large emerging Rwandan firms have access to foreign markets and economies. that regulatory frameworks and implementing institutions meet international standards or satisfy The impact of services trade restrictiveness, as the requirements prevailing in export markets. measured by the ad valorem equivalent, also appears lower than in a sample of African countries Fostering greater regional competition among where data are available, including Egypt, Kenya, services suppliers would likely lower prices to Nigeria, South Africa and Tunisia. In the three sectors consumers and producers. Compared to other with data in Rwanda, the ad valorem equivalent of countries in the region, Rwanda’s services economy services restrictions in distribution services was the is faced with relatively high prices and low lowest, in road freight transport was lower than in productivity (WBG-GoR, 2020). While other factors four of the countries, and in commercial banking was (e.g., small scale, high operating costs, inadequate lower than levels in three of them (Figure 2.16). regulation) contribute to inefficient services, the pay-off to increased competition and efficiency However, considering its significant skills gap in could be large. Hoekman and Shepherd (2015) the service sector, concerns exist around Rwanda’s found that a 10 percent reduction in a country’s recognition of regional professional qualifications. Services Trade Restrictiveness Index is associated Rwanda is facing a skills deficit that, if not remedied, with a 4.4 percent increase in manufactured exports will constrain potential growth for high-skill services These data are based on Shepherd et al. (2018), and reflect services 20 We define an individual as a migrant if the district of current residence 19 trade restrictiveness indicators (STRIs), based on the methodology is different from the district of birth in the Labour Force Survey. used by the OECD. Rwanda Economic Update • Edition No. 19 25 Boosting Exports Through Innovation and Trade In Services Figure 2.16: Ad valorem equivalent of services trade policy contribution. These administrative burdens are a (percent) primary reason that prevent professionals from 100 90 accepting short-term assignments (WBG-GoR, 80 2020). Liberalizing the work permit regime for EAC 70 professionals could help to alleviate this issue and 60 50 facilitate services trade. 40 30 2.2.3. Restrictions on data 20 10 Digital trade policies can help determine countries’ 0 Egypt, Kenya Nigeria South Tunisia Rwanda access to export opportunities.21 Firms involved in Arab Rep. Africa Accounting Air transport Commercial banking Distribution Insurance trade need to meet foreign data protection norms, Legal Road freight transport Telecom for example in order to access and process the data Source: Hoekman and Shepherd (2019) and author’s calculations for Rwanda required to provide services to clients. Restrictions exports. A skills assessment estimated that Rwanda on cross-border data flows may take the form needs 5,000 accountants in the public sector and of screening of inward FDI and data localization another 2,325 accountants in the financial sector requirements – either for storage of data and/or to meet demand, yet it has only 6 percent of that processing of data (Ferracane et al. 2018). Regulatory number (ICPAR 2017). Rwanda is lagging behind regimes – at home and abroad – that impede the rest of the EAC in the number of professionals domestic firms from engaging in cross-border and is far behind African leaders in services exports data flows and associated digital transactions are such as Mauritius and South Africa. To overcome this particularly important in sectors that have been skills gap, Rwanda would benefit from recognizing identified as priorities in Rwanda, including financial the licenses and standards obtained in other EAC services. countries and from adopting common qualifications criteria. So far, the EAC has introduced mutual Rwanda has adopted regulations pertaining recognition agreements (MRAs) in three professional to data transfers and data processing that may services: accounting, architectural and engineering impede the ability of Rwandan firms to engage in services. It would significantly benefit from trade in services insofar as this requires the cross- extending these recognitions in other services with border flow of data. Data collected by UNECA (2022) skills shortages, including financial services, but also reveals that Rwanda has a regime that is relatively health and education (WBG-GoR, 2020). In absence restrictive for both cross-border and domestic data of an EAC-wide MRA, Rwanda could also choose to management. This results in the data flow-related unilaterally recognize these qualifications to address elements of an overall measure of digital trade its skills gap. restrictiveness for Rwanda being relatively high, offsetting the effects of an open policy towards The current work permit regime also disincentivizes services trade and inward FDI. Data sovereignty is short-term assignments in services. The select few central to the government’s National Data Revolution MRAs currently agreed within the EAC still require Policy,22 which has led the government to impose eligible professionals from EAC partner states to several regulations requiring that data must be stored obtain permits prior to being employed, which is a and processed locally, and accessible to the relevant burdensome and slow process (Basnett 2013). It also requires registration for professional bodies in both 21 This section has benefitted from information on digital trade policies the “home” and “visiting” country, each requiring an in Africa provided by Martina Ferracane. 22 See https://statistics.gov.rw/publication/rwanda-national-data- initial certification process and an annual financial revolution-and-big-data 26 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services government authorities. Ministerial Order N°001/ certificate issued by the supervisory authority (Article MINICT/201223 provides that all critical information 29). In addition, the country requires multimedia data within Government should be hosted in one companies, including online newspapers, Internet central national data center (Art. 17). Regulation no. radio services, Internet TV services, VoD services, IPTV, 010/R/CRCSI/RURA/02024 Governing Cybersecurity Mobile TV services and other related multimedia prohibits networks, systems and applications of services, to retain a copy of all multimedia recordings licensees to be managed, hosted, remotely accessed for 90 days.26 or located outside of the Republic of Rwanda unless explicitly authorized by the Regulatory Authority The consequence of these various provisions is (Art. 15). This applies to all ICT infrastructure and that Rwanda has a relatively restrictive regime services (Art. 2).25 In the case of financial services, on cross-border data transfers and domestic data the Law no. 02/2018 on Cybersecurity requires all processing, which in turn increases Rwanda’s digital banks licensed by the Central Bank to maintain trade restrictiveness index (DTRI). The different their primary data in the territory of the Republic of components making up Rwanda’s DTRI are reported Rwanda (Art. 3). in Figure 2.17, together with the average level of restrictiveness implied by the pertinent legislation Emulating the types of provisions that have been and regulation in 22 other sub-Saharan African adopted in the EU, most recently the General nations, which can be regarded as a proxy for other Data Protection Regulation (GDPR), the Law no. AfCFTA members.27 This illustrates that on average 058/2021 relating to Protection of Personal Data Rwanda is more liberal (open) on merchandise trade and Privacy lists conditions for a data controller or policies pertaining to digital products (e.g., ICT data processor to transfer personal data outside goods) and to foreign investment than other African Rwanda. These include: the consent by the data nations, but is more restrictive in regulating data. subject; necessity to perform a contract; public interest grounds; protection of vital interests of data Similarly, Rwanda is more restrictive on cross- subject; legitimate interests by the data controller; border data policies than other ECCAS members and performance on international instruments for which information is available (Figure 2.18). ratified by Rwanda, and the authorization from A similar pattern emerges when the comparator the Supervisory Authority. In contrast to the EU countries are other EAC members (Figure 2.19), approach, however, these conditions do not include although Kenya also has relatively restrictive cross- bilateral or plurilateral adequacy arrangements border data flow regime, and Tanzania has more with partner countries (discussed below), standard restrictive domestic data policies. contractual clauses or binding corporate rules for intra-corporate transfers of data. Another difference Thus, restrictive data-related policies in Rwanda with the EU approach is that the Law requires data could offset the liberal services trade policy controllers or processors to store a copy of personal stance of the government. The fact that Rwanda data in Rwanda (Article 50). Storage of personal has adopted data protection regulations that are in data outside of Rwanda requires a valid registration many respects like what has been put in place in the EU creates a potential opportunity to attract data- 23 https://gazettes.africa/archive/rw/2012/rw-government-gazette- dated-2012-03-12-no-11bis.pdf (Instructions section) 24 https://rura.rw/fileadmin/Documents/ICT/Laws/Cybersecurity_ 26 Regulation 012/R/MRCER/RURA/020 Governing Licensing of Regulation_in_Rwanda.pdf Multimedia Services Provision in Rwanda. 25 In 2017, Rwanda’s telecommunications regulator fined MTN Rwanda 27 The data on the DTRI is incomplete in terms of country coverage. Work (a subsidiary of South Africa’s MTN Group) USD 8.5 million (10% of its is ongoing to add data on additional African nations. The methodology annual turnover) for failing to process Rwandan customer data in the underlying the DTRI builds on Ferracane, Lee-Makiyama and van der country by transferring it to Uganda and for running its information Marel (2018). The basic information on applied regulations is described technology services outside Rwanda. in UNECA (2022). Rwanda Economic Update • Edition No. 19 27 Boosting Exports Through Innovation and Trade In Services Figure 2.17: Composition and level of Rwanda STRI, selected sectors Figure 2.18: DTRI and its components, available ECCAS countries (percent) (percent) Overall DTRI Average STRI OECD+ Online sales and transactions Standards STRI Quantitative trade restrictions Intermediary liability & Content access Regulatory transparency Domestic data policies Cross-border data policies Barriers to competition Telecom infrastructure & competition Other discriminatory IPRs measures Foreign investment in sectors relevant for digital trade Restrictions movement Public procurement on digital people goods and services Tari s and trade defence measures applied and Restrictions on ICT imports from other UN-ECA countries foreign entry 0 0.05 0.1 0.15 0.2 0.25 0.3 0 0.2 0.4 0.6 0.8 1 1.2 Distribution services Commercial banking Road freight transport RWA COG CMR BDI Note: Average OECD+: average across all countries in OECD database. Source: Compiled from UNECA (2022). Source: Shepherd et al. (2018). intensive services investment. However, several of transport. Within these sectors, Rwanda has the measures regulating cross-border data flows are committed to open the most sub-sectors (103 out of more restrictive than what is found in major markets, a maximum of 136) of any EAC country (Shepherd et which provide for additional mechanisms to govern al. 2018). data flows with the aim of supporting cross-border trade in services while ensuring privacy and data At continental level, several initiatives are being protection. considered or are underway to strengthen international cooperation on services trade 2.2.4. International cooperation on services policies, but progress remains limited. The AfCFTA trade policies Protocol on Trade in Services aims to progressively At sub-regional level, Rwanda is a member of the liberalize trade in services (African Union, 2018), East African Community (EAC), the only African using a similar framework as the GATS. However, REC under which members have liberalized trade AfCFTA signatories have yet to establish schedules in services (Olayiwola, 2020). EAC Common Market of specific commitments for trade in services and Scorecards track progress in implementing the associated regulatory frameworks. A work program common market (EAC and World Bank 2016). The aimed at liberalization of services trade among Common Market Protocol identifies seven priority members has yet to start in the framework of sectors: business, communication, distribution, ECCAS. Partnership between Rwanda and ECCAS on education, financial, tourism and travel, and digitization represents an important opportunity to Figure 2.19: DTRI and its components, available EAC countries foster trade in services (see Box 2.3). (percent) Overall DTRI At multilateral level, Rwanda has participated Online sales and transactions Standards in none of the talks including subsets of WTO Quantitative trade restrictions Members, referred to as Joint Statement Initiatives, Intermediary liability & content access Domestic data policies that have been initiated in e-commerce, domestic Cross-border data policies Telecom infrastructure & competition regulation of services, investment facilitation, and IPRs measures to enhance the ability of micro and small Foreign investment in sectors relevant for digital trade Public procurement on digital goods and services and medium enterprises (MSMEs) to utilize trading Tari s and trade defence measures Applied and ICT imports from other UN-ECA countries opportunities.28 Few Sub-Saharan countries are 0 0.2 0.4 0.6 0.8 1 1.2 involved in these discussions, with the exception of Rwanda Uganda Tanzania Kenya Burundi Source: Compiled from UNECA (2022). https://www.wto.org/english/news_e/news17_e/minis_13dec17_e.htm. 28 28 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services Box 2.3: Building on Rwanda competitiveness to deepen regional integration in ECCAS There is considerable potential for mutual benefits from cooperation between Rwanda and ECCAS countries, given Rwanda’s solid business environment, ability to attract foreign investment, relatively efficient air transport services, experience with improvements in the infrastructure and services supporting trade with EAC countries, and experience with cooperation on digital technology. Here we explore business opportunities in two areas: digitization and tourism. Collaboration between Rwanda and Central Africa on the digitization and data flow agenda could support the development of technological and innovation capacity. The ECCAS community could harness the Rwanda experience to develop the human and institutional capacity for digitization in ICT-enabled services (e.g., in human resource management, payroll, accounting, architectural design, research, editing, education, back-office services, licensing services, and engineering), trade facilitation, and participation in global and regional value chains. Rwanda’s Special Economic Zones Programme can provide the appropriate infrastructure and legal/regulatory framework for cooperation on digital technology with ECCAS countries, while ECCAS countries’ efforts to establish SEZs could benefit from collaboration with Rwanda’s successful SEZs (e.g., the ICT HUB, Kigali International Financial Centre, Kigali Innovation City and the Kigali DP World Dry-Port). Prerequisites include an effective regulatory/legal framework that fosters a vibrant business climate, an adequate digital economy ecosystem, regionally harmonized policies (e.g., on digital infrastructure sharing), and investment in digital skills. Digital regulatory policy frameworks should be combined with measures to eliminate explicit discrimination against foreign suppliers, particularly Rwanda’s relatively restrictive regime for cross-border and domestic data management (see main text). Effective collaboration with Rwanda can help Central Africa better connect with international firms, tourists, tour operators and transport firms. Weak governance in Central African countries underlines the importance of SEZs as a first step towards establishing an appropriate regulatory environment and overcoming market failures (e.g., poor infrastructure, malfunctioning land markets). SEZs could be used to promote tourism, supported by investments in, for example, conference facilities, the film industry, or water sports. Such tourism zones, given their confined and homogenous nature, can offer a better framework for integrated resort and leisure community development. the talks on investment facilitation, which includes 21 Rwanda. As noted earlier, the STRI data for Rwanda is sub-Saharan African states. However, all four of these incomplete and the DTRI information for AfCFTA, EAC initiatives are relevant to Rwanda, as they aim to and ECCAS countries reveals significant differences establish what constitutes good regulatory practice in the content of policies that affect trade in services, in a range of policy areas that matter for trade in digital products, and cross-border data flows. services and digital products. The non-engagement of Rwanda in these efforts means that the discussion The pursuit of bilateral and regional regulatory and eventual agreements will largely be determined cooperation would support both intra-Africa by other countries. Non-participation also implies integration and trade in services. Mutual a missed opportunity to learn from the experience recognition agreements of regulatory regimes and views of groups of countries on what constitutes pertaining to data privacy and protection could be good regulatory practices and areas of policy where considered both in the framework of the AfCFTA – coordination is feasible and beneficial in facilitating which foresees the possibility of mutual recognition cross-border trade in services. One important area agreements in Art. 10 of the Services Protocol – and of focus for joint action could be to fill knowledge pursued bilaterally with major trade partners. In the gaps. Better and more timely information on the case of the EU, for example, there is a possibility of value and origin/destination of services/digital seeking so-called data adequacy decisions that trade flows would assist in formulating policies. provide a governance framework enabling the free Another possibility is to improve the understanding flow of data. EU regulation (the GDPR) – as is the of how prevailing digital/data policies in Rwanda case in many jurisdictions – requires that companies and African partner markets affect firms based in processing or with access to personal data originating Rwanda Economic Update • Edition No. 19 29 Boosting Exports Through Innovation and Trade In Services in the EU comply with EU regulation. To date the The RDB has a Foreign Market information portal EU has concluded such arrangements with only charged with providing basic market information to a small number of countries and has yet to grant increase the efficiency of exporters’ cultural markets an adequacy decision to an African country. While in specific areas, including: coffee market analysis; there are clear differences in the approach to cross- coffee market research in the USA; avocado in the border data flows, the premise (goal) of regulation EU; the tea market in the UK; handcraft market in Rwanda and the EU are similar: protection of information in the USA; mineral market analysis; data. Initiation of dialogue with the EU could and global clothing and textile market information. benefit Rwanda by clarifying the extent of such Embassies generally provide some foreign market similarity as well as gaps between the GDPR and information as well. Rwanda’s regulatory regime and providing a basis for deliberation on whether and how Rwanda’s The government should provide incentives to regulatory goals relating to data protection might facilitate the obtention of international standard be relaxed on a bilateral basis, in the process certification and adoption of e-commerce. Given supporting plurilateral cooperation in the EAC and the evidence on the strong relationship between ISO AfCFTA contexts and the WTO. certification and exporting and “the lack of demand for product abroad” cited by non-exporters, resources 2.3. Conclusions and recommendations spent on increasing awareness and dissemination of information regarding application and filing This section presents measures to strengthen procedures may help Rwandan entrepreneurs realize technology and innovation to boost firms participation and maximize their exporting potential. Likewise, to international trade and to accelerate openness to the positive relationship between ecommerce trade in services. and exporting in combination with “the lack of information regarding foreign agents, distributors Strengthening technology capacities and innovation and prospective buyers” cited by non-exporters, to foster firms’ participation to international trade suggests investment in internet infrastructure can Measures to encourage economic dynamism via provide isolated enterprises, such as those in rural and export entrepreneurship to aid in recovery post- underdeveloped urban areas, low-cost connectivity pandemic, could include the following: to markets and customers aboard. Government has Rwanda should explore the possibility of creating made substantial investments in ICT infrastructure, a dedicated agency under MINICOM with a clear but continued efforts are needed to upgrade the mandate to help addressing the market failures quality (and uptake) of ICT infrastructure. ICT associated with information asymmetry for non- infrastructure needs to be high-speed, reliable, exporters. Like a standard Export Promotion Agency available, and accessible, and continued investments (EPA), the new agency would assist firms with are required to improve bandwidth and infrastructure international trade fairs, provide information on reliability. The Networked Readiness Index is a foreign markets, and facilitate training and advisory comprehensive composite index that assesses a services. The mandate for exports promotion in country’s “preparedness to reap the benefits of Rwanda is currently assumed by various institutions emerging technologies and to capitalize on the under both the MINICOM and RDB, remain poorly opportunities presented by the digital revolution coordinated, and are not always well known by and beyond” (World Economic Forum, INSEAD, and SMES. The MINICOM developed the Rwanda Trade Cornell University 2016). Rwanda performs least well Portal, available online to traders for foreign market in readiness (115) and is ranked 106 in infrastructure. information, and produced an exporters’ guide In terms of digital infrastructure, Rwanda is lagging which was disseminated to private sector firms. because of the lack of investment and inadequate 30 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services metropolitan and last-mile access networks. The In combination with regression results that show high cost of broadband lines, combined with low formal training is an especially important correlate computer ownership, put the service beyond the for exporting in other services, policies that support reach of most private users. training should continue. Rwanda should continue its to foster innovation Strengthen Rwanda’s services exports by recognizing through tertiary education(WBG-GoR, 2020). qualifications and abolishing work-permit regimes for Publications and patents in Rwanda have been all eligible regional professionals. rising, although from a very low base. Likewise, Rwanda has invested in a range of graduate and Rwanda should address its skills shortage postgraduate centers for technical training, including by recognizing qualifications of regional Carnegie Mellon University and the various centers professionals. Between 2013 and 2016, the EAC of excellence. Creating incentives for researchers has introduced mutual recognition agreements to develop and adapt innovations that benefit (MRAs) in three professional services: accounting, industries in Rwanda can help Rwanda to reap the architectural and engineering services. To extend maximum returns to local innovation. A practical services trade further, MRAs should be drafted for way to do this follows the model common in high- other professional sectors, including legal, finance, income countries, where private firms finance and consulting professionals. Similar benefits university research to solve production challenges. could occur for extending these recognitions in Given the nascent private sector, the government other areas with skills shortages such as health will have to continue to play a supporting role. and education. In absence of an EAC-wide MRA, Rwanda should unilaterally recognize qualifications In terms of financial depth, facilitating sufficient for regional professionals to address its skills gap access to formal credit for firms in times of supply (WBG-GoR, 2020). shortages and rampant inflation, as seen in the post-lockdown period, should continue to be a To facilitate short-term assignments, the EAC priority for the government in light of the finding should further abolish work-permit regimes for that one additional credit product is correlated with all eligible professionals. The MRAs in the EAC still 10 and 11 percent higher probability of exporting for requires eligible professionals in the EAC to obtain manufacturing and other services, respectively. permits and register for professional bodies in both “home” and “visiting” country. These administrative Lastly, the government should continue to provide burdens prevent professionals from accepting short- incentive to encourage exporters formal training term assignments. Instead, any eligible professional of their workforce. Firms in the services sector that certified from any EAC professional body should be provide formal training programs for its permanent, automatically exempt from work-permit regimes full-time employees, are 20 percent more likely to (WBG-GoR, 2020). export. Of the government subsidies asked about in the survey, subsidies for training were the most The attraction of regional services providers should popular with 15 percent of firms in Rwanda 2019 be accompanied by aggressive measures to help receiving financial support from the government expand the number of Rwandan professionals. for upskilling its employees. A cross-country Regional professionals and services provide a key comparison of the share of firms providing formal means to fill high-paying vacancies in the private training notably shows that Rwanda is ranked 46 out sector using regional experts. Yet, if this is seen of 118 countries (63rd percentile), with other services to be a one-sided movement (for example, from ranking even higher at 38 and in the 69th percentile. Kenya to Rwanda), the use of regional experts may Rwanda Economic Update • Edition No. 19 31 Boosting Exports Through Innovation and Trade In Services lead to resentment and result in a backlash to EAC support the development of technological and regional integration. For that reason, it is important innovation capacity. At the regional level the ECCAS to increase the number of professionals in Rwanda community could harness the Rwandan experience through the following measures(WBG-GoR, 2020). to develop the human and institutional capacity for digitization, technology development and - Develop a quality tertiary education system innovation. ICT-enabled services for export could be focused on high-return activities. Rwanda has developed in human resource management, payroll, taken dramatic steps to improve the quality of accounting, architectural design, research, editing, tertiary education in recent years, consolidating education, back-office services, licensing services, public universities into the University of Rwanda and engineering. Enhanced digitization could for better governance. Increasing access to also foster digitally-enabled services to facilitate financing, including loosening restrictions cross-border trade; support backward and forward on private financing, would help to expand linkages to agriculture, mining, and manufacturing; enrollment. The share of total budget allocated and increase insertion in regional and global value to education increased substantially from 10 chains. Technological innovation and science percent in 2019 to 14 percent in 2020 and 2021. parks and technology development zones (TDZs) Rwanda also needs to focus its tertiary education can provide the required institutional, legal and system on key areas of investment: more science regulatory framework to attract investment in and engineering. Strategies used in high-income infrastructure and high-tech fields. countries to encourage university students to enter high return fields—including financing Looking beyond ECCAS, Rwanda could participate incentives (as in Argentina and Australia) and in other bilateral and multilateral efforts to improve improving the quality of science and engineering the regulatory framework for digital services. instruction in earlier grades (as in Norway and Rwanda could participate in talks initiated by WTO Poland)—could be considered. members on issues of importance to the country’s - Strengthen the provision of technical and services trade, to grasp the opportunity to influence vocational training. Collection and dissemination the agreements reached and to learn about best of information on the quality of skills providers practice in services regulation. Mutual recognition and the returns to different skills would encourage agreements of regulatory regimes pertaining to data youth to participate in sectors with high returns privacy and protection could be considered both in and help to improve the quality of skills training the framework of the AfCFTA and pursued bilaterally programs. Many high-growth countries, including with major trade partners. For example, Rwanda Korea, Malaysia, and Singapore, used an activist could seek data adequacy decisions that provide a approach to skills development by setting a governance framework enabling the free flow of strategic direction, tone, and culture for efforts to data. A key issue will be Rwandan restrictions on the improve workforce skills; creating an organizational cross-border transfer of data and on data processing infrastructure with the appropriate governance that could impair firms’ ability to participate in design; and fostering efficient and effective services trade. management of service delivery by providers. Digital regulatory policy frameworks should be Collaboration with ECCAS countries for enhanced combined with measures to eliminate explicit export of goods and services discrimination against foreign suppliers. For example, Rwanda’s overall level of restrictiveness Collaboration between Rwanda and Central Africa is marginally better than that of Cameroon, and a on the digitization and data flow agenda could partnership to lower the restrictiveness of policy 32 Rwanda Economic Update • Edition No. 19 Boosting Exports Through Innovation and Trade In Services measures in the two countries’ SEZ programs Economic Zones Programme. The Special Economic holds promise. Through a variable geometry this Zone Authority of Rwanda (SEZAR)30 has been partnership can be generalized. A regional directive successful in attracting FDI especially from inside to that effect from ECCAS could smooth out the Africa (South Africa, Morocco, and Kenya). While process. most ECCAS countries have put together SEZs, these could benefit through collaboration undertaken Specific cooperation between Rwanda and ECCAS through successful various programs in Rwanda. The countries could be undertaken in Special Economic Fintech innovation programme, Kigali Innovation Zones. The 2018 Rwanda SEZ policy29 provides City, Rwanda Innovation Fund and the ICT Hub offer the relevant framework for the Rwandan Special considerable opportunities for learning. 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Introduction and implementation of Imihigo – a performance-based and accountability mechanism implemented since 2006 – and the Result-Based Performance Management (RBM) Policy for Rwanda Public Service, August 2015: https://www.minecofin.gov.rw/index. php?eID=dumpFile&t=f&f=12464&token=206d23b5640d50ee08ce4db3a852e5f60f9902ed. MINECOFIN (2017). National Investment Policy, April 2017: https://www.minecofin.gov.rw/index. php?eID=dumpFile&t=f&f=12464&token=206d23b5640d50ee08ce4db3a852e5f60f9902ed. MINECOFIN (2017). National Investment Policy. https://www.minecofin.gov.rw/index. php?eID=dumpFile&t=f&f=12499&token=c11bee017a40789b8839c5e99ac833780db7e7a4. MINECOFIN (2018). Guidelines for Preparation and Assessment of Feasibility Study Reports of Projects at Central Government Level. https://www.minecofin.gov.rw/index. php?eID=dumpFile&t=f&f=12500&token=48723445047768bc212cba8b253f6469f04f8f55. MINECOFIN (2021). The National Monitoring, Evaluation and Learning Guidelines, 2021. https://www.minecofin.gov. rw/index.php?eID=dumpFile&t=f&f=21993&token=02a0407c26ab7c744a58e581881e5110c538837c. MINECOFIN. (2019). Manual of Public Financial Management (PFM) Policies and Procedures. https://www.minecofin. gov.rw/index.php?eID=dumpFile&t=f&f=15841&token=b712c18f2b34da6b7ffd28321812da000ee4de42 MINECOFIN. Budget Execution Reports. FY2019/2020, FY2020/2021, FY2021/2022. MINICOM. 2011. National Industrial Policy. Ministry of Trade and Industry, Government of Rwanda. NISR (2022). GDP National Accounts (First Quarter 2022). https://www.statistics.gov.rw/publication/gdp-national- accounts-first-quarter-2022 NISR (July 2022). Consumer Price Index (CPI) - June 2022. https://www.statistics.gov.rw/publication/consumer-price- index-cpi-june-2022 NISR (March 2022). GDP National Accounts, 2021. https://www.statistics.gov.rw/publication/1789 NISR (May 2022). Labour Force Survey Trends-February 2022(Q1). https://www.statistics.gov.rw/publication/1808 NISR. Formal external trade in Goods report (April 2022). https://www.statistics.gov.rw/publication/1813 Olayiwola, W. 2020. Governing the Interface between the African Continental Free Trade Area and Regional Economic Communities Free Trade Areas: Issues, Opportunities and Challenges. UNECA. RBC (2022). Situation report on Novel Coronavirus. https://www.rbc.gov.rw/index.php?id=717 Republic of Rwanda, Understand the 2020/2021 National Budget: A citizen guide. https://www.unicef.org/esa/ media/7291/file/UNICEF-Rwanda-Understanding-2020-2021-National-Budget.pdf Shepherd, B., M. Décosterd, A. Markitanova, H. Mukama, A. Nderitu, and D. Stivas. 2018. Barriers to Services Trade in Kenya and Rwanda. Report Prepared for the Commonwealth Secretariat. https://developing-trade.com/wp-content/ uploads/2018/06/Working-Paper-DTC-2018-3.pdf. UNECA. 2022. Regional Digital Trade Integration Database and Indicators, forthcoming. World Bank (2018) Investor Perceptions and Constraints faced by Exporting Firms in Rwanda’s Priority Economic Sectors. World Bank: Washington DC. World Bank Group; Government of Rwanda. 2020. Future Drivers of Growth in Rwanda : Innovation, Integration, Agglomeration, and Competition. Washington, DC: World Bank. https://openknowledge.worldbank.org/ handle/10986/30732 World Bank. 2021. Rwanda Economic Update, June 2021 : The Role of the Private Sector in Closing the Infrastructure Gap. World Bank, Kigali. © World Bank. https://openknowledge.worldbank.org/handle/10986/35970 World Economic Forum (2019). The Global Competitiveness Report 2019. https://www3.weforum.org/docs/ WEF_TheGlobalCompetitivenessReport2019.pdf#:~:text=The%202019%20results%20of%20the%20GCI%204.0%20 reveal,gap%20globally%20stands%20at%20more%20than%2030%20points. Annex ANNEX 1. SUPPLY SIDE CHALLENGES Rwanda faces substantial supply-side challenges that limit productivity and competitiveness, and thus trade potential. The most critical issues concern the enabling environment, investment in tradable sectors, human capital, services productivity, agricultural modernization, and governance. This section summarizes some of the main challenges discussed in Future Drivers of Growth in Rwanda, a joint publication by the Government of Rwanda and the World Bank.31 The enabling environment for both private firms and state-owned enterprises (SOEs) faces significant challenges. Costs faced by firms are high in Rwanda, particularly in energy, transport, and finance (the average nominal lending rate was about 17 percent in 2017, or 12 percent in real terms), compared to costs in other economies at similar stages of development. Access to finance, broadband internet, and affordable and reliable electricity (31.5 percent of firms participating in the Integrated Business Enterprise Survey (IBES) reported access to reliable electricity as a major challenge) remains a substantial barrier to firm growth. Assistance for industrial development fails to achieve its potential due to the emphasis on general support rather than targeting successful enterprises, the lack of performance-based incentives, poor coordination of incentives across government agencies, and the lack of a credible performance monitoring system. Shortfalls in the coordination, monitoring, and evaluation of funding for programs supporting innovation (for example, only 0.7 percent of public expenditures on agriculture were allocated to research and innovation in fiscal 2014/15–2015/16) impairs the effectiveness of the national innovation system. Private investment in tradable sectors is low. While private credit nearly tripled from 10 percent of GDP in 2000 to 28 percent of GDP in 2016, most of this finance went into non-tradable sectors, such as construction and real estate, or to households. In 2015 only 12 percent of the stock of private finance was in manufacturing and 18 percent was in tourism. More needs to be done to attract FDI and domestic investment into tradable sectors. The low level of human capital constrains productivity and trade growth. An inadequately educated workforce is cited by employers as the second most binding constraint (after lack of access to finance) to firms’ operations in Rwanda. While enrollment in technical and vocational education and training (TVET) is high compared to most African countries, training is not necessarily focused on the priority subfields. Enrollment in tertiary education is low, although it is rising rapidly. However, relatively few graduates are specializing in key job-creation fields, such as science and engineering. Rwanda has a higher level of stunting, and a lower completion rate for primary and secondary education, than the average for low-income countries. There also are concerns over the quality of basic education, as despite substantial improvement over the past decade only 43 percent of teachers were assessed at the “intermediate level” in English. Productivity in services is low and falling. The rapid expansion of the services sector has been at the core of the structural transformation in Rwanda in the past two decades. The high rate of growth the share of services in employment implies Rwanda is converging rapidly to what is observed in a cross-section of thirteen African economies.32 However, productivity declined from 2005-14 in service sectors such as hotels and restaurants (70 percent decline in output per worker), construction (18 percent decline), and utilities (14 percent decline, References and supporting material for the points made here can be found in that document. 31 Benin, Botswana, Egypt, Ghana, Malawi, Mali, Mauritius, Morocco, Mozambique, Rwanda, South Africa, Tanzania and Zambia. This sample group 32 comprises countries for which at least 2 waves of census data is available on employment at the subnational level broken down across sectors. These data are analyzed in a recent IGC study that assesses the link between services and development in these thirteen African economies (Baccini, et al. 2021). See https://www.theigc.org/wp-content/uploads/2021/09/Baccini-et-al-August-2021-Working-paper.pdf. 36 Rwanda Economic Update • Edition No. 19 Annex Annex Figure 1). While productivity in transport and ICT Annex Figure 1: Labour productivity in Rwanda, 2005 and 2014s (constant average 2014 price) improved, the levels remained low compared with the 12 region. Low productivity in services constrains overall 10 9.7 productivity, and in particular that of the higher-quality 8.3 exporting firms, given firms’ reliance on logistics, finance 8 7.1 and telecommunications. Hoekman and Shepherd 6 5.2 6.1 5.2 (2015) found that low productivity is driven in part by a 4 policy environment that restricts trade in services. If the 2.4 2.9 2.5 2.5 2.1 2 1.7 1.8 1.7 EAC were to lower the restrictions on trade in services to 1.3 1.4 0.3 0.4 the level in Ghana (the African country with the lowest 0 s n T s g re ce ra , g nt au ls tio IC ice ial es in in ltu st te vi s iti rv c t, in trade barriers for services, with an index of 18), exports c ur er re Ho seinan ru or u il M t ric Ut rs t sp ac ns he Ag F uf an Co an Ot Tr of EAC countries could increase substantially: by 13 M 2005 2014 Source: Extracted from World Bank (2020) percent for Rwanda and some 20 percent for Kenya, Tanzania, and Uganda (Hoekman and Shepherd 2015). Further modernization and policy reforms are necessary to increase the agriculture sector’s responsiveness to market signals. Rwanda’s rapid growth in agricultural production has been based on the expansion of land devoted to agriculture or increased use of inputs. Since the scope for further land expansion and the productivity gains from applying increased inputs are limited, future agricultural growth will have to rely on productivity- increasing innovations and improved technical and allocative efficiency in resource use. Low investment in irrigation constrains production. Rice yields are insufficient to cover the cost of irrigation investment, underlining the importance of improving rice productivity and shifting towards high-value crops (e.g., horticulture) in irrigated areas. Cooperatives, organized along commodity lines, have been important to state-led collective action. However, less than 20 percent of farmers belonged to cooperatives in 2016, perhaps because some commodities are more suited to cooperative development, or because government resource constraints limit the availability of subsidized seeds and fertilizer inputs distributed through cooperatives. Also, a recent survey indicated dissatisfaction among cooperative members with the level of accountability and transparency in the system.33 Smallholder farmers often lack access to the benefits of the big data revolution, including the use of sensors to judge the optimal level of inputs and blockchain technology that can lower the cost of small financial transactions and enable secure record keeping. Finally, land degradation remains a critical problem, despite the considerable progress in constructing wide terraces; increasing variability in rainfall patterns particularly impairs the livelihoods of small-scale, rainfed farmers; and accelerated efforts to adapt to climate change are urgent. Despite Rwanda’s remarkable improvements in governance, some rules and institutions continue to hamper country competitiveness. Rwanda has made good progress in improving regulations that support competition and is ranked 34th in the world on the extent of market dominance and 26th on the effectiveness of antimonopoly policy (World Economic Forum, 2016). However, the country is ranked 77th on the intensity of local competition by the Global Competitiveness Report 2016–2017. Barriers to entry are high in some sectors. Slow court procedures, limited training and specialization of justice sector employees, and issues with case management techniques impair the effectiveness of the judiciary. Property rights can be threatened due to issues concerning the enforcement of expropriation procedures and protection of intellectual property, coupled with difficulties facing the land management. MINICOM (Ministry of Trade and Industry) Rwanda. 2018. “National Policy on Cooperatives in Rwanda: Toward Private Cooperative Enterprises and 33 Business Entities for Socio-Economic Transformation.” MINICOM, Kigali, January. Rwanda Economic Update • Edition No. 19 37 Annex ANNEX 2. FIRM LEVEL ANALYSIS A. Data This report takes advantage of the granularity of the World Bank Enterprise Surveys (WBES) to explore firm- level perspectives on exporting and female employment. With its detailed questions on firm characteristics and business operations, this database provides a unique opportunity to employ rigorous methods to explore first the role of technology and innovation on exporting and then the role of women-owned and women-managed businesses in creating jobs for women. For Rwanda, three WBES rounds were conducted in 2006, 2011, and 2019. Regression analysis will be based on firm responses provided in the latest round, while data from the earlier two rounds will be used for comparative analysis. In order to provide regional and global context, the analysis in this report will also utilize the larger WBES database covering over 80,000 firms in 118 countries surveyed during the period 2012 to 2021. Annex Tables 4, 5, and 7 list all the countries and years used in this report. The Rwanda WBES 2019 interviewed business owners and top managers in 360 firms between November 2019 and March 2020.34 Sector coverage includes manufacturing (120 firms), retail (79), and other services (161), which includes construction, motor vehicles sales and repair, wholesale trade, hotels and restaurants, and transportation. Regionally, 162 firms are located in Kigali, 99 firms in Western Province, and 99 firms in Southern Province. In addition to sector and location, sample design also included stratification by size: 200 small (5 to 19 employees), 110 medium (20 to 99), and 50 large (100 or more). Two earlier rounds of WBES collected data from (a) 212 firms in November-December 2006 and (b) 241 firms in Rwanda between June 2011 and February 2012. Sample design was identical to 2019 with stratification by sector, location, and size. Sector coverage in 2006 includes manufacturing (59 firms), retail (44), and other services (109), which was similar in 2011, manufacturing (81), retail (36), and other services (124). In 2006 and 2011, respectively, 192 and 232 firms are located in Kigali with only 20 and 9 firms in Butare. The sample in 2006 is comprised of 143 small, 53 medium, and 16 large firms, while the numbers for 2011 were 114, 90, and 37, respectively. B. Regression Methodology The increasing collection and availability of microdata on exports—at the industry, firm, and even transaction level—over the last decade has prompted detailed and generalizable research towards developing more accurate trade models and understanding firm behavior. Today a rich body of literature investigates firm dynamics, such as productivity, innovation, and growth in relation to exporting and exporters. One of the primary areas explored concerns exporting in times of crisis and its wake. Upon creating the Exporter Dynamics Database (EDD), Fernandes et al. (2013) finds that “export entrepreneurship,” defined as the extensive margin of exports, i.e. new products, firms, and destinations, helped alleviate the negative effects of 2008 financial crisis.35 Using the EDD, Jaud et al. (2017) shows that financial crisis at both origin and export destination countries have a significant negative impact on firm entry, product introduction, and destination expansion, but this negative impact is less pronounced in countries with more open capital markets and in sectors less dependent on external finance. Similarly, Niemen (2020) uses the EDD to assess financial development and structure on exporters and finds a central importance of access to financial services in export dynamism by increasing the number of small exporters. Enterprise Surveys, The World Bank, http://www.enterprisesurveys.org. Version: October 21, 2021. 34 Exporter Dynamics Database 1997-2014: https://microdata.worldbank.org/index.php/catalog/2545/study-description. 35 38 Rwanda Economic Update • Edition No. 19 Annex The export regressions build upon the industry-level analysis conducted by the aforementioned authors and looks to the WBES to identify the firm-level correlates of exporting, in particular technology and innovation. This research takes advantage of the granularity of the WBES instrument to explore the role of technological activity in explaining exporting behavior. The literature has long stressed the difficult firm-specific processes involved in building technological capabilities and argues that enterprises have to undertake conscious investments to put technology to productive use (Pack and Westphal 1986; Lall 1992; Wignaraja 1998; Wignaraja 2002). Technology transfer necessarily requires learning because many aspects of innovation are tacit; technological knowledge is difficult to embody in hardware or written instructions. The process of getting a new technology into production requires the development of new skills and information. Mastery of new technologies, ultimately, can only be acquired through concerted effort, skill upgrading, investments in training, R&D activities, and extensive managerial experience. Measurement of these variables at the firm level is therefore necessary to identify the sources of low technological capabilities, how external factors such as a global pandemic affects affect scale economies and the probability of exporting. Export Regressions Regression analysis of the relationship between exporting and firm activity is based on the OLS estimation of the following model: where Exporter is equal to 1 if firm exports directly any percentage of its sales, and is equal to 0 otherwise. Production Innovation is equal to 1 if firm has introduced new or significantly improved products or services during the last three years, and 0 otherwise. Process Innovation is equal to 1 if firm introduced during the last three years any new or significantly improved process, (i.e., methods of manufacturing products or offering services; logistics, delivery, or distribution methods for inputs, products, or services; or supporting activities for processes) and the firm also takes action whenever problems arise in the production process. ISO Certification is equal to 1 if firm has an internationally recognized quality certification, such as ISO 9000; ISO 45001; HACCP, and 0 otherwise. Ecommerce is equal to 1 if firm uses the internet for business purposes (manufacturing) or has its own website or social media page (services), and 0 otherwise. Training is equal to 1 if the firm provides formal training programs for its permanent, full-time employees, and 0 otherwise. Financial Depth is an interval variable that ranges from 0 to 5 where one point is given for each credit product that the firm has previously used, specifically, (i) overdraft facility, (ii) line of credit or loan, (iii) bank financing for working capital, (iv) bank financing for investment, and (v) any non-bank financing. A vector of firm-specific covariates x includes controls for the total number of full-time employees (natural logarithm); age; a quadratic in the top manager’s years of experience working in firm ’s sector; dummy variables indicating positive or negative real sales growth over a last three years (where the reference group are firms with no change or missing value); a dummy variable indicating if firm has its annual financial statement checked and certified by an external auditor; a dummy variable indicating if firm imports intermediate materials or supplies; ownership dummy variables, specifically a foreign dummy variable indicating if private sector firm has at least 10 percent of equity owned by foreign entities (which adheres to the International Monetary Fund threshold that Rwanda Economic Update • Edition No. 19 39 Annex distinguishes between portfolio and direct investment flows); and a public sector dummy variable indicating if firm i has any equity owned by the government; a dummy variable indicating if firm i is a subsidiary of a larger corporation; an dummy variable equal to 1 if firm is a sole proprietorship, and equal to 0 if a shareholding company with non-traded shares; a dummy variable indicating if firm i has a waste management system in place; a dummy variable indicating if at least one of the owners is female; a dummy variable indicating if the top manager is a woman; a dummy variable indicating if firm i is located in an industrial park. Lastly, all models include a full set of dummies variables for region (Kigali, Western Province; Southern Province); sector (manufacturing, retail, and other services); and fiscal year. Annex Table 1: Exporters by industry, WBES 2006, 2011, and 2019 2006 2011 2019 ISIC 3.1 Obs % Obs % Obs % Manufacturing Food processing (15,16) 21 38.8 24 28.6 66 23.7 Textiles (17) 1 100.0 3 0.0 2 100.0 Garments (18) 5 0.0 1 0.0 .. .. Leather (19) 1 100.0 2 0.0 1 0.0 Wood (20) 1 0.0 4 27.1 3 0.0 Paper (21) 2 50.0 1 0.0 5 33.0 Publishing (22) 7 0.0 15 0.0 2 0.0 Petro & chemicals (2324) 7 14.0 8 23.8 1 0.0 Rubber & plastics (25) 3 0.0 5 60.9 4 10.8 Non-metallic (26) 1 0.0 3 100.0 8 9.4 Basic metals (27) .. .. 2 47.6 2 48.6 Fabricated metal (28) 4 0.0 3 0.0 5 10.4 Electronics (30313233) .. .. 3 0.0 0 0.0 Auto parts (34) .. .. 1 0.0 0 0.0 Furniture, n.e.c. (36) 6 0.0 5 0.0 20 6.0 Retail 44 2.2 36 0.0 79 13.2 Other services 109 4.0 Construction (45) .. .. 17 0.0 10 2.0 Auto sales & repair (50) .. .. 10 6.3 30 16.5 Wholesale (51) .. .. 24 3.8 19 59.1 Hotels and restaurants (55) .. .. 46 0.0 84 23.8 Land transport (60) .. .. 5 0.0 9 12.2 Air transport (62) .. .. 1 0.0 1 100.0 Travel agencies (63) .. .. 6 6.7 6 37.8 Post & telecom (64) .. .. 3 0.0 2 0.0 ICT (72) .. .. 12 0.0 3 0.0 Notes: Two-digit ISIC Rev.3.1 in parentheses. Median sample weights for subpopulation used. Source: Rwanda WBES 2006, 2011, and 2019. 40 Rwanda Economic Update • Edition No. 19 Annex Annex Table 2: Descriptive statistics for export regressions, Rwanda WBES 2019 (N = 345) Variable All firms Manufacturing Other services Retail Observations 345 117 151 77 Export 0.264 0.282 0.338 0.091 Product innovation 0.130 0.103 0.185 0.065 Process innovation 0.049 0.034 0.073 0.026 ISO Certification 0.061 0.154 0.020 0.000 Ecommerce 0.472 0.496 0.563 0.260 Formal training 0.371 0.444 0.424 0.156 1.339 1.427 1.384 1.117 Financial depth (0-5) [1.252] [0.499] [1.205] [1.112] 2.972 3.143 3.215 2.237 ln (Full-time employees) [1.262] [1.385] [1.252] [0.786] 11.762 12.88 11.616 10.351 Age (years) [10.425] [1.350] [9.483] [8.341] 11.414 11.803 11.053 11.533 Top manager's experience [8.459] [12.561] [8.012] [8.640] 201.635 218.573 185.94 206.675 Experience squared [316.799] [8.941] [267.875] [324.952] Investment (>0) 0.223 0.299 0.219 0.117 Sales growth (>0) 0.684 0.709 0.682 0.649 Employment growth (>0) 0.522 0.521 0.530 0.506 External audit 0.464 0.479 0.556 0.260 Importer 0.270 0.274 0.205 0.390 Domestic ownership 0.858 0.795 0.894 0.883 Foreign ownership (>10%) 0.107 0.154 0.086 0.078 Government ownership (>0%) 0.020 0.043 0.013 0.000 Subsidiary 0.067 0.085 0.073 0.026 Sole proprietorship 0.719 0.641 0.695 0.883 Waste management system 0.617 0.718 0.596 0.506 Female owner 0.261 0.248 0.245 0.312 Female top manager 0.194 0.137 0.212 0.247 Industrial park 0.078 0.231 0.000 0.000 Kigali 0.446 0.376 0.497 0.455 Western province 0.270 0.291 0.298 0.182 Southern province 0.284 0.333 0.205 0.364 Fiscal year 2018 0.380 0.333 0.397 0.416 Fiscal year 2019 0.620 0.667 0.603 0.584 Manufacturing 0.339 .. .. .. Retail 0.223 .. .. .. Other services 0.438 .. .. .. Notes: Standard deviation in square brackets. Source: Author’s calculations based on Rwanda WBES 2019 Rwanda Economic Update • Edition No. 19 41 Annex Annex Table 3: Export regressions (Rwanda WBES 2019) Export regressions (Rwanda WBES 2019) All Firms Manufacturing Other services Retail (1) (2) (3) (4) 0.058 -0.226*** 0.275** -0.076 Product innovation (0.077) (0.082) (0.106) (0.260) 0.011 0.396** -0.265 0.173 Process innovation (0.129) (0.177) (0.172) (0.368) 0.358*** 0.381** 0.610*** ISO Certification (0.117) (0.149) (0.229) 0.182*** 0.274** 0.162** 0.049 Ecommerce (0.057) (0.130) (0.080) (0.098) 0.128** -0.004 0.196** 0.117 Formal training (0.057) (0.090) (0.087) (0.124) 0.076*** 0.103*** 0.109*** -0.038 Financial depth (0-6) (0.022) (0.036) (0.037) (0.038) 0.003 -0.048 -0.014 -0.024 ln(Full-time employees) (0.027) (0.057) (0.036) (0.068) 0.000 -0.005 0.008* -0.010* Age (years) (0.003) (0.004) (0.005) (0.005) 0.000 -0.010 0.030** 0.017 Top manager's experience (0.009) (0.014) (0.015) (0.017) -0.000 0.000 -0.001*** -0.000 Experience squared (0.000) (0.000) (0.000) (0.000) 0.000 0.045 -0.137 0.128 Investment (>0) (0.065) (0.120) (0.112) (0.117) 0.000 0.054 -0.064 -0.092 Sales growth (>0) (0.049) (0.085) (0.088) (0.092) 0.000 0.016 -0.048 -0.017 Employment growth (>0) (0.046) (0.083) (0.075) (0.081) -0.155*** 0.027 -0.189** -0.092 External audit (0.055) (0.110) (0.083) (0.116) 0.049 0.119 -0.001 0.258** Importer materials/supplies (0.067) (0.130) (0.111) (0.118) Equity ownership (Reference: domestic) 0.136 0.138 0.076 0.108 Foreign (>= 10%) (0.101) (0.194) (0.157) (0.187) Notes: Robust standard errors in parentheses. ***, **, * indicate statistical significance at the 1, 5, and 10 percent level, respectively. Exporter dummy variable is equal to 1 if firm i exports directly any percentage of its sales, and is equal to 0 otherwise. Source: Author’s calculations based on Rwanda WBES 2019. 42 Rwanda Economic Update • Edition No. 19 Annex Annex Table 4: Descriptive statistics of exporter share, ISO Certification, Ecommerce, and financial depth Exporter share ISO Certification Ecommerce Financial depth Obs % Obs % Obs % Obs % Rwanda 2019 355 21.3 356 2.9 360 42.6 360 1.1 Manufacturing 120 17.0 118 7.1 120 45.4 120 0.9 Retail 79 13.2 78 0.0 79 35.8 79 1.1 Other services 156 26.1 160 3.0 161 44.6 161 1.1 EAC 3,301 9.7 3,330 13.0 3,456 34.4 3,471 0.8 ASEAN 6,927 9.0 6,670 8.5 6,921 37.4 6,963 0.8 Low Income 8,994 8.3 8,949 11.1 9,402 35.4 9,444 0.6 Afghanistan 2014 371 3.3 396 22.1 410 38.2 410 0.3 Bangladesh 2013 1,442 18.5 1,427 14.3 1,442 35.2 1,442 0.9 Benin 2016 147 21.4 148 14.4 150 46.7 150 1.1 Burundi 2014 157 7.5 152 10.6 157 30.9 157 2.2 Chad 2018 146 8.2 148 2.0 153 14.1 153 0.8 DRC 2013 528 5.9 500 13.3 528 21.3 529 0.5 Ethiopia 2015 842 7.5 832 4.3 842 37.5 848 0.6 Gambia 2018 150 7.1 148 17.7 148 22.4 151 0.7 Guinea 2016 142 1.7 132 0.7 149 21.7 150 0.8 Liberia 2017 151 3.1 150 0.1 151 21.9 151 0.9 Madagascar 2013 394 17.8 387 15.4 525 40.6 532 0.7 Malawi 2014 462 10.4 487 18.8 517 53.8 523 1.0 Mali 2016 185 10.0 157 3.6 185 49.3 185 1.7 Mozambique 2018 597 13.1 590 12.5 601 40.3 601 0.4 Nepal 2013 482 4.3 478 8.2 482 33.5 482 0.9 Niger 2017 143 6.4 146 9.1 150 37.9 151 1.2 Rwanda 2019 355 21.3 356 2.9 360 42.6 360 1.1 Sierra Leone 2017 152 2.2 152 5.8 151 14.1 152 0.5 Tajikistan 2019 340 4.2 329 2.2 349 28.2 352 0.4 Tanzania 2013 681 6.6 776 17.6 806 25.8 813 0.4 Togo 2016 149 28.3 148 8.4 150 43.4 150 1.6 Uganda 2013 733 5.1 697 11.6 758 23.3 762 0.4 Zimbabwe 2016 600 8.4 569 9.7 598 48.7 600 0.5 Lower Middle 35,051 8.8 34,657 13.9 35,628 49.3 35,777 0.8 Bhutan2015 248 3.4 248 3.7 252 39.8 253 1.6 Bolivia 2017 363 7.7 353 11.6 364 57.3 364 1.3 Cambodia 2016 373 9.6 359 5.2 366 33.1 373 0.5 Cameroon 2016 357 9.2 319 7.7 359 36.1 361 1.0 Côte d'Ivoire 2016 354 8.0 350 5.6 360 25.3 361 0.8 Djibouti 2013 246 15.3 262 17.3 266 48.3 266 1.2 Rwanda Economic Update • Edition No. 19 43 Annex Exporter share ISO Certification Ecommerce Financial depth Obs % Obs % Obs % Obs % Egypt 2020 3,073 6.6 3,054 8.4 3,072 42.4 3,075 0.3 El Salvador 2016 717 12.2 693 5.3 719 50.3 719 1.3 Eswatini 2016 143 10.5 131 15.9 150 65.9 150 0.9 Ghana 2013 717 8.7 698 9.2 720 51.2 720 0.9 Guatemala 2017 344 8.7 332 7.4 345 61.9 345 1.3 Honduras 2016 330 7.4 325 10.8 332 55.2 332 1.4 India 2014 9,281 7.8 9,176 27.5 9,274 66.1 9,281 1.1 Indonesia 2015 1,320 7.1 1,306 5.4 1,319 22.6 1,320 0.7 Kenya 2018 997 14.9 977 12.9 999 47.3 1,001 1.2 Kyrgyz Rep 2019 359 12.6 349 12.5 360 57.2 360 0.7 Lao PDR 2018 331 11.2 330 1.7 332 30.9 332 0.6 Lesotho 2016 148 9.8 128 2.5 149 21.5 150 1.0 Mauritania 2014 148 18.8 147 16.2 150 59.1 150 1.3 Moldova 2019 359 14.2 352 8.6 358 48.1 360 0.7 Mongolia 2019 360 4.6 359 4.3 359 37.5 360 1.0 Morocco 2019 973 21.1 991 3.1 1,073 55.4 1,096 1.0 Myanmar 2016 607 4.6 596 3.5 607 17.9 607 0.3 Nicaragua 2016 333 4.0 321 3.7 332 47.7 333 1.4 Nigeria 2014 2,300 15.7 2,473 7.1 2,640 25.2 2,676 0.4 Pakistan 2013 1,148 13.2 1,157 35.8 1,239 54.8 1,247 0.4 Papua New Guinea 2015 65 6.6 63 23.8 65 80.1 65 1.6 Philippines 2015 1,331 7.9 1,219 8.8 1,327 63.3 1,335 0.5 Senegal 2014 599 10.3 583 9.3 599 39.7 601 0.9 Solomon Is 2015 143 14.3 141 6.4 150 44.0 151 1.6 South Sudan 2014 733 2.6 728 2.6 736 27.0 738 0.3 Sudan 2014 660 6.7 657 7.0 649 65.4 662 0.2 Timor-Leste 2015 126 36.8 124 5.5 126 22.8 126 0.8 Tunisia 2020 605 24.2 580 18.8 615 56.5 615 1.3 Ukraine 2019 1,332 12.4 1,295 11.1 1,332 63.9 1,337 0.8 Uzbekistan 2019 1,231 5.9 1,219 8.3 1,227 26.2 1,239 0.6 Vietnam 2015 990 12.8 978 10.0 991 59.8 996 1.0 West Bank and Gaza 2019 358 17.3 355 2.1 362 30.3 365 0.5 Yemen 2013 350 9.3 348 4.9 352 24.0 353 0.2 Zambia 2019 598 8.6 580 7.9 600 59.0 601 0.5 Upper Middle 21,002 10.0 20,646 30.9 21,274 68.0 21,317 1.0 Albania 2019 374 19.9 369 13.2 377 59.8 377 1.6 Argentina 2017 662 15.3 646 20.2 663 83.7 663 1.8 Armenia 2020 543 16.1 531 7.8 546 57.5 546 1.0 Azerbaijan 2019 214 11.1 221 17.4 225 66.2 225 0.4 44 Rwanda Economic Update • Edition No. 19 Annex Exporter share ISO Certification Ecommerce Financial depth Obs % Obs % Obs % Obs % Belarus 2018 598 25.3 589 20.7 600 73.5 600 1.1 Bosnia & Herzegovina 2019 360 36.8 351 28.3 362 68.1 362 1.7 Bulgaria 2019 770 23.7 738 24.0 772 45.7 772 1.4 China 2012 2,698 10.8 2,669 53.4 2,700 76.5 2,700 0.8 Colombia 2017 993 12.2 948 20.6 993 85.8 993 2.2 Dominican Rep 2016 357 5.5 334 1.6 358 48.4 359 1.6 Ecuador 2017 361 8.4 340 7.4 361 82.7 361 2.0 Georgia 2019 576 15.4 554 5.6 581 51.2 581 1.0 Jordan 2019 586 24.5 579 26.0 601 77.1 601 0.7 Kazakhstan 2019 1,427 5.3 1,409 6.0 1,438 50.4 1,446 0.5 Kosovo 2019 220 25.2 234 9.1 270 70.6 270 1.6 Lebanon 2019 530 24.6 532 11.7 532 63.5 532 1.5 Malaysia 2015 975 11.3 936 14.0 998 36.0 1,000 1.2 Montenegro 2019 150 6.8 142 20.5 150 41.0 150 1.1 Namibia 2014 527 6.1 537 8.3 576 44.0 580 0.6 No Macedonia 2019 359 22.0 351 17.8 360 63.5 360 1.4 Paraguay 2017 364 5.8 349 10.0 364 77.1 364 2.0 Peru 2017 1,003 16.6 994 17.0 1,002 80.2 1,003 2.4 Romania 2019 794 13.1 781 30.0 793 52.6 795 1.2 Russia 2019 1,309 2.2 1,286 1.8 1,322 58.5 1,323 1.0 Serbia 2019 353 43.5 351 34.5 359 79.1 361 1.8 South Africa 2020 1,074 7.9 1,085 5.6 1,096 79.6 1,097 0.8 Suriname 2018 227 8.1 225 23.5 232 77.1 233 1.5 Thailand 2016 1,000 4.8 946 7.9 981 48.8 1,000 0.7 Turkey 2019 1,598 10.7 1,619 29.5 1,662 64.6 1,663 1.5 High Income 14,089 15.0 13,931 17.4 14,209 67.6 14,219 1.3 Argentina 2017 328 12.9 323 10.0 327 66.7 328 1.7 Austria 2021 599 38.1 586 27.1 600 90.3 600 1.5 Belgium 2020 609 40.8 601 25.1 614 91.2 614 2.2 Croatia 2019 404 23.6 403 21.0 404 74.9 404 1.2 Cyprus 2019 238 8.7 237 30.0 240 71.5 240 2.0 Czech Rep 2019 501 37.0 498 26.7 502 88.8 502 1.5 Denmark 2020 993 38.9 951 28.6 995 96.7 995 1.6 Estonia 2019 358 40.1 354 16.3 359 78.3 360 1.6 Finland 2020 755 35.8 740 23.7 759 95.2 759 1.8 Greece 2018 600 20.5 579 45.4 600 80.4 600 0.9 Hungary 2019 803 22.5 801 28.3 805 75.1 805 1.5 Ireland 2020 606 17.7 600 41.7 605 93.1 606 1.5 Israel 2013 482 17.2 482 33.0 483 72.5 483 2.0 Rwanda Economic Update • Edition No. 19 45 Annex Exporter share ISO Certification Ecommerce Financial depth Obs % Obs % Obs % Obs % Italy 2019 741 12.7 758 57.9 760 60.2 760 1.3 Latvia 2019 354 32.1 351 22.1 358 69.0 359 0.9 Lithuania 2019 356 25.9 354 7.7 356 24.3 358 0.7 Luxembourg 2020 168 57.1 158 32.0 170 87.9 170 1.6 Malta 2019 242 23.1 229 22.9 242 83.3 242 2.1 Netherlands 2020 805 42.1 792 44.4 808 97.1 808 1.5 Poland 2019 1,297 8.9 1,331 4.8 1,367 62.6 1,369 1.3 Portugal 2019 1,062 12.3 1,054 10.2 1,061 60.1 1,062 1.2 Romania 2019 19 1.6 19 57.0 19 41.5 19 1.2 Slovak Rep 2019 428 17.5 428 31.0 429 83.7 429 1.3 Slovenia 2019 408 55.7 402 25.8 409 86.6 409 1.8 Sweden 2020 587 28.6 576 40.7 591 92.6 591 1.4 Uruguay 2017 346 15.3 324 10.7 346 74.6 347 1.8 Notes: Group averages for EAC and Low Income do not include Rwanda 2019. For Rwanda 2019, M=Manufacturing, R=Retail, and OS=Other Services. World Bank income group classification is based on the year of survey. Source: WBES 2012-2021, one round per country with most recent survey selected (118 total). Median sample weights for subpopulation used. 46 Rwanda Economic Update • Edition No. 19 Annex Annex Table 4: Descriptive statistics of product innovation, process innovation, formal training Product innovation Process innovation Formal training Female employment Obs % Obs % Obs % Obs % Rwanda 2019 359 15.2 360 7.2 358 35.9 357 35.2 Manufacturing 120 8.2 120 4.6 120 48.1 119 28.3 Retail 79 9.5 79 1.0 78 20.8 79 37.8 Other services 160 19.5 161 10.5 160 38.7 159 36.0 EAC 3,460 55.7 3,413 48.4 3,437 34.1 3,126 35.5 ASEAN 6,811 11.8 6,691 24.9 6,893 18.0 4,210 36.8 Low Income 8,872 39.8 8,781 44.2 9,358 26.0 7,940 26.5 Afghanistan 2014 406 44.8 383 65.3 409 31.7 53 23.2 Bangladesh 2013 1,440 31.4 1,436 54.2 1,442 21.9 1,438 16.0 Benin 2016 149 34.2 149 22.6 150 20.0 146 30.4 Burundi 2014 157 45.1 157 70.3 157 32.0 157 24.5 Chad 2018 153 36.5 152 11.3 152 22.9 145 15.0 DRC 2013 526 37.9 526 42.0 526 17.0 522 18.6 Ethiopia 2015 848 25.6 845 32.6 845 20.8 750 27.7 Gambia 2018 151 45.3 150 17.0 150 25.2 150 20.0 Guinea 2016 147 23.7 143 10.6 144 16.0 141 14.8 Liberia 2017 151 53.5 151 30.8 151 22.8 149 21.1 Madagascar 2013 .. .. .. .. 520 12.7 Malawi 2014 518 53.7 507 65.4 510 32.9 456 26.3 Mali 2016 184 38.3 184 36.4 179 17.7 174 19.1 Mozambique 2018 601 35.4 600 15.6 601 20.7 597 26.5 Nepal 2013 482 50.8 478 68.1 482 31.9 482 18.2 Niger 2017 149 33.4 150 14.0 151 27.5 147 13.5 Rwanda 2019 359 15.2 360 7.2 358 35.9 357 35.2 Sierra Leone 2017 152 26.4 152 14.0 152 21.6 152 23.3 Tajikistan 2019 342 18.6 334 10.2 339 24.3 268 35.5 Tanzania 2013 808 51.0 786 57.6 793 30.7 569 43.9 Togo 2016 150 38.0 150 15.5 150 33.7 148 20.6 Uganda 2013 760 67.1 748 76.8 755 34.7 699 40.1 Zimbabwe 2016 598 29.4 600 13.8 600 26.4 597 32.1 Lower Middle 35,503 24.3 35,226 28.6 35,325 24.5 32,460 25.7 Bhutan2015 253 44.5 252 54.3 252 26.0 252 25.7 Bolivia 2017 360 60.0 363 37.1 362 49.9 339 30.6 Cambodia 2016 352 32.4 332 35.5 351 22.2 288 46.5 Cameroon 2016 359 39.6 350 12.6 353 37.6 331 32.1 Côte d'Ivoire 2016 359 40.1 351 15.9 355 35.5 331 22.8 Djibouti 2013 259 32.7 256 45.9 265 21.8 227 27.0 Rwanda Economic Update • Edition No. 19 47 Annex Product innovation Process innovation Formal training Female employment Obs % Obs % Obs % Obs % Egypt 2020 3,070 1.6 3,068 0.4 3,072 7.9 3,072 17.8 El Salvador 2016 719 37.8 719 18.1 719 53.8 705 34.8 Eswatini 2016 148 26.9 141 4.8 148 36.1 143 40.5 Ghana 2013 717 52.5 712 69.1 715 40.1 674 24.8 Guatemala 2017 344 53.8 345 37.4 344 55.7 330 36.6 Honduras 2016 332 41.9 331 27.2 331 47.7 326 33.3 India 2014 9,270 41.9 9,256 56.4 9,229 35.9 8,899 15.0 Indonesia 2015 1,312 6.2 1,311 11.4 1,319 7.7 1,315 38.7 Kenya 2018 1,001 51.9 1,001 24.8 998 37.4 981 31.7 Kyrgyz Rep 2019 359 45.3 358 26.2 360 41.4 350 47.1 Lao PDR 2018 330 22.0 331 20.2 332 24.4 331 46.3 Lesotho 2016 147 7.8 148 6.4 150 31.2 141 48.3 Mauritania 2014 150 59.0 149 70.8 149 52.7 145 12.7 Moldova 2019 360 36.8 357 14.8 357 38.1 355 39.2 Mongolia 2019 360 44.5 359 39.2 360 66.2 351 51.4 Morocco 2019 1,053 6.1 1,052 3.3 1,034 35.7 822 32.6 Myanmar 2016 607 15.6 607 14.3 607 5.9 593 31.4 Nicaragua 2016 333 52.9 332 32.9 333 57.3 324 37.5 Nigeria 2014 2,610 52.7 2,588 62.9 2,573 30.7 2,288 24.2 Pakistan 2013 1,212 30.8 1,178 43.5 1,177 32.0 1,088 7.8 Papua New Guinea 2015 65 59.3 65 73.5 65 73.7 44 37.1 Philippines 2015 1,313 32.9 1,274 40.9 1,325 59.8 304 38.3 Senegal 2014 597 49.8 594 51.9 592 17.4 576 20.7 Solomon Is 2015 150 42.3 149 67.7 151 42.0 109 34.0 South Sudan 2014 734 48.3 721 42.0 734 17.1 720 23.5 Sudan 2014 662 55.9 637 45.1 660 9.5 630 13.4 Timor-Leste 2015 126 38.3 126 62.7 74 1.9 90 31.3 Tunisia 2020 612 14.0 610 4.4 614 19.1 601 39.2 Ukraine 2019 1,329 33.4 1,309 13.7 1,333 24.3 1,263 41.1 Uzbekistan 2019 1,233 23.2 1,222 14.4 1,233 16.9 1,145 34.9 Vietnam 2015 988 23.2 956 37.9 985 22.2 705 33.9 West Bank and Gaza 2019 363 13.7 362 14.7 361 9.6 356 16.8 Yemen 2013 353 44.0 352 45.5 351 14.3 342 2.7 Zambia 2019 601 28.7 601 9.9 601 36.6 573 34.8 Upper Middle 21,101 29.1 19,994 28.8 21,149 47.8 18,897 37.0 Albania 2019 377 42.4 374 17.8 377 46.2 349 53.1 Argentina 2017 660 55.4 654 40.1 655 42.8 628 25.9 Armenia 2020 546 35.5 545 12.6 543 27.5 543 48.2 Azerbaijan 2019 224 22.9 221 8.7 220 33.9 204 32.9 Belarus 2018 600 39.9 599 26.6 599 31.5 594 48.3 Bosnia & Herzegovina 2019 359 48.7 346 29.0 360 37.9 318 39.4 Bulgaria 2019 772 16.6 764 10.5 771 20.0 726 42.3 48 Rwanda Economic Update • Edition No. 19 Annex Product innovation Process innovation Formal training Female employment Obs % Obs % Obs % Obs % China 2012 2,692 43.6 1,681 58.0 2,695 79.2 2,650 37.8 Colombia 2017 992 64.4 992 50.7 987 63.0 925 38.2 Dominican Rep 2016 356 38.6 356 13.5 355 23.4 340 33.6 Ecuador 2017 355 72.4 359 58.2 361 73.7 352 34.2 Georgia 2019 578 43.2 577 17.0 579 32.0 563 38.5 Jordan 2019 591 18.6 593 4.5 591 16.9 563 20.8 Kazakhstan 2019 1,435 18.7 1,423 10.2 1,424 21.8 1,326 42.6 Kosovo 2019 267 26.0 260 9.8 269 20.6 179 60.3 Lebanon 2019 532 7.9 532 1.0 531 20.8 527 24.0 Malaysia 2015 983 3.5 976 37.3 989 18.5 429 33.9 Montenegro 2019 150 18.5 150 3.7 149 15.8 143 44.0 Namibia 2014 573 59.6 558 69.8 571 25.4 550 34.3 No Macedonia 2019 359 45.6 358 18.8 359 39.0 326 47.2 Paraguay 2017 354 53.8 364 28.0 359 46.4 328 28.5 Peru 2017 1,002 61.3 994 47.0 997 65.9 976 32.2 Romania 2019 790 25.3 788 17.0 789 20.1 760 37.4 Russia 2019 1,289 9.9 1,299 11.8 1,309 11.8 1,153 39.3 Serbia 2019 359 39.8 359 25.3 361 38.3 331 44.6 South Africa 2020 1,097 3.9 1,093 1.5 1,089 7.9 1,065 39.8 Suriname 2018 232 30.2 231 21.7 231 34.8 227 40.8 Thailand 2016 926 8.2 904 11.9 985 18.0 245 37.4 Turkey 2019 1,651 6.5 1,644 2.3 1,644 30.7 1,577 19.5 High Income 14,159 25.1 14,122 12.1 14,152 26.0 13,463 43.5 Argentina 2017 316 34.8 313 22.4 328 33.9 324 29.3 Austria 2021 599 50.0 598 22.3 598 42.6 588 39.3 Belgium 2020 614 58.4 613 31.7 611 57.8 595 29.6 Croatia 2019 404 30.5 404 7.8 404 26.2 403 44.8 Cyprus 2019 238 44.3 237 14.5 240 39.7 234 33.9 Czech Rep 2019 501 31.6 501 15.5 502 43.6 491 36.1 Denmark 2020 995 77.7 987 53.7 992 40.6 983 30.4 Estonia 2019 357 36.8 356 23.1 360 40.7 357 34.1 Finland 2020 759 77.2 756 59.0 753 50.2 695 26.2 Greece 2018 600 22.6 599 15.5 598 21.6 598 35.3 Hungary 2019 802 19.8 804 11.0 805 29.3 798 33.7 Ireland 2020 604 66.0 605 31.0 605 59.8 547 38.8 Israel 2013 481 17.1 482 12.3 482 18.6 472 31.8 Italy 2019 757 12.1 757 7.7 755 12.6 738 33.6 Latvia 2019 356 40.7 356 41.2 359 52.9 354 42.8 Lithuania 2019 357 28.8 354 19.2 356 27.5 353 43.2 Luxembourg 2020 169 55.8 169 37.2 168 66.1 158 25.7 Malta 2019 241 45.1 241 18.4 242 49.9 234 28.1 Rwanda Economic Update • Edition No. 19 49 Annex Product innovation Process innovation Formal training Female employment Obs % Obs % Obs % Obs % Netherlands 2020 808 62.8 806 48.8 806 54.1 768 33.7 Poland 2019 1,361 19.5 1,349 5.9 1,342 21.7 1,042 49.9 Portugal 2019 1,059 14.9 1,060 6.7 1,061 29.0 1,042 41.2 Romania 2019 17 25.8 18 21.3 19 32.9 18 35.9 Slovak Rep 2019 429 13.3 428 7.0 427 43.3 425 37.3 Slovenia 2019 404 60.2 402 49.3 406 44.0 363 33.7 Sweden 2020 590 62.7 590 53.7 590 61.9 580 27.0 Uruguay 2017 341 71.4 337 66.6 343 53.3 303 32.8 Notes: Group average for EAC and Low Income do not include Rwanda 2019. For Rwanda 2019, M=Manufacturing, R=Retail, and OS=Other Services. World Bank income group classification is based on the year of survey. Source: WBES 2012-2021, one round per country with most recent survey selected (118 total). Median sample weights for subpopulation used. 50 Rwanda Economic Update • Edition No. 19 Annex Annex Table 6: Datasets and their coverage Database Time period Coverage National labour force surveys 2017-2020 HH level. 42-45 k working-age individuals per survey Value Added Tax (VAT) 2020 Firm-level. 74 k buyer and 17 k seller firms Corporate Income Tax (CIT) 2020 Firm-level. 58 k firms Pay As You Earn (PAYE) 2020 Firm-level. 19 k firms Import-export database 2020 Firm-level. 13 k importer firms; 1.1 k exporter firms Annex Table 7: Distribution of establishments in Rwanda, by sector 2011 2014 2017 n of firms % on total n of firms % on total n of firms % on total Agriculture, forestry and fishing 675 0.55% 751 0.49% 563 0.30% Mining and quarrying 49 0.04% 282 0.18% 307 0.16% Manufacturing 9,124 7.40% 10742 6.96% 14,195 7.46% Electricity, gas, steam and air conditioning supply 135 0.11% 25 0.02% 138 0.07% Water supply, sewage, waste management and 225 0.18% 64 0.04% 645 0.34% remiation activities Construction 112 0.09% 157 0.10% 159 0.08% Wholesale and retail trade; repair 64,684 52.48% 78,464 50.87% 96,081 50.49% Transportation and storage 264 0.21% 288 0.19% 382 0.20% Accommodation and food service activities 33,305 27.02% 44,626 28.93% 51,868 27.26% Information and communication 558 0.45% 404 0.26% 1150 0.60% Financial and insurance activities 970 0.79% 1150 0.75% 1574 0.83% Real estate activities 17 0.01% 4 0.00% 105 0.06% Professional, scientific and technical activities 903 0.73% 962 0.62% 1243 0.65% Administrative and support services activities 749 0.61% 929 0.60% 1408 0.74% Public administration and defense; compulsory 0.00% 104 0.07% 126 0.07% social security Education 496 0.40% 3483 2.26% 4,046 2.13% Human health and social work activities 525 0.43% 1245 0.81% 1497 0.79% Arts, entertainment and recreation 108 0.09% 156 0.10% 453 0.24% Other services activities 10,355 8.40% 10,400 6.74% 14,345 7.54% Total 123,254 154,236 190,285 Source: Authors’ elaboration on Rwanda establishment census Rwanda Economic Update • Edition No. 19 51 Annex Annex Table 8: Distribution of FDI projects, 2005-2021 Year Number of projects Share of total (%) 2005 2 1.18 2007 9 5.33 2008 12 7.1 2009 26 15.38 2010 5 2.96 2011 14 8.28 2012 8 4.73 2013 13 7.69 2014 11 6.51 2015 12 7.1 2016 10 5.92 2017 6 3.55 2018 11 6.51 2019 20 11.83 2020 4 2.37 2021 6 3.55 Source: Elaboration on fDi Markets Annex Table 9: Top sources of FDI projects in Rwanda, 2003-2021 (Aug) # Country Projects Share of total (%) 1 Kenya 31 18.34 2 United States 15 8.88 3 UAE 12 7.1 4 India 9 5.33 5 Uganda 9 5.33 6 South Africa 8 4.73 7 China 6 3.55 8 Nigeria 6 3.55 9 Switzerland 6 3.55 10 Tanzania 6 3.55 Others 61 36.07 Source: Elaboration on fDi Markets 52 Rwanda Economic Update • Edition No. 19 Annex Rwanda - Trade Rwanda - Health Rwanda - Accomodation 0 20 40 60 80 0 20 40 60 0 20 40 60 Female Female Female 48.3 53.3 57.3 Male Male Male 46.7 available in IPUMS. 42.7 51.7 Youth Youth Youth 3.2 18.5 20.8 Senior Senior Senior 2.2 0.9 1.0 9.6 University University University 6.9 71.3 37.8 Secondary Secondary Secondary 29.6 19.1 Primary Primary Primary 9.0 44.3 58.5 No Primary No Primary No Primary 0.6 8.4 6.9 Urban Urban Urban 38.5 40.2 68.0 Rural Rural Rural 32.0 59.8 61.5 Migrant Migrant Migrant 62.9 39.8 43.7 Rwanda - Transport Rwanda - Other services Rwanda - Business 60 0 20 40 80 100 0 20 40 60 0 20 40 60 Female Female Female 4.9 38.1 28.5 Male Male Male 83.9 71.5 95.1 Youth Youth Youth 18.9 10.4 21.7 Senior Senior Senior 1.4 0.5 0.3 University University University 6.8 20.5 60.9 Secondary Secondary Secondary 25.0 28.1 25.6 Primary Primary Primary 48.0 12.6 63.3 No Primary No Primary No Primary 4.9 3.5 0.9 Urban Urban Urban 41.8 52.7 78.7 Rural Rural Rural 47.3 58.2 21.3 Migrant Migrant Migrant 66.8 49.0 41.4 Annex Figure 2: Demographic composition within different services Rwanda - Public Rwanda - Education 0 20 40 60 80 0 20 40 60 80 Female Female 48.2 25.8 Male Male 74.2 51.8 Youth Youth 10.8 Senior Senior 0.0 2.1 0.6 University University 51.3 51.5 Secondary Secondary 42.4 33.0 Primary Primary 5.9 No Primary 15.4 No Primary 0.4 0.2 Urban Urban 66.0 42.1 Rural Rural 57.9 34.0 34.0 Migrant Migrant 61.9 47.0 Rwanda - Private HH Rwanda - Finance 0 20 40 60 80 0 20 40 60 Female Female 52.3 48.2 Male Male 47.7 51.8 Youth Youth 10.6 55.9 Senior Senior 0.3 0.3 University University 3.1 51.5 Secondary Secondary 42.4 27.9 Primary Primary 5.9 63.0 No Primary No Primary 6.0 6.0 Notes: The demographic data is based on the National Labor Force Survey 2020. The sub-categories are based on the three-digit classification of services that is Urban Urban 42.1 64.6 Rural Rural 35.4 57.9 Migrant Migrant 67.9 47.0 Rwanda Economic Update • Edition No. 19 53 Annex Annex Figure 3: Firm size, service intensity, and productivity Notes: The marginal effects are obtained from an OLS model where we regress productivity on the interaction between service intensity and buyer firm size, after controlling for sector fixed effects. The standard errors are clustered at the sector level. The black circles display the coefficients and the dashed vertical lines represent the 95% confidence intervals. For large, medium, and micro firms the association between service intensity and firm productivity is statistically not different from zero. Only for small firms we obtain a negative association that is significant at the 5% level. Annex Figure 4: Seller firm type, service intensity, and productivity (excl. Wholesale and retail services) Correlation -0.054 25 [Log (Business income / total employees)] 20 15 10 5 0 20 40 60 80 100 % of total purchase in services seller type = low skill, tradable Notes: The analysis is based on bilateral VAT, CIT, and PAYE datasets for 2020. Y-axis measure productivity as the log of business income/total employees. X-axis measures the service intensity of firms. Service intensity is calculated from VAT data. Business income is obtained from CIT data and employment data is obtained from the PAYE database. Seller firm classification is based on Nayyar (2021). We exclude seller firms that are identified as ISIC 3-digit sector “Wholesale and retail trade; repair of motor vehicles and motorcycles” while constructing service intensity when seller type is low skill, tradable. 54 Rwanda Economic Update • Edition No. 19 Annex Annex Figure 5: Covid-19 and employment type across sectors Permanent workers Average number of permanent employees Average number of permanent employees Agriculture Industry 9.5 35 9 30 8.5 25 8 20 0 Covid shock 6 9 12 0 Covid shock 6 9 12 Month Month Average number of permanent employees 20 19 18 17 0 Covid shock 6 9 12 Month Casual workers Average number of permanent employees Average number of permanent employees 24 19 22 18 20 17 18 10 16 0 Covid shock 6 9 12 0 Covid shock 6 9 12 Month Month Average number of permanent employees 2.5 2 1.5 1 .5 0 Covid shock 6 9 12 Month Notes: The analysis is based on PAYE dataset 2020. The top panel shows the average number of permanent employees by month in 2020. The bottom panel shows the average number of casual employees by month in 2020. Rwanda Economic Update • Edition No. 19 55 Annex Annex Figure 6: Top 30 product categories by the number of importing firms Number of exporting rms by HS2 products 1,500 1386 1215 Number of importing rms 1,000 937 853 692 679 674 647 642 617 581 571 549 549 535 528 523 515 512 510 510 490 477 471 500 465 463 461 461 460 451 0 03 26 08 03 36 44 16 21 05 13 18 23 14 02 26 81 28 24 04 71 19 04 09 16 39 17 43 05 06 17 87 39 87 94 85 85 85 84 94 84 73 39 84 42 73 84 85 39 87 84 39 85 61 40 85 39 84 64 35 85 Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive imports in the Imports dataset. An importing firm can purchase inputs across different product categories. The Y-axis represents the sum of firms that reported at least one import transaction for a given HS4 product category in 2020. Annex Figure 7: Productivity and import intensity (services vs non-services) Correlation 0.237 Correlation 0.101 25 25 [Log (Business income / total employees)] [Log (Business income / total employees)] 20 20 15 15 10 10 5 5 0 20 40 60 80 100 0 20 40 60 80 100 % of import purchased % of impot purchased buyer sector = Services buyer sector = Services Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive imports in the Imports dataset. An importing firm can purchase inputs across different product categories. The Y-axis represents the sum of firms that reported at least one import transaction for a given HS4 product category in 2020. 56 Rwanda Economic Update • Edition No. 19 Annex Annex Figure 8: Productivity and import intensity (high vs low human capital services) Correlation -0.169 Correlation 0.221 25 25 [Log (Business income / total employees)] [Log (Business income / total employees)] 20 20 15 15 10 10 5 0 20 40 60 80 100 0 20 40 60 80 100 % of import purchased % of impot purchased buyer sector = High human capital services buyer sector = Low human capital services Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive imports in the Imports dataset. An importing firm can purchase inputs across different product categories. The Y-axis represents the sum of firms that reported at least one import transaction for a given HS4 product category in 2020. High human capital services are those where over 50% of employed had a university education as per NLFS, 2020. Annex Figure 9: Productivity and import intensity (across services) Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive imports in the Imports dataset. An importing firm can purchase inputs across different product categories. The Y-axis represents the sum of firms that reported at least one import transaction for a given HS4 product category in 2020. High human capital services are those where over 50% of employed had a university education as per NLFS, 2020. See figure A.1 for demographic breakdown across services in 2020. Rwanda Economic Update • Edition No. 19 57 Annex Annex Figure 10: Exporting firms by size 300 Number of exporting rms 200 100 0 Small Large Medium Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive exports in the Imports- export dataset. Annex Figure 11: Exporting firms by sector 200 Number of exporting rms 150 100 50 0 e t s s s H ce ic ad in g or lture tion ning tion nes ice litie e H an ubl ealt atio h n Tr tur nsp c i da usi serv Uti at Fin a c ra r i cu tru M o B i v P H u c uf T Ag on s m he r Pr Ed an co M C Ac Ot Notes: The analysis is based on VAT and import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive exports in the import- export dataset. 58 Rwanda Economic Update • Edition No. 19 Annex Annex Figure 12: Top 15 HS chapters by number of exporting firms 60 Number of exporting rms 40 20 0 11 09 85 39 64 84 73 25 28 07 32 96 48 61 04 Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive exports in the import-export dataset. Annex Figure 13: Productivity and firm type (exporter vs non-exporter) -25 kdensity exporter rm kdensity non-exporter rm Kernel density of productivity -2 -15 -1 -0.5 -0 5 10 15 20 25 Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive exports in the import-export dataset. Rwanda Economic Update • Edition No. 19 59 Annex Annex Figure 14: Productivity and exporter firms (trade vs non-trade sectors) Correlation -0.212 Correlation -0.295 25 22 [Log (Business income / total employees)] [Log (Business income / total employees)] 20 20 15 18 10 16 5 14 0 20 40 60 80 100 0 20 40 60 80 100 % of export sales % of export sales seller sector =Trade seller sector =Trade Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive exports in the import-export dataset. Annex Figure 15: Productivity and exporter firms (manufacturing, agriculture and others Notes: The analysis is based on VAT and Import-export datasets 2020. The graph represents buyer firms in VAT data which also reported positive exports in the import-export dataset. 60 Rwanda Economic Update • Edition No. 19 Annex Annex Figure 16: STRI, OECD vs. selected Non-OECD, 2020 0.6 0.4 0.2 0 Logistics cargo-handling Logistics freight forwarding Logistics customs brokerage Accounting Architecture Engineering Legal Motion pictures Broadcasting Sound recording Telecom Air transport Maritime transport Road freight transport Rail freight transport Courier Distribution Commercial banking Insurance Computer Construction Logistics storage and warehouse OECD Non-OECD Note: circled sectors are those for which comparable data is available for Rwanda. Source: OECD STRI database. Note: Complete openness to trade and investment gives a score of zero, while being completely closed to foreign services providers yields a score of one. Rwanda Economic Update • Edition No. 19 61