At the Petite Barrière border crossing between Rwanda and the Democratic Republic of Congo, there is a lively cross-border trade exchange.

Economic situation Dynamic growth

Before the outbreak of the COVID-19 pandemic in 2020, Rwanda was one of the countries on the African continent with the highest growth rates. There is an expectation on the part of the country’s politicians and private sector as well as the international community that this dynamic growth will continue in the future.

The government's stated aim is to improve living conditions for all by promoting economic growth. One important partner in that endeavour is the private sector. That is why the government is very eager to attract foreign investors, in particular.

From 2015 to 2019, Rwanda saw economic growth rates between four and 9.5 per cent. Then, as a result of the COVID-19 pandemic, the economy shrunk by 3.4 per cent in 2020. Sectors that were particularly hard hit by the global economic crisis and local measures to counter the pandemic were tourism, trade, construction and industrial production – all drivers of growth of the past few years. Even agriculture suffered in 2020, partly because it is closely interlinked with other economic sectors, partly because heavy rainfall led to harvest losses.

The International Monetary Fund (IMF) is predicting an economic recovery for Rwanda in 2022 and believes that growth rates of seven to eight per cent are possible over the next few years.


Obstacles

President Kagame's governing party also plays a dominant role in some of the country's major economic activities. Whilst companies that are closely affiliated with the government do lend significant impetus to development, their dominant role is discouraging private companies from investing in Rwanda.

Geographic and structural conditions are also hampering economic development. Rwanda is a small, extremely densely populated mountainous country so that, by regional standards, companies are faced with high energy and transport costs. There is a lack of skilled staff and of well-developed infrastructure. There is a particular need for improvement in the area of energy supply. More than 60 per cent of people do not have access to electricity.

Through its regional programmes, Germany is helping to improve energy supply by installing transmission lines between Rwanda, Burundi and the Democratic Republic of the Congo. The construction of hydropower stations and solar home systems is also being promoted.

The country's high population density and growth (2.5 per cent in 2020) are resulting in excessive use of the country’s natural resources. For comparison: whereas in Germany population density is 238 people per square kilometre on average, it is 525 in Rwanda. There is increasing land degradation resulting from the high population density. This is resulting in less and less farmland being available. At the same time rural areas, in particular, are increasingly feeling the effects of extreme weather events, such as droughts and heavy rainfall, and of damage caused by erosion.

Development potential

The growth sectors in Rwanda are the construction industry, mining and the services sector, in particular. The latter now accounts for a much larger share of GDP than agriculture. The areas of financial services and IT in particular offer huge potential for development.

Tourism is another sector that has great potential. The Rwandan government is also working hard to stem uncontrolled deforestation and to place remaining forests under protection, not least because tourism plays such an important role for the country's economy. In addition, the capital city of Kigali is striving to make its mark as a conference venue with a new conference centre and numerous new hotels.

As at: 23/02/2022