Foreign direct investment becomes less inclusive in Rwanda

Rwanda has recorded substantial foreign direct investment (FDI) inflows in the last few years but appears less inclusive in the country, as it is only concentrated in districts with low poverty rates, the World Bank has said in a report released on Tuesday in the Rwandan capital city, Kigali.

“FDI projects tend to concentrate in Kigali and surrounding districts with much lower poverty levels and in a few sectors such as construction that generate short-term employment,” said Peace Niyibizi, an economist at the World Bank Rwanda, while presenting the 21st Rwanda Economic Update report.

She mentioned that the Rwandan government needs to enhance the inclusiveness of foreign direct investment by encouraging FDI projects in areas outside Kigali, which could increase the impact of FDI on poverty reduction.

According to the report, FDI may greatly contribute to employment and growth compared to domestic private sector firms.

Speaking at the report launch, Delphine Uwase, acting head of the Strategy and Competitiveness Department at the Rwanda Development Board, said that accelerating efforts in the creation of economic zones, industrial parks, and infrastructure development outside Kigali, especially in secondary cities, will attract foreign direct investment.

“There is a need to continue improving road connectivity to ease logistical issues and increase internal connections in the country to boost trade. Scaling up utilities such as water and electricity connectivity in other areas outside Kigali will attract more FDIs,” she added.

FDI plays a critical role in Rwanda’s economy, stimulated by a favorable regulatory environment and international treaties to protect foreign investors.

FDI flows have been the main sources of private investment in the Rwandan economy, said Rolande Pryce, the World Bank country manager for Rwanda.

“At their peak, the share of FDI inflows in investment was almost 20 percent,” she added.

The report dubbed “Inclusiveness of Foreign Direct Investment in Rwanda” is a flagship publication for the World Bank Rwanda that analyzes recent economic developments and prospects. It provides an in-depth examination of selected economic and policy issues of priority for Rwanda.

According to the report, in the first quarter of 2023, Rwanda’s economy continues to show strong momentum, growing at about 9 percent. This growth rate is slightly higher than the 8.2 percent recorded overall in 2022.

The floods in early May 2023, which resulted in significant loss of lives and destruction of infrastructure, are likely to impact the growth momentum and overall growth in 2023, according to the report.

In the first half of 2023, inflation started declining from unprecedented high levels in 2022. However, it still remains high, driven mostly by rising food prices, the report said. Enditem