Rwanda: Risk Assessment
Country Risk Rating
|C||A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.|
Business Climate Rating
|C||The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.|
Growth remaining lively despite a weak international environment
Services, which account for almost 50% of GDP (trade, real estate, transport and communications), and the construction sector are expected to continue sustaining activity in 2016. The start of gas production at the Lake Kivu plant, increased production at a hydropower plant (Nyabarongo) and the agreement made with Kenya for the supply of electricity from the end of 2015 should improve the country's energy supply and boost manufacturing output. The public investment projects are set to continue but will remain constrained by the control of public finances in a context of decreased flows of aid. The difficulties faced by the mining sector, confronted by declining ore prices, will prevent a real acceleration in activity. Consumption could be curbed by a more restrictive fiscal policy but is expected to remain buoyant. Stronger inflation is expected in 2016, fueled by rising prices for imported goods, sharpened by the depreciation of the Rwandan franc and fairly robust domestic demand. Price rises are, however, likely to be mitigated by the relative stabilization of energy prices, enabling inflation to be maintained below the central bank's target level (5%).
Twin deficits on an improving trend
The dependence of Rwanda's public finances on international aid is declining but remains high. While aid represented about half of budgetary income in 2010, its proportion is now under 30%. Despite steps aimed at widening the tax base, abolishing certain exemptions and improving recovery, the decline in aid flows has not been offset by an equivalent rise in tax receipts. The government, forced to cut spending in order to prevent too great a deterioration in the fiscal balance and curb the rise in debt, is expected to prioritize investment over social spending in 2016. Public debt is expected to increase moderately and concessional loans to continue forming the bulk of the loan portfolio (about two thirds of the total). However, the proportion of commercial loans on less favorable terms is tending to rise.
The current account deficit is expected to stabilize in 2016 in favor of a slight jump in exports of tea and coffee, but also ores, thanks to the steps taken to improve the traceability of mining production. Without a rebound in the prices of these commodities, any rise in export income will be limited. Imports of consumer and capital goods, in the context of infrastructure projects, will remain significant, preventing a reduction in the deficit. The Rwandan franc's exchange rate lost 8% of its value against the dollar during the first ten months of 2015, but held up well overall against the currencies of other countries in the region (Tanzania, Uganda or Kenya). Downward pressures are likely to continue in 2016, given the high current account deficit.
A fragile regional security situation, but a business climate which remains attractive
Rwanda is at the center of tensions in the Great Lakes region. While talks with the DRC have restarted after a long period of conflict between the Rwandan militia (Democratic Forces for the Liberation of Rwanda) and the Congolese Revolutionary Army (M23), relations with Burundi are particularly tense. The influx of refugees crossing the borders is a source of instability.
In late October 2015, the Rwandan parliament passed the amendments to the Constitution allowing President Paul Kagame to run for a third seven-year term in 2017, and to stay in power for two five-year periods. This reform has been approved by more than 98% of votes at the referendum late December 2015. Paul Kagame and his party (Rwandan Patriotic Front - FPR) are expected to continue to dominate the political stage. Accusations of restrictions on freedom of expression by some NGOs are, however, cause for concern by the international community which doesn’t support the constitutional change, underlying the lack of political opposition. Rwanda has implemented major reforms enabling it to report better performances than most countries in East Africa in terms of governance, especially in the fight against corruption (49th rank in 2015 on the World Bank's 2014 Governance Indicators). The country is also second among African countries in the Doing Business ranking, evidence of its attractiveness to foreign investors.