Rwanda as ranked by 2013 Economic Freedom Index

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This is one of the facilities in the Kigali Free Trade Zone located in Nyandungu

This is one of the facilities in the Kigali Free Trade Zone located in Nyandungu

 

Rwanda’s economic freedom score is 64.1, making its economy the 63rd freest in the 2013 Economic Freedom Index released by the Washington-based Heritage Foundation in partnership with the Wall Street Journal.

Rwanda’s score is 0.8 point worse than last year, but with substantial gains in freedom from corruption and investment freedom outweighed by declines in labor freedom, business freedom, and property rights. Rwanda is ranked 3rd out of 46 countries in the Sub-Saharan Africa region.

The Heritage Foundation is a conservative think tank linked to the Republican Party in the United States. The Index has been its annual flagship project for several years.

The index says despite the difficult global economic environment, Rwanda’s economy has expanded at an average rate of over 10 percent during the past five years. Foreign direct investment has picked up over the same period, it adds.

Much-needed regulatory reforms have been undertaken in various sectors of the economy, enhancing the efficiency of the business environment. The index previews Rwanda in with the following benchmarks.

Limited Government

The top income and corporate tax rates are 30 percent. Other taxes include a value-added tax (VAT) and a property transfer tax. The overall tax burden equals 12.6 percent of total domestic income. Government spending has risen to 28.3 percent of GDP, with the budget balance recording small surpluses in recent years. Public debt has hovered at around 20 percent of total domestic output. Infrastructure spending has increased expenditures this year.

Regulatory efficiency

Impressive regulatory reforms since 2008 have enhanced the business environment, although the pace of reform has slowed. With no minimum capital required, launching a company takes only two procedures. Licensing requirements still cost almost three times the level of average annual income. An increase in the minimum wage has exceeded labor productivity growth, undercutting hiring flexibility. Inflationary pressure is increasing.

Open markets

The trade-weighted average tariff rate is 6 percent, and non-tariff barriers add to the cost of trade. Domestic and foreign investors officially receive equal treatment, and most sectors of the economy are open to foreign investment. However, the investment regime is still evolving and is not conducive to dynamic expansion of investment in new production. The cost of financing remains high, and access to banking services continues to be limited.

Regional comparison

Mauritius, Botswana, Rwanda, Cape Verde, Madagascar and South Africa are placed first to sixth respectively in the region. In the East African Community (EAC), Uganda emerges at position 8 on the African continent. The others Kenya, Tanzania and Burundi are lagging back.

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About the author

Mr. Sina is the Managing Partner & Chief Editor of RwandaEye. After completing his post-graduation from the Faculty of Economics and Management, National University of Rwanda,he worked in various consulting capacities for equity and business firms in Kigali. A shrewd strategist, he is an Economic Pundit, entrepreneur and Investment Banker.

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