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Ladies First
Handbook: Rwanda's Challenges
Part III: The Economy

Diversifying the Economy

Hope for the people of Rwanda in the coming decades rests not only on the nation's progress toward political reconciliation and social reconstruction, but also on its potential for economic growth. Even before the 1994 genocide, the small, relatively isolated farming economy of Rwanda faced a host of challenges. Now, in the midst of recovery to pre-war levels, Rwanda's leadership looks to a future that will build upon the past while transforming the national economy.

Nestled in the highlands of Central Africa, Rwanda is an exceptionally poor, landlocked country with an almost entirely agrarian economy. It is one of the most densely populated and least urbanized countries on the African continent, with nine out of ten Rwandans working on small farms, mostly for their own subsistence. Despite a relative abundance of fertile land and rainfall, Rwanda's farm economy struggles, even by the standards of the sub-Saharan region. The country's food production has generally not kept pace with population growth in recent decades. By the early 1980s, its total agricultural output was in steady decline.

Judging by today's international income benchmarks, the result is dire poverty for the average Rwandan. Of the country's roughly eight million people, more than four fifths survive on incomes lower than $2 per day, with one third of Rwandans getting by on less than $1 per day. This has left the country unusually reliant on food aid, loans, and other forms of foreign assistance.

While agricultural reforms and improved farming methods may help reduce poverty in coming years, Rwanda's leadership continues to seek growth in sectors beyond this subsistence economy. Some Rwandan entrepreneurs are exploring ways to diversify into profitable agricultural exports like fruit juice processing and flower production. But most are sticking to Rwanda's traditional exports: coffee and tea, which in most years bring in 80 percent or more of the country's foreign exchange. These are, however, particularly subject to a volatile and competitive global commodity market. Severe drops in tea prices -- which now hover around two cents per serving for consumers -- prompted a gathering in Sri Lanka last fall where attendees, including a Rwandan delegation, agreed cartel-style to gradually cut global tea production until prices rise.

Similarly brutal price swings in coffee markets have meant that greater production by Rwandan farmers has led only to declining incomes. One response has been the formation of farming cooperatives. These often target specialty markets, bringing Rwanda's fine Arabica beans to upscale stores and restaurants in Europe or the United States -- frequently through Fair Trade programs. Some involve partnerships with aid agencies and non-governmental agencies to establish more profitable coffee varieties that require greater knowledge and more demanding production. These and other programs have led to the creation of banking cooperatives and other institutions necessary for the country's future economic growth.

Women Help Grow the Economy

In many cases, the key beneficiaries of these ventures are women who, since the genocide, head as many as 40 percent of farms and households. Rwandan society has responded to this economic and social imperative by establishing women's councils, changing inheritance and land ownership laws, expanding access to education for girls, and enacting policies to encourage women's entrepreneurship.

But in the long run, Rwanda's economy cannot truly thrive on farming alone. Future growth will require development of sectors like industry and tourism, as well as privatization and reform of state-dominated businesses. At present, Rwanda's industrial economy consists primarily of small-scale processors of agricultural export products. Mining of gold, tin, tungsten, and coltan -- an ore essential for the manufacture of small electronics -- brings some export profits, but employs only one percent of the country's workforce.

Tourism is believed to hold promise for the country since Rwanda's national parks are some of the few places in the world where one can still see mountain gorillas, of which fewer than 1,000 remain in their native habitat. Tourism is gradually recovering, and is currently around half of its pre-war level. And development plans in this sector are ambitious: Promoters seek additional funding for parks, hotels, and performance venues. They aim to combine ecotourism with activities showcasing Rwanda's centuries-old cultures in order to draw coveted "low-volume, high value" tourists.

Much of Rwandan business has traditionally been state-owned and dominated by a small elite. Thus, market reform and privatization present not only difficult economic questions, but also thorny political ones. But with international assistance and guidance, market reform of Rwanda's state-dominated enterprises has been substantial, though incomplete. Many of the smaller state-run businesses --such as hotels, coffee and tea plantations, and small processors of agricultural products have been privatized and are now under more diverse leadership. Rwanda's largest public sector businesses, such as the utility Electrogaz and the phone company Rwandatel, have proceeded more slowly, in stages and have tended to involve the sale of businesses by local elites to foreign investors.

Overall, these initiatives and reform measures are seen as encouraging. However, they are small in comparison to the dominant trend of the past ten years: rapid recovery of the country's agricultural economy from the ravages of war. In the years immediately after the war, hundreds of millions of dollars in international aid flowed in annually and the country revived itself from the shock of genocide, dislocation of the population and destruction of the agricultural base. In this period, Rwanda's growth rate was unusually high, starting at over 30 percent in 1995, and settling to around 9 to 10 percent in 2002. But by 2003, this "catch-up" phase appeared to have ended, as rising global fuel costs and declining tea and coffee prices brought Rwanda's growth rate below 4 percent for the first time in a decade. The outlook for 2004 is predicted to be favorable, with growth a percentage point or two higher than last year.

So, after a decade of rebound, most expect that Rwanda has returned to normalcy, albeit of the sort known to the world's poorest nations. In coming years, Rwanda is likely to share the goals of many of its sub-Saharan African neighbors: managing and pursuing forgiveness of the country's huge debt burden; maintaining international aid while seeking foreign investment; and, perhaps most of all, establishing a more diverse economy that will allow its people to save, to build, and to create a better life.

In Rwanda and neighboring countries, Africans look forward to greater integration, both regionally and globally, anticipating the benefits trade and foreign investment may bring. In this paradigm, Rwandan President Paul Kagame and others in the government promote the country's reputation for minimal corruption, macroeconomic stability, and increasing security. Rwanda's central location, combined with the right industry, technology, communications, and services will, they say, bring a brighter future for their country, and benefits to investors abroad. One official offers a vision of Rwanda as a "mini Dubai" -- an economic processing zone for Central Africa with strong telecom, banking, and finance sectors. Some have responded to this call: the Belgians and Chinese with loans; the United States with investments in tea processing.

Still, there are constant reminders of the obstacles Rwanda faces. The country has fallen short of a variety of IMF targets for reform, and its economy is still heavily reliant on aid. Observers fear that Rwanda's growing population and limited arable land are a ticking time bomb for a society so dependent on agriculture.

Rwanda has shown something of its economic potential in the daily heroism of recovery over the last ten years, and still faces challenges that would be great for any nation. But perhaps the memory of its recent history will give the country and the international community the strength and resolve to find solutions.