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An Analysis on Rwanda's Service Sector
Clinic: Kenyatta University
Beneficiary: Western Cape Tourism, Trade, and Investment Promotion Agency (Wesgro)
Executive Summary
Countries' priorities have changed from focusing on goods manufacturing and export in their economies to service production and trade. The liberalization of services has led to a rise in the flow of investment, poverty alleviation, the transfer of knowledge, and the creation of employment. However, poor legislation, inadequate policies, and inefficient institutions hinder countries' ability to benefit fully from the benefits of the trade-in services. This research analysis prepared by the TradeLab Law Clinic aims to examine Rwanda's services industry in terms of regulatory, legislative, structural and policy opportunities and gaps to the benefit of Wesgro’s role of advising South African investors. This research analysis will cover the five main services sectors: construction, finance, architecture, ICT, and engineering.
Rwanda is a hilly and fertile country in the East African region currently with a densely packed population of about 12.5 million people as of 2018. Despite being landlocked and small compared to its neighbors, Rwanda has great potential and an enabling environment for trade in both goods and services.
Among potential international investors, the perceived strength of Rwanda is political stability/safety (38%), economic growth (28%), and ease of doing business (24%). Rwanda has been able to make important economic and structural reforms and sustain its economic growth rates over the last decade. Public investments have been the main driver of growth in recent years. External financing through grants, concessional and non-concessional borrowing played an important role in the financing of public investments. A strong focus on homegrown policies and initiatives has contributed to significant improvement in access to services and human development indicators. Over the last decade and a half, Rwanda has implemented significant economic reforms, including privatization, investment facilitation, and trade liberalization, which helped achieve strong economic growth. The services sector, which now accounts for half of its gross domestic product (GDP), played a major role in the recent economic boom.
Despite international trade being a key factor in expanding the Rwandan economy, Rwanda’s schedule of commitments under GATS is peculiar in that they do not provide any horizontal responsibilities. Furthermore, Rwanda has liberalized very few service sectors under its schedule of commitments, a step that is, however, at the heart of GATS’ positive liberalization where a country is allowed to list down only the sectors it wishes to liberalize. This is the GATS’ bottom-up approach where commitments only apply to sectors listed by choice in the country’s schedule of commitments. Furthermore, none of the service sectors discussed in this policy have been listed under Rwanda’s schedule of commitments. The main barriers in Rwanda’s service sector may include non-tariff barriers on major export markets, movement of natural persons, extending coverage of geographical indications, incorporation, and registration and licensing.
Looking into Rwanda’s service sector, the government has adopted a consistent agenda to boost the investment climate. Rwanda's ranking in the World Bank's Ease of Doing Business Survey has significantly improved with robust structural changes to encourage private investment and strengthen the regulatory climate. Rwanda is currently at no. 38 and the 2nd African state after Mauritius. Concerning the tax regime, there is legislation put in place to regulate tax requirements and the process for tax compliance seems to be seamless. Coupled with the tax incentives offered by the Rwandese government to encourage foreign direct investments, the tax regime provides an enabling environment for South African investors in Rwanda.
In summary, there are still several opportunities that have been provided in Rwanda’s service sector. The government seems to be very keen on increasing the effectiveness of the sector as it has passed several policies and initiatives to encourage the growth and development of the industry.