Painting by Cheri Samba

Lokuta eyaka na ascenseur, kasi vérité eyei na escalier mpe ekomi. Lies come up in the elevator; the truth takes the stairs but gets here eventually. - Koffi Olomide

Ésthetique eboma vélo. Aesthetics will kill a bicycle. - Felix Wazekwa

Saturday, April 27, 2013

Rwanda recovers from financial squeeze, slowly

The Rwandan government issued a $400 million Eurobond yesterday, successfully borrowing capital on the international market to plug its debt gap. The funds, which pay a yield of 6.875 per cent, will be used to finance the building of its convention center, the development of RwandAir, and a hydroelectric power project.

This success comes on the heels of the World Bank and the African Development bank releasing some of the funds that had been suspended last year––$50 million and $49 million, respectively, according to diplomats in Kigali. While most of this money has been shifted from general to sectoral budget support, the range of donors I spoke with in Kigali all questioned this absolute distinction, suggesting that both categories consist of fungible funds. This releases some pressure on a cash-strapped budget. Donors estimate that at the end of the financial year in June, the Rwandan budget will be around $30-$50 million down due to aid cuts, but that's a sharp improvement on the over $200 million in suspensions that took place last year. The UK government, the largest bilateral donor, is due to make its decision on released aid in June. The IMF has projected healthy GDP growth of around 7,5%, still far below the Rwandan target of 11,5%.

The challenge confronting donors is to make decisions on aid while the M23 and Congolese government are in a de facto ceasefire, pending the talks in Kampala. In the past, Rwandan support has been most obvious during fighting, when the understaffed M23 has relied on Rwandan support. So how do you know whether Rwanda has really ceased its support if fighting has halted since November?

For the moment, most donors don't seem to have evidence of Rwandan support to the M23 this year, although there have been unconfirmed reports from Congolese and NGO officials during the past several weeks of Ugandan and Rwandan crossings. The UN Group of Experts is due to submit an interim report––which is usually conservative, saving most information for the final report at the end of the year––in several months.

Meanwhile, the relation between donors and the Rwandan government has been deeply affected. While donors used to be intimately involved in financial planning with the government, relations have cooled on both sides.

41 comments:

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Dark Eldar said...

Well - I guess it won't be long before things heat up again!! The South African contingent - part of the new UN 'intervention' Brigade are just 18 km away from M23 positions. M23 is dug in threatening to fight if attacked. Meanwhile at least 30 French military personnel had jetted in and are at The Linda Hotel in Goma. Should M23 manage to hold its own in the inevitable confrontation, the media will say it must be because of Rwandan support!!! Rwanda must stand on its own as it did during the genocide. There is no other choice.

Kongo in NYC said...

There can be no greater sign of confidence in a government than an oversubscribed fixed income debut on the Street- and I am fixed income bond trader at Bank of America.

Now, 6.78 % is junk status but, then again, if you’re managing a large pension fund in any part of the world that’s a solid return for your hordes of retirees looking for some upside.

And as long as Rwanda offers up ruthlessly efficient government, sound macro and micro economic fundamentals, balanced and transparent books, and displays zero tolerance for corruption, the demands for higher returns for baby boomers the world over will increasingly lead more capital to Rwanda’s hills.

I like Rwanda’s economic model. It appeals to me as an African. But I guess I’m not clear as to what industries Rwanda will try to build a niche in to develop and wean itself off aid- a major goal of Kagame’s and one I’m fairly confident they will be the first in Africa to achieve.

Would this be the convention business? Well, ok, does that mean an economy that revolves around air travel, bus and train travel (mostly from visitors in the region who don’t make enough to fly), hotels, and restaurants? If Kigali wants local taxes to finance all its needs, it will need around $40 billion dollars in income from that sector. From reports I’ve seen here at Bank of America, the average traveler to East Africa spends $1,100 per trip and around $950 in Rwanda.

Well, that would mean achieving close to 4.3 million travelers- domestic, regional, and international- to Rwanda PER YEAR to generate that $40 billion. And this doesn’t assume those averages coming down as more travel picks up in the region over the next few years.

Clearly, that seems like a whole LOT of conventions happening in the Kigali-area- and not happening in better developed places like Nairobi, Dar, Arusha, etc.

Unlike most Congolese, I will never underestimate Rwandan will power. I am sure they will succeed in the convention business as one part of their broader economic plan.

I guess it would be nice to get some details on that plan.

blaise said...

@kongo in NYC,
that's an interesting analysis.Indeed, the bond was relatively successful,not quite like Zambia. I read somewhere that investors are still not sure about the long term,tho. I wonder why they didn't let the private sector build that convention center instead of borrowing to do so.
The electrical project seems to me a more clever way of generating income. It's interesting to notice that the DRC(under the CPGL) is still providing electricity to Rwanda.
Overall, their best bet will be to have a better relation with their natural market(Congo) in order to widen the customer's base.
I don't know if they will be this will from them to be a positive force in the region.

jay papi said...

@ Congo NYC, Rwanda is trying to take advantage of its central location by being a service provider for the region. They're improving on their Conference tourism hence the convention centre and the entrance into the market by large hotel chains like Marriot, Sheraton etc who are all putting up infrastructures. Medical tourism, we've seen the set up of Doctor Agwals's Eye Hospital one of the best in SSA and by 2017 Rwanda will be self funding its own health sector. Transportation hub hence the investment in current airline and airport and a new larger airport to be built in Bugesera work has already started on all these projects. Rwandan will power is absolutely phenomenon like you rightly said and so far everything they said seemed to be going in the direction they had set themselves. The governor of the central bank said that Rwanda's tax revenues have been going up 20% per annum and if the trend continues, they will be off aid in 5 years and middle income economy by 2020. I have no reason to doubt them.

jay papi said...

@ Blaise, you're right Zambia had a successful run on the issuance of their debut bond mostly because they were requesting more for than $500M which is the minimum big boys like JP Morgan will want to get involved in, Rwanda only asked for what they needed see this link to why Bloomberg thought that was strange http://www.bloomberg.com/news/2013-04-29/what-rwanda-s-bond-sale-says-about-today-s-markets.html.

The Convention Centre was a private sector led project by Dubai World who planned to invest billions in numerous sectors and some of these took off but when the credit crunch hit the world, Dubai world had to be rescued by Abu Dhabi and they were forced to scale down their investments and cut their loses hence the GOR stepping in.

From what I hear in Kigali, Rwanda desperately wants to do business with its larger neighbour and that's why they were disappointed when Congo decided to close the boarder 4 hours early. Rwanda argued in their GOE rebuttal that it wouldn't benefit them to support instability in such a rich country with immense potential who they want to do business with. I hope this answers some of your questions pal.

blaise said...

@jay
It did indeed.thx for the feedback.

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