Rwanda’s economy hit hard by lockdowns, curfews

Rwanda’s economic managers face a daunting task in the coming months to find new sources of growth to revive the economy, which is currently in recession. Coronavirus restrictions imposed by the government during the pandemic have had a negative impact.

Faced with mounting uncertainties surrounding the duration and spread of the pandemic, analysts say the economic fallout could intensify unless the government takes additional measures to spur growth.

There is now a real risk of more Rwandans falling into poverty as thousands face unemployment, contend with increasing consumer prices, and businesses record revenue losses.

The government rolled out an extensive social safety net that led to a 1.4 percentage point reduction in the poverty headcount ratio in 2020. However, the poverty headcount is now likely to rise by 5.1 percentage points or 550,000 people in 2021, with more than 80 percent of the new poor in rural areas, according to data released by the World Bank this week.

The pandemic has hit Rwanda's key strategic sector — service, particularly retail trade, leisure and hospitality and conference tourism — which collectively account for most jobs in the country.

And despite the government adopting the Economic Recovery Plan estimated at $900 million over the two fiscal years 2019/20 and 2020/21, economic recovery remains slow in part because of the second wave of infections that recently led to a three-week lockdown in Kigali and reintroduced restrictions on movement.

“The severity of the effect is due at least in part to the fact that the crisis-hit where it hurt the most, travel and hospitality services, which are the sectors in which the country has invested massively in recent years through its Meetings, Incentives, Conferencing, and Exhibitions strategy. The crisis calls for the rebalancing of the growth strategy, with more emphasis on rural-related activities and greater emphasis on regional integration to reduce vulnerability to international shocks,” said Calvin Djiofack, the World Bank senior economist.

Unprecedented levels

World Bank data shows that the lockdown imposed last March and the subsequent restrictions to contain the spread of the virus have shrunk the economy at an unprecedented level for the first time over the past 26 years after the Genocide Against the Tutsi.

Rwanda’s GDP in real terms fell by 3.6 percent (year-on-year) in the third quarter of 2020, following a 12.4 percent contraction in the second quarter.

GDP is estimated to have dropped by 0.2 percent for 2020, compared with a projected expansion of eight per cent before the Covid-19 outbreak, according to the latest 16th edition of the World Bank Rwanda Economic Update titled Protect and Promote Human Capital in a post-Covid-19 World.

“In the absence of major policy intervention, Rwanda’s long-term growth is likely to be significantly lower than the pre-pandemic trajectory,” the World Bank says, adding that the effect of the pandemic may be felt for years, with growth projected to be 22 per cent lower by 2030 unless robust interventions are implemented.

While Rwanda’s current National Strategy for Transformation (NST1) over seven years (2017-2024) set an ambitious target of an average GDP growth of 9.1 percent and the creation of 214,000 decent and productive jobs annually, the pandemic has dimmed its prospects, putting a deeper strain on exports, tourism, and inward remittances.

This week, Rwanda Development Board (RDB) reported a significant drop in total registered investments - 47.1 per cent to $1.3 billion in 2020 from $2.46 billion in 2019, due to the pandemic.

A total of 24,703 jobs are expected to be created by the new investments.

“The year 2020 was challenging for investment and business in general. Despite the global economic slowdown occasioned by the Covid-19 pandemic, Rwanda registered significant investments in key sectors of our economy. This is a sign of continuous investor confidence in Rwanda by both local and foreign investors.

“We are optimistic that these investments will further accelerate economic recovery by boosting local production and creating needed jobs for our people,” said Clare Akamanzi, the chief executive officer of RDB.

Programmes and policies

According to Rolande Pryce, the World Bank country manager for Rwanda, the impact of the crisis heightens the urgency of ensuring the availability of strong and adaptable programmes and policies to mitigate poverty and to safeguard health, schooling, and employment of the population.

“By further expanding the coverage of well-targeted safety net interventions and prioritising investments in human capital, Rwanda can lay the groundwork for future resilience,” Mr. Pryce said.

The World Bank recommended that the government accelerate the deployment of Covid-19 vaccines to contain the pandemic and combat the poverty impact by expanding social safety nets.