Rwanda will always be associated with Africa’s largest genocide in modern times. In 1994, an estimated 800,000 Rwandans were killed in the space of 100 days – with millions more displaced. The country’s institutions, systems of government and trust among its people were destroyed.
Few expected Rwanda to be able to leave behind the ethnic divisions and successfully embark on a process of post-conflict nation building. However, a remarkable transformation is underway. Rwandans are increasingly united, and progress has been made in rebuilding trust in the country’s leadership, while the economy is improving across a range of metrics.
We witnessed this transformation first-hand on our recent research visit to the country.
Rwanda’s rapid economic growth
Rapid economic growth has been Rwanda’s overarching development goal. In the decades after the genocide, Rwanda has been among the world’s fastest-growing economies – with a three-and-a-half fold increase in per capita income for its population of 12.3 million. Moreover, growth has been broadly inclusive and extensive investment in social safety nets has significantly reduced poverty.
Future aspirations have been set extremely high – specifically, reaching upper-middle income status by 2035. Any future high-growth strategy will require a multi-sectoral approach and services and industry now account for about half of all economic activity. Rwanda’s GDP growth is expected to remain around 8 per cent in 2019, supported by public investment spending, private investment and interventions aimed at promoting diversified and higher value-added economic activity.
In addition, metrics other than just GDP growth can be used to demonstrate Rwanda’s rapid progress. The country has the highest share of women in the lower house of parliament globally. Inbound tourism is boosting the economy and having a ‘trickle down’ effect on other areas of activity, such as the supply of fruit. Steps in transforming into a knowledge led service economy are aided by the fact most Rwandans are bilingual – speaking English and French – and there is good connectivity stemming from the high penetration of 4G networks.
Rwanda’s banking sector has also been shaped by new innovations, such as electronic payment technologies. Mobile phone penetration is high at around 90 per cent of the population and there is good interoperability in retail payment systems. Against this backdrop, Rwanda’s central bank has stipulated action to strengthen oversight of the financial technology sector, while encouraging innovation. This has included signing memorandums of understanding with domestic telecommunications regulators.
Digital efforts pay off for Bank of Kigali
On our visit, we met with the management of Bank of Kigali, a leading bank in the country. Rare for an African bank, Bank of Kigali has both a female chief executive officer and chief financial officer. Bank of Kigali does face competitive pressures, notably from the merger of Banque Populaire du Rwanda (BPR) and Equity Bank – which together will have a 25 per cent market share.
Bank of Kigali has made progress with digital projects. It launched digital wallets three and a half years ago and has already registered 170,000 out of a total of 300,000 clients. The bank has been targeting farmers, as well as seeking to attract people not yet reliant on banking services. It is also building systems internally to ensure it has ownership of all aspects of the client journey.
In addition, Bank of Kigali has the most sizable market share in point of sale systems. It has also showed promise in the mobile payments sphere but needs to recruit more merchants to transact via phones and QR codes. The bank’s approach has been to offer payment services and then help with working capital facilities, essentially bundling offerings. The approach has worked well in schools, where Bank of Kigali offers systems to manage payments and ensure fee tranches are paid on time.
Finally, the bank has an impressive loan book, with several deals in the pipeline. These involve the Mara Group’s smartphone manufacturer Maraphone, as well as a manufacturing facility for edible oil and the extension of a cement plant. There is limited corporate competition, although it may change with the BPR/Equity Bank merger.
Why we have optimism for the future
Rwanda has taken great strides to leave behind the socioeconomic traumas of the past. After the 1994 genocide, the country’s GDP collapsed, falling by half from an already low base, while life expectancy at birth for Rwandans was the lowest in the world.
Today, on a platform of strong economic growth, the focus of authorities is on providing productive economic opportunities and higher quality living standards to all Rwandan citizens. Companies like Bank of Kigali are benefiting from favourable growth dynamics and the trend toward increasing digitalisation. We believe, over time, we may be able to uncover attractive investment opportunities in the rapidly developing Rwanda.
Oliver Bell is portfolio manager of the T. Rowe Price Frontier Markets Equity fund and Iona Dent is a frontier markets equity analyst at T. Rowe Price. The views expressed above are their own and should not be taken as investment advice.