94478 February 2015 | Edition No. 7 Managing Uncertainty for Growth and Poverty Reduction With a Special Focus on Agricultural Sector Risk Assessment Working for a World Free of Poverty Rwanda Economic Update Managing Uncertainty for Growth and Poverty Reduction With a Special Focus on Agricultural Sector Risk Assessment TABLE OF CONTENTS Abbreviations and Acronyms ..................................................................................................................... i Foreword ...................................................................................................................................................... ii Overview ....................................................................................................................................................... iv Part 1: Recent Economic Developments and Prospects ........................................................................... 1 1.1 Growth Recovery in the Real Sector .................................................................................................. 4 1.2 The External Sector: Widening Trade Deficits ................................................................................... 8 1.3 Inflation, the Monetary Sector, Exchange Rate Policy, and Financial Sector Development: Growing Credit after a Prolonged Deceleration ......................................................... 11 1.4 Fiscal Developments: Remaining Concerns about Capital Expenditure ............................................ 18 1.5 Impact of Recent Oil Price Decline on Growth and Poverty: Conflicting Impact on Growth and Poverty ....................................................................................................................... 23 1.6 Economic Outlook and Risks: Continuing Growth Momentum ........................................................ 26 Part 2: Special Focus: Agricultural Sector Risk Assessment ................................................................... 29 2.1 Performance of the Agricultural Sector .............................................................................................. 30 2.2 Lessons Learned and Remaining Challenges ..................................................................................... 32 2.3 Risks in the Agriculture Sector ........................................................................................................... 34 2.4 Impacts of Risks ................................................................................................................................ 37 2.5 Implications of Structural Shifts and Long-Term Trends ................................................................... 39 2.6 Risk Management ............................................................................................................................... 40 Appendix: Selected Data on Rwanda ............................................................................................................ 47 References ...................................................................................................................................................... 56 Figures Figure 0.1: Higher domestic demand was a major cause of growth ............................................................ iv Figure 0.2: Budget execution was concentrated in the second half of the 2013/14 fiscal year ................... iv Figure 0.3: Growth in the services sector recovered, thanks to the increase in government consumption.. v Figure 0.4: Agricultural production almost doubled in a decade ................................................................. vi Figure 0.5: Losses in 1995–2012 were greatest for cassava and bananas ................................................... vii Figure 0.6: The choice of strategic risk instrument depends on both the probability and severity of the risk viii Figure 1.1: Higher government consumption was a major cause of growth ............................................... 4 Figure 1.2: The increase in government consumption was robust ............................................................... 5 Figure 1.3: Government expenditure was high in the first half of 2014 ...................................................... 5 Figure 1.4: Net exports deteriorated ............................................................................................................ 5 Figure 1.5: The increase in imports reflected high domestic demand ......................................................... 5 Figure 1.6: Slower growth in construction slowed cement imports ............................................................ 6 Figure 1.7: Increased government consumption boosted the services sector, which accounted for most of the growth recovery in the first three quarters of 2014 ........................................... 6 Figure 1.8: Growth in the services sector recovered ................................................................................... 7 Figure 1.9: Growth in industry was weak .................................................................................................... 7 Figure 1.10: Total export growth slowed, as a result of the decline in mineral exports ................................ 8 Figure 1.11: The value of coltan and wolfram exports fell ........................................................................... 9 Figure 1.12: Import growth rebounded ......................................................................................................... 9 Figure 1.13: Inflation continued to fall, as food prices declined and energy prices remained low ............... 12 Figure 1.14: The depreciation of the Rwandan franc against the U.S. dollar slowed .................................... 16 Figure 1.15: Lending rates did not respond to the policy rate cut ................................................................. 16 Figure 1.16: Credit to the private sector started to grow in 2014 .................................................................. 17 Figure 1.17: Credit to the private sector recovered across key sectors .......................................................... 17 Figure 1.18: Total grants recovered in 2013/14 fiscal year, but budgetary grants declined for the second year in a row ............................................................................................................ 18 Figure 1.19: Tax revenue remained unchanged, as a result of the economic slowdown ............................... 19 Figure 1.20: Expenditure execution remained weak ...................................................................................... 20 Figure 1.21: Support from development partners shifted from budgetary grants to budgetary loans ........... 21 Figure 1.22: GDP growth slowed in 2008–09, as exports fell ....................................................................... 23 Figure 1.23: Crude oil prices and Rwanda’s energy import prices are highly correlated .............................. 23 Figure 1.24: Unlike the price of oil, the prices of Rwanda’s main export commodities remained stable ..... 24 Figure 1.25: Domestic fuel prices and crude oil prices are correlated ........................................................... 25 Figure 2.1: Agricultural production almost doubled between 2000 and 2012 ............................................. 31 Figure 2.2: Monthly tea prices at the Mombasa auction fluctuate widely ................................................... 36 Figure 2.3: Price fluctuations drove the value of tea exports between 2001 and 2014 ................................ 37 Figure 2.4: Both the international price of coffee and the value of Rwanda’s coffee exports fluctuate widely ... 37 Figure 2.5: Losses became significantly larger in the 2000s ....................................................................... 37 Figure 2.6: Losses in 1995–2012 were greatest for cassava and bananas ................................................... 39 Figure 2.7: The geographical distribution of annual losses varies by crop .................................................. 39 Figure 2.8: The choice of strategic risk instrument depends on both the probability and severity of the risk ..................................................................................................................... 42 Tables Table 0.1: Risk prioritization matrix for Rwanda’s agriculture sector ....................................................... vii Table 1.1: Mineral exports by Rwanda, 2011–14 ...................................................................................... 9 Table 1.2: Fiscal outturn in Rwanda, 2013/14 fiscal year .......................................................................... 19 Table 1.3: Rwanda’s budget, 2014/15 fiscal year ....................................................................................... 22 Table 1.4: Impact of oil price decline on Rwanda’s 2015 imports of energy ............................................ 24 Table 1.5: Annual purchases of oil products and amounts spent in Rwanda, by consumption decile, 2011.. 25 Table 1.6: Average annual savings per household in Rwanda associated with a 53 percent drop in oil prices, by consumption decile, 2011 ................................................................................ 26 Table 1.7: Actual growth in Rwanda in 2012–14 and projected growth in 2014–16 ................................ 27 Table 2.1: Agriculture sector macroeconomic performance indicators for PSTA 2/CAADP 1, 2012 ......... 31 Table 2.2: Land intensification, inputs, and irrigated land achievements under PSTA 2/CAADP 1, 2012 ..... 31 Table 2.3: Livestock, food, and export crop achievements under PSTA 2/CAADP 1, 2012 ....................... 32 Table 2.4: Impact of drought and dry spells on milk production in Rwanda, 2002-10 ............................... 34 Table 2.5: Disease outbreaks in Rwanda, 2002-12 ...................................................................................... 35 Table 2.6: Cost of adverse weather events for crop production ................................................................... 38 Table 2.7: Risk prioritization matrix for Rwanda’s agriculture sector ........................................................ 41 Table 2.8: Potential interventions for risk management in agriculture ........................................................ 42 Boxes Box 1.1: What does the input-output table reveal about Rwanda’s economy? .......................................... 3 Box 1.2: Diversifying the export base would reduce the impact of volatility of export prices ................. 10 Box 1.3: What is driving low inflation in Rwanda? ................................................................................... 12 Box 1.4: What are nominal and real effective exchange rates? ................................................................. 15 Box 1.5: Enhancing public investment management is key for achieving national goals ........................ 20 Box 2.1: What are aflatoxins? .................................................................................................................... 35 Box 2.2: How is production loss measured? .............................................................................................. 38 Box 2.3: What Works in Sub-Saharan Africa? Successful Risk Mitigation Interventions ........................ 43 Box 2.4: What strategies do policymakers recommend for integrating agricultural sector risk management in practice? ............................................................................................................ 43 Box 2.5: What can Rwanda learn from Niger’s experience designing and implementing an agricultural risk management program? ................................................................................ 44 ABBREVIATIONS AND ACRONYMS BNR Banque Nationale du Rwanda (National Bank of Rwanda) CAADP Comprehensive Africa Agriculture Development Program COMTRADE United Nations Commodity Trade Statistics Database CPI Consumer Price Index DRC Democratic Republic of Congo EDPRS 2 Second Economic Development and Poverty Reduction Strategy EICV Enquête Intégrale sur les Conditions de Vie des Ménages (Integrated Household Living Conditions Survey) EU European Union FAOSTAT Statistics division at the Food and Agriculture Organization GDP Gross Domestic Product GEF Global Economic Prospects IMF International Monetary Fund MINAGRI Ministry of Agriculture and Animal Resources MINECOFIN Ministry of Finance and Economic Planning MTEF Medium-Term Expenditure Framework NAEB National Agricultural Export Development Board NAP National Agricultural Policy NEER Nominal Effective Exchange Rate NISR National Institute of Statistics of Rwanda OPEC Organization of the Petroleum Exporting Countries PSTA Strategic Plan for the Transformation of Agriculture in Rwanda PTBF Prices To Be Fixed REER Real Effective Exchange Rate REU Rwanda Economic Update Rwf Rwandan Franc UN United Nations i Rwanda Economic Update | Edition No. 7 Foreword T he Rwanda Economic Update reports on and synthesizes recent economic developments and places them in a medium-term and global context. It analyzes the implications of these developments and policies for the outlook for Rwanda’s economy. These reports attempt to make an analytical contribution to the implementation of Rwanda’s national development strategy. Each edition includes a special feature on a selected topic. The report is intended for a wide audience, including policy makers, business leaders, other market participants, and the community of analysts engaged in Rwanda’s economy. The seventh edition of the Rwanda Economic Update was jointly prepared by the Rwanda Macroeconomics and Fiscal Management Global Practice and Agriculture Global Practice teams at the World Bank. Toru Nishiuchi (Economist) led the team and the section on recent economic developments. ÅsaGiertz (Agricultural Specialist) led the special focus section. Other team members who contributed to the seventh edition are Yoichiro Ishihara (Senior Economist), Tom Bundervoet (Senior Poverty Economist), Valence Kimenyi (Economist), Peace Aimee Niyibizi (Consultant), Mark A. Austin (Program Leader) and Traci Johnson (Consultant). Apurva Sanghi (Lead Economist and Program Leader) supervised the team. Diarietou Gaye (Country Director), Carolyn Turk (Country Manager), Pablo Fajnzylber (Practice Manager), and Albert Zeufack (Practice Manager) provided overall guidance. Sylvie Ingabire (Team Assistant), Maude Jean-Baptiste (Program Assistant), Lydie Ahodehou (Program Assistant), and Barbara Karni (Editor) supported the team. The special focus section synthesizes findings from the two World Bank reports: Agriculture Sector Risk Assessment Volume I (2014) and Promoting Agriculture Growth in Rwanda: Recent Performance, Challenges and Opportunities (2014). Although this report does not represent the official views of the authorities, the macroeconomic unit of the Ministry of Finance and Economic Planning (MINECOFIN) and the Ministry of Agriculture and Animal Resources (MINAGRI) were engaged in its formulation and provided valuable comments. The Bank team appreciates their contributions. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank’s Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this report. For more information about the World Bank and its activities in Rwanda, please visit www.worldbank.org/rw. To be included in the email distribution of this semiannual series and related publications, please contact singabire@worldbank.org. For questions and comments about this publication, please contact Toru Nishiuchi (tnishiuchi@worldbank.org). Rwanda Economic Update | Edition No. 7 ii Overview R wanda’s economic growth recovered in the first three quarters of 2014. The economy grew 7.1 percent (year-on-year), 2.4 2013/14 fiscal year between July and December 2013, indicating that higher growth in 2014 was at the expense of slow growth in 2013 (Figure 0.2).1 percentage points faster than in 2013 (Figure Capital expenditure increased by 2.7 percentage 0.1). Faster GDP growth reflected higher growth points of GDP to 15.2 percent in the second half of the services sector, at 9.1 percent, up from of the 2013/14 fiscal year between January and 5.4 percent in 2013, when the economy suffered June 2014. Net lending (including government from the lagged impact of the 2012 aid shortfall. investment) increased by 1.5 percentage points of GDP to 1.7 percent in the second half of the The first section on macroeconomic issues of 2013/14 fiscal year. Although Rwanda’s fiscal this edition of the Rwanda Economic Update policy has been consistent with growth and (REU-7) examines two key questions: What led stability objectives, delayed implementation of to the growth recovery in the first three quarters capital expenditure and net lending remains as of 2014, and what are growth prospects for 2014, a structural bottleneck as a result of capacity 2015, and 2016? constraints in large line ministries. What led to the growth recovery The expansion of domestic demand was in the first three quarters of 2014? partially offset by lower external demand for Rwanda’s traditional commodities. As a result The growth recovery mainly reflected of declining international prices for Rwanda’s increased government expenditure, which traditional export commodities, revenues from boosted domestic demand such as private exports of goods decelerated significantly. After consumption and investment (Figure 0.1). solid growth of 65.9 percent in 2013, mineral Increased government expenditure in 2014 exports contracted 9.9 percent in 2014. The was attributable to delayed execution of capital decline caused export growth to slow to 4.7 expenditure and net lending in the first half of the Figure 0.1: Higher domestic demand was a major cause of growth Figure 0.2: Budget execution was concentrated (contribution to growth rate) in the second half of the 2013/14 fiscal year 20 35 15 30 11.1 25 10 7.8 8.8 Percentage points 6.3 7.3 7.1 Percent of GDP 4.7 20 5 15 0 10 -5 5 -10 0 2008 2009 2010 2011 2012 2013 2014 H1 H2 H1 H2 H1 H2 H1 H2 Q1-Q3 FY2010/11 FY2011/12 FY2012/13 FY2013/14 Domestic demand External demand GDP growth Sources: NISR and World Bank staff calculations. Sources: MINECOFIN and World Bank staff calculations. Note: H1 covers July–December. H2 covers January-June. 1 Rwanda’s fiscal year runs from July through June. Rwanda Economic Update | Edition No. 7 iv Overview percent, down from 18.7 percent in 2013. The What are growth prospects for 2014, trade deficit expanded, as the growth of imports 2015, and 2016? outpaced the growth of exports. The World Bank estimates that growth momentum was sustained in the fourth Higher government expenditure contributed quarter of 2014 and projects that it will to growth recovery in the services sector continue through 2016. The August 2014 edition through government consumption of private of the Rwanda Economic Update projected that services (Figure 0.3).Wholesale and retail trade Rwanda’s economy would grow at 5.7 percent in services were the main drivers of growth in the 2014 and 6.6 percent in 2015. Those projections services sector, generating about 17 percent assumed unfavorable agricultural harvests as of real GDP growth in 2014. Growth in the a result of adverse weather condition in season industrial sector slowed, as a result of weaker B, lower international commodity prices of growth in construction and, to a lesser degree, minerals, and delayed implementation of manufacturing. Agriculture, which contributed government investment projects.2 During the first about 23 percent to GDP growth in 2014, three quarters of 2014, the economy recovered, recorded higher growth of 5.3 percent. Favorable thanks to strong growth in the services sector weather conditions and expanded cropped area in supported by increased government spending low lands were the primary causes of the better and high agriculture production in seasons A and than expected food harvest. C. Coincident and leading indicators, such as Figure 0.3: Growth in the services sector recovered, credit growth to the private sector and imports thanks to the increase in government consumption (year-on-year growth rate) of capital goods, show that growth momentum 20 remained robust in the fourth quarter of 2014 18 and will continue to be so in 2015. Ongoing 16 implementation of priority policy areas— 14 agricultural productivity, export capacity, 12 domestic resource mobilization, and expenditure prioritization—will also reinforce growth. In light Percent 10 8 of these developments, the World Bank revised 6 its growth projections to 7.0 percent for 2014, 7.5 4 percent for 2015, and 7.7 percent for 2016. 2 0 2010 2011 2012 2013 2014 The recent decline in oil prices is expected Q1-Q3 Agriculture Industry Services to contribute not only to lower inflation Sources: NISR and World Bank staff calculations. but also to more stable exchange rate, an improved balance of payments, and smaller Inflation declined throughout 2014, reflecting electricity subsidies. Macroeconomic stability lower growth in import prices. Lower in turn increases policy flexibility. The direct international energy prices and food prices impacts of lower energy costs on the poor will contributed to declining inflation. Annual average be limited, however, because their expenses headline inflation—the overall change in the price on energy represent a small share of their of the consumption basket—was 1.8 percent in consumption basket. 2014, down from 4.2 percent in 2013. Energy prices increased only 0.6 percent, down from 2.7 percent in 2013. Annual average food inflation declined to 1.3 percent, from 5.1 percent in 2013. 2 Rwanda’s agriculture seasons A, B, and C run from September to February, March to June, and July to August, respectively. v Rwanda Economic Update | Edition No. 7 Overview Growth in the agriculture sector has been transformation of agriculture into a modern, very strong since 2000 professionally operated, and market-oriented economic undertaking through promotion of Agriculture production in Rwanda almost professionalism, specialization, technological doubled between 2000 and 2012, with most innovation, and public-private partnerships. of the increase occurring since 2008 (Figure 0.4). Agricultural GDP grew at an average annual Having fulfilled PSTA 2/CAADP 1, the rate of 5.4 percent between 2008 and 2013, government has begun implementing PSTA thanks to impressive performance in the food 3 for 2013–18 and is preparing CAADP 2. crop subsector. Significant gains in productivity The objectives of PSTA 3 are to transform of selected priority crops were also observed. Rwandan agriculture from a subsistence sector Between 2008 and 2011, yields (production per to a knowledge-based sector and accelerate hectare) increased 225 percent for maize, 129 agricultural growth in order to increase rural percent for wheat, 90 percent for cassava, 66 incomes and reduce the incidence of poverty from percent for potatoes, 62 percent for bananas, 45 percent in 2012 to 20 percent in 2020. Other and 34 percent for rice. Growth in agricultural targets for 2020 include (a)increasing external production accounted for 35 percent of Rwanda’s trade (exports plus imports) to 60 percent of GDP, reduction in poverty over the past decade, and (b) reducing the proportion of the population in increased commercialization of agriculture the agricultural sector to 50 percent, (c) increasing accounted for another 10 percent. the share of mechanized agricultural operations to Figure 0.4: Agricultural production almost doubled 40 percent, (d) reducing the Gini coefficient from in a decade 0.454 to 0.350, (e) increasing the number of off- 250 farm jobs from 200,000 in 2000 to 3.2 million in 2020, (f) providing 100 percent of the population Agriculture production index, 2000=100 200 with access to clean water and sanitation, (g) increasing the share of the population living in 150 urban areas to 35 percent, (h) reducing the infant mortality rate to 27 percent, and (i) achieving a 100 literacy rate of 100 percent. 50 To achieve the targets under PSTA 3, it is important to identify lessons learned and 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 remaining risks from previous programs Sources: FAOSTAT and World Bank staff calculations. Despite recent gains, Rwanda’s agriculture sector faces structural bottlenecks, which Success has been achieved thanks to the could expose the agriculture sector to risks. government’s National Agricultural Policy Agricultural land plots are very small (80 percent (NAP), adopted in 2004, supplemented by of land holdings are less than 1 hectare, often its Strategic Plan for the Transformation of divided into three or four plots), and more than Agriculture in Rwanda (PSTA 1 and 2), with 70 percent of agricultural land is on hills or the support from the Comprehensive Africa sides of hills, making it hard to make space for Agriculture Development Program (CAADP mainstream commercial agriculture. Agriculture 1). The goals of the NAP are to contribute to is dominated by small-scale, subsistence farming national economic growth, improve food security under traditional agricultural practices and rain- and the nutritional status of the population, and fed agriculture. Irrigation is underdeveloped and raise rural incomes. The strategy calls for the not yet widespread, use of improved seed is still Rwanda Economic Update | Edition No. 7 vi Overview constrained, and only one-third of farmers are Figure 0.5: Losses in 1995–2012 were greatest using fertilizers, though the figure is rising. As a for cassava and bananas result, average crop yields are low. 600 Cassava Effective measures to manage risks contribute 500 to further growth in the agriculture sector 400 Losses, million US$ Bananas The special focus section of this report identifies 300 and quantifies risks in the agriculture sector, Irish Potato 200 with targeted interventions that complement Sweet Potato the lessons learned under PSTA 2/CAADP 100 Dry Beans Coffee Maize 1 to more effectively manage these risks and 0 Rice Tea to achieve further growth in the agriculture 0 0.1 0.2 0.3 0.4 0.5 sector. Although agricultural risks are low in -100 Frequency of Losses, per year Rwanda compared to neighboring countries, Sources: FAOSTAT and World Bank staff calculations. they have important consequences for sector productivity, growth, and the government’s efforts meet the government’s targets under PSTA to transform the sector. Risks to the agricultural 3/CAADP 2. Based on frequency and severity, sector caused production losses worth US$1.2 the main risks to Rwanda’s agricultural sector are billion between 1995 and 2012, about 2.2 percent regarded as pests, disease, and weather-related of Rwanda’s total annual agricultural production risks for crops and livestock and price volatility (Figure 0.5). for export crops and dairy producers (Table 0.1). The impacts of pests and disease are expected to Identifying risks and prioritizing interventions rise as a result of increased mono-cropping, land for identified risks are important first steps consolidation, use of storage, and higher growth in designing a set of comprehensive and in the livestock subsector. The impacts of adverse effective measures to manage them and to weather conditions, such as drought and erratic Table 0.1: Risk prioritization matrix for Rwanda’s agriculture sector Impact of risk Probability of event Low Moderate High High (1 year in 3) • Potato taste (coffee) • Price volatility • Pests and diseases • Landslide (all crops) (export crops) (all crops) • Local and large-scale floods (all crops) • Disease outbreaks • Drought and erratic • Milk contamination (dairy) (livestock) rains (all crops and • Power cuts at milk collection centers (dairy) livestock) • Counterparty risk (coffee) • Price volatility (food crops and milk) • Exchange rate volatility (export crops) Moderate (1 year in 5) • Hail (all crops) Low (1 year in 10) • Glut (dairy) • Frost (tea) • Losses in transit (tea) • Aflatoxins in feed (livestock) • Maize shortage (dairy) Source: World Bank Agriculture Risk Management Team. Note: Data on some crops and some risks were not available. This table is therefore not exhaustive. The ranking of risks is based on the team’s evaluation based on both data analysis and on-the-ground research. vii Rwanda Economic Update | Edition No. 7 Overview rains, will remain high if measures to address • Risk coping measures are ex post actions that underdeveloped irrigation are not addressed. help the affected population and the government Price volatility will continue to affect producers copes with loss. They usually take the form of of export crops and dairy products unless an compensation (cash or in-kind), social protection improved market information system and risk- programs, and livelihood recovery programs hedging mechanisms are put in place. (for example, government assistance to farmers, debt restricting, and contingent financing). The government could implement targeted interventions to more effectively manage Instruments applied for a given risk depends risks and to achieve further growth in on the probability of the risk and the severity the agriculture sector. As the potential of its impact (Figure 0.6). Any risk strategy interventions identified below are mainly risk- will likely include a combination of all three mitigating mechanisms, they are win-win in types of risk management instruments. Joint nature, contributing to improved agricultural implementation has positive, complementary productivity for many producers and general impacts while addressing multiple risks and agricultural growth in the sector: contributing to improved risk management in the short, medium and long terms. Implementing risk • Risk mitigation measures are ex ante actions management interventions will require integrating designed to reduce the likelihood of risk or the risk management approaches in existing policies severity of losses. Such measures are often win- and programs and a risk management plan. win practices, in that they reduce the impacts of agricultural risks on farmers while at the same Figure 0.6: The choice of strategic risk instrument depends on both the probability and severity of the risk time improving productivity. Examples include soil and water conservation measures; changes PROFITABILITY in cropping patterns; adoption of practices that LAYER 3 Very Low Frequency improve performance and reduce risks, such as Very High Losses LAYER 2 use of conservation farming, short cycles, and High Frequency Risk Mitigation tolerant varieties; and creation of improvement Medium Losses + Risk Transfer + Risk Coping of irrigation and flood control infrastructure. LAYER 1 Risk Mitigation + Risk Transfer High Frequency • Risk transfer measures are ex ante actions Low Losses that transfer the risk to a willing third party Risk Mitigation for a fee. These mechanisms usually trigger compensation in the case of a risk-generated loss. They include insurance, reinsurance, and SEVERITY financial hedging tools. Source: World Bank Agricultural Risk Management Team. Rwanda Economic Update | Edition No. 7 viii PART ONE Recent Economic Developments and Prospects I. Recent Economic Developments and Prospects A verage real growth in Rwanda exceeded 8 percent a year over the past decade, one of the highest rates in the world. The services to adverse weather conditions. Although mining sector exports were impressive, that sector’s performance is vulnerable to fluctuations in sector contributed more than half of the increase international commodity prices, as evident in the in GDP. Large inflows of foreign aid financed sharp drop in export growth in 2014. government expenditure, which in turn stimulated the service sector. The government effectively Given a possible decline in the share of aid in channeled aid for economic development and the economy in the medium term, the role of poverty reduction. The contribution of the public expenditure is expected to shift from services sector was preserved despite the aid driving growth to catalyzing it. Maintaining shortfall in 2012, enabling the economy to grow high growth will require a shift from an aid- 8.8 percent in 2012. The aid shortfall and resulting dependent, public sector–led development delays in budget executions in the second half of process to growth driven by the private sector. 2012 contributed to growth deceleration in 2013, Such a structural transformation will depend however. Growth in the services sector fell from on addressing constraints to private investment 11.5 percent in 2012 to 5.4 percent in 2013. As and continuing to make effective and efficient a result, the economy grew just 4.7 percent in use of public resources through enhanced public 2013, the lowest rate since 2003. financial management. In particular, it will be important to mobilize additional domestic The aid shortfall and the resulting economic resources to create fiscal space and to further slowdown revealed structural bottlenecks. prioritize expenditures, including through Aid accounts for 30 to 40 percent of the budget. improved public investment management. For Aid finances public investment, accounting more growth to be accompanied by faster poverty than 50 percent of total investment. Because of reduction, further progress in policy reforms heavy reliance on aid and the dominance of the will be needed in a number of areas. This public sector in the economy, the narrower fiscal includes the accountable governance pillar of the space created by the aid shortfall had not only government’s medium-term plan, encompassing the direct effect of slowing down government not only enhanced public financial management expenditure but also a significant indirect effect but also more effective decentralization, in on private sector economic activity. The services order to ensure greater equality in the delivery and construction sectors were especially hard of public services. Continued growth in hit by reduced public sector activity and the agricultural productivity and the establishment crowding-out of credit to the private sector as a of an extensive and effective social protection result of increased domestic borrowing to finance system will sustain or even accelerate the rate of the budget by the government. The poor harvest poverty reduction by supporting the incomes of in 2013 further subdued growth, highlighting the the poorest and most vulnerable Rwandans (see vulnerability of Rwanda’s rain-fed agriculture Box 1.1 for input-output table analysis). 2 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Box 1.1 What does the input-output table reveal about Rwanda’s economy? The input-output (I-O) framework provides a comprehensive picture of the flows of goods and services in an economy for a given year. Rwanda’s National Institute of Statistics of Rwanda (NISR) constructed the I-O framework for 2011 when it rebased the national account in 2014. The I-O framework reveals the link between the production and expenditure accounts (Box table 1.1.1). On the supply side, total output by the agriculture sector was Rwf 1,327 billion, including intermediate inputs of Rwf 82 billion. Total value added was thus Rwf 1,245 billion. On the demand side, of total output value of Rwf 1,327 billion, Rwf 414 billion was used as intermediate inputs (including Rwf 32 billion for the agriculture sector). Total final demand was thus Rwf 913 billion, of which Rwf 881 billion was domestic and Rwf 26 billion net external demand. Of total production of Rwf 1,327 billion, Rwf 414 billion (31 percent) was used as intermediate inputs; the remaining Rwf 913 billion (69 percent) was for final demand. In the industry sector, about 70 percent of total outputs were used for intermediate inputs (including for the industry sector). The share of final demand was 31 percent. Box table 1.1.1: I-O table for Rwanda, 2011 (Rwf billions) Demand Intermediate Final demand Gov't / NGO Agriculture Total Investment Household Others (-) Domestic Industry External output Services demand Imports demand Exports Total Total Agriculture 32 343 39 414 908 0 53 80 881 78 52 26 913 1,327 Intermediate Industry 40 641 507 1,188 1,173 0 840 718 1,295 196 946 −750 546 1,734 Services 10 190 637 837 856 616 12 −535 2,019 250 141 109 2,134 2,971 Supply Total 82 1,174 1,183 2,439 2,937 616 905 263 4,195 524 1,139 −615 3,593 6,032 Gross value 1,245 560 1,788 3,593 added Total output 1,327 1,734 2,971 6,032 Sources:NISR and World Bank staff calculations Input coefficients show the shares of intermediate materials of a sector per output (Box table 1.1.2). For the economy as a whole, the share of intermediate inputs was 40 percent. This means that out of the total output value, 40 percent was intermediate inputs and 60 percent gross value added. These ratios differ widely across sectors. The intermediate input ratio was high in industry (68 percent) and low in agriculture (6 percent). These figures reflect the fact that industry requires many inputs, including imported materials. These figures indicate that an increase in agriculture outputs would directly contribute to GDP. Box table 1.1.2: Input coefficients for Rwanda, 2011 Sector Item Agriculture Industry Services Total Intermediate from Agriculture 2 20 1 7 Intermediate from Industry 3 37 17 20 Intermediate from Services 1 11 21 14 Total Intermediate 6 68 40 40 Gross value added 94 32 60 60 Total output 100 100 100 100 Sources:NISR and World Bank staff calculations. Rwanda Economic Update | Edition No. 7 3 I. Recent Economic Developments and Prospects 1.1 Growth Recovery in the Real Sector R wanda’s economy recovered from the lagged impact of the aid shortfall in 2013. Growth accelerated from 4.7 percent in 2013 a. Expenditure Account Recovery of domestic demand was the main driver of growth in the first three to 7.1 percent in the first three quarters of 2014 quarters of 2014 (Figure 1.1). The expenditure (7.5 percent in the first quarter, 6.1 percent in account consists of domestic demand (private the second quarter, and 7.8 percent in the third consumption, government consumption and quarter). This growth exceeded the projections of gross fixed capital formation (i.e., investment)) the August 2014 edition of the Rwanda Economic and external demand (exports minus imports). Update (REU-6) of 5.7 percent. That projection Domestic demand contributed 9.9 percentage was based on weak coincident indicators points to the overall growth rate of 7.1 percent. of economic activities, such as unfavorable External demand reduced growth by 2.8 agricultural production as a result of adverse percentage points.3 weather condition; lower growth in cement Figure 1.1: Higher government consumption was a major consumption and wholesale and retail trade, cause of growth reflecting delayed implementation of government (contribution to growth rate) investment and consumption; and stagnant credit 20 growth to the private sector. 15 11.1 Domestic demand, supported by higher 10 7.8 8.8 Percentage points 6.3 7.3 7.1 government spending in the first half of 4.7 5 2014, led the growth recovery. Acceleration in government spending and a moderate increase in 0 private consumption led to growth in the services -5 sector, which represents 45 percent of Rwanda’s GDP. Higher government spending between -10 2008 2009 2010 2011 2012 2013 2014 January and June 2014, however, is attributable Q1-Q3 to catching-up of delayed implementation of Domestic demand External demand GDP growth the 2013/14 fiscal year budget between July Sources: NISR and World Bank staff calculation. and December 2013 due to capacity constraints Consumption expanded by 8.5 percent, on executing capital expenditure by ministries with large budgets. This indicates that economic returning to the level observed before the growth in the first three quarters of 2014 was 2012 aid shortfall. Government consumption compensating for lower growth in the second half growth accelerated from 1.0 percent in 2013 of 2013. As a result of favorable rainfall in the to 24.3 percent in the first three quarters of first agriculture season (season A) and increased 2014, reflecting increased current expenditures cropped area of marshlands in the third (season (Figures 1.2 and 1.3). Private consumption C), agriculture growth improved significantly, expanded from 2.9 percent in 2013 to 5.6 contributing to the recovery of the overall growth percent. Investment accelerated from 7.7 rates. On the negative side, the decline in external percent in 2013 to 8.9 percent, led mainly by demand (exports minus imports), reflecting investment in durable goods, particularly related decelerated growth in exports as a result of lower to farm mechanization.4 Growth of construction international prices for Rwanda’s major export investment decelerated to 7.2 percent in the first items, muted economic growth. 3 In REU-6 the team relied on data published by the National Institute of Statistic Rwanda (NISR) in March 2014. Those data indicated that domestic demand slowed and external demand led the economy in 2013. The September 2014 revision revealed that external demand only marginally contributed to economic growth and domestic demand fully led the economy in 2013. 4 Data that are disaggregated into private and public investment are not available on a quarterly basis. 4 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Figure 1.2: The increase in government consumption was robust Figure 1.3: Government expenditure was high (year-on-year growth rate) in the first half of 2014 30 20 25 24.3 25.0 21.6 15.9 16.1 15.2 20 15 14.3 17.6 13.1 12.5 15 14.7 Percent of GDP Percent 12.3 10.7 10.6 9.3 10 10 9.0 8.9 7.7 7.9 6.9 5.6 5 4.0 5.4 2.9 4.5 1.0 5 0 -1.4 1.2 -5 0 Government Private Current expenditure Capital expenditure Net lending Consumption Investment Net exports 2011 2012 2013 2014 Q1-Q3 Jan−Jun 2013 Jul−Dec 2013 Jan−Jun 2014 July−Dec 2014 Sources: NISR and World Bank staff calculations. Sources: MINECOFIN and World Bank staff calculations. Note: Because net exports in 2013 were negative, positive growth in 2014 indicates that the net exports deficit expanded in 2014. three quarters of 2014, down from 11.0 percent and tea) and lower international commodity in 2013, as a result of continued delays in prices for them. Import growth accelerated to government construction projects. 9.9 percent in the first three quarters of 2014, up from 5.5 percent in 2013. Stronger import growth A sharp drop in export growth and higher reflects improved domestic demand supported import growth caused net exports to deteriorate by increased government expenditure. Because (Figure 1.4). In the first three quarters of 2014,net of Rwanda’s high reliance on imports, domestic exports deteriorated by 17.6 percent over the demand and imports are highly correlated (Figure same period in 2013. Exports grew 2.7 percent 1.5). The decelerated growth of construction (year-on-year), down from 13.7 percent in 2013. investment reflects the decrease in cement Lower export growth was attributable to both flat imports (Figure 1.6). Cement imports grew 32.5 growth in the production of export crops (coffee percent in 2012 and 11.3 percent in 2013. Figure 1.4: Net exports deteriorated Figure 1.5: The increase in imports reflected high domestic demand 50 800 60 40 600 50 30 Year-on-year growth rate, percent 400 40 Constant value, Rwf billions 20 Year-on-year growth, percent 200 30 10 20 0 0 -10 10 -200 -20 0 -400 -30 -10 -40 -600 -20 -50 -800 2010 2011 2012 2013 2013 2014 -30 Q1–Q3 Q1–Q3 2007 2008 2009 2010 2011 2012 2013 2014 Q1-Q3 Net exports (right) Export growth (left) Import growth (left) Import Domestic demand Sources: NISR and World Bank staff calculations. Sources: NISR and World Bank staff calculations. Rwanda Economic Update | Edition No. 7 5 I. Recent Economic Developments and Prospects Figure 1.6: Slower growth in construction slowed percentage points out of 4.7 percent in 2013. cement imports Higher government consumption in the first half 600 of 2014 accounted for the growth acceleration 500 (panel b of Figure 1.7). 400 Growth accelerated in both the public and Tons, in thousands 300 private sector services in the first three quarters of 2014 (Figure 1.8). In the services 200 sector, public services (public administration, 100 health, and education) accounted for 19 percent of growth, and private services accounted for 0 81 percent. While the share of public services is 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jan-Nov small, the government is the biggest consumer Production Imports of private services. Thus, increased government Sources: BNR and World Bank staff calculations. consumption also stimulates private services. b. Production Account Growth in both public and private sector services sharply decelerated in 2013, led by the sharp Strong growth in the services sector supported reduction in government consumption and by higher government consumption was the continued contraction in private consumption. In main factor behind the growth recovery in the the first three quarters of 2014, growth in both first three quarters of 2014 (panel a of Figure private and public sector services accelerated, 1.7).The services sector has been the single thanks to sharply increased government biggest contributor to economic growth since consumption and moderately increased private 2003 and its accounts for 47 percent of GDP, consumption. In private services, wholesale and grew 9.1 percent in the first three quarters of retail trade (26 percent of the sector) and real estate 2014, up from 5.4 percent in 2013. Due to the activities (12 percent) were the major subsectors. high share in the economy and high growth, the Growth in the wholesale and retail trade subsector service sector contributed to the overall growth increased from 5.8 percent in 2013 to 9.7 percent by 4.4 percentage points out of 7.1 percent in the first three quarters 2014, reflecting recovery in the first three quarters of 2014, up from 2.6 in the volume of Rwanda’s international trade. Figure 1.7: Increased government consumption boosted the services sector, which accounted for most of the growth recovery in the first three quarters of 2014 a. Sectoral contributions to growth, 2010–14 b. Annual changes in services sector output, government consumption, and GDP, 2007–14 10 30 9 25 8 7 Percentage points 20 6 5.4 Percent 3.7 5 4.2 15 4.4 4 2.4 1.2 2.6 10 3 1.1 0.9 2 2.1 1.3 5 1 1.7 1.6 1.0 1.7 0 0 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 Q1-Q3 Q1-Q3 Agriculture Industry Services Real GDP growth Services sector Government consumption GDP Sources: NISR and World Bank staff calculations. 6 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Real estate activities grew 8.4 percent, up from a and 2013 was 14.7 percent. Weak growth is mere 1.1 percent in 2013, reflecting credit growth reflected in the 6.1 percent decline in imported to the commerce, business, and hotel subsectors. cement in the first three quarters of 2014. Figure 1.8: Growth in the services sector recovered The mining subsector grew 15.0 percent in the 20 first three quarters of 2014. Boosted by seven new mining investments in 2013, it grew 20.6 15 percent in 2013 (see the special focus in REU-6). Foreign direct investment sustained this growth Percent 10 in 2014. In September the government awarded a 25-year mining license to Tinco, a Canadian mining company, to operate in Nyakabingo and 5 Rutongo Provinces. Tinco committed to invest US$7 million. At the Rutongo concession, it 0 2007 2008 2009 2010 2011 2012 2013 2014 committed to increase monthly production of Public sector services Private sector services Q1-Q3 cassiterite from 60 tons in 2013 to 90 tons in Sources: NISR and World Bank staff calculations. 2015 and 120 tons in 2016. Growth in the industry sector slowed in Growth in the manufacturing subsector the first three quarters of 2014 (Figure 1.9). weakened, as activity in beverages and tobacco The sector expanded by 6.0 percent in the first contracted. Growth in the manufacturing three quarters of 2014, down from 9.2 percent subsector fell to 2.4 percent in the first three in 2013. This rate of expansion was the lowest quarters of 2014, after growing 4.6 percent since 2009. Weaker growth in the construction in 2013. Most subsectors showed no growth. subsector accounted for the poor performance. Beverage and tobacco production was severely Construction, which represents 50 percent of hit by movement restrictions between the the industry sector, expanded by 6.4 percent in Democratic Republic of Congo (DRC) and the first three quarters of 2014, down from 11.5 Rwanda. According to the annual economic percent in 2013, reflecting slower growth in report by the Ministry of Finance and Economic construction investment as a result of continued Planning (MINECOFIN), soft drink production delays in government construction projects. declined because exports to the eastern DRC Average growth in the subsector between 2007 by Brasseries et Limonaderies du Rwanda Figure 1.9: Growth in industry was weak (BRALIRWA) stopped in April 2014, following complaints from a Congolese company producing 60 the same products. 50 40 Manufacturing other than furniture 30 production remains small. Lack of adequate 20 infrastructure, especially electricity and transport Percent 10 routes, and a low skill base, together with 0 Rwanda’s landlockedness, limit investment in -10 manufacturing. Addressing these constraints -20 requires prioritization of expenditures, -30 including through improved public investment 2007 2008 2009 2010 2011 2012 2013 2014 Q1 –Q3 management, and provision of targeted vocational Overall industry sesctor Mining subsector Construction subsector training to build basic skills. Sources: NISR and World Bank staff calculations Rwanda Economic Update | Edition No. 7 7 I. Recent Economic Developments and Prospects The agriculture sector expanded by 5.3 percent harvests vulnerable to adverse weather shocks, in the first three quarters of 2014, up from 3.2 which in turn poses weather-related production percent in 2013. It accounted for 1.7 percentage risks to farmers and the economy. Thorough points of growth, up from 1.0 percentage points analysis of risks to Rwanda’s agriculture is the in 2013. Growth came from food crops, which first step to manage risks to the agriculture sector accounted for 69 percent of total agriculture (see the special focus section of this report). production. The value of food crops increased 6.0 Structural reforms and investment based on the percent in the first three quarters of 2014, up from analysis are likely to improve the chances of 3.5 percent in 2013, thanks to sufficient rainfall in steady and stable growth in the medium term. season A. Increased cropped area of marshlands Various policy actions, including legislative in season C boosted growth in the third quarter. Export crops (coffee and tea) registered no growth reform; investment in rural infrastructure in the first three quarters of 2014, after declining (feeder roads, markets, and postharvest storage 5.8 percent in 2013. facilities); education in specialized agricultural skills; and land administration reform could raise The rain-fed nature of Rwanda’s agriculture, productivity, increase agricultural incomes, and one of Rwanda’s structural bottlenecks, leaves sustain rapid poverty reduction. 1.2 The External Sector: Widening Trade Deficits Rwanda’s formal trade balance in goods deteriorated in 2014, as a result of weak performance in traditional export products (primarily coltan) and stronger import demand. Weak export performance mainly reflected the sharp fall in international commodity prices. The tourism sector remained the largest single source of foreign currency. Strong import demand caused the level of gross international reserves to fall in the first half of 2014. T rade in Rwanda is characterized by a highly concentrated export basket and a chronic large trade deficit. Goods exports averaged 8.3 (Figure 1.10). Mineral exports contracted by 9.9 percent, to US$203 million, after growing 65.9 percent in 2013. The share of mineral exports percent of GDP, imports 25.4 percent, and the trade to total exports fell from 39.4 percent in 2013 deficit 17.2 percent in 2011–13. The export basket to 33.9 percent in 2014. The contraction of is dominated by a small number of traditional Figure 1.10: Total export growth slowed, as a result of the commodities, with coffee, tea, and minerals decline in mineral exports accounting for 60 percent of goods exports. 140 This level of concentration, another structural 120 bottleneck, leaves Rwanda highly vulnerable to 100 Year-on-year growth, percent fluctuations in international commodity prices. 80 On the import side, Rwanda’s limited domestic 60 52 production capacity leaves it heavily reliant on 40 33 25 imported capital and intermediate goods. 20 19 0 5 The formal trade deficit widened in 2014, -20 because import growth exceeded export -40 growth. Exports expanded by just 4.7 percent, to 2010 2011 2012 2013 2014 US$600 million, as a result of weak performance Coffee Tea Minerals Others Total in traditional export products, especially minerals Sources: BNR and World Bank staff calculations. 8 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects mineral exports was attributable to unfavorable Coffee exports expanded by 9.8 percent, to international commodity prices, especially for US$59.7 million, in 2014, after contracting coltan (Figure 1.11 and Table 1.1). The value of by 9.8 percent in 2013. In contrast, tea exports coltan exports contracted 22.1 percent, driven continued to contract, falling by 6.7 percent, to by the 16.6 percent fall in its average price. The US$51.8 million. The share of coffee exports in share of coltan exports to total exports (17.5 total exports fell from 22.0 percent in 2010 to percent) and mineral exports (51.4 percent) also 10.0 percent in 2014, and the share of tea exports declined, from 23.5 percent for coltan and 59.6 fell from 21.9 percent in 2010 to 8.6 percent. percent for all minerals in 2013. Although the The decline in the share of coffee and tea was mining subsector registered very strong growth attributable to the very strong growth of mineral and exports in 2013, its performance is vulnerable exports. Coffee and tea retained their importance to fluctuations in international commodity prices, in the economy, however, as the value of coffee as evident in 2014 (see Box 1.2 for exports and and tea exports and the share of export crops in fluctuations of international commodity prices). GDP remained unchanged. Figure 1.11: The value of coltan and wolfram exports fell Import values expanded by 6.8 percent as 250 of November 2014, after rising 2.2 percent in 2013 (Figure 1.12). The expansion was 200 attributable largely to the acceleration in imports of capital, which grew 11.0 percent, and Million US$ 150 intermediate goods, which grew 14.0 percent. As a result, the formal trade deficit expanded by 100 7.7 percent, to US$1,320 million, in 2014, up 50 from US$1,225 in 2013. Figure 1.12: Import growth rebounded 0 2010 2011 2012 2013 2014 70 Cassiterite Coltan Wolfram 60 Sources: BNR and World Bank staff calculations. 50 Year-on-year growth, percent 40 30.4 Table 1.1: Mineral exports by Rwanda, 2011–14 30 (year-on-year percent change) 20 24.1 Item 2011 2012 2013 2014 10 6.8 2.2 0 Value (US$) -2.3 -10 Total 123.4 −10.1 65.9 −9.9 -20 Cassiterite 129.4 −45.4 15.5 17.8 -30 Coltan 108.8 47.5 136.5 −22.1 2010 2011 2012 2013 2014 Consumer goods Capital goods Intermediate goods Wolfram 125.7 63.9 14.4 −11.5 Energy & lubricants Total Price (US$/kg) Sources: BNR and World Bank staff calculations Cassiterite 27.8 −18.1 9.4 −3.1 Coltan 75.6 14.7 9.8 −16.6 Import volume increased 3.7 percent (year- Wolfram 89.2 −5.8 −9.7 −11.4 on-year) in 2014. The volume of cement imports Volume (tons) declined 3.5 percent, leading to deceleration in Cassiterite 79.4 −33.3 5.6 21.6 the growth of intermediate goods imports (from Coltan 18.9 28.6 115.4 −6.6 8.5 percent in 2013 to 2.9 percent in 2014). In Wolfram 19.3 74 26.7 −0.2 contrast, the volume of imports of consumer Source: BNR and World Bank staff calculations. goods (4.9 percent), capital goods (3.0 percent), Rwanda Economic Update | Edition No. 7 9 I. Recent Economic Developments and Prospects Box 1.2 Diversifying the export base would reduce the impact of volatility of export prices The growth of goods export slowed to just 4.9 percent in the first 11 months of 2014, down from 18.7 percent in 2013. Export values declined in tea, coltan, and wolfram. The declines in tea and wolfram exports were led by price drops; for coltan, both price and volume fell. Coffee, tea, and minerals accounted for 53 percent of goods exports (73 percent excluding reexports). Performance of goods exports thus depends on the export prices of traditional commodities. Box table 1.2.1: Prices of Rwanda’s commodity Have Commodity Prices Become More Volatile? exports, 2004–06 through 2010–14 (standard deviation of monthly unit export prices) Prices of traditional commodities were more volatile 2004-06 2007-09 2010-14 in 2010–14 than in 2004–06 (Box table 1.2.1). Prices Coffee 0.50 0.47 0.92 of coffee, coltan, and wolfram were more volatile even than in 2007–09, when global commodity prices Tea 0.20 0.42 0.29 plummeted as a result of the global financial crisis. Cassiterite 0.76 2.22 1.80 Coltan 2.96 6.94 8.78 Does Volatility Differ across Commodities? Wolfram 1.73 1.67 2.57 Mineral prices, especially for coltan, were much Other exports 0.83 0.18 0.12 more volatile than coffee and tea prices throughout Sources: BNR and World Bank staff calculations. the period. The share of minerals in total traditional commodities skyrocketed in 2013 and 2014 (Box Box figure 1.2.1: The share of mineral exports in Figure 1.2.1). Changes in mineral prices therefore had Rwanda’s total traditional commodity exports has a greater impact on traditional commodity exports. increased since 2010 Prices of other exports have been mostly stable since 75 2007. Are the Prices of Rwanda’s Main Commodity 65 Exports Correlated? Export prices of traditional commodities are highly and 55 Percent positively correlated—that is, prices of all traditional commodities move in the same direction (Box table 45 1.2.2). In contrast, prices of traditional commodities are negatively correlated with other exports. 35 The increase in price volatility and the high correlations across traditional commodities mean that Rwanda’s 25 export composition exposes it to high risk to price 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 changes. Diversification of exports has become more important than the past. Sources: BNR and World Bank staff calculations. Box table 1.2.2: Correlations of prices of Rwanda’s export commodities Coffee Tea Cassiterite Coltan Wolfram Other exports Coffee 1.00 Tea 0.58 1.00 Cassiterite 0.72 0.73 1.00 Coltan 0.68 0.64 0.77 1.00 Wolfram 0.77 0.66 0.77 0.82 1.00 Other exports −0.30 −0.35 −0.30 −0.28 −0.28 1.00 Sources: BNR and World Bank staff calculations. and energy-related products (3.4 percent) rose. volume of energy product imports rose, although The decline in cement imports was attributable to the value fell 1.4 percent, as a result of the sharp continued delays in new construction activities, fall in oil prices (Section 1.5 discusses the impact including the Kigali Convention Center. The of the recent fall in oil prices on the economy). 10 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Tourism continues to be the leading source 2014. In the first half of 2014, tourist arrivals of foreign exchange, but the sector lost for business from the DRC declined 24 percent, momentum in the first half of 2014. Tourism to 72,749. The restrictions also affected transit receipts increased 2.7 percent, to US$146 million, arrivals from other African countries to the down from a 13.0 percent increase in the first eastern DRC. The number of African arrivals for half of 2013. This weak growth was attributable transit purpose declined 11 percent, to 8,492. mainly to the smaller increase in tourist arrivals. During the first half of 2014, tourist arrivals Gross international reserves continued to increased just 6.1 percent, to 588,610, down decrease from their peak in December 2013, from a 13.8 percent increase in the same period falling by US$123 million to US$946 million in of 2013. Arrivals for leisure declined 5.3 percent, June 2014. They still cover about four months and arrivals for business purposes declined 9.5 of imports, however, a level consistent with the percent. The drop in tourist arrivals for business optimal level of reserves in low-income countries reflects movement restrictions between the DRC and the target set by the East African Community and Rwanda that were in effect through August convergence criterion (IMF 2014). 1.3 Inflation, the Monetary Sector, Exchange Rate Policy, and Financial Sector Development: Growing Credit after a Prolonged Deceleration Inflation remained low in 2014, as a result of lower import prices, especially for energy and food products. Although the Rwandan franc continued to depreciate moderately throughout 2014, Rwanda’s import prices remained low, thanks to lower global commodity prices. Economic recovery in the first three quarters of 2014 and subsequent improvement in financial sector soundness resulted in the slow but steady recovery of credit growth to the private sector since the first quarter of 2014. R wanda’s monetary and exchange rate policy framework is consistent with macroeconomic stability and growth targets. a. Inflation Inflation rates continued to fall in 2014, thanks to falling food and fuel prices (panel a of Figure The National Bank of Rwanda (BNR) has 1.13). Annual average headline inflation—the strengthened its liquidity management framework overall change in the price of the consumption to enhance the effectiveness of monetary policy basket—was 1.8 percent in 2014, down from 4.2 and improve the monetary policy transmission percent in 2013 (see Box 1.3 for detailed analysis mechanism. Its prudent monetary policy, together of inflation). Annual average food inflation with low international food and energy prices, declined to 1.3 percent, from 5.1 percent in 2013. helped limit inflationary pressure. Exchange Declining food prices throughout 2014 reflected rate policies have been geared toward greater a good food crop harvest in season A. Deflation exchange rate flexibility since the introduction of of 3.3 percent in October was attributable an exchange rate corridor framework in March to increased cropped area for marshlands in 2010. The exchange rate regime is classified season C.5 As a result, producer prices fell 1.1 as de facto crawl-like and de jure floating. The percent in the first nine months of the year. financial sector remained stable until the first half Energy prices remained low and stable thanks of 2013. It appears resilient to shocks, although it to lower international fuel prices and declines in was affected by the aid decline in the second half administrative gasoline prices (see section 1.5 of 2013, as reflected in the slight increase in the on the impact of changes in oil prices). Energy ratio of nonperforming loans and the deceleration prices increased only 0.6 percent, down from of credit growth to the private sector. 2.7 percent in 2013 (panel b in Figure 1.13). 5 In its monetary policy statement of August 2014, the BNR explained that the government’s effort to expand the crop area in low land (swamps and valleys) contributed to the expanded harvest in season C. Rwanda Economic Update | Edition No. 7 11 I. Recent Economic Developments and Prospects Figure 1.13: Inflation continued to fall, as food prices declined and energy prices remained low a. Headline and core inflation b. Energy and food price inflation 9 20 8 15 7 6 10 5 Percent Percent 5 4 3 0 2 -5 1 0 -10 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 Headline Inflation Core Inflation Energy prices Food and non-alcoholic beverages Sources: BNR and World Bank staff calculations. Core inflation (inflation excluding food and in Rwanda’s main trading partners; the second- fuel) declined to 2.7 percent, down from 4.0 in round impact of low energy prices; and effective 2013. Low core inflation reflects low inflation monetary and exchange rate policies by the BNR. in imported goods, the result of low inflation Box 1.3 What is driving low inflation in Rwanda? Inflation measures changes in the prices of the consumer basket in an economy over time. The consumer basket represents consumption by an average household in a country. Goods and services included in the basket and their weights are determined from the Household Expenditure Survey (commonly known as the EICV). Goods and services in the consumer basket and their weights are revised based on information from the latest EICV. Revisions help avoid potential biases that might otherwise develop over time as a result of new goods and services in the basket or shifts in consumption. The latest revision of the consumer basket of goods and services was made in June 2014. The content and weights were revised based on the EICV-3 and prices rebased at February 2014 prices. These procedures help ensure that the index reflects long-term trends in consumer spending patterns. For instance, the latest revision saw a shift in weights from food and nonalcoholic beverages to imported products (Box table 1.3.1). Box table 1.3.1: Weights in Rwanda’s consumer price index (percent) Headline inflation Local index Imported index EICV EICV EICV EICV EICV EICV Division 2005/06 2011/12 2005/06 2011/12 2005/06 2011/12 01. Food & non-alcoholic beverages 35.4 28.2 29.8 22.8 5.6 5.4 02. Alcoholic beverages & tobacco 2.4 2.8 2.0 2.5 0.4 0.3 03. Clothing and footwear 3.8 4.2 0.6 0.7 3.1 3.5 04. Housing, water, electricity, gas & other fuels 22.0 23.0 21.3 22.8 0.7 0.2 05. Furnishing, household equipment & routine 4.6 4.1 2.6 1.9 2.0 2.2 household maintenance 06. Health 1.6 0.9 1.0 0.6 0.6 0.3 07. Transport 11.9 17.7 7.6 6.7 4.3 11.1 08. Communication 2.9 2.8 2.6 2.6 0.3 0.2 09. Recreation & culture 2.6 2.1 0.9 0.4 0.0 0.0 10. Education 3.3 5.9 3.3 5.9 0.0 0.0 11. Restaurants & hotels 5.6 4.3 5.6 4.3 1.6 1.7 12. Miscellaneous goods & services 4.0 4.1 2.1 3.1 1.9 1.0 Total 100.0 100.0 79.5 74.3 20.5 25.7 Sources: NISR and World Bank staff calculations. 12 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Box 1.3 What is driving low inflation in Rwanda? (continued) Rwanda’s consumer price index (CPI) contains 1,022 items, grouped into 12 main divisions and classified by origin (local or imported). Price information is collected from a variety of places, including shops, markets, hospitals, and schools. More than 25,392 prices in urban areas and 8,329 in rural areas are collected every month. In line with international practices, the CPI is calculated using modified Laspeyres methods, which allow direct comparison of indexes in subsequent years to the base year. The pace of inflation in Rwanda has been slowing. Box Figure 1.3.1: Movement in Consumer Price Index, Headline inflation fell sharply, from more than 2008–14 22 percent in December 2008 to 0.2 percent in 25 November 2010, before rebounding to nearly 8.5 percent by end-2011. It has been on a downward path 20 since mid-2012. It fell to 1 percent between August Average rate of the latest 12 months and November 2014, hitting a low of 0.2 percent in September (Box Figure 1.3.1). Percent 15 The 2014 deflationary spiral is not unique to Rwanda: 10 most of its major trading partners are experiencing a slowdown in inflation (Box Figure 1.3.2). Rwanda’s Year-on-year headline inflation began to decline after most of its 5 monthly rate major trading partners, but its inflation rate has fallen substantially since mid-2014, becoming the second 0 lowest after the Euro area. Rwanda seems to have 2008 2009 2010 2011 2012 2013 2014 imported low inflation, even though the Rwandan franc was depreciating. Sources: NISR and World Bank staff calculations. Although most price indexes fell in 2014, the Box Figure 1.3.2: Inflation in Rwanda and main driver of drop in inflation was food products, select trade partners particularly vegetables (Box Figure 1.3.3). In October 2013 food inflation was 8.2 percent and accounted Rwanda for 45.2 percent of headline inflation. A year later, in UAE (6.7) October 2014, food inflation stood at −3.3 percent Kenya (7.0) and constituted the main driver of the reduction in headline inflation. This downward trend of food prices India (7.4) was led by vegetables, whose average price declined Japan (10.5) 13.8 percent between October 2013 and October 2014. Vegetables account for 10.1 percent of household Uganda (11.7) expenditure in Rwanda. The substantial contribution of Euro Area (15.9) food to overall inflation suggests that inflation is largely China (15.7) supply driven, as shown by inflation peaks in October 2013 caused by poor harvests. With a good harvest of -5 0 5 10 15 20 fresh crops, mainly vegetables, in 2014, food prices Percent declined, pushing down overall inflation. 2014 2013 2012 Sources: NISR, OECD, COMTRADE, United Arab Emirates National The price of energy, which accounts for almost 8 percent Bureau of Statistics, and World Bank staff calculations. of the CPI basket, also contributed to lower inflation. Note: Trade partners were selected using imports as of 2013. Numbers in parentheses indicate percentage share in Rwanda’s Energy inflation has declined steadily since mid-2013. imports in 2013. It has been less than 2.0 percent since December 2013, contributing less than 0.02 percentage points on average to annual headline inflation. The decline in energy prices is a result of low global demand because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels, together with the fact that the main producers, especially in the Persian Gulf, have sustained production. Lower energy prices are reflected in the revision of domestic fuel prices at the pump. These prices were reduced three times in 2014, from Rwf 1,030 (US$1.54) per liter in December 2013 to Rwf 895 (US$1.29) in December 2014. Domestic fuel prices are administered by a committee, consisting of public and private sector representatives, that meets monthly to discuss and determine prices, taking into account trends in worldwide oil prices. Rwanda Economic Update | Edition No. 7 13 I. Recent Economic Developments and Prospects Box 1.3 What is driving low inflation in Rwanda? (continued) Box Figure 1.3.3: Headline inflation in Rwanda and its major components, 2011–14 12 12 9 9 6 6 Percent Percent 3 3 0 0 -3 -3 2011 2012 2013 2014 2011 2012 2013 2014 Food: Vegetables Food: All others NonFood: Utilities Domestic Food Imported Food Domestic NonFood NonFood: All others WCE Inflation Imported NonFood WCE Inflation Sources: BNR and World Bank staff calculations. Note: Utilities includes housing, water, electricity, gas, and other fuels. WCE stands for “Weight Change Effect”. In addition to its direct effects on the CPI, falling energy prices have indirect effects on inflation. Lower energy prices contributed indirectly to slowing inflation in the services sector, especially in the transportation sector. In November 2014, transportation inflation stood at –1.8 percent. Given that transportation services are important inputs into many other sectors, the second-round effect of the decline in energy prices seem to be relevant for overall developments in headline inflation in Rwanda. Another important measure of inflation is “core” inflation, which ignores fresh products and energy in Rwanda. This measure is motivated by the fact that food and energy are subject to large fluctuations that inject shocks into CPI inflation signals. Cutting these components eliminates transitory shocks and gives a better indicator of underlying inflation. In most countries, core inflation is used to help guide monetary policy, although inflation objectives are set in terms of the headline CPI. Core inflation in Rwanda oscillated below 3.5 percent in 2014. b. Exchange Rate The Rwandan franc appreciated against the Depreciation of the Rwandan franc against euro and most regional currencies. Rwanda’s the U.S. dollar decelerated in 2014 (panel a of nominal and real effective exchange rates (see Box Figure 1.14). After falling 4.3 percent against the 1.4 for detailed analysis), calculated as a trade- dollar in the second half of 2013, the Rwandan weighted average of bilateral exchange rates, franc lost just 1.9 percent of its value in the first appreciated in the second half of 2014, thanks half of 2014. The depreciation eased further in to the nominal appreciation against regional the second half of 2014, when the value of the currencies, the moderate depreciation against the Rwandan franc fell 1.7 percent. Overall, the U.S. dollar, and Rwanda’s low inflation (panel b Rwandan franc depreciated by 3.6 percent in of Figure 1.14). 2014, 2.5 percentage points less than in 2013, despite the decrease in the BNR’s intervention in foreign exchange markets.6 6 The BNR intervenes in foreign exchange markets primarily to limit volatility and provide foreign exchange to support imports when foreign exchange flows remain tight. In 2014 its interventions amounted to US$264 million, down from US$322 million in 2013. 14 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Box 1.4 What are nominal and real effective exchange rates? Most people are familiar with the nominal exchange rate—the number of units of domestic currency that can purchase a unit of foreign currency. On January 30, 2015, the price of US$1 was Rwf 707.23. A decrease in this number is termed nominal appreciation of the domestic currency; an increase is termed nominal depreciation. The bilateral exchange rate provides information on the relative value of the domestic currency with respect to the currency of a single trading partner. Much research seeks to compare the general trading situations of a number of countries. Indeed, a country may be more interested in how the exchange rate is behaving in relation to all its trading partners than in relation to any single partner. A country’s trade-weighted exchange rate, also known as the effective exchange rate, provides this information. The nominal effective exchange rate (NEER) measures the average change in a country’s nominal exchange rate against a number of other currencies during a given period compared with a base year. Unlike the bilateral exchange rate, the NEER is an index, not the relative price of one currency with respect to another. It is a weighted average of the exchange rates of a country with respect to its major trading partners’ currencies, with the weights based on the level of trade with each partner. Series for NEER can be used to compare changes in the terms of trade of a number of countries. A country whose NEER is depreciating is trading on worsening terms, as it costs that country more to buy goods and services from abroad. The real exchange rate (REER) is an important refinement of the NEER. A country’s REER is calculated by adjusting its NEER for differences in inflation at home and abroad. It provides a measure of a country’s export competitiveness: a rise in the index implies a fall in competitiveness. Changes in the NEER and REER depend on three factors. The first factor is the nominal exchange rate. Depreciation (appreciation) of the domestic currency relative to trading partners’ currencies entails an increase (decrease) in both the NEER and the REER. The second factor is the price level in the country under consideration (the domestic price level) and its trade partners. A higher (lower) inflation rate than in a country’s trade partners leads to depreciation (appreciation) of the REER. The third factor is the weights of the major trading partners in the total external trade turnover of the country under consideration. The heavier the weight, the greater the impact of the exchange rate of that country, as well as the impact of price development on indexes of effective exchange rates. The choice of countries and relative weights is critical to Box table 1.4.1: Composition of the currency the REER. In principle, all countries that trade with the basket in Rwanda’s external trade country whose competitiveness is being determined should Weight in Rwanda's be included, whether this relationship is direct or indirect Trading partner external trade (percent) through a third market. In practice, the availability of United States 34.5 time series and the time at which the series are published Euro area 20.4 usually means that the number of countries taken into account is smaller. Uganda 13.7 Kenya 11.7 Rwanda’s official exchange rate indexes include a basket of 10 South Africa 5.0 currencies of major trading partners (Box table 1.4.1). These Tanzania 4.3 indexes are constructed as a weighted average of exchange rates of the Rwandan franc versus the currencies of trading United Kingdom 4.2 partners, with the weight for each partner equal to its share in Sweden 2.9 total external trade. The current basket composition is based Switzerland 2.2 on external trade of 2008. CPIs are used, because they have Burundi 1.1 the advantage of being timely, similarly constructed across countries, and available for a wide range of countries over a Total 100.0 long time. Source: BNR. Rwanda Economic Update | Edition No. 7 15 I. Recent Economic Developments and Prospects Figure 1.14: The depreciation of the Rwandan franc against the U.S. dollar slowed a. Rwandan franc against U.S. dollar b. Real and nominal effective exchange rates, January 2012–December 2014 720 Depreciation Depreciation Depreciation 115 of 4.5% of 6.1% of 3.6% in 2012 in 2013 in 2014 113 700 111 Rwanda franc to U.S. dollar 680 Appreciation ↔ Depreciation 109 660 107 640 105 Period average 103 620 101 600 Daily rate 99 580 97 560 95 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 Real effective exchange rate Nominal effective exchange rate Sources: BNR and World Bank staff calculations. Note: Jan 2012 = 100. c. Monetary Policy and Interest Rates The government, in collaboration with the BNR, initiated a quarterly bond issuance Lending rates remained unresponsive to program to improve the effectiveness of changes in the BNR policy rate, revealing Rwanda’s monetary policy, facilitate capital ineffective transmission to the financial market development, and finance investment market (Figure 1.15). Low demand for Treasury projects. It started the bond issuance program bills by commercial banks, reflecting their in 2008 but suspended it in 2009 (because of improved lending to the private sector, led to the global financial crisis) and in 2012 (because a decrease in the Treasury-bill rate, from 5.6 of the aid shortfall). It therefore had to rely on percent in June 2014 to 4.9 percent in December short-maturity Treasury bills. The government 2014. The lending rate did not decline, however, issued bonds three times in 2014: Rwf 12.5 fluctuating around 17.5 percent over this period, billion in February (three-year maturity), Rwf 15 and deposit rates fell just 0.8 percentage points. billion in August (five-year maturity), and Rwf The lack of responsiveness of the lending rate 15 billion in November (seven-year maturity).7 reflects the heavy reliance on cash in Rwanda, Additional issuances are scheduled for February limited competition in the banking sector, and an and May 2015. underdeveloped financial market. Figure 1.15: Lending rates did not respond to the policy rate cut d. Banking Sector 19 Credit to the private sector started to grow in 17 2014, after a prolonged deceleration caused by the 2012 aid shortfall (Figure 1.16). It increased 15 from 11.5 percent in the fourth quarter of 2013 13 to 15.4 percent in the third quarter of 2014. Percent 11 Economic recovery in the first three quarters of 9 2014 and subsequent improvement in financial 7 sector soundness resulted in the slow but steady 5 recovery of credit growth to the private sector. 3 The capital adequacy ratio, measured as bank’s Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 capital to risk-weighted assets, increased from Policy Rate Bank Deposit rate Lending rate T-bill rate 23.1 percent in December 2013 to 23.6 percent Sources: BNR and World Bank staff calculations. 7 The third issuance, in November 2014, attracted 59 bids, with a subscription level of 187 percent. The annual coupon rate is 12.475 percent. 16 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects in June 2014, significantly higher than the 15 second half of 2013 to 22.9 percent in the first percent minimum requirement. The quality of half of 2014. The increase underpinned the bank assets improved after slightly deteriorating acceleration in growth in services in the first three in 2013 as a result of the economic slowdown. quarters of 2014. Credit growth to subsectors in The ratio of nonperforming loans to gross loans industry increased in the first half of 2014, with declined from 7.0 percent in December 2013 credit to the construction subsector growing to 6.6 percent in June 2014. Improved lending 57.8 percent, up from –3.6 percent in the second behavior by commercial banks is reflected in half of 2013. Credit growth to the construction the smaller decline in the Treasury-bill rate in subsector did not result in high sectoral growth, response to the policy rate cut in July 2014 and however, because of continued delays in the the volume of new loans, which increased 48 government’s construction activities. Credit to percent in the first three quarters of 2014, from the manufacturing subsector increased 198.7 Rwf 324.8 billion to Rwf 482.2 billion. percent, up from 15.8 percent in the second half of 2013. The increase is attributable to a single Credit growth recovered across key sectors Rwf 30 billion loan to the Rwanda Cement (Figure 1.17). In the services sector, credit Factory, however. Excluding this loan, credit growth to the commerce, business, and hotels to the subsector fell 2.4 percent, reflecting subsectors—the main drivers of growth in slower growth. services—increased from 14.6 percent in the Figure 1.16: Credit to the private sector started to grow Figure 1.17: Credit to the private sector recovered across in 2014 key sectors 40 14 Financial services 35 12 Agriculture 30 10 25 Transport & warehousing Growth, percent Growth, percent 8 20 Commerce, business & hotels 6 15 4 Construction 10 5 2 Community services 0 0 Manufacturing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 2014 -100 -50 0 50 100 150 200 250 Year-on-year change Real GDP (right) Credit to private sector (left) Deposit (left) Jun-2013 Dec-2013 Jun-2014 Sources: BNR and World Bank staff calculations. Sources: BNR and World Bank staff calculations. Rwanda Economic Update | Edition No. 7 17 I. Recent Economic Developments and Prospects 1.4 Fiscal Developments: Remaining Concerns about Capital Expenditure Total revenue and grants for the 2013/14 fiscal year were almost as projected, but total expenditure fell short of projections by 3.7 percent (1.2 percentage points of GDP). Tax revenues were 1.3 percent lower than projected, offset by higher than projected grants, despite the government’s efforts to reduce reliance on donor funding under the Medium-Term Expenditure Framework (MTEF). Although structural changes in budget support from budgetary grants to budgetary loans affected the composition of grants and financing, the 2014/15 fiscal year budget remains consistent with the MTEF, reducing the overall deficit excluding grants. The provisional outturn in the first quarter of 2014/15 fiscal year, however, reveals that Rwanda continues to suffer from delayed implementation of government investment projects. R wanda’s fiscal policy has been consistent with a macroeconomic framework focused on maintaining stability while promoting lower than projected because of disbursement delays by the European Union and Germany. The composition of grants shows different patterns economic growth.8 The composition of public before and after the aid shortfall. In the 2010/11 expenditure lays the foundations for achieving the fiscal year, 60 percent of grants were budgetary national goals of accelerating growth and reducing grants. In contrast, 60 percent of total grants were poverty identified in the Second Economic capital grants in the 2013/14 fiscal year. Development and Poverty Reduction Strategy Figure 1.18: Total grants recovered in 2013/14 fiscal year, (EDPRS 2). The 2012 aid shortfall put Rwanda’s but budgetary grants declined for the second year in a row fiscal policy under pressure in the 2012/13 fiscal 12 year, leading to spending adjustments. Less than 40 percent of budgetary grants (2 percent of GDP) 10 were realized, pushing the government to resort 8 to increased domestic borrowing, a build-up in 3.3 4.4 Percent of GDP arrears, and the postponement of some capital 6 6.4 6.1 spending in order to sustain priority spending to 3.7 5.9 alleviate the negative impact of the aid shortfall. 4 4.1 3.3 2 a. Budget Outturn for 2013/14 Fiscal Year 0 Pressure on fiscal policy declined in the FY2010/11 FY2011/12 FY2012/13 FY2013/14 2013/14 fiscal year (Figure 1.18). Total grants Budgetary grants Capital grants increased by 30 percent to reach 9.2 percent Sources: MINECOFIN and World Bank staff calculations. of GDP in the 2013/14 fiscal year). The actual figure slightly exceeded the projection (9.1 Domestic revenue collection fell short of the percent of GDP) (9.2 percent of GDP) (Table budget by 1.3 percent, as tax revenue fell 1.2).The higher than projected grants resulted short of projects by 2.7 percent. Actual tax from high capital grants, which were projected at revenue for the 2013/14 fiscal year was Rwf Rwf 262 billion (19.6 percent of the budget) but 761 billion, lower than the target of Rwf 783 reached Rwf 303 billion, more than 40 percent billion in the revised budget. Despite a series of more than projected, thanks to the front loading tax administration measures that increased tax of grants from the Global Fund to Fight AIDS, revenue in the past few years, tax revenue in the Tuberculosis and Malaria. In contrast, actual 2013/14 fiscal year remained unchanged from the disbursement of budgetary grants was 15 percent previous fiscal year, as a result of the economic 8 MINECOFIN publishes budget execution reports on its website (http://www.minecofin.gov.rw/index.php?id=2). 18 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects Table 1.2:Fiscal outturn in Rwanda, 2013/14 fiscal year (percent of GDP) Original Revised Actual Item Percent of Percent of Percent of Billion Rwf Billion Rwf Billion Rwf GDP GDP GDP Revenue and grants 1,314.1 25.7 1,336.8 26.2 1,336.4 26.0 Total revenue 843.5 16.5 873.8 17.1 862.1 16.8 Tax revenue 775.4 15.2 782.5 15.3 761 14.8 Nontax revenue 68.0 1.3 91.3 1.8 101 2.0 Total grants 470.6 9.2 463.0 9.1 474.3 9.2 Budgetary grants 170.6 3.3 201.2 3.9 171 3.3 Capital grants 300.0 5.9 261.8 5.1 303.3 5.9 Total expenditure and net lending 1,653.4 32.4 1,598.8 31.3 1,538.9 30.0 Current expenditure 850.7 16.7 760.9 14.9 776.7 15.1 Wages and salaries 181.7 3.6 195.2 3.8 187.9 3.7 Purchases of goods and services 319.2 6.3 130.1 2.5 142.5 2.8 Interest payments 40.4 0.8 37.5 0.7 40.4 0.8 Transfers 268.4 5.3 273.7 5.4 286.8 5.6 Exceptional social expenditure 72.4 1.4 124.4 2.4 119.1 2.3 Capital expenditure 802.7 15.7 750.1 14.7 712 13.9 Domestic 314.8 6.2 365.2 7.2 320.2 6.2 Foreign 487.9 9.6 384.9 7.5 391.9 7.6 Net lending 114.8 2.2 87.8 1.7 50.2 1.0 Change in arrears (– : net reduction) –9.2 –0.2 –9.2 −0.2 −16.1 −0.3 Overall deficit (cash basis) Including grants –348.5 -6.8 –271.2 −5.3 −218.7 −4.3 Excluding grants –819.1 –16.0 –734.2 −14.4 −693 −13.5 Financing 348.5 6.8 271.2 5.3 218.7 4.3 Foreign financing (net) 197.0 3.9 109.9 2.2 104.7 2.0 Domestic financing 151.5 3.0 161.3 3.2 114 2.2 Sources: MINECOFIN and World Bank staff calculations. slowdown and delays in implementing further Figure 1.19: Tax revenue remained unchanged, as a result of the economic slowdown tax administration measures (Figure 1.19).9 In contrast, actual nontax revenue exceeded the 20 projected amount by 10.6 percent because of higher receipts from peacekeeping operations. 16 1.8 2.0 0.6 0.8 Percent of GDP Execution of capital expenditure and 12 net lending remained low, although total 8 expenditure returned to pre–aid shortfall 13.2 13.5 14.8 14.8 levels (Figure 1.20). In the 2013/14 fiscal 4 year, 95 percent of capital expenditure and 57 percent of net lending were executed. The 0 budget execution report by MINECOFIN FY2010/11 FY2011/12 FY2012/13 FY2013/14 attributes the low execution rate to delayed Tax revenue Nontax revenue Sources: MINECOFIN and World Bank staff calculations. finalization of disbursement documents and 9 These reforms include the continued roll-out of electronic billing machines, taxpayer education, investment in information technology facili- ties to improve services to taxpayers, and collection of local government taxes by the Rwanda Revenue Authority. Rwanda Economic Update | Edition No. 7 19 I. Recent Economic Developments and Prospects Figure 1.20: Expenditure execution remained weak (see Annex Note 3 in REU-6). Although the (actual spending as a percent of projected spending) government ensured full execution of spending 180 for interest payments and purchases of goods and 160 services, neither spending for wages and salaries 140 nor social expenditure were fully executed, 120 mainly because of delays in recruitment by Percent 100 various ministries, agencies, and districts. Actual 80 total expenditure of Rwf 1,539 billion (30.0 60 percent of GDP) was 3.7 percent lower than the 40 Rwf 1,599 billion (31.3 percent of GDP) in the 20 revised budget. 0 Current expenditure Capital expenditure Net lending FY2010/11 FY2011/12 FY2012/13 FY2013/14 As a result of delayed implementation of Sources: MINECOFIN and World Bank staff calculations. government operations, total expenditure and Note: FY indicates fiscal year net lending were concentrated in the second delayed implementation of the Energy, Water half of the 2013/14 fiscal year, contributing and Sanitation Authority’s hydro project (the to higher government consumption and Nyabarongo power project). Net lending to the investment in the first half of 2014. Recurrent Kigali Convention Center, one of the largest expenditure increased 1.6 percentage points of government investment projects, was significantly GDP to 15.9 percent in the second half of the lower than initial projections because of delays 2013/14 fiscal year, up from 14.3 percent in in construction: the government was projected the first half. Capital expenditure increased 2.7 to spend Rwf 96 billion but actually spent only percentage points of GDP to 15.2 percent in the Rwf 50 billion (see Box 1.5 on public investment second half of the 2013/14 fiscal year, up from 12.5 management). These delays can be attributed percent in the first half. Net lending increased 1.5 to capacity constraints on executing capital percentage points of GDP to 1.7 percent, up from expenditure by ministries with large budgets 0.2 percent in the first half of the fiscal year. The Box 1.5 Enhancing public investment management is key for achieving national goals Public investment management is very important in Rwanda, because public investment (that is, the development budget) dominates total investment, accounting for two-thirds of total investment in 2013. Development expenditure accounts for about half of the total budget. Enhancing public investment management is expected to contribute to achieving national goals through better alignment with national objectives. As public investment has medium- and long-term fiscal implications through future operation and maintenance costs, public investment management is also essential for fiscal sustainability. The National Public Investment Policy of 2009 defined Rwanda’s policy on public investment management, but implementation and application of the policy was weak until recently. For example, the Public Investment Committee, which has decision-making authority over the program, was not operationalized until the formulation of the 2014/15 fiscal year budget. Public investment projects were discussed without feasibility studies. Future budget implications were not taken into consideration in formulating the MTEF. Although leveraging the private sector is a key principle of the Second Economic Development and Poverty Reduction Strategy, the National Public Investment Policy does not cover private-public partnerships. To address these issues, the government made some reforms in preparing the 2014/15 fiscal year budget— operationalizing the Public Investment Committee, for example (details are in the first and second planning budgeting call circulars for FY 2014/15 [October 2013 and February 2014]). New investment project proposals now need to be accompanied by project profile documents, three-year investment plans, and feasibility studies. The government also plans to revise the National Investment Policy to cover both public investment and private- public partnerships. 20 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects backloaded government spending in the second of GDP (Rwf 474 billion) in the 2013/14 fiscal half of the 2013/14 fiscal year was reflected in year (actual) to 7.1 percent (Rwf 397 billion) in increased domestic demand and higher economic the 2014/15 fiscal year. The structural changes growth in the first half of 2014. are reflected in an increase in the overall deficit including grants from 4.3 percent of GDP (Rwf The overall fiscal deficit in the 2013/14 fiscal 219 billion) to 5.2 percent (Rwf 296 billion). year was much lower than expected. Despite The increased deficit is financed by budgetary budgetary grants that were 15 percent lower than loans, which increased from 1.0 percent of GDP projected, the overall fiscal deficit was only Rwf (Rwf 50 billion) to 1.9 percent (Rwf 107 billion). 219 billion (−4.3 percent of GDP), much lower The overall deficit excluding grants falls by 1.3 than the projected Rwf 271 billion (−5.3 percent percentage points of GDP from the 2013/14 fiscal of GDP). The lower deficit was caused primarily year budget and 0.3 percentage points from the by delayed disbursement of capital expenditure 2014/15 fiscal year budget projected by the 2013 and low net lending to government investment MTEF, as a result of improved domestic resource projects. The deficit was financed equally by mobilization and expenditure prioritization. external and domestic borrowing. Figure 1.21: Support from development partners shifted from budgetary grants to budgetary loans b. Budget for 2014/15 Fiscal Year 7 In the 2014/15 fiscal year budget, the 6 0.0 government committed to increase tax revenues. Tax revenue is projected to increase 5 Percent of GDP by 1.1 percentage points of GDP, from 14.8 4 0.3 1.0 1.9 percent in the 2013/14 fiscal year outturn to 15.9 3 6.4 percent in the 2014/15 fiscal year budget (Table 4.1 2 3.3 1.3). In contrast, nontax revenue is expected 2.8 to decline, as a result of higher than projected 1 reimbursements from the United Nations 0 for peacekeeping operations in the 2013/14 FY2011/12 FY2012/13 FY2013/14 FY2014/15 Budgetary grants Budgetary loans fiscal year. Both tax and nontax revenue are Sources: MINECOFIN and World Bank staff calculations. consistent with the targets set by the MTEF for progressively increasing domestic revenue The provisional outturn for the first quarter collection and reducing aid dependency. Budget of the 2014/15 fiscal year reveals that revenues amounts for tax and nontax revenue are higher and grants registered a net shortfall. Tax than projected in 2013 for the MTEF. revenue registered a minor shortfall, nontax revenue fell short of the budgeted amount by As a result of structural changes in budget 1.0 percentage points of GDP, and budgetary support disbursement by development grants were 1.6 percentage points of GDP short partners from budgetary grants to budgetary of the budget. The shortfalls are attributable to loans, budgetary grants are expected to decline delayed reimbursement from UN peacekeeping 0.5 percentage points, from 3.3 percent of GDP operations, overestimation of commitments from (Rwf 171 billion) in the 2013/14 fiscal year the European Union and the U.K. Department (actual) to 2.8 percent of GDP (Rwf 159 billion) for International Development, and delays in in the 2014/15 fiscal year (Figure 1.21). Total disbursement by some bilateral donors.10 On grants are projected to decline from 9.2 percent the expenditure side, all current expenditure The government claims difficulties in obtaining accurate disbursement amounts of capital grants from donors, leaving disbursed capital 10 grants amount equal to the projected amount. Rwanda Economic Update | Edition No. 7 21 I. Recent Economic Developments and Prospects items exceeded budgeted amounts, capital deficit by 1.0 percentage point of GDP. Lower expenditure fell short of the budgeted amount by spending is attributable to continued delays in 1.7 percentage points of GDP, and net lending implementing government investment projects was 1.6 percentage points of GDP short of the (energy and roads projects and the Kigali budget. These shortfalls reduced the overall Convention Center project). Table 1.3: Rwanda’s budget, 2014/15 fiscal year (percent of GDP) FY2014/15 Jul−Sep 2014 Original Revised Projected Provisional Billion Percent Billion Percent Billion Percent Billion Percent Rwf of GDP Rwf of GDP Rwf of GDP Rwf of GDP Revenue and grants 1,530.4 26.6 1,394.7 24.8 338.1 24.3 299.7 21.5 Total revenue 985.5 17.2 997.4 17.7 230.2 16.5 213.4 15.3 Tax revenue 906.8 15.8 894.6 15.9 207.8 14.9 205.0 14.7 Direct taxes 379.2 6.6 364.0 6.5 79.9 5.7 81.9 5.9 Taxes on goods and services 461.5 8.0 461.5 8.2 113.0 8.1 108.8 7.8 Taxes on international trade 66.1 1.2 69.1 1.2 14.9 1.1 14.3 1.0 Nontax revenue 78.8 1.4 102.9 1.8 22.4 1.6 8.4 0.6 of which peacekeeping operations 53.4 0.9 62.3 1.1 15.9 1.1 0.6 0.0 Total grants 544.8 9.5 397.3 7.1 107.9 7.7 86.3 6.2 Budgetary grants 328.4 5.7 159.0 2.8 56.8 4.1 35.2 2.5 Capital grants 216.4 3.8 238.3 4.2 51.1 3.7 51.1 3.7 Total expenditure and net lending 1,698.2 29.5 1,680.4 29.9 396.4 28.5 387.4 27.8 Current expenditure 797.4 13.9 794.3 14.1 185.9 13.3 224.3 16.1 Wages and salaries 204.1 3.5 206.6 3.7 51.8 3.7 52.4 3.8 Purchases of goods and services 168.1 2.9 162.1 2.9 39.6 2.8 45.7 3.3 Interest payments 41.4 0.7 42.9 0.8 5.7 0.4 6.6 0.5 Transfers 300.4 5.2 290.4 5.2 65.4 4.7 77.4 5.6 Exceptional social expenditure 83.4 1.5 92.3 1.6 23.4 1.7 42.1 3.0 Capital expenditure 791.2 13.8 767.2 13.6 170.8 12.3 147.0 10.6 Domestic 452.0 7.9 423.3 7.5 97 7.0 73.2 5.3 Foreign 339.2 5.9 343.9 6.1 73.8 5.3 73.8 5.3 Net lending 109.7 1.9 118.9 2.1 39.7 2.8 16.2 1.2 Change in arrears (− : net reduction) −9.9 −0.2 −10 −0.2 −2.5 −0.2 40.0 2.9 Overall deficit (cash basis) Including grants −177.7 −3.1 −295.6 −5.2 −60.8 −4.4 −47.1 −3.4 Excluding grants −722.5 −12.6 −692.9 −12.3 −168.7 −12.1 133.4 9.6 Financing 177.7 3.1 295.6 5.3 60.8 4.4 47.1 3.4 Foreign financing (net) 107.6 1.9 197.5 3.5 20.6 1.5 20.6 1.5 Domestic financing 70.1 1.2 101.2 1.8 40.2 2.9 26.5 1.9 Sources: MINECOFIN and World Bank staff calculations. 22 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects 1.5 Impact of Recent Oil Price Decline on Growth and Poverty: Conflicting Impact on Growth and Poverty Crude oil prices measured by Brent declined 53 percent from the peak of US$108 per barrel in June 2014 to US$52 per barrel in early January 2015. Unlike after the global financial crisis of 2009, cheap oil is likely to have a net positive impact on the economy, by supporting macroeconomic stability and increased policy flexibility. Direct impacts on the poor will be limited, however, because their expenses on energy represent a small share of their consumption basket. I n the wake of the global financial crisis, oil prices declined 68 percent, from US$134 per barrel in July 2008 to US$42 per barrel unlikely to lead to a decline in economic activities of Rwanda’s trading partners. Because Rwanda is a net importer of oil, the decline in the cost of in December 2009. Rwanda was hurt by the oil imports will improve the balance of payments, slowdown in economic activities of its trading reduce inflation, and take pressure off the exchange partners in 2009: GDP growth decelerated from rate. The budget is likely to benefit from smaller electricity subsidies to the Rwanda Energy Group. 13.4 percent (year-on-year) in the second quarter These impacts should promote macroeconomic of 2008 to 3.5 percent in the third quarter of 2009 stability and increase fiscal and monetary policy (IMF 2009).11 Most components decelerated, flexibility. If, however, commodity prices of with the decline in exports contributing most to Rwanda’s main export items (coffee, tea, and the slowdown (Figure 1.22).12 minerals) also decline, the positive impacts will be offset by declines in exports. a. Macroeconomic Impact Rwanda imported US$385 million of energy The current decline in oil prices is expected products in 2013 (269,000 tons at a unit import to have a net positive impact on global growth price of US$1.40 per kilogram). Crude oil price and Rwanda’s economy. Unlike in 2009, the current decline in oil prices is caused mainly by and Rwanda’s energy product import prices are supply factors (for example, shift in OPEC policy highly correlated (Figure 1.23). Energy product and availability of technologies of extracting import prices are therefore assumed to decline oil from tight rock formations and tar sands with crude oil prices. profitable) rather than demand factors.13 It is Figure 1.22: GDP growth slowed in 2008–09, Figure 1.23: Crude oil prices and Rwanda’s energy import as exports fell prices are highly correlated 60 1.8 120 50 1.6 100 40 1.4 Crude oil price (right) U.S.$ per kilogram 30 1.2 80 U.S.$ per barrel 20 Percent 1.0 60 10 0.8 0 0.6 40 Energy product -10 import price (left) 0.4 -20 20 0.2 -30 2008Q1 Q2 Q3 Q4 2009Q1 Q2 Q3 Q4 0 0 11 02 03 04 05 06 07 08 09 10 12 13 14 Overall GDP Consumption Investment Exports Imports 20 20 20 20 20 20 20 20 20 20 20 20 20 Sources: NISR and World Bank staff calculations. Source: BNR and World Bank staff calculations. 11 http://www.imf.org/external/pubs/ft/scr/2009/cr09264.pdf. 12 Energy imports declined 30 percent in 2009, which had a positive impact on the national account. 13 According to Global Economic Perspectives (World Bank 2015, 157), “Although it is difficult to pin down the relative importance of these factors, supply-related factors appear to have played a dominant role.” Rwanda Economic Update | Edition No. 7 23 I. Recent Economic Developments and Prospects Table 1.4: Impact of oil price decline on Rwanda’s 2015 imports of energy Scenario 1:Oil costs Scenario 2:Oil costs US$62 per barrel US$52 per barrel 2013 (2015 GEP projection) (latest price) Item (actual) 2015 2015 Gap Gap estimate estimate Value (U.S. dollars) 385 278 –107 211 –173 Volume (thousand tons) 270 310 41 310 41 Unit price (U.S. dollars per kilogram) 1.4 0.9 –0.5 0.7 –0.7 Oil price (U.S. dollars per barrel) 109 62 –46 52 –57 Percent of GDP 5.1 3.3 –1.3 a 2.5 –2.0a Sources: BNR and World Bank staff calculations. a Calculated as a share of the gap in value to 2015 projected GDP. This subsection examines two price scenarios. In the first, oil prices decline 32 percent, Figure 1.24: Unlike the price of oil, the prices of Rwanda’s main export commodities remained stable as projected by the 2015 Global Economic Prospects (World Bank 2015).14 In the second, 120 oil prices remains at their current level of US$52 110 per barrel. In both scenarios, the import volume 100 of energy increases at the same rates of estimated June 2014=100 90 GDP in 2014 (7.0 percent) and 2015 (7.5 percent) and unit import price declines at the same rate 80 as crude oil price. With these price assumptions, 70 imports of energy products decline US$107 60 million (1.3 percent of GDP) in the first scenario and US$173 million (2.0 percent of GDP) in the 50 2014 2014 2014 2014 2014 2014 2014 M06 M07 M08 M09 M10 M11 M12 second scenario (Table 1.4). Given Rwanda’s Crude oil Coffee Tea Tin current account balance in 2013 (–7.1 percent Sources: World Bank (DEC) and World Bank staff calculations. of GDP), potential savings seem significant and should contribute to macroeconomic stability. Domestic energy prices would reduce the overall CPI by about 4 percent if domestic The potential negative impact on exports energy prices declined at the same rate as would be smaller than the positive impact of crude oil prices and crude oil price remained lower energy product imports. International the same throughout 2015. Energy accounts for coffee and tea prices have been relatively stable. 7.75 percent of Rwanda’s CPI basket. Domestic In contrast, tin prices fell more than 10 percent fuel prices are regulated and set on a monthly between June and December 2014 (Figure 1.24). basis by representatives from the government and A simple calculation based on 2013 balance of the private sector. The impact will thus depend on payments data shows that if the prices of coffee, regulated domestic prices. Crude and domestic tea, and minerals decline 10 percent, exports of oil prices are highly correlated, though domestic these items will decline by US$34 million (of fuel prices fell less than international prices which minerals are US$23 million). If prices of (Figure 1.25). If transportation costs (such as bus these commodities decline at the same rate as fare) decline, the impact would be larger. The oil (52 percent), the impacts on exports would decline in oil prices would relieve pressure on the be about US$170 million, almost the same as exchange rate by lowering demand for foreign savings from energy product imports. exchange. Reducing inflationary and exchange http://www.worldbank.org/content/dam/Worldbank/GEP/GEP2015a/pdfs/GEP15a_web_full.pdf 14 24 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects rate pressures and increasing macroeconomic The decline in oil prices should positively affect stability would enable the central bank to adopt industry, especially manufacturing, which monetary policy that stimulates growth. relies heavily on generators for production. Figure 1.25: Domestic fuel prices and crude oil prices The decline in fuel prices will reduce input costs. are correlated b. Impact of the Oil Price Decline on the Poor 1,100 160 According to the latest household survey 130 (2010/11), 62 percent of households in Rwanda U.S.$ per barrel 900 purchase oil products.17 Of these households, Rwt per liter 100 59 percent purchase kerosene; less than 2 percent 700 purchase diesel or gasoline. Spending on oil 70 products is low: households that use oil products spent an average of Rwf 1,757 a year on oil. For 500 40 the population as a whole (including households that do not use oil products), average annual 3 09 3 10 3 11 3 12 3 13 Q 3 14 3 08 Q Q Q Q Q Q Q 1- 1- 1- 1- 1- 1- 1- Q Q Q Q Q Q Domestic Fuel price Crude oil, Brent, $/bbl (Right axis) spending was Rwf 1,083. Sources: MINICOM and World Bank staff calculations. The purchase of oil products increases in each consumption decile up to the seventh decile, Electricity subsidies would likely decline, after which it decreases (Table 1.5). This decline leaving a net positive impact on the budget.15 can be explained by the lower use of kerosene by According to the Budget Framework Paper for wealthier households. The average amount spent the 2014/15 fiscal year, the government plans on oil products is low for all consumption deciles to allocate Rwf 16 billion (US$24 million) to except the top decile, which spends an average of electricity and water through the Ministry of Rwf 35,400 on oil products. Infrastructure. On the revenue side, the fuel tax rate depends on volume rather than value or price.16 There would thus be little impact on revenues. Table 1.5: Annual purchases of oil products and amounts spent in Rwanda, by consumption decile, 2011 (2010/11 Rwf) Consumption Percent of households that Amount spent decile purchases oil products (Rwf) 1 45.3 199 2 56.1 242 3 63.1 265 4 62.0 299 5 67.6 339 6 68.4 370 7 70.4 426 8 67.7 529 9 64.3 812 10 51.5 35,428 Sources: NISR and World Bank staff calculations. 15 Limited data make it difficult to estimate the impact of the decline in oil prices. The Budget Framework Paper for 2014/15 assumes that oil prices decline 6.1 percent in 2014 and 2.4 percent in 2015. 16 Fuel taxes are fixed. In the 2014/15 fiscal year, the tax was set at Rwf 183/liter of gasoline and Rwf 150/liter of diesel. 17 Data on households’ purchases of oil products from the EICV3 appear suspect. The team will discuss these data with NISR and update the results if necessary. Rwanda Economic Update | Edition No. 7 25 I. Recent Economic Developments and Prospects If households do not change oil consumption Table 1.6: Average annual savings per household behavior, a drop in oil prices can be considered in Rwanda associated with a 53 percent drop in oil prices, by consumption decile, 2011 an in-kind subsidy to oil purchasers.18 (2010/11 Rwf) Imputing this in-kind subsidy to oil users, a 52 Consumption decile Amount saved (Rwf) percent drop in oil prices would save the average 1 19 household in Rwanda Rwf 563 a year. Savings 2 38 would be negligible except for the top decile, 3 46 however (Table 1.6). 4 57 5 67 6 77 7 92 8 112 9 168 10 5,887 Sources:NISR and World Bank staff calculations. 1.6 Economic Outlook and Risks: Continuing Growth Momentum T he World Bank increases its growth rate projection for 2014 to 7.0 percent, up from 5.7 percent in the August 2013 edition ongoing implementation of priority policies.19 The BNR’s accommodative but vigilant monetary policy stance supports growth momentum and of the Rwanda Economic Update. The earlier maintains price and exchange rate stability. projections were based on the assumption that Ongoing implementation of priority policy agricultural harvests would be unfavorable, areas—agricultural productivity, export capacity, as a result of adverse weather condition in domestic resource mobilization, and expenditure season B; international commodity prices of prioritization—will also support growth. The minerals would be lower; and import volume current decline in oil prices is expected to have of intermediate materials would contract, as a a net positive impact on Rwanda’s economy result of delayed implementation of government through further macroeconomic stability and investment projects. In fact, the economy increased fiscal and monetary policy flexibility. recovered during the first three quarters of 2014, thanks to strong growth in the services sector Projected growth rates assume that the services supported by increased government spending sectors will continue to be the main driver of and high agriculture production in seasons A and growth, powered by strong consumption. The C. Coincident and leading indicators, such as sector is projected to contribute more than half of credit growth to the private sector and imports Rwanda’s growth, supported by strong domestic of capital goods, show that growth momentum demand, especially government consumption. remained robust in the fourth quarter of 2014 and Government expenditure is expected to stimulate will continue to be so in the future, leading to the private consumption. The industrial sector upward revision of the projected growth rate. is expected to pick up in 2015 and 2016, but tressed by acceleration of public infrastructure Economic growth is projected to reach 7.5 investments in construction. Implementation of percent in 2015 and 7.7 percent 2016—close to public infrastructure projects was delayed in the the country’s potential—thanks to a continued 2013/14 fiscal year. In the 2014/15 fiscal year stable macroeconomic framework and budget, the government reiterated its commitment The quantity of oil products purchased is assumed to remain the same, and households that do not purchase oil products are assumed to 18 remain nonpurchasers. REU-5 analyzes Rwanda’s potential growth. 19 26 Rwanda Economic Update | Edition No. 7 I. Recent Economic Developments and Prospects to infrastructure investments to sustain rapid Rwanda’s external account remains vulnerable growth and facilitate Rwanda’s economic to low international commodity prices and transformation.20 These projects are likely to high import demand. As reported by in Global boost not only the construction subsector but Economic Prospects in January 2015, commodity also the manufacture of construction materials prices are likely to remain low in 2015–17. (cement, furniture). Credit acceleration is Excess supply and concerns about global growth expected to support activities in the services andprospects have reduced commodity prices. Prices industrial sectors. of minerals, Rwanda’s main export, are likely to remain sluggish as growth in China, the world’s Conditional on favorable weather, the most important buyer of minerals, is expected to agriculture sector is likely to continue to slow in 2015. The expected slowdown is likely to grow at the rate of about 5 percent a year depress demand for minerals, especially copper, in the near term. Agricultural performance is iron ore (including coltan and wolfram), steel, expected to be supported by the ongoing PSTA and nickel. Prices of these metals were recently 3, which aims to intensify agriculture and animal 33 percent lower than their record highs of 2011. resource production through land consolidation, Further price declines would put pressure on mono-cropping, and a larger livestock subsector. Rwanda’s current account. On the positive side, The 2014/15 fiscal year budget allocates lower international commodity prices, especially sizable resources to projects and programs that oil prices, will continue to ease Rwanda’s import support implementation of PSTA 3. Despite low bill, yielding a smaller current account deficit in commodity prices, export crops are also expected 2015 and 2016 than in 2012. to rebound, as Rwanda continues to focus on increasing production capacity. Table 1.7: Actual growth in Rwanda in 2012–14 and projected growth in 2014–16 Actual growth Projected growth Item 2014 2014 2015 2016 2012 2013 Q1–Q3 REU-6 REU-7 REU-6 REU-7 REU-7 GDP 8.8 4.7 7.1 5.7 7.0 6.6 7.5 7.7 Agriculture 6.5 3.2 5.3 3.4 5.5 4.2 5.4 5.4 Food crops 7.3 3.5 6.0 3.5 6.2 3.5 5.4 5.6 Export crops 10.3 −5.8 0.0 0.1 3.3 12.0 9.8 7.1 Industry 8.5 9.2 6.0 7.5 6.3 9.0 10.3 10.5 Mining and quarrying –8.1 20.6 15.0 3.7 13.7 5.0 15.6 15.7 Manufacturing 5.4 4.6 2.4 6.3 2.7 6.0 7.7 8.6 Construction 13.9 11.5 6.4 8.6 6.8 11.3 10.1 9.9 Services 11.5 5.4 9.1 6.7 8.6 7.9 8.6 8.9 Public expenditure–led services 14.0 6.3 9.6 8.4 10.5 7.8 12.0 12.2 Other services 11.1 5.2 9.0 6.4 8.2 7.9 7.9 8.2 Sources: NISR (actual growth) and World Bank staff calculations (projected growth). Budgeted expenses on key projects in the 2014/15 fiscal year budget include construction of a national wide transmission line (Rwf 27 20 billion), the roll-out of electricity programs (Rwf 34.3 billion), the construction and rehabilitation of power plants and stations (Rwf 60.3 billion), and the construction and rehabilitation of roads (Rwf 46.9 billion). The budget speech for 2014/15 fiscal year was titled toward infrastructure development to accelerate export growth (Republic of Rwanda June 2014) Budget Speech Financial Year 2014/15) Rwanda Economic Update | Edition No. 7 27 I. Recent Economic Developments and Prospects Inflation is likely to remain moderate in the production. Delays in government investment near term, after edging up toward the end projects would hold back growth in 2015 and of 2014. Recent rises in inflation reflect a slight 2016. A second risk is regional instability. pick-up in food prices. Inflation pressures tend to Tourism receipts, which depend critically on build up toward the end of the year, as a result regional security, are Rwanda’s largest source of of increased spending during the holiday season. foreign exchange. A third risk is the continued Despite this slight rise, inflation is likely to remain decline in commodity prices of Rwanda’s main modest in the near term, as the food supply is export items (coffee, tea, and minerals), which expected to increase during season A of 2015 and could increase the current account deficit. A imported inflation is expected to remain subdued fourth risk is the rain-fed nature of Rwanda’s as international commodity prices, especially oil agriculture. Abnormal rain and floods severely prices, remain low. affect not only the agricultural sector but also the food manufacturing and trade sectors. Bad A number of factors could pose risks to weather and untimely rains constitute a major Rwanda’s outlook. Rwanda’s near-term outlook risk to growth in 2015 and 2016. The special depends on implementation of the government focus section of this report discusses market budget, as the public sector plays a key role in both and production risks in the agriculture sector in investment and consumption. Households and detail and provides measures to make Rwanda’s firms alike would benefit from increased public agriculture more resilient to them. activity, which is likely to stimulate domestic 28 Rwanda Economic Update | Edition No. 7 PART TWO Special Focus: Agricultural Sector Risk Assessment II. Special Focus: Agricultural Sector Risk Assessment 2.1 Performance of the Agricultural Sector T he previous section revealed that Growth projections depend heavily on the performance of the agriculture sector. As a Increasing agricultural productivity is key to raising income and reducing poverty in Rwanda, where about 80 percent of the result of sufficient rainfall, strong agricultural population lives in rural areas and, to some performance in 2014 contributed to national extent, works in agriculture.21 The government economic performance that surpassed growth has long recognized the importance of agriculture projections. The input-output table in Box 1.1 for development. In 2004 it formulated the confirms that, given the small share of inputs, National Agricultural Policy (NAP), which changes in agriculture outputs have more direct seeks to contribute to national economic growth, impacts on the national account. Thus, reducing improve food security and the nutritional status risks in the agriculture sector would directly of the population, and increase rural incomes.22 contribute to macroeconomic management. In contrast to neighboring countries, there are The Ministry of Agriculture and Animal few systemic risks to agricultural production in Resources (MINAGRI) developed the Rwanda. However, local and commodity specific Strategic Plan for the Transformation of risks remain, causing important losses to the Agriculture in Rwanda (PSTA) Phase 1 (2004– sector. As Rwanda pursues strategies to increase 07), Phase 2 (2008–12), and Phase 3 (2013–18) commercialization and private investment in to implement NAP. PSTA 1 was elaborated in agribusiness, stakeholders will need to manage 2004. Its main objective was to contribute to the risks to reach the full potential for growth and goals of NAP by transforming agriculture into development. This special focus section assesses a modern, professionally operated, and market- risks to the agricultural sector, prioritizes them oriented economic undertaking through the according to their frequency and impacts on the promotion of professionalism, specialization, sector, and identifies areas of risk management technological innovation, and public-private solutions that need deeper specialized attention. partnerships. PSTA 2 complemented and supported the Comprehensive Africa Agriculture Effective agricultural risk management is Development Program (CAADP) agenda.23 likely to have a similar impact as productivity- Rwanda was the first country to sign a CAADP improving policies to increase baseline yields on compact and prepare a sector investment strategy growth and poverty reduction. The prevalence that was fully aligned with CAADP goals. One of “shock-recovery-shock” cycles vastly limits the of the key objectives of the CAADP compact government’s ability to concentrate on long-term and the investment plan was to progressively development issues, threatening achievement reach the 10 percent commitment of national of the growth and poverty reduction targets set budget allocated to agriculture in order to raise under EDPRS 2. Stepping up measures to make annual growth in the sector to 6 percent by agriculture more climate resilient, for example, 2015. Four programs were developed to achieve will be critical to attaining the EDPRS 2 goals. the goals and objectives of PSTA 2/CAADP 1: 21 For detailed arguments on poverty and agriculture, see World Bank (2013). 22 NAP’s five areas of focus are (a) ensuring food and nutrition security through the creation of an environment favorable to income generation and the implementation of nutrition interventions; (b) creating a modern, professional, innovative, and specialized agriculture sector that becomes a profitable, all- year-round income-generating activity; (c) creating market-oriented and socially responsible agriculture, targeting domestic, subregional, regional, and international markets; (d) fairly distributing the benefits from all products resulting from different stages of production and processing; and (e) making agriculture integrated, diversified, and environment friendly. 23 CAADP aims to help African countries grow faster through agriculture-led development. Its vision is to address policy and capacity issues across agricultural sectors in Africa. CAADP is entirely African led and African owned and represents African leaders’ collective vision for agriculture. 30 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment (a) identification of a series of actions to intensify for cassava, 66 percent for potatoes, 62 percent and develop sustainable production systems in for bananas, and 34 percent for rice. Increased agriculture and animal husbandry, (b) building of agricultural production accounted for 35 percent technical and organizational capacity of farmers, of the reduction in poverty, and commercialization (c) promotion of commodity chains and support of agricultural production accounted for another for the development of agribusiness, and (d) 10 percent. strengthening of the institutional framework of Figure 2.1: Agricultural production almost doubled the sector at the central and district levels. between 2000 and 2012 250 Implementation of these policy initiatives generated tangible results (Tables 2.1–2.3). Agriculture production index, 2000=100 200 Agriculture production almost doubled between 2000 and 2012, with most of the increase 150 occurring after 2007 (Figure 2.1). Agricultural GDP grew 5.4 percent a year between 2008 and 100 2013. Performance of the food crop subsector was particularly impressive, with the value of food 50 crops rising 6.0 percent a year. The productivity of selected priority crops also increased: between 0 00 01 02 03 04 05 06 07 08 09 10 11 12 2008 and 2011, yields increased 225 percent 20 20 20 20 20 20 20 20 20 20 20 20 20 for maize, 129 percent for wheat, 90 percent Sources: FAOSTAT and World Bank staff calculations. Table 2.1:Agriculture sector macroeconomic performance indicators for PSTA 2/CAADP 1, 2012 (percent) Objective Target Actual Increase annual growth of real GDP for all crops and livestock products 6.5 5.6 Increase investment as percent of GDP 23 22.5 Increase off-farm employment as percent of total employment 30 26.6 Reduce percent of rural population living in poverty 52 49 Reduce percent of population falling below minimum food requirements 18 21 Reduce percent of members of female-headed household living in poverty 48 47 Increase annual rate of growth of agricultural exports 8 22 Source: MINAGRI 2012 Table 2.2: Land intensification, inputs, and irrigated land achievements under PSTA 2/CAADP 1, 2012 Objective Baseline Target (2012) Actual (2012) Increase agriculture area protected against soil erosion (percent) 40 100 73 Increase land protected by trenches and progressive terraces (hectares) 504,000 860,000 802,292 Construct new terraces (hectares) 0 32,000 46,246 Increase area of developed marshland (hectares) 0 20,000 23,000 Increase irrigated area on hillsides (hectares) 0 13,000 2,490 Increase land area under consolidated use (hectares) 28,788 (2007) — 502,916 Increase application of inorganic mineral fertilizer (percent) 12 25 30 Increase tonnage of fertilizer imported (metric tons) 22,900 56,000 44,000 Source: MINAGRI 2012. Rwanda Economic Update | Edition No. 7 31 II. Special Focus: Agricultural Sector Risk Assessment Table 2.3: Livestock, food, and export crop achievements under PSTA 2/CAADP 1, 2012 Baseline Target Actual Objective (2008) (2012) (2012) Increase basic food crop production over the EDPRS period (percent) 0 15 24 Increase proportion of rural households with livestock (percent) 71 (2005/06) 85 68 Increase number of households reached under the One-Cow Program a 0 270,000 174,900 Increase proportion of fully washed coffee production ( percent) 10 37 29 Increase coffee exports (MT) 18,200 40,000 19,907 Increase green leaf tea exports (MT) 19,000 123,000 23,011 Increase pyrethrum exports (MT) 2.2 20.8 28.1 Horticultural exports increased (MT) 13,700 25,600 27,822 Source: MINAGRI 2012. a Rwanda’s One-Cow Program (2006–15) provides poor households with a dairy cow, supplying a stable source of milk for children and a source of soil nutrients via manure for small-scale crop production. 2.2 Lessons Learned and Remaining Challenges T he government has begun implementing PSTA 3 for 2013–18 and is preparing a second CAADP Compact and Investment Plan • Increase external trade (exports plus imports) to 60 percent of GDP. • Reduce the proportion of the population in the based on PSTA 3. The objectives of PSTA 3 are to agricultural sector to 50 percent. transform Rwandan agriculture from a subsistence • Raise the share of agricultural operations sector to a knowledge-based sector and accelerate mechanized to 40 percent. agricultural growth to increase rural incomes and • Reduce the Gini coefficient (a measure of reduce poverty. The strategy encompasses four income inequality) from 0.454 to 0.350.24 broad program areas: (a) agriculture and animal • Increase the number of off-farm jobs from resource intensification; (b) research, technology 200,000 in 2000 to 3.2 million in 2020. transfer, and professionalization of farmers; • Provide 100 percent of the population with (c) value chain development and private sector access to clean water and sanitation. investment; and (d) institutional development • Increase the share of the population living in and agricultural cross-cutting issues. urban areas to 35 percent. • Reduce the infant mortality rate to 27 percent. Under PSTA 3, the target for annual • Achieve a literacy rate of 100 percent. agricultural growth over the next five years is 8.5 percent—a 60 percent increase over the To achieve the PSTA 3 targets, it is important past 10 years. The government’s underlying to identify lessons learned from PSTA 2/ assumption is that 8.5 percent agriculture growth CAADP 1 and remaining unresolved risks. is necessary to increase rural incomes, ensure Many factors were responsible for the rapid inclusive growth, and contribute to achieving agriculture sector growth in Rwanda, including the EDPRS 2 target of 11.5 percent annual GDP the establishment of a good business enabling growth. PSTA 3’s goal for poverty reduction is to environment for both farm and off-farm activities reduce the incidence of poverty from 45 percent and well-directed public investments under the in 2012 to 20 percent in 2020. Other targets for guidance of CAADP 1. It is vitally important that year 2020 include the following: public investment for the agriculture sector be The Gini coefficient measures the extent to which income distribution within an economy deviates from a perfectly equal distribution. A Gini 24 coefficient of 0 indicates perfect equality and a Gini coefficient of 1 indicates maximum inequality. 32 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment sustained under PSTA 3 and directed in ways that earnings. Reliance on rain-fed production are most cost-effective in achieving the goals of and undeveloped irrigation make production EDPRS 2 and Vision 2020. vulnerable to abnormal weather. In 2001 and 2004, for instance, 5 percent of agricultural Despite recent gains, Rwanda’s agriculture production is estimated to have been lost as a sector faces structural bottlenecks.25 result of excessive rainfall; in 2007 and 2008, 8 Agricultural land plots are very small (80 percent percent of agricultural production is estimated to of land holdings are less than 1 hectare, often have been lost to drought. Low use of fertilizer, divided into three or four plots), and more than limited disease control measures, and poor 70 percent of agricultural land is on hills or the postharvest management could make it difficult side of hills, making mainstream commercial to prevent pests and disease from spreading. In agriculture difficult. Agriculture is dominated addition, coffee and tea, which together account by small-scale, subsistence farming; traditional for 20 percent of Rwanda’s goods exports, agricultural practices (99.8 percent is farmed are sensitive to fluctuations in international manually, with traditional hand hoes); and rain- commodity prices. fed agriculture. Irrigation is underdeveloped and not yet widespread (only 0.6 percent of Some policies that helped Rwanda meet PSTA agricultural land is under irrigation), use of targets are also likely to increase exposure to improved seed is still constrained, and only one- agricultural risks. The PSTA 3 strategy aims third of farmers are using fertilizers (although to intensify agriculture and animal resource the number is rising). As a result, average crop production through land consolidation, mono- yields are well below potential. To tackle these cropping, and a larger livestock subsector. structural bottlenecks in order to ensure that Although these structural transformations would growth translates into further poverty reduction, increase productivity, they would also increase the EDPRS 2 envisages considerable investment in sector’s exposure to risks, such as the rapid spread agriculture, focusing on agricultural productivity of pests and disease and irregular weather events. and rural infrastructure. The PSTA 3 strategy to develop value chains will likely promote the production of a more limited If not addressed, these structural bottlenecks number of varieties for certain crops and increase will continue to expose the agriculture sector stored volumes from today’s relatively low to risks. Agricultural risk is defined as an levels. Unless these risks are properly managed, unpredictable event that causes loss or decline this policy is likely to increase vulnerability to agricultural production or income. Adverse to pests and disease in the field and in storage movements in agricultural commodity and input and exacerbate the negative impacts of existing prices, together with production-related shocks risks, resulting in a less conducive investment (from, for example, weather, pests, and diseases) climate and a slowdown in the development of not only affect farmers and firms, they also affect agricultural value added and processing. the economy through trade and foreign exchange The government’s target annual growth rate for the agriculture sector was 9 percent. The CAADP target was 6 percent. 25 Rwanda Economic Update | Edition No. 7 33 II. Special Focus: Agricultural Sector Risk Assessment 2.3 Risks in the Agriculture Sector a. Production Risks marshlands). However, national wide systemic losses have not been observed for most major Production risks are events that reduce crops in recent years. agricultural output at the farm level. They include abnormal weather, natural disasters, and Drought also affects the livestock subsector, pest and disease outbreaks. in a number of ways. First, it reduces the water intake of animals, which is critical for their well- Weather-Related Risks being. Second, it reduces the water available for Weather-related risk—including drought, production, which affects activities such as animal erratic temperatures, floods, hailstorms, and shed cleaning and milk hygiene and handling. As mudslides—pose major risks to producers. a result, the incidence of disease among cattle There are no clear patterns of systemic weather rises and the quality of cattle products falls. Third, risks on crop production at the national level, it reduces the availability of feed. This problem and the frequency of substantial rainfall is especially severe in Rwanda, where access to deficit in a given season is low. However, the commercial feeds is limited, forcing farmers to probability of erratic rainfall and short-term rely on rain-fed pastures and open water sources moisture stress is high. Although hailstorms and (Techno Serve Rwanda 2008). Milk production mudslides imply significant risk to individual has fallen by as much 60 percent during a drought farmers, they do not pose systemic risks to the (Olsson 2012). The 2002/03 and 2007/08 droughts sector at the aggregate level. had the greatest impact on milk production and milk yield over the past decade (Table 2.4). In Drought, unpredictable weather, and extreme both cases, despite an increase in the number of temperatures are major risks for both food milking animals, milk production fell as a result and export crops. Maize is especially vulnerable of lower water availability. In contrast, there was to drought, because it requires constant moisture a significant increase in national milk production for optimum growth; yields fall if maize is and milk yield in 2010, despite a drought in the allowed to wilt for more than 48 hours. While Eastern Province, arguably because good rains losses are not visible at the national level, and improved breeds increased production in impacts can be observed at the provincial level. other parts of the country. Fourth, drought often In 2008 erratic rainfall caused yield losses for 37 forces pastoralists to move their herds in search percent of smallholders in the Eastern Provinces of feed and water, sometimes to neighboring and 26 percent of smallholders in the Southern countries or national park areas. Cattle cope Provinces. Nineteen percent of smallholders in the poorly during these long moves, yielding less Northern Provinces and 14 percent in the Western milk and becoming more susceptible to disease. Provinces incurred losses (Comprehensive Food The moves also increase the risk of transboundary Security and Vulnerability Analysis data).There disease outbreaks. is a clear relationship between coffee yield and drought, although the impact is more visible at Table 2.4: Impact of drought and dry spells on milk production in Rwanda, 2002–10 the provincial than the national level. All tea (percent change) produced in Rwanda is rainfed and therefore Item 2002 2005 2007 2010 subject to drought risk. In 1999, 2002, 2004, /03 /08 Milk production −11.0 −1.2 −13.0 26.7 2008, 2011, and 2012, tea yields and production declined as a result of unpredictable weather Heads of milking animals 8.9 −0.4 9.9 0.9 Milk yield −18.3 −0.8 −20.8 25.5 events (erratic rains, drought, and floods in Sources: FAOSTAT and World Bank staff calculations. 34 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment Crop Pests and Diseases Livestock diseases can have a significant Unmanaged pests and diseases cause high impact. Among the most common outbreaks losses for producers in Rwanda, in both the field are foot and mouth disease, contagious bovine and storage. Although pests and diseases are of pleuropneumonia, anthrax, black quarter, and an endemic nature and outbreaks are not visible lumpy skin disease (Table 2.5). Incidents have in national yield data, impacts from individual been attributed to the movement of cattle pests and diseases are significant. Omnipresent across the borders with the DRC, Tanzania, and pests and diseases, including beanflies, the Uganda. In the event of an outbreak, the Rwanda antestia bug, cassava mosaic virus, coffee leaf Agricultural Board quarantines the affected rust, and banana bacterial wilt, cause widespread area; livestock and livestock products cannot losses. Losses vary depending on environmental be sold or transported out of the zone until the conditions, crop varieties, altitude, temperature, ban is lifted. The measure disrupts trade and and precipitation. In the future, pests such as maize may cause prices to fall. In addition, depending stalk borer may spread more rapidly and affect on the nature of the outbreak, the government larger areas, as the structure of the sector changes may slaughter and destroy animals and animal into larger mono-cropped land areas with more products within the affected area. Rwanda homogenous varieties. Unless addressed, the risk experienced devastating outbreaks of livestock of aflatoxin contamination could also increase as disease in 2008 and 2012. The two years account the livestock subsector expands and demand for for half of all outbreaks, number of susceptible animal feed and feed storage capacity increases animals, and cases seen between 2002 and 2012. (Box 2.1). In addition, climate change projections Both years saw foot and mouth disease, anthrax, indicate a more favorable environment for certain and lumpy skin disease epidemics. pests and diseases to flourish. b. Market Risks Box 2.1 What are aflatoxins? Market risks are unpredictable changes in Aflatoxins are toxins produced by mycotic (fungal) supply and/or demand that affect prices organisms that grow in poorly stored animal feeds. of inputs and outputs; market demand for In countries with developed animal feed industries, aflatoxins have caused poisoning that has led to death, quantity and/or quality attributes; food safety depending on the level of contamination. requirements; and enterprise reputation and dependability. Agricultural exports are heavily The Rwanda Ministry of Agriculture is promoting the intensification of dairy farming, which will require exposed to market risks. These risks are more commercial feed production and distribution. Toward limited for food crops. that end, it is supporting the construction of animal feed factories, two of which are under construction. Market Risks for Food Crops Aflatoxin poisoning will be a challenge that could destroy the industry unless appropriate regulation and Market risks are generally limited for food enforcement measures are introduced in the nascent crop producers. As most markets are local, prices stages of the industry’s development. fluctuate seasonally based on domestic supply and Table 2.5:Disease outbreaks in Rwanda, 2002–12 Number Number Number Number of Number of Number of Disease of animals of animals of animals outbreaks cases deaths susceptible destroyed slaughtered Foot and mouth disease 48 266,429 758 93 262 68 Contagious bovine pleuropneumonia 12 351,219 1,706 97 27 — Lumpy skin disease 123 730,195 2,434 81 91 — Anthrax 160 929,906 2,097 362 122 106 Total 343 2,277,749 6,995 633 502 174 Sources: FAOSTAT and World Bank staff calculations. Rwanda Economic Update | Edition No. 7 35 II. Special Focus: Agricultural Sector Risk Assessment demand, unless the harvest is hit by production on a range of factors, including international risks. Domestic markets for commodities such auction prices and the exchange rate. Mombasa as beans seem to be well integrated, with limited auction prices and international prices for tea fluctuations. Nevertheless, prices in Rwanda have fluctuated, particularly in the past few years are influenced by the availability of postharvest (Figure 2.2). Farm gate prices fixed by NAEB for infrastructure, lack of which can cause volatility. green leaf tea increased 31 percent in 2013 and Producer prices in developed processing decreased almost 18 percent in 2014. industries, such as cassava and beer bananas, tend to be more stable. Figure 2.2: Monthly tea prices at the Mombasa auction fluctuate widely 400 Prices in neighboring countries affect domestic prices through trade, but global 350 price fluctuation have little influence on US$ cents per kilogram 300 Rwandan prices. High transportation costs 250 effectively isolate Rwanda from global price 200 fluctuations of perishable commodities. Prices 150 in neighboring markets have greater impact, but they do not result in significant volatility across 100 seasons. For certain products, such as cassava, 50 foreign markets help smooth price fluctuations in 0 times of overproduction. For products like maize, 89 90 92 94 96 97 99 01 03 04 06 08 10 11 13 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 imports stabilize seasonal fluctuations. Rwanda’s Sources: NAEB and World Bank staff calculations. membership in the East African Community and adherence to open trade policies also supports Fluctuations in tea production and prices domestic price smoothing. Nevertheless, affect Rwanda’s export earnings. The value of producers of potatoes, rice, and bananas other Rwanda’s tea exports tripled between 2000 and than beer bananas face certain marketing risks. 2013, but growth was not consistent, with both the quantity exported and international tea prices Market Risks for Export Crops fluctuating (Figure 2.3). Declining prices played Unlike food crops, export crops face significant an important role in the value of tea exports, market risks. The structure of export crops especially in 2001, 2007, and 2013. differs from the structure of food crops. Exports crops are exposed to exogenous risks, including Coffee prices in Rwanda follow international international price volatility caused by global prices, resulting in price volatility risk (Figure supply and demand, exchange rate fluctuations, and 2.4). There is no predictable pattern in coffee other countries’ trade policies. As discussed in the prices. Prices fell in 2001, 2002, 2012, and 2013 previous section, growth projections are heavily and increased between 2003 and 2011. Exporters dependent on the market risks for export crops. and processors use mechanisms such as forward basis prices to be fixed (PTBF) and call options Price volatility risks affect tea farmers’ profits to hedge against price volatility risk. In contrast, and export earnings. The National Agricultural farmers and washing stations bear the cost of Export Development Board (NAEB) sets tea price volatility themselves.26 production prices every four months, based The farmers the team met confirmed that prices are unpredictable. One farmer reported that in 2013, prices ranged from Rwf 130 to Rwf 350 26 per kilogram for the same coffee. According to this farmer, coffee prices were his main concern, as it made it difficult to plan his activities. 36 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment Figure 2.3: Price fluctuations drove the value of tea Figure 2.4: Both the international price of coffee and the exports between 2001 and 2014 value of Rwanda’s coffee exports fluctuate widely 50 150 40 100 30 Percent change 20 50 Percent change 10 0 0 -10 -50 -20 -30 01 02 03 04 005 006 007 008 009 010 011 012 013 -100 01 02 03 04 05 06 07 08 09 10 11 12 13 20 20 20 20 2 2 2 2 2 2 2 2 2 20 20 20 20 20 20 20 20 20 20 20 20 20 Value Price Volume Price Value Sources: MINECOFIN, NAEB, and World Bank staff calculations. Sources: NAEB and World Bank staff calculations. Coffee price volatility has a major effect export earnings increased, thanks to the rise in on export earnings (Figure 2.4). The value of international coffee prices. In 2012 and 2013, coffee exports fell in 2001, 2002, 2007, 2009, the value of coffee exports declined even though 2012, and 2013, as a result of the decline in both the quantity exported increased, as a result of the production and the international price of coffee. drop in international coffee prices. During 2011 the quantity exported decreased but 2.4 Impacts of Risks Although systemic risks to agricultural production are low in Rwanda, local and commodity specific risks remain, causing important losses to the sector. Agricultural risks have important consequences for productivity, growth, and the government’s efforts to transform the sector and meet targets under PSTA 3/CAADP 2. Understanding how frequently risks occur, how much is lost in each risk event or for each crop, and where these losses occur will help policy makers identify and target risk management interventions in a way that has the greatest impact. R isks to the agricultural sector cause production losses that averaged US$65 million a year between 1995 and 2012 (US$1.2 Figure 2.5: Losses became significantly larger in the 2000s 350 billion in 18 years)—about 2.2 percent of 300 Rwanda’s annual agricultural production 250 (Box 2.2).27 Even if adjusted downward using US$ million 200 different assumptions, losses are large and affect Rwanda’s growth objectives. Losses became 150 significantly larger in the 2000s. The largest 100 losses occurred in 2008, when 8.9 percent of the value of total agricultural production was lost 50 (Figure 2.5 and Table 2.6). 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Sources: FAOSTAT and World Bank staff calculations. 27 Because losses caused by market and enabling environment risks are difficult to measure quantitatively, this subsection focuses on production losses, which can be estimated using yield data. Rwanda Economic Update | Edition No. 7 37 II. Special Focus: Agricultural Sector Risk Assessment Box 2.2 How is production loss measured? Estimation of losses as a result of agricultural risks considers primarily production losses caused by weather-related events, such as drought, floods, erratic rains, landslides, and hail; diseases; and pest outbreaks. The following method was applied to calculate production losses in a particular year: • A historical linear trend line for yields of each crop Box Figure 2.3.1: Calculation of production losses was constructed. • A second linear trend line was drawn, representing 20 one-third of the standard deviation of the crop 18 y = 0.3033x + 5.5697 yields. 16 R² = 0.7238 • Years were identified as loss years if actual yields 14 were below the linear trend line. Tons per hectre 12 • Production losses were calculated based on the 10 difference between the predicted value (the original 8 trend line) and actual yields. 6 Losses were summed and divided by the total number 4 of years examined in order to determine the average 2 annual loss rate for a particular crop. This figure was 0 then converted into value terms using the producer price 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 for the crop. As producer prices are in local currency, Yield (tons/ha) Trend 0.3 Trend the value was then converted into U.S. dollars using Source: World Bank staff calculations. the average exchange rate. Box Figure 2.3.1 shows an example of this procedure. Table 2.6: Cost of adverse weather events for crop production US$ Percent of total value of average Year Cause/risk event millions agricultural production 2009–11 2001 138.2 −4.6 Excessive rainfall in Northern and Western Provinces Heavy rains in high-altitude areas and drought in Eastern and 2004 150.1 −5.0 South Eastern Provinces 2006 87.1 −2.9 Drought/high heat in Eastern and South Eastern Provinces 2007 238.2 −7.9 Drought in Eastern Province 2008 269.0 −8.9 Drought in Eastern Province Sources: FAOSTAT and World Bank staff calculations. Note: Banana, tea, and coffee losses were calculated for 1995–2011 as a result of limited data. Cassava, paddy rice, sweet potatoes, maize, dry beans, and Irish potatoes were calculated for 1995–2012. Table shows years in which major losses occurred. The scope of the losses is in line with the greatest in the Northern Province and smallest importance of the crop, in terms of agricultural in Kigali (Figure 2.7). The bulk of the losses of production value (Figure 2.6). There are Irish potatoes are in the North, but losses in the important differences across crops, however. West are also substantial. Most cassava losses are Cassava and bananas saw the largest losses in in the South, followed by the West and the East. 1995–2012, followed by Irish potatoes and sweet Banana losses are more evenly distributed but potatoes. Maize suffered frequent losses, but the slightly higher in the Eastern Province and lowest losses were not as large as for the first four crops. in the Western Province. Maize production has These variations in crop losses have implications the lowest losses in absolute terms. They are for risk management policy decisions regarding slightly higher in the Western Province. Although resource allocations for risk mitigation. the Northern Province has the highest aggregate losses in absolute terms, the geographical target Disaggregating losses and considering risks at area for any risk management intervention will the provincial levels would help target policies depend on the crop. and interventions. In absolute terms, losses are 38 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment Figure 2.6: Losses in 1995–2012 were greatest for Figure 2.7: The geographical distribution of annual losses cassava and bananas varies by crop 30 600 Cassava 500 25 400 20 Losses, million US$ Bananas Million US$ 300 15 200 Irish Potato Sweet Potato 10 100 Dry Beans Coffee Maize Rice 5 0 Tea 0 0.1 0.2 0.3 0.4 0.5 -100 0 North West South East Kigali Frequency of Losses, per year Bananas Maize Cassava Irish potato Sources: FAOSTAT and World Bank staff calculations. Sources: NISR and World Bank staff calculations. Note: Volatility across provinces was measured using the coefficient of variation of yields, which was calculated as the standard deviation from the series arithmetic median. It shows the extent of variability in relation to the mean of the population. A loss model was created for four crops (maize, bananas, cassava, and Irish potatoes) for 2000–12 based on disaggregated data from MINAGRI. Losses are from seasons A and B. 2.5 Implications of Structural Shifts and Long-Term Trends Long-term trends and structural changes in the agricultural sector could affect the incidence and severity of different types of risk. Maximizing productivity and competitiveness in the sector will require risk management interventions that take into account the evolving nature of risk. L ong-term trends—particularly climate change and structural changes that the government is promoting to increase Land consolidation and mono-cropping facilitate the spread of pests and disease. Maize, for example, a crop for which land is being productivity—will alter Rwanda’s exposure consolidated, is subject to more frequent risks than to risks. Currently, Rwanda is subject to fewer many other crops. The practice of mixing local large-scale disasters, such as national droughts varieties for crops, an important risk-mitigating or locusts, than many of its neighbors.28 It has practice among bean producers, is likely to be experienced only one year of negative growth in replaced with single-variety cultivation as output the agriculture sector since 1994. This situation markets become more sophisticated. could change, however. As Rwanda pursues growth-enhancing objectives under PSTA 3/ Stored crops are vulnerable to pests. Losses CAADP 2, such as land consolidation, mono- during storage will increase as grain is stored cropping, livestock intensification, and value in larger volumes and for longer periods. Insect chain development, the impact of agricultural damage from common pests of stored maize risks may grow, as reliance on a single crop and rice (weevils such as Sitophiluszeamais and and single variety increases both production Sitophilusoryzae) is not unusual, but as grains and market risks. Agricultural risks could are currently stored for only short periods in increasingly threaten achievement of the targets Rwanda, losses have generally been low and under PSTA 3/CAADP 2. storage pests not a significant risk for growers 28 Many countries in Sub-Saharan Africa experience recurring negative agricultural growth as a result of various shocks. Malawi, for instance, experienced negative agriculture GDP growth six times between 1990 and 2014. Rwanda Economic Update | Edition No. 7 39 II. Special Focus: Agricultural Sector Risk Assessment or millers. Unless addressed, these risks may The occurrence of pests and disease seems to increase as postharvest infrastructure expands. be on the rise, with some diseases spreading Although some level of infestation is inevitable, more rapidly than in the past. Banana bacterial good storage practices can contain infestations. wilt is occurring more frequently and spreading Practices include using resistant varieties, coating rapidly. First found in Rwanda in 2005, it had seeds with edible oil (which kills bruchid eggs), spread to 23 of Rwanda’s 30 districts by 2012. storing grains anaerobically, and using fumigants. Levels of maize pests and diseases are low; until 2013 only leaf blight and maize streak virus were Growth in livestock production and recorded as significant diseases of the growing consumption will increase sanitary and food crop (MINAGRI 2008). However, in June 2013 safety risks. More animals means greater impacts maize chlorotic mottle virus was identified in the in the event of disease outbreaks, especially as Western and Northern Provinces. This virus is livestock owners hold more cattle or cattle are a component of maize lethal necrosis disease, a located closer to one another. With limited land disease complex that has spread rapidly in Kenya in Rwanda and no grazing policies, more animals since 2012 and that can cause up to 100 percent will also increase demand for fodder, which will loss of yield. It poses a significant potential threat increase the impact from aflatoxins (see Box 2.1). to future maize production. Greater demand for livestock products as a result of rising income increases the potential impacts from food safety risks, as supply chains grow and products reach more consumers. 2.6 Risk Management Risks may emerge as the sector develops and markets grow. Productivity increases are likely to give farmers better access to inputs and the knowledge to mitigate these risks. It is important that the appropriate institutions and actors be in place to facilitate this transition. The government and development partners fund programs and activities that seek to increase resilience to agricultural risks. Businesses, individual farmers, and consumers can adopt other measures, such as dealing with higher prices and limited availability of certain commodities by switching to others. A comprehensive risk management plan would examine how effective existing activities are and how sufficient their coverage is, identify gaps, and consider options for better management practices. A risk management plan should identify linkages between risks, prioritize risks, and take into account the feasibility of implementing interventions in the Rwandan context, considering budget, institutional, and human capacities. Any agricultural risk management plan should support Rwanda’s strategic goals and growth objectives for the agricultural sector. a. Identifying Risks and Prioritizing Based on frequency and severity, the main risks Interventions to Rwanda’s agricultural sector are regarded I dentifying risks and prioritizing as pests, disease, and weather-related risks interventions for identified risks are for crops and livestock and price volatility for important first steps in designing a set of export crops and dairy producers (Table 2.7). comprehensive and effective measures to These risks occur with higher probability every manage risks. Given Rwanda’s scarce budgetary three years, with relatively higher impact compared resources, it is crucial that policy makers to other types of risks. Structural changes in the prioritize interventions for dealing with them sector may exacerbate them in the future. The based on frequency of occurrence and degree of impacts of pests and disease are expected to rise impact of key risks. as a result of increased mono-cropping, land 40 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment Table 2.7: Risk prioritization matrix for Rwanda’s agriculture sector Impact of risk Probability of event Low Moderate High High (1 year in 3) • Potato taste (coffee) • Price volatility (export • Pests and diseases (all • Landslide (all crops) crops) crops) • Local and large-scale floods (all crops) • Disease outbreaks • Drought and erratic • Milk contamination (dairy) (livestock) rains (all crops and • Power cuts at milk collection centers (dairy) livestock) • Counterparty risk (coffee) • Price volatility (food crops and milk) • Exchange rate volatility (export crops) Moderate (1 year in 5) • Hail (all crops) Low (1 year in 10) • Glut (dairy) • Frost (tea) • Losses in transit (tea) • Aflatoxins in feed (livestock) • Maize shortage (dairy) Source: World Bank Agriculture Risk Management Team. Note: Data on some crops and some risks were not available. This table is therefore not exhaustive. The ranking of risks is based on the team’s evaluation based on both data analysis and on-the-ground research. consolidation, use of storage, and higher growth Risk management measures can be classified in the livestock subsector. The impacts of adverse into three types: weather conditions, such as drought and erratic • Risk mitigation measures are ex ante actions rains, will remain high if measures to address designed to reduce the likelihood of risk or the underdeveloped irrigation are not addressed. severity of losses. Such measures are often win- Price volatility will continue to affect producers win practices, in that they reduce the impacts of export crops and dairy products unless an of agricultural risks on farmers while at the improved market information system and risk- same time improving productivity. Examples hedging mechanisms are put in place. include soil and water conservation measures; changes in cropping patterns; adoption of b. Suggested Interventions for Agriculture practices that improve performance and Risk Management reduce risks, such as use of conservation In addition to ongoing interventions in farming, short cycles, and tolerant varieties; risk management, the government could and creation of improvement of irrigation and implement targeted interventions to more flood control infrastructure. effectively manage risks. The potential • Risk transfer measures are ex ante actions interventions identified below complement the that transfer the risk to a willing third party lessons learned under PSTA 2/CAADP 1 and for a fee. These mechanisms usually trigger highlight risk management areas that require compensation in the case of a risk-generated special attention based on the risk assessment loss. They include insurance, reinsurance, and feedback from stakeholders in a dedicated and financial hedging tools. consultative workshop. As they are mainly risk- • Risk coping measures are ex post actions mitigating mechanisms, they are win-win in that help the affected population and the nature, contributing to improved agricultural government copes with loss. They usually productivity for many producers and general take the form of compensation (cash or agricultural growth in the sector. in-kind), social protection programs, and livelihood recovery programs (for example, government assistance to farmers, debt restricting, and contingent financing). Rwanda Economic Update | Edition No. 7 41 II. Special Focus: Agricultural Sector Risk Assessment How instruments are applied for a given risk Figure 2.8:The choice of strategic risk instrument depends on both the probability and severity of the risk depends on the probability of the risk and the severity of its impact (Figure 2.8). Any risk PROFITABILITY strategy will likely include a combination of LAYER 3 Very Low Frequency all three types of risk management instruments LAYER 2 Very High Losses (Table 2.8). Joint implementation has positive, High Frequency Risk Mitigation Medium Losses + Risk Transfer complementary impacts while addressing + Risk Coping Risk Mitigation multiple risks and contributing to improved risk LAYER 1 + Risk Transfer High Frequency management in the short, medium and long terms. Low Losses Risk mitigation measures are often most cost- Risk Mitigation effective interventions, and successful examples of these types of measures are highlighted in Box 2.3. Implementing risk management interventions SEVERITY will require integrating risk management Source: World Bank Agriculture Risk Management Team approaches in existing policies and programs and a risk management plan (Box 2.4). (For Niger’s experience designing and implementing a risk management plan, see Box 2.5.) Table 2.8: Potential interventions for risk management in agriculture Risk Risk mitigation Risk transfer Risk coping Pests and • Integrated pest management • Insurance • Rapid disease response system diseases • Pest- and disease-tolerant varieties (livestock) • Vaccination • Good agricultural practice/extension services • Information systems/increased border surveillance (livestock) • Vaccination (livestock) Drought/ erratic • Soil and water conservation • Insurance • Social safety net programs and rain • Training in improved agronomic practices emergency relief • Drought-tolerant varieties • Grain aggregation • Irrigation • Storage network • Savings groups Floods • Soil and water conservation • Insurance • Social safety net programs and • Drainage emergency relief • Flood-tolerant varieties • Grain aggregation • Good agricultural practices/extension services • Storage network • Infrastructure • Savings groups Domestic price • Improved market information systems • Hedging • Social safety net programs and volatility • Training on milk handling and hygiene emergency relief • Grain aggregation • Storage network (crops and cold chain storage and transportation for milk) • Savings groups International • Improved market information systems • Futures • Social safety net programs and price volatility • Regional trading system contracts emergency relief • Shorter farm to export time • Hedging • Grain aggregation • Training on milk handling and hygiene • Options to • Storage network buy/sell on • Savings groups international exchanges Source: World Bank Agriculture Risk Management Team. 42 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment Box 2.3 What Works in Sub-Saharan Africa? Successful Risk Mitigation Interventions Integrated Pest Management (IPM) is an ecosystem approach to pest and disease control that combines different management strategies with minimal use of synthetic pesticides. The approach seeks to reduce the incidence of pests and disease outbreaks efficiently, keeping the economic costs of both outbreaks and interventions low. Successful IPM programs help farmers increase awareness of causal relationships, improve their decision-making skills and adopt good agricultural practices (GAPs). In Mali rice farmers participating in IPM interventions registered a 38 percent increase in yields and a 41 percent increase in net value over conventional farming practices (FAO 2014). Rainwater harvesting is a water management practice that captures and stores rainfall from roofs, constructed catchment surfaces, and streets. The practice can be implemented as a stand-alone intervention or as a complement to small-scale irrigation projects. Since drought and erratic rainfall events are expected to increase under climate change scenarios, rainwater harvesting is considered a climate-smart adaptation measure. In Burkina Faso and Kenya, where competition for water resources among famers and pastoralists is increasingly intense, rainwater harvesting projects resulted in net profits of US$150–US$600 and US$110– US$500, respectively (Ngigi 2009). Community animal health worker (CAHW) programs provide training and involve counterparts from government veterinarian authorities. They have improved livestock disease surveillance and vaccination rates in East Africa and the Horn of Africa (Leyland et al. 2014). In countries where national capacity to manage disease surveillance information and deliver services is low, CAHWs complement the capacity of government services. The most successful programs incorporate a sustainable business model in which CAHWs purchase drugs from licensed private pharmacies and are supported by interventions to strengthen regulatory bodies for veterinary pharmaceuticals. Box 2.4 What strategies do policymakers recommend for integrating agricultural sector risk management in practice? In November 2014, policy makers from seven countries in Sub-Saharan Africa gathered with various development partners at a Policy Workshop on Agricultural Sector Risk Management to share their experience from integrating risk management into their regular agricultural programs. In a working session, participants were asked to jointly elaborate comments or recommendations on four issues/questions. Their comments are summarized below: 1. What are barriers to integrated government approaches to managing agricultural risks? • The structure of agricultural ministries, made up of departments with their own priorities, personalities, and power struggles, creates a barrier to integrated approaches. • Institutional alignment mechanisms are needed to overcome the lack of coordination between ministries, particularly the Ministry of Finance and the Ministry of Agriculture. • Contradictory polices, such as food security policies that keep grain prices low at the expense of farm incomes, can undermine risk management. 2. How can short-term political economy issues be overcome in order to invest in long-term resilience? • Inter-ministerial coordination and donor coordination should be improved to overcome project-based silos. • To overcome short-term political realities, governments must create incentive structures for long-term thinking. • The government should build a critical mass of staff that understand analytical tools and how to apply them. 3. How can ex post humanitarian responses be better integrated with ex ante risk mitigation measures? • A risk prioritization should be conducted so that mitigation measures can be implemented before high- frequency/high-loss events occur. • Countries should move away from a project-based approach and coordinate with development partners, who have their own agendas. • Countries should use sector-wide approaches to encourage an attitude of cooperation rather than competition for resources and control. 4. How can policy makers convince the Ministry of Finance of the relevance of investing in risk management tools and strategies? • Calculate and share information on the cost of agricultural losses due to major risk events. • Present budget figures on the cost of coping mechanisms versus the cost of risk mitigation. • Pursue a cross-ministerial approach to integrated long-term planning and budget reorientation. Source: Forum for Agricultural Risk Management in Development 2014. Rwanda Economic Update | Edition No. 7 43 II. Special Focus: Agricultural Sector Risk Assessment Box 2.5 What can Rwanda learn from Niger’s experience designing and implementing an agricultural risk management program? The World Bank, in collaboration with Niger’s 3N Initiative, a national food security strategy led by the President’s office, conducted an agricultural sector risk assessment in 2012 to help prioritize risks and solutions to building the resilience of Niger’s agricultural sector. The process resulted in the government of Niger developing the Plan d’action pour la gestion des risquesagricoles au Niger (PAGRA). The 3N Initiative considers the PAGRA a critical tool for long-term planning in Niger, which suffers from frequent shocks and losses from agricultural risks. This 10-year action plan (2014–23) sets short-, medium-, and longer-term targets, with the overriding goal of strengthening the resilience of rural and semiurban communities against the main agricultural risks. The Bank is supporting the government’s efforts to operationalize PAGRA with a US$116 million investment operation. The government of Niger is working toward implementing PAGRA, developing coordinating structures, identifying good practices, planning for scale-up of interventions, setting quantitative targets and identifying target groups, and sharing experiences at different levels of governments. Niger’s experience of operationalizing risk management could help inform other countries’ efforts toward building resilience. Source: World Bank Agricultural Risk Management Team. Water management measures can yield variability, dry spells, and droughts than the rest significant productivity gains and help mitigate of the country. Developing existing feed supply the effects of climate change. Recommended chains to temporarily substitute for the lack of measures include expansion of on-farm pastures in regions where grazing is allowed water harvesting systems; adoption of viable would increase resilience to localized drought. mechanisms for financing small-scale irrigation; Training farmers in livestock management in expansion and rehabilitation of drainage water-scarce situations would increase coping infrastructures in valleys; and adoption of capacity in the face of erratic rainfall. Training agricultural practices, including minimum tillage in good animal hygiene practice should include a agriculture, to improve soil moisture and reduce focus on practices during dry periods. flooding. All of these measures are effective and efficient at mitigating the risks of drought, floods, Improved pest and disease management in and landslides. They are generally undertaken on crop production is needed, in particular as individual farmland or at the community level. it relates to potential future risks as a result Measures involving a broader watershed or of land consolidation and increased mono- landscape approach require coordinated measures cropping. Potential changes in the frequency across a number of communities. A lesson and severity of pest and disease outbreaks as a learned from PSTA II is that hillside irrigation is result of climate change should be integrated in so expensive that it is likely to be profitable only interventions aimed at mitigating the risk of pests for high-value agriculture. and diseases. Use of pesticides in Rwanda is very low; they are used mainly in coffee, potatoes, Some weather-risk management measures in and tomatoes. With the increased focus on and the livestock subsector, such as improvements promotion of horticultural crops, integrated to rural water infrastructure, would also pest management may become increasingly benefit the crop subsector. Others would important. Potential measures to improve pest primarily benefit only the livestock subsector. and disease management in the crops sector The Livestock Infrastructure Support Project include improving agricultural practices and pest is setting up livestock watering facilities for management; strengthening the crop research farmers. Currently, it is working only in the system on pest and disease management and Nyagatare district, where it is focused on dairy resilient crops; strengthening access to inputs, farmers. The program will probably be rolled including by developing a network of input out to other districts, especially in the Eastern dealers; and developing information system on Province, which experiences more rainfall pests and diseases. 44 Rwanda Economic Update | Edition No. 7 II. Special Focus: Agricultural Sector Risk Assessment Livestock disease management infrastructure inspectors. Similar investments should be made is needed to mitigate and manage disease throughout the dairy value chain to promote good outbreaks. Vaccination is used in disease hygiene practices and prevent contamination, management as both an ex ante and ex post including at the farm level. Mitigating aflatoxin solution to disease outbreaks. Although the contamination in the feed supply chain is also Rwanda Agricultural Board has been vaccinating important for animal food product safety. animals since 2002, several outbreaks occur every year. Vaccination coverage in 2014 was 30 Price management mechanisms are needed for percent for foot and mouth disease, 26 percent for actors in the export crop supply chain. Given contagious bovine pleuropneumonia, 23 percent the exposure to international prices for actors in for anthrax, and 14 percent for lumpy skin the coffee and tea supply chains, there is scope for disease. Part of the solution may lie in increasing strengthening price management mechanisms. coverage, if possible to 100 percent, particularly By analyzing the physical and financial flows for anthrax and lumpy skin disease, which have of current transaction arrangements for exports, higher incidences than other diseases. Other policy makers can identify a set of options for interventions may include creating livestock reducing exposure. Potential measures may information systems, including animal registers include strengthening existing price information and disease warning systems; developing systems that allow for transparent price setting veterinary services and vaccination programs; throughout the supply chain; training actors strengthening animal reference laboratory throughout the chain to optimize from available capacity; and increasing regional cooperation in information; and training producers and producer livestock disease management. organizations in price risk management, such as forward PTBF contracting. Sanitary institutions and practices in the livestock subsector need to be strengthened The government is already acting in all of these throughout the supply chain, by both public areas. However, given the risks identified in this and private actors. As incomes increase, the analysis and the strategic path the government livestock subsector is likely to grow. It will be has outlined for the sector, there is room for important to have the necessary institutional strengthening efforts. As discussed above, risks infrastructure in place to mitigate risks and to the agriculture sector affect productivity and minimize losses. Support should be provided incomes as well as competitiveness and the for investments in transportation, modern long-term investment climate. Several areas abattoirs in every major town, antemortem and (for example, water management for crops, postmortem inspections, food safety laboratories, feed and fodder management and improved and increased capacity of the Rwanda Bureau of water supply for livestock, and pest and disease Standards to monitor and certify meat products management) would also be part of a climate- and processing facilities. These investments smart agriculture approach. Regardless of the should be complemented by training in meat specific objectives for the sector, effective handling and hygiene for traders, transporters, agricultural risk management is an integral part abattoir and processing facility workers, and of any agricultural development strategy.29 The World Bank team will conduct an assessment of risk mitigation systems in March 2015. 29 Rwanda Economic Update | Edition No. 7 45 Appendix Selected Data on Rwanda Appendix Table A.1: Selected economic indicators for Rwanda, 2010 –14 2014 Indicator 2010 2011 2012 2013 Third First Half Quarter GDP Growth rate (percent) 7.3 7.8 8.8 4.7 6.8 7.8 Agriculture 4.9 4.7 6.5 3.2 5.2 5.6 Industry 8.0 17.9 8.5 9.2 6.7 4.8 Services 9.2 8.0 11.5 5.4 8.4 10.4 Fiscal framework (percent of GDP) a Revenues and Grants 25.4 24.8 25.3 23.2 26.0 21.5 Total revenue 12.4 13.8 14.3 15.5 16.8 15.3 Tax revenue 11.9 13.2 13.4 13.7 14.8 14.6 Non-tax revenue 0.5 0.6 0.8 1.8 2.0 0.6 Grants 13.0 10.8 11.0 7.7 9.2 6.2 Budgetary grants 9.0 6.1 6.4 4.0 3.3 2.5 Capital grants 4.0 4.7 4.6 3.7 5.9 3.7 Total expenditure and net lending 25.5 27.9 26.5 28.5 30.0 27.8 Current expenditure 14.5 15.5 14.8 13.4 15.2 16.1 Capital expenditure 10.0 12.5 11.6 12.9 13.9 10.6 Domestic 5.0 6.2 5.6 5.1 6.2 5.3 Foreign 5.0 6.2 6.1 7.8 7.6 5.3 Net lending 0.9 0.5 0.0 2.2 1.0 1.2 Budget deficit (cash basis) Excluding grants −13.4 −14.5 −12.5 −13.2 −13.4 −3.4 Including grants −0.5 −3.8 −1.5 −5.4 −4.2 −9.6 External Sector Exports (year-on-year growth) 26.5 56.2 27.3 19.0 0.4 −0.4 Imports (year-on-year growth) 8.7 44.5 18.7 −0.4 13.0 1.6 Gross Reserves (million of US$) 813.3 1,050.0 850.3 1,070.0 946.4 879.7 Gross Reserves (months of imports of 4.5 5.1 4.1 4.8 .. .. goods and services) Consumer Price Index (percent change) End of period 0.2 8.3 3.9 3.6 1.4 0.2 Period average 2.3 5.7 6.3 4.2 2.6 1.0 Exchange rate (Rwf/US$) End period 594.5 603.4 631.0 667.7 681.7 685.5 Period average 583.3 602.0 614.3 646.6 677.4 686.1 Sources: NISR, BNR, and MINECOFIN. Note: Figures are on a fiscal-year basis (July–June). For example, 2011 refers to the 2010/11 fiscal year “..” indicates that data is not available 48 Rwanda Economic Update | Edition No. 7 Table A.2: GDP in Rwanda by Kind of Activity, 2011–14 2011 2012 2013 2014 Items First Second First Second First Second First Third half half half half half half half quarter Appendix 49 GDP 1,795.0 2,051.0 2,078.0 2,359.0 2,323.0 2,541.0 2,596.0 1,393.0 Agriculture, forestry and fishing 556.0 688.0 659.0 823.0 761.0 862.0 850.0 474.0 Rwanda Economic Update | Edition No. 7 Food crops 379.0 467.0 460.0 565.0 545.0 616.0 617.0 335.0 Export crops 25.0 53.0 25.0 76.0 28.0 51.0 34.0 37.0 Livestock and livestock products 59.0 63.0 67.0 71.0 74.0 78.0 81.0 43.0 Forestry 88.0 97.0 100.0 105.0 105.0 107.0 108.0 54.0 Fishing 6.0 7.0 8.0 8.0 8.0 10.0 10.0 5.0 Industry 256.0 299.0 288.0 350.0 346.0 379.0 375.0 193.0 Mining & quarrying 35.0 39.0 32.0 37.0 44.0 46.0 47.0 26.0 Total manufacturing 89.0 115.0 105.0 129.0 117.0 136.0 128.0 65.0 Of which: Food 19.0 31.0 22.0 33.0 25.0 34.0 29.0 15.0 Beverages and tobacco 45.0 55.0 52.0 63.0 60.0 67.0 65.0 32.0 Electricity 5.0 6.0 6.0 8.0 8.0 9.0 9.0 5.0 Water & waste management 6.0 7.0 8.0 8.0 8.0 8.0 8.0 4.0 Construction 121.0 131.0 136.0 168.0 168.0 181.0 183.0 94.0 Services 851.0 938.0 1,009.0 1,070.0 1,099.0 1,178.0 1,221.0 651.0 Trade and services 269.0 323.0 329.0 378.0 356.0 402.0 401.0 213.0 Maintenance & repair of motor vehicles 9.0 10.0 10.0 10.0 12.0 12.0 12.0 6.0 Wholesale & retail trade 212.0 254.0 257.0 296.0 275.0 313.0 312.0 166.0 Transport 49.0 58.0 61.0 72.0 69.0 77.0 78.0 41.0 Other services 582.0 616.0 679.0 692.0 743.0 775.0 820.0 438.0 Hotels & restaurants 48.0 51.0 52.0 54.0 54.0 56.0 57.0 30.0 Information & communication 43.0 50.0 56.0 61.0 56.0 60.0 61.0 36.0 Financial services 56.0 51.0 69.0 68.0 81.0 83.0 82.0 36.0 Real estate activities 144.0 142.0 151.0 131.0 140.0 140.0 154.0 90.0 Professional, scientific & technical activities 47.0 49.0 56.0 55.0 58.0 61.0 61.0 31.0 Administrative & support service activities 49.0 53.0 57.0 59.0 61.0 64.0 66.0 34.0 Public administration and defense; compulsory social security 48.0 68.0 68.0 79.0 78.0 88.0 86.0 49.0 Education 60.0 62.0 73.0 77.0 100.0 102.0 113.0 57.0 Human health and social work activities 17.0 21.0 24.0 25.0 27.0 28.0 33.0 14.0 Cultural, domestic and other services 68.0 69.0 74.0 82.0 88.0 94.0 106.0 60.0 Taxes less subsidies on products 131.0 127.0 122.0 115.0 117.0 122.0 148.0 75.0 Table A.2: GDP in Rwanda by Kind of Activity, 2011–14 (continued) 2011 2012 2013 2014 Items First Second First Second First Second First Third half half half half half half half quarter Rwf billion, constant 2011 prices GDP 1,816.0 2,030.0 1,997.0 2,187.0 2,117.0 2,264.0 2,260.0 1,203.0 Agriculture, forestry and fishing 575.0 669.0 617.0 708.0 658.0 710.0 692.0 375.0 Food crops 390.0 454.0 430.0 476.0 458.0 480.0 484.0 256.0 Export crops 25.0 53.0 23.0 63.0 27.0 54.0 27.0 27.0 Livestock and livestock products 60.0 62.0 64.0 65.0 68.0 70.0 73.0 38.0 Forestry 91.0 93.0 94.0 97.0 98.0 99.0 100.0 50.0 Fishing 8.0 6.0 6.0 6.0 7.0 8.0 8.0 4.0 Industry 260.0 294.0 276.0 325.0 314.0 342.0 335.0 176.0 Mining & quarrying 34.0 40.0 32.0 36.0 39.0 43.0 44.0 25.0 Total manufacturing 93.0 112.0 100.0 116.0 105.0 121.0 112.0 58.0 Of which: Food 20.0 30.0 21.0 29.0 24.0 31.0 26.0 13.0 Beverages and tobacco 46.0 52.0 48.0 55.0 49.0 57.0 51.0 26.0 Electricity 5.0 6.0 6.0 6.0 7.0 8.0 8.0 4.0 Water & waste management 6.0 7.0 8.0 8.0 8.0 8.0 8.0 4.0 Construction 123.0 129.0 130.0 157.0 156.0 164.0 165.0 85.0 Services 856.0 934.0 973.0 1,023.0 1,022.0 1,081.0 1,108.0 586.0 Trade and services 274.0 318.0 322.0 358.0 341.0 379.0 377.0 200.0 Maintenance & repair of motor vehicles 10.0 10.0 10.0 10.0 10.0 10.0 10.0 6.0 Wholesale & retail trade 214.0 253.0 253.0 279.0 266.0 297.0 296.0 156.0 Transport 51.0 56.0 59.0 68.0 65.0 72.0 71.0 38.0 Rwanda Economic Update | Edition No. 7 Other services 583.0 615.0 651.0 665.0 681.0 702.0 731.0 386.0 Hotels & restaurants 48.0 51.0 52.0 54.0 53.0 55.0 55.0 29.0 Information & communication 41.0 51.0 59.0 65.0 59.0 64.0 65.0 39.0 Financial services 54.0 53.0 60.0 61.0 68.0 66.0 70.0 31.0 Real estate activities 144.0 141.0 147.0 137.0 143.0 144.0 151.0 82.0 Professional, scientific & technical activities 48.0 49.0 53.0 51.0 53.0 54.0 55.0 27.0 Administrative & support service activities 50.0 52.0 54.0 55.0 56.0 57.0 59.0 30.0 Public administration and defense; compulsory social security 48.0 67.0 64.0 75.0 73.0 80.0 78.0 44.0 Appendix Education 62.0 62.0 66.0 66.0 68.0 68.0 74.0 37.0 Human health and social work activities 18.0 22.0 24.0 23.0 24.0 25.0 26.0 14.0 50 Cultural, domestic and other services 68.0 69.0 72.0 79.0 83.0 87.0 97.0 54.0 Taxes less subsidies on products 125.0 133.0 131.0 132.0 124.0 131.0 125.0 67.0 Source: NISR December 2014 Appendix Table A.3: Inflation indicators in Rwanda, 2011–14 (year-on-year percent change) Year/month Overall Core Import prices Energy prices Food prices 2012 January 7.8 7.1 7.9 8.4 12.7 February 7.9 6.0 6.0 5.8 15.5 March 8.2 5.3 4.9 8.3 15.5 April 6.9 4.8 3.8 6.9 12.8 May 8.3 5.4 3.1 10.8 15.1 June 5.9 3.7 2.6 6.6 11.3 July 5.6 3.0 2.6 8.8 10.4 August 5.8 2.5 1.2 5.4 12.6 September 5.6 2.1 1.2 2.8 13.7 October 5.4 2.5 2.7 5.5 12.1 November 4.5 2.8 2.9 5.9 9.8 December 3.9 2.5 3.2 5.7 7.9 2013 January 5.7 4.7 3.0 5.6 8.3 February 4.8 5.1 4.0 8.5 4.7 March 3.2 4.8 3.4 4.6 1.9 April 4.4 5.2 4.0 6.4 4.1 May 3.0 3.6 3.5 2.5 2.6 June 3.7 3.4 1.9 0.9 4.4 July 3.5 3.6 1.5 -0.9 4.0 August 4.0 3.6 2.7 2.0 4.9 September 5.1 3.3 2.5 2.8 7.8 October 5.1 3.2 1.2 0.3 8.2 November 4.6 3.4 2.3 0.2 6.4 December 3.6 3.8 1.6 0.0 3.9 2014 January 2.4 2.7 2.6 1.6 2.4 February 3.4 2.8 2.5 1.6 5.0 March 3.4 2.6 1.7 0.7 5.2 April 2.7 2.3 1.2 -0.5 3.8 May 1.9 2.3 0.9 -4.2 3.0 June 1.4 2.0 -0.4 0.2 1.9 July 1.9 2.3 0.8 2.2 2.4 August 0.9 2.5 1.1 0.8 -0.2 September 0.2 3.0 2.1 1.2 -3.1 October 0.5 3.5 3.2 0.8 -3.3 November 0.7 2.9 1.3 0.7 -2.7 December 2.1 2.9 1.6 2.0 0.7 Source: BNR and NISR Rwanda Economic Update | Edition No. 7 51 Appendix Table A.4: Average monthly rate of Rwandan franc versus seven currencies, 2011–14 British Uganda Kenya Tanzania Burundi Year/month U.S. dollar Euro pound shilling shilling shilling franc 2012 January 604.37 779.26 936.44 0.25 7.11 0.39 0.47 February 605.15 799.47 955.36 0.26 7.40 0.39 0.47 March 606.75 801.24 959.52 0.25 7.44 0.39 0.47 April 607.01 799.45 971.24 0.25 7.40 0.39 0.46 May 608.58 780.82 970.12 0.25 7.33 0.39 0.45 June 609.94 764.00 947.89 0.25 7.30 0.39 0.44 July 612.95 752.14 955.23 0.25 7.40 0.39 0.44 August 613.60 759.79 963.57 0.25 7.43 0.40 0.43 September 618.22 794.17 995.03 0.25 7.43 0.40 0.43 October 625.24 810.86 1,006.08 0.25 7.47 0.40 0.43 November 628.77 806.64 1,003.95 0.24 7.46 0.40 0.43 December 630.99 827.21 1,018.50 0.24 7.46 0.40 0.42 2013 January 631.29 838.05 1,008.81 0.24 7.38 0.40 0.42 February 633.25 846.82 981.39 0.24 7.36 0.40 0.41 March 634.98 824.27 957.00 0.24 7.52 0.40 0.41 April 637.38 829.03 974.68 0.25 7.69 0.40 0.41 May 640.13 831.41 979.34 0.25 7.73 0.40 0.41 June 641.66 846.19 993.12 0.25 7.61 0.40 0.42 July 645.22 843.25 980.34 0.25 7.55 0.41 0.42 August 649.01 864.16 1,005.03 0.25 7.53 0.41 0.43 September 653.26 871.37 1,033.65 0.26 7.60 0.41 0.43 October 661.29 901.19 1,064.45 0.26 7.88 0.42 0.43 November 664.30 897.29 1,068.75 0.27 7.84 0.42 0.43 December 667.74 914.43 1,093.43 0.27 7.85 0.43 0.44 2014 January 672.66 916.57 1,107.13 0.27 7.91 0.43 0.44 February 674.65 920.46 1,115.73 0.28 7.95 0.42 0.44 March 676.39 935.04 1,124.54 0.27 7.95 0.42 0.44 April 678.20 936.67 1,135.18 0.27 7.90 0.42 0.44 May 680.67 935.68 1,146.96 0.27 7.79 0.41 0.44 June 681.69 927.85 1,151.55 0.27 7.79 0.41 0.44 July 683.47 926.05 1,168.56 0.26 7.76 0.41 0.44 August 684.23 911.52 1,143.32 0.26 7.76 0.41 0.44 September 685.48 884.88 1,118.46 0.26 7.71 0.41 0.44 October 688.68 873.83 1,107.96 0.26 7.72 0.41 0.44 November 690.33 861.13 1,090.39 0.25 7.68 0.40 0.45 December 692.56 854.74 1,083.04 0.25 7.66 0.40 0.45 Source: BNR 52 Rwanda Economic Update | Edition No. 7 Appendix Table A.5: Key monthly interest rates in Rwanda, 2011–14 (percent) Average Average Treasury bill rate Policy Interbank Year/month deposit lending 28 91 182 364 Weighted average Rate rate rate rate days days days days rate 2012 January 7.0 7.4 17.0 7.3 7.1 7.3 7.7 8.4 7.6 February 7.0 8.3 16.3 6.9 7.1 7.6 7.4 8.0 7.6 March 7.0 8.2 16.3 7.7 7.4 7.6 7.9 7.8 7.7 April 7.0 8.1 16.9 8.0 7.5 7.6 7.9 8.5 7.9 May 7.5 9.9 16.7 8.6 7.9 8.1 8.3 8.9 8.3 June 7.5 7.9 16.8 9.0 8.8 9.6 9.4 9.1 9.3 July 7.5 8.9 16.5 9.1 9.4 10.2 .. .. 9.8 August 7.5 8.6 17.1 9.5 10.6 10.2 10.5 11.7 11.1 September 7.5 8.5 17.1 10.8 11.5 12.1 12.0 12.7 12.3 October 7.5 9.2 16.6 10.9 11.9 12.4 12.5 .. 12.1 November 7.5 11.2 16.7 11.9 11.8 12.5 12.7 .. 12.4 December 7.5 10.7 16.5 11.1 11.8 12.6 12.8 .. 12.4 2013 January 7.5 11.3 17.1 11.1 12.1 12.6 12.8 .. 12.4 February 7.5 10.3 17.0 10.4 11.6 12.3 12.7 .. 12.2 March 7.5 10.4 17.2 10.0 11.0 12.1 12.6 12.8 12.1 April 7.5 10.7 17.3 10.9 11.2 12.3 12.8 13.0 12.0 May 7.5 10.6 17.6 11.1 11.0 12.0 12.4 12.7 12.0 June 7.0 10.6 17.7 9.6 10.0 10.7 11.3 11.7 10.8 July 7.0 8.5 17.2 9.6 8.9 9.6 10.0 10.7 9.7 August 7.0 10.5 17.5 7.6 7.8 8.3 8.9 9.3 8.6 September 7.0 9.0 17.8 7.0 6.8 6.9 7.3 7.8 7.1 October 7.0 9.5 17.4 6.7 6.2 6.5 6.7 7.6 6.8 November 7.0 8.0 17.2 6.1 5.5 5.9 6.2 7.0 6.1 December 7.0 8.5 16.9 5.6 5.0 5.3 5.9 6.4 5.6 2014 January 7.0 8.9 17.5 5.6 5.4 6.0 6.7 8.2 6.4 February 7.0 8.0 17.1 5.8 5.1 5.8 6.5 8.1 6.1 March 7.0 8.3 16.8 5.8 4.9 5.5 6.6 8.0 6.0 April 7.0 8.0 17.4 5.6 4.8 5.3 6.3 7.8 6.0 May 7.0 9.3 17.2 5.7 4.5 5.3 6.3 7.4 5.9 June 6.5 8.6 17.5 5.7 4.3 5.0 5.7 6.6 5.6 July 6.5 8.4 17.2 5.5 4.0 4.5 5.2 6.5 5.5 August 6.5 8.8 17.4 5.5 4.1 4.4 5.0 6.3 5.2 September 6.5 7.3 17.1 5.6 4.2 4.5 5.2 6.5 5.5 October 6.5 7.3 17.5 5.7 4.2 4.6 5.2 6.4 5.3 November 6.5 8.2 16.7 5.7 3.9 4.4 5.0 6.3 5.1 December 6.5 7.8 17.7 4.7 3.7 4.1 5.0 6.2 4.9 Source: BNR. Note: ".." indicates that data is not available. Rwanda Economic Update | Edition No. 7 53 Appendix Table A.6: Rwanda’s gross international reserves, 2011–14 Year/month Rwf billion US$ million 2012 January 596.7 986.8 February 581.5 960.0 March 545.6 899.1 April 514.1 845.4 May 464.4 762.2 June 526.3 859.4 July 472.9 771.3 August 450.7 733.4 September 449.0 721.0 October 470.6 750.4 November 476.9 757.4 December 535.5 850.3 2013 January 465.2 735.8 February 436.5 688.3 March 443.6 697.7 April 451.7 706.9 May 623.6 972.9 June 653.0 1,016.1 July 659.3 1,017.5 August 657.4 1,011.7 September 680.8 1,035.5 October 691.3 1,044.8 November 682.9 1,024.4 December 717.0 1,070.0 2014 January 679.7 1,008.1 February 648.2 959.8 March 632.3 932.7 April 630.3 927.5 May 656.4 963.2 June 646.0 946.5 July 629.0 919.6 August 617.9 902.8 September 604.3 879.7 October 562.4 815.7 November 567.6 820.9 Source: BNR and World Bank staff calculation 54 Rwanda Economic Update | Edition No. 7 Appendix Table A.7: Rwanda—tourism sector data, 2012–14 Visiting Business Year/ Transit/ Year Leisure Friends & & Confer- Total Volcanoes Akagera Nyungwe Total month other Relatives ence January 8,126 28,711 27,977 15,794 80,608 2,738 2,186 646 5,570 February 8,775 19,956 33,441 18,481 80,653 2,516 1,856 739 5,111 March 7,848 21,236 33,684 18,413 81,181 1,945 1,315 457 3,717 April 5,890 22,691 33,828 16,554 78,963 1,443 1,269 448 3,160 May 5,167 23,405 40,168 17,569 86,309 1,627 1,492 357 3,476 June 7,364 23,697 29,491 19,104 79,656 2,690 2,384 544 5,618 2012 July 9,663 25,186 36,097 22,034 92,980 3,149 3,457 1,001 7,607 August 10,693 33,299 34,014 22,242 100,248 3,219 2,984 1,014 7,217 September 10,102 25,112 32,532 19,878 87,623 2,843 1,786 603 5,232 October 8,961 25,105 35,042 22,869 91,978 2,906 1,443 725 5,074 November 5,810 27,292 45,012 30,102 108,215 1,583 2,605 441 4,629 December 9,403 33,096 39,663 25,214 107,376 1,824 2,423 646 4,893 Total 97,802 308,786 420,949 248,254 1,075,790 28,483 25,200 7,621 61,304 January 8,934 29,762 39,935 23,532 102,163 1,901 2,061 672 4,634 February 8,975 21,977 40,240 20,721 91,913 2,002 2,032 686 4,720 March 7,402 23,797 43,085 24,375 98,659 1,927 2,126 641 4,694 April 6,747 30,593 35,003 17,367 89,710 862 1,235 338 2,435 May 7,923 25,648 36,875 17,148 87,594 1,151 2,024 391 3,566 June 9,342 26,397 32,436 16,515 84,690 2,379 2,756 581 5,716 2013 July 9,584 30,170 43,370 12,500 95,624 3,208 3,673 820 7,701 August 12,033 32,274 31,295 18,269 93,871 3,346 3,345 700 7,391 September 7,862 25,998 29,906 16,248 80,014 3,004 2,845 604 6,453 October 8,166 26,936 30,645 35,224 100,971 2,047 2,910 439 5,396 November 7,794 29,772 32,671 39,997 110,234 1,510 1,844 394 3,748 December 11,975 28,294 29,513 32,211 101,993 1,862 2,836 636 5,334 Total 106,737 331,618 424,974 274,107 1,137,436 25,199 29,687 6,902 61,788 January 6,650 34,396 36,304 22,221 99,571 2,167 2,108 737 5,012 February 9,306 31,803 37,178 25,949 104,236 2,080 1,960 637 4,677 March 8,251 32,476 33,324 27,894 101,945 1,892 2,204 640 4,736 April 6,294 23,997 28,775 24,929 83,995 1,365 1,453 704 3,522 May 6,907 27,024 33,499 26,562 93,992 1,399 2,575 778 4,752 2014 June 9,314 32,092 36,895 26,570 104,871 2,664 2,847 918 6,429 July .. .. .. .. .. 3,426 3,294 1219 7,939 August .. .. .. .. .. 3,438 3,879 1007 8,324 September .. .. .. .. .. 3,246 1,894 677 5,817 Total 46,722 181,788 205,975 154,125 588,610 21,677 22,214 7,317 51,208 Source: Rwanda Development Board. Note: ".." indicates that data is not available. Rwanda Economic Update | Edition No. 7 55 REFERENCES • FAO (Food and Agriculture Organization). 2014. "The West African Regional Integrated Production and Pest Management (IPPM) Programme." http://www.fao.org/uploads/media/WA_IPPM_case%20study_web_1.pdf. • Forum for Agricultural Risk Management in Development. 2014. "Policy Workshop Proceedings." 2015. https://www.agriskmanagementforum.org/sites/agriskmanagementforum.org/files/Proceedings%20PW%20 6Nov2014.pdf • IMF (International Monetary Fund). 2014. "Rwanda: 2014 Article IV Consultation and Second Review under the Policy Support Instrument." IMF Country Report 14/343. Washington, DC. • Leyland, T., Lotira, R., Abebe, D., Bekele, G., & Catley, A. 2014. "Community-Based Animal Health Workers in the Horn of Africa An Evaluation for the Office of Foreign Disaster Assistance." 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