According to the latest report from the African Development Bank (AfDB), Rwanda requires an annual investment of at least $3.4 billion to achieve significant structural transformation, which would boost productivity and shift the country towards a knowledge-based economy.
The report, titled “Driving Rwanda’s Transformation: The Reform of the Global Financial Architecture,” was released on July 31 and aligns with AfDB’s annual economic outlook. It evaluates how different countries have accessed the necessary finance for their structural transformation and advocates for a reformation of the global financial system to better support African economies.
Structural transformation involves moving from low-productivity, labor-intensive sectors to more productive, capital, and skill-intensive sectors. The report highlights that, from 1990 to 2022, Rwanda remains in the early stages of this transformation. The labor force has shifted from low-value agriculture to low-productivity service sectors like wholesale and retail, with minimal impact on overall productivity. This shift is attributed more to structural changes rather than increased productivity in agriculture, services, and manufacturing.
Although Rwanda has made significant strides in building a supportive institutional and policy framework, the report emphasizes that investing in human capital, research, innovation, climate action, and lowering infrastructure costs is essential for driving productivity growth.
The report highlights that technological advancements could play a key role in Rwanda’s structural transformation by enhancing production techniques, business practices, transportation, and access to information.
Mama Keita, East Africa Director at the United Nations Economic Commission for Africa (UNECA), pointed out that while the country needs to transition from a labor-intensive to a skills-based economy, reforming the global financial system is also crucial. This reform is necessary for developing nations to secure the vital funding required for such a transition.
Reforming the global financial system would help developing countries gain access to concessional resources, secure climate finance, attract private investment, and enhance their domestic financial markets to support accelerated economic transformation.
Stella Nteziryayo, Chief Economist at the Ministry of Finance and Economic Planning, emphasized that more effort is needed to alter the perception that Africa is a risky investment destination. She noted that this perception is sometimes reinforced by a lack of clear and comprehensive information about policies, which could otherwise build investor confidence.
While credit rating agencies have a role, Nteziryayo pointed out that investors do not rely solely on these ratings when making financing decisions. She mentioned that Rwanda is exploring various policy reforms as part of the second National Strategy for Transformation (NST2). Despite progress made during NST1, she acknowledged the need to address the challenge of integrating a growing number of new entrants into the labor market.
The agriculture sector continues to be a crucial part of Rwanda’s economy, despite experiencing low productivity in the past two years due to climate change. Nteziryayo emphasizes the need for greater efforts to promote investment and transition from subsistence to commercial farming.
The report points out that unfavorable credit ratings from multinational development banks (MDBs) and private credit rating agencies are significant barriers to Africa’s access to financing.
Aïssa Touré, AfDB’s Rwanda Country Manager, mentioned that the bank is working on an initiative to monetize Africa’s natural assets as a potential source of financing. The report also suggests that reforms are needed in how multinational and private credit rating agencies assess countries’ creditworthiness to better reflect the economic potential of countries like Rwanda.
