Rwanda and Singapore

Returning to the hotel room few evenings ago, I searched the phrase “Rwanda AND Singapore” on Google. As I expected, these articles from The Economist, Bloomberg, and The East African, each comparing Rwanda to Singapore, came up as top results. The Economist goes as far as to ask if Rwanda could be “Africa’s Singapore?”

One could say I was prescient, but it was the visit to the Rwanda Development Board (RDB) that prompted the Google search. The RDB is a government agency set up to steer economic development according to the vision laid down by the government, that is, “to elevate the country to a middle-income, service and knowledge-based economy by 2020”. When I first learnt of this organization, Singapore’s Economic Development Board (EDB), also a government agency “for planning and executing strategies to enhance [Singapore]… as a global business centre[sic],” came to mind. Both agencies are charged with the same mandate, that is, to attract foreign investment.

The above three articles each provides an excellent comparison between Rwanda and Singapore, and it is not my intention to reinvent the wheel. In this post, as a Singaporean who heard first-hand from Clare Akamanzi, Chief Operating Officer of the RDB, I hope to provide some personal perspectives on the comparison.

To set the context, Singapore at the time of independence in 1965 was economically reminiscent of Rwanda after the 1994 tragedy. Both were marked by social unrest, racial division, high unemployment, low literacy, and fledging government. Geographically, Rwanda is landlocked, while Singapore has no natural resource. Further, just as Rwanda’s neighbors are described by the Legatum Institute as “less than ideal”, although Singapore was close to China, in 1965 there was nothing to benefit from.

Human capital over geographical disadvantage

Singapore and Rwanda are both geographically challenged: the former, despite having a port, has no natural resource or source of drinking water, whereas the latter is landlocked. Both countries have thus turned to human capital development as a way out of the bad hand they were dealt with. This is evident in the industries that the RDB and Singapore’s EDB target: ICT and knowledge-based service industries. In ICT, Rwanda has launched 4G LTE, laid 3,100 miles of optic fiber across the country, and ranked #1 in terms of broadband internet speed in Africa.

Like Singapore, Rwanda enlarges its labor force by looking abroad. To attract Rwandans who were displaced in 1994, nationals of neighboring countries, such as Uganda and the DRC, can enter Rwanda visa-free. Special work permits are frequently issued to bring in foreign skilled workers. Women are also extremely well-represented in the country, with 64% of the parliament made up by women. According to Akamanzi, if the country does not encourage women participation, it can only operate at 50% of its potential.

Both Singapore and Rwanda have also created government scholarships that send their brightest students overseas to acquire Western education, in return for a contracted period of service in the government. These prestigious scholarships have been key in securing talent for the Singaporean government, and has potential to do the same for the Rwandan government.

In 2008, Rwanda changed its official language from French to English, and in 2009 joined the English-speaking Commonwealth of Nations, as a means to be improve its competitiveness in the business world.

‘Cherry-picking’ foreign investment

Despite a national savings rate of 15.3% (2013), Rwanda lacks a robust financial infrastructure to channel savings into investments, or foreign expertise to develop those investments. To this end, the RDB was set up to establish an investment blueprint, solicit foreign investors, negotiate public-private partnerships, and help investors execute their business plans (‘after-service’). An oft-quoted statistic is that it takes just 6 hours to set up a business in Rwanda; of course, it might take 6 years for impact of the investment to spread across the economy. More importantly, foreign capital sought is long-term direct investment, rather than short-term portfolio investment that could flee at any sign of economic distress.

Weak infrastructure a huge risk

Infrastructure poses a huge risk that could derail the efforts of the RDB and Rwandan government. As mentioned in a previous post, and confirmed by a Rwandan start-up incubator, power availability is a major obstacle to a private sector-driven growth. With a population of 1.9 million over a land mass of 225 sq. miles in 1965, Singapore arguably had an easier job than Rwanda, which had 5.5 million people over 10,200 sq. miles in 1995, to develop and roll out power infrastructure. Today, power remains underinvested in Rwanda, especially in remote rural villages where generators are a common sight.

Fiscal policy mismatch?

Certain aspects of Rwanda’s fiscal policy do not appear to match up with its efforts in attracting foreign and human capital. With a 30% corporate and top personal income tax rates, 15% tax on investment income, 18% value-added tax, and high import duties, Rwanda may attract capital but not able to persuade it to stay. This is in stark contrast to Singapore, which has a 17% corporate tax rate, 20% top personal income tax rate, no capital gains tax, 7% value-added tax, and, as a free port, relatively few import duties.

Of course, one has to be take into consideration tax incentives awarded to foreign investors for any proper comparison.

Conclusion

Associating today’s Rwanda with the 1994 genocide is akin to wrongly comparing today’s Germany with the 1930/40s Nazi Germany. Any Rwandan older than 20 years old is a survivor of the genocide; as such, any conversation, business or social, is inevitably tinted by the tragedy. However, during my time in Rwanda speaking with companies and roaming the streets, I have never felt more confident of a developing-country government so committed to rule of law, more inspired by a people eager to move on and rebuild, and more out of harm outside of my comfort zone.

Damien Niam

MBA at MIT and MPA at Harvard. Interested in value investing, economic policy, financial regulation/reform, and economic thought. BA in Economics from the University of Cambridge.

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