Economic growth and development cannot be achieved without the availability and the provision of appropriate economic and social infrastructure. The need to improve the quality and extent of infrastructure services in Rwanda is, therefore, the cornerstone of achieving sustainable and inclusive economic growth, creating a knowledge based economy and ultimately a better quality of life for all.
According to almost 25 years of academic research on the impact of infrastructure on growth, the reality that infrastructure matters to growth is now acknowledged worldwide but maybe not fully understood. How much, specifically, and which infrastructure matters when to output levels and their growth in developing economies is not yet clearly settled.
In general, infrastructure is defined as electricity, gas, ICT, transport and water supply, sanitation and sewerage. While there is a reasonable agreement on
how much infrastructure matters to growth, there is much less agreement on which infrastructure subsector matters the most under which circumstances.
In coming up with infrastructural development plans, it is therefore important that we seriously consider the best model for our circumstances. Each country has its specific endowments whose potential can only be fully realised through the appropriate infrastructure mix.
Direct investments in infrastructure must lead to the creation of new production facilities that stimulate economic activity and growth, improve the ease of doing business, reduce the overall cost of doing business especially trade and transaction costs and thereby improve competitiveness and provide new employment opportunities directly and indirectly. This can only happen when we have the optimal infrastructure mix. Added to this, infrastructure development must be in tandem with the industrialisation policy in order to maximise synergies therefrom.
According to the Rwanda Economic Report published by the World Bank in June 2021, Rwanda has had a high rate of public investment which equalled 13% of GDP in 2019. The share of Rwanda’s public sector capital expenditures in GDP since 2015 has been the highest in east Africa and almost double that of Sub-Saharan Africa. In fact, Rwanda’s public investment is the third highest in the world. Rwanda Global Competitiveness Index (GCI) score, which indicates quality of infrastructure, for 2019 was 52 compared to 45 for Sub-Saharan Africa. Rwanda still has to increase its public expenditure investment by 6.9% of GDP over the period 2024-40 in order to fulfil its objectives and achieve vision 2050 aspirations. The main source of infrastructure gaps remain in transport, electricity, telecom and water sectors.
The same report looks at how Rwanda can fund its infrastructure gap and concludes that official sources will not be sufficient to finance the infrastructure investment required to meet Rwanda’s development goals. It therefore proposes measures to promote private sector financing of infrastructure, focusing on i) macroeconomic stability, ii) the institutional and regulatory framework for PPIs, iii) mobilization of domestic private sector financing, and iv) promoting a pro-poor infrastructure investment portfolio.
·Macroeconomic stability is the absence of internal or exogenous shocks to the economy. It will be important to maintain public debt at sustainable levels while ensuring fiscal discipline.
·Key to success will be establishing a multisector PPP project pipeline based on the identification and assessment of long-term service needs and economic viability. The transport, water and sanitation, waste management, irrigation, and housing sectors have been identified as immediate sectors where PPPs can fill the funding gap. The report also suggests the need to improve the quality of institutions to reduce uncertainty and promote private sector participation and PPPs and ensure a sound regulatory framework to attract, maintain, and secure PPPs, while ensuring the optimal contribution to the country development.
·Rwanda must also strengthen the regulatory framework to enable pure private investment in infrastructure projects especially in electricity generation and social housing.
·Rwanda needs to rebalance its investment strategy from prioritizing large strategic capital-intensive projects toward projects critical for broad-based social returns. Rwanda, therefore, needs to comply with the Malabo agreement, and allocate 10 percent of the future infrastructure investment to agriculture, allied activities and rural infrastructure and this will lead to a decline in inequality and poverty.
The African Development Bank’s (AfDB) “Rwanda country strategy paper 2022-2026” also makes some insightful observations with regard to infrastructure development challenges and opportunities going forward. In this report, the AfDB has identified priority strategic areas for Rwanda which it will be actively supporting. Priority area 1 is the “Strengthening Physical Infrastructure to Enhance the Productive Resources and Reduce the Cost of Doing Business”. These include;
·Increased access to clean and sustainable energy which will put emphasis on private sector driven development of renewable energy, notably solar and hydroelectricity, and expansion of transmission and distribution networks to enhance access.
·Increased access to safe drinking water and improved water and sanitation infrastructure. Investment in water and sanitation will focus on the construction and rehabilitation of water supply infrastructure in both the rural and urban areas, as well as the construction and rehabilitation of sanitation facilities.
·Better Connectivity to reduce cost of transportation and increased access to markets by developing Rwanda’s road infrastructure through investments in the transport sector to help address the infrastructure fragilities and connect agricultural producers to markets within the country as well as across borders.
Priority Area 2 involves “Improving skills and financial capabilities to foster private sector and productivity-led growth. This I will deal with under Rwanda’s human capital development strategy at a later date.
The ministry of infrastructure also publishes the projects that are in progress. There is no doubt that a lot of work is being done to either rehabilitate old or develop new infrastructures. In my opinion, priority must be on productive infrastructure projects which lead to increased economic activity and growth. This will have a direct exponential impact on the economy and quality of life. Funding and good project management skills will be required.
Vince Musewe is an economist and economic development policy advisor. You may contact him on vtmusewe@gmail.com