Sample Management Paper on Foreign Direct Investment in Rwanda

In the 21st century, inflows of foreign direct investment (FDI) into Rwanda have increased significantly. The massive inflow of FDI into Rwanda is a direct result of its potential for economic development. Rwanda, a small African country, is a significant beneficiary of FDI inflows into Africa not only from foreign multinational companies but also nations. Despite its dark historical past, which culminated in the genocide of 1994, Rwanda has made significant economic achievements in recent years. The post-genocide Rwandan government has consistently strived to create a favorable economic climate to retain and attract additional FDI inflows into the country. Rwanda’s current FDI strategic initiatives and economic competitiveness strategy are centered on the nation’s ability to maintain relative political stability. Rwanda is lucrative for FDIs because of its abundant supply of natural and human resources coupled with the general political stability prevailing in the country under the leadership of President Paul Kagame,

History

Rwanda is has a dark history inundated by politically instigated chaos and internecine violence. Previously colonized by Belgium, Rwanda gained its independence on 1st July 1962. the nation has only two ethnic tribes, Hutus and Tutsis, who usually struggle for the political leadership of the small African nation. Between 1962 and 1990, members of the two ethnic tribes engaged in numerous sporadic and intermittent clashes that caused the loss of lives of hundreds of thousands of people and the displacement of millions of Rwandese from their homes. The constant violence also compromised the nation’s economic growth and FDI, therefore, making Rwanda one of the poorest countries in the world.

The continuous ethnic tension and political rivalry between the Tutsis and Hutus resulted in the 1994 Rwandan genocide. The genocide was sparked by the assassination of President Juvenal Habyarimana, a Hutu, on 6th April 1994 (Ezeoha & Ugwu, 2015). The assassination of President Habyarimana gave the Hutu extremists a reason to embark on the systematic decimation of the Tutsis. Within three months into the genocide, an estimated 800,000 people had been massacred (Clark, 2014; Ezeoha & Ugwu, 2015). A paramilitary organization, the Rwandan Patriotic Front, led by Paul Kagame, captured the nation’s capital, Kigali, and put an end to the genocide. According to Clark (2014), the Rwandan genocide negatively impacted the nation’s economy as it stopped all FDI inflows into the country and disrupted the agricultural sector that was the backbone of the economy. nevertheless, under the leadership of President Kagame, who has maintained relative political stability in the nation, Rwanda has a rejuvenated economy that is attractive to not only domestic but also foreign investments.

Rwanda’s Development Challenge

Even though in recent years, Rwanda has recorded significant achievements, pertaining to its development, the nation still faces several challenges. Rwanda promulgated a progressive constitution in 2003, which not only has inbuilt democratic institutions but also secures fundamental human rights and free trade in the nation (Hakizimana, 2015). The authoritarian and military leadership style of incumbent President Paul Kagame has, however, drawn Rwanda criticism, particularly from developed democracies of the West. Clark (2014) argues that regardless of the achievements Rwanda has made under the leadership of President Kagame, his administration is authoritarian and oppressive to his opponents. According to Hakizimana (2015), Rwanda’s Judiciary is not independent of the Kagame-led executive despite the constitution providing for judicial independence. Lack of judicial independence and accountability is a huge challenge to Rwanda’s economic development, particularly its attraction of FDI.

Rwanda’s economy is undiversified, and this negatively impacts its economic development. According to Flora, Tian, and Ezezue (2020), agriculture, particularly cash crops,such as coffee, is the backbone of Rwanda’s economy. the corporation needs to diversify its economy and invest massively in sectors such as mining, due to its extensive mineral and natural gas deposits to quicken its rate of economic growth. The colossal deposits of natural resources in Rwanda can attract massive FDI inflows in the nation if prudently exploited (Flora et al., 2020; Kiros, 2016). Moreover, Rwanda should develop an indigenous FDI strategic plan to regulate how it will benefit from its foreign investments. Currently, Rwanda relies on a domesticated version of Singapore’s aggressive FDI strategic plan.

Host Country Political Risk

Rwanda has an ambitious goal of becoming the economic hub of Central and East Africa. To realize its economic goal the nation has to mitigate all political risks that threaten its economic development, such as authoritarian leadership, lack of judicial independence, and an autochthonous development strategy. Rwanda has to consistently ensure that it maintains relative political and social stability to remain a lucrative destination for FDIs. Social and political stability will enable the nation to develop mutually beneficial trade relationships with its neighboring countries and, therefore, integrate into the wider regional economy of East and Central Africa (Klare & Volman, 2006). The onus is, therefore, on President Kagame to drop his dictatorial leadership style and fully embrace his political opponents. The lack of judicial independence in Rwanda is also an impediment to the nation’s economic development as it discourages interested foreign investors who need to be assured of the adequate legal protection of their investments in the country. Moreover, a competent and independent judiciary is integral to the protection of FDIs as it assures investors of justice in the event of any future trade disputes. Thus, Rwanda should strengthen the independence of its legal system by enacting structural mechanisms that disentangle its judiciary from the ambit of the executive.

Rwanda needs to develop an autochthonous economic development plan and FDI strategy that takes into consideration its inherent strengths and weaknesses. Currently, Rwanda’s FDI economic strategy, Vision 2020, is based on Singapore’s aggressive development model (Ulrich & Thomas, 2014). Singapore’s economic conditions are quite different from that of Rwanda; thus, using the country’s model may fail to be effective in the nation. Rwanda should develop its own FDI strategy that acknowledges the nation’s economic weaknesses and strengths and proposes ways of leveraging its competitive advantages for economic development (Ulrich & Thomas, 2014). An indigenous FDI strategic plan will streamline and accentuate Rwanda’s benefit from its FDI inflows.

FDI in Rwanda

Rwanda has several strategic assets and resources, both natural and human, that make it a top destination for FDI in Africa. Rwanda’s strategic objectives on FDI is based on the network management theory. According to Stoker (2006), the network management theory espouses that the main task of good governance is to administer a set of connections, networks, or the operation of the complex mix of actors effectively in the administration and development affairs of the country. Thus, through good governance and political stability, Rwanda’s administration hopes to attract and retain inflows of FDIs into the nation. Foreign companies investing in Rwanda are attracted by several factors, including its natural and human resources and strategic assets. Rwanda has a population of 11.2 million, and a population growth of 2.4 percent per year, making it one of the most densely populated nations in Sub-Saharan Africa (Sebikabu, Ruvuna, & Ruzima, 2020). The high population density of Rwanda makes it attractive to foreign companies seeking markets for their products.

The availability of both natural resources and strategic assets in Rwanda makes the nation attractive to foreign investments. The nation has several natural resources, such as gold, coltan, and natural gas that are lucrative to foreign companies. According to Balinda (2016), more than 35% of the FDI inflows in Rwanda target the mining sector, particularly the mining of gold and natural gas. Rwanda also has strategic assets that are attractive to international firms that seek to remain competitive and profitable. For example, Rwanda has not only a highly literate and bilingual population but is also centrally located in Africa, giving it an extensive reach throughout the continent. Rwanda’s numerous strategic assets and natural resources have made it a top FDI destination among developing nations globally.

Rwanda Airline

Rwanda has a well-developed and competitive air transport sector that has enabled it to attract FDI inflows compared to other developing nations. Rwanda relies on air transport for its exports and imports because it is landlocked. The nation’s Air transport is currently controlled by RwandAir Limited, which is a subsidiary of the Rwandan government.  RwandAir, which was founded in December 2002 and currently connects Rwanda to 29 nations in Europe, Africa, and Asia, is the flag carrier airline of the country (RwandAir, 2020). RwandAir operates from Kigali International Airport, its headquarters, and the Cardinal Bernadin Gantin de Cotonou International Airport. In 2015, RwandAir officially became a member of the International Air Transport Association (IATA) ((RwandAir, 2020). The inclusion of RwandAir in the IATA and its subsequent audit by ISAGO confirmed its place as a competitive international airline.

RwandAir’s vision is in line with not only its domestic but also global strategic operations. According to RwandAir (2020), RwandAir’s vision is to be the airline of obvious choice in the markets it serves. RwandAir Limited has invested billions of dollars into the operations of RwandAir to make it the best airline in East and Central Africa. Currently, the airline is considered one of the fastest-growing ones in the world (Darras, 2020). Moreover, the RwandAir line has signed numerous strategic agreements and concessions with other international airlines to achieve its vision. An example of RwandAir’s strategic agreements includes its partial acquisition by Qatar Airways in February 2020. The partial acquisition by Qatar airlines will give a competitive edge to RwandAir and thus push it closer to achieving its vision.

Qatar Airways Investments in Rwanda

The recent acquisition of a huge stake in RwandAir by Qatar Airlines is an example of FDI inflows into Rwanda. Qatar Airlines in February 2020, concluded an agreement that culminated in their acquisition of 49% of RwandAir (Darras, 2020). In addition to its acquisition of the airline, Qatar Airways acquired 60% of Rwanda’s main airport, the Bugesera International Airport (Darras, 2020). The acquisitions are of strategic importance to not only Qatar Airways but also to RwandAir. Qatar’s acquisition of a huge stake in RwandAir gives the airline unparalleled access to the growing African air transport sector. According to Darras (2020), Qatar Airways’ acquisition of stakes in both RwandAir and Bugesera International Airport would enable the airline to travel to nations that it was previously blocked from accessing as it can now fly under RwandAir flight numbers. Inversely, RwandAir will gain immense competitive advantages from the massive technical expertise and financial ability of their new partners. Moreover, RwandAir can also use the Qatar Airways code to fly over Saudi Arabia and thus increase its flight destinations.

Conclusion

Rwanda, through the effective leadership of President Kagame, has recorded tremendous change with regard to its economic development. Internecine violence that culminated in the 1994 Rwandan genocide killed thousands of people and destroyed the nation’s developing economy. nevertheless, sound leadership made the nation politically stable and bustling with economic opportunities. Rwanda’s massive population, natural resources, and strategic assets have made the nation an attractive destination for FDIs. An example of FDIs in Rwanda is the recent acquisition of huge stakes in RwandAir and the Bugesera International Airport by Qatar Airways.

 

 

References

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Clark, P. (2014). After genocide: Democracy in Rwanda, 20 years on. Juncture20(4), 308-311. https://doi.org/10.1111/j.2050-5876.2014.00771.x

Darras, R. (2020, February 10). Qatar Airways confirms the purchase of 49% stake in RwandAir. Retrieved from https://www.theafricareport.com/23179/qatar-airways-confirms-purchase-of-49-stake-in-rwandair/

Ezeoha, A. E., & Ugwu, J. O. (2015). Interactive impact of armed conflicts on foreign direct investments in Africa. African Development Review27(4), 456-468. https://doi.org/10.1111/1467-8268.12161

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Hakizimana, J. (2015). The relationship between Foreign Direct Investment (FDI) and GDP per capita in Rwanda. https://dx.doi.org/10.2139/ssrn.2598413

Kiros, G. (2016). Challenges of good governance in Rwanda after the genocide era: A critical review of the literature. African Journal of Governance and Development5(2), 7-16. Retrieved from https://journals.co.za/content/journal/10520/EJC-bf410739b?crawler=true&mimetype=application/pdf

Klare, M., & Volman, D. (2006). America, China & the scramble for Africa’s oil. Review of African Political Economy33(108), 297-309. https://doi.org/10.1080/03056240600843048

RwandAir (2020). Retrieved from https://www.rwandair.com/about-us/who-we-are-n/

Sebikabu, D. R., Ruvuna, E., & Ruzima, M. (2020). Population Growth’s Effect on Economic Development in Rwanda. In Rwandan Economy at the Crossroads of Development (pp. 73-95). Springer, Singapore.

Stoker, G. (2006). Local governance research: paradigms, theories, and implications. Lecture prepared for presentation at Zhejiang University.

Ulrich, L., & Thomas, R. S. (2014). Building national competitive advantage: Rwanda’s lessons from Singapore. Thunderbird International Business Review, 56(3), 227–242. https://doi-org.ezphost.dur.ac.uk/10.1002/tie.21618