You increased
your total Budget 2002 by 19% to 228.6 billion
Rwf. What will be the sectors benefiting from
this budget increase and how do you finance it?
Over the last four years we
have indeed run austerity budgets but this year
Government decided on an increase. The total
budget was increased in order to finance the
priority programs of the Poverty Reduction Plan.
Besides, in the coming months, a few projects
and initiatives have to be completed:
-The demobilization and reintegration of armed
forces into the civil society as a result from
the Lusaka Peace Process.
- The Formulation of a new Constitution and
strengthening Good Governance Institutions prior
to general elections for the President and the
Parliament.
-The creation of the Common Development Fund,
which will enhance decentralization and ease
the allocation of resources that will finance
development programs in the villages.
-The Gacaca trials implementation. 120,000 prisoners,
suspected to be involved in the Genocide of
1994, are awaiting their trial. Judging them
through the classical procedures would take
us 100 years. The Gacaca is a parallel court
based on a more traditional justice system,
which will significantly reduce the time necessary
for completing those judgments.
In order to reduce poverty in Rwanda, you need
to increase the investment level. Considering
the fact that the population's growth rate is
3%, our GDP growth rate should not be under
7%. This implies doubling the investment rate
from about 17% to 35% of GDP.
But how is all this financed? Can we sustainably
finance those programs without raising inflation
and increasing our debt? Yes we can, we have
not increased domestic borrowings, and we are
actually paying back to the banking system.
So, there is no need of money creation, that
means inflation.
In terms of fiscal sustainability, can we afford
this level of expenditures over a long period
of time without increasing taxes? Some of those
expenditures are only temporary: demobilization,
the Gacaca, new constitution. Within one or
two years, they should disappear.
As for those programs aimed at poverty reduction,
we will create a wider tax base that will enable
the government to generate more resources in
the future.
This process already started in 2000: in order
to avoid borrowing money from outside for investment,
we increased our domestic resources mobilization
through the introduction of the VAT. Then, we
reduced the tax on production and trade, but
we increased taxes on consumption. We raised
the VAT by 3% to 18%. This is how we intend
to finance Rwanda's development without further
inflation or borrowings.
The variety of taxes and the increase to
18% of the VAT have attracted a lot of public
outcry. To what extent do you think foreign
investors are sensitive to those parameters
when considering investing in Rwanda?
Any businessman considering investing in Rwanda
or in any other country will look at several
things:
First, will he be able to get his money back,
out of the country? He will be looking at the
political stability and the economic policies
of the country.
Second, this country must have a cost advantage,
a skilled and cheap labor.
Third, if an investor decides to produce in
this country, he has to have a significant market
potential, an effective demand. If the country
is not a big market itself, does it at least
give easy access to a larger regional market?
So, besides the various tax rates that are imposed,
we are mostly looking into stable taxation policies
that are simple and wide enough. So, you may
hear some outcry about those policies but to
my opinion they are not justified. Over the
past four years, we have reduced trade taxes
from an average of 42% to an average of 11%.
We have abolished export taxes on coffee. We
are progressively reducing corporate taxes from
40% to 30% in January 2003.
We are also in the process of joining the COMESA
Free Trade Area. In 2002, we introduced a 80%
tariff reduction on imported products that fulfill
the COMESA rules of origin. From January 2003,
it will be at 90% and in 2004, there will be
no tariff anymore. So, in order to counterbalance
this reduction in taxes we widen the tax base,
we increase taxes on consumption and this is
the reason we introduced the VAT, which has
proved to be very successful, bearing in mind
that there has been tax reductions on trade
and production. However, I cannot prevent complaints,
which also exist in any other country. My judgment
is that we have now a good tax regime. And my
main concern is now turned towards the creation
of a less complicated and more adapted legislation.
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On
January 1st 2002, Rwanda implemented a reduction
of 80% on import duty levied on imported products
from COMESA. As a result, you recently revealed
that Rwanda stands to lose about Rwf 600 million
in revenue. What would be the conditions to fulfill
for Rwanda to start benefiting from the COMESA?
At initial stages of integration, we cannot avoid
losses, which in any case I don't think can go over
USD 1.5 million. However, by opening up Rwanda to
international trade through lowering taxes, we should
theoretically increase the volume of business. So,
we may lose customs incomes but the market will
become larger and business will prosper. And if
the country has a good VAT, we can then capture
the benefits of growth and prosperity. Financing
the development of an economy on customs revenues
means closing up our economy and getting isolated.
So, we prefer making a temporary loss and benefit
from further regional trade in the medium term.
When do you believe Rwanda should start reaping
the fruits of this sacrifice?
The market is open and some companies are already
doing business within the COMESA such as the cement
factory. There is a great potential within the agro-business
sector. But there are still many challenges. The
previous government used to believe in a closed
economy, in import substitution. So, while Rwanda
is trying to open up to the region, inevitably some
companies will suffer from temporary difficulties,
as they will need to reduce their costs and train
their staff so as to better compete with their neighbors.
Whether the economy will start benefiting from the
COMESA in six months or one year is not important.
The priority is to start our adjusting to this new
regional market economy.
Would you see any assets or competitive advantages
that are still under exploited due to lack of investment?
As compared to neighboring countries, our climate
provides a competitive advantage to the agricultural
sector, food production. However, this is not enough,
as we have to make sure that we can export competitively.
If we look at the Rwanda's situation, it is a small
landlocked country, with high transport costs, not
many natural resources except the gas from Lake
Kivu and a young population. So, the largest resource
that we have here is our people, and that is where
the investment should go. Training our kids, giving
them a technical know-how and access to ICT is more
than competition. It is our priority to invest in
human resources development. What we are looking
at is to give companies the means to lower their
costs of production and improve quality.
Rwanda is a very small country with small assets.
But in the end, this is not the most important.
Everybody cares about commodities and the competitive
advantage they may represent for a country. Some
countries such as Saudi Arabia or Venezuela enjoy
large amounts of petrol at this moment. Certainly,
it is an asset. But technologies and needs change
over time and they could become irrelevant in 50
years. So, I believe that for poor countries like
Rwanda, the key to development is to add value to
the human being and every investment you make in
reducing the cost of doing business, that is access
to cheaper electricity, liberalizing the telecom
sector, etc., will contribute to this country's
self development. The size of the country is not
so much what matters as compared to the development
strategy that you adopt. At the time Singapore and
Hong-Kong were opening up, India, a much bigger
country, was practicing a protectionist policy.
Now, India is opening up and Singapore and Hong-Kong
are already miles ahead.
On the 8th of July 2002 in Durban, the African
Union replaced the Organization of African Unity
that was no longer relevant to the global economic
and political climate in Africa. It is stated by
African leaders that the new AU will be modeled
on the European Union. What do you expect from this
initiative for Africa and especially for Rwanda?
The African Union is a significant step in the right
direction. The OAU fulfilled its role very well,
which was to de-colonize the continent. Its agenda
is now over and we had to start a new agenda, well
spelled out in the NEPAD.
Let me come back on the cost of doing business and
its dependence on the market size. We want to lower
the risk of doing business. This is what an investor
looks at. In terms of market size, Africa has a
huge potential but a number of things have to be
achieved. So, what will be the role of Rwanda in
this initiative?
In July you went to Singapore and Kuala Lumpur
with the President and a delegation of Rwandan personalities
from the public and private sectors. What kind of
relationship do you intend to build with Malaysia
and more generally with Asia?
I am fascinated by what they have achieved in South
East Asia in terms of economic development. Although
Southern Asia faces many difficulties, there is
a lot of dynamism in the region. How did a country
such as Malaysia, which was very poor 30 years ago,
managed to reach this level of growth and export
USD 100 billion of goods excluding petrol and agricultural
commodities? Singapore is now at part with OECD
countries. Not less amazing for me are Cambodia
and Vietnam. It is amazing to see that, 30 years
after the war, Vietnam is now the third world largest
producer of coffee. If you go to Ho Chi Min, you
will incredibly see changes in such a short time.
We have a lot to learn from those countries and
we intend to create a very close relationship with
them. We are sending many kids to be trained in
India, as it is cheaper than Europe. We want to
increase business relations with Singapore, Hong-Kong,
China and Malaysia, as we believe we can achieve
a lot together in the context of South/South cooperation.
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