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Cablegate: Rwanda Economic Roundup

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E.O. 12958: N/A
TAGS: EFIN ECON PGOV EINV ENRG ETRD EPET BTIO RW
SUBJECT: RWANDA ECONOMIC ROUNDUP

REF: A. KIGALI 202

B. KIGALI 264


1. (U) This edition of the Rwanda economic review includes:

Commercial News:

- Rwandair shakes up management, cancels flights to Johannesburg
- Government cracks down on shaky micro-finance institutions
- Rwandex - Rwanda's largest coffee exporter suspends operations
- Nakumatt - Kenya's leading hypermarket chain opens branch in Kigali

Investment Issues:

- Canadian oil exploration firm finds traces of oil in Rwanda
- African Development Corp. buys 25 percent stake in Development Bank o
Rwanda (BRD)

Development Issues:

- Government plans $200 million investment in agricultural development
- African Development Bank (ADB) commits $13 million to rice production
project
World Bank approves additional $6 million for the Rwanda Competitiven
and Enterprise Development Project (CEDP)

Regional Issues:

- Rwanda to host East African Community (EAC) presidential summit June
- Trade with Uganda and EAC grows

Macro Economic Indicators:

- Inflation pressures grow
- Fuel consumption increases 74 percent in last 5 years
- Exports increased by 56.54 percent during first quarter of 2007 compa
to first quarter of 2006
- Imports increased by 31.09 percent over the same period

Commercial News
---------------

2. (U) Rwandair: Rwanda's national airline Rwandair has been battered
recently by safety concerns, poor customer service and financial woes
(refs a,b). Former CEO Manzi Kayihura was arrested March 28 on charges
abuse of office. Incoming CEO and former Board Chairman Gerald
Zirimwabagabo confirmed the airline has been forced to cancel flights t
Johannesburg and Nairobi, but said it was continuing flights to Bujumbu
Entebbe and Kilimanjaro. The new CEO admitted that a long-hoped for
privatization was delayed because, "Rwandair is too weak to be
privatized." Zirimwabagabo asserted the airline is now looking at
rebuilding its business plan and restructuring operations.

3. (U) Microfinance: The Government of Rwanda (GOR) has cracked down o
microfinance institutions that abused public funds and engaged in
questionable financial transactions. In April, the Prosecutor General'
office arrested 33 managers of microfinance institutions on charges of
fraud. The government alleges those arrested were issuing loans to
friends and relatives. The Prosecutor General claims depositors were
defrauded up to $10 million as a result of the questionable transaction

4. (SBU) Rwandex: After 44 years of operations, Rwandex (the largest
coffee processing and exporting company in Rwanda) has suspended
operations for financial reasons. Rwandex has struggled since 2004 whe
government liberalization of the coffee sector allowed more competition
into the market. The former Commercial Director of Rwandex Leo Aguma t
emboffs he does not expect the company to renew operations and that
creditors will likely sell off the company's assets.

5. (U) Kenyan chain opens: Nakumatt, a leading department store and
supermarket chain in Kenya has opened a branch in Rwanda and plans to
invest $7 million to build a 25,000 square foot supermarket stocked wit
more than 20,000 items including foods, beverages, electronics and
furniture. This will be the first supermarket of this size in Rwanda.

Investment News
QInvestment News
---------------

6. (U) Oil exploration: Canadian oil exploration company Vangold Resour
Ltd announced it has discovered traces of oil in lake Kivu using satell
imagery and technical review. Vangold has an exploration concession in
northwestern Rwanda covering 1,631 square kilometers. The findings
suggest that Tullow Oil's discovery in Southwestern Uganda extends into
Rwanda. Vangold will now undertake a geochemical sampling and gravity
magnetic surveys to determine the potential for oil exploitation.

7. (U) Banking: The African Development Corporation has purchased a 25
percent stake in the Development Bank of Rwanda (BRD) for $8.2 million.
Henry Gaperei, Chairman of the Board of Directors of BRD, told the loca
press the capital infusion would strengthen the bank and allow it to
invest in longer term investments such as mining. The Government of
Rwanda which previously was the majority shareholder in the bank with 4
percent of share capital, now owns 20.6 percent of the bank.

Development Issues
------------------

8. (U) Agricultural Investment: The GOR announced plans to invest $200
million over the next four years in agricultural development, including
irrigation and soil conservation projects, to encourage production of
high-value crops and improve agricultural yields. The investment will
financed 15 percent from the GOR, 40 percent from donor grants and 45
percent from loans from the World Bank and China. The Rwandan Finance
Economic Planning Minister told reporters 10,000 hectares are targeted
terracing and irrigation projects and will support increased yields of
coffee, tea, apples and avocados. The GOR and the African Development
Bank have also committed $13 million to towards rice production in
Bugesera.

9. (U) Private Sector Development: The World bank approved an additiona
$6 million grant to the CEDP to expand support for private sector
development. The funds will be used to help build capacity in the
microfinace sector, develop accounting and auditing standards and enhan
regulation and supervision of non-bank financial institutions.

Regional Issues
---------------

10. (U) EAC Summit: Rwanda will host the EAC presidential summit on Jun
26. The summit will focus on fast-tracking regional integration and
feature an EAC investment forum. Rwanda, which joined Kenya, Tanzania,
Uganda and Burundi in the EAC in 2007, has been a strong advocate of EA
economic integration and has seen a rapid expansion of trade with membe
states. According to the Uganda Export Board, trade between Rwanda and
Uganda has tripled since Rwanda joined the EAC.


Macro-Economic Indicators
-------------------------

11. (U) Inflation: Inflationary pressures continue to grow with annuali
inflation now estimated at 12-13 percent (from below 10 percent last
year), according to local bank sources. Increased food and fuel prices
have been significant contributors to accelerating inflation. The Cent
Bank reported fuel imports have increased by 74 percent over the last f
years and account for 90 percent of all imports. As a result of increa
fuel demand and higher prices, overall imports increased by 29 percent
2007. Similarly, imports of food products during the first quarter of
2007 increased by 107.4 percent in value compared to the same period in
2006. Additionally, growing domestic capital and foreign exchange
reserves have not been efficiently recycled into long term capital
investments increasing upward pressure on inflation, according to US
Treasury Department consultants.

12. (U) Export Growth: During the first quarter of 2007, the dollar va
Q12. (U) Export Growth: During the first quarter of 2007, the dollar va
of Rwandan exports increased by 56.6 percent compared to the same perio
in 2006. Export growth was driven by traditional exports of coffee, te
and minerals which accounted for 80 percent of all exports. Pyrethrum
exports also showed strong growth, assisted by a 40 percent rise in mar
prices.
ARIETTI

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