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Cablegate: Rwanda Relatively Unscathed by Global Financial

VZCZCXYZ0000
PP RUEHWEB

DE RUEHLGB #0795 3150804
ZNR UUUUU ZZH
P 100804Z NOV 08
FM AMEMBASSY KIGALI
TO RUEHC/SECSTATE WASHDC PRIORITY 5737
INFO RUEHDS/AMEMBASSY ADDIS ABABA 0212
RUEHBS/AMEMBASSY BRUSSELS 0332
RUEHJB/AMEMBASSY BUJUMBURA 0431
RUEHDR/AMEMBASSY DAR ES SALAAM 1244
RUEHKM/AMEMBASSY KAMPALA 2019
RUEHKI/AMEMBASSY KINSHASA 0571
RUEHLO/AMEMBASSY LONDON 0345
RUEHNR/AMEMBASSY NAIROBI 1350
RUEHFR/AMEMBASSY PARIS 0604

UNCLAS KIGALI 000795

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD PGOV KIDE OPIC RW
SUBJECT: RWANDA RELATIVELY UNSCATHED BY GLOBAL FINANCIAL
CRISIS...SO FAR.

REF: KIGALI 760

1. (U) Summary: The global financial crisis has so far
spared Rwanda. Rwanda's small financial sector, limited
import/export trade, subsistence agriculture and
donor-supported public sector are on the periphery of the
global financial system and as such only indirectly impacted
by the financial shocks affecting more sophisticated
economies. Lower global commodity prices have hurt some
exports such as coffee and tin, but also helped Rwanda with
less costly imported fuel and raw materials. While some
infrastructure and privatization projects may be put on hold,
the overall impact of the crisis has been minimal for Rwanda.
The IMF projects the economy will grow a robust 8.5 percent
for the year and predicts inflation will drop from its
current high of 20 percent to single digits by the end of
next year. End summary.

2. (U) Rwanda's financial sector is tiny. The country's
fledgling OTC stock/bond market registered total trades of
USD 1,000 for the week ending October 31. Rwanda's handful
of local banks are focused on retail banking with limited
commercial and real estate loan portfolios. Only a few
hotels and restaurants accept credit cards and import/export
trade is largely handled via cash or Western Union. The
inter-bank market between Rwanda and other countries is
negligible. Rwandan financial institutions have had neither
the means nor the sophistication to invest directly in
complex international financial instruments and as a result
have not suffered when those instruments collapsed.

3. (U) The Government of Rwanda (GOR) and observers are
concerned that the financial crisis will indirectly affect
Rwanda with lower tourism earnings, postponed foreign
investment and reduced donor aid. So far these concerns are
more hypothetical than real. Bookings for high-end gorilla
tours (Rwanda's primary tourism product) are made and paid
for six months or more in advance, generally on a "use it or
lose it" basis. With only 50-60 gorilla permits available
per day, demand far exceeds supply and it is unlikely that
Rwanda will see a significant drop of tourists visiting the
silverback gorillas. Similarly, hotels in Kigali have been,
and continue to be, overbooked.


4. (U) Although some foreign direct investment (FDI) may be
postponed (the local press reports that the sale of Bank of
Kigali to Barclays bank has been put on hold due to the
global crisis), other long-planned investment in the energy
sector by Contour Global and IFC, in tourism by Dubai World,
and privatization of government-owned tea plantations are
moving forward. These investments will likely generate a
spike in FDI in Rwanda in 2008.

5. (U) Some exports such as coffee and tin have been hurt by
dropping global prices (coffee prices have dropped 23 percent
- - reftel). However, Rwanda imports far more than it
exports and has benefited from declining fuel, food and raw
material import prices resulting from the global crisis. The
financial crisis has had little impact on the 85 percent of
Rwanda's population engaged in subsistence farming. Donor
countries such as the U.S., EU and World Bank who support
more than 50 percent of Rwanda's public sector have not
indicated any reduction in support due to the crisis.
Qindicated any reduction in support due to the crisis.

6. (U) According to an IMF budget review team visiting
Kigali in November, Rwanda's economy is projected to grow 8.5
percent in 2008, above last year's projections of 6.5
percent. Strong growth in construction, agriculture and the
financial sector have helped fuel the growth. The IMF budget
review team expressed concern that during 2008, inflation
accelerated to 20 percent, in part due to rising fuel and
food prices earlier in the year. However, the IMF team said
with current commodity prices declining, and new commitments
made by the GOR to freeze some government spending, they
expect inflation to return to single digits by the end of
next year. The IMF team noted that they would also like the
GOR to adopt a more flexible exchange rate policy. The
Rwandan Franc is pegged to the U.S. dollar and has recently
followed the dollar in appreciating against most other
currencies, negatively affecting exports.
SYMINGTON

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