According to the IMF’s recent World Economic Outlook, the global economy is expected to grow by only 3.3 per cent, compared to the previous projection of 4 per cent. The slowdown in the global economy is especially severe in the UK and the Euro zone, which are key development partners and key markets for Rwanda’s export products. This could result in a depressed demand for our key exports to these countries. This may in turn contribute to the slowdown in the growth of Rwanda's economy in 2012/13.
Based on evidence from the research done by IPAR and commissioned by ActionAid, the revision to the investment code and the pro-poor character of the 2012/13 budget in which the government has shown prudence and responsiveness to the needs of the poor are welcome. The Government has accommodated a welcome increase in the wages of teachers and low salaried civil servants by reducing non-essential expenditure on items like office supplies and public relations while ring-fencing essential supplies of books and medicines which are important in the key sectors of education and health. Clearly, the government has got the balance right between investing in the productive sectors to support economic growth and transformation while meeting the needs of the poorest and most vulnerable. That said, ActionAid and IPAR would like to draw the government’s attention to the following critical areas which the budget speech has not adequately addressed.
Gender Ramifications to Agriculture commercialization: ActionAid and IPAR commend the government's commitment to scale-up farmer extension services, invest in fertilizers and commercialize the agriculture sector. However, ActionAid and IPAR recommend that strategies for the commercialization of agriculture take account of the need to ensure that rural women smallholder farmers can continue to meet daily food requirements for their households and earn an income from their agricultural surplus. The downside risk to agricultural commercialization is the failure of women to put food on the table as men tend to control proceeds from household food sales. A 44% stunting among infants and young children is clear evidence of a high level of malnutrition among young children despite Rwanda hitting its Millennium development goal on hunger. This adds weight to the need to protect women’s ability to feed their families and to earn a decent living from their own labour.
Credit to the agricultural sector: ActionAid and IPAR welcome government's efforts to increase credit to the private sector. However, access to finance to the agricultural sector is still a challenge. Although credit to the agriculture sector increased from 5.1 billion to 11.9 billion between 2010 and 2011, this is still small for the dominant agricultural sector, and new loans for the sector continue to be low. Furthermore, it is important to note that increased access to credit in the agriculture sector should be targeted to those who can least access it through the private sector, especially women farmers, who are the most engaged in the sector. Although SACCOs have been established closer to rural communities, women farmers still encounter difficulties in accessing credit. For enhancing credit access to farmers in rural areas, the budget should show concrete steps being taken to extend credit to agriculture as laid out in the Rural Agricultural Financing Sector Strategy (RAFSS). The RAFSS strategy sets out different mechanisms and capacity requirements for increasing access to finance within different agricultural value chains in Rwanda.
Youth and women unemployment: The budget is short on giving concrete measures that will create jobs especially for the youth and women in order to achieve Rwanda's vision 2020 objective of becoming a middle income country. As a result of Rwanda's good performance with respect to achieving the EDPRS and Vision 2020 objectives, the GDP per capita target has been raised from 900USD to 1240 USD. To achieve this revised target, an average GDP growth rate of 11.5% needs to be achieved over the next decade which is a big challenge given the slowdown in the global economic outlook. Achieving an average GDP growth rate of 11.5% over the next decade calls for aggressive and well-coordinated efforts between different government institutions and the private sector in order to generate about 2.5 million jobs by 2020. This will make the population more productive. Currently, the government has implemented a number of initiatives aimed at creating employment, increasing skills and promoting employment in both the government and private sector. However these initiatives are sometimes duplicated, scattered under different government institutions, and are not coordinated well enough to create the massive job numbers needed to take Rwanda to a middle income country by 2020. Evidence from IPAR youth employment research reveals that a number of women and youths in rural areas are not aware of the current employment and entrepreneurship initiatives aimed at benefiting them. We recommend that government implements a decentralized National Employment Agency which can help link unemployed youths and women to prospective employers and opportunities up to the district level.
Widening the tax base in a slowing global economy
ActionAid and IPAR welcome the revised tax regime for non-farm small tax payers. It has been evident for some time that the tax rate was too high and higher than in other East African Countries. Given the governance arguments for taxation as well as the ones concerning getting citizens incorporated in the tax system consideration should be given to taxing farm enterprises as well as non-farm ones. However, the fact that Rwanda's domestic tax base only covers 48% of the budget makes Rwanda vulnerable to volatilities in aid flows owing to a slowing global economy. Given that widening the tax base in a slowing global economy is a challenge that needs to be addressed in both the short and medium term, ActionAid and IPAR welcome the revision of the investment code that has been projected to yield RWF 5.2 billion.
Given the weight of evidence that tax incentives do not necessarily attract investors and represent a significant loss of revenue, it may be necessary for government to further revise the tax incentives given to foreign investors in order to recover more foregone taxes than has been done in the current budget. This will widen the domestic tax base for further investments in skills, infrastructure, and value-addition to exports to widen Rwanda’s market base. Research evidence shows that investments in the above attract more FDI than tax incentives and exemptions.