In a landlocked country without natural resources, pushing the service sector and investing in technology is a fine idea. One snag: the strategy has produced too few skilled jobs. Many are now questioning whether the focus should shift to agribusiness and manufacturing.
Agnes Umutoni, 25, wakes up every morning to report to work. By 6.30am at the latest, she is at the premises of a new hotel on the outskirts of Kigali to prepare the counter for yet another hectic day.
We have already made the transition from agriculture to mainly services and industry
She works at the hotel as a receptionist for six days a week until 10pm. For the 15 hours a day she works, Umutoni takes home a net salary of RWF100,000 ($145) per month.
"It is better than sitting home all day. For that amount, I pay my rent and afford basic needs but I cannot pay my university tuition yet. I want to go back to school," she says. She already holds a diploma in public administration.
"It is insufficient because the cost of living in Kigali is very high. I'm still looking out for better-paying jobs, but it is very difficult to find a job in Kigali. I know so many people who are unemployed,yet they completed university."
Umutoni is among the thousands of Rwandans employed in the country's much-vaunted service sector who live hand to mouth despite having work.
Stark choices
When hammering out Rwanda's national business plan, the drafters at the top of the ruling party are faced with stark choices. The country is landlocked and lacks natural resources.
Manufacturing and trade in goods is difficult even with perfect infrastructure.
The government's Vision 2020 strategy is focused on Rwanda transforming itself from an agricultural to a knowledge-based economy.
"Technology is increasingly becoming part of the daily life of every citizen," insisted President Paul Kagame in his December 2014 state of the nation address.
The government wants Kigali to be a regional hub for high-value services in sectors such as technology, finance, tourism and real estate.
But will it work? Can the country gain enough critical mass to displace or complement other regional hubs like Nairobi?
One sceptical airline chief executive who prefers to stay nameless points to the several regional hops that planes take to pick up passengers before heading on intercontinental flights.
"There just aren't enough people transiting in and out of Kigali," he says. It may only be a question of time.
Rwanda's service sector has been among the most dynamic over the 2007-2013 period, with wholesale and retail trade, education, finance and insurance, and transport, storage and communications all growing at average rates in excess of 10% per year since 2007, figures from the UN Economic Commission for Africa (UNECA) show.
The sector now accounts for half of Rwanda's gross do- mestic product.
"The Rwandan case study shows the difficulties of achieving structural transformation for low-income landlocked countries, even when the country possesses, by all accounts, a fairly efficient government bureaucracy and a policy environment which is generally amenable to private sector development" argues Andrew Mold, a Kigali-based economist with UNECA.
"But with bold policy initiatives, and by adopting a pragmatic, and where necessary heterodox, approach, it is possible to overcome the supply-side constraints," he explains.
International trade has been a key factor in expanding the Rwandan economy far beyond national markets, as exports of goods and services increased from $70m in 1995 to more than $859m in 2011.
Services increased as a share of total exports from 24 to 46% over that period, with a peak at 64% in 2009, according to the UN Conference on Trade and Development.
But Rwanda continues to run a large trade deficit, with the current account deficit expected to deteriorate to $803.2m in 2014 from $537.5m in 2013.
Despite the recent surge in service exports, agricultural commodities – in particular coffee and tea – remain an important source of export growth.
Critics ask if there are enough jobs in services to warrant a focus on the sector. Growth in the sector has been led by wholesale and retail trade businesses, real estate, telecommunications and financial services.
This has largely been driven by rapid urbanisation, though Rwanda remains among the lowest urbanised countries in the world.
Projections indicate that about 35% of the population will be living in cities by 2020.
Few new positions
New companies in Rwanda's service sector have not delivered many jobs. The East Africa Exchange, a commodities exchange founded in 2012, employs 19 people directly.
Crane Bank Rwanda, a subsidiary of Uganda's fourth-largest bank, began operations in June 2014. It has two branches in Kigali and employs about 30 people.
Given Rwanda's rising population density – 416 people/km2 – which is among the highest in Africa, creating off-farm jobs is imperative.
The Kigali Conceptual Master Plan lies at the centre of Rwanda's aspiration to reposition itself regionally and globally as a sophisticated service economy.
Kigali's Central Business District includes the neighbourhoods of Muhima, Nyarugenge and Kimicanga.
It is envisaged that these areas be re-developed as the financial, business and entertainment centres for both Rwanda and the region.
The soon-to-be glitzy Kigali Convention Centre by the KG2 roundabout in Kimihurura is currently an inelegant sphere erupting from the ground but should provide the centrepiece for the government's business tourism strategy.
The Rwanda Development Board (RDB) argues that more than 70% of the jobs created in Kigali over the past decade have been in the services sector, particularly in sub-sectors such as telecommunications, finance and tourism.
However, a high proportion of this workforce is employed in low- productivity and poorly paid jobs on a casual basis and without access to the benefits of social security.
"The trend shows that we are heading towards our ambition. The issues of productivity and labour are always very complex in any market," says Francis Gatare, the RDB's chief executive, adding that more productive jobs will be created in the long run with more investment in technology and education.
Others say that quantity rather than quality is the issue.
"We have already made the transition from agriculture to mainly services and industry. There's still a lot that needs to be done," says Yusuf Murangwa, the director general of Rwanda's National Institute of Statistics.
"We still need to see a transition in terms of jobs: though the output is already big in terms of service compared to agriculture and industry, jobs are still less [productive]."
Social inequality
And should the country be focusing on more job-intensive sectors instead? Some experts argue that as high-tech services demand specialised skills and create few jobs, their contribution to aggregate employment is bound to remain limited.
Manufacturing, on the other hand, can absorb large num- bers of workers with moderate skills, providing them with stable jobs and good benefits.
For Dickson Malunda, a senior research fellow at the Institute of Policy Analysis and Research– Rwanda, the government has to do more to attract investment in manufacturing and agro-processing in order to address inequality.
The failure to create decent jobs in the service sector has contributed to the uneven distribution of income and other benefits of growth, making Rwanda one of the most unequal countries in the region.
Statistics from the World Bank for 2011, the most recent year available, show that the top 10% of the population took 43.2% of national income while the bottom 10% took 2.1%.
"In just one decade, most East African economies reduced the share of agriculture in the economy and substantially increased that of the service sector.
"While there is no problem with this, the ability of the service sector to provide decent employment opportunities for rural migrants is weak," observes a 2014 Millennium Development Goals report, pointing out that less than 10% of the working population in most East African countries is formally employed.
That matters in every country. But in a country where the trade-off for cur- tailed civil liberties is enhanced economic progress, it may matter more. ●
