Economy of Rwanda

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Rwanda is a rural country with about 90% of the population engaged in agriculture. It is the most densely populated country in Africa; is landlocked; and has few natural resources and minimal industry. Primary exports are coffee and tea. The 1994 genocide destroyed Rwanda's fragile economic base, severely impoverished the population, particularly women, and eroded the country's ability to attract private and external investment. However, Rwanda has made significant progress in stabilizing and rehabilitating its economy. In June 1998, Rwanda signed an Enhanced Structural Adjustment Facility with the International Monetary Fund. Rwanda has also embarked upon an ambitious privatization program with the World Bank. Continued growth depends on the maintenance of international aid levels and the strengthening of world prices of coffee and tea.

The Rwanda virtual library is based on the largely rainfed agricultural production of small, semisubsistence, and increasingly fragmented farms. It has few natural resources to exploit and a small, uncompetitive industrial sector. While the production of coffee and tea is well-suited to the small farms, steep slopes, and cool climates of Rwanda and has ensured access to foreign exchange over the years, farm size continues to decrease.

Prewar population was growing at the high rate of 3% a year. By 1994, farm size, on average, was smaller than one hectare, while population density was more than 450 persons per square kilometer of arable land.

Contents

History

In the 1960s and 1970s, Rwanda's prudent financial policies, coupled with generous external aid and relatively favorable terms of trade, resulted in sustained growth in per capita income and low inflation rates. However, when world coffee prices fell sharply in the 1980s, growth became erratic.

Compared to an annual GDP growth rate of 6.5% from 1973 to 1980, growth slowed to an average of 2.9% a year from 1980 through 1985 and was stagnant from 1986 to 1990. The crisis peaked in 1990 when the first measures of an IMF structural adjustment program were carried out. While the program was not fully implemented before the war, key measures such as two large devaluations and the removal of official prices were enacted. The consequences on salaries and purchasing power were rapid and dramatic. This crisis particularly affected the educated elite, most of whom were employed in civil service or state-owned enterprises.

During the 5 years of civil war that culminated in the 1994 genocide, GDP declined in 3 out of 5 years, posting a dramatic decline at more than 40% in 1994, the year of the genocide. The 9% increase in real GDP for 1995, the first postwar year, signaled the resurgence of economic activity.

After the Rwandan Genocide, the Tutsi-led government began a major program to improve the country's economy and reduce its dependence on subsistence farming. The failing economy had been a major factor behind the genocide, as was overpopulation and the resulting competition for scarce farmland and other resources. The government focused primarily on building up its manufacturing and service industries and eliminating barriers to trade and development.

The Government of Rwanda posted a 13% GDP growth rate in 1996 through improved collection of tax revenues, accelerated privatization of state enterprises to stop their drain on government resources, and continued improvement in export crop and food production. Tea plantations and factories continue to be rehabilitated, and coffee, always a smallholder's crop, is being more seriously rehabilitated and tended as the farmers' sense of security returns. However, the road to recovery will be slow. Coffee production of 14,578,560 tons in 2000 compares to a pre-civil war variation between 35,000 and 40,000 tons. By 2002 tea became Rwanda’s largest export, with export earnings from tea reaching US$ 18 million equating to 15 000 tons of dried tea. Rwanda's natural resources are limited. A small mineral industry provides about 5% of foreign exchange earnings. Concentrates of the heavy minerals cassiterite, columbite-tantalite, and wolframite are most important, followed by small amounts of gold and sapphires. Production of methane from Lake Kivu began in 1983, but to date has been used only by a brewery. Depletion of the forests will eventually pressure Rwandans to turn to fuel sources other than charcoal for cooking and heating. Given the abundance of mountain streams and lakes, the potential for hydroelectric power is substantial. Rwanda is exploiting these natural resources through joint hydroelectric projects with Burundi and the Democratic Republic of the Congo.

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