A New Growth Path for Rwanda: Private Sector, Resilience, and Inclusive Development

The World Bank and Rwanda's government outline a strategic shift towards private sector-led growth to achieve sustainable development, reduce poverty, and improve resilience amid economic and climate challenges. Key recommendations include diversifying exports, enhancing financial access for SMEs, building workforce skills, and investing in climate adaptation and fiscal efficiency.

The World Bank and the Rwandan government collaborated on a Country Economic Memorandum (CEM) to explore strategic pathways for Rwanda’s sustainable and inclusive economic growth. Rwanda has achieved remarkable success in reducing poverty by over 20 percentage points since 2001 while making strides in healthcare, education, and life expectancy. However, recent years have shown a decline in the impact of each point of GDP growth on poverty reduction, and the COVID-19 pandemic and other global shocks have driven poverty rates back up. Rwanda’s long-term economic goals are ambitious, aiming to reach upper-middle-income status by 2035 and high-income status by 2050, but significant challenges remain. Low productivity, insufficient job creation, high public debt, climate vulnerabilities, and limited natural resources are key barriers. The CEM highlights a shift from reliance on public investment toward a private sector-led approach to boost productivity, create jobs, and bridge infrastructure gaps.

Boosting Private Sector Growth and Workforce Skills

To drive productivity and growth, the CEM emphasizes the need to bolster Rwanda’s private sector. The country’s small, often informal firms operate in low-value sectors and face challenges from regulatory barriers, limited access to finance, and a skills gap. The report advocates for reforms to strengthen business competition, enhance privatization policies, and support innovation. Additionally, Rwanda’s education system, while improved, still faces obstacles in meeting labor market demands. Emphasizing technical and vocational training and aligning education with job market needs are key recommendations. The report also highlights the importance of better financial access for micro, small, and medium enterprises (SMEs) to help them expand and create jobs. Digital financial services, improved financial literacy, and greater availability of formal financing channels are proposed measures to strengthen SMEs, which are critical to Rwanda’s economic fabric.

Expanding and Diversifying Rwanda’s Export Sector

Rwanda’s export sector has grown impressively, yet it remains vulnerable due to its reliance on a limited range of products and markets. The CEM underscores the need to diversify Rwanda’s export portfolio and explore digital and service-based trade, which could help the country transition to higher-value activities. Further establishing Rwanda as a regional logistics hub could also enhance resilience, especially given the importance of the Democratic Republic of Congo (DRC), which currently accounts for a third of Rwanda’s exports. Recommendations include enhancing infrastructure at the DRC border, expanding multimodal transport, and improving regulatory alignment with neighboring countries to facilitate trade within the East African Community (EAC). The African Continental Free Trade Area (AfCFTA) is highlighted as an essential framework to help Rwanda access broader markets and create new opportunities.

Ensuring Inclusive Growth and Reducing Inequality

While structural transformation has supported poverty reduction and job creation, the benefits have disproportionately favored more educated workers, thus deepening inequality. High-value sectors such as ICT remain accessible mainly to university-educated individuals, who make up only a small percentage of the workforce. The report suggests urban development as a potential equalizer, with infrastructure and public service improvements in secondary cities to reduce the pressure on Kigali and create broader employment opportunities. The agriculture sector, crucial to Rwanda’s economy, faces challenges of low productivity, limited market access, and climate vulnerability. Increasing productivity in agriculture could be achieved by integrating "Farming as a Business" into government support models and fostering private investment in cold storage and logistics. Addressing gender disparities in agriculture is also crucial, as female-led farms typically have smaller yields and less access to resources compared to male-led farms. Closing this productivity gap could improve incomes and boost sectoral growth.

Building Climate Resilience and Ensuring Fiscal Sustainability

With Rwanda’s high dependency on climate-sensitive sectors like agriculture and nature-based tourism, the impact of climate change presents substantial risks. Climate-smart agriculture, sustainable water management, and nature-based solutions (NBS), such as wetland restoration, are identified as essential strategies for climate resilience. Expanding nature-based tourism could generate revenue while preserving biodiversity, though these efforts will require substantial financial resources. Rwanda’s commitment to its Nationally Determined Contributions (NDCs) involves an estimated $11 billion in investment by 2030, and the report suggests innovative financing methods like climate bonds and international funds to bridge this gap. Fiscal sustainability remains central to Rwanda’s strategy, given the significant rise in public debt, which reached 66 percent of GDP by 2022. The report recommends improving public investment efficiency, tax administration, and leveraging private sector financing, particularly through public-private partnerships (PPPs), to alleviate fiscal pressure while meeting development goals. Rwanda’s journey to high-income status will rely on a blend of private sector growth, climate resilience, inclusive policies, and fiscal stability, creating a bold yet achievable roadmap for the future.