RWANDA ECONOMIC ROUNDUP

UNCLAS KIGALI 000368

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON PGOV EINV ENRG ETRD EPET BTIO RW
SUBJECT: RWANDA ECONOMIC ROUNDUP

REF: A. KIGALI 202


B. KIGALI 264


1. (U) This edition of the Rwanda economic review includes:

Commercial News:

- Rwandair shakes up management, cancels flights to
Johannesburg
- Government cracks down on shaky micro-finance institutions
- Rwandex - Rwanda's largest coffee exporter suspends
operations
- Nakumatt - Kenya's leading hypermarket chain opens branch
in Kigali

Investment Issues:

- Canadian oil exploration firm finds traces of oil in Rwanda
- African Development Corp. buys 25 percent stake in
Development Bank of Rwanda (BRD)

Development Issues:

- Government plans $200 million investment in agricultural
development
- African Development Bank (ADB) commits $13 million to rice
production project
World Bank approves additional $6 million for the Rwanda
Competitiveness and Enterprise Development Project (CEDP)

Regional Issues:

- Rwanda to host East African Community (EAC) presidential
summit June 26
- Trade with Uganda and EAC grows

Macro Economic Indicators:

- Inflation pressures grow
- Fuel consumption increases 74 percent in last 5 years
- Exports increased by 56.54 percent during first quarter of
2007 compared to first quarter of 2006
- Imports increased by 31.09 percent over the same period

Commercial News
--------------


2. (U) Rwandair: Rwanda's national airline Rwandair has been
battered recently by safety concerns, poor customer service
and financial woes (refs a,b). Former CEO Manzi Kayihura was
arrested March 28 on charges of abuse of office. Incoming
CEO and former Board Chairman Gerald Zirimwabagabo confirmed
the airline has been forced to cancel flights to Johannesburg
and Nairobi, but said it was continuing flights to Bujumbura,
Entebbe and Kilimanjaro. The new CEO admitted that a
long-hoped for privatization was delayed because, "Rwandair
is too weak to be privatized." Zirimwabagabo asserted the
airline is now looking at rebuilding its business plan and
restructuring operations.


3. (U) Microfinance: The Government of Rwanda (GOR) has
cracked down on microfinance institutions that abused public
funds and engaged in questionable financial transactions. In
April, the Prosecutor General's office arrested 33 managers
of microfinance institutions on charges of fraud. The
government alleges those arrested were issuing loans to
friends and relatives. The Prosecutor General claims
depositors were defrauded up to $10 million as a result of
the questionable transactions.


4. (SBU) Rwandex: After 44 years of operations, Rwandex (the
largest coffee processing and exporting company in Rwanda)
has suspended operations for financial reasons. Rwandex has
struggled since 2004 when government liberalization of the
coffee sector allowed more competition into the market. The
former Commercial Director of Rwandex Leo Aguma told emboffs
he does not expect the company to renew operations and that
creditors will likely sell off the company's assets.


5. (U) Kenyan chain opens: Nakumatt, a leading department
store and supermarket chain in Kenya has opened a branch in
Rwanda and plans to invest $7 million to build a 25,000
square foot supermarket stocked with more than 20,000 items
including foods, beverages, electronics and furniture. This
will be the first supermarket of this size in Rwanda.

Investment News
--------------


6. (U) Oil exploration: Canadian oil exploration company
Vangold Resources Ltd announced it has discovered traces of
oil in lake Kivu using satellite imagery and technical
review. Vangold has an exploration concession in
northwestern Rwanda covering 1,631 square kilometers. The
findings suggest that Tullow Oil's discovery in Southwestern
Uganda extends into Rwanda. Vangold will now undertake a
geochemical sampling and gravity and magnetic surveys to
determine the potential for oil exploitation.


7. (U) Banking: The African Development Corporation has
purchased a 25 percent stake in the Development Bank of
Rwanda (BRD) for $8.2 million. Henry Gaperei, Chairman of
the Board of Directors of BRD, told the local press the
capital infusion would strengthen the bank and allow it to
invest in longer term investments such as mining. The
Government of Rwanda which previously was the majority
shareholder in the bank with 48 percent of share capital, now
owns 20.6 percent of the bank.

Development Issues
--------------


8. (U) Agricultural Investment: The GOR announced plans to
invest $200 million over the next four years in agricultural
development, including irrigation and soil conservation
projects, to encourage production of high-value crops and
improve agricultural yields. The investment will be financed
15 percent from the GOR, 40 percent from donor grants and 45
percent from loans from the World Bank and China. The
Rwandan Finance and Economic Planning Minister told reporters
10,000 hectares are targeted for terracing and irrigation
projects and will support increased yields of coffee, tea,
apples and avocados. The GOR and the African Development
Bank have also committed $13 million to towards rice
production in Bugesera.


9. (U) Private Sector Development: The World bank approved an
additional $6 million grant to the CEDP to expand support for
private sector development. The funds will be used to help
build capacity in the microfinace sector, develop accounting
and auditing standards and enhance regulation and supervision
of non-bank financial institutions.

Regional Issues
--------------


10. (U) EAC Summit: Rwanda will host the EAC presidential
summit on June 26. The summit will focus on fast-tracking
regional integration and feature an EAC investment forum.
Rwanda, which joined Kenya, Tanzania, Uganda and Burundi in
the EAC in 2007, has been a strong advocate of EAC economic
integration and has seen a rapid expansion of trade with
member states. According to the Uganda Export Board, trade
between Rwanda and Uganda has tripled since Rwanda joined the
EAC.


Macro-Economic Indicators
--------------


11. (U) Inflation: Inflationary pressures continue to grow
with annualized inflation now estimated at 12-13 percent
(from below 10 percent last year),according to local bank
sources. Increased food and fuel prices have been
significant contributors to accelerating inflation. The
Central Bank reported fuel imports have increased by 74
percent over the last five years and account for 90 percent
of all imports. As a result of increased fuel demand and
Qof all imports. As a result of increased fuel demand and
higher prices, overall imports increased by 29 percent in

2007. Similarly, imports of food products during the first
quarter of 2007 increased by 107.4 percent in value compared
to the same period in 2006. Additionally, growing domestic
capital and foreign exchange reserves have not been
efficiently recycled into long term capital investments
increasing upward pressure on inflation, according to US
Treasury Department consultants.


12. (U) Export Growth: During the first quarter of 2007, the
dollar value of Rwandan exports increased by 56.6 percent
compared to the same period in 2006. Export growth was
driven by traditional exports of coffee, tea and minerals
which accounted for 80 percent of all exports. Pyrethrum
exports also showed strong growth, assisted by a 40 percent
rise in market prices.
ARIETTI