RWANDA RELATIVELY UNSCATHED BY GLOBAL FINANCIAL

UNCLAS KIGALI 000795 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EINV ETRD PGOV KIDE OPIC RW SUBJECT: RWANDA RELATIVELY UNSCATHED BY GLOBAL FINANCIAL CRISIS...SO FAR. REF: KIGALI 760 ¶1. (U) Summary: The global financial crisis has so far spared Rwanda. Rwanda's small financial sector, limited import/export trade, subsistence agriculture and donor-supported public sector are on the periphery of the global financial system and as such only indirectly impacted by the financial shocks affecting more sophisticated economies. Lower global commodity prices have hurt some exports such as coffee and tin, but also helped Rwanda with less costly imported fuel and raw materials. While some infrastructure and privatization projects may be put on hold, the overall impact of the crisis has been minimal for Rwanda. The IMF projects the economy will grow a robust 8.5 percent for the year and predicts inflation will drop from its current high of 20 percent to single digits by the end of next year. End summary. ¶2. (U) Rwanda's financial sector is tiny. The country's fledgling OTC stock/bond market registered total trades of USD 1,000 for the week ending October 31. Rwanda's handful of local banks are focused on retail banking with limited commercial and real estate loan portfolios. Only a few hotels and restaurants accept credit cards and import/export trade is largely handled via cash or Western Union. The inter-bank market between Rwanda and other countries is negligible. Rwandan financial institutions have had neither the means nor the sophistication to invest directly in complex international financial instruments and as a result have not suffered when those instruments collapsed. ¶3. (U) The Government of Rwanda (GOR) and observers are concerned that the financial crisis will indirectly affect Rwanda with lower tourism earnings, postponed foreign investment and reduced donor aid. So far these concerns are more hypothetical than real. Bookings for high-end gorilla tours (Rwanda's primary tourism product) are made and paid for six months or more in advance, generally on a "use it or lose it" basis. With only 50-60 gorilla permits available per day, demand far exceeds supply and it is unlikely that Rwanda will see a significant drop of tourists visiting the silverback gorillas. Similarly, hotels in Kigali have been, and continue to be, overbooked. ¶4. (U) Although some foreign direct investment (FDI) may be postponed (the local press reports that the sale of Bank of Kigali to Barclays bank has been put on hold due to the global crisis),other long-planned investment in the energy sector by Contour Global and IFC, in tourism by Dubai World, and privatization of government-owned tea plantations are moving forward. These investments will likely generate a spike in FDI in Rwanda in 2008. ¶5. (U) Some exports such as coffee and tin have been hurt by dropping global prices (coffee prices have dropped 23 percent - - reftel). However, Rwanda imports far more than it exports and has benefited from declining fuel, food and raw material import prices resulting from the global crisis. The financial crisis has had little impact on the 85 percent of Rwanda's population engaged in subsistence farming. Donor countries such as the U.S., EU and World Bank who support more than 50 percent of Rwanda's public sector have not indicated any reduction in support due to the crisis. Qindicated any reduction in support due to the crisis. ¶6. (U) According to an IMF budget review team visiting Kigali in November, Rwanda's economy is projected to grow 8.5 percent in 2008, above last year's projections of 6.5 percent. Strong growth in construction, agriculture and the financial sector have helped fuel the growth. The IMF budget review team expressed concern that during 2008, inflation accelerated to 20 percent, in part due to rising fuel and food prices earlier in the year. However, the IMF team said with current commodity prices declining, and new commitments made by the GOR to freeze some government spending, they expect inflation to return to single digits by the end of next year. The IMF team noted that they would also like the GOR to adopt a more flexible exchange rate policy. The Rwandan Franc is pegged to the U.S. dollar and has recently followed the dollar in appreciating against most other currencies, negatively affecting exports. SYMINGTON