RWANDA ECONOMIC REVIEW

UNCLAS KIGALI 000514

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EFIN ENGR RW
SUBJECT: RWANDA ECONOMIC REVIEW


1. (U) This issue of the Rwanda Economic Review covers:

Investment:
- Sorwathe Tea Factory Innovation
- Starbucks

Macroeconomic Issues:
- Central Bank Addresses Rwandan liquidity shortfall
- Fitch Ratings optimistic about Rwanda,s
creditworthiness
- Remittances to Rwanda remain strong
- General Economic Indicators

Major Events:

New Tea Investment
--------------

1. (U) Sorwathe: On July 10, American-owned Sorwathe
inaugurated a $2.8 million "orthodox tea" factory. Orthodox
tea is produced by "rolling" tea leaves instead of using the
more common "cut-tear-curl" (CTC) process. Sorwathe Managing
Director Calle Alles explained to visiting dignitaries that
orthodox tea fetches nearly double the market price of CTC
tea. Sorwathe, the first tea factory in Rwanda to obtain
International Organization for Standardization (ISO) and Fair
Trade certifications, is also the first tea company in Rwanda
to produce orthodox tea.


2. (SBU) The Rwandan Government (GOR) continues to privatize
government-owned tea estates. Three tea factories in Karongi
district (western Rwanda) have been listed by the GOR for
privatization including Gisovu, Gisakura and Kitabi. After
privatization, government parastatal OCIR-THE will retain a
thirty percent stake in the estates and local tea growing
cooperatives an additional ten percent. OCIR-THE Managing
Director Anthony Butera told Emboff and visiting OPIC
representatives that the tea grown in Karongi district is
considered among the best in the world and commands the
highest prices at the Mombassa auction. The GOR is seeking
investors to expand tea production in the region, upgrade the
factories and add value by introducing orthodox and flavored
teas. American-owned Olyana group is negotiating with the
GOR to purchase the Gisovu tea estate while Sowathe is
partnering with local investors in a bid on Gisakura. Both
Olyana and Sorwathe are registered with OPIC.

Starbucks
--------------

3. (U) Starbucks president and CEO Howard Schultz visited
Rwanda in July to officially open the company's first "Farmer
Support Center" (FSC) in Africa -- modeled after its FSC in
Costa Rica. "The center will support both Rwanda and other
countries in Africa for the sole purpose of replicating what
we did in Costa Rica: help farmers produce high quality
coffee," said Schultz. At an Embassy-hosted conference, he
added that Starbucks will start selling Rwandan coffee in its
800 UK-based stores in addition to North America-based
outlets. In the United States, Starbucks has partnered with
the (Product) RED campaign to sell Fair Trade-certified
Rwandan coffee.

Macroeconomic Issues
--------------

4. (U) Rwandan Central Bank Responds to Liquidity Shortage:
In July, Banque National du Rwanda (BNR) agreed to place new
deposits with commercial banks to strengthen the liquidity of
the financial sector. This is the first time since 2004 that
the Central Bank has needed to inject liquidity into the
sector. Since the end of 2008, Rwandan commercial banks have
been struggling with a shortage of liquidity and, in the
first half of 2009, were forced by the shortage to reduce
medium- and long-term lending by over twenty percent.
Central Bank Governor Francois Kaniba told Emboff the Central
Bank would deposit funds in those banks who applied for
long-term deposits from the Central Bank to support specific
medium- to long-term commercial loan requests. The Governor
added that the Central Bank's measures were aimed at
Qadded that the Central Bank's measures were aimed at
offsetting a decline of both deposits and money in
circulation.


5. (U) Fitch Ratings: Fitch recently rated Rwanda on its
long-term foreign and local currency Issuer Default Ratings
(IDRs) as well as Country Ceiling Rating at B-, an
improvement over prior years. Fitch gave Rwanda's short-term
foreign currency IDR a slightly higher B rating. The revised
Fitch Ratings indicate strengthening investor confidence in
Rwanda.


6. (U) Rwanda Remittances: The Central Bank reported that
remittances have increased by 25.8% within the first five
months of 2009, reaching $71.4 million, as compared to $56.8
million in the first five months of 2008. Bank Officials
cautioned that large amounts of remittances come through
informal channels, making it difficult to measure receipts
accurately. Most countries in the region have reported
declining remittances due to the global economic downturn.


7. (U) General Economic Indicators:

- In June, the GOR reported inflation declined to 10.1
percent. IMF country representative Dmitry Gershenson
confirmed to Emboff that Rwandan inflation has steadily
declined in 2009, and will likely drop to single digits by
the end of the year.

- GDP growth forecast 2009: The GOR has revised downwards
its 2009 growth estimate from 7 to 5.3 percent. Economic
growth in 2008 was 11.2 percent. The new
estimate--consistent with IMF projections--reflects slowing
activity in construction, service and industrial sectors.
According to the Central Bank, exports dropped by 31.9
percent in value during the first half of the year compared
to the same period last year. During a recent press
conference the Central Bank Governor said "even the
assumption of 5.3 percent growth is unlikely to be achieved
unless there is a strong recovery in the second half of the
year. Positive growth of 11.2 percent in the agricultural
sector for the period ending June 30 has kept overall
economic growth in the black."
SYMINGTON