Mobilizing and Managing External Development Assistance for Inclusive Growth: Rwanda Country Case Study

Executive Summary


Rwanda has experienced political stability under a strong central government since the Genocide of 1994. The country is a presidential republic with the president being both head of state and head of government. It has been a multi-party democracy since 2003.Rwanda does well on economic and social rights, and women’s rights and representation in public office are amongst the best in the world. Since 2002 Rwanda’s development has been driven by the Government’s development strategy encapsulated in Vision 2020, which aims to transform Rwanda by 2020 into a middle-income, socially inclusive country led by its private sector and serving as a regional technology and service hub. Since 2000 there have been significant advances in poverty reduction and a reduction in economic and social inequalities. While this study is concerned mostly with economic progress and dependency, we should not forget that the aim of Rwanda’s development policy is a social and political one, the creation of a socially inclusive and cohesive decent society in which there will never again be genocide or civil strife.

However, the fact is that its condition in 1994 was so low that two decades later it remains one of the among the least developed countries in the world as well as one of the most aid dependent. Aid dependency can also mean the risk of unwanted political interference in domestic matters and an inability to ensure that all available resources are invested in such a way as to achieve the country’s own development strategy. The Government has responded to this by putting in place strategies for aid management and for increasing domestic revenues, encouraging foreign direct investment, and prudent international borrowing and Diaspora engagement. External financial flows from FDI and remittances have significantly increased in recent years, as have domestic revenues.

Rwanda has an open economy and has achieved impressive economic growth. Between 2001 and 2012 GDP growth averaged 8 per cent, dipping in 2013 to 4.7% due to aid suspensions and an agricultural shock but rising again to 7.0% in 2014, with projections of 7.5% in both 2015 and 2016. The country has an impressive record of macro-economic stability, with single digit inflation. It is widely recognized for its fight against corruption and was ranked 55th (out of 177) in the 2014 Transparency International Corruption Perception Index. Ratings agency Fitch have recently affirmed Rwanda’s credit rating of B+ with a stable outlook. However, unsustainable balance of trade deficit remains one of the structural economic challenges that Rwanda is yet to face if diversified actions are not taken.

Rwanda has achieved tangible development results in the last 15 or so years: its economy is one of the fastest growing in Sub-Saharan Africa, with GDP per capita growing from $245 in 2004 to $771 in 2014; there are signs of economic transformation; it has invested to accelerate development as well as to enable the poorest to exit poverty; and by 2014 it had achieved most of its MDG targets. Rwanda is performing better than other East African countries in terms of economic growth when compared to ODA received. Its political stance is one of long-term and socially inclusive investment in human capital and in infrastructure, and it is part-way through ambitious programmes of expansion and improvement of the schools and hospitals and the transformation of both agriculture and the soil, seeds and breeds on which it depends. All of this has been made possible by generous external aid, and three quarters of the external funding for development still comes from ODA, and ODA makes up about 15 per cent of GNI. The goal for Rwanda is to achieve a sustainable development beyond the development assistance.

Rwanda has been recognized as an example of good practice in the coordination and management of development assistance. It adopts a ‘Paris Declaration’ viewpoint that drawing up the developmental strategy is the country’s own obligation (though with advice and consultation) and that the function of aid is to assist them to carry it out. Donors whom we interviewed differed in precisely how decisions to fund were taken, but all agree that the process involves discussion with the Government and/or line ministries and is required to comply with the country’s strategic plan.

With the agreement of donors, Rwanda has introduced a Division of Labour procedure, whereby a limited number of donors work in any given sector (e.g. Education, Health, Agriculture), with one or a small subset taking the lead. This reduces the transaction costs of multiple negotiations and reporting and makes it more likely that all sectors will receive some support, rather than some being popular with donors and others left unfunded.

Coordination between donors, and between the supply of aid and the strategic plan, is ensured by a hierarchy of meetings and forums such as the sector working groups from the national level to the level of individual districts ( the case of Joint Action Forum), which also have their strategic plans.

The Government’s preferred aid modality is general or sector budget support, which is more calculable and predictable and more flexible in being available for emergencies and to cover unforeseen shortfalls. It has been Government policy for many years to convert programme funding into budget support where possible, but this has not been successful; the proportion of development assistance coming in as project rather than budget support is half as large again as it was five years ago. The Government’s way of limiting the consequent higher transaction costs has been to set up procedures and institutions which it expects the donors to use – Sector Wide Programmes, Single Project Units within ministries etc. that can handle all the administration of a number of projects, a common financial and material reporting procedure, common procurement according to Rwandan rules and a single electronic monitoring and evaluation system. Only 69 percent currently use the Government’s procurement system, however, 59 percent the auditing system and around 53 per cent use financial and budget execution systems.

While aid to Rwanda has risen steadily during most of this century there has been a reduction in real term during recent years, a trend that is predicted to continue. To maintain economic growth it is recognized that there is urgent need to diversify funding sources, mobilizing both foreign and domestic resources to invest in development as well as stimulating growth led by the private sector. This process is already under way, and private flows, FDI, remittances and domestic revenues have been increasing as a proportion of GDP, but external development finance from traditional donors has been declining; the increase in non-traditional donors, FDI, remittances and domestic revenues has not been sufficient to offset this decline.

It is clear that urgent priorities for the Government of Rwanda must be the maximization of domestic revenues, the growth of a private industrial/service sector capable of exporting or at least driving out imports (which also generates government revenue) and the encouragement of investment (both foreign and domestic). Diversification of the range of donors and the adoption of other, innovative solutions is also required, but on current showing it may not be nearly sufficient to outweigh a decline in traditional aid. If Rwanda’s development is ever to be self-sustaining, assistance will need to be targeted at these priorities.

ROUNDTABLE DISCUSSIONS


ROUNDTABLE DISCUSSIONS OF FEED THE FUTURE AFRICA GREAT LAKES REGION COFFEE SUPPORT PROGRAM (AGLC)

IPAR has finalized a baseline study and a set of key informant interviews under the study “Africa Great Lakes Region Coffee Support program project” in collaboration with Michigan State University, The Global Knowledge Initiative, the National Agricultural Export Development Board and the University of Rwanda.

It is therefore in this regard that IPAR is organizing a number of round table discussions that will bring together stakeholders from across the Rwandan specialty coffee sectors as well as US Rwanda based research partners.

The discussions will start on the 13th to 24th May, 2016 and will revolve around some policy aspects observed during the baseline and interviews conducted under this project, for the last six months.

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Validation workshop

                                                                        

 

Under a grant provided by the Gates Foundation, IPAR together with the African Center for Economic Transformation (ACET) is organizing a validation workshop upon completion of the study, "Aid Management and Fiscal Policy for Inclusive Growth: Lessons from Country Experiences", which took place on 26th May, 2016 at Lemigo Hotel.

The Objectives of the workshop included;

i)    Present the key findings and recommendations of the country report to stakeholders.

ii)    Provide a platform for stakeholders to validate the research findings, provide inputs and exchange experiences and knowledge on the external development finance.

iii)    Identify and propose focused strategic and feasible interventions to strengthen management, coordination and delivery of external development finance at the Country level.

Executive Director, IPAR addressing the audience

The research investigated how Rwanda is managing and coordinating development assistance in the new, rapidly changing and complex development cooperation landscape by examining how the Rwandan Government manages and coordinates traditional and non-traditional development assistance in this emerging landscape, in the broader framework of finance available for development including the commercial sector, while at the same time mobilising domestic resources.


The research also looks at how the shifting finance for development landscape is being managed and coordinated in Rwanda from the perspective of the Government and Development partners. The workshop brought together Government representatives,  Development Partners, civil society Organizations, academia and other stakeholders.

Executive Summary

 

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EPRN

ECONOMIC POLICY RESEARCH NETWORK (EPRN)

Description of EPRN

Economic Policy Research Network (EPRN ) is an equal opportunity economic policy research platform in Rwanda bringing together key economic management institutions, individuals and organisations active in economic policy research and analysis to create a pool community for economic policy researchers through organising trainings on qualitative research methods, research coaching and mentorship, work place placements, learning tours and joint research projects to support provide evidence for economic policy formulation and policy research development. EPRN therefore responds to economic policy gaps created mainly by lack of quality and informative research and the challenge of human capacity in terms of limited numbers of economic researchers and active involvement.


Mission statement

EPRN aims at being the most influential network on issues of economic policy research and capacity development supporting both macro and micro economic policy in the region and beyond.

The overall objective

The objective of EPRN is to provide necessary skills and professional training both short-term and long-term to close the capacity gaps and strengthen economic policy research and analysis in Rwanda through:-
-Strengthen the individual and institutional capacities to actively  conduct  economic policy research and analysis  to inform  economic policy making  in Rwanda
-To enhance EPRN coordination, management,  and ensure active involvement of member institutions
-To promote the culture of debate and dialogue on economic policy issues in the country through workshops, panel discussions and round table, economic policy conferences, and publications.
-To improve the collaboration and networking among EPRN members and with other organizations to effectively delivery on their mandate of economic policy research and analysis.

Product and services

EPRN is undertaking capacity training through Training of Trainers in Quantitative Research Methods. Organize coaching programs, through research, placements and study tours to research organization and the EPRN annual research conference and more collaborative research projects with partner institutions. Several revenue streams have been earmarked like membership fees, sponsorship and grants. Membership is mainly clustered in three sections, individual, institution and sponsors. Some sponsors and donors like GIZ and ACBF are already on board. EPRN has a triple bottom line mission  to serve its members, investors and partners through a range of services that include:- Research mentorship, Jobs pools, Research programs, Internships, Stipends, Journals, Library/ resource center, Software licenses, Conferences, Panel dialogues, Trainings, Job placements, Job secondment /certificates, Study trips, Coaching studies, Advertisements and Posts.

Management and coordination team

EPRN is governed by a steering group comprised of representatives from its founding members: IPAR-Rwanda, World Bank, NISR, MINECOFIN, University of Rwanda and National Bank of Rwanda. Responsibility for the day-to-day administration of the EPRN falls to a full time coordinator based in IPAR. The coordinator leads and follows up the planned activities of the EPRN under the supervision of IPAR management team. Where necessary and appropriate, IPAR will seek assistance from its key partners in delivering EPRN activities. IPAR is taking the lead in mobilizing resources in and outside of
Rwanda to cover the costs, while institutional members of the EPRN appoint each a focal person for their institution on a voluntary basis to facilitate the flow of information

EPRN CONFERENCES

2ND ECONOMIC POLICY RESEARCH NETWORK (EPRN) CONFERENCE

THEME: “Promoting Economic Policy Research for Sustainable Development”

 

1ST ECONOMIC POLICY RESEARCH NETWORK (EPRN) CONFERENCE

THEME: “Building Economic Research Capacity to Impact Policy in Rwanda”