Rwanda’s Economic Miracle: From Devastation to Rapid Growth

Rwanda has transitioned from obscurity to one of Africa’s fastest-growing economies since the 1994 Genocide against the Tutsi, which resulted in over a million lives lost and a devastated economic system. Post-genocide, the country’s economy was in ruins, with many Rwandans living in poverty. However, radical reforms by the government have significantly transformed the situation.

In 2000, Rwanda launched the ambitious Vision 2020, aiming to become a middle-income country by 2020. Given the macroeconomic instability, high unemployment, poverty rates, and low investment rates at the time, this vision seemed almost unattainable. Remarkably, the long-term development plan met and exceeded many of its targets, including poverty reduction, life expectancy, and GDP growth.

 GDP Growth

“Over the past 30 years, Rwanda’s GDP has increased from $753 million in 1994 to about $4 billion in 2023,” said Ivan Murenzi, Director General at the National Institute of Statistics of Rwanda (NISR), in an interview with The New Times. This growth has been sustained by an annual growth rate of about 9%, one of the highest in Sub-Saharan Africa. Recent NISR statistics show that in Q1 2024, GDP growth stood at 9.7%, driven by strong performances in the services, industry, and agriculture sectors.

Rwanda has deliberately diversified its economy, reducing its reliance on agriculture. Between 1994 and 1999, agriculture was the main growth driver, accounting for about 35% of the economy. “This has evolved over the years, with the services sector now leading at 44%, while agriculture accounts for 27%,” Murenzi noted. The country is also positioning itself as a hub for finance, logistics, and technology.

Foreign Direct Investment (FDI)

Rwanda has created a business-friendly environment for both local and foreign investors, making it attractive for FDI. The latest annual report by the Rwanda Development Board shows that 513 projects worth $2.47 billion were registered in 2023, a 50% increase from 2022. The government has also heavily invested in the ‘Visit Rwanda’ brand, boosting tourism.

Reforms such as a new investment code, tax incentives, and a business-friendly environment have ranked Rwanda among the top countries for doing business in the region.

Challenges and Strategic Shifts

Rwanda’s economic transformation has faced challenges. “As a landlocked country, exports and imports have been quite costly, putting Rwanda at a negative comparative advantage,” said Teddy Kaberuka, an economic analyst and Partner at Centrix Group. External factors like the 2008-2009 global financial crisis, rising fuel prices, and the Covid-19 pandemic also negatively impacted growth.

Historically, Rwanda has followed a public sector-led development model, with the government making significant investments, especially in infrastructure, to pave the way for private sector growth. This approach has increased the country’s debt. “A private sector-led economy is ideal, but given Rwanda’s history, the government had to lead and invest heavily,” Kaberuka explained. Despite this, the private sector has grown significantly, with domestic revenues increasing from 30% ten years ago to the current 68%.

While Vision 2020 focused on recovery post-genocide, Vision 2050 represents the next phase of Rwanda’s long-term development, aiming for self-reliance. Rwanda aspires to reach upper middle-income status by 2035 and high-income status by 2050.

Src: TNT