Doing Business in Rwanda: Daunting but Undaunted

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By Greg Urquhart, Dano Jukanovich and Carter Crockert[1]

It is an exciting time to live and work in Rwanda. This is a small country with audacious dreams. There is stable leadership and a President who genuinely wants what is best for his people. Progress is visible. Momentum is palpable. Anything seems possible.

Americans love to cheer the “underdog” and given the tragedies of 1994, Rwanda certainly qualifies. Karisimbi Business Partners is a socially motivated management consulting firm founded by three Americans, each with 20 years of business experience in roles ranging from small business ownership to Fortune 100 executive leadership. Located in Kigali, Karisimbi Partners has supported the CEOs of 30 leading Rwandan companies; it has become clear that despite Rwanda’s grand vision, the reality is a work in process. While remaining bullish on the future of this great country, it is important to highlight the challenges that remain.

1. Skilled People
There is one key resource keeping Rwanda from reaching its ambitions. Contrary to popular assumption, financial capital is not that resource. The biggest issue impeding Rwanda’s development is a limited level of advanced education, training and experience for its people. One client provides a vivid illustration. Emmanuel is the founder of a large technology and agri-processing holding group. Across his various operating companies, there is only one man (Celestine) whom he trusts to make good decisions and “get things done.” Emmanuel regularly laments that progress stalls if he or Celestine are not pushing daily. When Emmanuel travels, or Celestine is sick, business grinds to a halt. This is but one example of a common problem. In Rwanda, too few qualified people have too much responsibility. Those Rwandans with advanced education or experience living in a more developed country contribute a unique and valuable mindset, but instilling this perspective in those who have not had such privileges is difficult. This is understandable when 75% of the workforce has no more than a primary school education (23% have none) and just 6% of those working in the largest companies have university credentials [1].

2. Sequence & Size
Karisimbi Partners has targeted established Rwandan companies employing more than 30 people (there are about 500 in the country [2].) Working with these larger companies suggests a level of past achievement, yet this is not necessarily an indicator of future success. Sometimes large, mature companies have deeper and more entrenched problems. In Rwanda today, it may be less risky to start a new venture than recover an existing one. Many companies have not followed the right sequence in organizing themselves to enter the market. Until recently, Rwandan companies had a virtual monopoly. If a company built the biggest factory in the country, they were likely to receive large loans from local banks, immense praise for supporting the country’s growth, and most of the domestic market share. Often factories were built before establishment of the supply chain, and with profitable demand a foregone conclusion. This is especially problematic in a landlocked country where energy costs are at least 30% higher than neighboring countries, interest rates are as high as 20%, and there is a 20% transport premium on many imported materials and goods 3. While ultimately positive, the opening of the East African Community has allowed sophisticated competitors to target the market share Rwandan companies thought safely in hand. Building a factory does not assure the market will come.

3. Systemic Change
When we asked a production manager to tell us the biggest problem at his agri-processing company, his deadpan response was, “We have two problems…supply and demand.” After spending a few months getting to know the company and working to resolve issues, we could not have agreed more. In many sectors, when a finger is placed on one problem, other problems come quickly into focus throughout the entire value chain. For this reason, one promising development strategy calls for multinational businesses to invest in building an entire industry. Many problems facing this emerging economy were solved in other parts of the world decades ago and bringing that expertise here is promising for knowledge transfer and socio-economic growth. In Rwanda, Heineken has developed the first complete value chain for the manufacture and distribution of soda and beer. A regional dairy company from Kenya is importing products into Rwanda because it understands how to efficiently control costs, closely manage all aspects of the supply chain (including farmer training, milk collection, and cold chain transport) and establish franchised retail distribution for its products. Such companies realize that the basic structural ingredients of a value chain are often not in place and will have to be built.

Anything seems possible

Thankfully, Rwandans are resilient, resourceful, orderly and thirsty for new ideas. Every time the task ahead seems too daunting, one need only look back 2…5…17 years to be convinced anew that startling progress is both possible and worth the effort. Corruption levels are now among the lowest in Africa. As relates to the business environment, Rwanda is ranked one of the fastest reformers in the world [4]. GDP growth outpaces that of many developed countries, reaching nearly 8% in 2009 and 2010 [5].

Much of the progress we see today is directly attributed to Rwanda’s strong and stable vision for development. Should the current administration seek our advice, we would encourage even more measures to reconcile grand ideals with present gaps. It is necessary to build the tax base of the economy, but there is concern high taxes will hurt the healthy companies while encouraging the vast majority of businesses (estimated at 90% [6]) to remain part of the ‘informal’ economy. The pioneering law banning plastic bags is laudable, but comes at a high cost, putting Rwandan companies and industries at a distinct disadvantage over foreign importers who use better, cheaper packaging. Rwanda is a “country in a hurry”, yet we humbly suggest more of a ‘phased’ approach to implementation that acknowledges today’s reality. When a vision is deemed unattainable or pressed too quickly, many struggle to keep up. Leadership entails encouraging people to reach beyond what they believe they can do and under the current leadership, Rwanda continues to exceed all expectations. The view “on-the-ground” does not yet reflect the ideal. As Rwanda develops enough skilled people, solid companies and integrated value chains, it will do much to ensure the country serves as a strong base for businesses seeking to capitalize on this vibrant regional market, ultimately securing Rwanda’s continued growth and leadership.

To learn more about Karisimbi’s work in Rwanda, visit their website at http://www.karisimbipartners.com/

1 (August, 2011) Establishment Census – Analytical Report. Ministry of Trade & Industry. Page 40.
2 (August, 2011) Establishment Census – Analytical Report. Ministry of Trade & Industry.
3 Raballaand & Macchi (2009) Transport Prices & Costs: The Need to Revisit Donors’ Policies in Transport in Africa. The World Bank.
4 (2011) Doing Business Report. World Bank/IFC.
5 (2010) World Economic Outlook. IFC.
6 (August, 2011) Establishment Census – Analytical Report. Ministry of Trade & Industry.

Source: Daunting but Undaunted: Doing Business in Rwanda


[1] These gentlemen know Rwanda well and separate fact from enthusiasm. You will note how informed and dedicated they are to being part of the story. What you will not see from this piece is that they have completely integrated into the business community, making friends, building a trusted network, and adopting and caring for Rwandan children.

 

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