How Sweeping Trade Policy Reform Has Redefined the Risks and Benefits of Investing in Rwanda

BUILD IT- BUT WILL WEALTH COME? HOW SWEEPING TRADE POLICY REFORM HAS REDEFINED THE RISKS AND BENEFITS OF INVESTING IN RWANDA

I. INTRODUCTION

Seventeen years after genocide devastated the Rwandan economy, halving GDP in a single year, and plunging most of its citizens into poverty, Rwanda has rebuilt, and embarked on a journey to transform itself into a middle income country by the year 2020. The government has rejected the protectionist, paternalistic economic policy of pre-genocide Rwanda, and replaced it with a progressive, expansionist financial policy that works towards the reduction of poverty, improvement of infrastructure and the promotion of foreign and domestic development.

Government agencies such as the Rwanda Development Board and the Business Law Reform Commission have been created to devise and implement laws and regulations that promote trade. Additionally, Rwanda has signed bilateral investment treaties with several countries, and ratified binding international arbitration instruments for the settlement of disputes. Through these efforts, Rwanda hopes to attract investors by streamlining processes, increasing transparency, and incentivizing trade.

Business regulatory reform has positively impacted the investment climate, and has worked to attract many large U.S. companies, including Starbucks, Google, and Hilton. New investment has worked to stabilize inflation, rebound GDP, and positioned Rwanda as a destination of interest for investors around the world.

Yet still, several substantive challenges exist, working to repel high value foreign direct investment in Rwanda. First, Rwanda is a landlocked country, which balloons transportation costs to the ocean ports of Kenya and Tanzania. Additionally, deficiencies in basic infrastructure and telecommunications may inhibit successful marketing. Furthermore, the lack of skilled workers, and scarce readily exploitable natural resources, repel the pursuit of projects that require permanent foreign direct investment in the country.

II. INVESTMENT REFORM

A. Vision 2020

Vision 2020 (Vision) lays out the framework for Rwanda's development through the year 2020. The primary goal of the Government of Rwanda (GoR), as articulated by the plan, is to increase GDP per capita from $250 to $900 by 2020. Rwanda intends to accomplish this goal through the development of six "pillars": 1) the reconstruction of the nation; 2) an efficient State that unites and mobilizes the people, 3) human resource development, 4) the development of basic infrastructure, 5) the development and entrepreneurship and the private sector, and 6) the modernization of agriculture and animal husbandry. The government also identified four related intersecting areas: 1) gender issues, 2) environmental protection, 3) science and technology (ITC), and 4) regional an international integration.

Through implementation of the Vision, the government hopes to modernize agriculture, broaden and diversify the employment opportunities outside of agriculture, develop infrastructure, and train and develop a skilled workforce.

B. Business Law Reform Commission

In 2005 the Prime Minister and the Ministers for Trade and Justice signed an order to review all commercial laws. In October 2005 the cabinet established a Business Law Reform Commission (The Commission) within the Ministry of Justice. The Commission was chaired by Richard Mugisha and composed of 3 members from the private sector and 3 from the public sector, all lawyers and all handpicked by President Mugabe. The commission was a World Bank Competitive and Enterprise Development Project (CEDP) provided the staffing and equipment. The Commission was tasked with conducting commercial business specific policy analysis and research, critiquing existing and planned legislation, and making recommendations for legal reform and judicial independence.

Apart from proposing legislative reforms, the Commission was also tasked with reviewing the process for implementing legislation in commercial justice and building the framework for business registration, intellectual property, chattel securities, and land titles. The Commission has since developed commercial laws including a new bankruptcy law, arbitration and mediation laws, companies law, secured transactions law, contracts law, and laws establishing a business registration services agency.

C. Laws & Regulations Impacting Foreign Investment & Trade Climate

a. Customs and Excise Act (2006)

The Customs and Excise Act (2006) is the law governing Rwanda's imports and export duties. The law also sets out customs incentives available to investors. In addition to laying out the framework for the imposition of duties, the Act focuses on promoting transparency and simplification of the customs process.

For example, Articles 48 to 54 of the Act provide for a transparent method of valuation for imports and exports, based on Transaction Value. Article 56 also provides for publication of the rate of exchange. Additionally, one form of simplification provided for in the Act is that Customs may permit the use of commercial or official documents in lieu of the summary declaration if such documents contain the particulars necessary to identify the goods (Article 67). This issue is further elaborated in Article 94 which provides that Customs may simplify completion of clearance formalities by authorizing omission of information that would under usual circumstances be included in the summary declaration, and by using the commercial documents as per Article 67.

b. Companies Act (2008)

The Companies Act aims revised the 1988 Companies Law, specifically in the area of corporate financial reporting. The Companies Act in Rwanda provides for four types of companies: general commercial partnerships; limited partnership with shares; private limited liability company; and public limited company. The Act provides requirements for financial statements, disclosures, and auditing for the companies incorporated under the Act. The Act sets out basic contents and format of financial statements and requires that the financial statements of the companies, except small private companies, be audited annually.

c. Law on Arbitration and Conciliation

Rwanda's Law on Arbitration and Conciliation in Commercial Matters is based on the UNCITRAL Model Law, and regulates both domestic and international arbitrations in Rwanda. Commercial matters can generally be submitted to arbitration. Parties are