1. RWANDA’S PARTY-STATALS:Are they contributing or impeding development? Nilgün Gökgür email@example.com Scholar-In-Residence Institute of Development Policy and Management (IOB), University of Antwerp, Belgium April 27, 2012 - ANTWERP
2. OUTLINE• DEFINITION OF PARTY-STATALS• RWANDA’S ACHIEVEMENTS IN PERSPECTIVE• PARTY-STATALS IN ENTERPRISE LANDSCAPE• THREE BIG INVESTMENT HOLDINGS AND SUBSIDIARIES – CRYSTAL VENTURES LIMITED – CVL (Former Tri-Star) – HORIZON GROUP LIMITED – HORIZON GROUP – RWANDA INVESTMENT GROUP SA - RIG• CROSS-OWNERSHIP WITH SOEs AND MILITARY ENTERPRISES• DEVELOPMENT IMPACT OF PARTY-STATALS – PARTY-STATAL EFFICIENCY – DISTRIBUTION OF BENEFITS AMONG STAKEHOLDERS • RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS • OWNERS AND OPERATORS • DOMESTIC AND INTERNATIONAL COMPETITORS • UNEMPLOYED AND UNDEREMPLOYED RWANDANS • ORDINARY RWANDAN AS CONSUMERS• CONCLUSIONS AND RECOMMENDATIONS 2
3. WHAT ARE RWANDAN PARTY-STATALS? Party-statals are not state-owned enterprises (SOEs) Party-statals are owned either fully or partially by the ruling party (RPF) together with directly or indirectly by the Government of Rwanda (MINECOFIN), directly and indirectly by the military (MINADEF), and RPF-connected business elite There is NO political distance between Rwandan state and the party-state statals; “elite capture” in play No publicly available data exist on their legal status, exact shareholding structure, assets, accumulation of economic rent or profits, allocation of operating surplus to investment and social obligations; and their borrowings from the financial sector and payback rate No donor requested a study on impact assessment on stakeholders—government, donors, owners and operators, competitors, labor and ordinary Rwandans as consumers 3
4. PARTY-STATALSRuling Party (RPF), State, Military and Business Elite Connectivity GOVERNMENT RULING PARTY -RPF of RWANDA MINIDEF MINECOFIN- 30 RPF-linked SOEs Business Elite Horizon Group Ltd Crystal Ventures Rwanda Investment 2006 Limited (CVL - Group SA (RIG) 2 fully-owned; Former Tri-Star since 2006 6 partially-owned 1994) 3 majority-owned (CVL, SOEs, RDB, 8 fully-owned; with GoR as an and one UK firm as 2 partially owned equity partner; equity partners) (GoR, SOEs, and 3 partially owned Horizon Group as with SOEs as equity equity partners) partners 4
5. RWANDA’S GROWTH AND DEVELOPMENT IN PERSPECTIVE ECONOMIC GROWTH (8% on average over the last decade) REDUCTION IN POVERTY and INEQUALITY Poverty declined from 56.7% in 2005/06 to 44.5% in 2010/11 Gini Coefficient decreased from 0.52 in 2005/06 to 0.49 in 2010/11 GOVERNANCE INDICATORS Economic Governance (government effectiveness and regularity quality) Institutional Governance (rule of law and control of corruption) Political Governance (voice and democratic accountability, political stability and absence of violence) PRODUCTIVE EMPLOYMENT CREATION RECORD ALARMING Decline in on-farm employment from 89% of the working population in 2001/2 to 72% in 2010/11 Without commensurate increase in employment /job creation 5
6. ECONOMIC INDICATORS EXPLAINING GROWTH2006 2007 2008 2009 2010 2011 GDP Growth9.2 5.5 11.2 6.0 7.6 8.8 Share of Public Investments in GDP6.9 7.8 10.4 10.0 11.1 10.7 Share of Domestic Private Investments (including SOEs) in GDP12.8 12.4 13.1 11.3 11.7 12.0 Share of Foreign Direct Investments in GDP 1.2 2.2 2.2 2.3 0.8 1.5 Share of Government Revenue in GDP12.1 12.3 14.9 12.8 13.2 14.1 Share of Official Grants in GDP 8.0 9.7 9.5 10.0 11.7 12.9 Source: Compiled from IMF, World Economic Outlook Database, September 2011 6
8. RWANDA’S ENTERPRISE LANDSCAPEType of Businesses Number of % Persons % Businesses EmployedEnterprise sector (including 116,839 95 224,659 80party-statals)Cooperatives 1,877 1 25,264 9Non-Profit Organizations 4,238 3 16,968 6Public/Mixed Sector/Health and 572 1 15,105 5EducationTOTAL 123,526 100 281,946 100 Source: Compiled from Establishment Survey 2011 Employment in enterprise sector constitutes only 16% of non-agricultural workforce of 1,406,000 according to EICV3, Main Indicators Report, NISR, 2010/11; remaining 84% work predominantly in Household Enterprises (HEs), a sub-set of micro enterprises with one worker and un-paid household help, and 2% in public works.
9. EMPLOYMENT BY ECONOMIC SECTOR IN 2011 Share of Share Of Employment BusinessesAGRICULTURAL SECTOR 8 0.5INDUSTRIAL SECTOR 13 4.1-Mining 0.1 0.0-Manufacturing 9.4 3.7-Construction 2.0 0.0-Electricity/Water 0.1 0.3SERVICES SECTOR 79 95.4-Retail trade/repair of motor vehicles and 34.1 52.5cycles/transportation, storage-Accommodation/food service activity 21.2 26.7-Other services 23.7 15.8TOTAL IN PERCENTAGES 100 100TOTAL EMPLOYMENT AND BUSINESSES 281,946 123,526 Source: Compiled from NISR, Enterprise Survey 2011 9
10. DISTRIBUTION OF EMPLOYMENT BY SIZE-CATEGORY IN 2011 Kigali Southern Western Northern Eastern TOTAL City Province Province Province Province LARGE (+100 Workers)Businesses 51 16 22 12 5 106Employment 12,600 4,900 17,800 8,800 900 45,100 MEDIUM (30 – 100 Workers)Businesses 204 123 74 71 41 513Employment 10,100 5,800 3,400 3,400 1,900 24,600 SMALL (4 – 30 Workers)Businesses 3,147 1,508 1,518 1,242 1,133 8,548Employment 25,400 12,800 11,500 9,700 8,200 67,000 MICRO (1 – 3 Workers)Businesses 25,767 22,253 24,147 20,750 21,412 114,329Employment 34,300 27,400 29,400 27,000 26,400 144,600 Source: Compiled from NISR, Establishment Survey 2011 10
11. FACTORS EXPLAINING TINY SIZE OF ENTERPRISE SECTOR• Unsuccessful/failed privatization program • Not proper sequencing of reforms for competition and regulation • No proper competitive tendering process • No Competition Law-Policy or Competition Commission • Only in November 2011 Competition and Consumer Protection Law passed the Parliament / Ineffective Competition Unit at MINICOM• Expansion of Party-statals over last 18 years • Now owners and operators of several privatized entities • Increasing cross-ownerships with the SOEs and the military enterprise and among themselves • Inevitable and unavoidable “elite capture” • Economic weight (share in GDP, investments and employment) and share in financial sector NOT yet measured but high and increasing….
12. THREE INVESTMENT HOLDINGS and SUBSIDIARIES IN VARIOUS ECONOMIC SECTORS, 1994-2012 CRYSTAL VENTURES HORIZON GROUP LIMITED RWANDA INVESTMENT LIMITED FULLY-OWNED GROUP (RIG) SA FULLY-OWNED Horizon Construction 2006 MAJORITY-OWNEDReal Contractors 2005 Horizon Logistics 2006 CIMERWA 2006NPD/CONTRACO 1996 RWANDA Energy CompanyMUTARARA Enterprises 1995 PARTIALLY-OWNED 2008INYANGE Industries 1997 Horizon Sopyra 2009 Peat Energy Company 2009BOURBON COFFEE SHOPS Gaculiro Property Developers Multisectoral Investment2007 (GPD) 2008 Group (MIG) 2008GRAPHIC PRINTING Building Materials IndustriesSOLUTIONS 2009 (BMI) 2009 MINORITY-OWNEDINTERSEC SECURITY 1994 Commercial Complex in Kigali Ultimate Concepts 2010MEDIA GROUP SYSTEMS ? 2010 Kigali Convention Center 2011 PARTIALLY-OWNED Green Horizon 2010 (in the process of getting itsMTN RwandaCell 1997 financing together despite Africa Agropharm 2011 having reached IMF’s ceilingBuilding Material Investments of US$ 250 for non-(BMI) Limited—East African concessionary loans)Granite and Ruliba Clays 2009 12
13. PARTY-STATAL CROSS-OWNERSHIP WITH STATE-OWNED AND MILITARY ENTERPRISES Year Direct and Indirect Equity Participation in Party- Established StatalsCaisse Sociale du 1962 CVL, Building Materials Industries (BMI), RealRwanda (CSR) Contractors (Kacyiru Apartments); Horizon Group, Gaculiro Property Developers (GPD), Building Materials Industries Ltd.(including East Africa Granite Industries and Ruliba Clays Ltd.); RIG, CIMERWA, Kigali Convention CenterPrimeholdings 2003 RIG directly, Ultimate Concepts, Kigali Convention Center directly, and indirectly in all other subsidiariesMilitary Medical 2005 Horizon Group directly and indirectly in all itsInsurance Scheme subsidiary companies(MMI)ZIGAMA-Credit and 1999 Horizon Group, Horizon Construction, HorizonSavings Society Sopyrwa, Horizon Logistics, Gaculiro Property(CSS/Micro Finance Developers (GPD), Green Horizon, CommercialInstitution) Complex in Kigali City, Building Materials Ltd., Africa Agropharm Source: Compiled from data on party-statal websites and SOEs from MINECOFIN 13
14. IMPACT ON PARTY-STATALS ON EFFICIENCY• FAVORABLE ACCESS TO STATE RESOURCES THROUGH GOVERNMENT CONTRACTS • PRIVILEGED POSITION IN PROCUREMENT • NO INCENTIVE MECHANISM TO DETECT INEFFICIENCY AND RENT-WITHDRAWAL SIMILAR TO ASIAN COUNTRIES • CASE STUDY: MERGING HOUSING BANK OF RWANDA (HBR) WITH RWANDA DEVELOPMENT BANK (April 2011) AFTER POOR PERFORMANCE OVER THE YEARS• GUARANTEES OF FIXED ASSETS AND FIXED RENTS • PARTY-STATALS OPERATE WITH CONFIDENCE IN FIXED RENTS AS WELL AS FIXED GUARANTEES IN THE ABSENCE OF ANY PROPER RENT-MANAGEMENT SYSTEM • CASE STUDY: CIMERWA; GoR HAD TO INCREASE ITS EQUITY IN CIMERWA TO BORROW AND GUARANTEE LOANS FROM KENYA COMMERCIAL BANK AND AFRICAN DEVELOPMENT BANK FOR THE NEW PLANT; CIMERWA DID NOT INVEST AND INCREASE PRODUCTION, RWANDA HAD TO IMPORT AT HIGH PRICES. (October 2100) 14
15. IMPACT OF PARTY-STATALS ON STAKEHOLDERS• RWANDAN GOVERNMENT AND DEVELOPMENT PARTNERS (NEGATIVE) • INCREASE AND DECREASE IN NET FISCAL FLOWS FROM INEFFICIENTLY OR EFFICIENTLY OPERATING ENTERPRISES• OWNERS AND OPERATORS OF ENTERPRISES (POSITIVE) • INCREASE IN PROFITS AND DIVIDENDS FROM EFFICIENT OPERATIONS • CROSS-SUBSIDIZATION POSSIBLY LEADING TO NEGATIVE GAINS• DOMESTIC AND INTERNATIONAL COMPETITORS (NEGATIVE) • DOMESTIC BUSINESSES WITHOUT CLOSE TIES TO RPF EXCLUDED • HIGH MARKET CONCENTRATION OF PARTY-STATALS • LARGE DEMAND ON DOMESTIC BANK BORROWING • PREFERENTIAL TREATMENT IN GOVERNMENT PROCUREMENT, IN TAXATION, IN USE OF SUB-CONTRACTORS RPF-LINKED SMEs • INTERNATIONAL BUSINESSES WITHOUT CLOSE TIES TO GOR EXCLUDED• UNEMPLOYED AND UNDER-EMPLOYED RWANDANDS (NEGATIVE)• ORDINARY RWANDANS AS CONSUMERS (NEGATIVE) 15
16. CONCLUSIONS AND RECOMMENDATIONS TRANSPARENCY-LED REFORMS ENHANCING TRANSPARENCY AND DISCLOSURE MEASURING AND MONITORING STATE AND PARTY-STATAL RELATIONS IN TWO SEPARATE CATEGORIES: TWO CONSTRUCTION COMPANIES: CVL’s NPD/CONTRACO (civil works) and HORIZON CONSTRUCTION (building roads): PERHAPS NATION-BUILDERS BUT AT WHAT COST? REST OF CONTRUCTION PARTY-STATALS, CONSUMER GOODS PRODUCERS, AND OTHER PARTY-STATALS FORMULATING PRODUCTIVITY-AND-JOB-RICH GROWTH SEPARATING SOEs AND MILITARY ENTEPRISE FROM PARTY- STATALS INCREASING COMPETITION AMONG CONSUMER GOODS PRODUCING PARTY-STATALS AND THE ENTERPRISE SECTOR DEVELOPING EXIT STRATEGY FOR PARTY-STATALS ASSETS COULD BE TRANSFERRED TO PUBLIC SECTOR ASSETS COULD BE TRANSFERRED TO A TRUST FUND 16