Speech
International Development Minister Shriti Vadera's speech to Rwanda
Development Partner’s meeting, Kigali
Rwanda
country page
26 November 2007
 Your
Excellency President Kagame, President of the Senate, Speaker, Chief Justice,
Right Honourable Prime Minister Makuza, Honourable Ministers, distinguished
ladies and gentlemen.
It’s a particular honour for me to be speaking here in Kigali, and I’d like
to thank President Kagame for inviting me. Yesterday, I visited the Gisozi
memorial and fully understood - perhaps for the first time - the remarkable
progress that Rwanda has made since the genocide in 1994. This progress, driven
by the Government and people of Rwanda, is an inspiration. And we in the UK are
proud to have supported you on this journey.
Mr President: anyone who meets you is struck by your commitment to improving
the lives of Rwandans; your clarity of vision on how to do that; and the drive
and urgency of your actions to deliver that vision. When we first met in London
two months ago, we had a brief discussion at which I said DFID and some other
donors had, perhaps for too long, underplayed the importance of growth and
reducing aid dependency, and instead focused predominantly on social expenditure
to meet the MDGs. The very next day I had an invitation to speak at this
meeting, so I know very clearly why I’m here: to talk about our shared agenda on
the importance of growth.
Shared agenda on growth
Mr President, I strongly share your view that the purpose of aid is to no
longer need it.
As you said recently "… we have to be honest about the consequences of aid
dependence. Countries that have used aid as a temporary support, while domestic
and foreign investment stocks are built up, have achieved lasting success.
Some people might ask why we in this room need to focus on growth, given
Rwanda’s impressive growth rates: the second highest in Africa – averaging 10%
in the immediate post conflict years to 2000 and 6% thereafter. And we know
domestic revenues are up too, averaging about 13% of GDP over the last three
years, compared with 10% between 1996-1998. This growth has contributed
significantly to the decrease in poverty that Rwanda has seen, from 70% in 1994
to 57% last year.
However, about half of the budget is still funded by donors. Accelerated,
continued and sustainable growth is essential.
I share the confidence of development partners in Rwanda’s potential for
growth given the environment of macro-economic stability and relatively low
levels of corruption. And by joining the East African Community, it has
increased its potential market from 9 million to 124 million people.
I would like to focus on two challenges in taking forward growth in Rwanda:
first, how to accelerate and sustain growth and second, how to make it more
inclusive so it helps maximise poverty reduction. This will determine the
success of the EDPRS and the long-term impact of much of what is discussed and
agreed at this meeting.
As the figures indicate, the rate of growth in Rwanda has slowed down
relative to post-conflict years.
There is international evidence which shows that, while it is relatively easy
to initiate growth, it is much harder to sustain it. Statistically, in any 10
year period, countries have a 1 in 4 chance of initiating and sustaining a
marked increase in per capita growth for at least 8 years. There have been over
80 such instances since the 1950s, many in Africa. The problem is that few of
these growth spurts are sustained. Indeed, the fact that 14 countries had more
than one spurt is not necessarily a sign of strength, but rather illustrates the
challenge of sustaining growth
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Growth can be hard to sustain
There are two reasons why growth can be hard to sustain.
The first is that it runs into bottlenecks. You don’t have to get everything
right up-front to initiate growth. You just need to remove the relatively small
number of factors that are constraining it.
Indeed, this is one of the things I believe the Washington Consensus got
wrong. It assumed that you needed to get everything right at once. The result
was policy and project shopping lists that were beyond the capacity and means of
most countries to implement. Great effort was put into activities and reforms
that were not at that time important for growth. And we all know the results:
Africa experienced only half the growth accelerations in the 1980s that it did
in the 1970s.
We know that once growth is initiated, different challenges arise at
different times: for example, in the short-term it may be electricity shortages
and access to finance, in the medium term, a skills gap and in the long-term,
environmental degradation. The constraints needn’t even be a shortage of inputs.
In Rwanda’s case, for example, population growth of more than 2% - in a country
with a population density more than ten times sub–Saharan Africa, may be playing
a part.
The point is, that proper analysis is needed to identify the constraints, to
prioritise them and to develop specific plans to overcome them. This task should
be a living process, not a one-off event.
The second reason that growth is hard to sustain, is that it requires doing
new things. Countries can often initiate growth by improving productivity
through doing old activities better. Sustaining that growth, then requires it to
start doing new activities. This is a key message from East Asia where countries
shifted their comparative advantage. What this means in Rwanda, is creating jobs
for those getting out of agriculture into higher value added activities.
Increasing exports vital for growth
In many countries, these new activities have taken the form of exports. No
country has sustained high growth for a long period without export growth.
Indeed, international evidence suggests that about 60% of export growth takes
place in goods and services new to a country, rather than through exporting more
of its existing products. During growth accelerations, the share of trade in GDP
typically goes up by more than 10 percentage points.
For landlocked countries like Rwanda this is a challenge. Rwanda’s growth has
been led by increased domestic consumption, rather than growing external demand.
And even after more than a decade of growth, its exports have only increased by
about three percentage points, to 10% of GDP. Infrastructure and regional
economic integration are therefore key
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Private sector entrepreneurs vital for growth
Before I got this job five months ago, I was an adviser, to Gordon Brown. The
main part of my job was to deal with the barriers to productivity increases in
the UK economy. We found many market failures to deal with, but one thing was
always clear: risk-taking entrepreneurs are better than Government at deciding
which sectors have the greatest potential to generate the greatest return. The
same is true of India, where phenomenal growth of the IT sector was driven by
the private sector, and indeed many would still say despite government.
In Rwanda, the people who will bring about new exports are private sector
entrepreneurs, whether large formal sector firms, or small firms and new
entrepreneurs, including the more than 100,000 firms in the informal sector.
But government does have a key role in facilitating entrepreneurs’ work.
Innovation thrives in markets that are contestable, reasonably competitive, open
to new firms, with a level playing field and without government hindrance. This
is why Rwanda launched its major initiative in May to further improve the
business environment.
Making growth more inclusive
The second challenge I want to talk about today, is about making growth more
inclusive. This is not only important for poverty reduction, but should also
benefit growth itself. Growth that creates imbalances, whether regional or for
certain groups in society, is likely to eventually slow down.
Recent growth in Rwanda only makes a small contribution to poverty reduction.
Many of the 5.3 million poor Rwandans live so far below the poverty line, that
for every for 1 percentage point of growth only about 12,000 people are lifted
out of poverty. If poverty was as responsive to growth in Rwanda as it is on
average in other developing countries, more than twice as many people would not
be living in poverty.
Growth therefore needs to be broad based as shown in the emphasis of the
EDPRS on agriculture. Agricultural productivity in Rwanda is one-third that of
Ghana and one-fifth that of Benin, demonstrating the potential gains that
remain.
The EDPRS recognises the importance of prioritising which constraints to
growth to remove first. This requires detailed policy programmes.
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Identification of specific constraints to sustaining growth
Development partners can play an important role in supporting governments. We
can help fund changes to systems or public services and provide the
infrastructure necessary to remove some constraints to growth. Through analysis
of growth, such as the World Bank’s Doing Business Survey, we can provide
support to reforms to ensure the business environment encourages innovation and
entrepreneurship.
As the Rwandan Government recognises, however, we need to take the process of
prioritisation to the next stage. It needs a more detailed identification of
specific constraints to sustaining growth and, dare I say it, a more ruthless
prioritisation.
I am pleased to announce that President Kagame has asked DFID, the African
Development Bank, the World Bank, and other interested donors to support the
Government in undertaking the Growth Analytics Programme to help them prioritise
immediate actions to remove the immediate barriers to growth.
In practical terms this means a three stage approach.
- First, an economy-wide exercise, reviewing existing studies on the
Rwandan economy and growth prospects and producing a prioritised list of
constraints. A draft of the first phase report should be ready for discussion in
January.
- Secondly, detailed work will drill down into the key constraints and
produce a prioritised list of specific and sequenced actions to remove these
constraints. Some may be policy actions involving little financial cost. Others
may result in programmes or projects which will require detailed appraisal.
- Thirdly, to incorporate the agreed list of actions into the
Government’s planning and administrative processes. Where there are fiscal
implications of the measures, these should be reflected in the Government’s 2009
budget and medium-term expenditure framework. The Government will also agree
with development partners what external support they need, and from whom. I know
a number of you are currently finalising their country strategies for Rwanda. I
would urge you to incorporate the findings of this work.
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Development partners co-odination
This work will of course be led throughout by the Government of Rwanda. The
Ministry of Finance and Economic Planning will be in charge, with strategic
leadership from the Office of the President’s Strategy Unit. Detailed inputs
will be provided by lead ministries and staff from the African Development Bank,
the World Bank and DFID. Private sector organisations will be consulted
throughout.
The Government will be supported by an international high level ‘challenge
group’ from academia, the private sector, development agencies, and others,
whose task it will be to push us to move beyond business as usual.
As I noted earlier, removing constraints is a process, not a one-off event.
We will therefore work with Government to help develop its capacity to make this
a live process of policy-making going forward.
I do not in anyway want to undermine the centrality of achieving the MDGs and
improving Rwanda’s human development indicators. Indeed they are our lodestar.
However, I do want to ensure we remember the contribution of accelerated,
sustained and inclusive growth to achieve our goals. Growth is a necessary if
not sufficient condition to reduce poverty. And so the process I have outlined,
while ambitious, is I hope achievable, because there are a lot of people in this
country depending on it.
Mr President, thank you again for inviting me to speak today. I wish you and
all Rwanda’s development partners every success in this important meeting.
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