Speech
International Development Minister Shriti Vadera's speech to Rwanda Development Partner’s meeting, Kigali
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
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
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.
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.
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.
