The World Bank Group’s latest economic analysis for Rwanda forecasts a growth rate of 5.7% in 2014 and says the economy has the potential to achieve a higher growth rate of 6.6% in 2015.

In the latest Rwanda Economic Update, Unearthing the Subsoil: Mining and its Contribution to National Development, the World Bank Group (WBG) indicates that the higher growth rate expected for the next two years will depend on increased mineral production volumes, international commodity prices of minerals, proactive macroeconomic management and private sector-led growth. A shortfall in foreign aid and resulting delays in budget expenditures in the second half of 2012 resulted in lower credit growth to the private sector, and contributed to a deceleration in growth during 2013. 

“Foreign aid and effective use of it have played a critical role in growth and macroeconomic stability in Rwanda,” says Toru Nishiuchi, WBG economist and one of the lead authors of the report. But the economy grew from 4.7% in 2013 to 7.4% in early 2014 due to the expansion in the services sector and is expected to continue this positive trend.

Unleashing the potential of the mining sector

The government expects the mining sector to contribute to this positive growth trend and Rwanda has high hopes. The government’s poverty reduction target of 30% by 2017 will require expansion of “off-farm” jobs through income diversification and mining provides one such opportunity.

“The production capacity of Rwanda’s mining sector has progressively increased and export earnings in the past few years have reached $225 million,” said Rachel Perks, WBG mining specialist and one of the lead authors of the report. “However this increase in export earnings is largely due to favorable international commodity prices, and not a progressive expansion of the sector’s productive base.”

The government concurs and states that its mining sector is performing at 20% of full potential. With increased operations and proper management, the sector has the ability to increase production five times.

Beyond export earnings however the sector shows promise for non-farm job creation, an important pillar of the government’s poverty reduction strategy. By mid-2014, mining in the rural areas employed more than 33,000 persons directly. Importantly, mining jobs pay better when compared against other wage workers in the rural areas. For instance, the annual income for miners was almost RWF 200,000 compared with RWF 69,000 for farm wage workers.

Due to new fiscal policies, the government is witnessing an incremental rise in domestic revenues from mining. Coupled with a projected $110 million worth of new mining investment committed by foreign investors, primarily to new geological works, the sector may well realize higher domestic revenue streams in the coming five-10 years through greater mineral production.

Recommendations

To maximize the potential development benefits of mining, the report recommends Rwanda build on its ongoing efforts to transform its predominantly small-scale mining sector by developing a renewed strategic focus on broader development outcomes that goes beyond increasing export earnings. To that end, the update outlines five areas of policy focus that could help unleash Rwanda’s mining potential:

• Secure the enabling legal and regulatory environment for investment:Consistent application of clear and stable laws for licenses will further enhance investor confidence.

• Build the geological knowledge base for investment: Detailed and publicly available geological knowledge will play a key role in attracting future mining exploration investment.

• Increase fiscal receipts and ensure revenue management: Establishing clear rules, guidelines and procedures will enhance Rwanda’s capacity to administer taxation policies and collect revenues.

• Improve recovery and domestic processing: Rwanda has significant tailings dumps at its oldest mining concessions that could be cleaned up, treated, and processed for further economic gain. It could make available a revolving credit facility to provide an incentive to small-scale miners to invest in small recovery and processing equipment.

• Improve labor conditions: Performing an audit of existing labor practices used by subcontractors operating at larger concessions could help improve occupational health and safety for miners.