Coordinating public and private action for export manufacturing: issues for Rwanda
One of the keys to economic transformation across Africa today is a greater role for employment-intensive, export-oriented manufacturing.
After taking due account of differences in contexts and time periods, international experience – especially in Asia but also in Africa-region leaders such as Mauritius – points to employment-intensive manufacturing as a crucial and indispensable step in the transition from poverty to development.
Rwanda is – along with Ethiopia – exceptional in Africa in that it has in place a nation-building project centred on the aim of economic transformation. Features of its political economy also mean Rwanda lends itself easily to comparison with the best-documented experiences in Asia. This paper explores the ways in which international experience of success in manufacturing-based economic transformation can provide valuable insight for Rwanda, in the areas of government coordination, engagement with and representation of the private sector, and the experimental learning process.
Along with accelerated agricultural progress, an expanding role for employment-intensive, export-oriented manufacturing is increasingly recognised as a critical next step in the economic transformation of Africa. This poses substantial challenges of various kinds, not least in small, landlocked countries like Rwanda. The challenges include creating institutional arrangements that are effective in coordinating public and private action around well-chosen policy goals.
In the comparative literature on industrial policy and development, six institutional requirements emerge as particularly needing to be satisfied for success in export manufacturing. Using these as a template, this report examines the status and prospects of arrangements for public–private coordination in Rwanda. Our findings draw on extensive interviews with public and private sector actors in Rwanda carried out at intervals over the past decade and ongoing under the Overseas Development Institute’s Supporting Economic Transformation (SET) programme.
The first requirement for success suggested by East Asian and other recent international experience is the establishment of economic transformation as a nation-building project, with shared commitments among key actors extending well beyond a single political cycle. Rwanda stands out in sub-Saharan Africa as a rare example of a country whose underlying political settlement gives a central place to national development goals and protects policy-making from the usual effects of political competition of the patron-client type. The settlement also includes a relatively strong commitment to private sector development. This provides a favourable starting point for building other needed elements of the institutional architecture for public-private collaboration.
Other requirements identified in the literature include the creation of a public agency with sufficient autonomy, budgetary resources and political authorisation to override inter-departmental coordination problems and engage in a practical way with credible private sector organisations. The report discusses this under three headings: coordination in government, engagement with the private sector and the credibility of private sector representation.
Coordination in government: Policy for economic transformation, including export manufacturing, is comparatively well ‘joined up’ in Rwanda, thanks to the fact that under the political settlement the relevant ministries and agencies are not to any degree political fiefdoms. An impressive-looking formal apparatus for policy coordination has also been created, on conventional civil service lines. However, the Rwanda Development Board (RDB) – the organisation that might have been expected to play the forceful coordination role associated with Asian ‘super-ministries’ – has not been given a sufficiently focused mandate or the necessary resources. Although its chief executive has cabinet rank, its mandate is limited to implementing policy and providing a broad range of services. This problem is not unique to Rwanda; similar issues have been raised about Ethiopia’s architecture for investment and export promotion.
Engagement with the private sector: The services provided by the RDB include investment facilitation and investor ‘aftercare’. However, the best Asian models, and experiences at the sector level in some African economies, include a prominent role for public sector departments that are highly knowledgeable about and even socially ‘embedded’ in the private business sectors they deal with. Lack of experience and an insufficiently focused mandate combine to deny the RDB this crucial quality. In managing relations with investors, the RDB also must contend with a wider civil service culture that is good at following rules but has been rather inflexible in terms of addressing snags in the regulatory regime in response to private sector complaints. In addressing these deficiencies, consideration should be given to the pros and cons of reforming the RDB – politically possible but organisationally challenging – or creating something largely new, for example as an adjunct to the president’s Strategic Policy Unit.
We add two important qualifications to this widely shared assessment of the limitations of the current pattern of public–private engagement in Rwanda. One is that, since 2016, the responsible ministry (now Trade, Industry and East African Community Affairs) and the RDB have significantly upgraded their engagement with firms in export sectors, including manufacturing. A series of high-level meetings have resulted in the signing of some 18 bilateral memoranda of understanding (MoUs) in which firms identify export targets and the government commits to addressing the barriers identified by the firms. This is a potential game-changer, but only if the government side can provide the concentrated, specialised capability that Asian experience shows is needed and can be offered even in an inexperienced public sector environment.
The other qualification arises from ongoing SET research showing that Rwanda’s own experience of constructive, mutually accountable engagement across the public–private divide is more diverse and interesting than it appears at first sight. As well as continuing to see a role for state, party-owned and military-linked companies, the government has actively supported medium and small domestic businesses moving into sectors, or a scale of operations, in which they previously lacked experience. These efforts, undertaken without fanfare and without central involvement of the RDB or ministries, have not yet steered significant resources into employment-intensive export manufacturing. However, they provide a sound model for doing so, which will be important in ensuring foreign anchor firms in new manufacturing sectors are quickly supported by domestic private investment in related production and infrastructure. They are also of interest in connection with the future character of Rwandan society and politics, since to a striking degree they involve business people from across the spectrum of Rwandan social backgrounds.
Credibility of private sector representation: The international literature is clear about the importance of this issue and about the difficulties it entails in the early stages of economic transformation. Using relevant comparators and historical experience, we find Rwanda’s progress in this regard to be satisfactory. The active role of government in setting up and supporting the Private Sector Federation has been consistent with global experience on the role of the state in enabling effective private sector representation. Legislation to reserve more benefits to association members should be considered as a next step.
The international evidence on economic transformation places increasing emphasis on technically justified selective support to sectors and firms, as a necessary complement to improving the broadly enabling conditions for investment. This support needs, however, to be backed by mutually enforceable performance standards, including export targets. Rwanda’s most recent experience with firm-by-firm MoUs foreshadows the kind of system that will be needed in the near future for identifying investment partners, agreeing conditional support and regulating the overall ‘deals environment’. We identify two major challenges in taking this forward. One is the lack of priority currently being given to the technical basis for investment project appraisal, as distinct from defining strategic priorities – particularly important when alarming balance-of-trade data create incentives to ‘do something’ in a hurry. The other is to get domestic firms into the emerging performance-linked support system sooner rather than later, given that in Asia this approach has paid off more with domestic than with foreign investors.
The history of industrial policy lends strong support, finally, to the importance of ‘discovery’ by both firms and their public sector regulators. Gains are maximised in this respect where there is an explicit governmental commitment to experimentation, rapid feedback and timely corrections. Rwandan policies have reflected an exceptional commitment to learning by doing over many years, and President Kagame has emphasised this in economic policy contexts in several recent speeches. However, general adoption of this way of working is in tension with rigorous rule enforcement, which remains a necessary condition of the country’s exceptionally corruption-free business environment. The suggested solution is to draw on the central lesson of Asian experience once again by concentrating available capacity to think and work in an adaptive, problem-driven way in an organisation or organisations with a tightly focused mandate.
In summary, Rwanda’s political settlement provides an unusually favourable platform for emulating the most successful experiences in other parts of the world in making the breakthrough into employment intensive, export-oriented manufacturing. However, a platform is no more than a platform, and urgent attention is needed to several of the other five requirements for success the international literature suggests. Principally lacking at this point is an adequate concentration of capability, including private sector experience and the ability to use economic appraisal techniques, in a sufficiently empowered public agency. Steps currently being taken to improve public-private coordination are important and serve to reinforce this conclusion.