From demographic transition to economic transformation

Rwanda’s growth slowed from mid-2016 to mid-2017, bottoming out at 3.4 percent, but is expected to recover to 5.2 percent for the second half of 2017, and may well accelerate in 2018 and 2019 as private and public investment pick up and agriculture becomes more productive.

The World Bank’s Rwanda Economic Update, released this week, says that in the medium-term the economy will benefit from reduced external imbalances and the expected recovery of prices for traditional exports such as minerals, tea, and coffee. Non-traditional exports, supported by the existing competitive exchange rate, may become important sources of growth in the coming year.

“Targeting public investment to areas where there are high economic returns is important for maintaining the fiscal space, which has narrowed in recent years, as is addressing fiscal contingencies,” said Aghassi Mkrtchyan, World Bank Senior Country Economist for Rwanda.

Greater urbanization is explicit in Rwanda’s plans for becoming a middle-income country by 2020. The World Bank is supporting the government’s urbanization strategy with a $95 million Rwanda Urban Development Project that aims to provide basic infrastructure and services to six secondary cities around the country – Muhanga (formerly Gitarama), Rubavu (Gisenyi), Nyagatare, Huye (Butare), Rusizi (Cyangugu), and Musanze (Ruhengeri) – and to Kigali City, which makes up the core of the greater Kigali area.

In a special section, Rethinking Urbanization in Rwanda: from Demographic Transition to Economic Transformation, the Update analyses the trends and forms of the country’s rapid pace of urbanisation to examine its contribution to economic development. An increase in the urban population has been accompanied by the physical expansion of cities, notably the periphery of Kigali though around secondary cities as well.

The report finds the urban share of Rwanda’s total population (now about 12 million) has increased far faster than official records suggest because the definitions of urban areas need streamlining. A 2012 census and 2014 household survey calculated the urban share of the population at 16.5 and 17.3 percent respectively.

However, using another, simple definition of urban, the report’s researchers found that the level of urbanization had increased far more – from 15.8 percent to 26.5 percent between 2002 and 2015, an increase of 132 percent or almost 2 million people.

In other words, says the report, large scale urbanization has already taken place in Rwanda.

Urbanization and jobs

The report notes that urbanization has been accompanied by non-farm job creation and that this has led to a reduction in poverty primarily in areas with high urban population density and good economic and physical connectivity.

Despite rapid urbanization, a dual migration pattern of internal migration is emerging: a move toward density in search of work, with districts of Kigali city attracting many migrants between 2011 and 2014 (29 percent of them). And a parallel move away from density in search of land, with a high share of migrants (33 percent) flocking to Rwanda’s less populated Eastern Province.

The Rubavu (Gisenyi) area on the border of the Democratic Republic of the Congo (DRC) is the only urban area other than Kigali that has significant appeal for internal migrants, as part of the busy transport corridor that runs from the DRC through Rwanda to the border with Uganda just north of Musanze.

Links between urban population density and non-farm job creation are particularly strong in Greater Kigali and the cores of the six secondary cities, the report says. Within 20 km of Kigali, and within 5 km of secondary cities, a 10 percent increase in density is associated with higher non-farm employment.

The estimated effect of urban population density on poverty reduction is similarly strong, with a 10 percent increase in density associated with a 6 percent drop in the rate of moderate poverty within a 5km radius of a secondary city in Rwanda.

Capitalizing on demographic shift

As Rwanda draws up its long-term economic strategy for reaching high-income status (by 2050), how can it increase its urban dividend even more?

Effective public policy could provide an enabling environment for investment, says the report, rather than deciding where investments should be located. And towns and cities could be managed as part of a separate portfolio, with special support given to Kigali as the lead economy and recognition for the distinctive roles other cities play in the national economic geography as well.

Increasing economic (and not just population) density is also critical, particularly where opportunities for connecting urban peripheries to surrounding rural areas remain untapped. So far, urban expansion has followed a pattern of low density settlement.

“We need to work on the factors that attract people to towns to achieve this type of urbanization and transform our cities into settlements,” says James Musoni, Rwanda’s Minister of Infrastructure. “We must be able to identify sites for settlement and source the funds we need to support that.”

And, while Kigali’s rapid expansion could be managed with more urban planning, the report says investment in other cities should focus on improving basic services.

“Urbanization not only involves a demographic transition but, more importantly, facilitates socio-economic transformation,” says Narae Choi, World Bank Urban Development Specialist. “It is time to rethink the urbanization strategy to leverage its potential for economic growth and the improvement of welfare.”

For a sustainable urbanization, the Update makes some policy recommendations:

• Rwanda’s towns and cities should be managed as a separate portfolio, with support to Kigali as the leading economy and provision made for other cities

• The policy approach to internal migration needs reframing to leverage the gains from population movement rather than simply controlling it.

• Policies should focus on strengthening the links between rural and urban economies by creating an enabling environment rather than deciding where investments should be located.

• Densification is critical particularly in the peripheries of urban areas, where opportunities for connecting the cores of cities to surrounding rural areas remain untapped.

• Concerns for Kigali’s rapid expansion can be managed through more efficient urban planning, while investment in other cities should focus on improving basic services.

The Update synthesizes recent economic developments and places them in a medium-term, regional, and global context. It analyses the implications of these for policy and the outlook of the economy.