The Government of Rwanda has introduced a series of reforms to the domestic business environment since 2009 in a bid to reduce the administrative and financial burden of business registration. In 2009, the East African country enacted legislation entitled the Company Act, that was intended to strengthen investment protection and create a business registration one‐stop shop.

In the same year, it introduced other reforms, including: (i) the adoption of the Secured Transactions Law (increasing the number of collateralizable assets), (ii) the Insolvency Law (easing the process of bankruptcy), and (iii) the Mortgage Law (shortening the property registration process). Combined, these reforms left Rwanda with a substantially more business-friendly environment. A second package of reforms followed in 2010 with the introduction of online registration, the reduction of registration fees, changes to regulations on obtaining construction permits, and simplified procedures for exports and credits.

Cumulatively, these reforms have contributed to improving Rwanda’s business environment. Although it may take time before some of these measures trigger a private sector response, Gathani, Santini, and Stoelinga (2013) argue that the creation of the one-stop shop increased registrations almost immediately by more than 180 percent.

Utilizing business registration as a proxy for investor and entrepreneur interest in specific sectors, this paper reviews the trends in business registrations across various sectors and subsectors, and identifies drivers of recent growth. By linking business registrations to tax declarations, it is also possible to verify the level of activity of newly registered companies – measured as interactions with the revenue authority – and quantify additional revenue and employment accruing from newly registered companies by size, sector, and subsector.

This paper examines new registrations and tax records at the company level, with a focus on three specific questions:

1. Of the large number of companies registered in recent years, how many are currently ‘formally’ active? Every formal business will have a footprint at the tax office. By checking declaration records from 2008–2012, it is possible to assess whether newly registered companies are formally active, how long they took to enter formal activity, and whether they have exited the tax net (either informally, or due to closure).

2. Using the number of registered companies in a sector as proxy for interest for that sector, which sectors and subsectors have received the most attention from investors and entrepreneurs?

3. What has been the contribution of newly registered businesses to the overall economy in terms of (a) taxes, (b) tax‐bearing employment, and (c) exports? How does this vary across sectors and subsectors?

This is useful both in assessing the impact of Rwanda’s effort to improve its business environment and promote investment and in understanding investors’ and entrepreneurs’ current interests.

Findings indicate the strong growth in registrations generated a large number of new companies, 40 percent of which recorded positive tax activity and contributed to the real economy. Registrations in the services sector dwarfed the other sectors, comprising 75 percent of the total. Within services, half of these registrations have been recorded in wholesale and retail trade.

Newly registered companies played a prominent role in increasing tax declarations and creating formal jobs, contributing to a 24 percent increase in tax declarations and a 16 percent increase in the number of formal jobs. In absolute terms, newly registered companies were responsible for 15 percent of tax declarations and 11 percent of formal jobs in 2012.

The impressive results appear to be in part due to the entry of a few large players into the market since 2008 – casting a positive light on Rwanda’s investment promotion efforts – as well as to the sizable contribution made by a large number of newly registered medium-sized companies. A series of privatizations in the tea and coffee sector are likely to have increased Rwanda’s commodity exports, while new entrants from across the region have significantly boosted non‐commodity exports.

The contribution of small firms, in contrast with their large number, appears conversely to be rather small. Reading across the technical findings, four messages appear salient. First, given the sizable impact of newly registered companies on taxes, formal employment and exports, Rwanda’s push to improve its business environment and promote investment appears to have paid off. Second, the limited contribution of small companies would suggest that targeted formalization efforts, beyond that of lowering the costs of registration, are unlikely to yield significant returns. Third, the large amount of churn in new companies should not per se be concerning, as churn is the process through which entrepreneurs acquire knowledge of the local market. Finally, shortfalls in the data underline the importance of program design. The objective of the one‐stop shop should be reflected in its data collection mechanisms so that its impact can be evaluated and improved as needed.

In this context, the paper’s findings are mollified by the difficulty in establishing the precise sector in which firms operate and in differentiating between new companies and companies that are formalizing or re-registering. The latter is likely a consequence of the introduction of the Company Law of 2010, which changed the definition of companies’ legal status and required re-registration, but could be addressed with little effort on the data collection side.