Rwanda: Calls Grow to Diversify Foreign Direct Investments Destinations Beyond Kigali

To promote inclusive development and maximize benefits for its people, Rwanda is being urged to proactively diversify the destinations for Foreign Direct Investments (FDIs) beyond Kigali.

FDIs refers to investments made in the country from a foreign individual or company as a way to expand their market, hence, bringing in capital, technology, skills, employment opportunities.

This call for diversification was emphasized in the 21st Rwanda Economic Update report by the World Bank, titled “Inclusiveness of Foreign Direct Investments in Rwanda.” The report examined the latest economic trends and the state of FDIs in the country.

According to the Central Bank’s 2022 Foreign Private Capital (FPC) census report, there was a significant increase in FDI flows in 2021, amounting to $399.3 million compared to $274.1 million recorded in 2020. This growth can be attributed to favorable investment conditions and the utilization of both debt and equity instruments.

The largest share of FDI originated from Mauritius, accounting for 30.5 percent, primarily invested in the financial, ICT, manufacturing, and electricity sectors. India followed with 17.9 percent invested in construction, while China invested 17.6 percent in tourism and manufacturing.

FDIs continue to play a crucial role as a source of private investment in Rwanda. However, the World Bank report highlights that the initial investment figures reported by firms during registration with the Rwanda Development Board are often significantly higher than the actual inflows.

Similarly, foreign investors tend to overestimate the number of jobs they expect to create when registering their investment projects.

“It is essential to establish an investment tracking system to understand, on a company-by-company basis, why FDIs are not realizing their full potential. This understanding is crucial from a policy perspective,” the report states.

This tracking system should explore whether firms are seeking greater tax incentives or if government policies are contributing to the gap between expected and realized investments.

Furthermore, the report strongly recommends directing FDIs to be inclusive in regions of the country beyond Kigali. Currently, the Rwanda Development Board’s 2022 annual report reveals that 77.3 percent of all foreign investments flowed into Kigali city, followed by the Northern Province (11.7 percent), Eastern Province (8.9 percent), Western Province (1.4 percent), and Southern Province (0.5 percent).